<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K
-------------------------------
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
June 10, 1999 0-27556
- ----------------------------------- --------------------------------
(Date of earliest report) (Commission File Number)
NETWORK EVENT THEATER, INC.
(Exact name of registrant as specified in its charter)
Delaware 3864111
- ----------------------------------- --------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
529 Fifth Avenue, New York, New York 10017
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
--------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 9, 1999, Network Event Theater, Inc. (the "Registrant")
acquired Trent Graphics, Inc. ("Trent") pursuant to a Merger Agreement (the
"Merger Agreement") dated June 9, 1999 among the Registrant, Trent, Trent
Acquisition Co. Inc., a wholly-owned subsidiary of the Registrant
("Acquisition"), and Charles Sirolly, Thomas Sirolly, Daniel Sirolly and
William Sirolly, the stockholders of Trent (the "Stockholders"). Trent sells
posters and other products at sales events at junior and four-year college
campuses and high schools, through retailers and over the internet and other
mediums and sells and custom frames wall posters. The acquisition was
accomplished by the merger (the "Merger") of Trent into Acquisition, which
then changed its name to Trent Graphics, Inc. The purchase price for Trent was
$3.5 million in cash and $3.5 million in shares of Registrant's common stock.
In addition, if Trent's EBITDA (as defined in the Merger Agreement) for the
two years ending June 30, 2001 exceeds certain targets, Registrant will pay to
the Stockholders up to an additional $600,000 in cash and issue to the
Stockholders up to an additional $600,000 in shares of Registrant's common
stock.
Simultaneously with the Merger, Trent entered into four-year
employment agreements with each of the Stockholders.
See the Merger Agreement attached as exhibit 7(c)(1) for more
information concerning the Merger.
On June 10, 1999, the Registrant acquired substantially all of the
assets of HelloXpress USA, Inc. ("Hello"), pursuant to an Asset Purchase
Agreement (the "Asset Agreement") dated June 10, 1999 among Registrant, its
wholly owned subsidiary Pik:Nik Media, Inc., Hello and Dalia Smith and Ron
Smith, the stockholders of Hello (the "Hello Stockholders"). Hello produces,
markets and distributes postcards containing advertisements in Washington,
Baltimore, Boston, Philadelphia and Atlanta. The purchase price for the assets
of Hello and a non-competition agreement from the Hello Stockholders was
$300,000 in cash and $250,000 in shares of Registrant's common stock. In
addition, if Local Sales (as defined in the Asset Agreement) from July 1, 1999
through June 30, 2000 exceed certain targets, Registrant will pay up to an
additional $45,000 in cash and issue up to an additional $200,000 in shares of
Registrant's common stock.
Simultaneously with the closing, Pik:Nik Media, Inc. entered into a
one-year employment agreement with Dalia Smith.
See the Asset Agreement attached as exhibit 7(c)(2) for more
information concerning the acquisition of assets from Hello.
<PAGE>
Item 7. Financial Statements, Proforma Financial Information and Exhibits.
(a) Audited financial statements of Trent Graphics Inc. for the
years ended December 31, 1997 and 1998.
(b) Pro forma financial information relating to the purchase of
Trent Graphics, Inc. was not available at the time of filing
of this Current Report on Form 8-K. Pro forma information will
be filed as soon as practicable.
(c) (2.1) Merger Agreement dated June 9, 1999 among Registrant,
Trent Acquisition Co., Inc., Trent Graphics, Inc. and
Charles Sirolly, Thomas Sirolly, Daniel Sirolly and
William Sirolly.
(2.2) Asset Purchase Agreement dated June 10, 1999 among
Registrant, Pik:Nik Media, Inc., HelloXpress USA,
Inc., and Dalia Smith and Ron Smith.
(23) Consent of Stone, Trembly-Deibler & Associates, Inc.,
independent accountants of Trent Graphics, Inc.
<PAGE>
STONE, TREMBLY-DEIBLER & ASSOCIATES, INC.
Certified Public Accountants
529 Sarah Street o Stroudsburg, PA 18360 o (570) 421-5606 o (570) 421-5738 fax
To the Board of Directors
Trent Graphics, Inc.
140 N. 2nd Street, Suite 104
Stroudsburg, PA 18360
Independent Auditor's Report
We have audited the accompanying balance sheets of Trent Graphics, Inc., as of
December 3 1, 1998 and 1997, and the related statements of income, retained
earnings, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trent Graphics, Inc., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Stone, Trembly-Deibler and Associates, Inc
March 25, 1999
<PAGE>
TRENT GRAPHICS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 449,972 $ 240,319
Accounts receivable - net 12,030 8,823
Inventory 405,352 256,834
Prepaid expenses & deposits 31,823 18,277
---------- ----------
Total Current Assests $ 899,177 $ 524,253
---------- ----------
PROPERTY, PLANT & EQUIPMENT
Machinery and equipment $ 366,569 $ 280,555
Leasehold improvements 37,119 37,119
---------- ----------
$ 403,688 $ 317,674
Less: accumulated depreciation 214,915 190,645
---------- ----------
Property, Plant & Equipment - Net 188,773 127,029
---------- ----------
TOTAL ASSETS $1,087,950 $ 651,282
========== ==========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
TRENT GRAPHICS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 38,946 $ 4,215
Accounts payable 106,667 131,712
Accrued taxes 61,042 43,677
Accrued wages 16,983 37,486
---------- ----------
Total Current Liabilities $ 223,638 $ 217,090
---------- ----------
LONG TERM DEBT, less current portion $ 133,972 $ 6,298
---------- ----------
TOTAL LIABILITIES $ 357,610 $ 223,388
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock $ 3,250 $ 3,250
Retained earnings 727,090 424,644
---------- ----------
Total Stockholders' Equity $ 730,340 $ 427,894
---------- ----------
TOTAL LIABILITIES AND EQUITY $1,087,950 $ 651,282
========== ==========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
TRENT GRAPHICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES $ 6,395,849 $ 5,462,484
- ----- ----------- -----------
COST OF GOODS SOLD
Beginning inventory $ 256,834 $ 300,617
Purchases 1,862,483 1,547,689
Wages 59,318 64,847
Subcontracting 15,328 453
----------- -----------
$ 2,193,963 $1, 913,606
Less: ending inventory 405,352 256,834
----------- -----------
Total Cost of Goods Sold $ 1,788,611 $ 1,656,772
----------- -----------
GROSS PROFIT $ 4,607,238 $ 3,805,712
TOTAL EXPENSES $ 4,138,802 $ 3,672,361
----------- -----------
NET INCOME $ 468,436 $ 133,351
RETAINED EARNINGS - BEGINNING OF YEAR $ 424,644 $ 329,293
DISTRIBUTIONS (165,990) (38,000)
----------- -----------
RETAINED EARNINGS - END OF YEAR $ 727,090 $ 424,644
=========== ===========
</TABLE>
See accompanying notes and accountants' report
<PAGE>
TRENT GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 468,436 $ 133,351
Adjustments to reconcile net cash provided by
operating activities:
Depreciation & amortization 51,180 39,199
Bad debts 7,347
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable (3,207) (7,068)
Inventory (148,518) 43,783
Prepaids & deposits (13,546) (3,067)
Increase (decrease) in:
Accounts payable (25,045) 32,119
Accrued taxes 17,365 3,593
Accrued wages (20,503) 5,220
--------- ---------
Net Cash Provided By Operating Activities $ 326,162 $ 254,477
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures` $(112,924) $ (15,419)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long term financing $ 172,100
Payment on debt (9,695) $ (3,575)
Stockholder distributions (165,990) (38,000)
--------- ---------
Net Cash Used By Financing Activities $ (3,585) $ (41,575)
--------- ---------
</TABLE>
(continued)
See accompanying notes and accountants' report
<PAGE>
TRENT GRAPHICS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
1998 1997
---- ----
NET INCREASE IN CASH $209,653 $197,483
CASH - BEGINNING OF YEAR 240,319 42,836
-------- --------
CASH - END OF YEAR $449,972 $240,319
======== ========
SUPPLEMENTAL DISCLOSURE
Interest paid in cash $ 24,313 $ 22,947
======== ========
See accompanying notes and accountants' report
<PAGE>
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
NATURE OF BUSINESS
Since 1974, Trent Graphics has been a wholesaler and retailer of prints and
posters. Prints are sold both unframed and framed (by-in-house framing). Their
major customers are college students and college book stores throughout the
United States. The company also operates retail stores throughout the United
States. The corporate headquarters and warehouse are located in Stroudsburg, PA.
DESCRIPTION OF ENTITY
On January 1, 1991, a change of entity was made from partnership to corporation.
The operations are now in Trent Graphics, Inc., a Pennsylvania subchapter "S"
corporation.
BASIS OF REPORTING
The books and records of the corporation are maintained on the accrual basis for
financial reporting purposes.
ACCOUNTS RECEIVABLE
Accounts receivable are carried net of the allowance for doubtful accounts of
$872 in 1998 and $872 in 1997.
DEPRECIATION & AMORTIZATION
Property, plant & equipment are. stated at cost of acquisition. Assets are
depreciated using the straight-line method over their estimated useful lives for
financial statement purposes and accelerated methods for income tax purposes.
INCOME TAXES
The corporation does not provide for income taxes. The corporation is taxed
under subchapter "S" laws for federal and state purposes. All items flow
through to the stockholders' individual income tax returns.
INVENTORIES
Inventories are stated at the lower of cost or market. Physical inventories are
taken on a bi- annual basis.
<PAGE>
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
NOTE 1: NOTE PAYABLE - LINE OF CREDIT
<S> <C> <C>
The company has two established lines
of credit with PNC Bank. Both lines
have an interest rate of the bank's
base plus 1.0%, secured by inventory
(current rate: 8.75%). $ 600,000 $ 600,000
Less: current advances ------------ -----------
Available $ 600,000 $ 600,000
============ ===========
NOTE 2: LONG TERM DEBT
Installment loan payable to PNC Bank
in monthly payments of $423, including
interest for 60 months at a rate of
9.78%, secured by automotive
equipment. $ 6,298 $ 10,513
Installment loan payable to GMAC in
monthly payments of $408, including
interest for 60 months at a rate of
3.5%, secured by automotive
equipment. 16,620
Equipment loan payable to PNC Bank in
monthly installments of $2,500, plus
interest for 60 months at a prime rate
of 7.75%, secured by inventory and
equipment. 150,000
------------ -----------
$ 172,918 10,513
Less: current installments 38,946 4,215
------------ -----------
$ 133,972 $ 6,298
============ ===========
</TABLE>
<PAGE>
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 2: LONG-TERM DEBT (CONTINUED)
Following are the maturities of long-term debt for each of the next
five years:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999 $ 38,946
2000 36,123
2001 34,648
2002 33,201
2003 30,000
-------------------
$ 172,918
===================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NOTE 3: CAPITAL STOCK
Trent Graphics, Inc., common stock,
par value $1 per share; authorized
10,000 shares; issued and outstanding,
3,250 shares. $ 3,250 $ 3,250
========== =========
</TABLE>
NOTE 4: LEASE COMMITMENTS
The Company leases office equipment and a retail store relative to its
operations. The following is a schedule, by years, of future minimum
rental payments required under noncancellable operating leases that have
initial lease terms in excess of one year as of December 31, 1998:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999 $ 100,183
2000 99,300
2001 3,400
-------------------
$ 202,883
===================
</TABLE>
Rent expense charged to operations for the years ended December 31, 1998
and 1997 under such noncancellable leases amounted to $83,767 and
$14,100, respectively.
NOTE 5: CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts at high credit quality financial
institutions. The cash balances of each are insured up to $ 100,000 by
the Federal Deposit Insurance Corporation. The cash balances at times
may exceed federally insured limits.
<PAGE>
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 7: ESTIMATED FAIR VALUF, OF FINANCIAL INSTRUMENTS
The Company's cash, accounts receivable, accounts payable and accrued
expenses as reported approximate fair value because of the short
maturity of these instruments. The long-term debt as stated also
approximates fair value because of the contractual agreement to
liquidate the indebtedness at the stated amount.
<TABLE>
<CAPTION>
NOTE 8: EXPENSES 1998 1997
-------- ---- ----
<S> <C> <C>
Officers' salaries $ 338,580 $ 313,650
Salaries & wages 1,311,949 1,091,721
Rent 1,064,269 890,841
Taxes 207,252 185,342
Sales & warehouse supplies 58,259 73,396
Advertising 84,352 85,474
Automotive expense 311,723 307,354
Travel expense 304,450 307,484
Utilities 35,560 26,681
Insurance 56,814 59,079
Office expense 32,741 33,762
Telephone 47,743 37,706
Delivery costs 103,452 83,527
Equipment upkeep 14,299 8,675
Leasehold maintenance 7,707 12,444
Bank charges 48,645 40,423
Professional fees 19,373 5,867
Employee benefits 14,930 39,442
Interest 24,313 22,947
Bad debts 1,211 7,347
Depreciation & amortization 51,180 39,199
-------------- -------------
Total Expenses $ 4,138,802 $ 3,672,361
============== =============
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK EVENT THEATER, INC.
By: /s/ Harlan Peltz
-------------------------
Chairman of the Board and
Chief Executive Officer
Dated June 24, 1999
<PAGE>
MERGER AGREEMENT
June 9, 1999
The parties to this agreement are Network Event Theater, Inc.,
a Delaware corporation ("NET"); Trent Acquisition Co., Inc., a Delaware
corporation and a wholly-owned subsidiary of NET ("TGNEW"); Trent Graphics,
Inc., a Pennsylvania corporation (the "Company"); and Charles Sirolly, Thomas
Sirolly, Daniel Sirolly and William Sirolly (together, the "Stockholders"), who
own all of the Company's outstanding stock.
The Company is engaged in the business of (a) selling posters
and other products (i) at sales events at junior and four-year college campuses,
high schools and other locations, (ii) at retail stores and (iii) over the
Internet and other mediums, and (b) selling and custom framing of wall posters
(i) at the wholesale level to other retailers and (ii) at the retail level
(collectively, the "Business"). The parties wish to provide for the acquisition
of the Company by NET through the merger of the Company into TGNEW and the
conversion of the Company's outstanding shares into the right to receive common
stock of NET and cash.
It is agreed as follows:
1. Merger; Provisions Relating to Surviving Corporation.
1.1 Certificate of Merger. Contemporaneously
with the closing under this agreement, a duly executed certificate of merger
providing for the merger of the Company into TGNEW shall be delivered for filing
to the Secretary of State of Delaware and the Secretary of the Commonwealth of
Pennsylvania. The merger shall become effective upon the filing of the
certificate of merger in those jurisdictions (the "Effective Time").
1.2 Merger. At the Effective Time, the Company
shall be merged into TGNEW pursuant to the Delaware General Corporation Law and
the Pennsylvania Business Corporation Law of 1988, and the separate existence of
the Company shall cease. TGNEW shall be the surviving corporation (the
"Surviving Corporation") and shall continue to be governed by the Delaware
General Corporation Law. At the Effective Time, TGNEW's name shall be changed to
"Trent Graphics, Inc."
1.3 Certificate of Incorporation and By-Laws.
The certificate of incorporation and by-laws of TGNEW in effect at the Effective
Time shall continue as the certificate of incorporation and by-laws of the
Surviving Corporation, until amended.
<PAGE>
1.4 Directors and Officers. The directors and
officers of TGNEW at the Effective Time shall continue as the directors and
officers of the surviving corporation, until their respective successors are
elected.
1.5 Closing. The closing under this agreement
(the "Closing") shall take place at the offices of Proskauer Rose LLP, 1585
Broadway, New York, New York 10036 (or at such other place as the parties may
agree upon in writing) on a date to be agreed upon by the parties, but in any
event no later than June 30, 1999. The date on which the Closing is held is
referred to in this agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in section 7.
2. Conversion of Company Shares; Additional
Consideration and Related Provisions.
2.1 Conversion of Company Shares.
(a) All of the Company's shares of
common stock that are issued and outstanding at the Effective Time (the
"Company's Shares") shall then automatically cease to be outstanding and shall
be converted into the right to receive the amount of cash and number of shares
of NET common stock provided for in section 2.2 plus an additional amount, if
any, determined and payable as provided in section 2.3. After the Effective Time
the holders of the Company's Shares shall have no rights with respect to such
Shares except to receive the consideration to which the holders are entitled in
accordance with the terms of this agreement.
(b) All of the shares of common stock
of TGNEW that are issued and outstanding at the Effective Time shall continue to
be outstanding as shares of common stock of the Surviving Corporation.
2.2 Consideration Payable at the Closing.
At the Closing, (a) the Surviving Corporation shall pay to the Stockholders, by
wire transfer of immediately available funds to the account(s) designated in
writing by the Stockholders, cash in the aggregate amount of $3.5 million and
(b) NET shall issue and deliver to the Stockholders an aggregate number of
shares of NET's common stock determined by dividing $3.5 million by the Market
Price (as defined below) on the Closing Date.
2.3 Additional Consideration. In addition to the
consideration provided for in section 2.2:
(a) if the aggregate amount of the
Surviving Corporation's EBITDA for the two fiscal years ending June 30, 2001
equals or exceeds $1.2 million (the "Target"), the Surviving Corporation shall
make a cash payment to the Stockholders in the aggregate amount of $600,000 and
NET shall issue and deliver to the Stockholders an aggregate number of shares of
NET common stock determined by dividing $600,000 by the Market Price on
September 30, 2001;
2
<PAGE>
(b) if the aggregate amount of the
Surviving Corporation's EBITDA for the two fiscal years ending June 30, 2001 is
less than the Target but equals or exceeds $1.05 million, the Surviving
Corporation shall make a cash payment to the Stockholders in the aggregate
amount of $450,000 and NET shall issue and deliver to the Stockholders an
aggregate number of shares of NET common stock determined by dividing $450,000
by the Market Price on September 30, 2001; and
(c) if the aggregate amount of the
Surviving Corporation's EBITDA for the two fiscal years ending June 30, 2001 is
less than $1.05 million but equals or exceeds $900,000, the Surviving
Corporation shall make a cash payment to the Stockholders in the aggregate
amount of $300,000 and NET shall issue and deliver to the Stockholders an
aggregate number of shares of NET common stock determined by dividing $300,000
by the Market Price on September 30, 2001.
2.4 Definition of EBITDA; Determination.
(a) As used in this agreement, the
term "EBITDA" means, with respect to any fiscal year, sales less cost of goods
sold less all direct and indirect expenses, but before interest expense, taxes,
depreciation and amortization, determined on the basis of an audited income
statement for that year prepared in accordance with generally accepted
accounting principles consistently applied by NET's independent certified public
accountants (subject to the dispute mechanism in section 2.5(a)), with only the
following adjustments:
(i) only revenue of the Surviving
Corporation from, and direct and indirect expenses with respect to, (1) the sale
of posters and other products at sales events at junior and four-year college
campuses, high schools, retail stores and other locations and over the Internet
and other mediums, (2) the sale and custom framing of wall posters at the
wholesale level to other retailers and at the retail level, and (3) up to
$200,000 per year of revenue from the type of marketing activities that had been
performed by the Company prior to the Closing Date in conjunction with NET,
shall be included;
(ii) any management, home office or similar
fees charged by NET shall be excluded;
(iii) any and all direct and indirect
expenses related to revenues excluded from the calculation of EBITDA shall not
be used to reduce EBITDA;
(iv) any legal and accounting fees related
to the negotiation of, preparation for and consummation of the transactions
contemplated hereunder shall be excluded; and
(v) reasonable out-of-pocket expenses,
up to a maximum of $50,000, incurred in connection with the relocation of the
Company's warehouse shall be excluded and, if the Surviving Corporation or NET
purchases the new warehouse, the Surviving Corporation
3
<PAGE>
shall be charged $3 per square foot rent for the space occupied by the Surviving
Corporation in the warehouse.
(b) The parties agree that, in
calculating EBITDA, the inventory of the Surviving Corporation shall be counted
and valued in accordance with generally accepted accounting principles applied
consistently with the past practices of the Company.
2.5 Additional Provisions Relating to Payment of
Consideration.
(a) The Surviving Corporation shall
deliver to the Stockholders not later than September 30 of each of the years
2000 and 2001, a report setting forth in reasonable detail the amount and
calculation of the Surviving Corporation's EBITDA for those years, determined in
accordance with section 2.4. Any objection to the amount and calculation of
EBITDA must be made by the Stockholders (the "Notice") within 10 business days
following delivery to the Stockholders of such report. If the parties are unable
to resolve such objection within 20 business days of the delivery of the Notice,
then the parties shall designate an independent certified public accounting firm
(the "Firm") who shall review the amount and calculation of EBITDA and determine
the definitive amount of EBITDA. The finding of the Firm shall be binding upon
the parties. The party whose calculation of the amount of EBITDA is further from
the Firm's determination of the amount of EBITDA shall be responsible for the
Firm's fees. Payment of the cash and delivery of the shares due to the
Stockholders under section 2.3 shall be made on September 30, 2001.
(b) As used in this agreement, the term
"Market Price" means, as of any date, the average closing price (computed and
rounded to the third decimal point) of NET's common shares on NASDAQ as of 4:00
p.m. (EST) during the 20 trading days ending on the third day immediately
preceding that date.
(c) Any calculation of shares that
equates to a fractional number of shares shall be rounded to the nearest whole
number.
(d) All cash payments to the
Stockholders under this agreement shall be made 30% to William Sirolly and
23.33% to each of Charles Sirolly, Thomas Sirolly and Daniel Sirolly and all
stock issuances to the Stockholders under this agreement shall be made 20% to
William Sirolly and 26.66% to each of Charles Sirolly, Thomas Sirolly and Daniel
Sirolly.
2.6 Operations Following the Merger.
(a) Although the Stockholders shall
be responsible for the day-to-day operations of the Surviving Corporation's
business pursuant to the employment agreements referred to in section 5.1,
nothing in this agreement or those agreements shall be construed to limit the
rights of the boards of directors and officers of NET and the Surviving
Corporation to manage the business and affairs of those corporations or give the
Stockholders any claim against either NET
4
<PAGE>
or the Surviving Corporation with respect to any decision relating to the
conduct of their businesses, whether or not that decision affects the amount of
any consideration payable under section 2.3.
(b) Notwithstanding section 2.6(a),
NET agrees that during the period through June 30, 2001:
(i) Subject to the ultimate control of
the board of directors of NET, the Stockholders will be permitted to manage the
day-to-day operations of the Surviving Corporation consistent with approved
business plans, operating budgets and capital expenditure budgets, including
hiring employees and independent contractors.
(ii) NET will provide, or arrange for a bank
to provide, the Surviving Corporation with working capital consistent with past
practices of the Company (as described on schedule 2.6(b)(ii)) so long as the
Surviving Corporation's business is operating in a manner substantially
consistent with the business plan and budgets or any changes thereto approved by
NET.
(iii) NET will allow the Stockholders to
conduct the Surviving Corporation's business for the remaining 1999 calendar
year according to the Company's current business plan and budgets so long as the
business is operating in a manner substantially consistent with the business
plan and budgets or any changes thereto approved by NET.
(iv) NET will allow the Stockholders to
conduct the Surviving Corporation's business for the first six months of
calendar year 2000 according to the business plan and budgets attached hereto as
exhibit 2.6(b)-iv so long as the business is operating in a manner substantially
consistent with the business plan and budgets or any changes thereto approved by
NET.
(v) NET will allow the Stockholders to
conduct the Surviving Corporation's business for fiscal year 2001, ending June
30, 2001, according to a business plan and budgets consistent with the prior
business plans and budgets of the Surviving Corporation with appropriate
increases so long as the business is operating in a manner substantially
consistent with the business plan and budgets or any changes thereto approved by
NET.
(vi) Any additional profit making
opportunities for the Surviving Corporation proposed by NET will not cause the
Stockholders and the Surviving Corporation to substantially direct their efforts
away from the Company's core Business. The Stockholders will be permitted to
reject additional profit making opportunities proposed by NET that are not part
of the Business, if, in the Stockholders' reasonable judgment, such
opportunities would materially adversely affect the Business.
(vii) Any expansion of the Business, and the
timing thereof, will be jointly agreed to by the Stockholders and NET, provided,
however that the Stockholders will be permitted to expand the Business into new
mediums consistent with the business plan and budgets of the Surviving
Corporation.
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(c) In the event NET or the Surviving
Corporation breaches in any material respect the provisions of section 2.6(b),
the Stockholders shall give notice to NET of such breach, specifying in
reasonable detail the nature of the breach. If NET or the Surviving Corporation
fails to correct the breach within 45 days after the notice from the
Stockholders, then the Stockholders shall be entitled to receive the additional
consideration set forth in section 2.3(a) as if EBITDA equaled or exceeded the
Target for the two fiscal years ending June 30, 2001, payable on October 1,
2001; provided, however, the Stockholders shall not be entitled to any payment
pursuant to this section 2.6(c) if prior to the breach by NET or the Surviving
Corporation either (1) the Company or any of the Stockholders breached in any
material respect the terms of this agreement, (2) any of the Stockholders
breached in any material respect the terms of his Employment Agreement with the
Company, or (3) there was a material misrepresentation or material breach of
warranty by the Stockholders in this agreement, in any case which was not cured
within 45 days after notice from NET.
3. Representations and Warranties by the Company and the
Stockholders. The Company and the Stockholders jointly and severally represent
and warrant to NET and TGNEW as follows:
3.1 Organization and Authority of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation and has the full
corporate power and authority to own, lease and operate its properties as it now
does and to carry on its business as it is presently being conducted. To the
best of the knowledge of the Company and the Stockholders, the Company is duly
qualified and in good standing in each jurisdiction in which the property owned
or leased by it or the nature of the activities conducted by it requires
qualification. Except as set forth on schedule 3.1, the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
3.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by the Company have been duly
authorized by all requisite corporate action of the Company. Each of the
Stockholders has the full right to enter into and perform his obligations under
this agreement in accordance with its terms. This agreement and the employment
agreements referred to in section 5.1 constitute valid and binding obligations
of the Company and each of the Stockholders parties thereto, enforceable against
each of them in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 Consents of Third Parties. Except as set
forth on schedule 3.3, the execution, delivery and performance of this agreement
by the Company and the Stockholders do not and will not (i) conflict with the
certificate of incorporation or by-laws of the Company or conflict with, result
in the breach or termination of, constitute a default under, or increase or
accelerate any
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obligation under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which the Company or any of the Stockholders is a
party or by which the Company, the Business, any of the assets of the Company or
any of the Stockholders is bound; (ii) constitute a violation by the Company or
any of the Stockholders of any law, regulation, order, writ, judgment,
injunction or decree applicable to any of them; (iii) result in the creation of
any claim, lien, security interest, charge or encumbrance ("Liens") upon any of
the assets of the Company; or; (iv) adversely affect the operation of the
Business in any material respect. Except as set forth on schedule 3.3, no
consent, approval or authorization of, or designation, declaration or filing
with, any court or governmental authority or any other person or entity is
required on the part of the Company or any of the Stockholders in connection
with the execution, delivery and performance of this agreement.
3.4 Ownership of the Company. Each of Charles
Sirolly, Thomas Sirolly, Daniel Sirolly and William Sirolly is the record and
beneficial owner of 25% of the Company's outstanding stock, in each case free
and clear of any Liens. Except as set forth on schedule 3.4, there are no
outstanding options, warrants or rights of any kind to acquire any stock, and
there are no outstanding securities convertible into stock, of the Company, and
there are no obligations to issue any such options, rights or securities.
3.5 Financial Statements. The following
financial statements, copies of which have been delivered to NET, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and fairly present the financial position of the Company as
of the dates indicated and the results of operations for the periods indicated
(subject, in the case of the interim statements, to year-end audit adjustments):
(a) Combined balance sheets of Trent
Graphics, Inc. and Trent Graphics (a partnership) as of December 31, 1997 and
1996, and related combined statements of income, retained earnings, partners'
capital and cash flows for the years then ended, reviewed by Stone,
Trembly-Deibler & Associates, Inc.
(b) Combined balance sheets of Trent
Graphics, Inc. and Trent Graphics (a partnership) as of December 31, 1998 and
1997, and related combined statements of income, retained earnings, partners'
capital and cash flows for the years then ended, which statements are audited by
Stone, Trembly-Deibler & Associates, Inc.
(c) Balance sheet of Trent Graphics,
Inc. as of April 30, 1999, and related statement of income for the four months
then ended.
All such financial statements have been prepared in accordance with the books
and records of the Business and show all income and expenses attributable to the
Business during the respective periods covered by them. All of the books of
account of the Company have been exhibited or made available to NET and those
books of account have been maintained in accordance with good business practice
on a consistent basis and accurately record all transactions of the Company
during the periods covered by them. All of the Company's accounts receivable
outstanding as of the date
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of this agreement arose from bona fide transactions in the ordinary course of
the business and the Stockholders have no reason to believe that any of them
will not be collected in full when due.
3.6 Absence of Undisclosed Liabilities. As
of the date of this agreement the Company does not have any liability or
obligation of any kind, whether accrued, absolute, contingent or otherwise,
other than (a) liabilities and obligations under leases, commitments and other
agreements entered into in the ordinary course of business (which, to the extent
required by section 3.13, are listed on schedule 3.13), (b) the trade accounts
payable and accrued expenses listed on schedule 3.6, each of which has been
incurred in the ordinary course of business, (c) the liabilities set forth on
schedule 3.6 and (d) liabilities and obligations set forth on the Company's most
recent financial statements described in section 3.5(c). The Stockholders do not
know of any basis for the assertion against the Company or the Business of any
liability as of the date of this agreement that is not listed on schedule 3.6
(other than the liabilities under leases, commitments and other agreements
referred to in the immediately preceding sentence).
3.7 Absence of Certain Changes. Since December
31, 1998, the Company has operated its business in the ordinary course and
consistent with past practice, and, except as set forth on schedule 3.7:
(a) the Company has not entered into
any transaction or incurred any liability or obligation other than in the
ordinary course of business;
(b) there has been no material adverse
change in the condition (financial or otherwise), business, operations or assets
of the Company, and the Stockholders know of no fact or circumstance that is
reasonably likely to have a material adverse effect on the Company's future
business or operations;
(c) the Company has not sold or
transferred any assets other than in the ordinary course of business and other
than assets that have been replaced with other assets of equal or greater value;
(d) the Company has not incurred any
liability that was unusual in nature or amount or any indebtedness other than
indebtedness to trade creditors incurred in the ordinary course of business;
(e) the Company has not made any
distribution on or acquired any of its stock or, directly or indirectly, made
any other payment of any kind or any loan to or on behalf of the Stockholders,
any member of the Stockholders' families, or any entity controlled by the
Stockholders or any member of their families;
(f) the Company has not granted or
agreed to grant any general increase in any rate or rates of salaries or
compensation or in benefits of any kind to its employees or any specific
increase in the salary of or compensation to any employee whose total salary and
compensation after such increase would be at an annual rate in excess of
$25,000;
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(g) the Company has not made any change
in its accounting methods or principles (or the application of those methods or
principles) or introduced any material new method of management, operations or
accounting;
(h) the Company has not established any
new employee benefit plan (as defined in section 3.24), amended or modified any
existing employee benefit plan, or incurred any obligation or liability under
any employee benefit plan materially different in nature or amount from
obligations or liabilities incurred during similar periods in prior years; and
(i) the Company has not entered into
any employment, bonus or deferred compensation agreement with any of its
directors, officers or other employees.
3.8 Taxes. The Company has timely filed all
foreign, federal, state and local income, gross receipts, personal property,
commercial rent, sales and use and other tax returns, reports and information
returns (including any related or supporting information) required by law to be
filed by it; each of those tax returns is correct and complete in all material
respects. The Company has timely paid all taxes required to be paid by it to
date. Except as set forth on schedule 3.8, none of the Company's tax returns has
been audited by any tax authority and there exist no pending or, to the best of
the knowledge of the Company and the Stockholders, proposed tax assessments,
suits, actions, claims, audits, investigations or inquiries by any tax authority
with respect to the Business or assets of the Company or against the Company or
any of the Stockholders with respect to the Business, or, to the best of the
Stockholder's knowledge, against any independent contractors with respect to the
Business. There are no tax liens on any of the Company's assets. The Company
(including any person acting on behalf of the Company) has not given nor been
requested to give waivers or extensions of any statute of limitations relating
to payment of taxes of the Company or for which the Company may be liable and no
other party has given or been requested to give such waivers or extensions with
respect to taxes for which the Company may be liable. All taxes that are or were
required by law to be withheld or collected by the Company have been duly
withheld or collected and paid to the proper tax authority. To the best of the
knowledge of the Company and the Stockholders, the Company is properly treated
as an S corporation for federal income tax purposes. The Company does not have
any tax liability of any kind that could result in a Lien on any of its assets.
3.9 Title to Assets. Except as set forth on
schedule 3.9 and except for the lien, if any, of current taxes not yet due and
payable, the Company has valid title, free and clear of any Liens, to all the
assets, tangible and intangible, used in the conduct of the Business, and those
assets will be sufficient to enable the Surviving Corporation to continue after
the Effective Time to operate the Business in the manner in which it has been
operated by the Company. The Company does not owe any amount to, or have any
contract with or commitment to, or use any property (real or personal) in its
business owned or leased by, any of the Stockholders or any director, officer,
employee, agent or representative of the Company, or any of their respective
affiliates.
3.10 Personal Property. Schedule 3.10 lists all
of the equipment, machinery, computers, furniture, leasehold improvements,
vehicles and other personal property
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having an individual value greater than $5,000 owned or leased by the Company
and all interests therein. All equipment and other tangible assets owned or used
by the Company are in good operating condition and in good condition of
maintenance and repair, ordinary wear and tear excepted, are suitable for their
present uses and purposes, and conform in all material respects with all
applicable ordinances, rules and regulations and all building, zoning and other
laws.
3.11 Real Property. The Company does not own any
real property. Schedule 3.11 contains a list and brief description of all real
properties leased by the Company. To the best of the knowledge of the Company
and the Stockholders, all improvements used by the Company on the real
properties leased by the Company are (a) in accordance with all applicable laws,
ordinances, regulations and orders in all material respects, including, but not
limited to, those applicable to zoning, environment and the establishment and
maintenance of working conditions for labor, and (b) in good condition of
maintenance and repair and are adequate, sufficient and suitable for their
present uses and purposes. The transactions contemplated by this agreement will
not adversely affect the Surviving Corporation's right to use those properties
for the same purpose and to the same extent as they were being used by the
Company prior to the date of this agreement.
3.12 Litigation; Compliance with Laws. Except
as set forth on schedule 3.12, there is no claim, litigation, proceeding or
governmental investigation pending or, to the best of the knowledge of the
Company and the Stockholders, threatened, or any order, injunction or decree
outstanding, against the Business, the Company or any of its properties or
assets. Neither the Company nor the Business is in violation in any material
respect of any law, regulation or ordinance, or any other requirement of any
governmental body or court, and no notice has been received by the Company or
any of its officers or directors alleging any such violation. The Company is not
engaged in any dispute with any of its advertisers, customers, suppliers or
printers and, to the best of the knowledge of the Company and the Stockholders,
has good relationships with all of them.
3.13 Lists of Agreements, etc. Schedule 3.13
contains a true and complete list of all orders, commitments and agreements
(written or oral) to which the Company is a party, including, but not limited
to, orders, commitments and agreements with advertisers and customers,
agreements for the purchase of materials, supplies, equipment or services,
leases (as lessee or lessor), license agreements (as licensee or licensor), loan
agreements, distribution agreements, and employment, consulting, sales
representative and independent contractor agreements other than any orders,
commitments or agreements that involve $5,000 or less or can be terminated on 30
days' notice without liability. True and complete copies of the agreements,
commitments and leases referred to on schedule 3.13 have been delivered or made
available to NET.
3.14 Status of Agreements. All of the Company's
agreements, commitments and orders were entered into in the ordinary course of
business. Except as set forth on schedule 3.14, each of the agreements,
commitments and orders referred to in section 3.13 is presently in full force
and effect in accordance with its terms and the Company is not in default, and,
to the best of the knowledge of the Company and the Stockholders, no other party
is in default under any of the provisions of any of those agreements and no
condition exists that, with notice or lapse of time or both, would constitute a
default by the Company or, to the best of the knowledge of the Company and the
Stockholders, any other party to any of those agreements. Each of the
agreements,
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commitments or orders referred to in section 3.13 is valid and binding upon and
enforceable against each of the parties thereto in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general. No party
to any of the agreements, commitments or orders referred to in section 3.13 has
made, asserted or 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 neither the Company nor any of its
officers or directors has received any notice to that effect.
3.15 Employees.
(a) Schedule 3.15(a) contains a true and
complete list of the names and addresses, social security numbers, positions,
hire dates and annual or hourly compensation of all employees of the Company and
a description of vacation policies, sick leave policies, and bonus, incentive
compensation and group insurance plans for the benefit of those employees. No
employee of the Company is owed any wages, benefits or other compensation for
past services, other than wages and benefits accrued in the ordinary course of
business during the current pay period and accrued vacation. Except as set forth
on schedule 3.15(a), the Company does not have any severance policy and no
employee of the Company is entitled to any severance payment, either by law or
by agreement, upon the termination of his or her employment. To the best of the
knowledge of the Company and the Stockholders, the transactions provided for in
this agreement will not give rise to any liability of the Company or the
Surviving Corporation for severance pay or termination pay to any employee of
the Company or trigger any payments of any kind to any employee of the Company.
No employee of the Company is represented by any union or other collective
bargaining agent and there are no collective bargaining or other labor
agreements with respect to those employees.
(b) Schedule 3.15(b) contains a true and
complete list of the names and addresses, social security or tax identification
numbers, the annual, weekly or hourly compensation, and the job descriptions, of
all persons that the Company has engaged as independent contractors since
December 31, 1998. All such persons are properly characterized as independent
contractors and neither the Internal Revenue Service nor any other governmental
agency has asserted any claim to the contrary and, to the best of the knowledge
of the Company or the Stockholders, there is no pending investigation by any
governmental agency relating to the Company's practice of engaging independent
contractors.
(c) Schedule 3.15(c) contains a true and
complete copy of the Company's employee handbook, which contains accurate
summaries of the Company's employee benefit plans and human resources policies.
3.16 Labor Disagreements. Except as set forth
on schedule 3.16, (a) to the best of the knowledge of the Company and the
Stockholders, the Company and the Business are in compliance in all material
respects with all applicable laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not
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engaged in any unfair labor practice; (b) there is no (and has never
been any) unfair labor practice charge or complaint against the Company or the
Business pending before the National Labor Relations Board, any state labor
relations board or any court or tribunal and, to the best of the knowledge of
the Company and the Stockholders, none is or has been threatened; (c) there is
no labor strike, dispute, request for representation, slowdown or stoppage
actually pending against or affecting the Company or the Business and, to the
best of the knowledge of the Company and the Stockholders, none is or has been
threatened; and (d) no grievance which might have an adverse effect on the
conduct of the operations of the Business or any arbitration proceeding arising
out of or under any collective bargaining agreement is pending and, to the best
of the knowledge of the Company and the Stockholders, none is or has been
threatened.
3.17 Restrictive Documents, etc. Neither the
Company nor the Business is subject to, or a party to, any lease, license,
permit, agreement or other commitment, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind,
that materially and adversely affects its business practices or operations or
any of the assets of the Company.
3.18 Environmental Matters. To the best of the
Stockholders' knowledge, the Company is not in violation of any federal, state
or local law, regulation, rule, order, decree, ordinance or common law relating
to pollution, the protection of human health or the environment.
3.19 Permits and Licenses. The Company has all
material permits, licenses, franchises and other authorizations ("Licenses")
necessary for the conduct of the Business and all such Licenses are valid and in
full force and effect. All Licenses held by the Company that are material to the
Company or the Business are listed on schedule 3.19.
3.20 Banks; Powers of Attorney. Schedule 3.20
sets forth (a) the names and locations of all banks, trust companies, savings
and loan associations and other financial institutions at which the Company
maintains safe deposit boxes or accounts of any nature and the names of all
persons authorized to draw thereon, make withdrawals therefrom or have access
thereto and (b) the names of all persons to whom the Company has granted a power
of attorney, together with a description thereof. The Company has provided NET
with true and complete copies of all bank statements received by it twenty-four
months prior to the date of this agreement.
3.21 Intangible Property. Schedule 3.21 contains
a complete list of the trademarks, trade names, copyrights and logos (including
registrations and applications for registration of any of them) used by the
Company. The Company owns, free and clear of any Liens, each of the trademarks,
trade names, copyrights and logos listed on schedule 3.21, and they constitute
all of the trademarks, copyrights, trade names and logos necessary for the
continued operation of the Business in a manner consistent with past practices.
To the knowledge of the Company and the Stockholders, the Company is not
infringing upon any trademark, trade name, copyright or other rights of any
third party; no proceedings are pending or threatened; and no claim has been
received by the Company alleging any such violation. To the best of the
knowledge of the
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Company and the Stockholders, there is no violation by others
of any right of the Company with respect to any trademark, trade name or
copyright.
3.22 Software and Databases. The Company owns
or possesses adequate licenses or other rights to use all material computer
software used by it. Schedule 3.22 contains a list of all such software. Any
license of the Company to use any software is valid and does not infringe on the
property rights of any third party. The Company has not granted to any person or
entity any interest, as licensee or otherwise, in any of its owned software or
databases or in any of its mailing lists, advertiser lists or member lists.
3.23 Insurance. Schedule 3.23 contains a
complete list of all of the insurance policies held by the Company, specifying
with respect to each policy the policy limit, type of coverage, location of the
property covered, annual premium, premium payment date and expiration date. All
of such policies are in full force and effect and the Company is not in default
of any material provision thereof. True and complete copies of all of those
policies have been delivered to NET.
3.24 ERISA. Except as set forth on schedule
3.24, the Company is not a party to or bound by or liable with respect to any
"employee benefit plan," within the meaning of section 3(3) of the Employee
Retirement Income Security Act of 1974.
3.25 Expenses Related to this Agreement. The
Company has not paid any expenses related to the negotiation or preparation of
this agreement or any broker's, finder's or similar fee relating to the
transactions contemplated by this agreement, and no such payment will be payable
after execution of this agreement.
3.26 Transactions with Affiliates. Except as
set forth on schedule 3.26, during the twelve months preceding the date of this
agreement the Company has not engaged in any transaction with any of the
Stockholders or any of their respective affiliates.
3.27 Posters. Schedule 3.27 contains a
complete list of the colleges and other locations at which the Company held
poster sales events in 1998 and the retail stores at which the Company sold or
framed posters in 1998.
3.28 Repayment of Loan. The loan agreements
(the "PNC Agreements") between the Company and PNC Bank ("PNC") will permit
repayment of the loans to the Company at the Closing without any penalties or
premiums. The outstanding principal amount (and accrued interest thereon) under
the PNC Agreements is $537,709.81, and no default exists under the PNC
Agreements.
3.29 Business Relationships. Except as set
forth in the schedules to this agreement, since December 31, 1998 the Company
has enjoyed good relationships with all suppliers of goods or services to the
Business, the operators of all of the venues in which its posters are sold and
all other parties with which it has business relations, and neither the Company
nor any of the
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Stockholders knows of any intention on the part of any such vendor, venue
operator or other party to substantially change its relationship with the
Company.
3.30 No Misrepresentation. No representation
or warranty by the Company or the Stockholders in this agreement (including the
schedules and exhibits to this agreement) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in this agreement (including the schedules and exhibits to this
agreement) not misleading.
3.31 Knowledge. As used in this agreement, "to
the Stockholders' knowledge," "the Company's knowledge" and words of similar
import shall mean the actual knowledge of the Stockholders.
4. Representations and Warranties by TGNEW and NET. TGNEW and
NET jointly and severally represent and warrant to the Company and the
Stockholders as follows:
4.1 Organization. Each of TGNEW and NET is a
corporation duly organized, validly existing and in good standing under the law
of the State of Delaware and has the full corporate power to enter into and to
perform this agreement.
4.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by TGNEW and NET have been duly
authorized by all requisite corporate action of each of them. This agreement and
the employment agreements referred to in section 5.1 constitute valid and
binding obligations of TGNEW and NET, enforceable against each of them in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Consents of Third Parties. The execution,
delivery and performance of this agreement by each of TGNEW and NET will not (a)
conflict with TGNEW's or NET's certificate of incorporation or by-laws and will
not conflict with, result in the breach or termination of, or constitute a
default under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree to which either of them is a party or by which either
of them is bound, or (b) constitute a violation by it of any law, regulation,
order, writ, judgment, injunction or decree applicable to it. No consent,
approval or authorization of, or designation, declaration or filing with, any
court or governmental authority is required on the part of TGNEW or NET in
connection with the execution, delivery and performance of this agreement.
4.4 Financial Ability. NET and TGNEW have the
financial ability to satisfy their respective obligations to the Company and the
Stockholders under this agreement.
4.5 Validity of Shares. All the issued and
outstanding shares of common stock of NET have been duly authorized, are validly
issued, fully paid and non-assessable. The
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shares of NET common stock, when issued to the Stockholders under article 2,
will be duly authorized, validly issued, fully paid and non-assessable.
4.6 Litigation; Compliance with Laws. Except
as set forth on schedule 4.6, there is no claim, litigation, proceeding or
governmental investigation pending or, to the best of the knowledge of TGNEW and
NET, threatened, or any order, injunction or decree outstanding, against their
respective businesses or any of their respective properties or assets. Neither
TGNEW nor NET is in violation of any law, regulation or ordinance, or any other
requirement of any governmental body or court, except where such violation or
non-compliance would not have a material adverse effect on the financial
condition, business or operations of NET and its subsidiaries taken as a whole,
and no notice has been received by TGNEW, NET or any of their respective
officers or directors alleging any such violation.
4.7 NET Financials and SEC Reports. The "SEC
Documents" shall mean (a) each final prospectus and definitive proxy statement
filed by NET with the Securities and Exchange Commission (the "SEC") since
January 1, 1997 (other than prospectuses contained in registration statements on
Forms S-4, S-8, S-14 or S-15), and (b) each report on Form 10-K or Form 10-Q
(and any amendments thereto) filed by NET with the SEC since January 1, 1997.
None of the SEC Documents referred to in the preceding sentence, as of the date
they were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
NET and its subsidiaries for the fiscal year or period ended December 31, 1996
or thereafter included in the SEC Documents referred to in the first sentence of
this section 4.7 (the "NET Financials") (including any related notes thereto)
fairly present in all material respects the consolidated financial position and
the consolidated operations, shareholders' equity and changes in financial
position, as the case may be, of NET and its consolidated subsidiaries as of its
date or for the respective periods set forth therein (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments), in each
case, in accordance with generally accepted accounting principles consistently
applied during the periods involved (in the case of audited statements) or
applicable accounting requirements of the SEC (in the case of unaudited
statements), except as set forth therein.
4.8 No Misrepresentation. No representation
or warranty by TGNEW or NET in this agreement (including the schedules and
exhibits to this agreement) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained in
this agreement (including the schedules and exhibits to this agreement) not
misleading.
50 Further Agreements of the Parties.
5.1 Undertaking by Stockholders With Respect to
Stock; Employment Agreements.
(a) Prior to the Closing, the
Stockholders shall not sell, transfer or cause or permit any Lien to exist on
any of the Company's Shares.
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(b) At the Closing, each of the
Stockholders shall execute an employment agreement with the Company in the form
of exhibit 5.1.
5.2 Access to Information. Prior to the Closing,
NET and its representatives may make such investigation of the property, assets
and businesses of the Business as they may desire, and the Company and the
Stockholders shall give to NET and to its counsel, accountants and other
representatives, upon reasonable notice, reasonable access, during normal
business hours throughout the period prior to the Closing, to all of the assets,
books, commitments, agreements, records and files of the Company relating to the
Business and the Company and the Stockholders shall furnish to NET during that
period all documents and copies of documents and information concerning the
Business as NET reasonably may request. NET shall hold, and shall cause its
representatives to hold, all such information and documents and all other
information and documents delivered pursuant to this agreement confidential and,
if the purchase and sale contemplated by this agreement is not consummated for
any reason, shall return to the Company all such information and documents and
any copies as soon as practicable, and shall not disclose any such information
(that has not previously been disclosed by a party other than NET) to any third
party, unless required to do so pursuant to a request or order under applicable
laws and regulations or pursuant to a subpoena or other legal process. NET's
obligations under this section shall survive the termination of this agreement.
5.3 [Intentionally Omitted]
5.4 Other Action. No party to this agreement
shall take any action that would result in any of its or their representations
and warranties not being true as of the Closing Date. Each of the parties to
this agreement shall use its best efforts to cause the fulfillment at the
earliest practicable date of all of the conditions to the obligations of the
parties to consummate the transactions contemplated by this agreement.
5.5 Covenants Against Competition, Solicitation
and Disclosure.
(a) To accord to NET the full value of
its purchase, for a period of five years after the Effective Time, the
Stockholders shall not, directly or indirectly, engage or be interested in (as
owner, shareholder, partner, member, individual proprietor, director, officer,
employee, manager, lender, agent consultant or otherwise) any business or entity
that engages, anywhere in the world, in (i) the sale, distribution or other
commercial exploitation of wall posters or (ii) any other business in which the
Company has engaged at any time during the two years preceding the date of this
agreement.
(b) For a period of five years after
the date of this agreement, the Stockholders shall not, directly or indirectly,
employ or solicit for employment or consulting, on their own behalf or on behalf
of any other person or entity, or otherwise encourage the resignation of, any
employee of NET, the Surviving Corporation or any of NET's affiliates; provided,
however, this restriction shall not apply to their respective wives.
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(c) Neither the Company nor any of the
Stockholders shall at any time hereafter disclose to anyone, or use in
competition with NET or any of its subsidiaries, any information with respect to
any confidential or secret aspect of the business or affairs of NET or any of
its subsidiaries.
(d) The Stockholders acknowledge that
the remedy at law for breach of the provisions of this section 5.5 will be
inadequate and that, in addition to any other remedy NET and the Surviving
Corporation may have, they shall be entitled to an injunction restraining any
breach or threatened breach, without the necessity of showing actual damages and
without any bond or other security being required. If any court construes any
covenant in this section 5.5 to be unenforceable in whole or in part, 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.
5.6 Stock Options. Prior to the Closing, NET
and the Stockholders shall determine and NET shall recommend to its stock option
committee for its approval (which approval may not occur prior to the Closing)
awards of stock options to be made to the Company's key employees (other than
the Stockholders) under NET's employee stock option plan.
5.7 Expenses. Except as expressly provided in
this agreement, the parties shall bear their own expenses incurred in connection
with the negotiation and preparation of this agreement and in connection with
the transactions contemplated by this agreement.
5.8 Consents and Approvals. After the Closing,
the Surviving Corporation and the Stockholders shall use reasonable efforts to
obtain, at the earliest practicable date, in form and substance reasonably
satisfactory to NET, any consents and approvals set forth on schedule 3.3,
without any condition materially adverse to NET or the operation of the Business
after the Closing Date.
5.9 Audited Financial Statements; Interim
Financial Statements. Prior to the Closing, the stockholders shall deliver to
NET combined balance sheets of Trent Graphics, Inc. and Trent Graphics (a
partnership) as of December 31, 1997, and related combined statements of income,
retained earnings, partners' capital and cash flows for the year then ended,
audited by Stone, Trembly-Deibler & Associates, Inc. together with an agreement
of such accountants to consent to the inclusion of such financial statements in
any SEC filing by NET.
5.10 Securities Act Matters.
(a) The Company and the Stockholders
recognize that the issuance of shares of NET common stock under article 2 is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of section 4(2) of the Securities Act.
In that connection, each of the Stockholders represents and warrants to NET that
he is acquiring the NET shares for his own account, for investment purposes only
and not with a view
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to the resale or distribution of those shares, in whole or in part. Each of the
Stockholders acknowledges that he understands that sales or transfers of the
shares are restricted by the Securities Act and by certain state securities laws
and that a legend referring to that restriction will be placed on the
certificates representing the shares.
(b) None of the Stockholders may sell
or otherwise transfer the shares acquired by them pursuant to this agreement
unless the transaction is registered under the Securities Act and applicable
state securities laws or an exemption from registration is available.
(c) If within two years after the Effective
Time NET proposes to file a registration statement (other than a registration
statement on Form S-4 or S-8 or any form substituting therefor or the equivalent
thereof) on which securities of NET are to be registered for sale by NET, NET
shall give written notice of such proposed filing to each of the Stockholders at
least 30 days before the anticipated filing date of such registration statement
and such notice shall offer each of the Stockholders the opportunity to have up
to 15% of the shares of NET common stock issued to him on the Closing Date
included in the registration statement. Each Stockholder desiring to have any of
his shares of NET common stock included in the registration statement shall so
advise NET in writing within 20 days after the date such notice is given by NET
(which request shall set forth the number of shares of NET common stock for
which registration is requested). NET shall include in the registration
statement all such securities requested to be included therein unless, if the
registration statement is filed pursuant to an underwritten offering, the
managing underwriter delivers a written opinion that the inclusion of such
requested securities would likely have an adverse effect on the offering, in
which event NET shall include only so many shares as the managing underwriter
indicates may be included without having an adverse effect on the offering.
Notwithstanding the foregoing, NET shall not have
any obligation to include any of a Stockholder's shares in the registration
statement if, in the opinion of NET's counsel (a copy of which shall be
addressed and delivered to the Stockholder), the Stockholder is then permitted
by law to sell, in a single transaction pursuant to the provisions of Rule 144
under the Act, all of the Shares then held by him. NET shall not have any
obligation to notify any of the Stockholders of the filing of a registration
statement if he has received a copy of the opinion referred to in the preceding
sentence.
Each Stockholder shall furnish to NET such
information and other material as NET or its counsel may reasonably request with
respect to the public offering of the shares and the Stockholder shall take any
other action which NET may reasonably request in connection with the
registration statement.
Whenever the Stockholder sells any shares under
a registration statement filed pursuant to this agreement, he shall furnish NET
with a report at the end of the distribution setting forth the number of shares
sold and the manner of such sale.
5.11 Further Assurances, etc. At any time and
from time to time after the date of this agreement, (a) each party shall,
without further consideration, execute and deliver to the
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other parties such other instruments and take such other action as the others
may reasonably request to carry out the transactions contemplated by this
agreement, (b) NET shall use reasonable efforts to obtain releases of the
Stockholders from any guaranties by them of any amounts payable by the Company
to its vendors and service providers, and (c) the Surviving Corporation shall
make timely payments of all amounts payable to its vendors.
5.12 Post-Closing Payments. After the Closing,
the Stockholders shall, as promptly as practical, forward to the Surviving
Corporation any amount received by them to which the Surviving Corporation is
entitled and shall refer to the Surviving Corporation any telephone calls,
letters and other communications that they may receive relating to the Business.
5.13 Employees. At the Closing, all of the
employees of the Company on the day immediately preceding the Closing Date shall
become employees of the Surviving Corporation. The terms of the employment of
each of such employees shall be determined by the Surviving Corporation, except
that the Surviving Corporation shall provide such employees with vacation time
consistent with the past practices of the Company and fringe benefits as
provided to other employees of NET (unless the Stockholders and NET mutually
determine otherwise).
5.14 Financing. At the Closing, NET shall provide
to the Surviving Corporation any funds necessary to repay all indebtedness owed
to PNC by the Company pursuant to the PNC Agreement.
5.15 Reports Under Securities Exchange Act of
1934. With a view to making available to the Stockholders the benefits of Rule
144 promulgated under the Securities Act of 1933 and any other rule or
regulation of the SEC that may at any time permit a Stockholder to sell
securities of NET to the public without registration, NET agrees to use its best
efforts to:
(a) make and keep public information
available, as those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner
all reports and other documents required of NET under the 1933 Act and the
Securities Exchange Act of 1934, as amended the ("1934 Act"); and
(c) furnish to any Stockholder so long
as such Stockholder owns any of the shares of NET forthwith upon request a
written statement by NET that it has complied with the reporting requirements of
Rule 144, and of the 1933 Act, a copy of the most recent annual or quarterly
report of NET, and such other reports and documents so filed by NET as may be
reasonably requested in availing any Stockholder of any rule or regulation of
the SEC permitting the selling of any such securities without registration.
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60 Conditions to Closing.
6.1 Conditions Precedent to Obligations of TGNEW
and NET. The obligations of TGNEW and NET to consummate the transactions
contemplated by this agreement are subject to the fulfillment, prior to or at
the Closing, of each of the following conditions (any or all of which may be
waived by TGNEW or NET):
(a) all representations and warranties
of the Company and the Stockholders to TGNEW 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) the Company and the Stockholders
shall have performed and complied in all material respects with all obligations
and covenants required by this agreement to be performed or complied with by
them, respectively, prior to or at the Closing;
(c) NET shall have been furnished with a
certificate (dated the Closing Date and in form and substance reasonably
satisfactory to NET) executed by the president of the Company, certifying to the
fulfillment of the conditions specified in sections 6.1(a) and 6.1(b);
(d) NET shall have been furnished with
an opinion of Buchanan Ingersoll Professional Corporation, counsel to the
Company and the Stockholders, in the form of exhibit 6.1(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 transactions
contemplated by this agreement.
6.2 Conditions Precedent to Obligations of the
Company and the Stockholders. The obligations of the Company and the
Stockholders to consummate the transactions contemplated by this agreement are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions (any or all of which may be waived by the Company or the
Stockholders):
(a) all representations and warranties
of TGNEW 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) TGNEW and NET shall have performed
and complied in all material respects with all obligations and covenants
required by this agreement to be performed or complied with by them prior to or
at the Closing;
(c) the Stockholders shall have been
furnished with a certificate (dated the Closing Date and in form and substance
reasonably satisfactory to the Stockholders)
20
<PAGE>
executed by the president of NET, certifying to the fulfillment of the
conditions specified in sections 6.2(a) and 6.2(b);
(d) the Stockholders shall have been
furnished with an opinion of Proskauer Rose LLP, counsel to TGNEW and NET, in
the form of exhibit 6.2(d);
(e) the Company and the Stockholders
shall have received a pay-off letter from PNC Bank with respect to the
indebtedness under the PNC Agreement, together with the return of the notes,
mortgages and guaranties delivered to PNC by the Company and the Stockholders;
and
(f) there shall not be in effect any
injunction or restraining order issued by a court of competent jurisdiction in
an action or proceeding against the consummation of the transactions
contemplated by this agreement.
70 Documents to be Delivered at Closing.
7.1 Documents to Be Delivered by the Company
and the Stockholders. At the Closing, the Company and the Stockholders shall
deliver to NET and TGNEW the following:
(a) certificates representing all the
issued and outstanding shares of common stock of the Company, registered in the
names of the Stockholders and duly endorsed by the Stockholders in blank for
transfer or accompanied by appropriate stock powers in blank duly signed by the
Stockholders;
(b) a copy of resolutions of the board
of directors and the Stockholders of the Company authorizing the execution,
delivery and performance of this agreement by the Company, 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;
(c) the certificate referred to in
section 6.1(c);
(d) the opinion referred to in section
6.1(d); and
(e) the employment agreements referred to in
section 5.1.
7.2 Documents To Be Delivered by TGNEW and NET.
At the Closing, TGNEW and NET shall deliver to the Stockholders the following:
(a) the wire transfer of $3.5 million
referred to in section 2.2;
(b) certificates representing the
number of shares of common stock of NET as determined in accordance with section
2.2;
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(c) a copy of resolutions of the
boards of directors of NET and TGNEW authorizing the execution, delivery and
performance of this agreement by each of NET and TGNEW, as the case may be, and
a certificate of the secretary or assistant secretary of NET or TGNEW, as the
case may be, dated the Closing Date, that such resolutions were duly adopted and
are in full force and effect;
(d) the certificate referred to in
section 6.2(c);
(e) the opinion referred to in section
6.2(d);
(f) the guaranty of the Surviving
Corporation's obligations referred to in section 10.1; and
(g) the employment agreements referred to in
section 5.1.
80 Survival of Representations and Warranties;
Indemnification.
8.1 Survival. All representations, warranties
and agreements by the Company and the Stockholders shall survive the closing
under this agreement, notwithstanding any investigation at any time by or on
behalf of TGNEW or NET, and shall not be considered waived by TGNEW's or NET's
consummation of the transactions contemplated by this agreement with knowledge
of any breach or misrepresentation by the Company or the Stockholders; provided,
however, any claim for misrepresentation or breach of warranty or breach of any
covenant or agreement to be performed on or prior to the Closing must be
asserted by notice given to the Stockholders within 18 months from the Closing
Date except that a claim with respect to the representations and warranties in
sections 3.1 and 3.4 may be asserted at any time. All representations,
warranties and agreements by TGNEW and NET shall survive the Closing
notwithstanding any investigation at any time by or on behalf of the Company or
the Stockholders, and shall not be considered waived by the Company's or the
Stockholders' consummation of the transactions contemplated by this agreement
with knowledge of any breach or misrepresentation by TGNEW or NET.
8.2 Indemnification.
(a) Subject to the limitations in
sections 8.1 and 8.4, the Stockholders jointly and severally shall indemnify and
hold harmless the Surviving Corporation 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) the Surviving
Corporation or NET may suffer, sustain or become subject to as a result of any
breach of any representation, warranty, covenant or other agreement of the
Company or the Stockholders contained in this agreement, or any
misrepresentation by the Company or the Stockholders, or any claim by a third
party which, without regard to the merits of the claim, would constitute such a
breach or misrepresentation.
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(b) The Surviving Corporation and
NET jointly and severally shall indemnify and hold harmless the Stockholders
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) the Stockholders may suffer, sustain or become subject to as a
result of (1) any breach of any representation, warranty, covenant or other
agreement of TGNEW or NET contained in this agreement, (2) any misrepresentation
by TGNEW or NET, (3) any claim by a third party which, without regard to the
merits of the claim, would constitute such a breach or misrepresentation, and
(4) any personal guaranties by the Stockholders of any amounts payable by the
Company to its vendors and service providers.
8.3 Defense of Claims. If any third-party
claim is made against any party that, if sustained, would give rise to a
liability of the other party, the party against whom the claim is made shall
promptly cause notice of the claim to be delivered to the other party and shall
afford the other party and its counsel, at the other party's sole expense, the
opportunity to join in defending or compromising the claim.
8.4 Limits on Indemnification. No claim may be
made against the Stockholders for indemnification for breaches of
representations and warranties hereunder or for breaches of any covenants or
agreements to be performed prior to the Closing until the aggregate of all of
the Surviving Corporation's and NET's claims for indemnification hereunder with
respect to all such breaches by the Company or the Stockholders collectively
exceed $50,000 and the aggregate liability of the Stockholders to the Surviving
Corporation and NET for indemnification under this agreement shall be limited to
$1,000,000.
90 Miscellaneous.
9.1 Finders. The parties represent and warrant that
they have not employed or utilized the services of any broker or finder in
connection with this agreement or the transactions contemplated by it.
9.2 Entire Agreement. This agreement (together
with the employment agreements referred to in section 5.1) contains, and is
intended as, a complete statement of all of the terms of the arrangements among
the parties, supersedes any previous agreements and understandings among the
parties with respect to those matters (including, but not limited to, the letter
of intent dated April 13, 1999), and cannot be changed or terminated orally.
9.3 Governing Law. This agreement shall be
governed by and construed in accordance with the law of the Commonwealth of
Pennsylvania, except that the provisions relating to the merger of the Company
into TGNEW shall be governed by Delaware or Pennsylvania law to the extent
appropriate.
9.4 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.
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9.5 Notices. All notices and other
communications under this agreement shall be in writing and shall be deemed
given when delivered personally, one day after being sent by recognized
overnight courier, four days after being mailed by certified mail, return
receipt requested, or by facsimile transmission, with a confirming copy by
certified mail, return receipt requested, to the parties at the following
addresses (or to such other address as a party may specify by notice given to
the other pursuant to this provision):
(a) If to the Company or the Stockholders,
addressed to any or all of them at:
c/o Trent Graphics, Inc.
140 North 2nd Street, Suite 104
Stroudsburg, Pennsylvania 18360
Facsimile No.: 570-476-5383
with a copy to:
Buchanan Ingersoll Professional Corporation
213 South Market Street, 3rd Floor
Harrisburg, Pennsylvania 17101
Anne M. Madonia, Esq.
Facsimile No.: 717-233-0852
with copies to:
Thomas H. Sirolly
6000 Fairway Drive
Tobyhanna, Pennsylvania 18466
Facsimile No.: 570-894-3800
Charles T. Sirolly
1514 Woodhaven Drive
Hummelstown, Pennsylvania 17036
Facsimile No.: 717-566-9348
Daniel J. Sirolly
245 Hoffman Street
East Stroudsburg, Pennsylvania 18301
William Sirolly
308 Camelot Drive
Stroudsburg, Pennsylvania 18360
(b) If to TGNEW or NET, addressed to either or both
of them at:
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Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik,
Executive Vice President and Chief Financial
Officer
Facsimile No.: 212-622-7370
with a copy to:
Bertram A. Abrams, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Facsimile No.: 212-969-2900
9.6 Waiver. Any party may waive compliance by
another with any of the provisions of this agreement. No waiver of any provision
shall be construed as a waiver of any other provision. Any waiver must be in
writing and must be signed by the party waiving the provision.
9.7 Separability. If any provision of this
agreement is invalid or unenforceable, the balance of this agreement shall
remain in effect unless such invalidity or unenforceability shall materially
impair the purpose or objectives of this agreement.
9.8 Assignment. No party may assign any of its
or his rights or delegate any of its or his duties under this agreement without
the consent of the other parties.
9.9 Publicity. No party shall issue any press
release or other public statement regarding the transactions contemplated by
this agreement without the consent of the other parties, except as required by
applicable law.
9.10 Definitions. As used in this agreement,
the term "affiliate" means any person or entity directly or indirectly
controlled by, controlling, or under common control with, any other person or
entity. As used in this agreement, the term "subsidiary" of a person means any
corporation or other legal entity of which that person (either alone or through
or together with any other subsidiary) owns, directly or indirectly, more than
50% of the stock or other equity interests that are ordinarily and generally, in
the absence of contingencies and understandings, entitled to vote for the
election of the board of directors or other governing body of such entity.
9.11 No Third Party Beneficiaries. This
agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this agreement.
9.12 Specific Performance. The Company and the
Stockholders acknowledge that the Business is of a special, unique and
extraordinary character, and that any
25
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breach of this agreement by the Company or any of the Stockholders could not be
compensated for by damages. Accordingly, if the Company or any of the
Stockholders breaches its or his obligations under this agreement NET 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 the Company and the
Stockholders to fulfill their obligations under this agreement, and no bond or
other security shall be required.
9.13 Counterparts. This agreement may be
executed in one or more counterparts.
9.14 Termination. Either the Stockholders or
NET may terminate this agreement by notice to the other if the Closing has not
occurred by June 30, 1999 (but a party shall not have the right to terminate
this agreement if the Closing has not occurred due to the terminating party's
breach of this agreement). Except as otherwise provided in this agreement, upon
such termination none of the parties shall have any liability of any kind
arising out of this agreement.
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100 Guaranty.
10.1 Surviving Corporation's Obligations. NET
will guarantee, pursuant to a guaranty in the form of exhibit 10.1, to the
Company and the Stockholders the prompt and full performance when due of all
obligations of the Surviving Corporation to the Company and the Stockholders
arising under this agreement and the employment agreements referred to in
section 5.1.
Trent Graphics, Inc.
By: /s/ Thomas Sirolly
-------------------------------
Name: Charles Sirolly
Title: Treasurer
/s/ Charles Sirolly
------------------------------------
Charles Sirolly, individually
/s/ Thomas Sirolly
------------------------------------
Thomas Sirolly, individually
/s/ Daniel Sirolly
------------------------------------
Daniel Sirolly, individually
/s/ William Sirolly
------------------------------------
William Sirolly, individually
TRENT ACQUISITION CO., INC.
By: /s/ Bruce L. Resnik
------------------------------------
Bruce L. Resnik
President
NETWORK EVENT THEATER, INC.
By: /s/ Bruce L. Resnik
------------------------------------
Bruce L. Resnik
Executive Vice President
and Chief Financial Officer
-27-
<PAGE>
ASSET PURCHASE AGREEMENT
June 10, 1999
The parties to this agreement are Network Event Theater, Inc.,
a Delaware corporation ("NET"); Pik:Nik Media, Inc., a Delaware corporation and
a wholly-owned subsidiary of NET ("the Buyer"); HelloXpress USA, Inc., a
Virginia corporation (the "Company"); and Dalia Smith and Ron Smith (together,
the "Stockholders"), who own all of the Company's outstanding stock.
The Company is engaged in the business of producing, marketing
and distributing postcards containing advertisements (the "Business"). The
parties wish to provide for the acquisition of substantially all of the assets
and business of the Company by the Buyer.
It is agreed as follows:
1. Sale and Transfer of Assets.
1.1 Assets Being Sold. The Company hereby sells, assigns and
transfers to the Buyer, and the Buyer purchases and acquires from the Company,
all of the assets and business of the Company (but excluding the assets referred
to in section 1.2), including, but not limited to, the following:
(a) all rights under agreements, commitments and
orders, to the extent that they remain unperformed or unfulfilled on, or by
their terms continue after, the date of this agreement, including, but not
limited to, all agreements, commitments and orders with advertisers, customers,
printers, photographers, manufacturers, distributors, subcontractors, lessors,
employees, sales representatives and suppliers;
(b) all tangible assets, wherever located, including
fixtures and related equipment; distribution racks; inventory and work in
process; photographs, film, advertisements, art work, promotional materials and
archives; equipment (including office and computer equipment) and furniture; and
office supplies, stationery, forms and labels;
(c) all computer software and all rights in the
trademarks, trade names and logos (including registrations and applications for
registration of any of them), together with the good will of the business
associated with those trademarks, trade names and logos; all rights in
copyrights (including registrations and applications for registration of any
copyrights); and all other intangible property and proprietary rights,
including, but not limited
<PAGE>
to, the Company's rights to use the advertisements on its postcards and the
rights to prepare, reproduce and distribute copies, compilations and derivative
works;
(d) all records, files, mailing lists, advertiser
lists, customer lists, accounting information and other information and data
relating to the Business;
(e) all claims against third parties, including
claims under manufacturers and vendors warranties;
(f) all rights to the post office boxes, telephone
numbers and facsimile numbers used in the Business; and
(g) all accounts receivable and notes receivable,
including, but not limited to, the accounts receivable listed on schedule
1.1(g), prepaid expenses and other current assets.
The assets being sold to the Buyer pursuant to this agreement
are collectively referred to below as the "Assets."
1.2 Excluded Assets. The following assets are being
retained by the Company and are not being sold, assigned or transferred to the
Buyer:
(a) all cash, investments, certificates of
deposit, deposits, commercial paper, treasury bills and notes, money market
accounts and other marketable securities;
(b) all rights under any agreement, commitment or
order as to which consent to assignment is required but has not been obtained;
(c) the account receivable from GP Enterprises in
the amount of $72,680;
(d) the trademark Go Card; and
(e) the assets listed on schedule 1.2.
2. Amount and Payment of Purchase Price.
2.1 Purchase Price. As full consideration for the
Assets, NET shall issue to the Company an aggregate number of shares of NET's
common stock determined by dividing $250,000 by the Market Price (as defined
below) on the date of this agreement. As full consideration for the covenant not
to compete in section 5.1, the Buyer shall pay to the Stockholders cash in the
aggregate amount of $300,000.
<PAGE>
2.2 Additional Consideration. If Local Sales by the
Buyer in the cities of Washington, Baltimore, Boston, Philadelphia and Atlanta
exceed $325,000 (determined in accordance with generally accepted accounting
principles consistently applied) for the period from July 1, 1999 through June
30, 2000 then, as additional consideration for the Assets, (a) the Buyer shall
pay to the Company on September 1, 2000 cash in the aggregate amount of $45,000,
and (b) NET shall issue to the Company on September 1, 2000 an aggregate number
of shares of NET's common stock determined by dividing $200,000 by the Market
Price on that date. If Local Sales by the Buyer in the cities of Washington,
Baltimore, Boston, Philadelphia and Atlanta exceed $250,000 but are less than or
equal to $325,000 (determined in accordance with generally accepted accounting
principles consistently applied) for the period from July 1, 1999 through June
30, 2000 then, as additional consideration for the Assets, NET shall issue to
the Company on September 1, 2000, an aggregate number of shares of NET's common
stock determined by dividing $50,000 by the Market Price on that date. As used
in this section, the term "Local Sales" means postcard sales made by local staff
(other than Dalia Smith) to advertisers who purchase postcards for distribution
in any one or more of the cities referred to in the preceding sentence. As soon
as practicable after June 30, 2000 the Buyer shall furnish to the Stockholders a
statement setting forth in reasonable detail the amount of its Local Sales for
the period from July 1, 1999 through June 30, 2000. If the Stockholders disagree
with the statement, the Stockholders shall give notice of the disagreement to
the Buyer within 30 days after receipt of the statement. In that event, the
Buyer and the Stockholders shall use their best efforts to reach agreement on
the disputed items; if they are unable to resolve the dispute, the dispute shall
be referred to an independent accounting firm of recognized national standing
reasonably acceptable to the Buyer and the Stockholders, whose determination of
the disputed items shall be final and binding. The costs of the accountants
shall be borne by the Stockholders unless the accountants determination results
in an additional payment to the Stockholders, in which case the costs shall be
borne by the Buyer.
2.3 Definitions and General Provisions.
(a) As used in this agreement, the term "Market
Price" means, as of any date, the average closing price (computed and rounded to
the third decimal point) of NET's common shares on NASDAQ as of 4:00 p.m. (EST)
during the 15 trading days ending on the third day preceding that date.
(b) Any calculation of shares that equates to a
fractional number of shares shall be rounded to the nearest whole number.
(c) All cash payments to the Stockholders under
this agreement shall be made 51% to Dalia Smith and 49% to Ron Smith.
2.4 Assumption of Liabilities. The Buyer hereby
assumes, and agrees to pay, perform and discharge when due (i) all of the
Company's trade accounts payable and accrued expenses listed on schedule 3.6,
and (ii) all of the Company's obligations under the agreements, commitments and
orders listed on schedule 3.13, to the extent that they remain
<PAGE>
unperformed or unfulfilled on, or by their terms continue in effect after, the
date of this agreement. Except as specifically provided in the preceding
sentence, the Buyer has not assumed and shall have no responsibility for any
liabilities or obligations of the Company relating to the operations of the
Business, or otherwise, through the date of this agreement (including, but not
limited to, any bank loans, any credit card loans, any vehicle loans or any rack
loans), and the Company shall pay, perform and discharge all such liabilities
and obligations (except to the extent that any liability or obligation is being
contested in good faith). NET shall not have any liability or obligation with
respect to the Business and shall not have any liability or obligation to the
Company except for breach of any warranty or covenant of NET contained in this
agreement.
2.5 Operations Following the Closing.
(a) After the date of this agreement, (a) Dalia
Smith shall be employed by the Buyer as a National Account Manager pursuant to
an employment agreement in the form of exhibit 2.5, which is being executed
contemporaneously with the execution of this agreement, and (b) Ron Smith will
be employed by the Buyer and will be entitled to receive, as full compensation
for his services, commissions equal to 5.0% of all Local Sales made by sales
staff that he supervises (but excluding any Local Sales by Dalia Smith). Mr.
Smith's employment will be subject to termination by him or by the Buyer at any
time on two weeks notice. It is anticipated that the business and operations of
the Buyer will be fully integrated into the business and operations of the
Buyer.
(b) Nothing in this agreement or that agreement
shall be construed to limit the rights of the boards of directors and officers
of NET and the Buyer to manage the business and affairs of those corporations or
give the Stockholders any claim against either the Buyer or NET or any of its
subsidiaries with respect to any decision relating to the conduct of their
businesses, whether or not that decision affects the amount of any additional
consideration payable under section 2.2.
(c) The Company and the Stockholders shall, as
promptly as practical, forward to the Buyer any amount received by either of
them with respect to the Company's accounts receivable outstanding as of the
date of this agreement, and the Buyer shall, as promptly as practical, forward
to the Company any amount received by the Buyer with respect to the excluded
account receivable from GP Enterprises.
3. Representations and Warranties by the Company and the
Stockholders. The Company and the Stockholders jointly and severally represent
and warrant to NET and the Buyer as follows:
3.1 Organization and Authority of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the law of the State of Virginia and has the full corporate power and
authority to own, lease and operate its properties as it now does and to carry
on its business as it is presently being conducted.
<PAGE>
3.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by the Company have been duly
authorized by all necessary corporate action of the Company. Each of the
Stockholders has the full right to enter into and perform his or her obligations
under this agreement. This agreement is a valid and binding obligation of the
Company and each of the Stockholders enforceable against each of them, except as
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
3.3 Consents of Third Parties. The execution,
delivery and performance of this agreement by the Company and the Stockholders
do not and will not (i) conflict with the certificate of incorporation or bylaws
of the Company or violate any lease, agreement, commitment or other instrument,
or any order, judgment or decree, to which the Company or either of the
Stockholders is a party or by which the Company or either of the Stockholders is
bound; (ii) violate any law, regulation, order, writ, judgment, injunction or
decree applicable to the Company or either of the Stockholders; (iii) result in
the creation of any claim, lien, security interest, charge or encumbrance
("Liens") upon any of the Company's asset; (iv) adversely affect the operation
of the Business in any material respect; or (v) require filing with or approval
by any court or governmental authority or any other person or entity.
3.4 Ownership of the Company. Dalia Smith and Ron
Smith are the record and beneficial owners of 51% and 49%, respectively, of the
Company's outstanding stock, in each case free and clear of any Liens. There are
no outstanding options, warrants or rights of any kind to acquire any stock, and
there are no outstanding securities convertible into stock, of the Company, nor
are there any obligations to issue any such options, rights or securities. The
Company does not own any capital stock or other interest in any corporation or
business entity, nor is the Company subject to any obligation or requirement to
make any investment in any corporation or business entity.
3.5 Financial Statements. Schedule 3.5 contains the
balance sheets of the Company as of December 31, 1997 and 1998 and April 30,
1999, together with the related statements of operations and cash flows for the
periods then ended. All of the financial statements contained in schedule 3.5
conform to the books and records of the Company as prepared in the ordinary
course of business, show all expenses attributable to the Company during the
periods covered, and fairly present the Company's financial position and the
results of its operations as of the dates and for the periods indicated in
accordance with generally accepted accounting principles applied on a consistent
basis. All of the books of account of the Company have been exhibited or made
available to NET and those books of account have been maintained in accordance
with good business practice on a consistent basis and accurately record all
transactions of the Company during the periods covered by them. All of the
Company's accounts receivable outstanding as of the date of this agreement arose
from bona fide transactions in the ordinary course of the business and none of
them is subject to any defense, counterclaim or
<PAGE>
setoff, and the Stockholders have no reason to believe that any of them will not
be collected in full when due.
3.6 Absence of Undisclosed Liabilities. As of the
date of this agreement the Company does not have any liability or obligation of
any kind, whether accrued, absolute, contingent or otherwise, other than (a)
liabilities and obligations under leases, commitments and other agreements
entered into in the ordinary course of business (which, to the extent required
by section 3.13, are listed on schedule 3.13), and (b) the trade accounts
payable and accrued expenses listed on schedule 3.6, each of which has been
incurred in the ordinary course of business. The Stockholders do not know of any
basis for the assertion against the Company or the Business of any liability as
of the date of this agreement that is not listed on schedule 3.6.
3.7 Absence of Certain Changes. Since December 31,
1998, the Company has operated its business in the ordinary course and
consistent with past practice, and, except as set forth on schedule 3.7:
(a) the Company has not entered into any
transaction or incurred any liability or obligation other than in the ordinary
course of business;
(b) there has been no material adverse change in
the condition (financial or otherwise), business, operations, assets or
prospects of the Company;
(c) the Company has not sold or transferred any
assets other than in the ordinary course of business and other than assets that
have been replaced with other assets of equal or greater value;
(d) the Company has not made any distribution on
or acquired any of its shares or, directly or indirectly, made any other payment
of any kind or any loan to any of the Stockholders or their respective
affiliates; and
(e) the Company has not granted or agreed to
grant any general increase in any rate or rates of salaries or compensation or
in benefits of any kind to its employees or any specific increase in the salary
of or compensation to any employee whose total salary and compensation after
such increase would be at an annual rate in excess of $25,000.
3.8 Taxes. The Company has timely filed all federal,
state and local income, sales and other tax returns, reports and information
returns (including any related or supporting information) required by law to be
filed by it; each of those tax returns is correct and complete in all material
respects. The Company has paid all taxes required to be paid by it to date. None
of the Company's tax returns has been audited by any tax authority. There exist
no pending or, to the best of the knowledge of the Company and the Stockholders,
proposed tax assessments, suits, actions, claims, audits, investigations or
inquiries by any tax authority with respect to the business or assets of the
Company or against the Company or any of its directors,
<PAGE>
officers, employees or independent contractors. There are no tax liens on any of
the Company's assets. The Company (including any person acting on behalf of the
Company) has not given nor been requested to give waivers or extensions of any
statute of limitations relating to payment of taxes of the Company or for which
the Company may be liable and no other party has given or been requested to give
such waivers or extensions with respect to taxes for which the Company may be
liable. All taxes that are or were required by law to be withheld or collected
by the Company have been duly withheld or collected and paid to the proper tax
authority. The Company does not have any tax liability of any kind that could
result in a Lien on any of the assets of the Company.
3.9 Title to Assets. Except as set forth on schedule
3.9 and except for the lien, if any, of current taxes not yet due and payable,
the Company has valid title, free and clear of any Liens, to all the assets used
in the Business. The Assets constitute all of the assets, tangible and
intangible, used in or needed to conduct the Business and will be sufficient to
enable the Buyer to continue to operate all aspects of the Business in the
manner in which it has been operated by the Company. The Company does not owe
any amount to, or have any contract with or commitment to, or use any property
(real or personal) in its business owned or leased by, either of the
Stockholders or any director, officer, employee, agent or representative of the
Company, or any of their respective affiliates.
3.10 Personal Property. Schedule 3.10 lists all of
the equipment, machinery, computers, furniture, leasehold improvements, vehicles
and other personal property having an individual value greater than $3,000 owned
or leased by the Company and all interests therein. All equipment and other
tangible assets owned or used by the Company are in good operating condition and
in good condition of maintenance and repair, ordinary wear and tear excepted,
are suitable for their present uses and purposes, and conform with all
applicable ordinances, rules and regulations and all building, zoning and other
laws.
3.11 Real Property. The Company does not own any real
property.
3.12 Litigation; Compliance with Laws. Except as set
forth on schedule 3.12, there is no claim, litigation, proceeding or
governmental investigation pending or, to the best of the knowledge of the
Company and the Stockholders, threatened, or any order, injunction or decree
outstanding, against the Business, the Company or any of its properties or
assets. Neither the Company nor either of the Stockholders knows of any basis
for future claims, litigations, proceedings or investigations against the
Business, the Company or any of its properties or assets. Neither the Company
nor the Business is in violation of any law, regulation or ordinance, or any
other requirement of any governmental body or court, and no notice has been
received by the Company or any of its officers or directors alleging any such
violation. The Company is not engaged in any dispute with any of its
advertisers, customers, suppliers or printers and has good relationships with
all of them.
3.13 Lists of Agreements, etc. Schedule 3.13 contains
a true and complete list of all orders, commitments and agreements (written or
oral) to which the Company is a party, including, but not limited to, orders,
commitments and agreements with advertisers
<PAGE>
and customers, agreements for the purchase of materials, supplies, equipment or
services, leases (as lessee or lessor), license agreements (as licensee or
licensor), distribution agreements, and employment, consulting, sales
representative and independent contractor agreements. True and complete copies
of the agreements, commitments and leases referred to on schedule 3.13 have been
delivered to NET.
3.14 Status of Agreements. All of the Company's
agreements, commitments and orders were entered into in the ordinary course of
business. Each of the agreements, commitments and orders referred to in section
3.13 is presently in full force and effect in accordance with its terms and the
Company is not in default, and, to the best of the knowledge of the Company and
the Stockholders, no other party is in default under any of the provision of any
of those agreements and no condition exists that, with notice or lapse of time
or both, would constitute a default by the Company or, to the best of the
knowledge of the Company and the Stockholders, any other party to any of those
agreements. Each of the agreements, commitments or orders referred to in section
3.13 is valid and binding upon and enforceable against each of the parties
thereto in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general. No party to any of the agreements, commitments or
orders referred to in section 3.13 has made, asserted or 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 neither the Company nor any of its officers or directors has
received any notice to that effect.
3.15 Employees.
(a) Schedule 3.15(a) contains a true and
complete list of the names, positions, hire dates and annual or hourly
compensation of all employees of the Company and a description of vacation
policies, sick leave policies, and bonus, incentive compensation and group
insurance plans for the benefit of those employees. Except as set forth on
schedule 3.15(a), the Company is not a party to or bound by or liable with
respect to any "employee benefit plan", within the meaning of section 3(3) of
the Employee Retirement Income Security Act of 1974. No employee of the Company
is represented by any union or other collective bargaining agent and there are
no collective bargaining or other labor agreements with respect to those
employees.
(b) No employee of the Company is owed any
wages, benefits or other compensation for past services, other than wages and
benefits accrued in the ordinary course of business during the current pay
period and accrued vacation. Except as set forth on schedule 3.15(a), the
Company does not have any severance policy and no employee of the Company is
entitled to any severance payment, either by law or by agreement, upon the
termination of his or her employment. The transactions provided for in this
agreement will not give rise to any liability of the Company or the Buyer for
severance pay or termination pay to
<PAGE>
any employee of the Company or trigger any payments of any kind to any employee
of the Company.
(c) Schedule 3.15(c) contains a true and
complete list of the names, the annual, weekly or hourly compensation, and the
job descriptions, of all persons that the Company has engaged as independent
contractors since [July 1, 1998]. All such persons are properly characterized as
independent contractors and neither the Internal Revenue Service nor any other
governmental agency has asserted any claim to the contrary and, to the best of
the knowledge of the Company or the Stockholders, there is no pending
investigation by any governmental agency relating to the Company's practice of
engaging independent contractors.
3.16 Labor Disagreements. Except as set forth on
schedule 3.16, (a) to the best of the knowledge of the Company and the
Stockholders, the Company and the Business are in compliance with all applicable
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; and (b) there is no (and has never been any) unfair labor
practice charge or complaint against the Company or the Business pending before
the National Labor Relations Board, any state labor relations board or any court
or tribunal and, to the best of the knowledge of the Company and the
Stockholders, none is or has been threatened.
3.17 Restrictive Documents, etc. Neither the Company
nor the Business is subject to, or a party to, any lease, license, permit,
agreement or other commitment, instrument, law, rule, ordinance, regulation,
order, judgment or decree, or any other restriction of any kind, that materially
and adversely affects its business practices or operations or any of the assets
of the Company or that would prevent its compliance with the terms, conditions
and provisions of this agreement or the continued operation of the Business by
the Buyer after the date of this agreement on substantially the same basis as it
has been operated since July 1, 1998.
3.18 Intangible Property. Schedule 3.18 contains a
complete list of the trademarks, trade names, copyrights and logos used by the
Company. The Company owns, free and clear of any Liens, each of the trademarks,
trade names, copyrights and logos (including registrations and applications for
registration of any of them) listed on schedule 3.18, and they constitute all of
the trademarks, copyrights, trade names and logos necessary for the continued
operation of the Business in a manner consistent with past practices. The
Company is not infringing upon any trademark, trade name, copyright or other
rights of any third party; no proceedings are pending or threatened; and no
claim has been received by the Company alleging any such violation. To the best
of the knowledge of the Company and the Stockholders, there is no violation by
others of any right of the Company with respect to any trademark, trade name or
copyright.
3.19 Insurance. Schedule 3.19 contains a complete
list of all of the Company's insurance policies, specifying with respect to each
policy the policy limit, type of
<PAGE>
coverage, location of the property covered, annual premium, premium payment date
and expiration date. True and complete copies of all of those policies will be
delivered to NET.
3.20 Transactions with Affiliates. Except as set
forth on schedule 3.20, during the twelve months preceding the date of this
agreement the Company has not engaged in any transaction with either of the
Stockholders or any of their respective affiliates.
3.21 Distribution Racks. Schedule 3.21 contains a
complete list of the locations, installation dates, and purchase prices of all
of the Company's distribution racks.
3.22 Business Relationships. Except as set forth in
the schedules to this agreement, since December 31, 1998 the Company has enjoyed
good relationships with all suppliers of goods or services to the Business, the
operators of all of the venues in which its postcard advertising display racks
are located, and all of its advertisers, and neither the Company nor either of
the Stockholders knows of any intention on the part of any such vendor, venue
operator or advertiser to substantially change its relationship with the Company
and neither of them has any reason to believe that the relationship with any
such vendor, venue operator or advertiser will change after consummation of the
sale under this agreement.
3.23 ERISA. Except as set forth on schedule 3.23, the
Company is not party to or bound by or liable with respect to any "employee
benefit plan", within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974.
3.24 No Misrepresentation. No representation or
warranty by the Company or the Stockholders in this agreement (including the
schedules and exhibits to this agreement) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in this agreement (including the schedules and exhibits to this
agreement) not misleading.
4. Representations and Warranties by the Buyer and NET. The
Buyer and NET jointly and severally represent and warrant to the Company and the
Stockholders as follows:
4.1 Organization. Each of the 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 to enter into and to
perform this agreement.
4.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by the Buyer and NET have been duly
authorized by all requisite corporate action of each of them. This agreement is
a valid and binding obligations of the Buyer and NET, enforceable against each
of them, 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).
<PAGE>
4.3 Consents of Third Parties. The execution,
delivery and performance of this agreement by each of the Buyer and NET will not
(a) conflict with the Buyer's or NET's certificate of incorporation or by-laws
or violate any lease, agreement, commitment or other instrument, or any order,
judgment or decree to which either of them is a party or by which either of them
is bound, (b) violate any law or regulation applicable to the Buyer or NET, or
(c) require filing with or approval by any court or governmental authority or
any other person or entity.
4.4 Validity of Shares. The shares of NET common
stock, when issued to the Stockholders under section 2, will be duly authorized,
validly issued, fully paid and non-assessable.
4.5 No Misrepresentation. No representation or
warranty by the Buyer or NET in this agreement (including the schedules and
exhibits to this agreement) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained in
this agreement (including the schedules and exhibits to this agreement) not
misleading.
5. Further Agreements of the Parties.
5.1 Covenants Against Competition, Solicitation and
Disclosure.
(a) To accord to NET the full value of its
purchase, for a period of five years after the date of this agreement neither
the Company nor either of the Stockholders shall, directly or indirectly, engage
or be interested in (as owner, shareholder, partner, member, manager, lender,
agent or otherwise) any business or entity that engages, anywhere in the world,
in the production, reproduction, sale, distribution or other commercial
exploitation of postcards containing advertisements.
(b) For a period of five years after the date of
this agreement, neither the Company nor either of the Stockholders 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 NET or any of its subsidiaries.
(c) Neither the Company nor either of the
Stockholders shall at any time hereafter disclose to anyone, or use in
competition with NET or any of its subsidiaries, any information with respect to
any confidential or secret aspect of the business or affairs of NET or any of
its subsidiaries.
(d) The Company and Stockholders acknowledge that
the remedy at law for breach of the provisions of this section 5.1 will be
inadequate and that, in addition to any other remedy NET and the Buyer may have,
they shall be entitled to an injunction restraining any breach or threatened
breach, without the necessity of showing actual
<PAGE>
damages and without any bond or other security being required. If any court
construes the covenant in this section 5.1, 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.
5.2 Expenses. Except as expressly provided in this
agreement, the parties shall bear their own expenses in connection with the
negotiation and preparation of this agreement and in connection with the
transactions contemplated by this agreement.
5.3 Securities Act Matters.
(a) The Company and the Stockholders recognize
that the issuance of shares of NET common stock under section 2 is intended to
be exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), by virtue of section 4(2) of the Securities Act. In that
connection, the Company and each of the Stockholders represents and warrants to
NET that they are acquiring the NET shares for their own account, for investment
purposes only and not with a view to the resale or distribution of those shares,
in whole or in part (other than distribution of the shares by the Company to the
Stockholders). Each of the Stockholders acknowledges that he or she understands
that sales or transfers of the shares are restricted by the Securities Act and
by certain state securities laws and that a legend referring to that restriction
will be placed on the certificates representing the Shares.
(b) Neither of the Stockholders may sell or
otherwise transfer the shares acquired by them pursuant to this agreement unless
the transaction is registered under the Securities Act and applicable state
securities laws or an exemption from registration is available. The Stockholders
confirm that they understand that NET is under no obligation to register the
shares on their behalf or to assist them in complying with any exemption from
registration.
5.4 Assignment of Agreements. 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.
5.5 Further Assurances. At any time and from time to
time after the date of this agreement, each party shall, without further
consideration, execute and deliver to the other parties such other instruments
and take such other action as the others may reasonably request to carry out the
transactions contemplated by this agreement.
5.6 Sales Taxes. The Company shall pay any state or
local sales taxes payable in connection with the sale of Assets.
5.7 Bulk Sales. The parties waive compliance with the
provisions of any applicable bulk sales law. The Company shall indemnify and
hold the Buyer and NET harmless from any loss, liability, damage, cost or
expense (including reasonable attorney's fees
<PAGE>
and expenses) incurred by the Buyer or NET as a result of any liability to which
the Buyer or NET may become subject because the transactions contemplated by
this agreement are being effected without compliance with the bulk sales law or
any similar statute in any jurisdiction.
5.8 Post-Closing Payments. The Company and the
Stockholders shall, as promptly as practical, forward to the Buyer any amount
received by any of them to which the Buyer is entitled under this agreement and
shall refer to the Buyer any telephone calls, letters and other communications
that they may receive relating to the Business.
6. Survival of Representations and Warranties;
Indemnification.
6.1 Survival. All representations, warranties and
agreements by the Company and the Stockholders shall survive the closing under
this agreement notwithstanding any investigation at any time by or on behalf of
the Buyer or NET, and shall not be considered waived by the Buyer's or NET's
consummation of the transactions contemplated by this agreement with knowledge
of any breach of misrepresentation by the Company or the Stockholders. All
representations, warranties and agreements by the Buyer and NET shall survive
the closing under this agreement notwithstanding any investigation at any time
by or on behalf of the Company or the Stockholders, and shall not be considered
waived by the Company's consummation of the transactions contemplated by this
agreement with knowledge of any breach by the Buyer or NET.
6.2 Indemnification.
(a) The Stockholders jointly and severally shall
indemnify and hold harmless the 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) the Buyer or
NET may suffer, sustain or become subject to as a result of any breach of any
warranty, covenant or other agreement of the Company or the Stockholders
contained in this agreement, or any misrepresentation by the Company or the
Stockholders, or any claim by a third party which, without regard to the merits
of the claim, would constitute such a breach or misrepresentation
(b) The Buyer and NET jointly and severally shall
indemnify and hold harmless the Company and the Stockholders 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) the
Company or the Stockholders may suffer, sustain or become subject to as a result
of any breach of any warranty, covenant or other agreement of the Buyer or NET
contained in this agreement, or any misrepresentation by the 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.
6.3 Defense of Claims. If any third-party claim is
made against any party that, if sustained, would give rise to a liability of the
other party, the party against whom
<PAGE>
the claim is made shall promptly cause notice of the claim to be delivered to
the other party and shall afford the other party and its counsel, at the other
party's sole expense, the opportunity to join in defending or compromising the
claim; no settlement shall be effected without the consent of the indemnifying
party, which consent shall not be unreasonably withheld.
7. Miscellaneous.
7.1 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.
7.2 Entire Agreement. This agreement (together with
the employment agreement referred to in section 2.5(a)) contains, and is
intended as, a complete statement of all of the terms of the arrangements among
the parties, supersedes any previous agreements and understandings among the
parties with respect to those matters, and cannot be changed or terminated
orally.
7.3 Governing Law. This agreement shall be governed
by and construed in accordance with the law of the State of Virginia applicable
to agreements made and to be performed entirely in Virginia.
7.4 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.
7.5 Notices. All notices and other communications
under this agreement shall be in writing and shall be deemed given when
delivered personally, one day after being sent by recognized overnight courier
or four days after being mailed by registered mail, return receipt requested, to
the parties at the following addresses (or to such other address as a party may
specify by notice given to the other pursuant to this provision):
(a) If to the Company or the Stockholders,
addressed to any of them at:
c/o HelloXpress
2789-B Hartland Road
Falls Church, Virginia 22043
with a copy to:
(b) If to the Buyer or NET, addressed to either or
both of them at:
Network Event Theater, Inc.
<PAGE>
529 Fifth Avenue, 7th Floor
New York, N.Y. 10017
Attention: Bruce L. Resnik, Executive Vice
President and Chief Financial Officer
Bertram A. Abrams, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
7.6 Waiver. Any party may waive compliance by another
with any of the provisions of this agreement. No waiver of any provision shall
be construed as a waiver of any other provision. Any waiver must be in writing
and must be signed by the party waiving the provision.
7.7 Separability. If any provision of this agreement
is invalid or unenforceable, the balance of this agreement shall remain in
effect unless such invalidity or unenforceability shall materially impair the
purpose or objectives of this agreement.
7.8 Assignment. No party may assign any of its, his
or her rights or delegate any of its, his or her duties under this agreement
without the consent of the other parties.
7.9 Publicity. No party shall issue any press release
or other public statement regarding the transactions contemplated by this
agreement, except that the Buyer and NET may release such information as they
determine necessary or appropriate.
<PAGE>
7.10 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.
HELLOXPRESS USA, INC.
By:/s/ Ron Smith
-------------------------------
Name: Ron Smith
Title: Vice President/Owner
/s/ Dalia Smith
----------------------------------
Dalia Smith, individually
/s/ Ron Smith
----------------------------------
Ron Smith, individually
PIK:NIK MEDIA, INC.
By: /s/ Bruce L. Resnik
----------------------------------
Bruce L. Resnik,
Executive Vice President and Chief
Financial Officer
NETWORK EVENT THEATER, INC.
By: /s/ Bruce L. Resnik
----------------------------------
Bruce L. Resnik,
Executive Vice President and Chief
Financial Officer
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Current Report on Form 8-K of Network Event
Theater, Inc. of our report dated March 25, 1999 with respect to the financial
statements of Trent Graphics, Inc. for the years ended December 31, 1998 and
1997 and to the incorporation by reference of such financial statements and
report in any registration statement filed by Network Event Theater, Inc.
STONE, TREMBLY-DEIBLER & ASSOCIATES, INC.
June 22, 1999
