-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AWOrxPHk4iTjHiA0/PaZML1quyVLK5ZrV2Q1151dCGIb6+qIdFsaMpdkKsL7mEus R1dXQcnjeg5dtE4zMXoyDw== 0001012975-96-000028.txt : 19960930 0001012975-96-000028.hdr.sgml : 19960930 ACCESSION NUMBER: 0001012975-96-000028 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960821 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Change in fiscal year FILED AS OF DATE: 19960927 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK EVENT THEATER INC CENTRAL INDEX KEY: 0001005500 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 133864111 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27556 FILM NUMBER: 96636164 BUSINESS ADDRESS: STREET 1: 149 5TH AVE CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2127792740 MAIL ADDRESS: STREET 1: 149 5TH AVE CITY: NEW YORK STATE: NY ZIP: 10010 8-K 1 _________________________________________________________________ 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 August 21, 1996 _______________________ Date of report (Date of earliest event reported) NETWORK EVENT THEATER, INC. (Exact name of registrant as specified in its charter) Delaware 33-80935 13-3864111 (State or other (Commission File (I.R.S. Employer jurisdiction of Number) Identification incorporation) 149 Fifth Avenue New York, New York 10010 _______________________________________________________ (Address of principal executive offices) (Zip Code) (212) 779-2740 ____________________________________________________ Registrant's telephone number, including area code N/A ______________________________________________ (Former name or former address, if changed since last report) Item 2. Acquisition of Assets. On September 13, 1996, American Passage Media, Inc., a newly organized wholly owned subsidiary of the registrant ("Buyer"), acquired from American Passage Media Corporation ("Seller") substantially all of Seller's assets relating to its college and high school media and marketing and service businesses. The businesses acquired include Seller's college newspaper placement operations, college campus postering operations, high school focused Gymboards operations and various other advertiser and event sponsorship related activities. As consideration for the assets (i) Buyer paid Seller $3,528,860 in cash (representing a $4,000,000 base price adjusted in accordance with the terms of the Asset Purchase Agreement), (ii) Buyer delivered to Seller a two-year subordinated promissory note in the principal amount of $750,000, (iii) the registrant delivered to Seller a contingent option to purchase up to 100,000 shares of the registrant's common stock pursuant to an option agreement between the registrant and Seller, (iv) the registrant delivered to Seller a guaranty of Buyer's obligations to Seller, and (v) Buyer assumed certain of the contractual obligations of Seller. The sources of the cash portion of the purchase price and transaction costs were a five-year $3,500,000 term loan to Buyer from Signet Bank and a $500,000 equity contribution to Buyer from the registrant. The term loan is secured by all of Buyer's assets and is guaranteed by the registrant, which guarantee is secured by a pledge by the registrant of all of the shares of Buyer. In connection with the acquisition, Buyer and Seller entered into (i) a Transition Agreement under which Seller has agreed to provide Buyer with certain transition services for specified periods after the closing, (ii) a Consulting Agreement under which Seller has agreed to provide Buyer with certain consulting services for two years after the closing, and (iii) a Directory of Classes Representation Agreement providing for Buyer's serving as the exclusive national advertising representative for Seller's Directory of Classes publication. In connection with the acquisition, Seller paid a $150,000 fee to Veronis, Suhler and Associates Inc. ("VS&A"). Don Leeds, a director of the registrant since December 1994, participated in the transaction on behalf of VS&A prior to joining the registrant as its Executive Vice President in June 1996, and was paid $45,000 by VS&A on account of that participation. The Asset Purchase Agreement pursuant to which the acquisition was consummated, and the other documents referred to above, are attached as exhibits hereto. Reference is made to the Asset Purchase Agreement and those other documents for all of the terms of the sale. Item 7. Financial Statements and Exhibits. (a) Financial Statements of Business Acquired. The audited financial statements of the acquired operating divisions of American Passage Media Corporation for the years ended June 30, 1996 and 1995, including an Independent Auditors Report, are provided herewith as Exhibit 1. (b) Pro Forma financial information. It is impracticable to provide the required pro forma financial information at the time of the filing of this report. The required pro forma financial information will be filed as an amendment to this Form 8-K as soon as practicable, but not later than 60 days after the date on which this report is filed. (c) Exhibits. Exhibit 1 - Audited Financial Statements of the acquired operating divisions of American Passage Media Corporation for the years ended June 30, 1996 and 1995, including an Independent Auditors Report Exhibit 2 - Asset Purchase Agreement dated September 13, 1996 among American Passage Media Corporation, Gilbert Scherer, Network Event Theater, Inc. and American Passage Media, Inc. Exhibit 3 - $750,000 Subordinated Promissory Note from American Passage Media, Inc. to American Passage Media Corporation Exhibit 4 - Guaranty by Network Event Theater, Inc. in favor of American Passage Media Corporation Exhibit 5 - Option Agreement between Network Event Theater, Inc. and American Passage Media Corporation Exhibit 6 - Consulting and Non-Competition Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 7 - Transition Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 8 - Directory of Classes Representation Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 9 - Business Loan Agreement between American Passage Media, Inc. and Signet Bank Exhibit 10 - Promissory Note from American Passage Media, Inc. to Signet Bank Exhibit 11 - Commercial Security Agreement between American Passage Media, Inc. and Signet Bank Exhibit 12 - Commercial Guaranty from Network Event Theater, Inc. in favor of Signet Bank Exhibit 13 - Commercial Pledge and Security Agreement from Network Event Theater, Inc. in favor of Signet Bank Item 8. Change in Fiscal Year. On August 21, 1996, the registrant's board of directors elected to change the fiscal year of the registrant to a June 30 year end. A report covering the January 1, 1996 to June 30, 1996 transition period will be filed on Form 10-KSB. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NETWORK EVENT THEATER, INC. By: /s/Harlan D. Peltz Harlan D. Peltz Chairman of the Board and Chief Executive Officer Dated: September 27, 1996 EXHIBIT INDEX Exhibit 1 - Audited Financial Statements of the acquired operating divisions of American Passage Media Corporation for the years ended June 30, 1996 and 1995, including an Independent Auditors Report Exhibit 2 - Asset Purchase Agreement dated September 13, 1996 among American Passage Media Corporation, Gilbert Scherer, Network Event Theater, Inc. and American Passage Media, Inc. Exhibit 3 - $750,000 Subordinated Promissory Note from American Passage Media, Inc. to American Passage Media Corporation Exhibit 4 - Guaranty by Network Event Theater, Inc. in favor of American Passage Media Corporation Exhibit 5 - Option Agreement between Network Event Theater, Inc. and American Passage Media Corporation Exhibit 6 - Consulting and Non-Competition Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 7 - Transition Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 8 - Directory of Classes Representation Agreement between American Passage Media, Inc. and American Passage Media Corporation Exhibit 9 - Business Loan Agreement between American Passage Media, Inc. and Signet Bank Exhibit 10 - Promissory Note from American Passage Media, Inc. to Signet Bank Exhibit 11 - Commercial Security Agreement between American Passage Media, Inc. and Signet Bank Exhibit 12 - Commercial Guaranty from Network Event Theater, Inc. in favor of Signet Bank Exhibit 13 - Commercial Pledge and Security Agreement from Network Event Theater, Inc. in favor of Signet Bank EX-99 2 FINANCIAL STATEMENTS Financial Statements Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Years ended June 30, 1996 and 1995 with Report of Independent Auditors Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Financial Statements Years Ended June 30, 1996 and 1995 Contents Report of Independent Auditors Audited Financial Statements Balance Sheets Statements of Income Statements of Cash Flows Notes to Financial Statements Report of Independent Auditors The Board of Directors Young Adult Marketing Divisions We have audited the accompanying balance sheets of the Young Adult Marketing Divisions (operating divisions of American Passage Media Corporation) as of June 30, 1996 and 1995, and the related statements of income and cash flows for the years then ended. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the statements referred to above present fairly, in all material respects, the financial position of the Young Adult Marketing Divisions (operating divisions of American Passage Media Corporation) at June 30, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Seattle, Washington July 30, 1996 Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Balance Sheets June 30 Assets 1996 1995 _______________________ Current assets: Accounts receivable, less allowance for doubtful accounts of $72,221 (1995 - $85,628) $1,370,651 $1,218,975 Prepaid expenses 32,423 11,807 _______________________ Total current assets 1,403,074 1,230,782 Furniture, fixtures, and equipment, net of accumulated depreciation of $91,661 (1995 - $77,721) 49,707 36,967 _______________________ Total assets $1,452,781 $1,267,749 _______________________ _______________________ Liabilities Current liabilities: Accounts payable $1,560,288 $1,618,355 Accrued expenses 229,348 295,898 Deferred revenues 464,890 303,519 ________________________ Total liabilities 2,254,526 2,217,772 Divisional deficiency of assets (801,745) (950,023) _______________________ Total liabilities and deficiency of assets $1,452,781 $1,267,749 _______________________ _______________________ See accompanying notes. Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Statements of Income Year Ended June 30 1996 1995 ________________________ Net revenues $5,802,209 $5,048,231 Cost of revenues 2,727,246 2,484,272 ________________________ Gross margin 3,074,963 2,563,959 Operating expenses: Selling, general, and administrative 1,905,535 1,987,050 Corporate administrative (Note 3) 251,728 236,665 ________________________ 2,157,263 2,223,715 ________________________ Net income $ 917,700 $ 340,244 ________________________ ________________________ See accompanying notes. Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Statements of Cash Flows Year Ended June 30 1996 1995 _______________________ Net income $ 917,700 $ 340,244 Adjustments to reconcile income to net cash flow from operations: Depreciation 13,723 12,238 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (151,676) 380,108 Increase in prepaid expenses (20,616) (11,807) Decrease in accounts payable and accrued expenses (124,617) (23,855) Increase in deferred revenues 161,370 222,318 ________________________ Net cash flows from operations 795,884 919,246 Investing activity - purchases of furni- ture, fixtures, and equipment (26,463) (16,878) Financing activity - net cash outflow to the Company (769,421) (902,368) ________________________ Net change in cash 0 0 Cash, beginning of year 0 0 ________________________ Cash, end of year $ 0 $ 0 ________________________ ________________________ See accompanying notes. Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Notes to Financial Statements June 30, 1996 1. Organization and Basis of Presentation On June 7, 1996, American Passage Media Corporation (the Company) reached agreement with Network Event Theatre, Inc. (NET) to sell certain divisions of the Company, including the following: College Newspapers, Campus Postering, Gymboards, Spring Break, and the national sales group of The Directory of Classes (the Divisions). These divisions are included in a group that is collectively referred to as the Young Adult Marketing divisions. The Divisions provide national advertisers with media services to facilitate the targeting of specific market segments. The principal media services provided by the Divisions include advertising placement in college newspapers, campus postering, event marketing at college campuses, and sales of national advertising in college and university class directories. These financial statements have been prepared as if the Divisions had operated as independent, standalone entities for all periods presented. Such divisional financial statements have been prepared using the historical basis of accounting and include all of the assets, liabilities, revenues and expenses, and cash flows of the Divisions previously included in the Company's financial statements. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 55 ("SAB 55"), these statements have been adjusted to include certain corporate expenses incurred by the Company on the Divisions' behalf. The financial statements may not necessarily present the Divisions' financial position, results of operations, and cash flows if the Divisions were a standalone entity. 2. Summary of Significant Accounting Policies Furniture, Fixtures, and Equipment Furniture, fixtures, and equipment are recorded at cost. Depreciation is provided using the straight-line and accelerated methods based on estimated useful lives ranging from two to ten years. Expenditures for major remodeling and improvements are capitalized as leasehold improvements and amortized over the shorter of the life of the lease (including option period if exercised) or the life of the asset. Leased assets are recorded Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) at cost and are amortized on a straight-line basis over the lesser of the related lease terms or their economic lives. Amortization expense is included with depreciation expense. Income Taxes The Company operates under Subchapter S of the Internal Revenue Code and, consequently, is not subject to federal income tax; the stockholders include the Company's income or loss in their own income for tax purposes. For income tax purposes, the Company has a December 31 year-end. The Divisions are included in the Company's income tax reporting. Concentration of Credit Risks Substantially all of the Divisions' accounts receivable and revenues are generated from customers in the advertising industry. The Divisions perform ongoing credit evaluations of their customers and generally do not require collateral. The Divisions maintain accounts receivable allowances for potential credit losses, and such losses have been within management's expectations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Notes to Financial Statements (continued) 3. Corporate Allocations The Company provides services to the Divisions, including general management, accounting, treasury, tax, financial audit and reporting, benefits administration, insurance, information systems management, accounts receivable and credit, and accounts payable functions. These corporate administrative costs were not historically allocated to individual divisions. In accordance with SAB 55, the Company has allocated a portion of these expenses to the Divisions. For purposes of these financial statements, the above corporate costs have been allocated based on the percentage of time corporate administrative personnel were estimated to spend on the Young Adult Marketing divisions. Such allocations and corporate charges totaled $251,728 and $236,665 for the years ended June 30, 1996 and 1995, respectively. Management believes that the basis used for allocating corporate administrative services is reasonable. However, the amounts included in these allocations may differ from those that would result from transactions among unrelated parties. In addition, these allocations were not based on specific costs attributable to the Divisions and may not be representative of actual costs that would have been incurred if the Divisions had been operating independently. Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Notes to Financial Statements (continued) 4. Revenues and Directing Operating Expenses-by Division A breakdown of the gross margin earned by each of the divisions for the year ended June 30, 1996 and 1995 is as follows: Year Ended College Campus Sales June 30, 1996 Newspapers Postering Gymboards Spring Break Commissions Total _____________ ________________________________________________________________________________ Net revenues $2,506,244 $1,816,688 $1,075,754 $ 209,300 $ 194,223 $5,802,209 Costs of revenues 692,010 1,182,725 701,915 150,596 - 2,727,246 ________________________________________________________________________________ Gross margin $1,814,234 $ 633,963 $ 373,839 $ 58,704 $194,223 $3,074,963 ________________________________________________________________________________ ________________________________________________________________________________
Year Ended June 30 1995 _____________ Net revenues $1,855,674 $1,739,971 $1,122,745 $142,195 $187,646 $5,048,231 Costs of revenues 594,973 1,213,970 551,608 123,721 - 2,484,272 ________________________________________________________________________________ Gross margin $1,260,701 $ 526,001 $ 571,137 $ 18,474 $187,646 $2,563,959 ________________________________________________________________________________ ________________________________________________________________________________
Young Adult Marketing Divisions (Operating Divisions of American Passage Media Corporation) Notes to Financial Statements (continued) 5. Savings Plan The Divisions are included in the Company's 401(k) savings plan, which covers all employees with at least six months of service. The Company, at its discretion, matches employee contributions. The Divisions' share of the Company's contributions was $10,870 and $7,119 for 1996 and 1995, respectively. EX-99 3 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT September 13, 1996 The parties to this agreement are American Passage Media Corporation, a Washington corporation ("AP"); Gilbert Scherer, the majority owner of the outstanding stock of AP ("AP's Stockholder"); Network Event Theater, Inc., a Delaware corporation ("NET"); and American Passage Media, Inc., a Delaware corporation that is a wholly-owned subsidiary of NET ("Buyer"). AP is engaged in various sales and marketing activities relating to the high school and college-student markets, including the sale of advertising and of promotional and sponsorship opportunities, campus postering operations, college newspaper advertising placement operations, GymBoards operations, AdRaX operations, the Crux WebSite, Take the Break operations, Directory of Classes national advertising representation, and other business activities, such as those set forth in the Job Choices representation agreement (all such activities and businesses being referred to collectively as the "Business"). The parties have agreed upon the sale to Buyer of substantially all of the business and assets relating to the Business (excluding the business of publishing and distributing Directory of Classes), on the terms set forth in this agreement. Accordingly, it is agreed as follows: 1. Sale and Transfer of Assets. 1.1 Assets to be Sold. At the Closing referred to in section 3, AP shall sell, assign and transfer to Buyer, and Buyer shall purchase and acquire from AP, all of AP's operations, rights and assets relating to or used in the Business, as they exist on the date of the Closing (but excluding the assets referred to in section 1.2). The assets to be sold (the "Assets") include, but are not limited to, the following: (a) all of AP's rights under agreements, commitments and orders relating to the Business, to the extent that they remain unperformed or unfulfilled on, or by their terms continue after, the Closing, including, but not limited to, all of AP's rights under all (i) agreements with schools, advertisers, subcontractors and suppliers, (ii) advertising insertion orders and other agreements, commitments and orders relating to the sale or placement of advertising or the distribution of posters, (iii) other agreements, commitments and orders that are listed on schedule 4.8, and (iv) other agreements, commitments and orders relating to the Business that were entered into prior to the date of this agreement in the ordinary course of business and were not required to be referred to on schedule 4.8; (b) all of AP's inventory; all editorial material, photographs, art work, promotional materials and archives; and all office supplies, stationery, forms, labels, and similar supplies relating to or used in the Business; (c) all computer software and all trademarks, trade names and logos (including registrations and applications for registration of any of them) and all other intangible property and proprietary rights used by AP in connection with the Business, as set forth on schedule 1.1(c), and all of AP's rights to use the name "American Passage," together with the good will of the business associated with those trademarks, trade names and logos; all of AP's rights in copyrights (including registrations and applications for registration of any copyrights) relating to or used in the Business; (d) all of AP's databases, records, files, mailing lists, customer lists and other information and data relating to the Business, including all records relating to advertising insertion orders and other agreements and commitments relating to the sale or placement of advertising and to the postering and GymBoards activities, records of current and former advertisers, and prospect lists for advertising, except that AP may retain copies of all such documents and information as it reasonably determines necessary for archival purposes, shall not use those documents and information for any other purpose, shall not furnish copies to any third party (except as required by law), and shall use reasonable efforts to limit its employees' access to those documents and information, and except that AP may, subject to section 6.7, retain copies of and use such documents and information and the computer software referred to in section 1.1(c) to the extent used by AP in its other businesses as of the date of this agreement; (e) all of AP's computers, equipment (including office equipment) and furniture relating to or used in the Business, as set forth on schedule 4.5; (f) all of AP's other tangible assets used in or relating to the Business, wherever located; (g) all of AP's prepaid expenses relating to the Business; (h) all claims against third parties arising out of the operation of the Business, including claims under manufacturers' and vendors' warranties; and (i) all of AP's work in process and accounts receivable arising out of the operation of the Business, but excluding the accounts receivable described in sections 1.2(b) and 1.2(c). 1.2 Excluded Assets. The following assets shall be retained by AP and shall not be sold, assigned or transferred to Buyer: (a) all cash, all cash investments, all certificates of deposit, deposits, commercial paper, treasury bills and notes, money market accounts and other marketable securities and all other investments; (b) all accounts receivable outstanding as of the Closing Date for advertising published, work completed or events concluded prior to the close of business on July 31, 1996, whether or not billed; (c) all accounts receivable, notes receivable and other indebtedness from any officer, director, stockholder or employee of AP, or any other entity in which any officer, director, stockholder or employee of AP has an interest; (d) AP's rights under any agreement, commitment or order as to which consent to assignment is required but has not been obtained; (e) any of AP's rights with respect to leases for real property (except as otherwise provided in section 6.8); (f) any of AP's rights under the agreements listed on schedule 1.2; (g) all of AP's assets relating to Directory of Classes; (h) all items of equipment except those listed on schedule 4.5; and (i) the T1 telephone line, hardware and server (including any software not owned by AP) associated with the Crux WebSite. 2. Purchase Price. 2.1 Amount and Payment of Consideration. As full consideration for the Assets, at the Closing: (a) Buyer shall pay to AP, by wire transfer or certified or bank check, the sum of $4 million; (b) Buyer shall deliver to AP its subordinated promissory note in the principal amount of $750,000, in the form of exhibit 2.1(b) (the "Note"), which provides for payment in eight quarterly installments payable at the end of each 90 day period commencing 90 days after the Closing, together with interest thereon at the rate of 8% a year, and shall be subordinate only to Buyer's indebtedness to its institutional lender (the subordination to be on such terms as the institutional lender, or any successor institutional lender, may require, provided that those terms permit payment of principal and interest on the Note so long as no event of default has occurred and is continuing under the terms of any note or other agreement or instrument relating to the indebtedness to the institutional lender); (c) NET shall deliver to AP an option, pursuant to an option agreement in the form of exhibit 2.1(c) (the "Option Agreement"), to purchase, for a price equal to the Market Price (as defined below), up to 100,000 shares of NET Common Stock; (d) NET shall deliver to AP a guaranty of Buyer's obligations in the form of exhibit 2.1(d) (the "Guaranty"); and (e) Buyer shall assume, and agree to pay, perform and discharge (subject to the apportionment provisions of section 2.2), all of AP's obligations under the agreements, commitments and orders referred to on schedule 4.8 (but not the agreements that are also referred to on schedule 1.2), and under agreements, commitments and orders relating to the Business that were entered into prior to the date of this agreement in the ordinary course of business and were not required to be referred to on schedule 4.8, to the extent that they remain unperformed or unfulfilled on, or by their terms continue in effect after, the Closing. As used in this section 2.1, the term "Market Price" means the average closing bid price (computed and rounded to the third decimal point) of NET's common shares on NASDAQ as of 4:00 PM Eastern Standard Time as published by the National Association of Securities Dealers, Inc. during the 30 trading days ending three trading days before the Closing Date. 2.2 Apportionment. The parties intend that, regardless of the Closing Date, the sale of the Assets shall be considered effective as of the close of business on July 31, 1996. Accordingly, an appropriate adjustment in the purchase price shall be made to reflect Buyer's entitlement to all income earned or accrued, and Buyer's responsibility for all liabilities and obligations incurred or payable, in connection with the operations of the Business after the close of business on July 31, 1996 (and AP's entitlement to all income earned or accrued, and AP's responsibility for all liabilities and obligations incurred or payable, in connection with the operation of the Business through that time). In calculating the adjustment, all overlapping items of income or expense shall be apportioned between AP and Buyer, as of close of business on July 31, 1996, in accordance with generally accepted accounting principles and the following: (a) Buyer shall be entitled to credit for amounts received by AP (whether before or after the Closing Date) with respect to advertisements published, work completed, services rendered, or events that occur, after the close of business on July 31, 1996; (b) AP shall be entitled to credit for any liabilities incurred and paid by AP in connection with the operation of the Business after the close of business on July 31, 1996, but AP shall bear (and to the extent borne or paid by Buyer, Buyer shall be entitled to credit for) any liabilities arising out of the operation of the Business prior to the close of business on July 31, 1996, including, but not limited to, liabilities, customarily accrued, for compensation and fringe benefits of employees (including vacation and severance pay), utility services, rent, sales commissions, and various business and professional services; (c) AP shall be entitled to credit for any liabilities incurred and paid by AP prior to the close of business on July 31, 1996 for goods, services or rights that have not been received prior to that time and with respect to which Buyer will receive the benefit, such as rents paid in advance for a rental period extending beyond that time; and (d) AP shall receive credit for the portion of its overhead expenses allocable to the operation of the Business during the period from the close of business on July 31, 1996 until the Closing Date, determined as provided on schedule 2.2(d). Notwithstanding the foregoing provisions of this section 2.2, income earned from Per Inquiry responses from postering or other Business activities shall be apportioned between AP and Buyer based on the date responses are postmarked, AP being entitled to all income earned with respect to responses postmarked prior to July 31, 1996, and Buyer being entitled to all income earned with respect to responses postmarked on or after July 31, 1996. 2.3 Determination of Apportionments. (a) Not later than five days prior to the Closing Date, AP shall prepare and submit to Buyer a written estimate of the apportionments pursuant to section 2.2, together with a statement setting forth in reasonable detail the computation of the estimate, and at the Closing Buyer shall pay to AP, or AP shall pay to Buyer, as the case may be, an amount equal to the estimated net amount payable as a result of the apportionments. (b) Within 60 days after the Closing Date, Buyer shall determine all apportionments pursuant to section 2.2 and shall prepare and deliver to AP a statement of its determinations (which statement shall set forth in reasonable detail the basis for such determinations), and within 30 days thereafter Buyer shall pay to AP, or AP shall pay to Buyer, as the case may be, the net amount due as a result of the apportionments after taking account of the payment made under section 2.3(a) (or, if there is any dispute, the undisputed amount). Each party shall furnish the other with such information as may be required to make the determination. If AP disputes Buyer's determinations, or if at any time after payment is made either AP or Buyer determines that any item included in the apportionments is inaccurate or that an additional item should be included in the apportionments, notice to that effect shall be given to the other party and the parties shall confer with regard to the matter, and an appropriate adjustment and payment shall be made as agreed upon by the parties (or, if they are unable to resolve the matter within 15 days after delivery of the determinations to AP or delivery by a party of notice that the apportionments were inaccurate, a firm of independent certified public accountants, whose decision on the matter shall be binding and whose fees and expenses shall be borne 50% by AP and 50% by Buyer, shall be designated by agreement between them; if they fail to agree on the firm to decide the matter within an additional 10 days, the accountants shall be selected by the president of the American Institute of Certified Public Accountants). 2.4 Limitation on Assumption of Liabilities. Except as specifically provided in section 2.1, Buyer is not assuming, and shall not have any liability for, any liability or obligation arising out of the operations of the Business or any other liability or obligation of AP, and AP shall pay, perform and discharge all such liabilities and obligations (subject to the apportionment provisions of section 2.2). Without limiting the generality of the preceding sentence, subject to the apportionment provisions of section 2.2, Buyer shall not assume or be responsible for (a) any liability or obligation arising out of any claim, litigation or proceeding arising out of the operations of the Business on or before the Closing Date (including, but not limited to, the claims and proceedings listed on schedule 4.11) or any circumstances existing on or prior to the Closing Date, (b) any liability or obligation to any employee of the Business for compensation or benefits (including vacation and severance pay) incurred or accrued on or prior to the Closing Date, (c) any deferred compensation obligation or any liability or obligation of AP arising out of or in connection with any employee benefit plan, or any other liability or obligation for employee post-retirement life insurance or health care benefits to employees of AP who do not become employees of Buyer, (d) any liability or obligation of AP for federal or state income or sales taxes, or (e) any other liability or obligation of any kind relating to the operations of the Business or the occurrence of any event on or before the Closing Date, whether known or determined as of the Closing Date or unknown or undetermined as of that date. 2.5 Trade Liabilities. On the day preceding the Closing Date, AP shall submit to Buyer a complete list of accounts payable and other liabilities that arose out of the operations of the Business prior to or on that date, stating as to each account the nature of the goods or services with respect to which the payable was incurred, the net amount unpaid, and the due date for payment. On the Closing Date AP shall pay all accounts payable and other liabilities that are then due and payable. In addition, at the Closing AP shall pay to Buyer an amount equal to the total amount of accounts payable and other liabilities of the Business that will become due and payable after the Closing; after the Closing Buyer shall, in good faith, apply that amount in satisfaction of those accounts payable and liabilities as and when they become due. Buyer shall provide AP with a written report 120 days after the Closing Date regarding the status of such payments and shall provide AP with such other information with respect to those payments as AP shall reasonably request. If at any time after the Closing it is determined that the amount paid to Buyer pursuant to this provision was insufficient to pay in full all accounts payable and other liabilities arising out of the operation of the Business prior to the close of business on the day immediately preceding the Closing Date, and any such excess amount is paid by Buyer, AP shall remit to Buyer, promptly upon demand, the excess amount so paid by it. If at any time after the Closing it is determined that the amount paid to Buyer pursuant to this provision was more than was required for Buyer to pay in full all accounts payable and other liabilities arising out of the operation of the Business prior to the close of business on the day immediately preceding the Closing Date, Buyer shall remit to AP the excess amount so paid to it. Nothing in this provision shall relieve AP of any liability for payment of any of its accounts payable or other liabilities, except to the extent of the amount paid to Buyer as provided above. 2.5 Adjustment of Purchase Price. The purchase price paid pursuant to section 2.1 shall be subject to adjustment as provided in the Directory of Classes representation agreement referred to in section 6.13. 3. Closing. 3.1 Date of Closing. The closing of the sale and purchase pursuant to this agreement (the "Closing") shall take place at the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036 on September 11, 1996 (or at such other place or time as the parties may agree upon in writing). 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 8. 3.2 Termination. Either AP or Buyer may terminate this agreement by notice to the other if the Closing has not occurred by September 23, 1996 (but a party shall not have the right to terminate if the Closing has not occurred because of that party's breach of this agreement). Upon such termination none of the parties shall have any liability of any kind arising out of this agreement, except that such termination shall not terminate or limit the rights of any party to enforce this agreement or to seek any other remedy for breach of this agreement prior to termination. 4. Representations and Warranties by AP and AP's Stockholder. AP and AP's Stockholder jointly and severally represent and warrant to Buyer and NET as follows: 4.1 AP's Organization and Authority. AP is a corporation duly organized and validly existing under the law of the State of Washington and has the full corporate power and authority to enter into and to perform this agreement and to carry on its business as it is presently being conducted. 4.2 Authorization of Agreements. The execution, delivery and performance by AP of this agreement and the Option Agreement, the Transition Agreement referred to in section 6.8, the consulting agreement referred to in section 6.10, and the Directory of Classes representation agreement referred to in section 6.13 (together, the "AP Ancillary Documents") have been duly authorized by the board of directors of AP. AP's Stockholder has full right to enter into and perform his obligations under this agreement in accordance with its terms. This agreement and each AP Ancillary Document constitutes the valid and binding obligation of AP, and this agreement and each AP Ancillary Document to which AP's Stockholder is a party constitutes the valid and binding obligation of AP's Stockholder, enforceable against each of them in accordance with their 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). Schedule 4.2 contains a true and complete list of the stockholders of AP and the number of shares owned by each of them. 4.3 Consents of Third Parties. Subject to receipt of the consents and approvals referred to on schedule 4.3, the execution, delivery and performance of this agreement and the AP Ancillary Documents by AP and AP's Stockholder will not (i) conflict with the articles of incorporation or by-laws of AP and will not conflict with, or result in the breach or termination of, or constitute a default under, any agreement, commitment, order or other instrument, or any order, judgment or decree, to which AP or AP's Stockholder is a party or by which AP or AP's Stockholder is bound; (ii) constitute a violation by AP or AP's Stockholder of any law or regulation applicable to either of them; or (iii) result in the creation of any lien, charge or encumbrance upon any of the Assets. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of AP or AP's Stockholder in connection with the execution, delivery and performance of this agreement and the AP Ancillary Documents. 4.4 Title to Assets. Except as set forth on schedule 4.4, AP has, and at the Closing Buyer will receive, valid title to all of the Assets, free and clear of any claim, lien, or encumbrance, except for the lien, if any, of current taxes not yet due and payable. The Assets include all of the personal property reflected on the audited balance sheet of the Business as of June 30, 1996, except property disposed of since that date in the ordinary course of business, and all assets acquired for use in the Business between that date and the Closing Date. 4.5 Tangible Assets and Related Matters. Schedule 4.5 contains a true and complete list, as of the date of this agreement, of inventory and work-in-process of the Business, of all computers, equipment (including office equipment) and furniture relating to or used in the Business, and of all other tangible assets that relate to or are used in the Business and had a cost to AP for any individual item of more than $1,000. All of the tangible assets to be purchased by Buyer under this agreement are in good operating condition and in good condition of maintenance and repair, subject to normal wear and tear, and are suitable for continued use in the normal course of business as conducted by AP. The Assets constitute all of the assets, tangible and intangible, used in the Business and have been sufficient to enable AP to operate all aspects of the Business in the manner in which it has been operated by AP. Except as set forth on schedule 4.5, the Business is not using any assets, tangible or intangible, of any of AP's stockholders. 4.6 Financial Statements. (a) AP has delivered to Buyer true and complete copies of the audited statements of assets and liabilities of the Business at June 30, 1995 and June 30, 1996 and the related statements of operations and cash flows for the years then ended (prepared on a consolidated basis for the Business and including detailed breakdowns with respect to each revenue producing product line), together with complete copies of the related audit reports of Ernst & Young LLP. All such financial statements present fairly the financial position of the Business at the dates indicated and the results of its operations and its cash flows for the periods then ended (on a consolidated basis and with respect to each revenue producing product line), in conformity with generally accepted accounting principles applied on a consistent basis. All such financial statements have been prepared in accordance with AP's books and records and show all income and expenses attributable to the Business during the respective periods covered by them. All of AP's books of account relating to the Business have been exhibited or made available to Buyer, and those books of account accurately record all transactions of AP during the respective periods covered by them. Except to the extent reflected or reserved for in the statement of assets and liabilities of the Business as of June 30, 1996 or in the notes to that statement, as of the date of that statement AP did not have any liability or obligation of any kind relating to the Business, whether accrued, absolute, contingent or otherwise, other than (a) liabilities and obligations under orders, commitments, agreements and leases entered into in the ordinary course of business (which, to the extent required by section 4.8, are referred to on schedule 4.8), and (b) other liabilities and obligations that are not material in amount or are set forth in schedules to this agreement. All of the accounts receivable reflected in the statement of assets and liabilities as of June 30, 1996 or that arose from June 30, 1996 to the date of this agreement arose from, and all of the accounts receivable of the Business that arise from the date of this agreement to the Closing Date will have arisen from, bona fide transactions in the ordinary course of business; to the best of the knowledge of AP and AP's Stockholder, none of the accounts receivable being sold to Buyer under this agreement is or will be subject to any defense, counterclaim or setoff. (b) To the best of the knowledge of AP and AP's Stockholder, except as specified on schedule 4.6 or 4.9(b), (i) the pro forma statements of operations contained in schedule 4.6 present fairly on a pro forma basis the results of operations of the Business for the year ended June 30, 1996, as adjusted to reflect all costs and expenses that would have been incurred by the Business if it had been operated on a stand-alone basis (including, but not limited to, substituting for the cost of printing, fulfillment and other in-house services the costs that would have been incurred if those services had been obtained from an unrelated third party on an arm's length basis), and (ii) the pro-forma adjustment items shown on schedule 4.6 include all material additional items of cost or expense that would have been incurred in connection with the operation of the Business if it had been operated on a stand-alone basis during the year ended June 30, 1996. 4.7 Absence of Certain Changes. Since July 1, 1996 there has not been any material adverse change in AP's condition (financial or otherwise) relating to the Business or the assets to be acquired by Buyer pursuant to this agreement, and since July 1, 1995 AP has operated the Business in the ordinary course and consistent with past practices, and, except as set forth on schedule 4.7: (a) AP has not entered into any transaction or incurred any liability or obligation with respect to the Business that was unusual in nature or amount, or was entered into or incurred other than in the ordinary course of business; (b) AP has not sold or transferred any assets that are material to the Business or had a cost to AP of more than $5,000; (c) AP has not granted or agreed to grant any general increase in any rate or rates of salaries or compensation to employees or agents of the Business or any specific increase in the salary or compensation to any individual employee or agent of the Business; and (d) AP has not made any material change in (i) the manner in which the Business has been operated, (ii) the accounting principles or practices employed by AP in connection with the preparation of the financial statements of the Business or (iii) the manner in which revenue, costs or expenses are allocated among AP's business operations. 4.8 Lists of Agreements, etc. Schedule 4.8 contains, with respect to the Business, a true and complete list of: (a) all commitments and agreements for the purchase of materials or supplies or the receipt of services that involve an expenditure by AP of more than $5,000 for any one commitment or two or more related commitments; (b) all other agreements, commitments and orders to which AP is a party or by which it is bound that involve more than $5,000 and cannot be terminated by AP on less than 30 days' notice without liability or are otherwise material to the Business or the Assets; (c) all agreements with colleges and other schools; (d) all material agreements with advertisers and customers; (e) all leases or other rental agreements relating to personal property under which AP is lessee or lessor; (f) all license agreements under which AP is either licensee or licensor; (g) all employment and consulting agreements and agreements with independent contractors, written or oral; and (h) all agreements between AP and any officer, director or shareholder of AP (or any entity in which any of them has an interest). True and complete copies of the agreements, commitments and leases referred to on schedule 4.8 have been delivered to Buyer. 4.9 Agreements Regarding Employees. Except as set forth on schedules 4.8 and 4.9(a), AP is not, with respect to the Business, a party to or bound by any employment agreement, or any collective bargaining or other labor agreement. Except as set forth on schedule 4.9(a), AP does not have any severance policy with respect to employees of the Business and no employee of the Business is entitled to any severance payment, either by law or by agreement, upon the termination of his or her employment. Except as set forth in schedule 4.15, AP is not a party to, involved in or, to the best of the knowledge of AP or AP's Stockholder, threatened by any labor dispute or unfair labor practice charge in connection with the operation of the Business. AP employs approximately 30 employees with respect to the Business. Schedule 4.9(a) contains a true and complete list of all current employees of the Business and all employees whose employment with the Business has terminated since May 1, 1996, and sets forth their total compensation for the year ended June 30, 1996 and their present compensation arrangements (including any agreed upon salary or commission increases). Except as set forth on schedule 4.9(a), since May 1, 1996, AP has not granted a salary increase to any employee of the Business of more than $3,000 or any increase in the commission payable to any employee. The current employees listed on schedule 4.9(a) have been sufficient to enable AP to operate all aspects of the Business in the ordinary course, other than the general and administrative services described on schedule 4.9(b) and as provided for by the "add-backs" and "deducts" relating to employees listed on schedule 4.6. 4.10 Status of Agreements. Except as set forth on schedule 4.10, all of AP's agreements, commitments and orders were entered into in the ordinary course of operations of the Business and on an arm's-length basis. Each of the agreements, commitments and orders referred to in sections 4.8 and 4.9(a) is presently in full force and effect in accordance with its terms and, except as set forth on schedule 4.10, AP is not in default, and, to the best of the knowledge of AP and AP's Stockholder, no other party is in default under any agreement, commitment or order referred to in section 4.8 or 4.9(a) and each of those agreements, commitments and orders is valid and binding upon and enforceable against each of the parties thereto in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general. No party to any of the agreements, commitments or orders referred to in section 4.8 or 4.9(a) has made, asserted or, to the best of the knowledge of AP or AP's Stockholder, has any defense, setoff or counterclaim under any of those agreements, commitments or orders or has exercised any option granted to it to cancel or terminate its agreement, to shorten the term of its agreement, or to renew or extend the term of its agreement and AP has not received any notice to that effect. 4.11 Litigation; Compliance with Laws. Except as set forth on schedule 4.11, there is no claim, litigation, proceeding or governmental investigation pending or, to the best of the knowledge of AP or AP's Stockholder, threatened, or any order, injunction or decree outstanding against or relating to AP or the Business or any of the Assets. To the best of the knowledge of AP or AP's Stockholder, AP is not in violation of any applicable law, regulation, ordinance, or any other requirement of any governmental body or court arising out of the operation of the Business, and no notice has been received by AP or any of its officers or directors alleging any such violation. AP is not engaged in any dispute with any school or any of its advertisers, customers, sales representatives, or suppliers and, to the best of its knowledge, does not have a bad relationship with any of them. 4.12 Intangible Property. Schedule 1.1(c) contains a complete list of the trademarks, trade names and logos (and applications for any of them) and all other intangible property and proprietary rights used by AP in the Business at any time since July 1, 1995. AP owns, free and clear of any claims, liens or encumbrances, each of the trademarks, trade names and logos listed on schedule 1.1(c), and they constitute all trademarks and trade names necessary for the continued operation of the Business in a manner consistent with past practices. Except as set forth on schedule 4.12, to the best of the knowledge of AP or AP's Stockholder, (a) there is no violation by others of any right of AP with respect to any trademark or trade name to be sold and assigned to Buyer, and (b) AP is not, in connection with the Business, infringing upon any trademark, trade name or other rights of any third party; no proceedings are pending or threatened; and no claim has been received by AP alleging any such violation. 4.13 Software and Databases. AP owns or possesses adequate licenses or other rights to use all material computer software used by it in the Business. Schedule 4.13 contains a list of all computer software used by it in the Business at any time since January 1, 1994. AP has not granted to any person or entity any interest, as licensee or otherwise, in any of its owned software or databases. Any license of AP to use any software is valid and does not infringe on the property rights of any third party. The software listed on schedule 4.13 constitutes all of the material software used in the Business and has been sufficient to enable AP to operate all aspects of the Business in the ordinary course. 4.14 Insurance. Schedule 4.14 contains a complete list of all of AP's insurance policies relating to the Business, 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. 4.15 Labor Matters. Except as set forth on schedule 4.15, with respect to the Business (a) AP is in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment, and wages and hours, and is not engaged in any unfair labor practice; (b) there is no unfair labor practice charge or complaint against AP 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 AP or AP's Stockholder, 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 Business and, to the best of the knowledge of AP or AP's Stockholder, none is or has been threatened; and (d) no grievance which might have an adverse effect on the conduct of the Business or any arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the best of the knowledge of AP or AP's Stockholder, none is or has been threatened. To the best of the knowledge of AP and AP's Stockholder, there has been no sexual harassment or similar claim against any employee of the Business and no employee of the Business has at any time within the five years preceding the date of this agreement asserted against AP any claim of discrimination. 4.16 Environmental Matters. With respect to the ownership and operation of the Business: (a) AP and all of the property (whether owned or leased) that is included in the Assets is in substantial compliance with all material federal, state and local laws relating to pollution, the protection of human health or the environment, including, but not limited to, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products (collectively, "Materials of Environmental Concern"), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern; (b) there are no past or present actions, activities, circumstances, conditions, events or incidents, including, but not limited to, the release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any claim against, or violation by, AP (or, after the Closing, Buyer); and (c) except as set forth on schedule 4.16, (i) there are no underground storage tanks located on property used in connection with the Business; (ii) there is no asbestos contained in or forming part of any building, building component, structure or office space owned or, to the best of the knowledge of AP or AP's Stockholder, leased by AP with respect to the Business; (iii) no polychlorinated biphenyls (PCBs) are used or stored at any property owned or, to the best of the knowledge of AP or AP's Stockholder, leased by AP in connection with the Business; and (iv) there are no on-site or off-site locations where AP has stored, disposed or arranged for the disposal of Materials of Environmental Concern. 4.17 ERISA. (a) Schedule 4.17 contains a list of all "employee benefit plans," within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any other bonus, profit sharing, pension, severance, savings, deferred compensation, fringe benefit, insurance, welfare, post-retirement benefit, health, life, stock option, stock purchase, restricted stock, tuition refund, service award, company car, scholarship, relocation, disability, accident, sick pay, sick leave, vacation, individual employment, consulting, compensation, incentive, commission, payroll practices, retention, change in control, noncompetition, or other plan, agreement, policy, trust fund, or arrangement (whether written or unwritten, insured or self-insured) established, maintained, sponsored, or contributed to (or with respect to which any obligation has been undertaken) by AP on behalf of any employee, director or shareholder of AP (whether current, former, or retired) or their beneficiaries (each a "Plan" and, collectively, the "Plans"). With respect to each Plan, true and complete copies of the current plan document, trust agreement (if any) for the specified Plan, summary plan description, and most recent IRS determination letter (if any) for the specified Plan and IRS Form 5500, if any, have been delivered to Buyer and are listed on schedule 4.17. (b) Neither AP, any of its predecessors, nor any entity which is, or ever has been, deemed a "single employer" with AP under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") has ever maintained, contributes to, has ever contributed to, or has ever been obligated to contribute to a plan which is subject to Section 412 of the Code, Title IV of ERISA or Section 302(a)(2) of ERISA including, without limitation, a multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the Code). There are no pending, threatened or, to the best knowledge of AP and AP's Stockholder, anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts related thereto. To the best of the knowledge of AP and AP's Stockholder, no "prohibited transaction" within the meaning of Section 4975 of the Code or Section 406 of ERISA has occurred or is expected to occur with respect to any Plan. (c) To the best of the knowledge of AP and AP's Stockholder, each of the Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified and has received a determination letter from the Internal Revenue Service to the effect that such Plan is qualified under Section 401(a) of the Code with respect to the Tax Reform Act of 1986 and has been amended to comply with current law, and nothing has occurred or is expected to occur through the date of the Closing that caused or could be expected to cause the loss of such qualification. Each Plan complies and has been maintained and operated in all material respects in accordance with its terms and applicable law, including, without limitation, ERISA and the Code. No Plan is or is expected to be under audit or investigation by the Internal Revenue Service, Department of Labor or any other governmental authority and no such completed audit, if any, has resulted in or could be expected to result in the imposition of any tax or penalty. (d) Except as provided in schedule 4.17(d), the consummation of the transactions contemplated by this agreement will not give rise to any liability, including, without limitation, liability for severance pay, unemployment compensation, termination pay, or withdrawal liability, or accelerate the time of payment or vesting or increase the amount of compensation or benefits due to any employee, director or shareholder of AP (whether current, former, or retired) or their beneficiaries solely by reason of such transactions. No amounts payable under any Plan will fail to be deductible for federal income tax purposes by virtue of Sections 280G or 162(m) of the Code. (e) To the best of the knowledge of AP and AP's Stockholder, except as set forth on schedule 4.17(e), no event, condition, or circumstance exists that could result in an increase of the benefits provided under any Plan based on the Plan documents or the expense of maintaining any Plan from the level of benefits or expense incurred for the most recent fiscal year ended before the Closing. Neither AP, nor any officer or employee thereof, has made any promises or commitments, whether legally binding or not, to create any additional plan, agreement or arrangement, or to modify or change any existing Plan. 4.18 Transactions with Affiliates. Except as set forth on schedule 4.18, (a) AP is not, and since January 1, 1995 has not been, engaged, with respect to the Business, in any transaction with any officer, director or shareholder of AP or any entity in which any of them has an interest and (b) no officer, director or shareholder of AP (or any entity in which any of them has an interest) holds any assets used in or relating to the Business. 4.19 Involvement of Certain Executives. During the two years preceding the date of this agreement, AP's Stockholder and Carl Bryant have devoted a diminishing amount of time to the operation of the Business (averaging no more than an aggregate of 20 hours per month during the earlier year and no more than an aggregate of 10 hours per month in the more recent year), AP's Stockholder's involvement primarily having been limited to periodic consultation (about once every two to three weeks) with operating executives and participation in approximately quarterly executive committee meetings and Carl Bryant's involvement primarily having been limited to occasional advice regarding media and participation in approximately quarterly executive committee meetings. Neither AP's Stockholder nor Carl Bryant has a relationship with any school, advertiser, customer or supplier of the Business that would be adversely affected by the sale contemplated by this agreement. 4.20 Customers. Except as set forth on schedule 4.20, to the best of the knowledge of AP and AP's Stockholder, no advertiser or customer from which AP has derived revenue of more than $25,000 in connection with the operation of the Business during the year prior to the date of this agreement has any plan to materially reduce the level of its advertising during the two years following the sale to Buyer, and no school or supplier intends to discontinue or curtail its relationship with the Business. 4.21 Miscellaneous. (a) To the best of the knowledge of AP and AP's Stockholder, except as set forth in this agreement and the schedules to this agreement, there is no material fact or circumstance relating to the Business that AP's Stockholder reasonably believes is not known to Buyer and that, if known, would reasonably affect Buyer's decision to purchase the Business. (b) Subject to the last sentence of section 9.1(a), the representations and warranties made by AP and AP's Stockholder in this agreement shall be true and correct as of the time of Closing with the same effect as though made again at and as of that time. (c) As used in this agreement, the phrase "to the best of the knowledge of AP and AP's Stockholder" means the actual knowledge of AP's Stockholder and AP's officers after reasonable inquiry of the individuals listed on schedule 4.21(c); AP's Stockholder confirms that he has made such an inquiry. 5. Representations and Warranties by Buyer and NET. Buyer and NET jointly and severally represent and warrant to AP and AP's Stockholder as follows: 5.1 Organization. Each of Buyer 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 and authority to enter into and to perform this agreement. 5.2 Authorization of Agreements. The execution, delivery and performance by Buyer of this agreement and the Note, the Transition Agreement referred to in section 6.8, the consulting agreement referred to in section 6.10, and the Directory of Classes representation agreement referred to in section 6.13 (together, the "Buyer Ancillary Documents") have been duly authorized by all requisite corporate action of Buyer. The execution, delivery and performance by NET of this agreement and the Guaranty and Option Agreement (together, the "NET Ancillary Documents") have been duly authorized by all requisite corporate action of NET. This agreement and each Buyer Ancillary Document constitutes the valid and binding obligation of Buyer, and this agreement and each NET Ancillary Document constitutes the valid and binding obligation of 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). 5.3 Consents of Third Parties. The execution, delivery and performance of this agreement and the Buyer Ancillary Documents by Buyer, and the execution, delivery and performance of this agreement and the NET Ancillary Documents by NET, will not (i) conflict with its certificate of incorporation or by-laws and will not conflict with, result in the breach or termination of, or constitute a default under, any lease, agreement, commitment or other instrument, or any order, judgment or decree to which it is a party or by which it is bound, or (ii) constitute a violation by it of any law or regulation applicable to it. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of Buyer or NET in connection with the execution, delivery and performance of this agreement and the Buyer Ancillary Documents and NET Ancillary Documents. 5.4 Litigation. There is no claim, litigation, proceeding or governmental investigation pending or, to the best of Buyer's knowledge, threatened, or any order, injunction or decree outstanding, against Buyer or NET that would prevent the consummation of the transactions contemplated by this agreement. 5.5 Miscellaneous. The representations and warranties made by Buyer and NET in this agreement shall be true and correct as of the time of Closing with the same effect as though made again at and as of that time. 6. Further Agreements of the Parties; Nondisclosure and Confidentiality. 6.1 Access to Information; Delivery of Lists. (a) Prior to the Closing, Buyer and its representatives may make such investigation of the property, assets and operations of the Business as it may desire, and AP shall give to Buyer and to its counsel, accountants and other representatives, upon reasonable notice, full access during normal business hours throughout the period prior to the Closing to all of the assets, books, commitments, agreements, records and files of AP relating to the Business and AP shall furnish to Buyer during that period all documents and copies of documents and information concerning the Business as Buyer reasonably may request. Buyer 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 AP 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 Buyer) to any third party unless required to do so pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process. Buyer's obligations under this section shall survive the termination of this agreement. (b) As promptly as possible after the Closing Date, AP shall deliver to Buyer (a) a list as of the Closing Date of all commitments and orders relating to advertising to be published, services to be rendered, or events to occur after the Closing and (b) a list as of the Closing Date of all of AP's prepaid expenses and accounts receivable relating to the Business (other than the accounts receivable described in sections 1.2(b) and 1.2(c)). 6.2 Conduct of the Business Pending the Closing. Until the Closing, AP shall operate the Business in the ordinary course in a manner consistent with past practices and: (a) AP shall promptly notify Buyer in writing of, and furnish any information that Buyer reasonably may request with respect to, (i) any claim, litigation, proceeding or governmental investigation threatened by or against AP 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 representations and warranties of AP and AP's Stockholder not being true as of the Closing Date, and (iii) any other occurrence of any kind adversely affecting the Business or the Assets; (b) AP shall 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 individual employee, or any increase in the pension, retirement or other employment benefits of the employees of the Business; (c) except as otherwise requested by Buyer, AP shall use reasonable efforts, consistent with its past practices, (i) to preserve the business organization of the Business intact and to preserve the goodwill and business of the schools, advertisers, suppliers and others having business relations with the Business, (ii) to retain the services of the employees of the Business, and (iii) to preserve all trademarks, trade names, logos and copyrights and related registrations of the Business; (d) except in the ordinary course and consistent with past practice, AP shall not (i) enter into or renew any agreement, commitment or lease, or (ii) cause or take any action to allow any lease, agreement or commitment relating to the Business 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; (e) except in the ordinary course and substantially consistent with past practice, AP shall not (i) enter into any transaction or incur any liability or obligation that is material to the Business or (ii) sell or transfer any of the assets relating to the Business, 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 Business; (f) AP shall duly comply with all laws, ordinances, orders, injunctions and decrees applicable to the operation of the Business; (g) AP shall maintain all of the tangible Assets in customary repair, maintenance and condition, except to the extent of normal wear and tear, and AP shall replace any items of equipment at time intervals consistent with past practices; and (h) AP shall maintain insurance on the tangible Assets and on the Business as set forth on schedule 4.14. 6.3 Other Action. No party to this agreement shall take any action that would result in any of its or his representations and warranties not being true as of the Closing Date. Each of the parties to this agreement shall use its or his reasonable efforts to cause the fulfillment at the earliest practicable date of all of the conditions to the obligations of the parties to consummate the sale and purchase under this agreement. 6.4 Consents. AP and AP's Stockholder shall use reasonable efforts to obtain at the earliest practicable date, in form and substance reasonably satisfactory to Buyer, all consents and approvals required to assign to Buyer the rights of AP under any agreement, commitment or order to be assigned to Buyer that requires consent to assignment (including, but not limited to, those set forth on schedule 4.3), without any condition materially adverse to Buyer or the operation of the Business after the Closing Date, but if any consent is not obtained (and, accordingly, pursuant to section 1.2(d) is excluded from the sale pursuant to this agreement), AP shall use reasonable efforts to keep the agreement in effect and to give Buyer the benefit of the agreement to the same extent as if it had been assigned to Buyer, and Buyer shall perform the obligations under the agreement relating to the benefit obtained by Buyer. Buyer shall cooperate with AP in obtaining the consents. If AP is unable to obtain consent to the assignment of any material agreement (including, but not limited to, the Job Choices representation agreement) and is unable to give Buyer the benefit of that agreement, AP and Buyer shall negotiate in good faith a reduction in the consideration payable by Buyer pursuant to this agreement to reflect the loss or cost to Buyer of not obtaining the benefit of such agreement. Nothing in this agreement shall be construed as an attempt to assign any agreement or other instrument that by its terms is nonassignable without the consent of the other party. 6.5 Expenses. Each of the parties shall bear their own respective expenses incurred in connection with this agreement and in connection with all obligations required to be performed by each of them under this agreement, provided, however, that Buyer and AP shall each bear one-half of the costs of the divisional audit conducted by Ernst & Young LLP in connection with the sale of the Business. 6.6 Sales Taxes. AP shall pay any state or local sales taxes payable in connection with the sale of the Assets. 6.7 Covenants Against Competition, Solicitation and Disclosure. (a) To accord to Buyer the full value of its purchase, for a period of five years after the Closing Date (and, with respect to the sale of advertising in college newspapers, for a period of seven years after the Closing Date) neither AP nor AP's Stockholder shall, directly or indirectly, engage or be interested in (as owner, stockholder, partner, member, manager, lender, employee, agent, consultant or otherwise) any business or entity that engages, anywhere in the world, in sales and marketing activities targeting primarily high school and college- student markets substantially similar to those engaged in by the Business as of the Closing Date, including, but not limited to, the sale of advertising (in college newspapers and otherwise) and of promotional and sponsorship opportunities, GymBoards, and campus postering operations. However, this section shall not prevent AP or AP's Stockholder from (i) owning as an investment up to 2% of a class of equity securities issued by any competitor of NET that is publicly traded and registered under the Securities Exchange Act of 1934 or subject to Section 15(d) of such Act, (ii) continuing to publish and distribute the Directory of Classes, (iii) continuing to operate the GAPS business, (iv) engaging in a business that recruits United States students for Israeli corporations and the Israeli government, and (v) college credit card marketing for MBNA and Kessler Financial Services. (b) For a period of five years after the Closing Date, neither AP nor AP's Stockholder shall, directly or indirectly, employ or solicit for employment or consulting, on its own behalf or on behalf of any other person or entity, or otherwise encourage the resignation of, any employee of the Business, other than an employee of the Business whose employment is terminated by Buyer or who terminates his or her employment with Buyer after he or she refuses Buyer's request to relocate to another city. For a period of five years after the Closing Date, neither Buyer nor NET shall, directly or indirectly, employ or solicit for employment or consulting, on its own behalf or on behalf of any other person or entity, or otherwise encourage the resignation of, any employee of AP who is not employed primarily in the Business. (c) For a period of five years after the Closing Date, neither AP nor AP's Stockholder shall at any time hereafter disclose to anyone, or use in competition with the Business, any confidential information relating to the Business. (d) AP and AP's Stockholder acknowledge that the remedy at law for breach of the provisions of this section 6.7 will be inadequate and that, in addition to any other remedy Buyer may have, it shall be entitled to an injunction restraining any breach or threatened breach, without any bond or other security being required and without the necessity of showing actual damages. If any court construes the covenant in this section 6.7 or any part thereof, to be unenforceable in any respect, the court may reduce the duration or area to the extent necessary so that the provision is enforceable, and the provision, as reduced, shall then be enforceable. (e) Notwithstanding anything to the contrary in this section 6.7, if Buyer shall be required to make one or more payments into the escrow account provided for in section 9.2(b), the obligations of AP's Stockholder under this section 6.7 shall immediately terminate if Buyer defaults in making any such payment when due. 6.8 Transition Agreement. At the Closing, Buyer and AP shall enter into the Transition Agreement in the form of exhibit 6.8. 6.9 ERISA Arrangements. Buyer shall not assume, have any responsibility for the continuation of, or be a successor employer with respect to any Plan. With respect to any group health plan, as defined in Section 5000(b)(1) of the Code, AP shall retain, and be responsible for, all obligations and liabilities relating to or arising under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), including, without limitation, the obligation to provide COBRA continuation coverage to current or former AP employees who are currently entitled to coverage under COBRA or who may become entitled to such coverage. 6.10 Consulting and Employment Agreements. At the Closing, Buyer and the individuals referred to on schedule 6.10(a) shall enter into employment and non-competition agreements in the form of exhibit 6.10(a); Buyer, AP and the individuals referred to on schedule 6.10(b) shall enter into a consulting and non-competition agreement in the form of exhibit 6.10(b); and Buyer and the individuals referred to on schedule 6.10(c) shall enter into non-competition agreements in the form of exhibit 6.10(c). 6.11 Employees. Buyer shall offer employment to all employees of AP employed primarily in the Business on substantially similar terms and conditions of employment and with substantially similar benefits (except as otherwise provided in schedule 6.11) as those presently enjoyed with AP. Within 90 days after the Closing, Buyer shall establish a 401(k) plan for employees of the Business with substantially similar benefits as the 401(k) plan offered by AP. Nothing herein shall limit the right of Buyer to terminate the employment of any such employee at any time after the Closing, or alter the salary, wages or benefits payable to any such employee at any time after the Closing, except that Buyer may not alter the severance policy with respect to the former employees of AP. AP shall be responsible for the payment of all compensation and benefits (including accrued vacation) payable to all employees who are hired by Buyer through the Closing Date and shall retain (and discharge at the Closing) all liabilities and obligations with respect to employees who are not hired by Buyer. AP shall also pay the amount of any severance payment related to the period of employment of any employee of the Business prior to the Closing who becomes an employee of Buyer after the Closing and whose services are terminated by Buyer within three months after the Closing Date. Buyer shall not be responsible for the payment of any severance obligation of AP to any of its employees or former employees. 6.12 Interim Financial Statements. AP shall promptly deliver to Buyer copies of any monthly or quarterly financial statements or other reports relating to the Business that may be prepared by AP 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 Business and, to the best of AP's knowledge, shall show all income and expenses attributable to the Business and shall fairly present the financial position and results of operations of the Business as of and for the periods indicated. AP shall also furnish to Buyer any other information concerning the financial and operating condition of the Business as Buyer from time to time reasonably may request. 6.13 Directory of Classes. At the Closing, Buyer and AP shall enter into the Directory of Classes national advertising representation agreement in the form of exhibit 6.13. 6.14 Change of Name. Within ten days after the Closing Date, AP shall change its name to a name that does not include the word "American" or the word "Passage" together with any geographical reference. AP may change its name to "Passage Media, Inc." or any other name that complies with the preceding sentence. 6.15 Equipment Purchases. Prior to the Closing AP shall purchase at its expense, and shall transfer to Buyer at the Closing without additional consideration, the items of equipment referred to on schedule 6.15. 6.16 Subordination Agreement. At the Closing, AP shall execute a subordination agreement, in form and substance satisfactory to Buyer's institutional lender, pursuant to which AP agrees to the subordination of the Note as provided in section 2.1(b). 6.17 Further Assurances. At any time and from time to time after the Closing Date each party shall, without further consideration, execute and deliver to the other such other instruments of transfer and assumption and shall take such other action as the other may reasonably request to carry out the transfer of AP's operations, rights and assets and assumption of liabilities contemplated by this agreement. 6.18 Databases. Buyer acknowledges that it will not acquire any rights with respect to any portions of the databases to be transferred to it at the Closing that do not relate to the Business, and Buyer shall only use those databases in connection with the Business. 6.19 Multi-Market Advertising. If, at any time during the seven year period commencing on the Closing Date, Buyer or NET desires to place multi-market non-college newspaper advertising on behalf of any third party, it shall place that advertising through AP's ANN division or its successors. The price to be paid for such advertising shall be ANN's lowest non- promotional price for similar types of customers placing similar volumes and types of ads at the time the ad is placed (or such other price as the parties may agree). Neither Buyer nor NET shall have any obligation to place advertising or seek to place advertising on behalf of any third party. 7. Conditions to Closing. 7.1 Conditions Precedent to Obligations of Buyer. Buyer's obligation to consummate the purchase under this agreement is 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 Buyer): (a) all representations and warranties of AP and AP's Stockholder to Buyer and NET shall be true and correct in every material respect 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) AP and AP's Stockholder shall have performed and complied with all obligations and covenants required by this agreement to be performed or complied with by them prior to or at the Closing; (c) Buyer shall have been furnished with a certificate (dated the Closing Date and in form and substance reasonably satisfactory to Buyer) executed by the president and secretary of AP, certifying to the fulfillment of the conditions specified in sections 7.1(a) and 7.1(b); (d) Buyer shall have been furnished with an opinion of Messrs. Preston Gates & Ellis, counsel to AP, in the form of exhibit 7.1(d); (e) AP shall have duly received all consents required for the transfer of AP's rights under the agreements, commitments and orders that require consent to transfer (except as otherwise provided in section 6.4); (f) the employment agreements, consulting agreement and non-competition agreements referred to in section 6.10 shall have been executed; (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 purchase and sale pursuant to this agreement; and (h) Buyer shall have obtained debt financing on terms and conditions satisfactory to Buyer. 7.2 Conditions Precedent to Obligation of AP. AP's obligation to consummate the sale under this agreement is 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 AP): (a) All representations and warranties of Buyer and NET shall be true and correct in every material respect 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) Buyer and NET shall have performed and complied with all obligations and covenants required by this agreement to be performed or complied with by them prior to or at the Closing; (c) AP shall have been furnished with a certificate (dated the Closing Date and in form and substance reasonably satisfactory to AP) executed by the president and secretary of Buyer and the president and secretary of NET, certifying to the fulfillment of the conditions specified in sections 7.2(a) and 7.2(b); (d) AP shall have been furnished with an opinion of Proskauer Rose Goetz & Mendelsohn LLP, counsel to Buyer and NET, in the form of exhibit 7.2(d); and (e) 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 purchase and sale pursuant to this agreement. 8. Items To Be Delivered at Closing. 8.1 Items To Be Delivered by AP and AP's Stockholder. At the Closing, AP and AP's Stockholder shall deliver to Buyer the following: (a) The amount payable by AP under section 2.5; (b) such bills of sale, assignments or other instruments of transfer and assignment as shall be effective to vest in Buyer title (in accordance with section 4.4) to the Assets; (c) a copy of resolutions of the board of directors of AP authorizing the execution, delivery and performance of this agreement and the AP Ancillary Documents by AP, 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 certificate referred to in section 7.1(c); and (e) the opinion referred to in section 7.1(d). 8.2 Items To Be Delivered by Buyer. At the Closing, Buyer shall deliver to AP the following: (a) the wire transfer of funds referred to in section 2.1; (b) the Note; (c) instruments pursuant to which Buyer assumes the obligations and liabilities to be assumed by it under section 2.1(e); (d) a copy of resolutions of the board of directors of Buyer authorizing the execution, delivery and performance of this agreement and the Buyer Ancillary Documents by Buyer, 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; (e) the certificate referred to in section 7.2(c); and (f) the opinion referred to in section 7.2(d). 8.3 Items to be Delivered by NET. At the Closing, NET shall deliver to AP the following: (a) the Guaranty; and (b) a copy of resolutions of the board of directors of NET authorizing the execution, delivery and performance of this agreement and the NET Ancillary Documents by NET, 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. 8.4 Other Items to be Delivered. At the Closing, AP and AP's Stockholder, as applicable, and Buyer and NET, as applicable, and the individuals referred to on schedule 6.10 shall deliver the following: (a) the Subordination Agreement referred to in section 6.16; (b) the Option Agreement; (c) the amount payable in accordance with section 2.3(a); (d) the Transition Agreement referred to in section 6.8; (e) the employment, consulting and non- competition agreements referred to in section 6.10; and (f) the Directory of Classes representation agreement referred to in section 6.13. 9. Survival of Representations and Warranties; Indemnification. 9.1 Survival. (a) All statements contained in any certificate delivered by or on behalf of AP or AP's Stockholder pursuant to this agreement or in any certificate delivered in connection with the transactions contemplated by this agreement shall be considered representations and warranties by them, respectively, to Buyer and NET with the same force and effect as if contained in this agreement. All representations, warranties and agreements by AP and AP's Stockholder shall survive the Closing notwithstanding any investigation at any time by or on behalf of Buyer or NET, but Buyer's consummation of the purchase contemplated by this agreement shall constitute a waiver by Buyer of any claim of misrepresentation or breach of warranty with respect to any representation or warranty as to which, as of the Closing Date, Buyer's or NET's Chairman or Executive Vice President has actual knowledge of breach. (b) All statements contained in any certificate delivered by or on behalf of Buyer or NET pursuant to this agreement or in any certificate delivered in connection with the transactions contemplated by this agreement shall be considered representations and warranties by Buyer and NET to AP with the same force and effect as if contained in this agreement. All representations, warranties and agreements by Buyer and NET shall survive the Closing notwithstanding any investigation at any time by or on behalf of AP, but AP's consummation of the sale contemplated by this agreement shall constitute a waiver by AP of any claim of misrepresentation or breach of warranty with respect to any representation or warranty as to which, as of the Closing Date, AP's Chairman has actual knowledge of breach. 9.2 Indemnification. (a) Subject to sections 9.1, 9.3 and 9.4, AP and AP's Stockholder jointly and severally shall indemnify and hold harmless Buyer and NET against all loss, liability, damage or expense (including reasonable fees and expenses of counsel, whether involving a third party or between the parties to this agreement) Buyer or NET may suffer, sustain or become subject to as a result of (i) any breach of any warranty, covenant or other agreement of AP or AP's Stockholder contained in this agreement, or any misrepresentation by AP or AP's Stockholder, or any claim by a third party which, without regard to the merits of the claim, would constitute such a breach or misrepresentation, or (ii) AP's failure to pay, perform or discharge when due any of AP's obligations, liabilities, agreements or commitments to third parties not expressly assumed by Buyer pursuant to this agreement (including, but not limited to, any liability of AP arising out of the Washington State Department of Revenue business and occupation tax audit pending against AP). (b) In addition to any other rights and remedies it may have, but subject to sections 9.1, 9.3 and 9.4, Buyer may set-off against any amounts it owes AP under the Note any amount payable to Buyer pursuant to this section 9.2(a), but no such set-off shall constitute an accord and satisfaction or otherwise modify the rights or obligations of AP under this agreement or the Note or constitute a breach by Buyer of its obligations under this agreement or the Note. Without limiting the generality of the preceding sentence, AP acknowledges and agrees that Buyer's exercise of its rights pursuant to the preceding sentence shall not limit Buyer's right to recover any amounts owed to it that exceed the amount obtained by exercise of those rights and such exercise shall not be in substitution of or in any way limit Buyer's exercise of its other rights and remedies under this agreement, any other agreement or applicable law. If Buyer shall at any time determine to set-off against the Note, it shall so notify AP within 24 hours after making the determination. If Buyer receives a notice from AP disputing Buyer's right to set- off against the Note, Buyer shall thereafter deposit any scheduled payments under the Note with an escrow agent reasonably acceptable to Buyer and AP, which amounts shall be held by the escrow agent pursuant to an escrow agreement in the form of exhibit 9.2 until the escrow agent receives written instructions from both Buyer and AP or a copy of a final order of a court of competent jurisdiction. (c) Subject to sections 9.1, 9.3 and 9.4, Buyer shall indemnify and hold harmless AP 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) AP may suffer, sustain or become subject to as a result of (i) any breach of any warranty, covenant or other agreement contained in this agreement or any misrepresentation by Buyer 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, (ii) Buyer's failure to pay, perform and discharge when due any of AP's agreements, commitments or orders expressly assumed by Buyer pursuant to this agreement, including the payment obligations assumed by Buyer under section 2.5, or (iii) any liability or obligation arising out of the operations of the Business after the Closing Date. 9.3 Notices of Claims. None of the parties to this agreement shall be liable for misrepresentation or breach of warranty except to the extent that notice of a claim is asserted by another party in writing and delivered within two years after the Closing Date. 9.4 Limitations on Liability. (a) Neither AP (or AP's Stockholder) nor Buyer (or NET) shall be liable for misrepresentation or breach of warranty under this agreement unless and until the aggregate amount of loss, liability, damage and expense incurred by the other as a result of all misrepresentations and breaches of warranty under this agreement exceeds $25,000 (in which event it shall be liable for the full amount of the loss, liability, damage or expense). (b) The obligation of any party to provide indemnification shall be limited to actual damages and shall exclude special, incidental, consequential, indirect or similar damages. AP recognizes, however, that the purchase price provided for in this agreement has been determined on the basis of a multiple (five times) of the operating income of the Business for the year ended June 30, 1996, as adjusted, and that, whenever it would be appropriate to apply that multiple to properly calculate Buyer's damages for misrepresentation or breach of warranty, the amount of damages determined by applying the multiple shall be considered "actual damages" and not "special, consequential, indirect or similar damages". (c) Notwithstanding anything to the contrary in this agreement, after the Closing the aggregate liability of AP and AP's Stockholder to Buyer and NET for indemnification under this agreement shall be limited to $5 million, except for misrepresentations or breaches of warranty under section 4.4 and for fraudulent misrepresentation (for which there shall be no dollar limitation). 9.5 Defense of Claims. If any action, suit or proceeding shall be commenced against, or any written claim or demand be asserted against any party claiming indemnification under this section 9 ("Indemnified Party") in respect of which it proposes to demand indemnification hereunder, the Indemnified Party shall promptly send written notice to the indemnifying party (the "Indemnifying Party") to that effect and shall consult in good faith with the Indemnifying Party with respect thereto; the failure to give such notice shall not affect the liability of the Indemnifying Party under this agreement unless the failure materially and adversely affects the ability of the Indemnifying Party to defend the claim. Subject to the Indemnified Party's right to participate at its own expense, the defense and settlement of any such action, suit or proceeding shall be under the sole direction and control of the Indemnifying Party, who shall reasonably proceed in good faith at all times; provided that the control by the Indemnifying Party of the defense of such action, suit or proceeding shall not delay the timely defense thereof; and provided, further, that the Indemnifying Party shall not consent to the entry of any judgment or enter into any settlement which includes any term which shall require any act or forbearance on the part of the Indemnified Party and which does not unconditionally release the Indemnified Party from all liability in respect of such claim, action or proceeding without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. In the event the Indemnifying Party does not proceed in good faith and in a timely manner to defend any action, suit or proceeding, the Indemnified Party may assume such defense. 10 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 AP and AP's Stockholder have used the services of Veronis, Suhler & Associates, Inc. and shall be liable for payment of the fee in the amount of $150,000 payable to it at the Closing. 10.2 Entire Agreement. This agreement contains, and is intended as, a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters, and cannot be changed or terminated orally. Except as specifically set forth in this agreement, there are no representations or warranties by any party in connection with the transactions contemplated by this agreement. 10.3 Governing Law. This agreement shall be governed by and construed in accordance with the law of the State of Washington applicable to agreements made and to be performed in Washington. 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, sent by facsimile (with a copy by any other means permitted for the giving of notices under this agreement) or mailed by registered mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): (a) If to AP or AP's Stockholder, addressed to either or both of them at: American Passage Media Corporation 401 Second Avenue West Seattle, Washington 98119-4107 Attention: Gilbert Scherer, President Fax: (206) 281-5993 with a copy to: Robert S. Jaffe, Esq. Preston Gates & Ellis 5000 Columbia Center 701 Fifth Avenue Seattle, Washington 98104-7078 Fax: (206) 623-7022 (b) If to Buyer or NET, addressed to either or both of them at: Network Event Theater, Inc. 149 Fifth Avenue New York, N.Y. 10010 Attention: Harlan D. Peltz, Chairman Fax: (212) 779-3241 with a copy to: Bertram A. Abrams, Esq. Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, New York 10036 Fax: (212) 969-2900 10.6 Separability. If any provision of this agreement is held to be invalid or unenforceable, the balance of this agreement shall remain in effect. 10.7 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. 10.8 Publicity. Prior to the Closing neither Buyer (or NET) nor AP (or AP's Stockholder) shall, without the consent of the other, make any public statement or disseminate any information (other than to its attorneys, accountants, advisors and employees on a need-to-know basis or other than to obtain any approvals or consents required hereunder) regarding the transaction contemplated by this agreement, except that Buyer and NET may release such information regarding the transaction as they reasonably determine necessary, after consultation with AP, to comply with applicable law or the requirements of Nasdaq. After the Closing Buyer and NET may release such information regarding the transaction as they determine appropriate after consultation with AP. 10.9 Assignment. Prior to the Closing, none of the parties may assign any of its rights under this agreement except that Buyer or NET may assign its rights to a subsidiary or affiliate of NET. After the Closing, any of the parties may assign any of its rights under this agreement (including its rights under section 6.7). No assignment shall relieve the assignor of its obligations under this agreement. Neither AP, Buyer nor NET may assign any of its rights under the AP Ancillary Documents, Buyer Ancillary Documents or NET Ancillary Documents, except as otherwise expressly provided therein. 10.10 Specific Performance. AP and AP's Stockholder acknowledge that the Business is of a special, unique and extraordinary character, and that any material breach by AP of its obligation to consummate the sale pursuant to this agreement could not be compensated for by damages. Accordingly, if AP breaches its obligations under section 1 or 6.3 of this agreement, Buyer shall be entitled, in addition to any other remedies that it may have, to enforcement of this agreement by a decree of specific performance requiring AP to consummate the sale pursuant to this agreement (and on the terms specified in this agreement) and no bond or other security shall be required. 10.11 Attorneys' Fees. In any action brought to enforce or seek damages under this agreement, the prevailing party shall be entitled to recover from the losing party the attorneys' fees and all other costs and expenses reasonably incurred by it. 10.12 Guaranty of Performance. NET guarantees to AP the prompt and full performance when due of all obligations of Buyer to AP arising under this agreement. 10.13 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. NETWORK EVENT THEATER, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer AMERICAN PASSAGE MEDIA, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer AMERICAN PASSAGE MEDIA CORPORATION By: /s/ Gilbert Scherer Gilbert Scherer President and Chief Executive Officer /s/ Gilbert Scherer Gilbert Scherer EX-99 4 SUBORD. PROMISSORY NOTE SUBORDINATED PROMISSORY NOTE $750,000 September 13, 1996 FOR VALUE RECEIVED, the undersigned American Passage Media, Inc., a Delaware corporation ("Maker"), located at 149 Fifth Avenue, New York, NY 10011, promises to pay in lawful money of the United States to American Passage Media Corporation, a Washington corporation ("Holder"), at 401 Second Avenue West, Seattle, WA 98119, or at such other place as Holder hereof may from time to time designate in writing, the principal sum of Seven Hundred Fifty Thousand and No/00 Dollars ($750,000), with interest on the unpaid principal from the date hereof at the rate of eight percent (8%) per annum. Interest shall be computed on the basis of a year of 365 days and the actual number of days elapsed. This Note shall be paid in eight equal quarterly installments of Ninety-Three Thousand Seven Hundred Fifty and No/100 Dollars ($93,750) together with interest thereon. The first payment shall be due on December 13, 1996 and thereafter payments shall be due on the first day of each successive quarter. The entire outstanding principal balance, together with all accrued interest and any costs or expenses, shall in any event be payable in full on or before December 13, 1998. This Note may be prepaid in part or in full, at any time, without penalty. In the event Maker fails to pay any amount hereunder when due, and such failure continues for a period of five (5) days after the date Holder notifies Maker of such failure ("Notice"), such failure shall constitute a default hereunder and, at the option of Holder, without prior notice, the entire indebtedness hereby represented shall immediately become due and payable and bear interest at the rate of twelve percent (12%) per annum until this Note is fully paid. Holder shall be obligated to provide the Notice only for Maker's initial failure to make payments due hereunder; thereafter, no Notice shall be required and Holder may accelerate payments due hereunder in the event Maker fails to pay any amount when due hereunder or within five (5) days thereafter. It is specifically acknowledged by Maker that timely payments are of the essence of this Note. If suit is brought on this Note, or if it is placed in the hands of an attorney for collection, after any default, Maker promises to pay all costs of collection, including reasonable attorneys' fees and costs incurred thereby, whether or not a suit is filed. The waiver by Holder of any breach or violation of or default under any provisions of this Note shall not constitute a waiver by Holder of any other provision or any subsequent breach or violation of this Note or default hereunder. Maker and all endorsers and all persons liable or to become liable on this Note, waive demand, presentment and protest, waive notice of demand, protest, dishonor and nonpayment, consent to any and all renewals and extensions of the time and payment hereof and further agree that at any time the terms of payment hereof may be modified by agreement between the Holder hereof and Maker without affecting the liability of any party to this Note or any person liable or to become liable with respect to any indebtedness evidenced thereby. This Note and the payments of principal, interest and all other amounts that may become due under this Note are subordinate and junior in right of payment, in the manner and to the extent specified in the Subordination Agreement dated this date among Holder, Maker and Signet Bank, to the principal of and premium, if any, and interest on all indebtedness of Maker for money borrowed on this date from Signet Bank, and any renewals, extensions, refundings and substitutions of that indebtedness. This Note and the payment of principal, interest and all other amounts that may become due under this Note are also subordinate and junior in right of payment, in the manner and to the extent required by any financial institution from whom Maker borrows money in connection with any substitution or replacement in whole or in part of the indebtedness referred to in the previous sentence, to the principal and premium, if any, and interest on all such substitution or replacement indebtedness of Maker to that financial institution. Notwithstanding the foregoing, Maker shall continue to make all principal and interest payments as provided herein as long as no event of default has occurred and is continuing under the terms of any note or other agreement or instrument relating to the indebtedness to any institutional lender referred to above. This is the subordinated promissory note referred to in, and is subject to all of the terms of the Asset Purchase Agreement dated September 13, 1996 among Holder, its majority stockholder, Gilbert Scherer, Network Event Theater, Inc., and Maker. Notice is hereby given that oral agreements or oral commitments to loan money, extend credit, or to forbear from enforcing repayment of a debt are not enforceable under Washington law. This Note is made with reference to and is to be construed in accordance with the laws of the State of Washington. American Passage Media, Inc. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer EX-99 5 GUARANTY GUARANTY THIS GUARANTY is executed by the undersigned, Network Event Theater, Inc., a Delaware corporation ("Guarantor"), in order to induce American Passage Media Corporation, a Washington corporation ("AP") to enter into an Asset Purchase Agreement dated September 13, 1996, the Subordinated Promissory Note and other agreements referenced therein (collectively, the "Agreements") with American Passage Media, Inc. (the "Company"). The Company is a subsidiary of Guarantor. In consideration of the foregoing, Guarantor hereby guarantees to AP, its successors and assigns, (i) the full and prompt payment of the Indebtedness, as hereinafter defined, on the terms and conditions set forth herein and (ii) the performance of all other obligations of the Company under the Agreements, as hereinafter defined. 1. The term "Indebtedness" as used in this Guaranty shall mean and include any and all of the Company's liabilities, obligations, debts, and indebtedness to AP, direct or contingent, now existing or hereafter incurred or created arising out of or in respect of the Agreements, including, without limitation, all principal amounts, interest, fees, costs, expenses (including, without limitation, expenses of collection and attorneys' fees), taxes and indemnities. 2. The obligations of Guarantor hereunder shall not be impaired, discharged, or in any manner affected as a result of: (i) the nonexistence of any of the Company as a legal entity; (ii) any lack of authority of any of the Company to execute the Agreements; (iii) the voluntary or involuntary liquidation, sale, or other disposition of all or substantially all of the assets of the Company; (iv) any receivership, insolvency, bankruptcy, reorganization or other similar proceeding affect any of the Company or Guarantor; or (v) any impairment, modification, release, discharge or limitation of the liability of the Company, or any modification, discharge or extension of the terms of any of the Indebtedness resulting from the operation of the United States Bankruptcy Code or any similar federal or state statute. 3. This Guaranty is a guaranty of payment and not collection. The failure of AP to exercise any rights or remedies it has or may have against the Company shall in no way impair the obligations of Guarantor hereunder. The liability of Guarantor under this Agreement is and shall be direct. 4. (A) Upon the happening of any event of default under the Agreements, including nonpayment of any amounts then due and the expiration of any applicable grace period, AP may immediately and at any time thereafter, without notice to the Company or any other person, make the Indebtedness immediately due and payable by Guarantor. (B) Upon telex or other written notice from AP to Guarantor of any event of default and request for payment, Guarantor shall immediately pay to AP any and all Indebtedness then due and payable in immediately available funds. 5. Guarantor hereby consents to the following, none of which shall affect, change, or discharge the obligations of Guarantor under this Guaranty: (i) any renewal of, or extension of the time or times of payment of any portion of the Indebtedness; (ii) acceptance by AP of any security of any kind; (iii) surrender, release, reconveyance (partial or otherwise), exchange, impairment, or alteration of any security of any kind for the Indebtedness; (iv) acceleration of the maturity of the Indebtedness; (v) any forbearance, indulgence or waiver by AP under any of the Agreements; (vi) release (partial or otherwise), or alteration of the liability of, any maker, endorser, or guarantor of the Indebtedness; (vii) settlement or compromise of any claim of AP against the Company; (viii) the amendment, modification or extension of any of the Agreements, with or without notice to Guarantor. 6. Guarantor hereby expressly waives (on its own behalf and not on behalf of the Company) the following: (i) notice of the acceptance of this Guaranty; (ii) notice of the amount of the Indebtedness now existing or which may hereafter exist; (iii) notice or demand for payment, notice of default or notice of nonpayment related to the Indebtedness; (iv) presentment, protest and notice of protest, as to the Indebtedness or as required under any of the Agreements; (v) notice of assignment or transfer, of any of the Agreements or the Indebtedness; (vi) all other notices to which Guarantor might otherwise be entitled in connection with this Guaranty, other than those expressly provided for in this Guaranty; (vii) any defense based upon an alleged election of remedies by AP; (viii) any defense based upon any claim that any exercise of any remedies by AP has impaired or destroyed Guarantor's rights of subrogation against the Company; (xi) any right to require AP to proceed against any of the Company or any other person, to proceed against or exhaust any security held by AP, or to pursue or exhaust any other remedy available to AP, before proceeding against Guarantor; and (x) any claim based upon the failure of AP to file or enforce a claim against the estate (in administration, bankruptcy, or any other proceeding) of any party. 7. Guarantor shall reimburse AP for all costs and expenses, including without limitation, reasonable attorneys' fees, incurred by AP whether or not suit is instituted, in enforcing or exercising any rights, powers, privileges or remedies granted to AP under this Guaranty. 8. This Guaranty shall inure to the benefit of AP, its successors and assigns. 9. Guarantor acknowledges that it has taken and will hereafter take all steps necessary to at all times be fully informed about all aspects of the financial condition and business affairs of the Company that Guarantor deems relevant to the obligations of Guarantor hereunder and hereby waives and fully discharges AP from any and all obligations, if any, to communicate to Guarantor any information whatsoever regarding the financial condition or business affairs of the Company. 10. If now or hereafter the Company is or becomes insolvent, than at no time shall the Guarantor be or become a "creditor" of the Company within the meaning of II U.S.C. 547(b), or any successor provision of the federal bankruptcy laws. 11. Guarantor acknowledges and agrees that Guarantor's obligations under this Guaranty shall apply to and continue with respect to any amount paid to AP that is subsequently recovered from AP for any reason whatsoever (including without limitation as a result of a bankruptcy, insolvency, or fraudulent conveyance proceeding). 12. This instrument and the Agreements contain the entire agreement of the parties. It may not be modified or amended orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, modification, amendment, extension or discharge is sought. 13. This Guaranty shall be governed by and shall be construed in accordance with the laws of the State of Washington. 14. NOTICE TO GUARANTOR: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 15. Notwithstanding anything to the contrary in this Guaranty, the obligations of Guarantor are subject to all the terms and conditions of the respective Agreements and this Guaranty is not intended to expand the rights that AP would have against Guarantor if Guarantor had been a direct obligor to AP instead of the Company; accordingly with respect to those provisions of this Guaranty that relate to AP's right to enforce this Guaranty and to recover the costs incurred by it in enforcing this Guaranty, AP shall not have any rights under this Guaranty except to the extent that those rights are provided for in, or arise out of the express terms of, the Agreements. Without limiting the generality of foregoing, (a) the obligations of Guarantor are subject to the subordination provisions of the Subordinated Promissory Note and the related Subordination Agreement and Guarantor shall not be obligated to make any payment under this Guaranty to the extent such payment would be prohibited under those subordination provisions, (b) AP's rights to indemnification shall be limited to those expressly stated in the Asset Purchase Agreement, provided however, any indemnification obligations of the Company contained in the Asset Purchase Agreement shall be deemed to be indemnification obligations of Guarantor, and (c) the Guarantor may assert and shall be entitled to the benefit of all defenses and counterclaims available to the Company. GUARANTOR: Network Event Theater, Inc. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer EX-99 6 OPTION AGREEMENT OPTION AGREEMENT September 13, 1996 The parties to this agreement are Network Event Theater, Inc., a Delaware corporation (the "Company"), and American Passage Media Corporation, a Washington corporation ("AP"). Pursuant to an Asset Purchase Agreement dated September 13, 1996 among AP, Gilbert Scherer, the Company and American Passage Media, Inc., a wholly-owned subsidiary of the Company ("Buyer"), Buyer has today acquired all of AP's business and assets relating to sales and marketing activities involving the high school and college-student markets, including the sale of advertising and of promotional and sponsorship opportunities, campus postering operations, college newspaper advertising placement operations, GymBoards operations, AdRaX operations, the Crux WebSite, Take the Break operations, Directory of Classes national advertising representation, and other business activities, such as those set forth in the Job Choices representation agreement. The specific products and activities purchased from AP are referred to collectively as the "Business". As partial consideration for the acquisition of the Business, the Company has agreed to grant to AP an option to purchase shares of the Company's common stock on the terms and conditions set forth in this agreement. It is therefore agreed as follows: 1. Grant of Option. (a) Subject to the terms of this agreement, the Company hereby grants to AP an option to purchase, for a price of $2.627 per share, up to 100,000 shares of the Company's common stock (the "Maximum Shares"), subject to the following: (i) if the Net Revenue of the Business for the 36 calendar months following June 30, 1996 multiplied by .33 equals 120% or more than $5,802,209 (the "1996 Net Revenue"), the options shall be exercisable and fully vested as to 100% of the Maximum Shares; (ii) if the Net Revenue of the Business for the 36 calendar months following June 30, 1996 multiplied by .33 equals 115% or more, but less than 120%, of the 1996 Net Revenue, the options shall be exercisable and fully vested and fully vested as to 75% of the Maximum Shares and no more; (iii) if the Net Revenue of the Business for the 36 calendar months following June 30, 1996 multiplied by .33 equals 110% or more, but less than 115%, of the 1996 Net Revenue, the options shall be exercisable and fully vested as to 50% of the Maximum Shares and no more; or (iv) if the Net Revenue of the Business for the 36 calendar months following June 30, 1996 multiplied by .33 equals 100% or more, but less than 110%, of the 1996 Net Revenue, the options shall be exercisable and fully vested as to 25% of the Maximum Shares and no more. (b) As used in this agreement, the term "Net Revenue" means an amount equal to gross revenue, less the sum of the following: payments to college newspapers for ad placement costs, agency commissions, cash and trade discounts, credits to customers, and competitive discounts. (c) Within 30 days after the expiration of 36 calendar months following June 30, 1996, the Company shall determine the Net Revenue of the Business for that period and shall prepare and deliver to AP a statement of its determination (which statement shall set forth in reasonable detail the basis for such determination). That statement shall be final and binding unless, within five days after it is delivered to AP, AP delivers to the Company a statement disputing the Company's determination. If AP disputes the Company's determination, the parties shall confer with regard to the determination and an appropriate adjustment shall be made as agreed upon by the parties (or, if they are unable to resolve the matter within ten days after AP gives a dispute notice, a firm of independent certified public accountants, whose decision on the matter shall be binding and whose fees and expenses shall be borne 50% by the Company and 50% by AP, shall be designated by agreement between them; if they fail to agree on the firm to decide the matter within an additional five days, the accountants shall be selected by the president of the American Institute of Certified Public Accountants). (d) In connection with its business dealings with Buyer after this date, AP shall not take any action that will result in an artificial or temporary increase in the Net Revenue of the Business for the 36 calendar months following June 30, 1996. AP represents and warrants to the Company that it has not taken any such action since June 30, 1996. Buyer covenants that it shall not take any action that will result in an artificial decrease in the Net Revenue of the Business for the 36 calendar months following June 30, 1996. If Buyer sells any revenue producing division of the Business other than in connection with a sale of substantially all of its assets, the parties shall in good faith negotiate an appropriate adjustment to the terms of section 1(a) to reflect the impact on Net Revenue from that sale as of the date of sale. 2. Exercise of Option. The option (to the extent exercisable in accordance with paragraph 2(a)) may be exercised in whole at any time or in part from time to time during the period commencing on the date of final determination of Net Revenue for the 36 calendar months following June 30, 1996 and ending at 5:00 P.M., New York City time on the 180th day thereafter (or, if that is not a business day, the next succeeding business day) (the "Termination Date"). For this purpose, the Net Revenue for the 36 calendar months following June 30, 1996 shall be "finally determined" on the fifth day after the Company's statement is given to AP pursuant to paragraph 1(c) or, if AP has given the Company notice that it disputed the statement, on the date the parties agree upon or the accountants determine the Net Revenue. 3. Procedure for Exercise of Option. (a) The option may be exercised only by the delivery to the President of the Company at its principal office, within the time specified in paragraph 2, of a written notice of exercise duly signed by AP (which notice shall indicate any change in the corporate name of AP). The notice shall specify the number of shares for which the option is being exercised and shall be accompanied by payment in full of the purchase price of the shares by (i) certified check payable to the Company, (ii) a certificate or certificates for publicly traded shares of the Company's common stock then owned by AP, duly endorsed for transfer to the Company (which shares shall be valued at the average closing bid price of the Company's common shares on Nasdaq as of 4:00 PM Eastern Standard Time during the three trading days immediately preceding the date the notice is given (the "Valuation Price")), (iii) an executed agreement of AP (accompanied by an opinion of AP's counsel to the effect that the agreement was duly authorized and constitutes the valid and binding obligation of AP enforceable in accordance with its terms) exchanging its right pursuant to this option to purchase a specified number of the shares covered by this option (which exchanged shares shall be valued by multiplying the number of exchanged shares by the difference between the Valuation Price and the exercise price provided for in section 1(a)), or (iv) any combination of these methods that together amount to the full purchase price of the shares for which the option is exercised. Promptly, but in no event more than ten days following the delivery of notice and payment, after the exercise notice and payment are delivered to the Company, the Company shall deliver or cause to be delivered to AP a stock certificate representing the number of shares purchased. (b) Upon exercise of the option, AP shall furnish the Company with such representations and agreements as the Company may reasonably request to assure compliance with the Securities Act of 1933 and such undertakings as may be required by an underwriter of the Company's securities. 4. Non-Transferability. The option provided for in this agreement may not be transferred by AP and may be exercised only by AP, and any purported transfer shall be void. 5. Anti-Dilution Provisions. (a) If there is any stock dividend, stock split, or combination of shares of Common Stock of the Company, the number and amount of shares then subject to this option shall be proportionately adjusted; no change shall be made in the aggregate purchase price to be paid for all shares subject to this option, but such aggregate purchase price shall be allocated among all shares subject to this option after giving effect to such adjustment. (b) If there is any other change in the Common Stock of the Company, including recapitalization, reorganization, exchange of shares, offering of subscription rights, or a merger or consolidation in which the Company is the surviving corporation, such adjustment, if any, shall be made in the shares then subject to this option as the board of directors of the Company may deem equitable. Failure of the board of directors to provide for an adjustment pursuant to this subparagraph prior to the effective date of the action shall be conclusive evidence that no adjustment is required upon such action. (c) If the Company is merged into or consolidated with any other corporation, or if it transfers all or substantially all of its assets to any other corporation, at the election of the Company either (i) the Company shall cause provision to be made for the continuance of this option after such event, or for the substitution for this option of an option covering the number and class of securities which AP would have been entitled to receive in such merger or consolidation or by virtue of such sale if AP had been the holder of record of a number of shares of Common Stock of the Company equal to the number of shares covered by the then unexercised portion of this option, or (ii) the Company shall give to AP written notice of its election not to cause such provision to be made and this option shall become exercisable in full (or, at the election of AP, in part) as to the number of shares that have vested under section 1(a) (or, if the event occurs prior to June 30, 1999, as to 100% of the Maximum Shares) at any time during a period of 20 days, to be designated by the Company, ending not more than 10 days prior to the effective date of such merger, consolidation or sale, in which case this option shall not be exercisable to any extent after the expiration of such 20 day period. In no event, however, shall this option be exercisable after the Termination Date. (d) The Company may engage a firm of independent certified public accountants of recognized standing, which may be the Company's regular auditors, to make any computation required under this paragraph 5 and a certificate of that firm showing the required adjustment shall be conclusive and binding on the parties. 6. Reservation of Shares. The Company will at all times during the term of this agreement reserve and keep available such number of authorized shares as are required to satisfy its obligations under this agreement. 7. Certain Rights not Conferred by Option. (a) Nothing in this agreement shall (i) limit the right of the Company's board of directors to manage the Company's business and affairs (including the authorization of the issuance of additional shares and the determination of the nature and amount of liabilities and obligations incurred by the Company or its subsidiaries) without regard for the effect of any action upon AP or upon the value of the shares subject to, or acquired upon exercise of, this option, or (ii) give AP any claim against the Company or any of its officers or directors with respect to any action or omission relating to the Company's business or affairs, whether or not that action or omission affects the value of the shares subject to, or acquired upon exercise of, this option. (b) AP shall not, by virtue of holding this option, be entitled to any rights of a stockholder in the Company. AP shall not be considered a record holder of any shares purchased upon exercise of the option until the date on which it is actually recorded as a holder of the shares upon the Company's stock records. 8. Miscellaneous. (a) This agreement shall be governed by and construed in accordance with the law of the state of New York applicable to agreements made and to be performed in New York. (b) The failure of a party to insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this agreement. Any waiver must be in writing. (c) All notices and other communications under this agreement shall be in writing and shall be deemed given when delivered personally, sent by facsimile (with a copy by any other means permitted for the giving of notices under this agreement) or mailed by registered mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): If to AP: 401 Second Avenue West Seattle, Washington 98119-4107 Attention: Gilbert Scherer, President Fax: (206) 281-5993 with a copy to: Robert S. Jaffe, Esq. Preston Gates & Ellis 5000 Columbia Center 701 Fifth Avenue Seattle, Washington 98104-7078 Fax: (206) 623-7022 If to the Company: 149 Fifth Avenue New York, N.Y. 10010 Attention: Harlan D. Peltz, Chairman Fax: (212) 779-3241 with a copy to: Bertram A. Abrams, Esq. Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, New York 10036 Fax: (212) 969-2900 (d) This agreement contains a complete statement of all of the arrangements between the parties with respect to the option provided for in this agreement, supersedes all existing agreements relating to the option provided for in this agreement and cannot be changed or terminated orally. NETWORK EVENT THEATER, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz AMERICAN PASSAGE MEDIA CORPORATION By: /s/ Gilbert Scherer Gilbert Scherer EX-99 7 CONSULTING AND NON-COMPETITION AGMT CONSULTING AND NON-COMPETITION AGREEMENT September 13, 1996 The parties to this agreement are American Passage Media Corporation, a Washington corporation ("AP"), and American Passage Media, Inc., a Delaware corporation ("Buyer"). Pursuant to an Asset Purchase Agreement dated September 13, 1996 (the "Asset Purchase Agreement"), AP has today sold to Buyer substantially all of the business and assets relating to sales and marketing activities involving the high school and college student markets (the "Business"), excluding the business of publishing and distributing Directory of Classes. Buyer considers it essential to secure the full value of its purchase that AP provide consulting services, and that AP and its principal executives not compete with Buyer, in connection with Buyer's operation of the Business. Accordingly, it is agreed as follows: 1. Consulting Services. (a) For the periods referred to in section 1(b), AP shall provide consulting services to Buyer in connection with (i) the transition of the Business to Buyer, (ii) the resolution of problems that may arise in the Business from time to time during the Term, and (iii) such other matters relating to the Business as Buyer reasonably may request. The consulting services to be provided by AP shall include assisting in the operation and administration of the Business, providing marketing advice and analysis, and providing contacts with suppliers and customers. (b) AP shall cause Gilbert Scherer and Carl Bryant to be available to Buyer to perform the services provided for in section 1(a) for a period of two years commencing on the date of this agreement and shall cause Linda Naismith, Dan Brillon, Dean Miles, JoAnn Turnbull and other persons reasonably requested by Buyer to be available to Buyer to perform the services provided for in section 1(a) for a period of one year commencing on the date of this agreement. In the event such persons are not available to provide such services, AP shall use its reasonable efforts to substitute persons of comparable experience, provided, however, AP shall not be required to hire any persons. Buyer acknowledges that as long as those individuals remain officers or employees of AP, they shall continue to devote the major portion of their energies and efforts to their responsibilities for AP, and that the consulting services to be provided under this agreement are limited in scope and not intended to materially interfere with those responsibilities. AP recognizes that during the first several months after this date those individuals may be required to devote a significant amount of time to their services under this agreement in connection with the transition of the Business. Notwithstanding the foregoing, none of the individuals referred to above shall be obligated to provide a minimum time commitment to the provision of consulting services, to provide the consulting services in a specific manner, whether in person or otherwise, or to travel for the performance of the consulting services. 2. Compensation. (a) As full consideration for the performance by AP of its obligations under this agreement, Buyer shall pay AP the sum of $273,600, payable in equal quarterly installments commencing on December 13, 1996. (b) AP shall be reimbursed for all expenses (other than the salaries and benefits associated with the persons described in section 1(b)) incurred by AP in connection with the performance of its services under this agreement, but any expense anticipated to exceed $500 for which AP will seek reimbursement must be authorized in advance by Buyer. Buyer shall reimburse AP for its expenses within two weeks after Buyer's receipt of invoices from AP accompanied by appropriate supporting documentation. 3. Non-Competition; Non-Solicitation; Confidentiality. (a) For a period of five years commencing on the date of this agreement (and, with respect to the sale of advertising in college newspapers, for a period of seven years after this date), neither AP nor Gilbert Scherer or Carl Bryant (together with AP, the "Primary Consultants") shall, except as provided herein, directly or indirectly, engage or be interested in (as owner, stockholder, partner, member, manager, lender, employee, agent, consultant or otherwise) any business or entity that engages, anywhere in the world, in sales and marketing activities targeting primarily high school and college-student markets substantially similar to those engaged in by the Business as of the date of this agreement, including, but not limited to, the sale of advertising (in college newspapers and otherwise) and of promotional and sponsorship opportunities, GymBoards, and campus postering operations. However, this section shall not prevent the Primary Consultants from (i) owning as an investment up to 2% of a class of equity securities issued by any competitor of Buyer or its affiliates that is publicly traded and registered under the Securities Exchange Act of 1934 or subject to Section 15(d) of such Act, (ii) continuing to publish and distribute the Directory of Classes, (iii) continuing to operate the GAPS business, (iv) engaging in a business that recruits United States students for Israeli corporations and the Israeli government, and (v) college credit card marketing for MBNA and Kessler Financial Services. (b) For a period of five years commencing on the date of this agreement, none of the Primary Consultants shall, directly or indirectly, employ or solicit for employment or consulting, on its or his own behalf or on behalf of any other person or entity, or otherwise encourage the resignation of, any employee of the Business, other than an employee of the Business whose employment is terminated by Buyer or who terminates his or her employment with Buyer after he or she refuses Buyer's request to relocate to another city. For a period of five years commencing on the date of this agreement, neither Buyer nor any of its affiliates shall, directly or indirectly, employ or solicit for employment or consulting, on its own behalf or on behalf of any other person or entity, or otherwise encourage the resignation of, any employee of AP who is not employed primarily in the Business. (c) For a period of five years commencing on the date of this agreement, none of the Primary Consultants shall disclose to anyone except to carry out their obligations hereunder or unless authorized to do so by Buyer, or use in competition with the Business, any confidential information relating to the Business. Subject to section 3(a), the foregoing shall not prohibit the Primary Consultants from using in their other business ventures information in a non-tangible form, including ideas, concepts, know-how and techniques, which they obtained from their participation or experience in the advertising or media industries. (d) Each of the Primary Consultants and Buyer acknowledges that the remedy at law for breach of the provisions of this section 3 will be inadequate and that, in addition to any other remedy Buyer or AP may have, it shall be entitled to an injunction restraining any breach or threatened breach, without any bond or other security being required and without the necessity of showing actual damages. If any court construes the covenant in this section 3 or any part thereof, to be unenforceable in any respect, the court may reduce the duration or area to the extent necessary so that the provision is enforceable, and the provision, as reduced, shall then be enforceable. 4. Miscellaneous. (a) Neither party may assign its rights under this agreement without the prior written consent of the other party, which consent may be withheld in the other party's sole discretion. (b) All notices and other communications under this agreement shall be in writing and shall be deemed given when delivered personally, sent by facsimile (with a copy by any other means permitted for the giving of notices under this agreement) or mailed by registered mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): If to AP: American Passage Media Corporation 401 Second Avenue West Seattle, Washington 98119-4107 Attention: Gilbert Scherer, President Fax: (206) 281-5993 If to Buyer: c/o Network Event Theater, Inc. 149 Fifth Avenue New York, N.Y. 10010 Attention: Harlan D. Peltz, Chairman Fax: (212) 779-3241 (c) This agreement shall be governed by and construed in accordance with the law of the State of Washington applicable to agreements made and to be performed in Washington. (d) The failure of a party to insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this agreement. Any waiver must be in writing. (e) This agreement, together with the Asset Purchase Agreement, contains a complete statement of all of the arrangements between the parties with respect to its subject matter, supersedes all previous agreements and understandings between or on behalf of them with respect to that subject matter and cannot be changed or terminated orally. (f) AP shall perform the services to be rendered under this agreement as an independent contractor and neither it nor any of its officers or employees shall have any authority to assume or create any obligation or liability on behalf of or in the name of Buyer or to bind Buyer in any respect. AMERICAN PASSAGE MEDIA CORPORATION By: /s/ Gilbert Scherer Gilbert Scherer President and Chief Executive Officer AMERICAN PASSAGE MEDIA, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer The undersigned agree to perform the consulting services provided for in section 1 and to be bound by the provisions of section 3 of the foregoing agreement. /s/ Gilbert Scherer Gilbert Scherer /s/ Carl Bryant Carl Bryant EX-99 8 TRANSITION AGREEMENT TRANSITION AGREEMENT September 13, 1996 The parties to this agreement are American Passage Media Corporation, a Washington corporation ("AP"), and American Passage Media, Inc., a Delaware corporation ("Buyer"). Pursuant to an Asset Purchase Agreement dated September 13, 1996, AP has today sold to Buyer substantially all of the business and assets relating to sales and marketing activities involving the high school and college student markets (the "Business"), excluding the business of publishing and distributing Directory of Classes. This agreement sets forth the terms upon which AP shall provide to Buyer certain services required by Buyer to effect the transition to Buyer of the operation of the Business. Accordingly, it is agreed as follows: 1. Office Space; Office Services. (a) AP shall provide Buyer with the office space currently used by the Business and its employees at 401 Second Avenue West, Seattle, Washington (the "Seattle Site"), 529 Fifth Avenue, New York, New York (the "New York Site"), and Columbia Center II, Suite 290, Rosemont, Illinois (the "Chicago Site") (together, the Seattle Site, the New York Site, and the Chicago Site are the "Sites"). Any common areas (e.g., bathrooms and kitchens) shared with other businesses shall continue to be shared in the same manner. (i) As consideration for the office space to be provided under this section 1(a), Buyer shall make payments to AP at the rate of $0.67 per square foot per month multiplied by the square foot usage as set forth in the Allocation, as defined below, for the Seattle Site, at the rate of $1.67 per square foot per month multiplied by the square foot usage as set forth in the Allocation for the New York Site, and at the rate of $1.34 per square foot per month multiplied by the square foot usage as set forth in the Allocation for the Chicago Site. (ii) All Common Area Maintenance charges for the New York Site and Chicago Site shall be allocated and payable based on each party's square feet occupancy of the applicable Site as set forth on schedule 1 ("Allocation"). (iii) All utilities, janitorial services and real estate-related taxes shall be allocated and payable according to the Allocation, provided however, the taxes for the Chicago Site shall be included in the payments set forth in section 1(a)(i). (b) AP shall provide the Business and its employees at each Site with office services substantially similar to the office services currently provided to the Business and its employees. Those services shall include, but not be limited to, mailroom, security, storage, supply, photocopying, messenger, reception and cafeteria services (including coffee, tea and Friday assortments as previously provided). All costs for the office services shall be allocated and payable according to the Allocation. Additionally, and for the costs set forth herein: (i) AP shall provide Buyer with the telephone services (including local, long distance, voice mail and data link services) at each Site as currently used by the Business and its employees, provided such services are available to AP. AP shall use its reasonable efforts to cause the providers of such telephone services to separately bill to the appropriate party any dedicated line services. In the event such separate billing is not possible, all costs of such telephone services, including basic charges, shall be allocated to the parties based on the Allocation. Without limiting the foregoing, Buyer shall be responsible for the cost of all telephone calls made by its employees (and for the cost of any additional lines added exclusively to provide for Buyer's needs). (ii) All telephone and facsimile maintenance costs shall be allocated and payable according to the Allocation. (iii) AP shall use its reasonable efforts to cause all office supplies ordered by Buyer's employees to be billed separately and directly to Buyer and Buyer shall be responsible for paying those bills and any associated costs. In the event such separate billing is not possible, all costs of such office supplies shall be allocated to the parties based on the Allocation. (iv) AP shall provide Buyer with the copier services at each Site as currently used by the Business and its employees, provided such services are available to AP. All copier costs, including lease and maintenance costs, shall be allocated and payable according to the Allocation. (c) If Buyer is unable to use the office space at any Site during the respective periods set forth in section 1(d) due to the failure of AP to receive the consent of the applicable landlord, AP shall reimburse Buyer for any reasonable costs incurred by Buyer in moving to another site and for any amounts Buyer is required to pay for another site in excess of the amounts provided for in section 1(a)(i). (d) AP shall provide the office space and office services provided for in this section 1 until (i) December 15, 1996, with respect to the Seattle Site, (ii) May 31, 1997, with respect to the New York Site, and (iii) July 14, 1997, with respect to the Chicago Site. 2. Accounting Services. For a period of up to six months after the date of this agreement, AP shall provide to Buyer the following services: (a) AP shall provide to Buyer accounting services necessary to perform the billing, collection and accounting functions of the Business in a manner consistent with the manner in which those functions have been performed in the past. In that connection, AP shall provide to Buyer the services of the accounts receivable clerk, the accounts payable clerk and the accounting manager who previously provided accounting services to the Business. Dan Brillon shall provide limited oversight responsibilities in connection with the accounting operations, subject to Buyer's direction and control. Notwithstanding anything to the contrary contained herein, Buyer shall bear full responsibility for the accounting functions associated with the Business. In the event such personnel are not available to provide such services, AP shall use its reasonable efforts to substitute such personnel with personnel of comparable experience, provided, however, AP shall not be required to hire any personnel. The scope, timing and provision of such services shall be sufficient to carry on the accounting functions of the Business consistent with past practices. (b) Dan Brillon and each of the other accounting personnel referred to in section 2(a) shall assist Buyer in the training of its accounting personnel and the establishment of its accounting systems for the Business. (c) AP shall continue to perform for the Business their accounting procedures with respect to the general ledger, including, but not limited to, posting monthly recurring journal entries and month end close. (d) AP shall prepare on a timely basis consistent with past practices daily, weekly and month-end reports and shall mail the daily and weekly reports to Buyer not later than seven days after preparation thereof and shall mail the month-end reports to Buyer not later than ten days after preparation thereof. AP shall provide to Buyer's representatives full access at all times during normal business hours to all accounting records of the Business, provided, however, in no event shall such access unduly affect the business of AP. (e) As consideration for the accounting services to be provided under this section 2, Buyer shall make payments to AP at the rate of $6,854 per month ("Accounting Services Consideration") (which is equal to the sum of the monthly salaries and benefits of the required number of accounting personnel as agreed upon by the parties and as set forth by individual personnel in schedule 2). As Buyer hires the accounting personnel set forth in section 2(a), the Accounting Services Consideration shall be payable as follows: for the first full month following each such hire, AP shall be paid the entire Accounting Services Consideration; for the second full month following each such hire, AP shall be paid the Accounting Services Consideration less one-half (1/2) the amount allocated in schedule 2 to such hired personnel; and for the third full month following each such hire and thereafter with respect to each such hire, AP shall be paid the Accounting Services Consideration less the amount allocated in schedule 2 to such hired personnel. Buyer shall also reimburse AP for all out-of- pocket expenses incurred by it with Buyer's prior approval in connection with the performance of its accounting services pursuant to this agreement, including, but not limited to, Dan Brillon's travel expense to New York for training, if required. 3. Printing Services. (a) For a period of one year after the date of this agreement, AP shall provide Buyer with such graphic art and printing services as Buyer may require as are consistent with past practices of the Business, provided that AP has the capability to provide such services. AP shall be under no obligation to directly or indirectly maintain any such printing capabilities or capacities. Subject to the foregoing, such services may include, but not be limited to, art production, layout, pre-press, and printing services. All film and other materials provided by Buyer to AP shall be returned to Buyer upon completion of a job. (b) For each printing job submitted by Buyer to AP, AP shall charge Buyer its "in-house" rate, consisting of its direct labor, materials, and equipment and overhead costs as set forth on schedule 3, plus a mark-up of 25% (except that the mark- up for gymboards shall be 13%). (c) For each art production and/or layout job submitted by Buyer to AP, AP shall charge Buyer $60 per hour for the services of an assistant art director and $75 per hour for the services of a senior art director. Additionally, Buyer shall pay all costs for materials related to such jobs. For each pre- press job submitted by Buyer to AP, AP shall charge Buyer $75 per hour plus the costs of any materials related to such job. 4. Fulfillment Services. (a) Until June 30, 1997, AP shall provide Buyer with such fulfillment, warehousing, shipping and related services at its Seattle warehouse as Buyer may require for the Campus Postering and Gymboards businesses. The services to be provided under this section 4 shall be substantially the same as have been provided to the Business since July 1, 1995. (b) As consideration for the services to be provided by AP under this section 4, Buyer shall pay AP a monthly fee at AP's base rate for all direct costs incurred by AP on behalf of Buyer, including, without limitation, labor, shipping materials, freight charges and equipment depreciation, overhead costs and warehouse space of 4,000 square feet. (c) Buyer shall be responsible for maintaining its own post office boxes and permits and for paying its own postage expenses. (d) Upon termination of the services provided for in this section 4, Buyer shall provide AP with detailed instructions as to the shipping or other disposal of its warehoused materials. All of Buyer's materials shall be shipped or otherwise disposed of, at Buyer's expense, within 30 days after the date of termination. 5. Payment. (a) AP shall bill Buyer at the end of each calendar month for the amounts payable by Buyer to AP under this agreement. Each bill shall include reasonable documentation of the charges incurred. Buyer shall have the right to audit the charges and, if it is established that the charges should be more or less than the bill submitted by AP, the charges shall be adjusted accordingly and payment made promptly of any amount owed. (b) Each bill submitted to Buyer under section 5(a) for office space and accounting services shall be payable in full within ten days after receipt of the bill and all other bills submitted to Buyer under section 5(a) shall be paid as soon as practicable but not later than 30 days after receipt of the bill, except that Buyer may withhold payment of any disputed amount until the dispute is resolved. (c) If any service for which Buyer pays a fixed monthly fee is commenced or terminated during the month, Buyer shall only pay a fee for the portion of the month in which it received that service. 6. Termination of Services. Buyer may elect to discontinue any of the services provided by AP under this agreement at any time prior to the termination date specified in a particular section upon 30 days prior notice to AP, except for the provision of fulfillment services pursuant to section 4 which may be discontinued by Buyer prior to the dates specified therein upon 90 days prior notice to AP provided that if during the 90 day period after the notice is given to AP, AP does not perform the fulfillment services in a satisfactory manner, Buyer may terminate the fulfillment services immediately. 7. Delivery of Information. Upon the termination of any service provided for in this agreement, AP shall deliver to Buyer all software, databases, records, files and other information relating to the Business and that service. AP shall not retain copies of any of those materials, except AP may retain copies of all such documents and information as it reasonably determines necessary for archival purposes, shall not use those documents and information for any other purpose, shall not furnish copies to any third party (except as required by law), and shall use reasonable efforts to limit its employees' access to those documents and information, and except that AP may, subject to section 6.7 of the Asset Purchase Agreement, retain copies of and use such documents, information and software to the extent used by AP in its other businesses as of the date of this agreement. 8. Confidentiality. AP shall not at any time or in any manner, either directly or indirectly, use for its benefit or divulge, disclose or communicate to anyone any confidential information relating to the Business obtained by AP in connection with the furnishing of any services or facilities pursuant to this agreement. AP shall use its reasonable efforts to protect such information and treat it as strictly confidential. 9. Representation and Warranty; AP's Performance. AP represents and warrants to Buyer (subject to the applicable consent requirements set forth on schedule 9) that it has the full right to execute and deliver this agreement, to perform its obligations under this agreement, and to and to grant to Buyer the rights granted to it in this agreement; that the execution and performance by AP of its obligations under this agreement will not violate any contractual or other obligation binding upon AP; and that this agreement is a valid and binding obligation of AP. AP shall use its reasonable efforts to provide the services specified in this agreement in a diligent, competent and timely manner, and in substantially the same manner as they were provided prior to the sale of the Business to Buyer. AP shall have no liability to Buyer resulting from the provision of such services except for claims directly attributable to AP's gross negligence or willful misconduct, provided, however, AP shall have liability to Buyer resulting from the provision of the printing services provided for in section 3 to the extent that any vendor of such printing services would have liability to an unrelated third party to which it rendered services pursuant to an arrangement negotiated at arms-length. Notwithstanding the foregoing, in no event shall AP's liability hereunder include any special, incidental, consequential, indirect or similar damages. 10 Miscellaneous. (a) This agreement contains a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters, and cannot be changed or terminated orally. (b) This agreement shall be governed by and construed in accordance with the law of the State of Washington applicable to agreements made and to be performed in Washington. (c) 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. (d) All notices and other communications under this agreement shall be in writing and shall be deemed given when delivered personally, sent by facsimile (with a copy by any other means permitted for the giving of notices under this agreement) or mailed by registered mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): If to AP: American Passage Media Corporation 401 Second Avenue West Seattle, Washington 98119-4107 Attention: Gilbert Scherer, President Fax: (206) 281-5993 If to Buyer: c/o Network Event Theater, Inc. 149 Fifth Avenue New York, N.Y. 10010 Attention: Harlan D. Peltz, Chairman Fax: (212) 779-3241 (e) If any provision of this agreement is held to be invalid or unenforceable, the balance of this agreement shall remain in effect. (f) Neither party may assign its rights under this agreement without the prior written consent of the other party, which consent may be withheld in the other party's sole discretion. (g) In any action brought to enforce or seek damages under this agreement, the prevailing party shall be entitled to recover from the losing party the attorneys' fees and all other costs and expenses reasonably incurred by it. (h) The failure of a party to insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this agreement. Any waiver must be in writing. (i) Buyer is not a partner or joint venturer of AP. Nothing in this agreement shall be construed so as to create either of those relationships or to impose any liability as such on either party, or to grant either party the right to bind the other without the other's prior written consent. AMERICAN PASSAGE MEDIA CORPORATION By: /s/ Gilbert Scherer Gilbert Scherer President and Chief Executive Officer AMERICAN PASSAGE MEDIA, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer Transition Agreement Schedule 1 NY Chi Sea # Personnel 11 2 19 Square Footage Used 3,910 994 4,114 % of Total Office 33% 50% 22% Annual sq ft rate 20.00 16.11 8.09 Monthly sq ft rate 1.67 1.34 0.67 Monthly base rent 6516.67 1334.45 2773.52 Taxes 417.19 inc. 443.99* Utilities/Janitorial 733.13 100.00 693.38 10% NY Rent Tax 766.70 Monthly Subtotals 8433.68 1434.45 3910.89 13779.02 + CAM to be billed $ per Sq Foot $ 2.16 $ 1.44 $ 0.95 Lease End or Move 5/31/97 7/14/97 12/31/96 Date (Taxes in Seattle are estimated) Transition Agreement Schedule 2 Accounting Personnel Base Benefits Salary @ 20% Total % Annual Monthly Accounts Payable Clerk 20,000 4,000 24,000 80% 19,200 1,600 Accounts Receivable Clerk20,000 4,000 24,000 80% 19,200 1,600 Account Manager 36,542 7,308 43,850 100% 43,850 3,654 82,250 6,854 Transition Agreement Schedule 3 PRINTING QUOTE GUIDELINE for STANDARD PRINTING JOB Update: 7/96 CAMPUS POSTERS 1) Maximum Size: 9 x 12 Make Ready Per/M Stock 10 Pt C1S $500 4c $95 Plate ready film provided 2c $85 Standard die cut $200 $25/M ADRAX SIZE 1) Maximum Size: 7 1/2 x 23 $400 4c $60/C Stock: 10 Pt C1S Plate ready film provided No die cut or pocket Minimum: 100 units TAKE ONE 1) Flat BRC 3-1/2 x 5-1/2 $500 4c/2c $34/M Stock: 7 pt. Matte for mailing 2c/2c $30/M Plate Ready film provided GYMBOARD SIZE 1) Standard Size: 17 1/2 x 21 3/4 $250 4c $60/C (per version) Stock: 10 Pts C1S Plate ready film provided Average Run 5500 each of 4 versions Cost for average run = $1300 per version Pre-press work required to go from CRA or film that is not plate ready will be charged at $75 per hour plus materials. Transition Agreement Schedule 9 1. Illinois Office Lease Location: Columbia Center II, Suite 290 9450 West Bryn Mawr Rosemont, IL 60018 Landlord: American National Bank & Trust Company Frain Camins & Swartchild, Managers Lease Expiration: 7/14/97 2. Washington Office Lease Location: 410 Second Avenue West Seattle, WA 98119 Landlord: R&A Investments Lease Expiration: 5/31/98 EX-99 9 REPRESENTATION AGREEMENT DIRECTORY OF CLASSES REPRESENTATION AGREEMENT September 13, 1996 The parties to this agreement are American Passage Media Corporation, a Washington corporation ("Publisher"), and American Passage Media, Inc., a Delaware corporation ("Representative"). Pursuant to an Asset Purchase Agreement dated September 13, 1996, Publisher has today sold to Representative substantially all of its business and assets relating to sales and marketing activities involving the high school and college student markets, excluding the business of publishing and distributing Directory of Classes (the "Periodical"), but including the right to sell national advertising for the Periodical. This agreement sets forth the terms upon which Representative shall serve as the exclusive national advertising representative for the Periodical. It is agreed as follows: 1. Exclusive Representation. Publisher appoints Representative as the exclusive representative for the sale of national advertising in the Periodical. Advertising customarily regarded as local and regional is excluded from this agreement. Publisher shall make available for national advertising various positions in each issue of the Periodical, including Publisher-produced inserts and cards and advertiser-supplied inserts and cards and, to the extent not sold prior to receipt of an insertion order from Representative, the inside front cover and the inside back cover. Publisher shall make available for national advertising such additional positions as may be required to enable Representative to maximize sales of national advertising for the Periodical, except to the extent that in any instance Publisher determines that making available such a position would jeopardize its relationship with a particular school. Publisher shall not place any national advertisements in the Periodical except upon orders submitted by Representative. 2. Commission. (a) Representative shall be entitled to commissions on net national advertising sales ("Sales") in amounts equal to 20% of the total Sales, plus an additional 1% of the total Sales for each $20,000 of Sales in excess of $800,000, in each twelve month period during the term of this agreement, up to maximum commissions for any twelve month period equal to 30% of total Sales. For this purpose, the term "net national advertising sales" means gross billings less agency commissions, extraordinary charges for bindery production, BRC printing and freight charges (except to the extent that those charges exceed the actual out-of-pocket cost of the production, printing or freight), and any cash discounts, where earned. (b) Representative shall use its best efforts consistent with industry practice to invoice and collect on advertising payments. Not later than the 15th and 30th day of each calendar month Representative shall remit to Publisher all amounts collected by it during the preceding fifteen days, less the amount of Representative's commission; each payment shall be accompanied by a statement showing the total amount collected and specifying in reasonable detail the computation of the commission payable to Representative. Publisher shall use reasonable efforts to assist in collection and promptly shall remit to Representative the commission due to Representative with respect to any payments Publisher receives from advertisers or agencies. Representative shall not be entitled to any commission with respect to unpaid advertising. 3. Duties of Representative. (a) Representative shall use its best efforts to solicit and sell national advertising space in the Periodical. Representative shall seek to solicit advertising from individuals and entities of financial integrity, but shall not be responsible for uncollected or uncollectible accounts except that, if payment is not made for any advertisement published pursuant to an insertion order submitted by Representative, Representative shall reimburse Publisher for its direct out-of-pocket mechanical costs incurred in connection with the publication of that advertisement. All advertising solicited by Representative shall be subject to the policies, terms and conditions, published rates and advertising levels established by Publisher and shall be subject to acceptance by Publisher in accordance with its established procedure. Representative shall maintain payment terms consistent with Publisher's past practices and, in the absence of a bona fide dispute with an advertiser or agency, Representative shall not take any action that would result in deferral or delay of advertising payments from any advertiser. Representative shall submit to Publisher for prior approval all proposals prepared for advertisers containing any merchandising or sponsorship participation. (b) Representative acknowledges that Publisher is required to obtain approval for all advertising in advance of publication from the registrars' offices of all participating colleges and Representative shall assist Publisher in complying with this requirement. (c) Representative shall keep complete records of all sales calls and shall provide Publisher with information regarding its sales calls upon Publisher's request. 4. Publisher's Obligations. (a) Publisher shall make available to Representative all information available to it with respect to prospective national advertisers and shall refer to Representative all inquiries and requests with respect to national advertising in the Periodical. (b) Publisher shall provide to Representative, at no cost to Representative, copies of the Periodical and all available promotional aids, including rate cards, media kits and research information. Publisher shall work with Representative in developing any new sales materials, media kits, etc., and any such materials developed by Representative shall require Publisher's written approval. (c) Publisher shall provide to national advertisers make-goods for unsatisfactory advertisements that result from publishing or manufacturing errors. 5. Expenses. Representative shall bear all expenses incurred by it in connection with its solicitation and sale of advertising space in the Periodical, including, but not limited to, travel, entertainment and telephone. If Publisher in writing requests Representative to travel, attend trade shows, conventions or sales meetings, or perform other services not in the normal course of its duties, Publisher shall reimburse Representative for its reasonable expenses incurred in that connection, upon submission of appropriate documentation. 6. Conflicts of Interest. During the term of this agreement, Representative shall not represent any directory-type publication that directly competes for advertising sales with the Periodical in the college student market, unless disclosed in writing and agreed to by Publisher. 7. Term and Performance Requirements. (a) Except as otherwise provided in this section 7, Representative's appointment as exclusive representative for the sale of national advertising shall be in effect for a period of eight years and may be renewed by Representative for additional periods of one year each by notice given to Publisher not later than six months prior to the expiration of the initial eight year term or three months prior to the expiration of any renewal year. Representative shall not have the right to renew, however, unless it has achieved the Minimum Sales Level referred to in section 7(b) for the year preceding the year during which the notice of renewal is given. (b) Representative's appointment as exclusive representative for the sale of national advertising may be terminated by Publisher by notice given to Representative within thirty days after each anniversary of the date of this agreement (including during any renewal period), commencing with the second anniversary, if Representative's total Sales for the twelve-month period or the twenty-four month period preceding that anniversary were less than the respective "Minimum Sales Levels" for those periods. The Minimum Sales Level for the twelve month period preceding any anniversary initially shall be $400,000 and the Minimum Sales Level for the twenty-four month period preceding any anniversary initially shall be $1 million, and each of those amounts shall be (i) proportionately decreased as of each anniversary (commencing with the first anniversary) to the extent that the aggregate rate base for all issues published during the preceding twelve-month period was less than 4,000,000 and (ii) increased by 5% on each anniversary (commencing with the first anniversary), except that there shall be no increase on any anniversary unless the Periodical's rate base with respect to each issue published during the preceding twelve-month period was equal to or greater than 1,000,000. (c) Representative's appointment as exclusive representative for the sale of national advertising may be terminated by Representative at any time during the initial term upon six months notice to Publisher and may be terminated by Representative at any time during any renewal term upon three months notice to Publisher. (d) Representative's appointment as exclusive representative for the sale of national advertising may be terminated by either party by notice given to the other if the other has breached a material provision of this agreement and failed to cure the breach within 30 days after notice of the breach given to it by the terminating party. (e) If Representative's appointment as exclusive representative for the sale of national advertising is terminated by either party, other than pursuant to section 7(d), Representative shall continue to be entitled to receive commissions on all insertion orders on hand or contracts in force on the effective date of termination. 8. Representative's Rights Upon Sale or Discontinuance of Periodical. (a) If at any time Publisher wishes to sell all or substantially all of the assets and business of the Periodical, Publisher shall give notice to Representative of the proposed sale and Purchaser shall have the right to make an offer to purchase the assets and business by notice (setting forth the proposed purchase price and other terms of the purchase) given to Publisher at any time within 30 days after the date Publisher's notice is given. If Representative does not make an offer within that 30 day period, Publisher may sell the assets and business to an unrelated third party at any price and on any terms. If Representative does make an offer within that 30 day period, Publisher may only sell the assets and business to an unrelated third party at a price and on terms more favorable to Publisher than the price and terms specified in Representative's offer. If a sale to a third party pursuant to this section is not consummated within 120 days following the notice to Representative, Publisher may not sell all or substantially all of the assets and business of the Periodical to a third party unless it again complies with the provisions of this section 8(a). (b) Notwithstanding the provisions of section 8(a), Publisher may not sell the assets and business of the Periodical to a third party unless (i) Publisher pays to Representative the Refund Amount (as defined below) as of the date of sale or (ii) the third party assumes, pursuant to an agreement in form and substance reasonably satisfactory to Representative, Publisher's obligations under this agreement, Publisher guarantees the payment to Representative of the Refund Amount as of the date of sale, and Representative approves the transaction (which approval may not be unreasonably withheld). (c) If Publisher shall at any time cease publication of the Periodical without selling the assets of the Periodical to a third party, Publisher shall within 30 days thereafter pay Representative the Refund Amount as of the date publication ceased (but excluding any amount in the nature of interest provided for in section 8(e)). (d) If the rate base for the Periodical is less than 950,000 for any issue, within 30 days after publication of that issue Publisher shall pay to Representative the Refund Amount as of the date of payment (but if Publisher ceases publication of the Periodical within that thirty day period, the payment shall exclude any amount in the nature of interest provided for in section 8(e)). (e) The purchase price of the business and assets acquired by Representative from Publisher on the date of this agreement included the amount of $625,000 attributable to the right to sell national advertising for the Periodical, and the parties have agreed that, under certain circumstances, as described above, Representative shall be entitled to the return of all or a portion of that amount (less net amounts realized by Representative under this agreement), together with an amount in the nature of interest on that amount. The amount to which Representative shall be entitled is referred to above as the "Refund Amount," which, as of any date, shall be an amount equal to (i) $625,000 less an amount (the "Shortfall") equal to 60% of the excess of the total commissions paid to Representative under this agreement prior to that date over the total direct sales costs (i.e., commissions, promotion costs, travel and entertainment expenses) incurred by Representative solely in connection with the Periodical prior to that date, plus (ii) the sum of the amounts in the nature of interest that result from calculating an amount in the nature of interest through the last day of each calendar quarter after the date of this agreement, at the rate of 12.5% a year, on (x) the amount of the Shortfall as of the last day of that quarter plus (y) the total of the amounts in the nature of interest resulting from the calculation for all prior quarters. (f) Any Refund Amount payable to Representative under this section 8 shall be paid first by offsetting that amount against the next payments otherwise due under the promissory note delivered by Representative to Publisher pursuant to the Asset Purchase Agreement, and any excess amount shall be paid by Publisher to Representative by wire transfer or certified or bank check. Upon payment of any Refund Amount this agreement shall terminate immediately. 9. Confidentiality. (a) Within 30 days after termination of Representative's appointment as exclusive representative for the sale of national advertising, Representative shall return to Publisher all promotional materials, marketing or sales research, demographic studies and any and all other data or information pertaining to the Periodical. (b) Neither party shall at any time during or after the term of this agreement divulge to any third party any confidential information relating to the Periodical or to the relationship between Publisher and Representative. 10. Miscellaneous. (a) This agreement contains a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters, and cannot be changed or terminated orally. (b) This agreement shall be governed by and construed in accordance with the law of the State of Washington applicable to agreements made and to be performed in Washington. (c) 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. (d) All notices and other communications under this agreement shall be in writing and shall be deemed given when delivered personally, sent by facsimile (with a copy by any other means permitted for the giving of notices under this agreement) or mailed by registered mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): If to Publisher: American Passage Media Corporation 401 Second Avenue West Seattle, Washington 98119-4107 Attention: Gilbert Scherer, President Fax: (206) 281-5993 If to Representative: c/o Network Event Theater, Inc. 149 Fifth Avenue New York, N.Y. 10010 Attention: Harlan D. Peltz, Chairman Fax: (212) 779-3241 (e) If any provision of this agreement is held to be invalid or unenforceable, the balance of this agreement shall remain in effect. (f) Representative may assign its rights under this agreement to (i) any subsidiary or affiliate of Representative, (ii) any purchaser of all or substantially all of the assets and business of Representative, or (iii) any other entity with the prior written consent of Publisher, provided that the assignee assumes (in a writing satisfactory in form and substance to Publisher) Representative's obligations under this agreement. No such assignment shall relieve Representative of its obligations under this agreement. (g) In any action brought to enforce or seek damages under this agreement, the prevailing party shall be entitled to recover from the losing party the attorneys' fees and all other costs and expenses reasonably incurred by it. (h) The failure of a party to insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this agreement. Any waiver must be in writing. (i) Representative is an independent contractor and not a partner or joint venturer of Publisher. Nothing in this agreement shall be construed so as to create any of those relationships or to impose any liability as such on either party, or to grant either party the right to bind the other without the other's prior written consent. AMERICAN PASSAGE MEDIA CORPORATION By: /s/ Gilbert Scherer Gilbert Scherer President and Chief Executive Officer AMERICAN PASSAGE MEDIA, INC. By: /s/ Harlan D. Peltz Harlan D. Peltz Chairman and Chief Executive Officer EX-99 10 BUSINESS LOAN AGREEMENT SIGNET BANK BUSINESS LOAN AGREEMENT Principal Loan Date Maturity Loan No Call $3,500,000.00 9-13-1996 09-30-2001 Collateral Account Officer Initials anerican References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: American Passage Media, Inc. Lender: SIGNET BANK 149 Fifth Avenue Suite 500 New York, NY 10010 7799 Leesburg Pike Falls Church, VA 22043 THIS BUSINESS LOAN AGREEMENT between American Passage Media, Inc. ("Borrower") and SIGNET BANK ("Lender") is made on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of September 11, 1996, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means American Passage Media, Inc. and its successors and assigns. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." Grantor. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, and their personal representatives, successors and assigns. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness and their personal representatives, successors and assigns. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, including all principal, interest and other fees, costs and charges, if any, together with all other present and future liabilities and obligations of Borrower, or any one or more of them, to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several, or joint and several, and no matter how the same may be evidenced or shall arise. Lender. The word "Lender" means SIGNET BANK, its successors and assigns. Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. Loan. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. Permitted Liens. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean and include without limitation any and all types of liens and encumbrances, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (a) any other documents required under this Agreement or by Lender or its counsel, including without limitation any guaranties described below and any subordinations described below. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of Borrower's properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, or about any such properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any prior owners or occupants of any such properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any such properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, or about any such properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon such properties to make such inspections and tests as Lender may deem appropriate to determine compliance of such properties with this section of the Agreement. Any inspections or tests made by Lender shall be for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating such properties for hazardous waste. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in such properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any such properties, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrowees Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. Location of Borrower's Offices and Records. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 401 2nd Avenue, Seattle, WA 98119. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements. Furnish Lender with, as soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender, who shall state that such financial statements present fairly the consolidated financial position of Borrower as of the date of such financial statements and the results of its operations for the period covered by such financial statements in conformity with generally accepted accounting principles applied on a consistent basis (except for changes in the application of which such accountants concur) and shall not contain any "going concern" or like qualification or exception or qualifications arising out of the scope of the audit. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Financial Covenants and Ratios. Comply with the following covenants and ratios: Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may from time to time reasonably require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (a) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values, and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, on Lender's forms, and in the amount and by the guarantor named below: Guarantor Amount Network Event Theater, Inc. Unlimited Subordination. Prior to disbursement of any Loan proceeds, deliver to Lender a subordination agreement on Lender's forms, executed by Borrower's creditor named below, subordinating all of Borrower's indebtedness to such creditor, or such lesser amount as may be agreed to by Lender in writing, and any security interests in collateral securing that indebtedness to the Loans and security interests of Lender. Name of Creditor Amount American Passage Media Corporation $750,000.00 Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Fees and Charges. In addition to all other agreed upon fees and charges, pay the following: a closing fee equal to $50,000.00 on the date of this Agreement and a commitment fee at the rate of .375% per annum on the original unpaid balance of the Line of Credit, payable in arrears on the 1st of each calendar quarter after the date hereof. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except U.S. federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (a) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (b) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (c) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Capital Expenditures. Make or contract to make capital expenditures, including leasehold improvements, in any fiscal year in excess of $100,000 or incur liability for rentals of property (including both real and personal property) in an amount which, together with capital expenditures, shall in any fiscal year exceed such sum. Indebtedness and Liens. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. ADDITIONAL PROVISION. Borrower will have no asset sales greater than the $100,000.00 without Bank's consent and, if agreed to, 100% of proceeds after expenses reduce the revolving commitment amount. CONSOLIDATIONS, MERGERS AND ACQUISITIONS. Borrower will not, without prior written notice to Lender, purchase or otherwise acquire any capital stock, assets, obligations, or other securities, make any capital contribution to, or otherwise invest in or acquire any interest in, any person, which exceeds the sum of $500,000.00. FINANCIAL COVENANTS. The Borrower will be subject to covenants, calculated quarterly, including a Fixed Charge Coverage ratio of 1.15 to 1, an Interest Coverage ratio of 2.5 to 1.0 and a declining cash flow leverage test not to exceed: 3.50 to 1 from closing through December 31, 1996; 3.25 to 1.0 from January 1, 1997 through December 31, 1997; 2.50 to 1.0 from January 1, 1998 through December 31, 1998 and 2.00 to 1.0 throughout the remaining term of the loan. Fixed Charge Coverage: Operating Cash Flow divided by total fixed charges. Interest coverage: Operating Cash Flow divided by total interest expense. Pro Forma Debt Service Coverage: Operating Cash Flow divided by Pro Forma Debt Service and Cash Flow Leverage: Total Funded Debt divided by operating cash flow. DEFINITIONS. Funded Debt. All indebtedness for borrowed money, capitalized leases, deferred purchase price for acquisitions and guarantees. Operating Cash Flow. Earnings before interest, taxes, depreciation and amortization plus changes in deferred subscription income plus non-recurring acquisition expenses for the trailing four quarters. Total Fixed Charges. For the most recently completed twelve month period, the sum of: (a) interest; (b) mandatory principal payments or reductions on funded debt; (c) capital expenditures; and (d) taxes paid. Interest Expense. The sum of interest expense and commitment fees on Funded Debt. Pro forma Debt Service. Mandatory principal payments or commitment reductions on Funded Debt over the prospective 12 month period; plus Interest Expense based on amounts outstanding (adjusted for mandatory principal payments or commitment reductions) and prevailing rates on the date of determination, computed for the prospective 12 month period. DIVIDEND DISTRIBUTION. Notwithstanding anything to the contrary in this Agreement, Borrower agrees there will not be any dividend distribution from sources other than profits of the Borrower and distributions to be made only if the indebtedness under this Agreement is current and in compliance with all terms and conditions stated herein. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Borrower given to Lender by law, Lender shall have, with respect to Borrower's obligations to Lender under this Agreement and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Borrower hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Borrower's right, title, and interest in and to all deposits, moneys, securities, and other property of Borrower now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Borrower. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Indebtedness. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower's existence as a going business, or a trustee or receiver is appointed for Borrower or for all or a substantial portion of the assets of Borrower, or Borrower makes a general assignment for the benefit of Borrower's creditors, or Borrower files for bankruptcy, or an involuntary bankruptcy petition is filed against Borrower and such involuntary petition remains undismissed for sixty (60) days. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all sums owing in connection with the Loans, including all principal, interest, and all other fees, costs and charges, if any, will become immediately due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below is responsible for all obligations in this Agreement. Consent to Loan Participation. Borrower agrees that Lender may at any time grant participating interests in the Loans to one or more purchasers (each a "Participant"). In such event, whether or not upon notice to Borrower, Lender shall remain responsible for the performance of its obligations hereunder, and Lender shall continue to deal solely and directly with Borrower in connection with Lender's rights and obligations under this Agreement. Any agreement pursuant to which Lender may grant such a participation interest shall provide that Lender shall retain the sole right and responsibility to enforce the obligations of Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of concerning the Loans; provided that such participation agreement may provide that Lender will not agree to any such modification, amendment or waiver which would have the effect increasing or extending the term hereof or subjecting Lender to any additional obligation, reducing the principal of or rate of interest on any Loan, postponing the date fixed for any payment of principal or of interest on any Loan or fees hereunder without the consent of the Participant. Lender may at any time assign all or any portion of its rights with respect to the Loans to a Federal Reserve Bank. No such assignment shall release Lender from its obligations hereunder. Lender may furnish any information concerning Borrower in its possession from time to time to Participants (including prospective Participants) and may furnish such information in response to credit inquiries consistent with general banking practice. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's out-of-pocket expenses incurred in connection with this Agreement or in connection with the Loans made pursuant to this Agreement. Subject to any limits under applicable law, if Lender hires an attorney to help enforce this Agreement or to collect any Indebtedness, Borrower agrees to pay Lender's attorney fees equal to 25.000% of the principal balance due on the Note, and all of Lender's other collection expenses, whether or not there is a lawsuit and including legal expenses for bankruptcy proceedings. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimilie, and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight courier or deposited as certified or registered mail in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and agreements of Borrower in this Agreement shall survive the making of the Loan or Loans contemplated hereby, and shall be deemed made and redated by Borrower at the time of the making of each disbursement of Loan proceeds. Time Is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Indulgence by Lender with respect to any of the terms and conditions of this Agreement or the failure of Lender to exercise any of its rights under this Agreement shall not constitute a waiver thereof, and Borrower shall remain liable for the strict performance of such terms and conditions until this Agreement shall be terminated. No provision of this Agreement may be waived or modified orally, but all such waivers or modifications shall be in writing. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in one instance shall not constitute Lender's continuing consent in subsequent instances, and in all cases such consent may be granted or withheld in the sole discretion of Lender. THIS BUSINESS LOAN AGREEMENT IS SIGNED, SEALED AND DELIVERED EFFECTIVE IN ALL RESPECTS AS OF SEPTEMBER 11, 1996. BORROWER: AMERICAN PASSAGE MEDIA, INC. By: /s/ Don Leeds (SEAL) Don Leeds Executive Vice President By: /s/ Harlan D. Peltz (SEAL) Harlan D. Peltz Chief Executive Officer LENDER: SIGNET BANK By: /s/ Jon A Siabaugh Jon A Siabaugh Authorized Officer Notwithstanding the terms of the foregoing Business Loan Agreement or any of the Related Documents: 1. Lender may not accelerate the loan or otherwise exercise any remedies against Borrower unless an Event of Default has occurred and is continuing. 2. With respect to any default by Borrower in the performance of any covenant under the Business Loan Agreement or Related Documents (including, without limitation, a payment covenant), such default will not constitute an Event of Default and Lender may not accelerate the Loan or otherwise exercise remedies against Borrower if Borrower fully cures such default by performing such act or making such payment within 15 calendar days of the date on which such action or payment was due to be performed or paid. 3. Once a default occurs under the Business Loan Agreement or Related Documents, then such default will continue to exist until it is either cured by Borrower or is otherwise waived by Lender and once an Event of Default occurs under the Business Loan Agreement or Related Documents, then such Event of Default will continue to exist until expressly waived by Lender which may not be unreasonably withheld by Lender. EX-99 11 PROMISSORY NOTE SIGNET BANK PROMISSORY NOTE Principal Loan Date Maturity Loan No. Call Collateral $3,500,000.00 09-13-1996 09-30-2001 Account Officer Initials anerican References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: American Passage Media, Inc. Lender: SIGNET BANK 149 Fifth Avenue Suite 500 New York, N.Y. 10010 7799 Leesburg Pike Falls Church, VA 22043 IMPORTANT NOTICE THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE. Principal Amount: $3,500,000.00 Initial Rate: 8.679% Date of Note: September 11, 1996 PROMISE TO PAY. American Passage Media, Inc. ("Borrower") promises to pay to SIGNET BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on September 30, 2001. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning October 11, 1996, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. Subject to designation of a different interest rate index by Borrower as provided below, the interest rate on this Note is subject to change from time to time based on changes in an independent index which is the per annum rate of interest, quoted by Lender in its sole discretion, as the London Interbank Offered Rate (adjusted to reflect the cost of insurance premiums and reserve requirements as they exist from time to time) as published by Telerate, as BBA LIBOR on page 3750, or Bloomberg LIBOR index page if Telerate is not available), or such other page as may replace that page on that service for the purpose of displaying rates or prices comparable to that Rate (rounded upwards, if necessary, to the next higher 1/100%) for deposits in Dollars for a period of ninety (90) days (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each 90 days. The Index currently is 5.679% per annum. The Interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 3.000 percentage points over the Index, resulting in an initial rate of 8.679% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. INTEREST RATE OPTIONS. The following interest rate options are available under this Note: (a) Default Option. The interest rate margin and index described in the "VARIABLE INTEREST RATE" paragraph above (the "Default Option"). (b) Prime Rate. A margin of 0.000 percentage points over Prime Rate. For purposes of this Note, Prime Rate shall mean an annual percentage rate periodically announced and recorded by Lender as an index (called prime rate), at, above or below which interest rates are established for certain loans. When the interest rate is based on a fixed rate, the rate shall be in effect for a period of the number of days or months as indicated in the rate option description (the "Interest Period"), in any case extended to the next succeeding business day when necessary, beginning on a borrowing date, conversion date or expiration date of the then current Interest Period. Adjustments in the interest rate due to changes in the maximum nonusurious interest rate allowed (the "Highest Lawful Rate") shall be made on the effective day of any change in the Highest Lawful Rate. Provided Borrower is not in default under this Note, Borrower may designate in advance which of the above interest rate indexes shall be applicable to any loan advance under this Note and shall designate any optional Interest Period applicable to any fixed rate loan or advance. In the absence of any such designation the interest rate option shall be the Default Option. Thereafter unpaid principal balances under this Note may be converted (at the end of an Interest Period if the index used to determine the interest rate therefore is a fixed rate) to another of the above interest rate options, or continued for an additional interest period, when applicable, as designated by Borrower in advance; and in the absence of sufficient advance designation as to conversion to or continuation of a fixed rate index, the index shall be converted to the Default Option. Notwithstanding the foregoing, a fixed rate index may not be elected for a loan or advance under this Note, nor any conversion to or continuation of a fixed rate index be elected, if the Interest Period thereof would extend beyond the maturity of this Note. PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) the failure of any "Party" (which term shall mean and include each Borrower, endorser, surety and guarantor of this Note) to make any payment on this Note or on any other indebtedness due Lender when due; (b) if any asset(s) of a Party are attached, levied upon, seized or repossessed or if any asset(s) of a Party should come into the possession of a receiver, trustee, custodian or assignee for the benefit of creditors, or if a Party makes an assignment for the benefit of creditors; (c) the failure of a Party to observe or perform any obligation or covenant contained in any agreement, document or instrument furnished in connection herewith or in any other agreement between a Party and Lender; (d) any representation or warranty at any time made by a Party to Lender in connection herewith or in any other agreement between a Party and Lender, or in any document or instrument delivered to Lender in connection herewith or pursuant to such other agreement, shall have been materially false at the time it was made; (e) the termination or withdrawal of a Party's guaranty with respect to any indebtedness due Lender; (f) any Party files a petition in bankruptcy, petitions or applies to any tribunal for any receiver or any trustee of a Party or any substantial part of its property, or commences any proceeding relating to such party under any insolvency, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; (g) if, within 30 days after the filing of a petition in bankruptcy against a Party or the commencement of any proceeding against a Party seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such petition or proceeding shall not have dismissed, or, if, within 30 days after the appointment, without the consent or acquiescence of a Party, of any trustee, receiver or liquidator of such Party or of all or any substantial part of the properties of the such Party, such appointment shall not have been vacated; (h) the application for the appointment of a receiver for a party or for property of a Party; (i) the making or sending of a notice of an intended bulk sale by a Party; (j) commencement of any foreclosure, levy, seizure or forfeiture proceeding, whether by judicial, self-help, repossession, or any other method, by any creditor of a Party, any creditor of the owner of any collateral securing this Note, or by any governmental agency with respect to a Party or such collateral; (k) if any event occurs which is or, with the passage of time and/or the giving of notice, could be a default under or breach of the terms of any instrument or document evidencing a debt or obligation of a Party to any third party and is not cured within five (5) days after the occurrence thereof; (l) any judgment against a Party or any attachment against it or its property remains unpaid, undischarged, unbonded or undismissed for a period of 30 days, unless and to the extent that such judgment is appealed in good faith in a court of higher jurisdiction and such appeal remains pending; (m) if any proceeding is filed for the dissolution or liquidation of a Party; (n) if any Party shall be enjoined or restrained in any manner from conducting its business in whole or in part, and such injunction shall not be dismissed or dissolved within thirty (30) days after the filing thereof; (o) if any tax lien or notice thereof is filed against a Party or any of the assets of a Party and remains undismissed, unpaid or unbonded for a period of thirty (30) days; (p) if, without Lender's prior written consent, any Party which is not a natural person enters into or becomes a party to any merger, consolidation or share exchange or if any Party sells, transfers, conveys or leases, except in the ordinary course of business, any significant part of its assets or properties or (if not a natural person) alters its capital structure, business activities or scope of operations; (q) if, without Lender's prior written consent, there is a sale, exchange or transfer of the voting control or any significant portion of the stock or ownership interests of any Party which is not a natural person; (r) if any Party who is a natural person shall die or become incompetent; or (s) the good faith determination by Lender that a material adverse change in the financial condition of a Party has occurred since the date hereof or that Lender's prospect of payment hereunder has been materially impaired. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, immediately due and payable, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 6.000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. Furthermore, subject to any limits under applicable law, upon default, Borrower also agrees to pay Lender's attorney fees equal to 25.000% of the principal balance due on the Note, and all of Lender's other collection expenses, whether or not there is a lawsuit and including without limitation legal expenses for bankruptcy proceedings. This Note shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Borrower given to Lender by law, Lender shall have, with respect to Borrower's obligations to Lender under this Note and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Borrower hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Borrower's right, title, and interest in and to all deposits, moneys, securities, and other property of Borrower now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Borrower. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances hereunder shall be conclusively presumed to have been made to and for the benefit of and at the request of Borrower when: (1) deposited or credited to an account of Borrower with Lender, notwithstanding that such advance was requested, orally or in writing, by someone other than the person(s) signing below or that someone other than the person(s) signing below is authorized to draw on such account and may or does withdraw the whole or part of any such advance; or (2) made in accordance with oral or written instructions of Borrower or anyone signing below for or on behalf of Borrower. Lender is hereby authorized to maintain records of the date and amount of each advance, the date and amount of any payment of principal or interest and the principal balance then remaining unpaid hereon. Borrower hereby agrees that the amount so evidenced in such records shall, for all purposes, constitute prima facie evidence thereof and shall be binding upon Borrower, absent manifest error. LATE CHARGE. Borrower agrees to pay to Lender on demand a late charge not to exceed 5% of the amount of any payment of principal or interest, or both, that is more than ten (10) days past due. REDUCING REVOLVER. Borrower will reduce balance under the revolver according to the following schedule: DATE COMMITMENT AMOUNT ANNUAL REDUCTION BY % December 31, 1996 $3,500,000.00 0.00% June 30, 1997 $3,325,000.00 0.00% December 31, 1997 $3,150,000.00 10.00% June 30, 1998 $2,800,000.00 10.00% December 31, 1998 $2,450,000.00 20.00% June 30, 1999 $2,100,000.00 20.00% December 31, 1999 $1,750,000.00 20.00% June 30, 2000 $1,312,000.00 20.00% December 31, 2000 $ 875,000.00 25.00% June 30, 2001 $ 437,000.00 25.00% September 30, 2001 $ -0- APPLICABLE MARGIN. The applicable margin will be based on the Borrower's ratio of funded debt to operating cash flow and will be determined according to the following table: Operating Cash Flow Base Margin LIBOR Margin Leverage less than 1 1.00% 300 basis points Leverage more than = 1.0 and less than 2.5 1.50% 350 basis points Leverage more than = 2.5 and less than 3.5 2.00% 400 basis points GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER: AMERICAN PASSAGE MEDIA, INC. By: /s/ Don Leeds (SEAL) Don Leeds Executive Vice President By: /s/ Harlan D. Peltz (SEAL) Harlan D. Peltz Chief Executive Officer Notwithstanding the terms of the foregoing Business Loan Agreement or any of the Related Documents: 1. Lender may not accelerate the loan or otherwise exercise any remedies against Borrower unless an Event of Default has occurred and is continuing. 2. With respect to any default by Borrower in the performance of any covenant under the Business Loan Agreement or Related Documents (including, without limitation, a payment covenant), such default will not constitute an Event of Default and Lender may not accelerate the Loan or otherwise exercise remedies against Borrower if Borrower fully cures such default by performing such act or making such payment within 15 calendar days of the date on which such action or payment was due to be performed or paid. 3. Once a default occurs under the Business Loan Agreement or Related Documents, then such default will continue to exist until it is either cured by Borrower or is otherwise waived by Lender and once an Event of Default occurs under the Business Loan Agreement or Related Documents, then such Event of Default will continue to exist until expressly waived by Lender which may not be unreasonably withheld by Lender. EX-99 12 COMMERCIAL SECURITY AGMT SIGNET BANK COMMERCIAL SECURITY AGREEMENT Principal Loan Date Maturity Loan No. Call $3,500,000.00 09-13-1996 09-30-2001 Collateral Account Officer Initials anerican References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: American Passage Media, Inc. Lender: SIGNET BANK 149 Fifth Avenue Suite 500 New York, N.Y. 10010 7799 Leesburg Pike Falls Church, VA 22043 THIS COMMERCIAL SECURITY AGREEMENT is entered into between American Passage Media, Inc. (referred to below as "Grantor"); and SIGNET BANK (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. Collateral. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: All Inventory, chattel paper, accounts, equipment and general intangibles, together with the following specifically described property: All tangible and intangible assets (including all copy rights, trade marks, customer lists, publishing rights and other intellectual property) of all direct and indirect subsidiaries of American Passage Media, Inc. In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above. (b) All products and produce of any of the property described in this Collateral section. (c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section. (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section. (e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default." Grantor. The word "Grantor" means American Passage Media, Inc., its successors and assigns Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness and their personal representatives, successors and assigns. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal, interest, and fees, costs, and expenses, if any, together with all modifications of and renewals, replacements and substitutions for any of the foregoing. "Indebtedness" also includes all other present and future liabilities and obligations of Grantor to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and no matter how the same may be evidenced or shall arise. Lender. The word "Lender' means SIGNET BANK, its successors and assigns. Note. The word "Note" means the note or credit agreement dated September 11, 1996, in the principal amount of $3,500,000.00 from American Passage Media, Inc. to Lender, together with all modifications of and renewals, replacements, and substitutions for the note or credit agreement. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Grantor given to Lender by law, Lender shall have, with respect to Grantor's obligations to Lender under this Agreement and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Grantor hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Grantor's right, title, and interest in and to all deposits, moneys, securities, and other property of Grantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Grantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows: Perfection of Security Interest. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney- in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing. Location of the Collateral. Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located. Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the Commonwealth of Virginia, without the prior written consent of Lender. Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies. Maintenance and Inspection of Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Compliance With Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by- products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis acceptable to Lender and issued by a company or companies acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value an the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Grantor to make any payment when due on the Indebtedness. Other Defaults. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other agreement between Lender and Grantor. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. Detective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Virginia Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor, would be required to pay, immediately due and payable, without notice. Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Appoint Receiver. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may have a receiver appointed as a matter of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her attorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, chooses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper. Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Grantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. Attorneys' Fees; Expenses. Grantor agrees that if Lender hires an attorney to help enforce this Agreement or to collect any sums owing under this Agreement, Grantor will pay, subject to any limits under applicable law, Lender's attorney fees equal to 25.000% of the principal balance due on the Note, and all of Lender's other collection expenses, whether or not there is a lawsuit and including without limitation additional legal expenses for bankruptcy proceedings. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and every Grantor. This means that each of the Borrowers signing below is responsible for all obligations in this Agreement. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimilie, and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight courier or deposited as certified or registered mail in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor, notice to any Grantor will constitute notice to all Grantors. For notice purposes, Grantor will keep Lender informed at all times of Grantor's current address(es). Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER 11, 1996. GRANTOR: American Passage Media, Inc. By: /s/ Don Leeds (SEAL) By: /s/ Harlan D. Peltz (SEAL) Don Leeds Harlan D. Peltz Executive Vice President Chief Executive Officer LENDER: SIGNET BANK By: /s/Jon A Siabaugh Jon A Siabaugh Authorized Officer Notwithstanding the terms of the foregoing Business Loan Agreement or any of the Related Documents: 1. Lender may not accelerate the loan or otherwise exercise any remedies against Borrower unless an Event of Default has occurred and is continuing. 2. With respect to any default by Borrower in the performance of any covenant under the Business Loan Agreement or Related Documents (including, without limitation, a payment covenant), such default will not constitute an Event of Default and Lender may not accelerate the Loan or otherwise exercise remedies against Borrower if Borrower fully cures such default by performing such act or making such payment within 15 calendar days of the date on which such action or payment was due to be performed or paid. 3. Once a default occurs under the Business Loan Agreement or Related Documents, then such default will continue to exist until it is either cured by Borrower or is otherwise waived by Lender and once an Event of Default occurs under the Business Loan Agreement or Related Documents, then such Event of Default will continue to exist until expressly waived by Lender which may not be unreasonably withheld by Lender. By: /s/ Don Leeds By: /s/ Harlan D. Peltz Don Leeds Harlan D. Peltz EX-99 13 COMMERCIAL GUARANTY COMMERCIAL GUARANTY Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials anerican References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: American Passage Media, Inc. Lender: SIGNET BANK 149 Fifth Avenue Suite 500 New York, NY 10010 7799 Leesburg Pike Falls Church, VA 22043 Guarantor: Network Event Theater, Inc. 149 Fifth Avenue New York, NY 10010 IMPORTANT NOTICE THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE. AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited. CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Network Event Theater, Inc. ("Guarantor") absolutely and unconditionally guarantees and promises to pay to SIGNET BANK ("Lender") or its order, in legal tender of the United States of America, the Indebtedness (as that term is defined below) of American Passage Media, Inc. ("Borrower") to Lender on the terms and conditions set forth in this Guaranty. Under this Guaranty, the liability of Guarantor is unlimited and the obligations of Guarantor are continuing. DEFINITIONS. The following words shall have the following meanings which used in this Guaranty: Borrower. The word "Borrower" means American Passage Media, Inc. Guarantor. The word "Guarantor" mens Network Event Theater, Inc., and their respective personal representatives, successors and assigns. Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the benefit of Lender dated September 11, 1996. Indebtedness. The word "Indebtedness" means all of Borrower's present and future liabilities and obligations to Lender, in the most comprehensive sense, and includes without limitation all such liabilities and obligations, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and no matter how owned, held or acquired, including without limitation all such liabilities and obligations arising from, or in connection with, or evidenced by, the Note or the Related Documents. Lender. The word "Lender" means SIGNET BANK, its successors and assigns. Note. The word "Note" means the promissory note or credit agreement dated September 11, 1996, in the original principal amount of $3,500,000.00 from Borrower to Lender together with all modifications of and renewals, replacements, and substitutions for the promissory note or agreement. Notice to Guarantor: The Note evidences a revolving line of credit from Lender to Borrower. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents whether now or hereafter existing, executed in connection with the Indebtedness. NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and continuous for so long as this Guaranty remains in force. Guarantor intends to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all Indebtedness. Accordingly, no payments made upon the Indebtedness will discharge or diminish the continuing liability of Guarantor in connection with any remaining portions of the Indebtedness or any of the Indebtedness which subsequently arises or is thereafter incurred or contracted. DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written notice of revocation must be mailed to Lender, by certerfied mail, at the address of Lender listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to advances or new Indebtedness created after actual receipt by Lender of Guarantor's written revocation. For this purpose and without limitation, the term "new Indebtedness" does not include Indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated, determined or due. This Guaranty will continue to bind Guarantor for all Indebtedness incurred by Borrower or committee by Lender prior to receipt of Guarantor's written notice of revocation, including any extensions, renewals, substitutions or modifications of the Indebtedness. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation received by Lender from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. It is anticipated that fluctuations may occur in the aggregate amount of Indebtedness covered by this Guaranty, and it is specifically acknowledged and agreed by Guarantor that reductions in the amount of Indebtedness, even to zero dollars ($0.00), prior to written revocation of this Guaranty by Guarantor shall not constitute a termination of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor's heirs, successors and assigns so long as any of the guaranteed Indebtedness remains unpaid and even though the Indebtedness guaranteed may from time to time be zero dollars ($0.00). GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before or after any revocation hereof, without notice or demand and without lessening Guarantor's liability under this Guaranty, from time to time: (a) prior to revocation as set forth above, to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; (c) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (d) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (e) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (f) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (g) to sell, transfer assign, or grant participations in all or any part of the Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part. GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (a) no representations of agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and not at the request of Lender; (c) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information provided to Lender is true and correct in all material respects and fairly presents the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor since the date of the financial statements; and (f) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower. GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (a) to continue lending money or to extend other credit to Borrower; (b) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (c) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (d) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (f) to pursue any other remedy within Lender's power; or (g) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledge by Borrower, Guarantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Guarantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. Guarantor also waives any and all rights or defenses arising by reason of (a) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (b) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (c) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any Collateral for the Indebtedness; or (d) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations. Guarantor acknowledges and agrees that Guarantor's obligations under this Guaranty shall apply to and continue with respect to any amount paid to Lender which is subsequently recovered from Lender for any reason whatsoever (including without limitation as a result of bankruptcy, insolvency or fraudulent conveyance proceeding), notwithstanding the fact that all or a part of the Indebtedness may have been previously paid, or this Guaranty may have been terminated, or both. Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both. GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Guarantor given to Lender by law, Lender shall have, with respect to Guarantor's obligations to Lender under this Guaranty and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Guarantor hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's right, title and interest in and to, all deposits, moneys, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Guarantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be prior to any claim that Guarantor may how have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness of Borrower to Lender. Guarantor does hereby assign to lender all claims which it may have or acquire against Borrower or against any assignee or trust in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring the Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower so to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor, from time to time to execute and file financing statements and continuing statements and to execute such other documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty: Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in the Guaranty. No alternation of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Guaranty shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. Attorneys' Fees; Expenses. Guarantor agrees that if Lender hires an attorney to help enforce this Guaranty or to collect any sums owing under this Guaranty, Guarantor will pay, subject to any limits under applicable law, Lender's attorney fees equal to 25.000% of the amount due under this Guaranty, and all of Lender's other collection expenses, whether or not here is a lawsuit and including without limitation additional legal expenses for bankruptcy proceedings. Notices. All notices required to be given by either party to the other under this Guaranty shall be in writing, may be sent by telefacsimilie, and, except for revocation notices by Guarantor, shall be effective if hand delivered when actually delivered, or when deposited with a nationally recognized overnight courier, or when deposited in the United States mail, first class postage prepaid, addressed to the party to whom the notice is to be given at the address shown above or to such other addresses as either party may designate to the other in writing. All revocation notices by Guarantor shall be in writing and shall be effective only upon delivery to Lender as provided above in the section titled "DURATION OF GUARANTY." If there is more than one Guarantor notice to any Guarantor will constitute notice to all Guarantors. For notice purposes. Guarantor agrees to keep Lender informed at all times of Guarantor's current address. Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty. If a court of competent jurisdiction finds any provision of this Guaranty to be invalid or unenforceable as to any person or circumstances, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances, and all provisions of this Guaranty in all other respects shall remain valid and enforceable. If any one or more of Borrower or Guarantor are corporations or partnerships, it is not necessary for Lender to inquire into the powers of Borrowers or Guarantor or of the officers, directors, partners, or agents acting or purporting to act on their behalf, and any Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. Waiver. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a wavier of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. WORKING CAPITAL. Guarantor will infuse cash into accounts payable sufficient to cover the working capital shortfall associated with the payover of accounts receivables to the seller and the obligation for all accounts payable liabilities. EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED SEPTEMBER 11,1996. GUARANTOR: Network Event Theater, Inc. By: /s/Don Leeds (SEAL) Don Leeds, E.V.P. By: /s/Harlan Peltz (SEAL) Harlan Peltz, Chairman/CEO Signed, acknowledged and delivered in the presence of: /s/ Jon A Siabaugh Jon A Siabaugh Witness EX-99 14 COMM PLEDGE AND SEC AGMT SIGNET BANK COMMERCIAL PLEDGE AND SECURITY AGREEMENT Principal Loan Date Maturity Loan No. $3,500,000.00 09-13-1996 09-30-2001 Call Collateral Account Officer Initials anerican References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - ---------------------------------------------------------------- Borrower: American Passage Media inc. Lender: Signet Bank 149 Fifth Avenue Suite 500 New York, N.Y. 10010 7799 Leesburg Pike Falls Church, VA 22043 GRANTOR: Network Event Theater, Inc. 149 Fifth Avenue New York, N.Y. 10010 ================================================================= THIS COMMERCIAL PLEDGE AND SECURITY AGREEMENT is entered into among American Passage Media, Inc. (referred to below as "Borrower"); Network Event Theater, Inc. (referred to below as "Grantor"); and SIGNET BANK (referred to below as "Lender"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement: Agreement. The word "Agreement" means this Commercial Pledge and Security Agreement, as this Commercial Pledge and Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Pledge and Security Agreement from time to time. Borrower. The word "Borrower" means each and every person or entity signing the Note, including without limitation American Passage Media, Inc. Collateral. The word "Collateral" means the following specifically described property, which Grantor has delivered or agrees to deliver (or cause to be delivered or appropriate book-entries made) immediately to Lender, together with all Income and Proceeds as described below: 100.000 shares of American Passage Media, Inc. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default." Grantor. The word "Grantor" means Network Event Theater, Inc. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety). Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness and their personal representatives, successors and assigns. Income and Proceeds. The words "Income and Proceeds" mean all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, distributions, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Grantor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal, interest, and fees, costs, and expenses, if any, together with all modifications of and renewals, replacements and substitutions for any of the foregoing. "Indebtedness" also includes all other present and future liabilities and obligations of Borrower to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and no matter how the same may be evidenced or shall arise. Lender. The word "Lender" means SIGNET BANK, its successors and assigns. Note. The word "Note" means the note or credit agreement dated September 11, 1996, in the principal amount of $3,500,000.00 from Borrower to Lender, together with all modifications of and renewals, replacements, and substitutions for the note or credit agreement. Obligor. The word "Obligor" means and includes without limitation any and all persons or entities obligated to pay money or to perform some other act under the Collateral. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (c) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this Agreement is executed at Borrower's request and not at the request of Lender; (b) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (c) Grantor has established adequate means of obtaining from Borrower on a continuing basis information about Borrower's financial condition; and (d) Lender has made no representation to Grantor about Borrower or Borrower's creditworthiness. GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest, demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other party to the Indebtedness or the Collateral. Lender may do any of the following with respect to any obligation of any Borrower, without first obtaining the consent of Grantor: (a) grant any extension of time for any payment, (b) grant any renewal, (c) permit any modification of payment terms or other terms, or (d) exchange or release any Collateral or other security. No such act or failure to act shall affect Lender's rights against Grantor or the Collateral. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Grantor given to Lender by law, Lender shall have, with respect to Grantor's obligations to Lender under this Agreement and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Grantor hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Grantor's right, title, and interest in and to all deposits, moneys, securities, and other property of Grantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Grantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender that: Ownership. Grantor is the lawful owner of the Collateral free and clear of all security interests, liens, encumbrances and claims of others except as disclosed to and accepted by Lender in writing prior to execution of this Agreement. Right to Pledge. Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral. Binding Effect. This Agreement is binding upon Grantor, as well as Grantor's heirs, successors, representatives and assigns, and is legally enforceable in accordance with its terms. No Further Assignment. Grantor has not, and will not, sell, assign, transfer, encumber or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. No Defaults. There are no defaults existing under the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly perform each of the terms, conditions, covenants and agreements contained in the Collateral which are to be performed by Grantor, if any. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the Collateral until all the Indebtedness has been paid and satisfied and thereafter may deliver the Collateral to any Grantor. Lender shall have the following rights in addition to all other rights it may have by law: Income and Proceeds from the Collateral. Lender may receive all Income and Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender immediately upon receipt, in the exact form received and without commingling with other property, all Income and Proceeds from the Collateral which may be received by, paid, or delivered to Grantor or for Grantor's account, whether as an addition to, in discharge of, in substitution of, or in exchange for any of the Collateral. Application of Cash. At Lender's option, Lender may apply any cash, whether included in the Collateral or received as Income and Proceeds or through liquidation, sale, or retirement, of the Collateral, to the satisfaction of the Indebtedness or such portion thereof as Lender shall choose, whether or not matured. Transactions with Others. Lender may (a) extend time for payment or other performance, (b) grant a renewal or change in terms or conditions, or (c) compromise, compound or release any obligation, with any one or more Obligers, endorser, or Guarantors of the Indebtedness as Lender deems advisable, without obtaining the prior written consent of Grantor, and no such act or failure to act shall affect Lender's rights against Grantor or the Collateral. All Collateral Secures Indebtedness. All Collateral shall be security for the Indebtedness, whether the Collateral is located at one of more offices or branches of Lender and whether or not the office or branch where the Indebtedness is created is aware of or relies upon the Collateral. Collection of Collateral. Lender, at Lender's option may, but need not, collect directly from the Obligors on any of the Collateral all Income and Proceeds or other sums of money and other property due and to become due under the Collateral, and Grantor authorizes and directs the Obligors, if Lender exercises such option, to pay and deliver to Lender all Income and Proceeds and other sums of money and other property payable by the terms of the Collateral and to accept Lender's receipt for the payments. POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's attorney-in-fact, with full power of substitution, (a) to demand, collect, receive, receipt for, sue and recover all Income and Proceeds and other sums of money and other property which may now or hereafter become due, owing or payable from the Obligors in accordance with the terms of the Collateral; (b) to execute, sign and endorse any and all instruments, receipts, checks, drafts and warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, execute and deliver Grantor's release and acquittance for Grantor; (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in Lender's own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; and (e) to execute in Grantor's name and to deliver to the Obligors on Grantor's behalf, at the time and in the manner specified by the Collateral, any necessary instruments or documents. Perfection of Security Interest. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral. When applicable law provides more than one method of perfection of Lender's security interest, Lender may choose the method(s) to be used. Upon request of Lender, Grantor will sign and deliver any writings necessary to perfect Lender's security interest. If the Collateral consists of securities for which no certificate has been issued, Grantor agrees, at Lender's option, either to request issuance of an appropriate certificate or to execute appropriate instructions on Lender's forms instructing the issuer, transfer agent, mutual fund company, or broker, as the case may be, to record on its books or records, by book-entry or otherwise, Lender's security interest in the Collateral. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Borrower may not be indebted to Lender. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical presentation and custody of the Collateral in Lender's possession, but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility for (a) any depreciation in value of the Collateral or for the collection or protection of any Income and Proceeds from the Collateral, (b) preservation of rights against parties to the Collateral or against third persons, (c) ascertaining any maturities, calls, conversions, exchanges, offers, tenders, or similar matters relating to any of the Collateral, or (d) informing Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Indebtedness. Other Defaults. Failure of Borrower or Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or failure of Borrower to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or Grantor under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Borrower or Grantor's existence as a going business, the insolvency of Borrower or Grantor, the appointment of a receiver for any part of Borrower or Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower or Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or Grantor or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Borrower or Grantor's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Declare all Indebtedness, including any prepayment penalty which Borrower would be required to pay, immediately due and payable, without notice of any kind to Borrower or Grantor. Collect the Collateral. Collect any of the Collateral and, at Lender's option and to the extent permitted by applicable law, retain possession of the Collateral while suing on the Indebtedness. Sell the Collateral. Sell the Collateral, at Lender's discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender shall give or mail to Grantor, or any of them, notice at least ten (10) days in advance of the time and place of any public sale, or of the date after which any private sale may be made. Grantor agrees that any requirement of reasonable notice is satisfied if Lender mails notice by ordinary mail addressed to Grantor, or any of them, at the last address Grantor has given Lender in writing. If a public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale. Register Securities. Register any securities included in the Collateral in Lender's name and exercise any rights normally incident to the ownership of securities. Sell Securities. Sell any securities included in the Collateral in a manner consistent with applicable federal and state securities laws. If, because of restrictions under such laws, Lender is or believes it is unable to sell the securities in an open market transaction, Grantor agrees that Lender shall have no obligation to delay sale until the securities can be registered, and may make a private sale to one or more persons or to a restricted group of persons, even though such sale may result in a price that is less favorable than might be obtained in an open market transaction, and such a sale shall be considered commercially reasonable. If any securities held as Collateral are "restricted securities" as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or state securities departments under state "Blue Sky" laws, or if Borrower or Grantor is an affiliate of the issuer of the securities, Borrower and Grantor agree that neither Grantor nor any agent of Grantor will sell or dispose of any securities of such issuer without obtaining Lender's prior written consent. Foreclosure. Maintain a judicial suit for foreclosure and sale of the Collateral. Transfer Title. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as its attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. Other Rights and Remedies. Have and exercise any or all of the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, at law, in equity, or otherwise. Application of Proceeds. Apply any cash which is part of the Collateral, or which is received from the collection or sale of the Collateral, to reimbursement of any expenses, including any costs for registration of securities, commissions incurred in connection with a sale, attorney fees as provided below, and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral and to the payment of the Indebtedness of Borrower to Lender, with any excess funds to be paid to Grantor as the interests of Grantor may appear. Borrower agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Collateral to the Indebtedness. Cumulative Remedies. All Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Borrower and Grantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. Attorneys' Fees; Expenses. Borrower and Grantor agree that if Lender hires an attorney to help enforce this Agreement or to collect any sums owing under this Agreement, Borrower and Grantor will pay, subject to any limits under applicable law, Lender's attorney fees equal to 25.000% of the principal balance due on the Note, and all of Lender's other collection expenses, whether or not there is a lawsuit and including without limitation additional legal expenses for bankruptcy proceedings. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Borrower and Grantor under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower, and all references to Grantor shall mean each and every Grantor. This means that each of the Borrowers signing below is responsible for all obligations in this Agreement. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight courier or deposited as certified or registered mail in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower or Grantor, notice to any Borrower or Grantor will constitute notice to all Borrower and Grantors. For notice purposes, Borrower and Grantor will keep Lender informed at all times of Borrower and Grantor's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AND SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER 11, 1996. BORROWER: American Passage Media, Inc. By: /s/ Don Leeds (SEAL) By: /s/ Harlan D. Peltz (SEAL) Don Leeds, President Harlan D. Peltz, Chief Executive Officer GRANTOR: Network Event Theater, Inc. By: /s/ Harlan D. Peltz (Seal) Harlan D. Peltz, Chairman and Chief Executive Officer By: /s/ Don Leeds (Seal) Don Leeds, EVP Waiver Language Attached. /s/ Don Leeds /s/ Harlan D. Peltz Don Leeds Harlan D. Peltz Waiver Language Notwithstanding the terms of the foregoing Business Loan Agreement or any of the Related Documents: 1. Lender may not accelerate the loan or otherwise exercise any remedies against Borrower unless an Event of Default has occurred and is continuing. 2. With respect to any default by Borrower in the performance of any covenant under the Business Loan Agreement or Related Documents (including, without limitation, a payment covenant), such default will not constitute an Event of Default and Lender may not accelerate the Loan or otherwise exercise remedies against Borrower if Borrower fully cures such default by performing such act or making such payment within 15 calendar days of the date on which such action or payment was due to be performed or paid. 3. Once a default occurs under the Business Loan Agreement or Related Documents, then such default will continue to exist until it is either cured by Borrower or is otherwise waived by Lender and once an Event of Default occurs under the Business Loan Agreement or Related Documents, then such Event of Default will continue to exist until expressly waived by Lender which may not be unreasonably withheld by Lender. By: /s/ Don Leeds By: /s/ Harlan D. Peltz Don Leeds Harlan D. Peltz -----END PRIVACY-ENHANCED MESSAGE-----