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