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Asset Purchase Agreement
by and among
NTN Canada, Inc.,
NTN Communications, Inc.,
NTN Interactive Network, Inc.,
and Chell Group Corporation Inc.
dated as of
December 15, 2003
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TABLE OF CONTENTS
EXHIBIT A Definitions
EXHIBIT B ▇▇▇▇ of Sale
EXHIBIT C Opinions To Be Provided By Seller's Canadian Counsel
EXHIBIT D October 31 Balance Sheet
EXHIBIT E Form of License
EXHIBIT F Selling Restrictions
EXHIBIT G Form of Lease
EXHIBIT H Form of General Conveyance
EXHIBIT I Form of Assignment of Contracts
Schedule 1.1 Excluded Assets
Schedule 1.2 Accrued Amounts
Schedule 2.4 Financial Statements
Schedule 2.6 Absence of Changes
Schedule 2.7 Personal Property
Schedule 2.8 Title to Purchased Assets
Schedule 2.10 Contracts
Schedule 2.11 Accounts Receivable/Accounts Payable
Schedule 2.12 Intellectual Property
Schedule 2.13 Permits
Schedule 2.14 Employees
Schedule 2.15 Employee Plans and Benefits
Schedule 2.16 Insurance
Schedule 2.25 Customers, Suppliers and Partners
Schedule 3.6 Approvals
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of December 15, 2003 by and among NTN Canada, Inc., a corporation
incorporated in the province of New Brunswick (the "Buyer"), NTN Communications,
Inc., a Delaware corporation (the "Parent"), NTN Interactive Network, Inc., a
Canadian corporation (the "Seller"), and Chell Group Corporation Inc., the sole
shareholder of Seller (the "Seller Shareholder"). Unless otherwise defined in
the Agreement, capitalized terms used in this Agreement are defined in Exhibit
A.
WITNESSETH
WHEREAS, Buyer wishes to buy and Seller wishes to sell certain assets of
Seller, together with the goodwill associated therewith;
WHEREAS, as consideration for the acquisition of assets and goodwill, Buyer
will, subject to the terms and conditions set forth below, (i) assume certain
liabilities of Seller, (ii) have Parent issue to Seller Shareholder $650,000 in
restricted shares of common stock, $.005 par value per share, of Parent (the
"Parent Common Stock"), and (iii) pay to Seller $250,000 in cash paid on the
Closing Date;
WHEREAS, Parent will use commercially reasonable efforts to file a
registration statement on Form S-3 covering the resale of the restricted shares
of Parent Common Stock issued hereunder within 30 days following the Closing
Date; and
WHEREAS, in connection with the sale of all the assets used or useful in
such business and the assumption of certain liabilities, Seller and the Seller
Shareholder have agreed to be bound by non-competition, non-solicitation and
confidentiality provisions as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Parties, intending to be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1 PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES. Subject to the
terms and conditions of this Agreement, on the Closing Date:
(a) Seller will sell, convey, assign, transfer and deliver to Buyer, and
Buyer will purchase, acquire and accept from Seller, all of the Purchased
Assets, but none of the Excluded Assets (together with the other transactions
contemplated or required by this Agreement and the documents related to this
Agreement, the "Transactions").
(b) Buyer also will assume and agree to pay, perform and discharge when due
the Assumed Liabilities, but none of the Retained Liabilities; Seller will
remain fully and solely liable for all of the Retained Liabilities.
1.2 PURCHASE PRICE. Buyer will pay to Seller (at the Closing ,except as
pursuant to Section 1.6) an aggregate purchase price (the "Purchase Price")
consisting of:
(a) the assumption of the Assumed Liabilities by Buyer;
(b) an amount in cash equal to the sum of $250,000 and the Negative Working
Capital (for the avoidance of doubt, since the Negative Working Capital can by
definition only be zero or a negative number, the amount to be paid pursuant to
this subsection (b) will be equal to or less than $250,000 but in no event less
than zero);
(c) an amount of shares of Parent Common Stock equal in value to $650,000
(as valued pursuant to Section 1.3) (the "NTN Shares");
(d) an amount in cash equal to (i) the amount of account receivables as set
forth in the Seller Closing Balance Sheet less (ii) account liabilities in
Seller's account as set forth in the Seller Closing Balance Sheet.
1.3 VALUATION OF STOCK. The NTN Shares delivered under Section 1.2(d) shall
be valued on the lesser of (i) 85% of the 10-day trailing average closing price
of the Parent Common Stock on the American Stock Exchange as of November 12,
2003 and (ii) 85% of the 10-day trailing average closing price of the Parent
Common Stock on the American Stock Exchange three business days prior to the
Closing Date; provided, however that if the Closing Date occurs after December
5, 2003 then the NTN Shares shall be valued pursuant to (i) above.
1.4 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Transactions and the other actions contemplated by this Agreement
to occur in connection therewith (the "Closing") will take place at the offices
of NTN Communications, Inc., ▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
December 15, 2003, or at such other time and/or place as the Parties hereto may
mutually agree upon (the "Closing Date").
1.5 closing balance sheet resolutions. By January 2, 2004 Seller will
deliver to Buyer a balance sheet of the Business prepared in accordance with
GAAP as of the Closing Date (the "Seller Closing Balance Sheet"). Buyer will
review the Seller Closing Balance Sheet by January 12, 2004 and by such date
will have made adjustments and reductions to correct any inaccuracies in the
Closing Balance Sheet. On the basis of such adjustments and reductions, Buyer
shall provide Seller with an adjusted amount, reflecting Buyers' adjustments and
reductions to the amounts then owing pursuant to Section 1.2(b) and Section
1.2(d), if any (the "Adjusted Amount"). At such time of delivery, Buyer shall
provide to Seller reasonable backup documentation for Buyers' calculation of the
Adjusted Amount. If, within two business days after these deliveries, Seller has
not provided Buyer with written notice of its objection to the computation of
the Adjusted Amount, Seller will be deemed to have accepted the Adjusted Amount
on the terms as set forth in this Section 1.5. Upon Seller's acceptance, either
express or deemed, of Adjusted Amount, Buyer shall have one business day to
deliver to Seller an amount in cash equal to the Adjustment Amount, if any, in
full consideration and satisfaction of amounts then owing under Sections 1.2(b)
and 1.2(d). If Seller provides timely written notice of objection to the
Adjusted Amount to Buyer and the Parties do not resolve their differences within
five business days after the notice is given, the issues in dispute will be
immediately submitted to an accountant selected by Buyer but approved by Seller,
whose consent shall not be unreasonably withheld, for resolution (with the
non-prevailing Party bearing the costs of such accountant) and such accountant's
resolution will be the basis of the calculation of the amounts owing pursuant to
Section 1.2(b) and Section 1.2(d). Notwithstanding the process set forth in this
Section 1.5, nothing herein shall relieve Seller and Seller Shareholder of
liability, if any, pursuant to Section 2.4.
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1.6 timing of delivery of CASH purchase price. Buyer shall pay to Seller an
amount in cash equal to $200,000, on the Closing Date, in partial consideration
of the total amount owing pursuant to Sections 1.2(b) and 1.2(d). Buyer shall
pay to Seller the remaining consideration, if any, on such date pursuant to
Section 1.5, in full satisfaction of the total amount owing pursuant to Sections
1.2(b) and 1.2(d) (the "Cash Distribution Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER SHAREHOLDER
As a material inducement to Parent and Buyer to enter into and perform this
Agreement, each of Seller and Seller Shareholder represents, warrants, covenants
and agrees that:
2.1 ORGANIZATION AND POWER. Each of Seller and Seller Shareholder is a
corporation duly organized, validly existing and in good standing under the laws
of the respective jurisdiction of their incorporation, with full power and
authority to own or lease and operate its properties and assets, to carry on its
business as such business is now conducted, to execute and deliver this
Agreement, and to consummate the Transactions. Each of Seller and Seller
Shareholder is duly qualified to do business as a foreign corporation under the
laws of each jurisdiction in which the conduct of its business requires such
qualification or license.
2.2 AUTHORIZATION; BINDING EFFECT, ETC. Each of Seller and Seller
Shareholder has all requisite power and authority to execute, deliver and
perform this Agreement, the Transactions and each other document being executed
in connection herewith to which it is a party. The execution, delivery and
performance of this Agreement and all other documents and agreements
contemplated hereby to be executed by Seller or Seller Shareholder has been duly
authorized by all requisite action of Seller or Seller Shareholder,
respectively, and (assuming the due authorization, execution and delivery hereof
and thereof by the other parties hereto and thereto), this Agreement and each
such other document or agreement contemplated hereunder will be, a valid and
binding obligation of Seller and Seller Shareholder, enforceable against Seller
and Seller Shareholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity. Each of Seller and Seller Shareholder has, as of
the date of this Agreement, and will, as of the Closing, have taken or will take
all actions necessary and advisable in order to approve and adopt this Agreement
and the Transactions.
2.3 NO VIOLATION. The execution, delivery and performance of this Agreement
and all other documents and agreements contemplated hereby and the consummation
of the Transactions do not and will not (a) violate any provisions of law
applicable to Seller or Seller Shareholder; (b) with or without the giving of
notice or passage of time, or both, conflict with or result in the breach of any
provision of Seller's or Seller Shareholder's articles of incorporation or
by-laws or any material contracts to which Seller or Seller Shareholder is a
party, or by which the Purchased Assets are bound; (c) constitute a violation of
any order, judgment or decree to which Seller or Seller Shareholder is a party
or by which any of their assets or properties are bound; or (d) require the
consent, approval, order or authorization of, or registration or filing with any
court, administrative agency, or other governmental authority or third Person.
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2.4 FINANCIAL STATEMENTS. Seller has delivered the Seller Financial
Statements to Buyer, except for the Seller Closing Balance Sheet which Seller
will deliver by January 2, 2004. The Seller Financial Statements fairly present,
or will present, the financial condition and the results of operations of the
Seller as of their respective dates, and for the periods then ended, the Seller
Financial Statements have been prepared in accordance with GAAP, consistently
applied, and the Seller Financial Statements fairly reflect, or will reflect,
the assets, liabilities and operations of the Business and Seller in accordance
with GAAP. During the periods covered by the Seller Financial Statements, the
operations of Seller constituted solely those of the Business and the Business
was solely conducted through the Seller (except as described on Schedule 2.4).
2.5 LIABILITIES. All of Seller's liabilities (whether accrued, unmatured,
contingent, or otherwise, and whether due or to become due) which may impact the
Business are stated or adequately reserved for in the Seller October 31 Balance
Sheet (or described in the notes thereto) in accordance with GAAP, consistently
applied, except for liabilities incurred since the date of the Seller October 31
Balance Sheet in the Ordinary Course, which liabilities have not had and are not
reasonably likely to have a Material Adverse Effect on the Seller or the
Business, and except for the Assumed Non-Quantifiable Liabilities. Neither
Seller or Seller Shareholder has any Knowledge of any other liability or loss
contingency of Seller or of the Business. None of Seller's indebtedness or other
liabilities has been guaranteed or assumed by any other Person or entity.
2.6 ABSENCE OF CHANGES. Except as set forth on Schedule 2.6, since November
30, 2002 there has not been:
(a) any resignation or termination of any manager, officer or employee of
Seller;
(b) any damage, destruction or loss of any of the properties or assets of
Seller, that could, singly or in the aggregate, have a Material Adverse Effect
on Seller or the Business;
(c) any dividend, declaration, setting aside or payment or other
distribution in respect of Seller's capital stock or any direct or indirect
redemption, purchase or other acquisition of any of such capital stock by
Seller;
(d) any labor dispute, or any other event, development, or condition, of
any character, or, to the Knowledge of Seller or Seller Shareholder, threat of
the same;
(e) any asset or property of Seller made subject to any Encumbrances;
(f) any waiver or release of any right of Seller, or the cancellation or
compromise of any material debt or claim held by Seller;
(g) any sale, assignment or transfer of any assets of Seller, except in the
Ordinary Course;
(h) any loan by Seller to any officer, director, employee or stockholder of
Seller, or any agreement or commitment therefore;
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(i) any increase, direct or indirect, in the compensation paid or payable
to any officer, manager, employee or agent of Seller;
(j) any transfer or grant of any rights under any concessions, leases,
licenses, agreements, patents, inventions, trademarks, trade names, servicemarks
or copyrights or with respect to any know-how;
(k) any material transaction, contract or commitment, other than in
connection with the Transactions; or
(l) any change in Seller's accounting methods or practices or tax
elections.
2.7 PERSONAL PROPERTY. Schedule 2.7 lists and briefly describes all
material Personal Property of Seller. Seller's Personal Property (whether leased
or owned) is in good operating condition and repair as required by the Business
as presently conducted, ordinary wear and tear excepted.
2.8 TITLE TO PURCHASED ASSETS; NO ENCUMBRANCES; SUFFICIENCY.
(a) Seller has, and is conveying to Buyer under this Agreement, good and
marketable title or valid and subsisting leasehold interests or licenses to the
Purchased Assets, in each case free and clear of Encumbrances.
(b) The Purchased Assets constitute all of the assets necessary for the
conduct of the Business and do not constitute any assets not related to the
Business.
(c) No Person, other than Seller, has any right to the use or possession of
any of the Purchased Assets (other than rights of lessors under the Material
Contracts) that are necessary to conduct the Business and Seller does not use in
the conduct of the Business any material equipment, properties or assets owned
by any other Person, except property or equipment leased or licensed to Seller
under the Material Contracts and property or equipment described in Schedule
2.8.
2.9 TAXES. Except as set forth on Schedule 2.9, Seller has properly filed
all Tax Returns required to be filed, and they are all correct and complete. All
Taxes, including all interest and penalties due and payable as shown on the Tax
Returns or claimed to be due by any taxing authority have been timely paid. All
unpaid Taxes payable by Seller or that will, with the passage of time, become
payable by Seller (including interest and penalties) relating to the Business or
the Purchased Assets for periods (or portions thereof) ending on or before the
date of the Seller October 31 Balance Sheet, whether or not disputed, are
adequately reserved against in accordance with GAAP on the face of the Seller
October 31 Balance Sheet except for the Assumed CRRA Liability and except for
the adjustment to the internal intercompany debt. There are no claims now
pending or matters under discussion with any taxing authority in respect of any
income taxes. Buyer will not incur or be obligated for, nor will the Purchased
Assets be subject to, Taxes in connection with the acquisition of the Purchased
Assets.
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2.10 CONTRACTS.
(a) Schedule 2.10 sets forth a true, complete and correct list of all
Material Contracts relating to the Business (except for customer contracts which
are provide for revenues of less than $25,000 on an accrued basis per year). For
purposes of this Section 2.10, a Contract (or a group of similar Contracts with
the same party) is a "Material Contract" if it (i) provides for revenues or
expenses anticipated to exceed $10,000 on an accrued basis per year or during
the remaining term of such contract if less than a year and relates to the
Business; (ii) restricts Seller's rights to compete in the Business, whether by
restricting territories, customers or otherwise, in any line of business or
territory; (iii) is a partnership, joint venture or other similar contract
arrangement or agreement; (iv) relates to indebtedness (including any guarantees
of payment for borrowed money) or is a capital lease; (v) constitutes or creates
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any Person; (vi) contracts for the employment of
any officer, individual employee or other Person on a full-time or consulting
basis or any severance agreements; (vii) provides for a lease under which Seller
is lessor of or permits any third party to hold or operate any property, real or
personal, which constitutes Purchased Assets; (viii) contracts with any
Governmental Agency; (ix) relates to the release or disposal of Hazardous
Substances relating to the Business; (x) is or creates a commitment, obligation,
agreement or Contract with respect to any sales agent, broker or distributor not
cancelable without penalty upon notice of 60 days or less pursuant to which
Seller must pay commissions or other compensation in connection with the sale of
Seller's products; (xi) provides for the advertisement, display, or promotion of
any of Seller's products or services in excess of $10,000 that cannot be
canceled by Seller without payment or penalty upon notice of sixty (60) days or
less; (xii) contracts with any insider, former insider or Affiliate of Seller;
(xiii) is a tax-sharing agreement or contract; (xiv) requires the naming of a
third party as an insured under an insurance policy; or (xv) otherwise relates
to the Business and is material. True, complete and correct copies of all
written Material Contracts, together with all amendments, supplements or other
modifications thereto, have heretofore been delivered or otherwise made
available to Buyer for review. The Material Contracts are in full force and
effect, constitute legal, valid and binding obligations of the respective
parties thereto, and are enforceable in all material respects in accordance with
their respective terms and will continue to be the valid and enforceable
following the Closing. Seller has, in all material respects, performed all of
the obligations required to be performed by it to date, and there exists no
default, or any event which upon the giving of notice or the passage of time, or
both, would give rise to a claim of a default in the performance by Seller or,
to the Knowledge of Seller or Seller Shareholder, any other party, of their
respective obligations under any Material Contract. Except as set forth on
Schedule 2.10 under the heading "Required Consents" (the "Required Consents"),
no consent or approval by, or any notification or filing with, any party to any
Material Contract is required in connection with the execution, delivery and
performance by Seller of this Agreement or the consummation by Seller of the
Transactions. There are no renegotiations or, to the Knowledge of Seller,
attempts to negotiate or outstanding rights to renegotiate any material amount
to be paid or payable to or by Seller and Seller has not waived or released any
rights under any Material Contract.
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(b) Schedule 2.10 contains a brief description of the Leased Property. The
Leased Property constitutes all real properties used or occupied by Seller in
connection with the Business.
(c) With respect to the Leased Property: (1) (i) no portion thereof is
subject to any Proceeding and (ii) there is no threatened condemnation or
Proceeding with respect thereto; (2) the physical condition of the Leased
Property is sufficient to permit the continued conduct of the Business as
presently conducted subject to the provision of usual and customary maintenance
and repair performed in the ordinary course with respect to similar properties
of like age and construction; (3) Seller is the sole owner of the Leased
Property; (4) there are no contracts, written or oral, to which Seller is a
party, granting to any party or parties the right of use or occupancy of any
portion of the parcels of the Leased Property; and (5) there are no parties
(other than Seller) in possession of the Leased Property.
2.11 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Schedule 2.11 lists, and
shows the aging of, all Seller's accounts receivable and accounts payable
relating to the Business as of October 31, 2003, net of specified discounts,
allowances, rebates, and reserves. Seller's accounts receivable and accounts
payable relating to the Business have arisen in the Ordinary Course, and are
fully collectible, using normal collection practices, within 90 days of the
invoice date, net of reserves shown on Schedule 2.11, which reserves have been
determined in accordance with GAAP, consistently applied. The amounts in respect
of accounts receivable represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course,
and to the Knowledge of Seller, none of the accounts receivable is subject to
any counterclaim or setoff. The amounts in respect of accounts payable represent
or will represent valid obligations of Seller, and to the Knowledge of Seller,
none of the accounts payable is subject to any penalties.
2.12 INTELLECTUAL PROPERTY.
(a) Schedule 2.12 sets forth a complete and accurate list of all:
(1) Intellectual Property used, held for use or proposed to be used in
the Business;
(2) oral and written licenses, sublicenses and other agreements to
use, access or otherwise related to Seller Intellectual Property and all
other Intellectual Property used, held for use or proposed to be used in
the Business; and
(3) all worldwide applications and registrations for Seller
Intellectual Property.
There has been no other Intellectual Property owned by Seller or used by Seller
or Seller Shareholder in the Business during the period beginning January 1,
2000 other than as set forth on Schedule 2.12.
(b) Seller is the sole owner of all Intellectual Property and other rights
to the Proprietary Software, free and clear of all licenses, liens or
encumbrances of any kind, and owns and possess full, legally enforceable rights
to use, sell, transfer and assign all Intellectual Property that Seller uses or
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holds for use, or currently is developing for use or intends to use, in
connection with its business, or that is material or necessary to its business,
including without limitation the Proprietary Software (the "Seller Intellectual
Property"), in each case, as such business currently is conducted or as is
proposed to be conducted, free and clear of conditions, adverse claims or other
restrictions or any requirement of any past, present or future royalty payments.
(c) Other than as set forth on Schedule 2.12, Seller has taken all
reasonable and appropriate steps to register all registrable Seller Intellectual
Property with the applicable authorities in all jurisdictions in which Seller
does business, and all such applications and registrations are in the name of
Seller and are valid and subsisting.
(d) Seller has secured valid written assignments from all consultants and
employees who contribute or have contributed to the creation or development of
Seller Intellectual Property (including all Proprietary Software) of the rights
to such contributions that Seller does not already own by operation of law. All
Seller Intellectual Property was developed and created solely and exclusively by
employees of Seller in their capacities as employees of Seller without the
assistance of any third party or entity or were created by third parties who
assigned ownership of their rights and, where appropriate, waived moral rights,
to Seller in valid and enforceable confidentiality and invention assignment
agreements.
(e) Seller has taken all reasonable and appropriate steps to protect and
preserve the confidentiality of all of the trade secrets that comprise any part
of Seller Intellectual Property, and there are no unauthorized uses, disclosures
or infringements of any such trade secrets; all use by, and disclosure to, any
Person of trade secrets that comprise any part of Seller Intellectual Property
has been pursuant to the terms of a written agreement with such Person; all use
by Seller of trade secrets owned by another Person has been pursuant to the
terms of a written agreement with such Person or is otherwise lawful; and no
trade secrets have been used, divulged or appropriated for the benefit of any
Person other than Seller or otherwise to the detriment of Seller.
(f) There is not pending in any forum (or, to the Knowledge of Seller or
Seller Shareholder, threatened) any assertion or claim: (i) challenging the
validity, enforceability, ownership, scope or effectiveness of, or contesting
Seller's rights with respect to, any Seller Intellectual Property, (ii)
challenging Seller's rights to use any Intellectual Property or the
enforceability of any agreements or arrangements relating thereto, or (iii)
asserting that Seller's use or exploitation of any Intellectual Property
infringes upon, misappropriates, violates or conflicts in any way with the
rights (including, without limitation, rights in Intellectual Property, rights
of privacy, rights of publicity and rights in personal and other data) of any
Person; and, in each case, to the Knowledge of Seller or Seller Shareholder,
there are no grounds for any such assertion or claim.
(g) Other than as set forth on Schedule 2.12, Seller is not and has not
been a party to any suit, action or proceeding which involves a claim of
infringement, breach or misappropriation of any Intellectual Property of any
Person and has not brought any action, suit or proceeding against any Person for
infringement or misappropriation of, or breach of any license or agreement
involving, any Seller Intellectual Property.
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(h) Neither the Seller Intellectual Property nor the use or other
exploitation thereof by Seller (or any consultant, contractor or employee of
Seller who contributes to or has contributed to or participated in the creation
or development of the Seller Intellectual Property) infringes on,
misappropriates, breaches or violates the rights in Intellectual Property or any
other rights of any Person.
(i) Seller has not given or received any notice of default or any event
which with the lapse of time would constitute a default under any agreement
relating to Seller Intellectual Property; neither Seller nor, to the Knowledge
of Seller or Seller Shareholder, any other party is currently in default with
regard to any agreement relating to Seller Intellectual Property, and there
exists no condition or event which, with the giving of notice or the lapse of
time or both, would constitute a default by Seller under any agreement relating
to Seller Intellectual Property, or would give any Person any rights of
termination, cancellation, acceleration of any performance under any such
agreement.
(j) There are no unauthorized uses, disclosures, infringements, or
misappropriations by any Person of any Seller Intellectual Property and Seller
has not entered into (i) any agreement to indemnify any other Person against any
charge of infringement, breach or misappropriation of any Person's rights in
Intellectual Property or (ii) any agreement granting any Person the right to
bring infringement or misappropriation actions with respect to, or otherwise to
enforce rights with respect to, any Seller Intellectual Property.
(k) To Knowledge of Seller and Seller Shareholder, all use, disclosure or
appropriation of confidential and/or proprietary information not owned by Seller
in the course of conducting its respective businesses, if any, has been pursuant
to the terms of a written agreement between Seller and the owner of such
confidential and/or proprietary information, or is otherwise lawful.
(l) No Person other than Seller possesses any current or contingent rights
to, or otherwise uses, any computer software source code that is part of the
Seller Intellectual Property (including, without limitation, through any escrow
account).
(m) Seller has obtained any and all necessary consents from consumers with
regard to Seller's collection and dissemination of personal information in
accordance with the privacy policy published on any web site owned and/or
operated by or on behalf of Seller and in accordance with the Personal
Information Protection and Electronic Documents Act (Canada), all provincial
privacy Laws and all other applicable Laws. Seller's practices regarding the
collection and use of consumer personal information are and have been in
accordance with the applicable privacy policies adopted from time to time by
Seller and in accordance with the Personal Information Protection and Electronic
Documents Act (Canada), all provincial privacy Laws and all other applicable
Laws.
(n) There are no material defects, malfunctions or nonconformities in any
Proprietary Software contained within the Seller Intellectual Property, and
there are no material errors in any documentation of such Proprietary Software
related to, associated with or used or produced in the development, maintenance
or marketing of such Proprietary Software. All Proprietary Software contained
within the Seller Intellectual Property performs in all material respects in
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accordance with the specifications included therein or applicable thereto.
Except as otherwise described in the documentation relating thereto and provided
by the manufacturer, developer or distributor thereof, no Proprietary Software
contained within the Seller Intellectual Property contains any timer, virus,
copy protection device, disabling code, clock, counter or other limiting design
or routine which causes such software (or any portion thereof) to become erased,
inoperable, impaired, or otherwise incapable of being used in the full manner
for which it was designed.
2.13 PERMITS; COMPLIANCE WITH LAW.
(a) All Permits from the Governmental Agencies held by Seller are listed on
Schedule 2.13. Except as otherwise noted in Schedule 2.13, these Permits are
valid and unimpaired, are being transferred to Buyer by this Agreement, are not
affected by the Transactions, and constitute all the Permits required for the
operation of the Business. Seller has not entered into any agreement with, had
any material dispute with or, to the Knowledge of Seller, been investigated by
any Governmental Agency or other Person, except as described on Schedule 2.13.
(b) Seller has operated the Business in compliance with all applicable
Laws, including without limitation, any and all environmental laws and
regulations, and all required Filings have been properly made, except for
failures of compliance or failures to make required Filings that, individually
or in the aggregate, would not have a Material Adverse Effect on Seller or the
Business.
(c) No Proceeding is pending, and to the Knowledge of Seller, no Proceeding
has been threatened by any Governmental Agency against Seller concerning any
Permit or compliance with any applicable Law and Seller has no Knowledge of any
fact or circumstance which would involve Seller in any litigation related
thereto or impose upon Seller any material liability, including without
limitation, environmental liability.
2.14 EMPLOYEES.
(a) Schedule 2.14 contains a list of the names, office locations, and
compensation (including salary and commissions) of all full and part-time
employees independent contractors, consultants and agents of the Business and
their ages, length of service, annual vacation entitlements, accrued unused
vacation days and whether the individuals are currently on leave and in receipt
of disability benefits, applicable workplace safety and insurance legislation
benefits or on pregnancy or parental leave or other leave approved by Seller
together with the type of leave and their expected date of return to work, if
known.
(b) The consummation of the Transactions will not give rise to any
liability of Seller for severance pay, termination pay or any similar payment to
any of its employees except as set forth on Schedule 2.14.
(c) No employee has threatened any actions against Seller in relation to
his or her employment with Seller. To the Knowledge of Seller, no officer or
employee of Seller has expressed any intention of terminating his or her
employment in such capacity. Copies of all of the contracts relating to
employees' employment with Seller have been provided to Buyer and are in
compliance in all material respects with all applicable legal requirements.
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(d) Seller has not incurred any liabilities in connection with any
independent contractors or consultants being deemed an "employee", including but
not limited to any withholding obligations, liabilities for pension, welfare or
other insurance benefits, vacation, sick leave, severance or other benefits.
(e) To the Knowledge of Seller, there are no labor disputes or union
organization activities pending and, no trade union, council of trade unions or
employee bargaining agency has applied or threatened to apply to be certified as
the bargaining agent of the employees of the Business. Seller is not a party to
and has never been a party to any collective bargaining agreement with respect
to any employees of the Business.
(f) Seller is providing to Buyer copies of the complete employee records,
including personnel, employment contracts, grievance, health and safety,
workplace safety, disability records and similar files, with respect to all
employees of the Business.
(g) Seller is in compliance in all material respects with all terms and
conditions of employment and all Laws respecting employment including, wages and
hours of work, occupational health and safety and there are no pending, or to
the Knowledge of Seller, threatened claims, complaints, investigations or orders
under any such Laws.
(h) There are no outstanding assessments, penalties, fines, liens, charges,
surcharges or other amounts due or owing pursuant to any workplace safety and
insurance legislation other than payment of premiums in the Ordinary Course in
respect of the Seller's employees and Seller has not been reassessed in any
material respect under such legislation during the past three (3) years. No
audit of the Business is currently being performed pursuant to any applicable
workplace safety and insurance legislation and there are no claims or, to the
Knowledge of Seller, potential claims which may materially and adversely affect
the Seller's accident cost experience in respect of the Business. (i) Seller has
provided to Buyer all orders and inspection reports under applicable
occupational health and safety legislation ("OHSA") relating to the Business
together with the minutes of Seller's joint health and safety committee meetings
for the past three (3) years. There are no charges pending under OHSA in respect
of the Business. Seller has complied in all material respects with any orders
issued under OHSA in respect of the Business and there are no appeals of any
orders made in respect of the Business under OHSA currently outstanding.
2.15 EMPLOYEE PLANS AND BENEFITS.
(a) Schedule 2.15 contains an accurate and complete list and description of
all Plans. True, correct and complete copies of such Plans as amended to the
date hereof together with any summary plan descriptions and in respect of the
Pension Plan, the most recent actuarial reports, financial statements and
funding agreements have been provided to Buyer by Seller. No changes have
occurred or, to the Knowledge of Seller, are expected to occur which would
11
materially affect the information contained in such actuarial reports or
financial statements required to be provided to the Buyer pursuant to this
provision.
(b) With respect to the Plans, Seller has complied in all material respects
with all applicable requirements of Laws governing such Plans including all Tax
laws where same is required for preferential tax treatment and such Plans have
at all times been properly established, registered and administered in all
material respects in accordance with all applicable Laws and its terms. There is
no audit or investigation pending or, to the Knowledge of Seller, Threatened
with respect to any Plan before any Governmental Agency.
(c) No promises or commitments have been made by Seller to the employees to
amend any Plan, to provide increased benefits thereunder or to establish any new
Plan, save and except for changes, commitments and agreements that may from time
to time be made as required by Law or as disclosed in Schedule 2.15.
(d) Except as expressly set forth in Schedule 2.15, and other than claims
by employee for benefits received in the Ordinary Course under the Plans, Seller
has not received written notice of any pending or Threatened claim under a Plan
made by any employee that would have a Material Adverse Effect.
(e) All contributions or premiums required to be paid by Seller under the
terms of each Plan or by Law have been made in accordance with applicable Laws
and the terms of the Plans.
(f) Except as expressly set forth in Schedule 2.15, none of the Plans
provides benefits beyond retirement or other termination of service to employees
of the Business or their beneficiaries or dependants.
2.16 INSURANCE. Schedule 2.16 lists all policies of insurance covering
Seller, including policies of life, fire, theft, auto, casualty, product
liability, workplace safety and compensation, health, medical, disability,
business interruption, employee fidelity, and other casualty and liability
insurance, indicating for each policy the type of coverage, the name of the
insured, the insurer, the premium, the expiration date and the amount of
coverage. These policies (a) are valid, in effect, and enforceable; (b) provide
coverage of the kind, and in the amounts, customary in Seller's industry; (c)
except for policies relating to and providing benefits under a Plan, name only
Seller as the beneficiary; and (d) are being transferred to Buyer under this
Agreement and are not affected by that transfer (except in the case of workplace
safety insurance administered by the Canadian Workplace Safety and Insurance
Board). Seller has furnished correct and complete copies of such policies to
Buyer. Seller has not been denied any insurance coverage that it has requested,
nor has it made, since October 31, 2002, any material reduction in the scope or
change in the nature of its insurance coverage.
2.17 TRANSACTIONS WITH AFFILIATES. No Affiliate of Seller is directly or
indirectly a party to any agreement, contract, commitment or transaction with
Seller which will be assigned to, assumed by, or binding upon Buyer.
2.18 BOOKS AND RECORDS. Seller's books and records regarding the Business
are correct and complete in all material respects and have been maintained in
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accordance with sound business practices. Seller has delivered such books and
records set forth on Schedule 2.18 to Buyer. After the Closing Date, Buyer will,
upon the reasonable request of Seller, provide Seller with access (during normal
business hours) to the books and records of the Business, but only to the extent
such books and records were in existence as of the Closing Date.
2.19 OPERATION OF BUSINESS IN ORDINARY COURSE. Since November 30, 2002,
Seller has been engaged solely in the operation of the Business in the Ordinary
Course, consistent with past practice, and there has not been any occurrence,
event, incident, action, failure to act or transaction involving Seller which
has had or, to the Knowledge of Seller, is reasonably likely to have
individually or in the aggregate a Material Adverse Effect on Seller or the
Business. Without limiting the foregoing and except as set forth on Schedule
2.19, Seller has not (a) sold, transferred, assigned, leased or otherwise
disposed of any assets (other than sales of Inventory and other dispositions
made in the Ordinary Course); (b) sustained any damage, loss or destruction
whether or not covered by insurance of or to the Purchased Assets that has had
or, to the Knowledge of Seller, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Seller or the Business; (c) paid any
material obligation or liability (fixed or contingent), or settled any material
claim, liability or suit pending or threatened against the Business or the
Purchased Assets or payments made in connection with the purchase of goods and
services other than in Ordinary Course; (d) effected any change in any method of
accounting or accounting practice used by Seller; (e) written-down any
Inventory, except for write-downs in the Ordinary Course not material to the
Business; (f) increased the wages, salaries, benefits or other compensation or
made any other change in employment terms outside the Ordinary Course of any
employee in the Business (except for customary increases based on term of
service or promotion of non-salaried employees or other increases in the
Ordinary Course); (g) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the Ordinary
Course; (h) mortgaged, pledged or subjected to any material lien, charge or any
other encumbrance, any portion of its properties or assets; (i) entered into,
amended or terminated any lease, contract, agreement, commitment, or any other
transaction in excess of $10,000 other than in the Ordinary Course and in
accordance with past custom and practice, or entered into any transaction with
any Affiliate; (j) made any loans or advances to, or guarantees for the benefit
of, any persons; (k) had revoked or terminated any Required Consent; (l) made or
suffered any material change in the conduct or nature of any aspect of the
Business, other than changes made in the Ordinary Course and changes that did
not, and would not reasonably be expected to, have a Material Adverse Effect on
Seller or the Business; (m) has made (or committed to make) capital expenditures
in an amount that exceeds $10,000 for any item or $100,000 in the aggregate; (n)
paid (or delayed payment of) payables, collected (or delayed collection of)
receivables or waived any rights, in each case other than in the Ordinary
Course; (o) paid or incurred any management or consulting fees, or engaged any
consultants, other than in the Ordinary Course; (p) experienced an adverse
change in the aggregate amount of trade receivables or the aging thereof which
is material, or a change in the level of the Inventory which is material; or (q)
contracted or agreed to do any of the foregoing.
2.20 LITIGATION. Other than the Interactive Network Litigation or as
described on Schedule 2.20, there are no actions, suits, proceedings or
arbitrations, investigations or claims of any kind pending, or, to the Knowledge
of Seller, Threatened before any court, commission, agency or other
administrative authority against Seller or any of its officers or directors, or
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its businesses or properties, or the Purchased Assets, and Seller is not the
subject of any order or decree. There is no injunction, order, judgment, decree
or regulatory restriction that has been imposed upon Seller or the Purchased
Assets.
2.21 FINDER'S FEE. Seller has not incurred any obligation of any kind
whatsoever to any party for a finder's fee (or similar compensation) in
connection with the Transactions.
2.22 APPROVALS. No approval, authorization, order, license or consent of or
registration, qualification or filing with any Governmental Agency and no
approval or consent by any other Person or entity is required in connection with
the execution, delivery or performance by Seller or Seller Shareholder of this
Agreement, any related agreements or the Transactions.
2.23 INVESTMENT INTENT. Seller and Seller Shareholder each acknowledges
that as part of the Purchase Price, Seller Shareholder will receive shares of
Parent Common Stock in a transaction which is intended by the Parties to be
exempt from registration under the Securities Act, as amended, and, in
furtherance thereof, and in connection with such an investment by Seller
Shareholder in Buyer, Seller Shareholder represents and warrants to, and agrees
with Buyer as follows:
(a) Seller Shareholder is acquiring the NTN Shares as principal and not as
agent and for its own account for investment purposes only and not with a view
to or for sale in connection with a distribution thereof, in whole or in part,
except in compliance with the Securities Act.
(b) Seller Shareholder acknowledges that the NTN Shares will not be
registered under the Securities Act and therefore they will be "restricted
securities" under the Securities Act. Each certificate evidencing the NTN Shares
will be imprinted with a legend in substantially the following form:
(c) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT
TO THE PROVISIONS OF THAT ACT AND THE LAWS OF SUCH STATES UNDER WHOSE LAWS A
TRANSFER OF SECURITIES WOULD BE SUBJECT TO A REGISTRATION REQUIREMENT OR AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO NTN COMMUNICATIONS,
INC., IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
2.24 INVESTMENT EXPERIENCE; DISCLOSURE OF INFORMATION.
(a) Seller acknowledges that it can bear the economic risk and complete
loss of its investment in the NTN Shares and has such knowledge and experience
in financial and business matters that is capable of evaluating the merits and
risks of the investment contemplated hereby.
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(b) Seller has had an opportunity to receive all additional information
related to Buyer or Parent requested by it and to ask questions of and receive
answers from Buyer regarding Buyer or Parent, its business and the terms and
conditions of the offering of the NTN Shares. Seller acknowledges receipt of the
filings made by Parent from time to time with the SEC, including Parent's Form
10-K for the year ended December 31, 2002, Forms 10-Q for the quarters ended
March 31, 2003, June 30, 2003 and September 30, 2003 and Definitive Proxy
Statement filed April 14, 2003.
2.25 CUSTOMERS, SUPPLIERS AND PARTNERS. Seller has at least 334 customers
that have been customers for at least twelve months, are current in their
payments to Seller and have not indicated an intention to cease being customers
of Seller. Seller has not and is not engaged in any dispute with any of the five
largest suppliers for the Business during the twelve months prior to the Closing
Date, in dollar amounts of purchases by Seller of goods and services (each, a
"Significant Supplier") and the ten (10) hardware and software vendors whose
hardware, software and supports services are, in the reasonable opinion of
Seller, most important (each, a "Significant Partner"). A list of the
Significant Suppliers and Significant Partners is set forth on Schedule 2.25.
Seller has no Knowledge of any intention by a Significant Supplier to terminate
its business relationship with Seller or to limit or alter its business
relationship with Seller in any material respect. Seller has no Knowledge that
the consummation of the Transactions will adversely affect the relationship of
Buyer with any Significant Supplier or Significant Partner. A list of (i) all
former customers that have ceased being customers of Seller, (ii) all customers
of Seller that have given notice of termination or otherwise indicated that they
would terminate service, in each case during the period beginning November 1,
2002, and (iii) a list of all customers of Seller as of the date of this
Agreement, is set forth on Schedule 2.25.
2.26 INVENTORY. The Inventory is valued at book value determined in
accordance with GAAP. All Inventory, net of any reserves, write-downs and
write-offs, consists of items of quality and quantity usable or saleable in the
Ordinary Course in all material respects and, to the Knowledge of Seller, are
free from material defects. The Inventory is adequate for the present needs of
the Business.
2.27 ENVIRONMENTAL COMPLIANCE. (i) Seller has not, in connection with the
Business or Seller's assets, generated, used, transported, treated, stored,
released or disposed of, and has not suffered or permitted anyone to generate,
use, transport, treat, store, release or dispose of, any Hazardous Substance (as
defined below) in violation of any applicable environmental Laws; (ii) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the conduct of the
Business or, to the Knowledge of Seller, in any properties within 100 yards of
its business which has created or might reasonably be expected to create any
material liability under any applicable environmental Law or which would require
reporting to or notification of any Governmental Agency; (iii) no asbestos or
polychlorinated biphenyl or underground storage tank is contained in or located
at any facility used in connection with the Business; and (iv) any Hazardous
Substance handled or dealt with in any way in connection with the Business has
15
been and is being handled or dealt with in all material respects in compliance
with all applicable environmental Laws. As used herein, "Hazardous Substance"
means substances that are defined or listed in, or otherwise classified pursuant
to, any applicable Laws as "hazardous substances," "hazardous materials,"
"hazardous wastes" or "toxic substances," or any other formulation of any
applicable environmental Law intended to define, list or classify substances by
reason of deleterious properties such as ignitibility, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and
petroleum and drilling fluids, produced waters and other wastes associated with
the exploration, development, or production of crude oil, natural gas or
geothermal energy.
2.28 APPROVALS. No approval, authorization, order, license or consent of or
registration, qualification or filing with any Governmental Agency and, except
for the Required Consents, no approval or consent by any other Person or entity
is required in connection with the execution, delivery or performance by Seller
or Seller Shareholder of this Agreement and the Transactions.
2.29 DEPOSIT ACCOUNTS. Attached as Schedule 2.29 is a true, accurate and
complete list of all Deposit Accounts maintained by the Seller. All the
customers of the Seller directly deposit into the Deposit Account maintained by
the Bank of Montreal set forth on such Schedule 2.29 and designated "Direct
Deposit Account" on such schedule (the "Direct Deposit Account").
2.30 DISCLOSURE. None of this Agreement, the Seller Financial Statements,
any Schedule or exhibit hereto or any certificate, document or other statement
delivered to Buyer in connection with the Transactions contains any untrue
statement of a material fact, or omits any statements of material fact necessary
to make the statements contained herein or therein not misleading, in light of
the circumstances under which they were made.
ARTICLE III
REPRESENTATIONS OF PARENT AND BUYER
As a material inducement to Seller to enter into and perform this
Agreement, Parent and Buyer represent, warrant, agree and covenant that:
3.1 ORGANIZATION AND POWER. Each of Parent and Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
respective jurisdiction of its incorporation, with full power and authority to
own or lease and operate its properties and assets, to carry on its business as
such business is now conducted, and as described in the Parent's filings with
the SEC (the "SEC Materials"), to execute and deliver this Agreement and to
carry out the Transactions. Each of Parent and Buyer is duly qualified to do
business as a foreign corporation under the laws of each jurisdiction in which
the conduct of its business requires such qualification or license.
3.2 AUTHORIZATION; BINDING EFFECT, ETC. Each of Parent and Buyer has all
requisite power and authority to execute, deliver and perform this Agreement,
the Transactions and each other document being executed in connection herewith
to which it is a party. The execution, delivery and performance of this
16
Agreement and all other documents and agreements contemplated hereby to be
executed by the Parent or Buyer has been duly authorized by all requisite action
of Parent or Buyer, respectively, and (assuming the due authorization, execution
and delivery hereof and thereof by the other parties hereto and thereto), this
Agreement and each such other document or agreement contemplated hereunder will
be, a valid and binding obligation of Parent and Buyer, enforceable against
Parent and Buyer in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principle. Each of Parent and Buyer has, as of the date of this Agreement, and
will, as of the Closing, have taken or will take all actions necessary and
advisable in order to approve and adopt this Agreement and the Transactions.
3.3 NO VIOLATION. Neither the execution and delivery by Parent or Buyer of
this Agreement or any related agreements to which Parent or Buyer may be a
party, nor consummation of the transactions herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof will
conflict with or violate any provision of law or the Articles of Incorporation
or By-laws of Parent or Buyer, or result in a violation or default in any
provision of any regulation, order, writ, injunction or decree of any court or
Governmental Agency or of any agreement or instrument to which Parent or Buyer
is a party or by which Parent or Buyer is bound or to which Parent or Buyer is
subject, or constitute a default thereunder or result in the imposition of any
lien, charge, encumbrance or security interest of any nature whatsoever upon any
of Parent's or Buyer's assets pursuant to the terms of any such agreement or
instrument, provided that the actions contemplated by Article V are taken.
3.4 CHARTER, BY-LAWS AND RESOLUTIONS. The copies of the respective Articles
of Incorporation of Parent and Buyer certified by the Secretary of State of
Delaware and the secretary of the Buyer, respectively; of the By-laws of Parent
and Buyer certified by its Secretary; and of resolutions of Board of Directors
of Parent and Buyer relating to the Transactions, furnished by Parent and Buyer
to Seller are true, correct and complete copies thereof and no action has been
taken to amend, supplement, or supercede any of the foregoing.
3.5 NTN SHARES. Buyer will deliver the NTN Shares to Seller free and clear
of all Encumbrances other than restrictions imposed by federal and state
securities Laws. Upon issuance in accordance with this Agreement, the NTN Shares
will be validly issued, fully paid and non-assessable.
3.6 APPROVALS. No approval, authorization, order, license or consent of or
registration, qualification or filing with any Governmental Agency and, except
for the Required Consents or as disclosed on Schedule 3.6, no approval or
consent by any other Person or entity is required in connection with the
execution, delivery or performance by Buyer and Parent of this Agreement and the
Transactions.
3.7 PROPERTIES. Except as set forth in the SEC Materials, each of the
Parent and the Buyer has good and marketable title to all properties and assets
described in the SEC Materials as owned by them, free and clear of all
Encumbrances, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
each of Parent or Buyer is the lessor or sublessor of properties or assets or
under which Parent or Buyer holds properties or assets as lessee or sublessee as
17
described in the SEC Materials are in full force and effect, and, except as
described in the SEC Materials, none of Parent nor Buyer is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and, to Parent's knowledge, no claim has been asserted by
anyone adverse to rights of Parent or Buyer as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of Parent or Buyer to continued possession of the leased
or subleased premises or assets under any such lease or sublease, except as
described or referred to in the SEC Materials.
3.8 FINANCIAL CONDITION; FINANCIAL MATTERS.
(a) The consolidated financial statements and the related notes of the
Parent set forth in the SEC Materials present fairly the consolidated financial
position and results of operations and changes in stockholders' equity and cash
flows of Parent on a consistent basis at the respective dates and for the
respective periods to which they apply. Said financial statements and notes have
been prepared in accordance with GAAP applied on a basis which is consistent
during the periods involved. There has been no Material Adverse Effect of Parent
and its subsidiaries, taken as a whole, from the latest information set forth in
the SEC Materials, except as described in the SEC Materials.
(b) Subsequent to the respective dates as of which information is given in
the SEC Materials and except as described therein, Parent has not paid or
declared any dividends or other distributions of any kind on any class of its
capital stock as of the date of this Agreement, nor has it incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which is material to the business of Parent, and there has not been
any material change in the capital stock of, or any material incurrence of
long-term debt by Parent or any material issuance of options, warrants, or other
rights to purchase the capital stock of Parent or any material adverse change in
the financial condition, net worth, results of operations, business, key
personnel, or properties of Parent which would be material to the business or
financial condition of Parent and Parent has not become a party to, and neither
the business nor the property of Parent or its subsidiaries has become the
subject of, any material litigation whether or not in the ordinary course of
business.
(c) The books, records and accounts and systems of internal accounting
controls of Parent currently comply in all material respects with the
requirements of Section 13(b)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Parent maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.9 LITIGATION. Except as set forth in the SEC Materials, there is not now
pending or, to the knowledge of Parent or Buyer, threatened, any Proceedings
which Parent or Buyer is a party before or by any court or Governmental Agency
18
nor any Proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion, or race which would result in
any Material Adverse Effect on Parent.
3.10 PERMITS; COMPLIANCE WITH LAWS.
(a) Except as disclosed in the SEC Materials, each of Parent and Buyer has
sufficient Permits, and other governmental authorizations as are reasonably
required for the conduct of its business or the ownership of its property as
described in the SEC Materials and are in all material respects complying
therewith. Neither Parent nor Buyer has received any written notice of
proceedings relating to the revocation or modification of any such material
certificate, authorization, or permit nor, to the knowledge of Parent or Buyer,
do any of the activities or business of Parent or Buyer cause Parent or Buyer to
be in violation of, or cause Parent or buyer to violate, any Laws the violation
of which would have a Material Adverse Effect on Parent.
(b) Except as set forth in the SEC Materials, the business and operations
of Parent and Buyer have been operated in compliance with all Laws, including
without limitation, any and all environmental laws and regulations, and all
required Filings have been properly made, except for failures of compliance or
failures to make required Filings, that individually or in the aggregate, would
not have a Material Adverse Effect on Parent.
3.11 QUESTIONABLE PAYMENTS. Neither of Parent nor Buyer has directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal, or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. Parent and Buyer's internal accounting controls and procedures are
sufficient to cause Parent and Buyer to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
3.12 TRANSFER TAXES. At the date of this Agreement, all transfer or other
taxes (including franchise, capital stock, or other tax, other than income
taxes, imposed by any jurisdiction), if any, which are required to be paid in
connection with the execution and delivery of the NTN Shares hereunder will have
been fully paid or provided for by Parent and all laws imposing such taxes will
have been fully complied with in all material respects.
3.13 FINDER'S FEE. Neither Buyer nor Parent has incurred any obligation of
any kind whatsoever to any party for a finder's fee (or similar compensation) in
connection with the Transactions.
3.14 EMPLOYMENT MATTERS.
(a) Parent has entered into an employment contract with its chief executive
officer and the description of such employment agreement in the SEC Materials is
true, correct, and complete in all material respects.
(b) No labor dispute with the employees of Parent or Buyer exists or to
each of the Parent's and Buyer's knowledge is threatened or imminent that could
result in a Material Adverse Effect on Parent, except as described in or
contemplated by the SEC Materials.
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3.15 INTELLECTUAL PROPERTY. Each of Buyer or Parent owns or possesses, or
can acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respect businesses, and each of Buyer or Parent has not received any
written notice of infringement of or conflict with asserted rights of any third
party with respect to any of the foregoing, which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or funding, would result in a
Material Adverse Effect on Parent, except as described in or contemplated by the
SEC Materials.
3.16 INSURANCE. Parent is insured against such losses and risks and in such
amount as Parent believes is prudent. Parent has not been denied any insurance
coverage that it has requested, nor has it made, since August 2000, any material
reduction in the scope or change in the nature of its insurance coverage.
3.17 TRANSACTIONS WITH AFFILIATES. With the exception of direct and
indirect majority-owned subsidiaries of Parent, no Affiliate of Buyer or Parent
is directly or indirectly a party to any agreement, contract, commitment or
transaction with Buyer or Parent other than as disclosed in the SEC Materials.
3.18 INVESTMENT COMPANY. Neither of Parent nor Buyer is and will conduct
its operations in a manner that it will not be subject to registration as an
investment company under the Investment Company Act of 1940, as amended.
3.19 TAX RETURNS. Parent and Buyer have properly and timely filed all Tax
Returns required to be filed and they are all correct and complete. All Taxes,
including interest and penalties due and payable as shown on the Tax Returns or
claimed to be due by any taxing authority have been timely paid, except for any
such assessment, fine or penalty that is currently being contested in good faith
or as described in or contemplated by the SEC Materials. There are no claims
pending or matters under discussion with any taxing authority in respect of any
income taxes, except as described in the SEC Materials.
3.20 QUOTATION OF COMMON STOCK. The NTN Common Stock is listed on the
American Stock Exchange ("AMEX") under the symbol "NTN". Other than as disclosed
in the SEC Materials, the Company has not received any communication (written or
oral) regarding its continued listing eligibility on AMEX.
3.21 SECURITIES FILINGS. Parent has filed all forms, reports, statements
and documents required to be filed with the SEC since August 31, 2000, each of
which has complied in all material respects with the applicable requirements of
the Securities Act or the Exchange Act. As of their respective dates, or as of
the date of the last amendment thereof, if amended after filing, none of the SEC
Materials contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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ARTICLE IV
PRE-CLOSING COVENANTS
4.1 CLOSING CONDITIONS. Seller and the Seller Shareholder will use their
best efforts to cause the satisfaction of all conditions precedent to Buyer's
obligations hereunder set forth in Article V. Parent and Buyer will use its best
efforts to cause the satisfaction of all conditions precedent to Seller's
obligations hereunder set forth in Article VI.
4.2 CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE. During the period from
the date of this Agreement and continuing until the earlier of the time the
Parties have determined that all conditions to close have not or cannot be
satisfied or waived or the Closing Date, Seller agrees to carry on the Business
in the Ordinary Course in substantially the same manner as heretofore conducted,
to pay the debts and Taxes of Seller when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
Seller's present business organization, keep available the services of Seller's
present officers and employees and preserve Seller's relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with it, all with the goal of preserving unimpaired Seller's
goodwill and ongoing Business at the Closing Date. Except as expressly
contemplated in this Agreement, after the date of this Agreement and continuing
until the earlier of the time the Parties have determined that all conditions to
close have not or cannot be satisfied or waived or the Closing Date, Seller will
not, without the prior written consent of Buyer:
(a) other than performing the Material Contracts listed in the Schedule
2.10 in accordance with their terms existing on the date hereof and as otherwise
permitted or contemplated hereby, make any expenditure or enter into any
transaction exceeding $10,000;
(b) sell, license or transfer to any Person or entity any rights to any
Intellectual Property or enter into any agreement with respect to the
Intellectual Property with any Person or entity other than in the Ordinary
Course;
(c) revalue any of its assets, including without limitation writing down
the value of items on its balance sheets or writing off notes or accounts
receivable other than in the Ordinary Course;
(d) grant any severance or termination pay (i) to any director or officer
or (ii) to any employee, except payments made pursuant to standard written
agreements outstanding as of the date hereof and disclosed on the Schedules, or
increase the salary or other compensation payable or to become payable by Seller
to any of its officers, directors, employees or advisors, or declare, pay or
make any commitment or obligation of any kind for the payment by Seller of a
bonus or other additional salary or compensation to any such Person, or adopt or
amend any employee benefit plan or enter into any employment contract;
(e) sell, lease, license or otherwise dispose of any of the assets or
properties of Seller relating to the Business or the Purchased Assets other than
in the Ordinary Course, including but not limited to the performance of
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obligations under contractual arrangements existing as of the date hereof set
forth on the Schedules, or create any security interest in such assets or
properties;
(f) grant any loan, guarantee or other extension of credit, or enter into
any commitment to make any loan, guaranty or other extension of credit, to any
Person or entity except for accounts receivable in the Ordinary Course, incur
any indebtedness or guarantee any indebtedness except for accounts payable
incurred in the Ordinary Course, issue or sell any debt securities, guarantee
any debt securities of others, purchase any debt securities of others or amend
the terms of any outstanding agreements related to borrowed money, except for
expenses in the Ordinary Course;
(g) amend in any respect or otherwise modify (or agree to do so), or
violate the terms of any of the Material Contracts set forth or described in
Schedule 2.10 or enter into any contract which would constitute a Material
Contract;
(h) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities or, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Business;
(i) pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $25,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities in the Ordinary Course;
(j) make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(k) terminate any employees of the Business other than for cause or
encourage any employees of the Business to resign from Seller;
(l) enter into any contract, purchase order or other agreement pursuant to
which Seller would be required to book any amounts due thereunder as deferred
revenue;
(m) take or agree in writing or otherwise to take any of the actions
described in the preceding clauses (a) through (l) of this section or in clause
(n) or (o) of this section or any other action that would prevent Seller from
performing or cause Seller not to perform its covenants and agreements
hereunder;
(n) declare, issue, make or pay any dividend or other distribution of
assets, whether consisting of money, other personal property, real property or
other thing of value, to its shareholders, or split, combine, dividend,
distribute or reclassify any shares of its capital stock; or
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(o) make any loan by Seller to any officer, director, employee or
stockholder of Seller or enter into any other agreement or commitment to or for
the benefit of any officer, director, employee or stockholder or any of their
respective Affiliates.
4.3 BULK SALES. Any loss, liability, obligation or cost suffered by Seller,
Buyer or Parent as the result of the failure to comply with the provisions of
any bulk sales laws applicable to the transfer of the Purchased Assets as
contemplated by this Agreement will be borne by Seller and Seller Shareholder.
4.4 PRE-CLOSING SALES GENERATED BY PARENT OR BUYER. The Parties acknowledge
that, prior to the Closing Date, Parent and Buyer may use their efforts to
generate sales on behalf of Seller. The Parties agree that any such sales
generated with the assistance of Parent or Buyer and any amounts generated in
respect of such sales shall become part of the Purchased Assets.
4.5 ACCESS. Seller will grant Buyer and its representatives (to the extent
lawful) unlimited access at reasonable times to the properties, books and
records of Seller for purposes of conducting such investigations, appraisals or
audits as Buyer deems necessary or advisable.
4.6 CUSTOMER CONTACT. Seller and the Selling Shareholder will cooperate
fully with Buyer in contacting existing Seller customers, including, without
limitation, by phone, mail, email, to indicate that this Agreement has been
signed and the parties intend to move forward, provided that Buyer shall not
contact or otherwise communicate with any customers of Seller or the Selling
Shareholder except as described in the Confidentiality Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
All obligations of Buyer and Parent under this Agreement are subject to the
fulfillment and satisfaction, prior to or on the Closing Date, of each of the
following conditions, any one or more of which may be waived by Buyer and
Parent:
5.1 DELIVERY OF DOCUMENTS OF TRANSFER. Seller will have delivered to Buyer
all such documents of transfer, assignment or assumption, including a ▇▇▇▇ of
sale substantially in the form set forth as Exhibit B hereto, a general
conveyance substantially in the form set forth as Exhibit H, and an assignment
of contracts substantially in the form set forth as Exhibit I, as Buyer or its
counsel may reasonably require in order to consummate the purchase and sale of
Purchased Assets under this Agreement.
5.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller and Seller Shareholder contained in this Agreement and in any certificate
delivered in accordance with this Agreement will be true and correct on and as
of the Closing Date as though newly made at and as of that time.
5.3 SELLER'S CERTIFICATE. Seller and Seller Shareholder will have delivered
to Buyer a certificate, dated the Closing Date, stating that:
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(a) all representations and warranties of Seller and Seller Shareholder
contained in this Agreement are true and correct as though newly made at and as
of the Closing Date;
(b) each of the agreements of Seller and Seller Shareholder to be performed
on or before the Closing Date pursuant to this Agreement has been performed in
all material respects;
(c) there has been no Material Adverse Effect in or affecting the Business
or any of the Purchased Assets or Assumed Liabilities since November 30, 2002;
(d) any consent, approval, authorization or order of any Governmental
Agency or other Person or entity required for the consummation of the
Transactions has been obtained and is in effect;
(e) no Law has been enacted, entered, issued, promulgated or enforced by
any Governmental Agency, nor has any action or proceeding been instituted and
remain pending or Threatened, that prohibits or restricts or would (if
successful) prohibit or restrict the Transactions. No insolvency proceedings of
any character including, without limitation, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Seller or any of its assets or properties, is pending, and Seller has taken no
action in contemplation of, or which would constitute the basis for, the
institution of any such insolvency proceedings; and
(f) all the Transaction Costs of Seller and the Seller Shareholder have
been explicitly assumed by the Seller Shareholder in a manner reasonably
satisfactory to Buyer.
5.4 SELLER'S PERFORMANCE. Each of the agreements of Seller and Seller
Shareholder to be performed on or before the Closing Date pursuant to the terms
of this Agreement will have been duly performed in all material respects on or
before the Closing Date.
5.5 NO MATERIAL ADVERSE EFFECT. There will not have been any Material
Adverse Effect in or affecting the Business or any of the Purchased Assets or
Assumed Liabilities since November 30, 2002.
5.6 APPROVALS. Any consent, approval, authorization or order of any
Governmental Agency or other Person or entity required for the consummation of
the Transactions will have been obtained and will be in effect on the Closing
Date, in each case without any condition unacceptable to Buyer. All Required
Consents shall have been obtained and will be in effect on the Closing Date.
5.7 NO ORDERS; LEGAL PROCEEDINGS; NO INSOLVENCY. No Law will have been
enacted, entered, issued, promulgated or enforced by any Governmental Agency,
nor will any action or proceeding have been instituted and remain pending or
Threatened and remain so at what would otherwise be the Closing Date, that
prohibits or restricts or would (if successful) prohibit or restrict the
Transactions. No insolvency proceedings of any character including, without
limitation, receivership, reorganization, composition or arrangement with
creditors, voluntary or involuntary, affecting Seller or any of its assets or
properties, shall be pending, and Seller shall have taken no action in
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contemplation of, or which would constitute the basis for, the institution of
any such insolvency proceedings.
5.8 APPROVAL OF DOCUMENTATION. The form and substance of all opinions,
certificates, and other documents to be delivered by Seller or Seller
Shareholder hereunder on or prior to Closing will be reasonably satisfactory in
all respects to Buyer and its counsel.
5.9 RELATED AGREEMENTS. The ▇▇▇▇ of Sale, the Assignment and Assumption,
and the General Conveyance will have been executed and delivered by all parties
thereto.
5.10 CHARTER, BY-LAWS AND MINUTES. Seller will have delivered to Buyer
true, correct and complete copies conforming to the originals of (i) the
articles of incorporation of Seller and Seller Shareholder as certified by their
respective secretaries; (ii) the by-laws of Seller and Seller Shareholder as
certified by their respective secretaries; (iii) the minutes of a meeting of its
Board of Directors (or consents in lieu thereof) approving the Transactions; and
(iv) the minutes of a meeting of its shareholders (or consents in lieu thereof)
approving the Transactions.
5.11 CLOSING BALANCE SHEET. Seller shall have provided a Closing Balance
Sheet that shall be true, accurate and complete and shall indicate Negative
Working Capital of not less than negative $250,000.
5.12 OPINION OF COUNSEL. Seller's Canadian counsel shall have provided to
Buyer an opinion of counsel, containing the opinions set forth in Exhibit C and
otherwise in form and substance reasonably satisfactory to Buyer and its
counsel.
5.13 LINE OF CREDIT; DIRECT DEPOSIT ACCOUNT. Seller shall have paid off all
amounts owing under its existing credit agreement (the "Credit Agreement") with
the Bank of Montreal and such facility shall have terminated prior to the
Closing Date. Buyer, Seller and the Bank of Montreal shall have entered into an
agreement in form and substance reasonably satisfactory to the Buyer and its
counsel that will transfer custody and all rights and benefits under the Direct
Deposit Account to Buyer.
5.14 LICENSE. Seller Shareholder shall have executed and delivered to Buyer
the License in the form attached hereto as Exhibit E.
5.15 LEASE. Seller shall have executed and delivered to Buyer the Lease in
the form attached hereto as Exhibit G.
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
All obligations of Seller and the Seller Shareholder under this Agreement
are subject to the fulfillment and satisfaction, prior to or on the Closing
Date, of each of the following conditions, any one or more of which may be
waived by Seller:
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6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer and Parent contained in this Agreement and in any certificate delivered in
accordance with this agreement will be true and correct on and as of the Closing
Date as though newly made at and as of that time.
6.2 PARENT AND BUYER'S CERTIFICATE. Parent and Buyer will have delivered to
Seller a certificate, dated the Closing Date, stating that:
(a) all representations and warranties of Buyer and Parent contained in
this Agreement are true and correct as though newly made at and as of the
Closing Date;
(b) each of the agreements of Parent and Seller to be performed on or
before the Closing Date pursuant to this Agreement has been performed;
(c) any consent, approval, authorization or order of any Governmental
Agency or other Person or entity required in order for Parent or Seller to
consummate the Transactions has been obtained and is in effect;
(d) no Law has been enacted, entered, issued, promulgated or enforced by
any Governmental Agency, nor has any action or proceeding been instituted and
remain pending or Threatened, that prohibits or restricts or would (if
successful) prohibit or restrict Parent or Buyer from performing the
Transactions. No insolvency proceedings of any character including, without
limitation, receivership, reorganization, composition or arrangement with
creditors, voluntary or involuntary, affecting Parent or Buyer or any of its
assets or properties, is pending, and neither Parent nor Buyer has taken no
action in contemplation of, or which would constitute the basis for, the
institution of any such insolvency proceedings.
6.3 APPROVAL OF DOCUMENTATION. The form and substance of all certificates
and other documents to be delivered by Buyer or Parent hereunder on or prior to
Closing will be reasonably satisfactory in all respects to Seller and its
counsel.
6.4 NO ORDERS; LEGAL PROCEEDINGS; NO INSOLVENCY. No Law will have been
enacted, entered, issued, promulgated or enforced by any Governmental Agency,
nor will any action or proceeding have been instituted and remain pending or
Threatened and remain so at what would otherwise be the Closing Date, that
prohibits or restricts or would (if successful) prohibit or restrict the
Transactions. No insolvency proceedings of any character including, without
limitation, receivership, reorganization, composition or arrangement with
creditors, voluntary or involuntary, affecting Buyer or any of its assets or
properties, shall be pending, and Buyer shall have taken no action in
contemplation of, or which would constitute the basis for, the institution of
any such insolvency proceedings.
6.5 CHARTER, BY-LAWS AND MINUTES. Buyer shall have delivered to Seller
true, correct and complete copies conforming to the originals of (i) the
Articles of Incorporation of Buyer as certified by its secretary; (ii) the
By-Laws of Buyer as certified by its Secretary; and (iii) the minutes of meeting
of its Board of Directors (or consents in lieu thereof) approving the
Transactions.
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6.6 APPROVALS. Any consent, approval, authorization or order of any
Governmental Agency or other Person or entity required for the consummation of
the Transactions will have been obtained and will be in effect on the Closing
Date (other than AMEX), in each case without any condition unacceptable to
Seller. All Required Consents shall have been obtained and will be in effect on
the Closing Date.
6.7 BUYER'S PERFORMANCE. Each of the agreements of Buyer and Parent to be
performed on or before the Closing Date pursuant to the terms of this Agreement
will have been duly performed in all material respects on or before the Closing
Date.
6.8 NO MATERIAL ADVERSE EFFECT. There will not have been any Material
Adverse Effect in or affecting the business of Parent or Buyer since August 14,
2003.
6.9 LICENSE. Buyer shall have executed and delivered to Seller Shareholder
the License.
6.10 RELATED AGREEMENTS. The ▇▇▇▇ of Sale, Assignment and Assumption, the
General Conveyance, and the Lease will have been executed and delivered by all
parties thereto.
6.11 PAYMENT OF GOODS AND SERVICES TAXES AND RETAIL SALES TAXES. To the
extent required by Canadian Law and permitted by Section 11.1, Buyer shall pay
all amounts of goods and sales tax and retail sales tax due upon closing of the
Transactions to the applicable Government Agency and the amount of such
payments, if any, shall be deducted from the amount of cash otherwise payable to
Seller at Closing under Section 1.2(b).
ARTICLE VII
REGISTRATION OF NTN SHARES
7.1 Mandatory Registration. Parent shall use commercially reasonable
efforts to prepare, and, on or prior to thirty (30) days after the Closing Date,
file with the SEC a registration statement on Form S-3, covering the resale of
the NTN Shares acquired by Seller under this Agreement on the Closing Date, have
the registration statement declared effective by the SEC as soon as possible
thereafter and cause such registration statement to be kept effective until the
earlier of (i) such time as all such NTN Shares have been disposed of in
accordance with the intended methods of distribution set forth in such
registration statement and (ii) the two-year period commencing on the date such
registration statement becomes effective. Parent represents and warrants to
Seller that it meets the registrant eligibility and transaction requirements for
the use of Form S-3 for registration of the sale of such NTN Shares by Seller.
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7.2 Right to Defer Registration. Parent may postpone only once for up to
ninety (90) days the filing or the effectiveness of the currently contemplated
registration statement if its Board of Directors determines, reasonably and in
good faith, that such registration might have a material and adverse effect on
any proposal or plan by Parent to engage in any acquisition, merger,
consolidation, tender offer or any other material transaction.
7.3 Registration Procedures. Parent will use commercially reasonable
efforts to:
(a) furnish to Seller such number of copies of such registration statement,
each amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as Seller may reasonably request in order to facilitate the
disposition of the NTN Shares owned by Seller;
(b) use its reasonable efforts to register or qualify such NTN Shares under
such other securities or blue sky laws of such jurisdictions as Seller
reasonably requests and do any and all other acts and things that may be
reasonably necessary or advisable to enable Seller to consummate the disposition
in such jurisdictions of the NTN Shares owned by Seller, provided that Parent
will not be required (i) to qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) to subject itself to taxation in any such jurisdiction, or (iii) to consent
to general service of process in any such jurisdiction;
(c) notify Seller, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the request of Seller,
Parent will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such NTN Shares, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(d) cause all such NTN Shares to be listed on each securities exchange on
which similar securities issued by Parent are then listed and to be qualified
for trading on each system on which similar securities issued by Parent are from
time to time qualified, and Parent agrees to use commercially reasonable efforts
to maintain listing of the Parent Common Stock on the American Stock Exchange or
the other primary national exchange or quotation system that constitutes the
principal market for the Parent Common Stock at the time; and
(e) provide a transfer agent and registrar for all such NTN Shares not
later than the effective date of such registration statement and thereafter
maintain such a transfer agent and registrar.
7.4 Suspension of Prospectus. For not more than 30 consecutive days or for
a total of not more than 45 days in any twelve month period, Parent may delay
the disclosure of material non-public information concerning Parent by
suspending the use of any prospectus included in any registration contemplated
by this Article 7 containing such information, the disclosure of which at the
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time would be, in the good faith opinion of Parent, detrimental to Parent;
provided, that Parent shall promptly (a) notify Seller in writing of the
existence of (but in no event, without the prior written consent of Seller,
shall Parent disclose to Seller any of the facts or circumstances regarding)
material non-public information giving rise to such delay, and (b) advise Seller
in writing to cease all sales under the registration statement until the end of
such allowed delay.
7.5 Registration Expenses. The term "Registration Expenses" means any and
all expenses incident to Parent's performance of or compliance with Article 7,
including without limitation all registration and filing fees, fees and expenses
of compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and expenses of counsel for Parent and all
independent certified public accountants, and the fees and expenses of any other
persons retained by Parent.
7.6 Payment. Parent shall pay the Registration Expenses in connection with
the mandatory registration under Section 7.1. All other expenses shall be paid
by Seller, pro rata on the basis of the number of its shares included in the
registration.
7.7 Indemnification by Parent. Parent agrees to indemnify, to the extent
permitted by law, Seller and its shareholders, officers and directors and each
Person who controls such Person (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by or based
on any untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading or caused by
or based on any violation by Parent of any federal or state securities law, rule
or regulation, except insofar as the same are caused by or contained in any
information furnished in writing to Parent by Seller or any holder of NTN Shares
expressly for use therein.
7.8 Indemnification by Holders of NTN Shares. In connection with any
registration statement in which a holder of NTN Shares is participating, such
Person will furnish to Parent in writing such information and affidavits as
Parent reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
Parent, its directors and officers and each Person who controls Parent (within
the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any written information or affidavit so furnished in writing by
Seller in connection with such registration statement; provided, that the
obligation to indemnify will be limited to the net amount of proceeds received
by such holder from the sale of NTN Shares pursuant to such registration
statement.
7.9 Notice; Defense of Claims. Any Person entitled to indemnification under
this Article VII will (i) give prompt written notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest between such
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indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without his, her or its consent, which consent
shall not be unreasonably withheld. An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
7.10 Contribution. If the indemnification provided for in this Article VII
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified party, on the other,
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The obligation to contribute will be limited
to the amount by which the net amount of proceeds received by a holder of NTN
Shares from the sale of its NTN Shares, as the case may be, exceeds the amount
of losses, liabilities, damages and expenses that Seller has otherwise been
required to pay by reason of such statements or omissions.
7.11 Survival. The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities and the termination of this Article 7 pursuant to Section 7.13.
7.12 PENALTY FOR DELAY. In the event that Parent breaches its obligations
under this Article 7 and such breach results in a delay in the filing of the
Form S-3 registration statement, Buyer shall pay Seller an additional $32,500
(valued as of the Closing Date at the same per share price as used in
calculating the number of NTN Shares in Section 1.3) in Parent Common Stock for
each whole 30 day period of such delay in filing.
7.13 Termination of Registration Rights. Article 7 of this Agreement shall
terminate with respect to any holder of NTN Shares on the earlier of (a) two
years after the date of this Agreement or (b) the earlier of (i) the date such
holder can sell all of his/her/its NTN Shares in any three month period pursuant
to Rule 144 or (ii) the date such holder holds NTN Shares in an amount less than
30
one percent of the outstanding shares of Parent Common Stock; provided that
Parent's obligations under Section 7.14 shall survive any such termination.
7.14 Reports Under the Exchange Act. With a view to making available to
Seller the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit Seller to sell
securities of Parent to the public without registration, Parent agrees to:
(a) file with the SEC in a timely manner all reports and other documents
required of Parent under the Exchange Act; and
(b) furnish to Seller or Seller Shareholder, so long as Seller or Seller
Shareholder owns any NTN Shares, forthwith upon request (i) a written statement
by Parent that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3, (ii) a copy of the most recent
annual or quarterly report of Parent and such other reports and documents so
filed by Parent, and (iii) such other information as may be reasonably requested
in availing Seller or its affiliates of any rule or regulation of the SEC that
permits the selling of any such securities without registration or pursuant to
such form.
ARTICLE VIII
POST-CLOSING COVENANTS
8.1 COVENANT NOT TO COMPETE. The Parties acknowledge that Seller is
transferring the Purchased Assets together with the goodwill associated
therewith. In order to protect such goodwill of the Purchased Assets acquired
from Seller in connection with the sale of the Business, each of Seller and the
Seller Shareholder agree to comply with, and agrees to cause their Affiliates to
comply with, the restrictive covenants set forth in this Section 8.1. Except as
provided in the last paragraph of this Section 8.1, neither Seller nor the
Seller Shareholder will for four years from the Closing Date, directly or
indirectly, as an owner, partner, shareholder, joint venturer, corporate
officer, director, employee, manager, consultant, principal, trustee or
licensor, or in any other capacity whatsoever of or for any Person, firm,
partnership, company, corporation or other entity (other than Buyer or any of
its Affiliates):
(a) acquire, own any interest in, manage, control, participate in, consult
with or render services for, or in any manner engage in or represent any bar,
restaurant and in-home interactive gaming business that is competitive with the
bar, restaurant and in-home interactive gaming business or any product of the
bar, restaurant and in-home interactive gaming business as the bar, restaurant
and in-home interactive gaming business is conducted or proposed to be conducted
from and after the date hereof in any way in the Territory; or
(b) solicit, divert or take away, or attempt to solicit, divert or take
away, the bar, restaurant and in-home interactive gaming business, account or
patronage of any of the clients, customers or suppliers of Buyer relating to the
bar, restaurant and in-home interactive gaming business; or
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(c) lend or allow its name or reputation to be used by or otherwise allow
its skill, knowledge or experience to be used by any bar, restaurant and in-home
interactive gaming business that competes with the bar, restaurant and in-home
interactive gaming business; or
(d) induce, or attempt to induce, any customer, salesperson, distributor,
supplier, vendor, manufacturer, representative, agent, jobber, licensee or other
Person transacting bar, restaurant and in-home interactive gaming business with
Buyer or any Affiliate thereof to reduce or cease doing bar, restaurant and
in-home interactive gaming business with Buyer or any Affiliate thereof, or in
any way to interfere with the relationship between any such customer,
salesperson, distributor, supplier, vendor, manufacturer, representative, agent,
jobber, licensee or other Person, on the one hand, and Buyer or any Affiliate
thereof, on the other hand.
Notwithstanding the foregoing, Seller and Seller Shareholder are (i)
permitted to own, individually, as a passive investor up to a 10% interest in
any publicly-traded entity and (ii) license a back-office software engine
related to payment processing from online gambling. The restrictions in this
Section 8.1 will be effective in the United States and Canada (collectively, the
"Locations"). Seller and the Seller Shareholder acknowledge that the Business is
national, rather than local, in scope, in the United States and Canada. This
Section 8.1 shall not apply if Buyer shall have failed to deliver the Purchase
Price (including delivery of that portion of the NTN Shares to be delivered as
set forth in clause (iii) in Exhibit F) pursuant to the terms set forth in
Article I and have failed to cure such failure within five business days after
receiving written notice of such breach by Seller.
8.2 RESTRICTIONS ON SOLICITING EMPLOYEES. (a) Neither Seller nor Seller
Shareholder will, for four years following the Closing Date, directly or
indirectly, induce or attempt to induce, or cause any employee of Buyer or any
Affiliate thereof who earned annually $20,000 or more as an employee of Seller
or Buyer during the last six months of his or her own employment to leave the
employ of Buyer or any Affiliate thereof or to work for any other entity or
business or in any way interfere with the relationship between Buyer or any
Affiliate thereof, on the one hand, and any such employee thereof, on the other
hand. This Section 8.2 shall not apply if Buyer shall have failed to deliver the
Purchase Price (including delivery of that portion of the NTN Shares to be
delivered as set forth in clause (iii) in Exhibit F) pursuant to the terms set
forth in Article I and have failed to cure such failure within five business
days after receiving written notice of such breach by Seller.
8.3 CONFIDENTIALITY.
(a) Seller and the Seller Shareholder have had access to, and there has
been disclosed to Seller Shareholder, information of a confidential nature that
has great value to the Business and constitutes a substantial basis upon which
the Business is predicated. Such information includes trade secrets, customer or
supplier lists, pricing information, marketing arrangements, strategies,
business plans, internal performance statistics, training manuals, and other
information concerning Seller (or Buyer as successor to the Business) that is
competitively sensitive or confidential (the "Confidential Information").
(b) Seller and the Seller Shareholder will not, for four years following
the Closing Date, use or divulge any Confidential Information, except: (a) to
Buyer's personnel or representatives; (b) if such Confidential Information, at
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the time it is disclosed, is generally available to the public; (c) if such
Confidential Information becomes available to Buyer or Buyer's representatives
on a non-confidential basis from a source that is not prohibited from disclosing
such information or document by legal, contractual, or fiduciary obligations to
Buyer, Parent, Seller or Seller Shareholder; (d) if such Confidential
Information is in Buyer's possession prior to being furnished to Buyer by or on
behalf of Seller, if the source of such information was not prohibited from
disclosing the information or document to Buyer by legal, contractual, or
fiduciary obligations to Seller or Seller Shareholder; (e) to the extent
disclosure is required by Law; or (f) if such information becomes lawfully
obtainable on a non-confidential basis from other sources that are not
prohibited from disclosing such information or document by legal, contractual,
or fiduciary obligations to Buyer, Parent, Seller or Seller Shareholder. Seller
will not use or permit to be used any Confidential Information for the gain or
benefit of any party outside of Buyer or for his own personal gain or benefit.
This Section 8.3(b) shall not apply if Buyer shall have failed to deliver the
Purchase Price (including delivery of that portion of the NTN Shares to be
delivered as set forth in clause (iii) in Exhibit F) pursuant to the terms set
forth in Article I and have failed to cure such failure within five business
days after receiving written notice of such breach by Seller.
(c) Buyer and Parent have had access to, and there has been disclosed to
Buyer and Parent, information of a confidential nature and proprietary nature
relating to the Seller Shareholder ("Non-Public Information"). Buyer and Parent
will not for four years following the Closing Date, use or divulge any
Non-Public Information, except: (a) if such Non-Public Information, at the time
it is disclosed, is generally available to the public; (c) if such Non-Public
Information becomes available to Buyer and/or Parent or Buyer's and/or Parent's
representatives on a non-confidential basis from a source that is not prohibited
from disclosing such information or document by legal, contractual, or fiduciary
obligations to Buyer, Parent, Seller or Seller Shareholder; (d) if such
Non-Public Information is in Buyer's and/or Parent's possession prior to being
furnished to Buyer and/or Parent by or on behalf of Seller Shareholder, if the
source of such information was not prohibited from disclosing the information or
document to Buyer and/or by legal, contractual, or fiduciary obligations to
Seller or Seller Shareholder; (e) to the extent disclosure is required by Law;
or (f) if such information becomes lawfully obtainable on a non-confidential
basis from other sources that are not prohibited from disclosing such
information or document by legal, contractual, or fiduciary obligations to
Buyer, Parent, Seller or Seller Shareholder. Neither Buyer nor Parent will not
use or permit to be used any Non-Public Information for the gain or benefit of
any party outside of Seller Shareholder or for their own personal gain or
benefit.
8.4 REASONABLENESS OF RESTRICTIONS AND ENFORCEABILITY. Seller and the
Seller Shareholder acknowledge that their strong business ties are significant
to the growth of the Business, and Seller and the Seller Shareholder further
acknowledge that the restrictions in this Agreement are reasonable both
individually and in the aggregate and that the duration, geographic scope,
extent and application of each of such restrictions are no greater than is
necessary for the protection of Buyer's legitimate business interests, which
include but are not limited to Seller's trade secrets and other valuable
confidential business information acquired by Buyer, its substantial
relationships with prospective or existing customers and suppliers, and the
goodwill associated with the Business.
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8.5 SEVERABLE COVENANTS. The Parties intend that the covenants in Section
8.1 will be construed as a series of separate covenants, each consisting of the
covenants in Section 8.1 for each of the Locations. Except for the Locations,
all such separate covenants will be deemed identical. The Parties desire and
intend that this Agreement be enforced to the fullest extent permissible under
the Laws and public policies applied in each jurisdiction in which enforcement
is sought. If any particular provision of Section 8.1, 8.2 or 8.3 is adjudicated
to be invalid or unenforceable, (a) each of the Parties agrees that if such
provisions would be valid or enforceable if some part or parts of them were
deleted or the period or area of application reduced, the applicable restriction
will apply with the most limited modifications necessary to make it valid and
enforceable, and (b) such adjudication will apply only with respect to the
operation of this Agreement in the particular jurisdiction in which the
adjudication is made, and the unenforceable covenant will be eliminated from
this Agreement to the extent necessary to permit the remaining separate
covenants (or portions of them) to be enforced.
8.6 PAYMENTS RECEIVED BY SELLER AFTER THE CLOSING. To the extent Seller
receives any payments, other than those payments received under this Agreement,
relating to the Purchased Assets, Assumed Liabilities or the Business after the
Closing, Seller will promptly remit any such payments to Buyer.
8.7 SELLING RESTRICTIONS. Seller and the Selling Shareholder shall sell or
transfer any NTN Shares only in accordance with the Selling Restrictions set
forth on Exhibit F.
8.8 PROHIBITION ON TRANSFER OR USE OF IP. Other than in accordance with the
License, Seller and Selling Shareholder shall not use or sell, license or
otherwise transfer to any person any rights to the Seller Intellectual Property,
the Parent IP Licenses or to any Intellectual Property that is included in the
Purchased Assets. Seller shall, within 10 business days of the Closing, change
its corporate name to a name which does not use "NTN".
8.9 BOOKS AND RECORDS AND ACCESS TO ACCOUNTANTS. Upon reasonable advance
notice, (i) for a period of seven years from the Closing Date, Buyer or Seller
may inspect and copy during regular business hours the books and records
relating to the Business as conducted prior to Closing that such party did not
obtain or retain as of the Closing, and (ii) for a period of one year from the
Closing Date, Buyer or Seller may consult during regular business hours with the
internal accounting personnel, subject to reasonable confidentiality
requirements.
8.10 MOVING OF PURCHASED ASSETS. Buyer agrees to move all of the Purchased
Assets from the premises located at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and to
vacate such premises on or before December 17, 2004.
8.11 DELIVERY OF EQUIPMENT WITH LICENSED SOFTWARE. Buyer shall deliver to
Seller Shareholder two turn-key systems with twenty playmakers with each system
in connection with the License as soon as practicable after the Closing Date but
in no event later than the Cash Distribution Date.
8.12 HEALTH CARE BENEFITS. Buyer agrees to continue to provide health care
benefits to ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, in terms consistent with Seller's
historical practices, from the Closing Date and up until December 31, 2003, at
which point such obligations will terminate.
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(a) provided Buyer is not in breach of any material covenant or agreement
set forth in this Agreement, by Buyer if there has been a material breach by
Seller of any material covenant or agreement of Seller or Seller Shareholder set
forth in this Agreement, which breach has not been cured within 30 days of the
34
date on which written notice of such breach was first given to the party in
breach or which is not capable of being cured on or before the Termination Date;
or
(b) provided that Seller is not in breach of any material covenant or
agreement set forth in this Agreement, by Seller if there has been a material
breach by Buyer of any material covenant or agreement of Buyer or Parent set
forth in this Agreement, which breach has not been cured within 30 days of the
date on which written notice of such breach was first given to the party in
breach or which is not capable of being cured on or before the Termination Date;
or
(c) by written agreement of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing shall not have been
consummated on or before December 31, 2003 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 9.1(d)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing Date to occur on or before the Termination Date; or
(e) by either Buyer or Seller if there shall be any Law that makes
consummation of the Transactions illegal or otherwise prohibited or if
consummation of the Transactions would violate any nonappealable judgment of any
court or other Governmental Agency having competent jurisdiction.
The Party desiring to terminate this Agreement pursuant to clauses (a), (b),
(d), or (e) shall give written notice of such termination to the other Party.
9.2 EFFECTS OF TERMINATION. If this Agreement is terminated as permitted by
Section 9.1, such termination shall be without liability of any Party (or any
shareholder, director, officer, employee, agent, consultant or representative of
such Party) to any other Party to this Agreement; provided that if such
termination shall result from the failure of any Party to fulfill a condition to
the performance of the obligations of the other Party or to perform a covenant
of this Agreement or from a breach by any Party to this Agreement, then such
Party shall be fully liable for any and all Losses incurred or suffered by the
other Parties as a result of such failure or breach. The provisions of Section
12.4, and the Confidentiality Agreement dated as of July 15, 2003 among Parent
and Seller (the "Confidentiality Agreement") shall survive any termination
hereof pursuant to Section 9.1.
ARTICLE X
INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND AGREEMENTS.
Except as otherwise expressly provided in this Agreement, all representations,
warranties, covenants and agreements of the Parties contained in this Agreement,
including the schedules and exhibits attached hereto, will survive the closing
and the consummation of the Transactions for a period of twenty-four (24)
months, except for Section 8.1, 8.2 and 8.3 which will survive the Closing and
the consummation of the Transactions for a period of four (4) years. The
35
representations and warranties in Sections 2.1, 2.2, 2.8, 2.9, 2.20, 3.1, 3.2
and 3.5 will survive the Closing and the consummation of the Transactions one
year after expiration of the applicable statute of limitations.
10.2 INDEMNIFICATION BY SELLER AND SELLER SHAREHOLDER. Regardless of any
pre-Closing investigations, examinations or prior knowledge of Parent or Buyer
or due diligence conducted by them or their agents and disclosure by Seller or
Seller Shareholder, Seller and Seller Shareholder hereby agree, jointly and
severally, to indemnify, defend and hold Parent and Buyer, together with their
directors, officers, employees, representatives, shareholders, managers, agents
and advisors, harmless from, against and with respect to any and all demands,
claims, actions or causes of action, assessments, liabilities, losses, costs,
damages, penalties, charges or expenses, including without limitation interest,
penalties and reasonable counsel and accountants' fees, disbursements and
expenses ("Loss" or, collectively, "Losses") arising out of, or related to:
(a) any breach of any representation, warranty, covenant or agreement made
by Seller or the Seller Shareholder in this Agreement, including the Schedules
and exhibits hereto or any other document or agreement delivered by or on behalf
of Seller or the Seller Shareholder in connection therewith;
(b) the Retained Liabilities;
(c) without limiting the foregoing, any liabilities or obligations of, or
proceedings against, Parent, Buyer or their affiliates that arise from events
occurring or relating to any period(s) before the Closing, except those that
constitute Assumed Liabilities;
(d) without limiting the foregoing, any claim or proceeding against,
Parent, Buyer or their Affiliates from any stockholder or creditor of Seller or
Seller Shareholder or any of their Affiliates relating to, or that arise from
the Transactions or from events occurring or relating to any period(s) before
the Closing, except those for the collection of Assumed Liabilities.
(e) without limiting the foregoing, any claim or proceeding against, Parent
Buyer or their Affiliates from or relating to Computer Recyclers of America,
LLC.
10.3 INDEMNIFICATION BY PARENT AND BUYER. Parent and Buyer hereby agree,
jointly and severally, to indemnify, defend and hold Seller and its directors,
officers, employees, representatives, shareholders, managers, agents and
advisors harmless from, against and with respect to any and all Losses arising
out of, or related to any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement, including the Schedules and
exhibits hereto or any other document or agreement delivered by or on behalf of
Parent or Buyer in connection herewith.
10.4 PROCEDURES.
(a) Subject to Section 10.4(b), any claim for recovery pursuant to this
Article X will be made promptly after discovery of the circumstances underlying
such claim in a written statement signed by the Party seeking indemnification,
which will specify in reasonable detail each individual item of Loss and the
estimated amount thereof, the date such item of Loss arose or the facts giving
rise to such claim were discovered, the basis for any alleged liability and the
nature of the breach or claim to which each such item is related.
36
(b) The Party seeking indemnification will give the indemnifying Party(s)
prompt notice of any third party claim, action or proceeding which might give
rise to liability of the indemnifying Party(s) for indemnification hereunder. If
the indemnifying Party(s) contest any third party claim, it will have the option
to defend (retaining counsel reasonably acceptable to the indemnified Party), at
the indemnifying Party's expense, any such matter, provided that the indemnified
Party will have the right, at its own cost and expense, to participate in the
defense of such claim. However, notwithstanding the preceding sentence, (a) if
the indemnifying Party elects not to defend the claim, (b) elects to defend such
action with counsel not reasonably acceptable to the indemnified party, or (c)
if the claim has been brought or asserted against the indemnifying Party(s) as
well as the indemnified Party and such indemnified Party reasonably concludes
that there may be one or more factual or legal defenses available to it that are
in conflict with those available to the indemnifying Party(s) and the
indemnifying Party is unwilling to raise such defenses, then the indemnified
Party may elect to conduct its defense on its own behalf, in which case the
reasonable fees and expenses of the indemnified Party's counsel will be at the
expense of the indemnifying Party(s). In the latter event, the indemnified Party
may settle such claim, after giving notice of such proposed settlement to the
indemnifying Party, on such terms as the indemnified Party may reasonably deem
appropriate and no such action taken by the indemnified Party in defending or
settling such claim will release the indemnifying Party of any obligation
hereunder. Except under the circumstances described in the preceding sentence,
the indemnified Party will not enter into any settlement agreement without the
indemnifying Party's consent which will not be unreasonably withheld or delayed.
The indemnifying Party(s) will not, without the prior written consent of the
indemnified Party (which will not be unreasonably withheld), enter into any
settlement of a claim, if pursuant to or as a result of such settlement,
injunctive or other equitable relief will be imposed against the indemnified
Party or if such settlement does not expressly unconditionally release the
indemnified Party from all liabilities or obligations with respect to such
claim, with prejudice. The indemnified Party and the indemnifying Party(s) will
cooperate with the each other in the defense, compromise or settlement of any
claim for which indemnification is sought.
10.5 INDEMNIFICATION RECOVERY.
(a) If any Party gives written notice to the other Party of a Loss (other
than a third party claim) in the manner provided under this Agreement, and the
Parties are unable to reach a mutually acceptable resolution of such Loss within
twenty-one (21) days, the matter will be determined pursuant to the provisions
set forth in Section 10.5(c) below.
(b) Any payment made pursuant to this Article X may be treated as an
adjustment to the Purchase Price for purposes of US federal and state or
Canadian federal or provincial income Taxes. Any payment under this Article X
due from Seller or Seller Shareholder to Buyer or Parent, may, but is not
required to, be satisfied by setting off against the amounts payable to the
Seller under Section 1.2.
(c) At the time of delivery of notice of a claim of a Loss under Section
10.4(a), the Party against whom such claim is made will respond to the claiming
Party within fifteen (15) days following receipt of such notice. If there is no
dispute of such claim, the indemnifying Party will promptly make payment to the
other Party. Upon receipt of a disputed claim, the Party will deliver, in good
37
faith, to the claiming Party a written statement responding to the claim and
presenting the basis of reasonable dispute of the terms thereof. The Parties
will attempt in good faith to agree upon the rights of the respective Parties
with respect to each of such claims. If the Parties cannot agree upon a
settlement of any claim within thirty (30) days thereafter, the Parties will
submit such dispute to arbitration, as provided for in Section 12.11.
ARTICLE XI
TAX MATTERS
11.1 TAXES ON SALE. The responsibility for paying all transfer,
documentary, sales, use, registration, value-added, goods and services, and
other similar Taxes (including all applicable real estate transfer Taxes) and
related fees (including any penalties, interest and additions to Taxes
(collectively, "Transfer Taxes") incurred in connection with this Agreement and
the Transactions will be borne by Seller.
11.2 ALLOCATION OF PURCHASE PRICE AMONG ASSETS. The allocation of the
Purchase Price and Assumed Liabilities among the Purchased Assets (the
"Allocation") will be determined by Globalview Advisors LLC, subject to the
consent of Seller, whose consent shall not be unreasonably withheld. Buyer and
Seller will each use the Allocation in filing any Tax Returns or similar
reports, and each agrees not to take any position inconsistent therewith in
connection with any Tax audit or similar proceeding. If any Party receives
notice that a Governmental Agency disputes the Allocation, that Party will
promptly notify and consult with the other Party concerning the strategy for the
resolution of the dispute, and will keep the other Party apprised of the status
of the dispute and its ultimate resolution.
11.3 ACCOUNTS RECEIVABLE. Buyer and Seller agree to jointly execute an
election in the prescribed form under Section 22 of the Income Tax Act (Canada),
and any equivalent provision under applicable provincial tax legislation, with
respect to the sale of accounts receivable to Buyer pursuant to this Agreement
and to designate in such election an amount equal to the portion of the Purchase
Price allocated to such accounts receivable pursuant to Section 11.2.
11.4 DEFERRED REVENUE. To the extent that such an election is available,
Buyer and Seller agree to jointly elect under subsection 20(24) of the Income
Tax Act (Canada), and any equivalent provision under applicable provincial tax
legislation, in respect of amounts paid by Seller to Buyer, as set forth in
Section 11.2, in consideration for the assumption by Buyer of Seller's
obligations in respect of any undertaking described in subsection 20(24).
11.5 TAX ESCROW. Buyer shall place $70,000 in escrow with Reitler ▇▇▇▇▇ as
escrow agent for amounts payable to the CCRA pursuant to the escrow agreement in
the form set forth as Exhibit J. Pursuant to the terms of the escrow agreement,
such amount, minus any amounts that have been paid pursuant to such liability or
any amounts owing by Seller but as of yet unpaid pursuant to Article X shall be
promptly paid from Buyer to Seller Shareholder.
ARTICLE XII
GENERAL
12.1 ENTIRE AGREEMENT. All Exhibits and Schedules hereto will be deemed to
be incorporated into and made part of this Agreement. This Agreement, together
with the Exhibits and Schedules hereto and the Confidentiality Agreement,
38
contains the entire agreement among the Parties and there are no agreements,
representations, or warranties by any of the Parties hereto which are not set
forth herein. This Agreement may not be amended or revised except by a writing
signed by all the Parties.
12.2 EQUITABLE RELIEF; BINDING EFFECT. Seller and Seller Shareholder
recognizes that if Parent and Buyer's remedy at law for any breach of the
provisions of Sections 8.1, 8.2 and 8.3 would be inadequate and that for breach
of such provisions, Parent and Buyer will, in addition to such other remedies as
may be available to them at law or in equity or as provided in this Agreement,
be entitled to injunctive relief by an action for specific performance to the
extent permitted by law. This Agreement will be binding upon and inure to the
benefit of the Parties hereto and their respective successors and assigns;
provided, however, this Agreement and all rights hereunder may not be assigned
by Seller or Seller Shareholder except by prior written consent of Buyer or
assigned by Buyer except by prior written consent of Seller.
12.3 SEPARATE COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one Party, but all such counterparts taken together will constitute
one and the same Agreement. Facsimile signatures on counterparts of this
Agreement will be deemed original signatures.
12.4 TRANSACTION COSTS. Except as may be otherwise expressly set forth
herein, each Party to this Agreement will be responsible for his, her or its own
Transaction Costs; provided, however, that all such Transaction Costs of Seller
and the Seller Shareholder shall be either paid immediately at the Closing or be
explicitly assumed by the Seller Shareholder in a manner satisfactory to Buyer.
12.5 NOTICES. All notices, demands, consents or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given on the date mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or by a national overnight delivery service. Such notices, demands,
consents and other communications will be sent to Buyer and Seller at the
respective addresses indicated below:
(i) If to Buyer or Parent:
NTN Communications, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
39
with a copy to:
C. ▇▇▇▇▇ ▇▇▇▇▇
O'Melveny & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(ii) If to Seller:
with a copy to:
Reitler ▇▇▇▇▇ LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
(iii) If to the Seller Shareholder:
Chell Group Corporation, Inc.
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
with a copy to:
Reitler ▇▇▇▇▇ LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
unless and until notice of another or different address will be given as
provided herein.
12.6 NO DISCLOSURE WITHOUT CONSENT. No Party will issue any press release
related to this Agreement or the Transactions, or make any other announcements
(except to any employee on a "need to know" basis and other third Parties but
only to the extent necessary in order to consummate the Transactions and who are
informed of the confidential nature of such information) without the joint
approval of Buyer and Seller, except any public disclosure which Parent or Buyer
in its good faith judgment believes is required by Law or by any stock exchange
on which its securities are listed.
12.7 SEVERABILITY. The provisions of this Agreement are severable and the
invalidity of any provision will not affect the validity of any other provision.
12.8 CAPTIONS. The captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
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12.9 GOVERNING LAW. The execution, interpretation, and performance of this
Agreement will be governed by the law of the State of California (excluding any
conflicts of laws principles).
12.10 NO THIRD-PARTY BENEFICIARIES. The Parties hereto have entered into
this Agreement for their own benefit and do not intend to benefit any other
Person or entity thereby.
12.11 ARBITRATION.
(a) Other than with respect to Section 1.3, in the event the Parties
(meaning, for purposes of this section, Parent and/or Buyer on the one hand and
Seller and/or Seller Shareholder on the other hand) are unable to resolve a
disputed claim or claims, any of the Parties may request arbitration of the
matter unless the amount of the damage or loss is at issue in pending litigation
with a third party, in which event arbitration will not be commenced until such
amount is ascertained or all parties agree to arbitration; and in either such
event the matter will be settled by arbitration conducted by three arbitrators.
Parent and/or Buyer on the one hand and Seller and/or Seller Shareholder on the
other will each select one arbitrator, and the two arbitrators so selected will
select a third arbitrator. The arbitrators will set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the Parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing Parties about
the subject matter of the dispute. The arbitrators will rule upon motions to
compel or limit discovery and will have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrators determine that discovery was sought
without substantial justification or that discovery was refused or objected to
without substantial justification. The decision of a majority of the three
arbitrators as to the validity and amount of any claim will be binding and
conclusive upon the Parties to this Agreement. Such decision will be written and
will be supported by written findings of fact and conclusions which will set
forth the award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration will be held in Los Angeles
County, California under the rules then in effect of the American Arbitration
Association.
12.12 CURRENCY. All amounts in this Agreement are stated in United States
dollars, except where otherwise specifically noted.
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41
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as
of the date first above written.
NTN COMMUNICATIONS, INC.
By: ____________________________________
Name:
Title:
NTN CANADA, INC.
By: ____________________________________
Name:
Title:
NTN INTERACTIVE NETWORK, INC.
By: ____________________________________
Name:
Title:
CHELL GROUP CORPORATION INC.
By: ____________________________________
Name:
Title:
S-1
EXHIBIT A
DEFINITIONS
"Accrued Amounts" means the sum of (i) all amounts owed to Buyer or Parent
from Seller or its Affiliates as of the Closing Date, including, without
limitation, amounts owed to Parent with respect to the program content fee of
$183.75 per month for each active subscriber, the telephone fee of $10.00 per
month for each active subscriber, the production fee of $2,500.00 per month, the
data transmission fee of $2,000.00 per month and certain miscellaneous items,
all as set forth on Schedule 1.2 hereto, and (ii) the amount, if any, by which
the Negative Working Capital is less than negative $250,000 (for the avoidance
of doubt, (A) the amount of this clause (ii) shall be zero unless the Negative
Working Capital is less than negative $250,000 and (B) by way of example, if the
Negative Working Capital were negative $275,000, then the amount of this clause
(ii) would be positive $25,000).
"Adjusted Amount" is defined in Section 1.5.
"Affiliates" means any Person, firm, or corporation which directly, or
indirectly through one or more of intermediaries, controls, is controlled by, or
is under common control with, the Person specified.
"Agreement" is defined in the preamble.
"Allocation" is defined in Section 11.2.
"AMEX" is defined in Section 3.20.
"Assumed CCRA Liability" means the lesser of (i) $650,000 (in Canadian
dollars) or (ii) the liability, if any, to the Canadian Customs and Revenue
Agency regarding withholding tax on amounts previously paid by Seller to Parent
as set forth in the Canada Customs and Revenue Agency Appeal, May 15, 1996
Income Tax Ruling, File 912002.
"Assumed Liabilities" means the sum of the Assumed Other Liabilities and
the Assumed Non-Quantifiable Liabilities.
"Assumed Non-Quantifiable Liabilities" means (i) any Canadian government
required severance payments related to any Seller employees whose employment is
terminated following the Closing, (ii) the Assumed CCRA Liability, and (iii) any
amounts which may in the future be owed with respect to the Interactive Network
Litigation to the extent to which Parent has previously agreed to indemnify
Seller for such amounts.
"Assumed Other Liabilities" means (i) all obligations and liabilities
relating to the Purchased Assets accruing after the Closing Date and arising
from events occurring after the Closing Date; and (ii) liabilities and
obligations arising with respect to the Business, its employees and/or any of
the Purchased Assets and incurred with respect to the period prior to the
Closing Date and reflected on the Seller Financial Statements (excluding any
mortgage or other debt on the Leased Property).
A-1
"Assumed Working Capital" means the difference between (i) the amount of
the Purchased Assets that are current assets and (ii) the amount of the Assumed
Liabilities that are current liabilities, in each case as shown on the Seller
Closing Balance Sheet and consistent with Seller's past classification of assets
and liabilities over the preceding five years.
"Business" means all Seller's businesses, including, without limitation,
all businesses operated under the name "NTN Interactive Network, Inc." or
otherwise and all businesses involving interactive television, sports or trivia
game programs, together with the goodwill associated therewith, as conducted as
of the Closing Date and during the periods covered by the Financial Statements.
"Buyer" means NTN Canada, Inc., a New Brunswick corporation.
"Cash Distribution Date" is defined in Section 1.6.
"Closing" is defined in Section 1.4.
"Closing Date" is defined in Section 1.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" is defined in Section 8.3(a).
"Confidentiality Agreement" is defined in Section 9.2.
"Contracts" means any written or oral purchase or sales commitments,
financing or security agreements, warranties, guaranties, licenses (including,
without limitation, the Parent IP Licenses and any licenses relating to the
Seller Intellectual Property), franchises, repurchase agreements, agency
agreements, customer agreements, supplier agreements, representative agreements,
commission agreements, employment or collective bargaining agreements,
independent contractor agreements, insurance policies, and leases of real or
personal property, related to the Business to which Seller is a party or is
bound, including any oral or unwritten amendment, waivers, or legally binding
understandings with respect thereto.
"Deposit Account" means a demand, time, savings, passbook, checking or like
account with a bank, savings and loan association, credit union or like
organization.
"Direct Deposit Account" has the meaning ascribed to such term in Section
2.29.
"Encumbrances" means liens, mortgages, pledges, security interests,
restrictions, assignments, options, encumbrances, charges, agreements, or claims
of any kind, except (a) liens for Taxes, assessments, governmental charges or
levies not due or payable as of the Closing; (b) material men's, mechanics',
carriers', warehouse men's, landlords', workmen's, repairmen's, employees' or
other similar liens arising in the Ordinary Course provided that such liens are
related to obligations not due or delinquent, are not registered against title
to any Purchased Assets and in respect of which adequate holdbacks are being
maintained as required by applicable Law; (c) any restrictions on transfer
imposed by applicable Laws; or (d) any imperfections of title, liens, security
interests, claims and other charges and encumbrances the existence of which do
not, individually or in the aggregate, have a Material Adverse Effect.
A-2
"ERISA" is defined in Section 2.15.
"ERISA Affiliate" is defined in Section 2.15.
"Exchange Act" is defined in Section 3.8
"Excluded Assets" means the Leased Property and the assets listed on
Schedule 1.1.
"Filings" means all filings, reports, notices, certificates, forms or other
documents filed with or submitted to Governmental Agencies.
"GAAP" means U.S. generally accepted accounting principle, applied on a
consistent basis (except as may be disclosed therein or in the notes thereto).
"Governmental Agencies" means United States federal and state, Canadian
federal and provincial and local governments, and their subdivisions,
instrumentalities, departments, agencies, courts, tribunals or other bodies.
"Hazardous Substance" is defined in Section 2.27.
"Intellectual Property" means any or all of the following in any
jurisdiction: (i) all proprietary software; (ii) all patents and applications
therefore and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, reexaminations, and extensions
thereof, any counterparts claiming priority therefrom, utility models, patents
of importation/confirmation, certificates of invention, certificates of
registration and like statutory rights; (iii) all inventions (whether patentable
or not), invention disclosures, improvements, trade secrets, proprietary
information, processes, formulae, technology, technical information, data and
customer lists, engineering procedures and all documentation relating to any of
the foregoing; (iv) all works of authorship, whether or not copyrightable,
copyrights, copyright registrations and pending copyright registration
applications and mask works, and all other rights corresponding thereto; (v) all
industrial designs and any registrations and applications therefore; (vi) all
trade names, corporate names, logos, URLs and other network and email
identifiers, trade dress, common law trademarks and service marks, brand names,
trademark and service ▇▇▇▇ registrations and applications therefore, including,
without limitation, any of the foregoing incorporating "NTN"; (vii) all software
(excluding "shrink wrapped" software which is generally available to the
public), (viii) customer lists, mailing lists, supplier lists or know-how (ix)
all databases and data collections and all rights therein; (x) any similar or
equivalent rights to any of the foregoing; (xi) all moral and similar rights of
approval or attribution; (xii) claims, causes of action or defenses relating to
the enforcement of any of the foregoing; and (xiii) goodwill associated with the
foregoing.
"Interactive Network Litigation" means the litigation involving Seller,
Parent and Interactive Network, Inc. relating to events occurring prior to the
Closing.
A-3
"Inventory" means all of Seller's inventory of all goods used or useful in
the Business, including all of Seller's right, title, and interest in and to
such goods, whether located at Seller's place of business or elsewhere.
"Knowledge" of Seller means the actual knowledge after reasonable inquiry
of Seller's personnel responsible for the subject matter in question. Seller
shall be deemed to have actual knowledge of a particular fact, circumstance,
event or other matter if such knowledge could be obtained from reasonable
inquiry of the management or supervisory personnel employed by Seller charged
with administrative or operational responsibility for such matters for Seller.
"Law" means any statute, rule, regulation or other provision of law, or any
order, judgment or other direction of a court or other tribunal, or any other
governmental requirement.
"Lease" means a lease for the Leased Property in the form attached as
Exhibit G.
"Leased Property" means the real property located at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇.
"Locations" is defined in Section 8.1.
"Loss" and "Losses" is defined in Section 10.2.
"Material Adverse Effect" means, with respect to each Party or the
Business, a material adverse effect on the assets, liabilities, results of
operations, condition (financial or other), business or prospects of such Party
or the Business, respectively.
"Material Contracts" is defined in Section 2.10.
"Negative Working Capital" means the amount, if any, by which the Assumed
Working Capital is less than zero. It is to be expressed as a negative number,
for example, if the Assumed Working Capital were negative $10,000, the Negative
Working Capital would be negative $10,000. For the avoidance of doubt, if the
Assumed Working Capital were positive $10,000, then the Negative Working Capital
would be zero.
"NTN Shares" is defined in Section 1.2(d).
"Ordinary Course" means the ordinary and usual course of the conduct of the
Business substantially as currently conducted and conducted in the past.
"Parent" means NTN Communications, Inc., a Delaware corporation.
"Parent IP Licenses" means all licenses from Parent or any of its
Affiliates to Seller or any of its Affiliates relating to any Intellectual
Property.
"Parent Common Stock" is defined in the preamble.
"Parties" means the parties to this Agreement and any successors or
assignees thereto.
A-4
"Pension Plan" is defined in Section 2.15.
"Permits" means all permits, registrations, licenses, authorizations,
consents, approvals, or waivers from Governmental Agencies necessary for the
conduct of the Business.
"Person" shall be construed as broadly as possible and shall include an
individual, a partnership (including a limited liability partnership), a
corporation, an association, a joint stock company, a limited liability company,
a trust, a joint venture, an unincorporated organization and a Governmental
Agency.
"Personal Property" means all equipment, machinery, computers, furniture,
leasehold improvements, vehicles, molds and other personal property owned,
leased or otherwise held by Seller used or useful in the Business, and all
right, title and interest of Seller therein.
"Plan" means any pension, benefit, welfare, retirement, profit-sharing,
deferred compensation, medical, dental, health, disability, bonus, option,
incentive, insurance or other benefit plan or arrangement or practice covering
any employee of Seller maintained, sponsored or funded by Seller or Seller
Shareholder, whether written or oral, funded or unfunded, insured or
self-insured, registered or unregistered.
"Proceeding" means any action, suit, investigation or proceeding, whether
at law or in equity, whether civil or criminal in nature, before any
Governmental Agency or arbitrator.
"Proprietary Software" means all data files, source and object codes, user
interfaces, manuals, programming notes and instructions, databases and other
specifications and documentation related to the following software products:
▇▇▇▇ Xpress Vu, Fantasy Sports Services, Entertainment Channel, Interactive
Events, and all original trivia content incorporated in any Seller product or
service, and all customized versions and upgrades and modifications thereof.
"Purchase Price" is defined in Section 1.2.
"Purchased Assets" means the Business and all assets and property of
Seller, real or personal, tangible or intangible, used in or in connection with
the Business, including without limitation all of Seller's right, title, and
interest in, to, and under the following:
(a) all cash and cash equivalents, including all amounts pursuant to
Section 4.4;
(b) all Inventory;
(c) all accounts receivable, notes receivable and any other amounts
payable to Seller in connection with the Business;
(d) all vendor credits, price adjustments or related rights, rebates,
pre-paid expenses and deposits with suppliers and others;
A-5
(e) all leasehold interests, improvements, and associated fixtures and
interests, used or useful in the Business (including but not limited to the
Lease);
(f) all Personal Property;
(g) all office and other supplies, tools, spare parts, and
maintenance, advertising, and promotional materials used or useful in the
Business;
(h) all Intellectual Property (including but not limited to the Seller
Intellectual Property and the Proprietary Software) used or useful in the
Business;
(i) Seller's rights under any loan by Seller to any employee, officer,
director, agent or shareholder of Seller;
(j) Seller's deposit and security accounts;
(k) all rights in and under Contracts or Parent IP Licenses;
(l) all Permits used in or required for the lawful conduct of the
Business,
(m) all records relating to operations, such as diagrams, construction
data, blueprints, instruction manuals, maintenance manuals, reports and
similar documents used or useful in the Business;
(n) all causes of action, complaints and rights currently in
litigation or which could result in litigation which would or could benefit
the Business;
(o) all goodwill arising out of or associated with the Business; and
(p) any assets shown on any Schedule.
Such term, however, shall not include the Excluded Assets.
"Registration Expenses" is defined in Section 7.5.
"Required Consents" is defined in Section 2.10(a).
"Retained Liabilities" means any debts, liabilities, mortgages,
commitments, and/or obligations of Seller of any kind or nature whatsoever,
whether absolute or contingent, liquidated or unliquidated, and whether or not
accrued, matured, known, or suspected, that are not Assumed Liabilities,
including but not limited to (a) liabilities related to any Taxes of Seller or
A-6
relating to the Business attributable to periods (or portions of periods) ending
on or before the Closing Date; (b) liabilities for violations of environmental
Laws or relating to Hazardous Substances occurring on or before the Closing; (c)
liabilities for the indemnification of officers, directors or employees; (d)
liabilities in connection with any independent contractor or consultant engaged
by Seller being deemed an "employee", including but not limited to withholding
obligations, pension, welfare or other insurance benefits, vacation or sick
leave or severance payments; (e) fees and expenses of Seller in connection with
the Transactions and any Transaction Costs of the Seller and the Seller
Shareholder; (f) liabilities for borrowed money, including interest accrued or
payable thereon; (g) other than accounts payable, liabilities relating to the
conduct of the Business before the Closing Date; (h) all liabilities and
obligations under the Plans, up to and including the Closing Date; (i)
liabilities and obligations with respect to any stock option plans of Seller;
(j) any claims for product warranty, product liability, refunds, returns,
personal injury and property damage, and all other liabilities and obligations,
relating to products sold or services provided by Seller on or prior to the
Closing Date; (k) liabilities arising from employees of Seller incorrectly being
categorized or treated as "exempt" under federal and state wage and hour laws;
(l) liabilities for salary, wages, bonuses, commissions, vacation pay and other
compensation relating to the employment of the employees in the Business prior
to the Closing Date and all liabilities under or in respect of the Plans; (m)
liabilities for all employment related claims, penalties and assessments in
respect of the Business arising out of matters which occurred prior to the
Closing Date; (n) liabilities for any shut down or layoff costs; and (o) any
other liabilities which are not expressly assumed by Buyer, including but not
limited to any liability with respect to sales tax liability with respect to the
Business that accrued prior to the Closing Date, including any applicable
interest and penalties.
"SEC" means the Securities and Exchange Commission or any other
Governmental Authority at the time administering the Securities Act.
"SEC Materials" is defined in Section 3.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means NTN Interactive Network, Inc., a Canada corporation.
"Seller Closing Balance Sheet" is defined in Section 1.5.
"Seller Financial Statements" means (i) an audited balance sheet of Seller
as of August 31, 2000, August 31, 2001 and August 31, 2002 and the unaudited
October 31 Balance Sheet and the unaudited Seller Closing Balance Sheet, and
(ii) an audited statement of operations for Seller for the 12-month periods
ended on August 31, 2000, August 31, 2001 and August 31, 2002 and an unaudited
statement of operations for Seller for the 12-month periods ended on August 31,
2003.
"Seller Intellectual Property" is defined in Section 2.12(b).
"Seller October 31 Balance Sheet" means a balance sheet and income
statement for the Seller as of October 31, 2003, a copy of which is attached
hereto as Exhibit D.
"Seller Shareholder" is defined in the preamble.
A-7
"Selling Expenses" means all fees of counsel to Seller, underwriting
discounts, selling commissions and stock transfer taxes applicable to the sale
of the NTN Shares pursuant to the registration statement.
"Significant Partner" is defined in Section 2.25.
"Significant Supplier" is defined in Section 2.25.
"Taxes" means all U.S. federal and state, Canadian federal and provincial,
and foreign, local, and other charges of any kind whatsoever imposed by any
Governmental Agency, together with all interest, penalties, fines, additions to
tax or other additional amounts imposed in respect thereof, including those
levied on, or measured by, or referred to as income, gross receipts, profits,
capital, transfer, land transfer, sales, goods and services, harmonized sales,
use, value-added, excise, stamp, withholding, business, franchising, property,
employer health, payroll, employment, health, social services, education and
social security taxes, all surtaxes, all customs duties and import and export
taxes, all license and registration fees and all employment insurance, health
insurance and government pension plan premiums or contributions.
"Tax Returns" means US, Canadian, foreign, state, provincial, local, and
other tax returns and reports.
"Termination Date" is defined in Section 9.1(d).
"Territory" means any state or province located in Canada.
"Threatened" means, with respect to an action, proceeding or other matter,
that any demand or statement has been made (orally or in writing) or any notice
has been given (orally or in writing), or that any other event has occurred or
any other circumstances exist, that would lead a reasonable Person to conclude
that such proceeding or other matter is likely to be asserted, commenced, taken,
or otherwise pursued in the future.
"Transaction Costs" means legal, accounting and other expenses, if any,
attendant to the negotiation and drafting of this Agreement and to the
Transactions.
"Transactions" is defined in Section 1.1(a).
"Transfer Taxes" is defined in Section 11.1.
A-8
EXHIBIT B
▇▇▇▇ OF SALE
THIS ▇▇▇▇ OF SALE is made this 15 day of December, 2003, by NTN Interactive
Network, Inc., a Canada corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as of
December 15, 2003, (the "Purchase Agreement"), by and among Seller, NTN Canada,
Inc., a New Brunswick corporation (the "Buyer"), NTN Communications, Inc., a
Delaware corporation (the "Parent"), and Chell Group Corp., a New York
corporation party thereto, Seller agreed to sell to Buyer and Buyer agreed to
purchase from Seller the Purchased Assets. All terms used herein without
definition shall have the meanings given such terms in the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged and intending to be legally bound
hereby, Seller does hereby unconditionally and irrevocably sell, assign,
transfer, convey and deliver to Buyer, its successors and assigns, all of
Seller's legal, beneficial and other right, title and interest in and to the
Purchased Assets.
Seller hereby represents and warrants that the Purchased Assets are hereby
transferred to Buyer free and clear of all debts, liens, security interests,
mortgages, trusts, claims, or other liabilities or encumbrances whatsoever. The
representations and warranties contained in the Purchase Agreement relating to
the Purchased Assets are incorporated herein by this reference, subject to the
limitations upon survival, indemnification and other matters relating to such
representations and warranties set forth in the Purchase Agreement which are
also incorporated herein by this reference.
Seller, for itself and its successors and assigns, hereby covenants and
agrees that, without further consideration, at any time and from time to time
after the date hereof, it will execute and deliver to Buyer such further
instruments of sale, conveyance, assignment and transfer, and take such other
action, all upon the reasonable request of Buyer, in order more effectively to
convey, assign, transfer and deliver all or any portion of the Purchased Assets
to Buyer and to assure and confirm to any other Person the ownership of the
Purchased Assets by Buyer, and to permit Buyer to exercise any of the
franchises, rights, licenses or privileges intended to be sold, conveyed,
assigned, transferred and delivered by Seller to Buyer pursuant to this ▇▇▇▇ of
Sale.
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B-1
IN WITNESS WHEREOF, Seller has caused this ▇▇▇▇ of Sale to be executed and
delivered as of the day and year first above written.
NTN INTERACTIVE NETWORK, INC.
By: ______________________________
Name:
Title:
B-2
EXHIBIT C
OPINIONS TO BE PROVIDED BY SELLER'S COUNSEL
(a) Seller is a corporation validly existing and in good standing under the
laws of its jurisdiction of incorporation with the corporate power to own its
properties and assets.
(b) Seller has the corporate power to enter into and to perform its
obligations under the Agreements to which it is a party.
(c) The execution, delivery and performance by the Seller of the Agreements
to which it is a party have been duly authorized by all necessary corporate
action on its part, and no other corporate proceeding on its part or on the part
of its shareholders is required for such purpose. The Agreements to which Seller
is a party have been duly executed and delivered by Seller.
(d) The execution and delivery by Seller of, and performance of its
obligations on or prior to the date of this opinion under, the Agreements to
which Seller is a party, do not and will not (i) violate Seller's Articles of
Incorporation or Bylaws, (ii) violate, breach, or result in a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the Purchased Assets, under any existing obligation of or restriction on
Seller under any agreement to which it is a party, or (iii) breach or otherwise
violate any existing obligation of or restriction on Seller under any order,
judgment or decree of any Canadian governmental authority binding on Seller.
(e) No order, consent, permit or approval of any Canadian Governmental
Agency that we have, in the exercise of customary professional diligence,
recognized as applicable to Seller or to transactions of the type contemplated
by the Agreements to which Seller is a party is required on the part of Seller
for the execution and delivery of, and performance of its obligations on or
prior to the date of this opinion under, the Agreements to which Seller is a
party.
C-1
EXHIBIT D
OCTOBER 31 BALANCE SHEET