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USA Networks Inc. and National Leisure Group Inc. settled a lawsuit Oct. 29 that, had it prompted a court ruling, could have set a precedent for citing Sept. 11 as the rationale for ending a merger. Under the settlement, New York-based USA Networks agreed to invest $20 million in Woburn, Mass.-based National Leisure and name it as the preferred provider of cruise and vacation packages to the company’s new travel cable channel. In exchange, National Leisure will not contest USA Networks’ decision to void their July 14 merger. “This is a very significant step in reinforcing our industry position and commitment to growing the business for the benefit of our partners and suppliers,” National Leisure president Aaron Gowell said in a statement. “This new relationship furthers our role in providing technology and fulfillment services in the complex travel business.” National Leisure Executive vice president Brad Gerstner said USA Networks will be a minority investor and will not have a seat on the board or any influence over day-to-day operations. Gerstner said the companies will have a “robust” business relationship, though National Leisure will not be the cable channel’s exclusive provider of travel services. He declined to specify how much business he expects the partnership to generate. National Leisure primarily will process reservations and similar services for viewers who call a toll-free number after watching a vacation show. A USA Networks official did not return a call for comment. Jon Miller, president of USA Network’s information and services unit, said in a statement that the deal was a “smart strategic investment” for the company. “We are very excited about this relationship and fully supportive of NLG’s business,” Miller said. USA Networks sued National Leisure on Oct. 3, asking the Delaware Chancery Court to rule that the terror attacks and National Leisure’s loss of Costco Wholesale Corp. as a customer had triggered the material adverse effect clause in the merger agreement. The parties last week sent a proposed order to the Chancery Court calling for their trial to start Dec. 10. Corporate law experts said this was the first case testing whether a decline in business resulting from the Sept. 11 attacks could constitute a material adverse effect. Since the case was filed, several companies have included in their merger agreements language clarifying if changes to the business resulting from terrorism are covered by the material adverse effect clause. One reason the companies settled may have been the recent improvement in National Leisure’s business. Last week’s sales were as high as the first week in August, and the company in 2001 expects to post a 75 percent gain over 2000, Gerstner said. Against such a rise, USA Networks would have been hard-pressed to argue that Sept. 11 had caused a materially adverse change in National Leisure’s business. Chancery Court Judge Leo Strine ruled early this year in the Tyson Foods Inc.-IBP Inc. case that the sudden decline in the beef business did not trigger the material adverse effect clause because it was a temporary phenomenon. Copyright (c)2001 TDD, LLC. All rights reserved.

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