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Asset Purchase Agreement
by and among
NTN Software Solutions, Inc.,
NTN Communications, Inc.,
Breakaway International, Inc.,
and the Seller Shareholders
dated as of
July 30, 2003
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TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE; CLOSING......................................2
1.1 PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES..........2
1.2 PURCHASE PRICE..................................................2
1.3 ADDITIONAL PAYMENTS.............................................3
1.4 CLOSING.........................................................5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER
SHAREHOLDERS....................................................5
2.1 ORGANIZATION AND POWER..........................................5
2.2 AUTHORIZATION; BINDING EFFECT, ETC..............................6
2.3 NO VIOLATION....................................................6
2.4 FINANCIAL STATEMENTS............................................6
2.5 LIABILITIES.....................................................6
2.6 ABSENCE OF CHANGES..............................................7
2.7 PERSONAL PROPERTY...............................................8
2.8 TITLE TO PURCHASED ASSETS; NO ENCUMBRANCES; SUFFICIENCY.........8
2.9 TAXES...........................................................8
2.10 CONTRACTS.......................................................8
2.11 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.......................10
2.12 INTELLECTUAL PROPERTY..........................................10
2.13 PERMITS; COMPLIANCE WITH LAW...................................12
2.14 EMPLOYEES......................................................13
2.15 EMPLOYEE PLANS AND BENEFITS....................................13
2.16 INSURANCE......................................................14
2.17 TRANSACTIONS WITH AFFILIATES...................................15
2.18 BOOKS AND RECORDS..............................................15
2.19 OPERATION OF BUSINESS IN ORDINARY COURSE.......................15
2.20 LITIGATION.....................................................16
2.21 APPROVALS......................................................16
2.22 INVESTMENT INTENT..............................................16
2.23 INVESTMENT EXPERIENCE; DISCLOSURE OF INFORMATION...............17
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2.24 CUSTOMERS, SUPPLIERS AND PARTNERS..............................17
2.25 INVENTORY......................................................17
2.26 ENVIRONMENTAL COMPLIANCE.......................................17
2.27 DISCLOSURE.....................................................18
ARTICLE III REPRESENTATIONS OF PARENT AND BUYER............................18
3.1 ORGANIZATION AND POWER.........................................18
3.2 AUTHORIZATION; BINDING EFFECT, ETC.............................18
3.3 NO VIOLATION...................................................19
3.4 CHARTER, BY-LAWS AND RESOLUTIONS...............................19
3.5 NTN SHARES.....................................................19
3.6 PRIVATE SALE...................................................19
3.7 APPROVALS......................................................19
3.8 TAX REPRESENTATIONS............................................19
ARTICLE IV PRE-CLOSING COVENANTS..........................................20
4.1 CLOSING CONDITIONS.............................................20
4.2 CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE..................20
4.3 PRE-CLOSING SALES GENERATED BY PARENT OR BUYER.................22
ARTICLE V CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS....................22
5.1 DELIVERY OF DOCUMENTS OF TRANSFER..............................22
5.2 REPRESENTATIONS AND WARRANTIES.................................22
5.3 SELLER'S CERTIFICATE...........................................22
5.4 SELLER'S PERFORMANCE...........................................23
5.5 NO MATERIAL ADVERSE EFFECT.....................................23
5.6 APPROVALS......................................................23
5.7 NO ORDERS; LEGAL PROCEEDINGS; NO INSOLVENCY....................23
5.8 APPROVAL OF DOCUMENTATION......................................23
5.9 RELATED AGREEMENTS.............................................24
5.10 CHARTER, BY-LAWS AND MINUTES...................................24
5.11 PAYOFF LETTERS.................................................24
ARTICLE VI CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS...................24
6.1 REPRESENTATIONS AND WARRANTIES.................................24
6.2 PARENT AND BUYER'S CERTIFICATE.................................24
6.3 APPROVAL OF DOCUMENTATION......................................25
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6.4 RELATED AGREEMENTS.............................................25
6.5 CHARTER, BY-LAWS AND MINUTES...................................25
6.6 APPROVALS......................................................25
6.7 NO ORDERS; LEGAL PROCEEDINGS; NO INSOLVENCY....................25
ARTICLE VII REGISTRATION OF NTN SHARES.....................................25
7.1 MANDATORY REGISTRATION.........................................25
7.2 REGISTRATIONS ON FORM S-3......................................25
7.3 RIGHT TO DEFER REGISTRATION....................................26
7.4 RIGHT TO PIGGYBACK REGISTRATIONS...............................26
7.5 REGISTRATION PROCEDURES........................................26
7.6 SUSPENSION OF PROSPECTUS.......................................28
7.7 REGISTRATION EXPENSES..........................................28
7.8 PAYMENT........................................................28
7.9 INDEMNIFICATION BY PARENT......................................28
7.10 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES...........29
7.11 NOTICE; DEFENSE OF CLAIMS......................................29
7.12 CONTRIBUTION...................................................29
7.13 SURVIVAL.......................................................30
7.14 UNDERWRITING AGREEMENT.........................................30
7.15 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS....................30
7.16 MARKET STAND-OFF AGREEMENT; LOCK-UP............................30
7.17 TRANSFER OF REGISTRATION RIGHTS................................30
7.18 TERMINATION OF REGISTRATION RIGHTS.............................30
7.19 REPORTS UNDER THE EXCHANGE ACT.................................31
ARTICLE VIII POST-CLOSING COVENANTS.........................................31
8.1 COVENANT NOT TO COMPETE........................................31
8.2 RESTRICTIONS ON SOLICITING EMPLOYEES...........................32
8.3 CONFIDENTIALITY................................................32
8.4 REASONABLENESS OF RESTRICTIONS AND ENFORCEABILITY..............32
8.5 SEVERABLE COVENANTS............................................33
8.6 PAYMENTS RECEIVED BY SELLER AFTER THE CLOSING..................33
8.7 TAX COVENANTS..................................................33
8.8 REPURCHASE.....................................................33
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ARTICLE IX TERMINATION....................................................34
9.1 TERMINATION....................................................34
9.2 EFFECTS OF TERMINATION.........................................35
ARTICLE X INDEMNIFICATION................................................35
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND
AGREEMENTS.....................................................35
10.2 INDEMNIFICATION BY SELLER AND SELLER SHAREHOLDERS..............36
10.3 TAX MATTERS....................................................36
10.4 INDEMNIFICATION BY PARENT AND BUYER............................36
10.5 PROCEDURES.....................................................36
10.6 INDEMNIFICATION RECOVERY.......................................37
ARTICLE XI TAX MATTERS....................................................38
11.1 TAXES ON SALE..................................................38
11.2 TAX ALLOCATION.................................................38
11.3 TAX TREATMENT..................................................38
ARTICLE XII GENERAL........................................................38
12.1 ENTIRE AGREEMENT...............................................38
12.2 EQUITABLE RELIEF; BINDING EFFECT...............................39
12.3 SEPARATE COUNTERPARTS..........................................39
12.4 TRANSACTION COSTS..............................................39
12.5 NOTICES........................................................39
12.6 NO DISCLOSURE WITHOUT CONSENT..................................40
12.7 SEVERABILITY...................................................40
12.8 CAPTIONS.......................................................41
12.9 GOVERNING LAW..................................................41
12.10 NO THIRD-PARTY BENEFICIARIES...................................41
12.11 ARBITRATION....................................................41
EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Xxxx of Sale
EXHIBIT C Preliminary Balance Sheet
EXHIBIT D Sophisticated Purchaser Questionnaire
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of July 30, 2003 by and among NTN Software Solutions, Inc., a Delaware
corporation (the "Buyer"), NTN Communications, Inc., a Delaware corporation (the
"Parent"), Breakaway International, Inc., a Texas corporation (the "Seller"),
and Xxxx X. Xxxx XX, Xxxxxx X. Xxxxx, Xx., Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxx and
Xxxx X. Xxxxxxx, constituting all of the shareholders of Seller (the "Seller
Shareholders"). 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 all of the assets
used or useful in Seller's business relating to point-of-sale, restaurant
reservation and table seating management software solutions for the food service
industry, together with the goodwill associated therewith;
WHEREAS, as consideration for the acquisition of assets and goodwill, Buyer
will (i) assume certain liabilities of Seller, (ii) issue to Seller $2,2750,000
in shares of unregistered common stock, $.005 par value per share, of Parent
(the "Parent Common Stock"), (iii) pay to Seller $25,000 in cash (the "Seller
Notes");
WHEREAS, Parent will file a registration statement on Form S-3 covering the
resale of the unregistered shares of Parent Common Stock issued hereunder within
30 days of the Closing Date;
WHEREAS, in order to induce Seller to sell the assets and goodwill, Buyer
will pay to the Seller additional payments as provided herein;
WHEREAS, in connection with the purchase of such assets, Buyer will enter
into Employment Agreements with Xxxx Xxxx, Xxx Xxxxx, Xxxx Xxxxx, Xxxx Xxxxxxx
and Xxxxx Rock;
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
Shareholders have agreed to be bound by non-competition, non-solicitation and
confidentiality provisions as set forth in this Agreement;
WHEREAS, for federal tax purposes, the transactions contemplated or
required by this Agreement are intended to qualify as a reorganization under the
provisions of Code Section 368(a); and
WHEREAS, Seller shall distribute the stock, securities and other properties
it receives from Buyer, as well as its other properties, to the Seller
Shareholders pursuant to the plan of reorganization.
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 (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.
(c) Seller shall distribute the stock, securities and other properties
it receives from Buyer, as well as its other properties, to the Seller
Shareholders pursuant to the plan of reorganization.
1.2 PURCHASE PRICE. Buyer will pay to Seller at the Closing (except with
respect to the Adjustment Amount, which will be paid at such time as set forth
in paragraph (g)) an aggregate purchase price (the "Purchase Price") consisting
of:
(a) the assumption of the Assumed Liabilities by Buyer;
(b) $25,000 in cash, as adjusted by the Adjustment Amount;
(c) an amount of shares of Parent Common Stock equal in value to
$2,275,000, valued on the Closing Date at the lesser of a 50-day trailing
average or $1.75 per share; provided, however, that the assigned value
shall not be more than $0.30 per share below the market price on the
business day immediately prior to the Closing Date (the "NTN Shares");
provided, that the Seller agrees that Buyer may deliver the certificate
evidencing such NTN Shares as soon as commercially practicable after the
Closing; and
(d) the amount of $157,260.45 to Xxxxxx X. Xxxxx, Xx. and $70,000.68
to Xxxx X. Xxxx, XX, in respect of full satisfaction of obligations
outstanding, including all principal and interest, under the Seller Notes.
(e) In the event that on the Closing Date, the Assumed Liabilities as
determined by the Closing Date Balance Sheet are different than the Assumed
Liabilities as determined by the Preliminary Balance Sheet, the Purchase
Price will be adjusted, on a dollar for dollar basis, by the difference
such that if the Assumed Liabilities as determined by the Closing Date
Balance Sheet exceeds the Assumed Liabilities as determined by the
Preliminary Balance Sheet the cash payment set forth in Section 1.2(b) will
be decreased by such amount and that if the Assumed Liabilities as
determined by the Closing Date Balance Sheet is less than the Assumed
Liabilities as determined by the Preliminary Balance Sheet the cash payment
set forth in Section 1.2(b) shall be increased by such amount (the
"Adjustment Amount").
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(f) Adjustment Procedure.
(1) Closing Date Balance Sheet. Within 60 days after the Closing,
Buyer will deliver to Seller a balance sheet of the Business as of the
Closing Date (the "Closing Date Balance Sheet") and the Adjustment
Amount, if any. If, within 15 days after these deliveries, Seller has
not given Buyer notice of its objection to the computation of the
Closing Date Balance Sheet (along with a reasonably detailed statement
of the bases for the objection), the Closing Date Balance Sheet and
the computation of any Adjustment Amount will be binding on the
Parties.
(2) Objection. If Seller gives notice of objection to the Closing
Date Balance Sheet or the computation of any Adjustment Amount, and
the Parties do not resolve their differences within ten (10) days
after the notice is given, the issues in dispute will be immediately
submitted to independent accountants selected by Buyer but agreed to
by Seller, whose consent shall not be unreasonably withheld (the
"Accountants") for resolution. Under such circumstances, (A) each
Party, within ten (10) days following the expiration of the initial
ten-day period, will furnish the Accountants with a statement of its
position and any supporting work papers, computations and written
arguments and any other documents and information relating to the
disputed issues the Accountants request; (B) the Accountants will make
their determination based solely on the materials submitted by the
Parties and any oral presentations the Accountants decide to allow and
not on any independent review; (C) the Accountants shall provide a
written statement of determination that will be binding and conclusive
on the Parties; and (D) Buyer and Seller will each bear one-half of
the amount of the Accountants' fees and expenses.
(g) Payment. The Parties acknowledge that the payment of the
Adjustment Amount will be in cash as soon as practicable after the
Adjustment Amount has been determined.
1.3 ADDITIONAL PAYMENTS.
(a) In addition to the consideration set forth in Section 1.2, Buyer
shall pay to the Seller contingent payments ("Contingent Payments") as
follows:
(1) Baseline Year Payment. Buyer will pay to the Seller a
Contingent Payment in the amount of two (2) times the excess of (i)
60% of EBT for the period July 1, 2003 through June 30, 2004 over (ii)
$398,809.71 (the "First Baseline Year"); and
(2) Second Year Payment. Buyer will pay to the Seller a
Contingent Payment in the amount of 30% of the excess of (x) EBT for
the period July 1, 2004 through June 30, 2005 (the "Second Baseline
Year"), over (y) the amount equal to the product of (a) EBT for the
First Baseline Year multiplied by (b) 1.25; and
(3) Third Year Payment. Buyer will pay to the Seller a Contingent
Payment in the amount of 30% of the excess of (x) EBT for the period
July 1, 2005 through June 30, 2006, over (y) the amount equal the
product of (a) EBT for the Second Baseline Year multiplied by (b)
1.25.
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(b) The amounts described in Section 1.3(a) shall be determined, as
therein provided, within 50 days following the close of each of the three
applicable Baseline Years in question. Any undisputed portion thereof shall
be paid within 65 days following the close of the applicable Baseline Year
in question. In each instance, determination of such amount shall be made
in accordance with the terms of this Section 1.3(b) by the auditors
regularly employed to audit the books of account and financial statements
of Buyer, but the Seller shall be entitled, at the Seller's election and at
the Seller's own expense, to employ a certified public accountant of the
Seller's choosing to participate in and review such determination, and
Buyer shall cause its auditors to fully cooperate with such accountants and
furnish such accountants with copies of all relevant work papers and other
information relating to the determination of such amounts. In the event
that Buyer and the Seller are unable to agree on the amount due under any
Contingent Payment hereunder within 120 days of the end of the applicable
Baseline Year, the independent accountants of Buyer and the Seller are to
mutually select a third independent accountant which shall calculate the
Contingent Payment then due. The Parties agree that the determination of
such third accounting firm shall be final and binding, and the Parties
shall share equally the expenses incurred in connection with the third
accounting firm's employment. The date of such determination made in
accordance with this Section 1.3(b) shall be the "Determination Date".
(c) The Seller shall receive the Contingent Payments in the form of
Parent Common Stock. The Seller will receive that number of shares of
Parent Common Stock equal to the nearest whole number that is the fraction,
(i) the numerator of which is the amount due in respect of such Contingent
Payment, and (ii) the denominator of which is the market price of Parent
Common Stock on the Determination Date (the "Contingent NTN Shares");
provided, however that within 25 days following the close of each of the
three applicable Baseline Years the Seller, upon written notice to Buyer
and Parent, may elect to receive up to 20% of that year's payment described
in Section 1.3(a) in cash in lieu of that amount of Parent Common Stock.
(d) During the periods of the Contingent Payments, the Business shall
be managed generally in accordance with the business principles and
practices employed in the management of Parent's business relating to
software solutions for the food service industry, with a view to the
achievement of reasonable growth objectives in both sales and earnings;
provided, however, that Parent and Buyer shall be obligated only to operate
the Business in a manner which is consistent with Parent's corporate policy
considered on a consolidated basis, and in a manner consistent with
Parent's consolidated strategy, policies, practices and resources. As an
example of the foregoing principles, opportunities for growth of the
Business may be rejected if they do not appear more desirable, from a
consolidated viewpoint, than other opportunities which may be available to
Parent or Buyer for the employment of Parent or Buyer's limited financial
resources. This Agreement shall impose no obligation upon Parent or Buyer
to contribute additional capital to Buyer or to select investments for
financial support of Buyer. Parent may cause Buyer to reimburse Parent or
one of Parent's other subsidiaries for the direct additional costs incurred
by Parent or such other subsidiary for services rendered directly to Buyer,
provided that the costs so reimbursed shall be reasonable in amount in
relationship to Buyer's needs, shall be for services reasonably required by
Buyer and actually furnished by Parent or one of its affiliates, and shall
not exceed the cost which would have been incurred by Buyer if it had
obtained such services from qualified and reputable external contractors.
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(e) In the management of the affairs of Buyer, Parent and Buyer shall
employ their business judgment in a manner consistent with the obligations
of the management and directors of Parent taken as a whole. Neither Parent
nor Buyer shall have any liability to the persons entitled to Contingent
Payments for any decision made or any course of action selected by Parent
or Buyer with respect to the affairs of Buyer or the conduct of the
Business, except for bad faith or willful abuse of Parent or Buyer's
discretion in connection with such affairs.
(f) Interest on inter-company balances between Parent and Buyer shall
be at Parent's weighted average cost of borrowing; provided that if Buyer
shall have paid dividends to Parent, subsequent loans of advances by Parent
shall be treated as a return of such dividends, to the extent thereof.
(g) If at any time Parent shall determine that it is in the best
interests of Parent, considered as a whole, to dispose of all or
substantially all the assets of the Business, then Parent may dispose of
all or substantially all of such assets, and in such event, if Seller (or
its designee) has not exercised its rights to purchase all or substantially
all of the assets of the Business pursuant to Section 8.8(b), Parent shall
pay to the Seller an amount determined by disinterested appraisers as the
fair present value of the reasonably expected Contingent Payments payable
to the Seller in respect of Buyer or (as the case may be) the assets in
question otherwise to have been paid. Said appraisers shall be a nationally
recognized investment banking firm chosen by Buyer and by the Seller; but
if Buyer and Seller are unable to agree on an investment banking firm to
act as appraiser, then Buyer and the Seller shall each select such a firm
and the two firms so selected shall select a third nationally recognized
investment banking firm to act as appraisers. The findings of the
appraisers so selected shall be final and binding on the Parties, and the
fees and expenses of such appraisers and of the firms employed to choose
such appraisers shall be paid by Buyer.
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., 0000 Xx Xxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, on
July 31, 2003, or at such other time and/or place as the Parties hereto may
mutually agree upon (the "Closing Date"). The Parties agree that time is of the
essence and will diligently work towards the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER SHAREHOLDERS
As a material inducement to Parent and Buyer to enter into and perform this
Agreement, Seller and each Seller Shareholder represents, warrants, covenants
and agrees that:
2.1 ORGANIZATION AND POWER. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, 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. To the Knowledge of the
Seller, the Seller is not required to qualify in any other jurisdiction.
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2.2 AUTHORIZATION; BINDING EFFECT, ETC. Seller 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 has been
duly authorized by all requisite action of Seller, 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, to
the extent applicable, each Seller Shareholder, enforceable against Seller and,
to the extent applicable, each 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. Seller and, to the extent
applicable, each 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; (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 Articles of Incorporation or by-laws or any material contracts to which
Seller is a party, or by which the Purchased Assets are bound; (c) constitute a
violation of any order, judgment or decree to which Seller is a party or by
which any of its 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.
2.4 FINANCIAL STATEMENTS. Seller has delivered the Financial Statements to
Buyer. The Financial Statements fairly present the financial condition and the
results of operations of the Business and Seller as of their respective dates,
and for the periods then ended in all material respects, and the Financial
Statements fairly and substantially reflect the assets, liabilities and
operations of the Business and Seller in all material respects. During the
periods covered by the Financial Statements, the operations of Seller
constituted solely those of the Business.
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 Preliminary Balance Sheet
(or described in the notes thereto), except for liabilities incurred since the
date of the Preliminary Balance Sheet in the Ordinary Course, which liabilities
have not had and are not reasonably likely to have a Material Adverse Effect.
Seller has no 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. The amount of the Seller
Notes as of June 30, 2003 were $157,260.45 with respect to the note to Xxxxxx X.
Xxxxx, Xx. and $70,000.68 with respect to the note to Xxxx X. Xxxx, XX.
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2.6 ABSENCE OF CHANGES. Except as disclosed on Schedule 2.6, since January
1, 2003 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 the Seller;
(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 the Seller, 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 therefor;
(i) any increase, direct or indirect, in the compensation paid or
payable to any officer, manager, employee or agent of Seller not in the
Ordinary Course;
(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 except in the
Ordinary Course;
(k) any transaction, contract or commitment, other than in the
Ordinary Course, or in connection with the Transactions; or
(l) any change in Seller's accounting methods or practices or tax
elections.
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2.7 PERSONAL PROPERTY. Schedule 2.7 lists and briefly describes all
material Personal Property of Seller. The Personal Property is "AS IS, WHERE IS"
and without warranty of any kind, expressed or implied.
2.8 TITLE TO PURCHASED ASSETS; NO ENCUMBRANCES; SUFFICIENCY.
(a) Seller has, and is conveying to Buyer under this Agreement, good
and indefeasible 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 which arise
under software licenses and 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 Contracts.
2.9 TAXES. Seller has properly filed all Tax Returns required to be filed,
and they are all correct and complete, except where an error in a Tax Return or
a failure to file a Tax Return would not have a Material Adverse Effect. All
Taxes, 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 where
the failure to pay such Taxes, interest and penalties would not have a Material
Adverse Effect. There are no claims now pending or matters under discussion with
any taxing authority in respect of any such Tax. 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. There are no security interests on
any of the Purchased Assets that arose in connection with any failure (or
alleged failure) to pay any Tax. None of the Purchased Assets is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. Seller is not a
party to any lease made pursuant to former Section 168(f)(8) of the Internal
Revenue Code of 1954. Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party, except
where the failure to withhold or pay such Taxes would not have a Material
Adverse Effect. Schedule 2.9 sets forth the federal income tax basis of Seller
in the Purchased Assets.
2.10 CONTRACTS.
(a) Schedule 2.10 sets forth a true, complete and correct list of all
Material Contracts relating to the Business. 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
8
arrangement or agreement; (iv) relating 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, corporation, partnership, joint venture, association,
organization or other entity; (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 Entity; (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 such 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 any 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.
(b) Schedule 2.10(b) contains a list and brief description of the
Leased Property, including the name of the lessor and any requirement of
consent of the lessor to consummate the Transactions. The Leased Property
constitutes all real properties used or occupied by Seller in connection
with the Business.
(c) Except as set forth on Schedule 2.10(c), with respect to the
Leases: (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
9
ordinary course with respect to similar properties of like age and
construction; (3) Seller is the owner and holder of all the leasehold
estates purported to be granted by the Lease and such Lease is in full
force and effect and constitutes a valid and binding obligation of Seller;
(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; (5) there are no parties
(other than Seller) in possession of the Leased Property; and (6) here have
been no discussions or correspondence with the landlord concerning renewal
terms for the Lease if scheduled to expire within 12 months of the date of
this Agreement.
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 July 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. 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 is no other Intellectual Property owned by Seller or used by Seller in the
Business other than as set forth on Schedule 2.12.
(b) Except as disclosed on Schedule 2.12, Seller owns and possesses
full, legally enforceable rights to use, sell, transfer and assign all
Intellectual Property that Seller uses or 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 (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) Seller has registered the Seller Intellectual Property set forth
on Schedule 2.12 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.
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(d) Seller has a policy to secure 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; any Known 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; any Known 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, to the Knowledge of Seller,
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,
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, there are no grounds for any such
assertion or claim.
(g) Except as disclosed in Schedule 2.12(g), 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.
(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, 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
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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) To the Knowledge of Seller, there are no unauthorized uses,
disclosures, infringements, or misappropriations by any person of any
Seller Intellectual Property. 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 Seller's Knowledge, all use, disclosure or appropriation of
confidential and/or proprietary information not owned by Seller in the
course of conducting their 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) Except as disclosed on Schedule 2.12(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. 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 with all applicable laws.
(n) Except for bug fixes that may be corrected by the distribution of
software corrections (whether downloadable or by distribution of CDs) and
that, individually or in the aggregate, would not have a Material Adverse
Effect, 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. Except
for bug fixes that may be corrected by the distribution of software
corrections (whether downloadable or by distribution of CDs) and that,
individually or in the aggregate, would not have a Material Adverse Effect,
all Proprietary Software contained within the Seller Intellectual Property
performs in all material respects in accordance with the specifications
included therein or applicable thereto.
2.13 PERMITS; COMPLIANCE WITH LAW.
(a) All Permits from the Governmental Entities held by Seller are
listed on 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 material Permits required for the
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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 Entity or other Person.
(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.
(c) No Proceeding is pending, and to the Knowledge of Seller, no
Proceeding has been threatened by any Governmental Entity 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 (1) a list of the names, office locations,
and compensation of all full and part-time employees of the Business and
(2) a description of all material employee "perks" or other benefits or
benefit practices not stated in the Plans. 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.
(b) Except as disclosed on Schedule 2.14(b), 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. All of the contracts relating to employees' employment with
Seller are in compliance with all applicable legal requirements.
(c) 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.
(d) There are no labor disputes or union organization activities
pending or, to the Knowledge of Seller, threatened, relating to Seller or
any of their employees, and Seller is not a party to and has never been a
party to any collective bargaining agreement.
(e) Seller is providing to Buyer copies of the complete employee
records, including personnel, grievance, health (to the extent permitted by
Law) and safety and similar files, with respect to all current employees of
the Business.
2.15 EMPLOYEE PLANS AND BENEFITS.
(a) Except as listed on Schedule 2.15, Seller does not maintain or
contribute to or have any liability, including any contingent liability,
and has not previously been a party with respect to any employee benefit
plans, stock option or stock purchase plans, employment or severance
arrangements or other similar arrangements including, without limitation,
(i) any nonqualified deferred compensation, profit sharing, bonus, or
retirement plans or stock option, stock purchase or incentive plans,
13
agreements or arrangements, (ii) any defined contribution retirement plans
intended to be qualified under Section 401(a) of the Code, (iii) any
qualified defined benefit pension plans intended to be qualified under
Section 401(a) of the Code (the plans described in (ii) and (iii) are
collectively referred to as the "Pension Plans"), and (iv) any welfare
benefit plans (the "Welfare Plans"). Each Pension Plan has received a
favorable determination letter from the Internal Revenue Service that such
Pension Plan is a "qualified plan" under Section 401(a) of the Code, the
related trusts are exempt from tax under Section 501(a) of the Code,
nothing has occurred that would jeopardize the qualification of such
Pension Plan. The Plans comply in form and in operation in all material
respects with the applicable requirements of the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Neither
Seller nor any ERISA Affiliate is a party to, or has any liability with
respect to any Pension Plan subject to Title IV of ERISA or any "multiple
employer welfare arrangement" within the meaning of Section 3(40) of ERISA.
As used in this Agreement, an "ERISA Affiliate" will mean each other Person
or entity with whom Seller constitutes or has constituted all or part of a
controlled group or which would be treated or has been treated with Seller
as under common control or whose employees would be treated as employed by
Seller under Section 414 of the Code or Section 400(1)(b) of ERISA.
(b) With respect to the Plans, (i) all required contributions have
been made or properly accrued, (ii) there are no actions, suits or claims
pending, other than routine claims for benefits, (iii) there have been no
"prohibited transactions" (as that term is defined in Section 406 of ERISA
or Section 4975 of the Code), and (iv) all Forms 5500 have been timely
filed.
(c) Neither Seller or, to the Knowledge of Seller, any of its
directors, officers, employees or any other "fiduciary," as such term is
defined in Section 3 of ERISA, has committed any material breach of
fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject Seller or any of its directors,
officers or employees to any material liability under ERISA or any other
applicable law.
(d) Seller has not incurred any material liability for any tax or
civil penalty imposed by Section 4975 of the Code or Section 502 of ERISA.
(e) All obligations of the Seller and Seller's ERISA Affiliates under
each Plan (i) that are due prior to the Closing Date have been paid or will
be paid prior to that date and (ii) that have accrued prior to the Closing
Date have been or will be paid or properly accrued at that time.
2.16 INSURANCE. Schedule 2.16 lists all policies of insurance covering
Seller, including policies of life, fire, theft, auto, casualty, product
liability, workmen's 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
14
are not affected by that transfer. 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 January 1, 2003, any
material reduction in the scope or change in the nature of its insurance
coverage.
2.17 TRANSACTIONS WITH AFFILIATES. Except for the Seller Notes, 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
accordance with sound business practices. Seller has delivered such books and
records with respect to the Business 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. Except as disclosed on
Schedule 2.19, since January 1, 2003, 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 is reasonably likely to have
individually or in the aggregate a Material Adverse Effect. Without limiting the
foregoing, Seller has not (a) sold, transferred, assigned, leased or otherwise
disposed of all or any portion of the Purchased 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 is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect; (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 other
than workers' compensation claims or otherwise in the Ordinary Course or
payments made in connection with the purchase of goods and services 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 material 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; (m) has made (or committed to make)
capital expenditures in an amount that exceeds $10,000 for any item or $100,000
15
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. 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 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 APPROVALS. No approval, authorization, order, license or consent of or
registration, qualification or filing with any Governmental Entity and no
approval or consent by any other Person or entity is required in connection with
the execution, delivery or performance by Seller or any Seller Shareholder of
this Agreement, any related agreements or the Transactions.
2.22 INVESTMENT INTENT. Seller acknowledges that as part of the Purchase
Price, Seller 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 in Buyer, Seller represents and warrants to, and agrees
with Buyer as follows:
(a) Seller's intended distribution of the NTN Shares and the
Contingent NTN Shares pursuant to the plan of reorganization is permitted
under the Securities Act. Each of Seller and the Seller Shareholders are
acquiring the NTN Shares and the Contingent NTN Shares for his, her or 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 as
otherwise permitted under the Securities Act.
(b) Each of Seller and each Seller Shareholder acknowledge that at the
time of issuance the NTN Shares and any Contingent 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 and any Contingent NTN Shares will be imprinted with a legend in
substantially the following form:
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
16
SUBJECT TO A REGISTRATION REQUIREMENT OR AN OPINION OF COUNSEL TO NTN
COMMUNICATIONS, INC. IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
2.23 INVESTMENT EXPERIENCE; DISCLOSURE OF INFORMATION.
(a) Each of Seller and each Seller Shareholder acknowledge that (i),
except for Xxxx X. Xxxxxxx, it, he or she is an "accredited investor" as
defined in Rule 501(a) of the Securities Act, (ii) it, he or she can bear
the economic risk and complete loss of its, his or her investment in the
NTN Shares and any Contingent NTN Shares and (iii) it, he or she has such
knowledge and experience in financial and business matters that it, he or
she is capable of evaluating the merits and risks of the investment
contemplated hereby.
(b) Each of Seller and each Seller Shareholder 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 and each Seller Shareholder acknowledges receipt
of the filings made by Parent from time to time with the Securities and
Exchange Commission, including Parent's Form 10-K for the year ended
December 31, 2002, Form 10-Q for the quarter ended March 31, 2003 and
Definitive Proxy Statement filed April 14, 2003.
2.24 CUSTOMERS, SUPPLIERS AND PARTNERS. Seller has not and is not engaged
in any dispute with any of the twenty largest customers of the Business during
the twelve months prior to the Closing Date, in dollar amount of sales by Seller
to such customer (each, a "Significant Customer"), 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 Customers,
Significant Suppliers and Significant Partners is set forth on Schedule 2.24.
Seller has no Knowledge that a Significant Customer intends to terminate its
business relationship with Seller or alter its business relationship with Seller
in any material respect. 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 Customer, Significant
Supplier or Significant Partner.
2.25 INVENTORY. The Inventory is valued at the lower of cost or market
depending on the nature of a particular item of inventory. 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
are free from material defects. The Inventory is adequate for the present needs
of the Business.
2.26 ENVIRONMENTAL COMPLIANCE. (i) Seller has not, in connection with the
Business or Seller's assets, generated, used, transported, treated, stored,
17
released or disposed of, or has suffered and has permitted no one else to
generate, use, transport, treat, store, release or dispose of any Hazardous
Substance (as defined below) in violation of any applicable environmental law;
(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 entity; (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
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.
2.27 DISCLOSURE. None of this Agreement, the 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.
ARTICLE III
REPRESENTATIONS OF PARENT AND BUYER
As a material inducement to Seller and the Seller Shareholders to enter
into and perform this Agreement, Parent and Buyer represent, warrant, agree and
covenant that:
3.1 ORGANIZATION AND POWER. Parent and Buyer are each a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority to own or lease and use its properties
and assets, to carry on its business as such business is now conducted, to
execute and deliver this Agreement and to carry out the Transactions.
3.2 AUTHORIZATION; BINDING EFFECT, ETC. Parent and Buyer have all requisite
power and authority to execute, deliver and perform this Agreement and the
related agreements to which it may be a party, all proper corporate actions
authorizing the execution, delivery and performance hereof and thereof having
been taken. This Agreement has been duly executed and delivered by Parent and
Buyer and constitutes, and the related agreements to which it may be a party
will be duly executed and delivered and, when executed and delivered, will
constitute, valid and legally binding obligations of Parent and Buyer,
enforceable in accordance with their respective 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.
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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 Entity 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; 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.
3.5 NTN SHARES. Buyer will deliver the NTN Shares and the Contingent
Payments Shares to Seller free and clear of all Encumbrances other than from any
liens or Encumbrances created by or through, or otherwise resulting from,
actions or inactions and such restrictions imposed by federal and state
securities laws. Upon issuance in accordance with this Agreement, the NTN Shares
and the Contingent Payments Shares will be validly issued, fully paid and
non-assessable.
3.6 PRIVATE SALE. Assuming the accuracy of the representations of Seller
and Seller Shareholders in Sections 2.22 and 2.23, the outstanding shares of the
NTN Shares and Contingent NTN Shares were issued in compliance with all
applicable federal and state securities laws, and the offering, sale, and
issuance of such outstanding shares are exempt from registration under the
Securities Act and applicable state securities laws and the rules and
regulations promulgated thereunder. None of Seller, the Seller Shareholders, or
any Person authorized or employed by Seller or the Seller Shareholders as agent,
broker, dealer or otherwise in connection with the offering, sale or issuance of
such outstanding shares has offered the same for sale to, or solicited any
offers to buy the same from, or otherwise approached or negotiated with respect
thereto, any Person or Persons other than the Seller Shareholders.
3.7 APPROVALS. No approval, authorization, order, license or consent of or
registration, qualification or filing with any governmental authority and no
approval or consent by any other Person or entity is required in connection with
the execution, delivery or performance by Buyer of this Agreement and the
Transactions, other than as contemplated by Article IV and Article V.
3.8 TAX REPRESENTATIONS.
(a) Parent and Buyer have no present plan or intention to reacquire
any Parent Common Stock issued in the Transactions.
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(b) Parent has no present plan or intention to cause Buyer to sell or
otherwise dispose of any of the assets of Seller acquired in the
Transactions, except for dispositions made in the ordinary course of
business or transfers described in Code Section 368(a)(2)(C), or to sell or
otherwise dispose of Buyer.
(c) Parent and Buyer will use a significant portion of the Purchased
Assets in a business.
(d) Neither Parent nor Buyer are "investment companies" as defined in
Code Section 368(a)(2)(F)(iii) or (iv).
(e) Buyer is directly and wholly-owned by Parent and is a first-tier
subsidiary of Parent.
ARTICLE IV
PRE-CLOSING COVENANTS
4.1 CLOSING CONDITIONS. Seller and the Seller Shareholders 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 shall use their
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, 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,
make any expenditure or enter into any transaction exceeding $10,000;
(b) sell, license or transfer to any Person or entity of 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;
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(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 in 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 other than in the Ordinary
Course;
(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 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 except in the Ordinary Course;
(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;
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(m) 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;
(n) 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; or
(o) take or agree in writing or otherwise take any of the actions
described in the preceding clauses (a) through (n) of this section or any
other action that would prevent Seller from performing or cause Seller not
to perform its covenants and agreements hereunder.
4.3 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.
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 at the Closing, 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 xxxx of
sale in the form set forth as Exhibit B hereto, 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 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 will have delivered to Buyer a
certificate, dated the Closing Date, stating:
(a) that all representations and warranties of Seller contained in
this Agreement are true and correct as though newly made at and as of the
Closing Date;
(b) that each of the agreements of Seller to be performed on or before
the Closing Date pursuant to this Agreement has been performed;
(c) that there has been no Material Adverse Effect in or affecting the
Business or any of the Purchased Assets or Assumed Liabilities since
January 1, 2003;
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(d) that any consent, approval, authorization or order of any
Governmental Entity or other Person or entity required for the consummation
of the Transactions has been obtained and is in effect;
(e) that no action or proceeding has been instituted and remains
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) that the amounts of all Transaction Costs of Seller and the Seller
Shareholders are being explicitly assumed by the Seller Shareholders,
except for such amounts that are being paid at the Closing by Buyer to
third parties on behalf of and at the direction of Seller or the Seller
Shareholders and identified in the certificate, which such amounts are to
be deducted from the amount of the Purchase Price to be received by the
Seller and the Seller Shareholders.
5.4 SELLER'S PERFORMANCE. Each of the agreements of Seller to be performed
on or before the Closing Date pursuant to the terms of this Agreement will have
been duly performed 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 January 1, 2003.
5.6 APPROVALS. Any consent, approval, authorization or order of any
Governmental Entity 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. 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 Entity,
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
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 will be reasonably satisfactory in all
respects to Buyer and its counsel.
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5.9 RELATED AGREEMENTS. The Xxxx of Sale, the Employment Agreements, the
Non-competition and Payment Agreement and the Sophisticated Investor
Questionnaire will have been executed and delivered by all parties to those
agreements.
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 as certified by the Secretary of State of
Texas; (ii) the By-Laws of Seller as certified by its Secretary; (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 PAYOFF LETTERS. Buyer shall have received, in form and substance
reasonably satisfactory to Buyer, a payoff letter from each of Xxx Xxxxx and
Xxxx Xxxx with regards to the Seller Notes, and the return of the Seller Notes
to Buyer for cancellation upon repayment.
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
All obligations of Seller and the Seller Shareholders 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:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer 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
Entity 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 action or proceeding has been instituted and remains 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.
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6.3 APPROVAL OF DOCUMENTATION. The form and substance of all opinions,
certificates and other documents hereunder will be reasonably satisfactory in
all respects to Seller and its counsel.
6.4 RELATED AGREEMENTS. The Employment Agreements and Non-competition and
Payment Agreement will have been executed and delivered by all parties to those
agreements.
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 the Secretary of State of
Delaware; (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.
6.6 APPROVALS Any consent, approval, authorization or order of any
Governmental Entity 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.
6.7 NO ORDERS; LEGAL PROCEEDINGS; NO INSOLVENCY. No Law will have been
enacted, entered, issued, promulgated or enforced by any Governmental Entity,
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.
ARTICLE VII
REGISTRATION OF NTN SHARES
7.1 Mandatory Registration. Parent shall prepare, and, on or prior to
thirty (30) days after the Closing Date, file with the SEC a registration
statement on Form S-3, or other applicable form if Form S-3 is unavailable,
covering the resale of the NTN Shares acquired by Seller under this Agreement on
the Closing Date. Parent shall use its best efforts to have the registration
statement declared effective by the SEC as soon as possible thereafter and shall
cause such registration statement to be kept effective until the earlier of (i)
such time as all such Registrable Securities 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
currently meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale of such Registrable Securities by
Seller.
7.2 REGISTRATIONS ON FORM S-3. From and after receipt of any Contingent NTN
Shares, the Seller and the Seller Shareholders shall have the right at any time
and from time to time to request a resale registration statement on Form S-3 or
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any other applicable or successor form or forms (a "Short Form Registration") if
the estimated offering price of the Contingent NTN Shares subject to such
registration shall be at least $500,000; provided, that the Company shall not be
required to effect a Short Form Registration more frequently than once (counting
for these purposes only registrations which have been declared or ordered
effective) during any 12 consecutive month period. Such requests shall be in
writing and shall state the number of shares of Registrable Securities proposed
to be disposed of and the intended method of distribution of such shares by the
holders.
7.3 Right to Defer Registration. Parent may postpone for up to ninety (90)
days the filing or the effectiveness of a registration statement for a
registration pursuant to Section 7.1 or Section 7.2 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; provided, that Parent may not postpone the filing or effectiveness
of a registration statement pursuant to this Section 7.3 more than twice during
any period of 12 consecutive months.
7.4 Right to piggyback registrationS. If the Parent proposes to register
any of its securities under the Securities Act on a resale registration
statement on Form S-3 or any other applicable or successor form or forms and the
registration form to be used may be used for the registration of Contingent NTN
Shares (a "Piggyback Registration"), the Parent will give prompt written notice
to the Seller and the Seller Shareholders of its intention to effect such a
registration (each, a "Piggyback Notice"). To the extent practicable, the Parent
will include in such registration all Contingent NTN Shares that the Seller or
the Seller Shareholders requests the Parent to include in such registration by
written notice given to the Parent within five business days after the date of
receiving the Piggyback Notice.
7.5 Registration Procedures. Parent will use commercially reasonable
efforts to effect the registration of such Registrable Securities in accordance
with the intended method of distribution thereof (which may include an
underwritten offering conducted by an underwriter or underwriters selected by
Seller) and will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective as soon as possible
thereafter and to remain effective as otherwise provided in this Article 7,
provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, Parent will furnish to Seller the
sections of the registration statement covering information with respect to
Seller, Seller's beneficial ownership of securities of Parent and Seller's
intended method of disposition of the Registrable Securities shall conform
to the information provided by Seller;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of at least two years or until Seller has completed the distribution
described in the registration statement relating thereto, whichever first
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occurs, and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of distribution
by the sellers thereof set forth in such registration statement;
(c) 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 Registrable Securities owned by Seller;
(d) use its reasonable efforts to register or qualify such Registrable
Securities 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 Registrable
Securities 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;
(e) notify Investor, 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
Registrable Securities, 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;
(f) cause all such Registrable Securities 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;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement
and thereafter maintain such a transfer agent and registrar;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as Seller or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities being sold,
including obtaining customary letters and consents from Parent's
independent certified public accountants;
(i) make available for inspection by any underwriter participating in
any disposition pursuant to such registration statement and any attorney,
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accountant or other agent retained by any such underwriter, all financial
and other records, pertinent corporate documents and properties of Parent,
and cause Parent's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such
registration statement; and
(j) take all other reasonable actions necessary to expedite and
facilitate the registration and the sale of the Registrable Securities in
accordance with the intended method of distribution thereof.
7.6 Suspension of Prospectus. For not more than 45 consecutive days or for
a total of not more than 90 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
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.
7.7 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, underwriting fees and expenses
(excluding discounts and commissions, which shall be paid by Seller out of the
proceeds of the offering) and the fees and expenses of any other persons
retained by Parent.
7.8 Payment. Parent shall pay the Registration Expenses in connection with
the mandatory registration under Section 7.1, the Short Form Registration under
Section 7.2 and the Piggyback Registration under Section 7.4. All other expenses
shall be paid by Seller, pro rata on the basis of the number of its shares
included in the registration.
7.9 Indemnification by Parent. Parent agrees to indemnify, to the extent
permitted by law, each holder of Registrable Securities, his, her or its general
and limited partners, members, 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 such holder of Registrable
Securities expressly for use therein. In connection with an underwritten
offering, Parent will indemnify such underwriters, their officers and directors
and each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
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7.10 Indemnification by Holders of Registrable Securities. In connection
with any registration statement in which a holder of Registrable Securities 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 Registrable Securities pursuant to such
registration statement.
7.11 Notice; Defense of Claims. Any Person entitled to indemnification
hereunder 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
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. 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.
7.12 Contribution. If the indemnification provided for herein 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 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 Registrable
Securities from the sale of its Registrable Securities, 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.
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7.13 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 7.18.
7.14 Underwriting Agreement. To the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
indemnification provisions of this Agreement, the provisions of the underwriting
agreement shall control.
7.15 Participation in Underwritten Registrations. No Person may participate
in any registration hereunder that is underwritten unless such Person (i) agrees
to sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Person or persons entitled hereunder to approve
such arrangements, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. 7.16 Market Stand-Off
Agreement; LOCK-UP. Each Seller Shareholder hereby agrees, for a period of six
months following the effective date of any registration statement covering
securities to be sold on behalf of Parent in an underwritten public offering,
but only if requested by the managing underwriter, (or for such shorter period
as may be allowed by the managing underwriter or underwriters of such offering),
not to sell or otherwise transfer or dispose of (other than to donees who agree
to be similarly bound) any Parent Common Stock held by it at any time during
such period except Parent Common Stock included in such registration or
purchased on the open market. In addition, Xxxxxx X. Xxxxx and Xxxx X. Xxxx XX
agree not to dispose of any NTN Shares within the first nine months after the
Closing Date. In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to the Registrable Securities (and the
shares or securities of every other Person subject to the foregoing restriction)
until the end of such periods.
7.17 Transfer of Registration Rights. The rights of Seller to cause Parent
to register securities and keep information available and related rights,
granted to Seller by Parent under this Article 7 may be assigned to a transferee
or assignee who is a partner, member, stockholder or affiliate of Seller;
provided that the transferee or assignee of such rights has agreed in writing to
comply with the obligations under this Agreement.
7.18 Termination of Registration Rights. Article 7 of this Agreement shall
terminate with respect to any holder of Registrable Securities on the later of
(a) the date such holder can sell all of his/her/its Registrable Securities in
any three month period pursuant to Rule 144 or (b) all of his/her/its
Registrable Securities may be sold under the Rule 144(k); provided that the
Selling Shareholders' obligations under Section 7.10 and Buyer's obligations
under Section 7.18 and 7.19 shall survive any such termination. Parent agrees to
instruct the transfer agent to promptly remove the restrictive legend on
certificates representing shares of Parent Common Stock upon the delivery to it
of a written opinion of counsel reasonably acceptable to Parent in form and
substance reasonably satisfactory to Parent that the holder of such shares is
eligible to sell the shares pursuant to Rule 144(k).
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7.19 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 any
Seller Shareholder owns any Registrable Securities, 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, Seller and each of the
Seller Shareholders agree to comply with, and agrees to cause its 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 any
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
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, engage in or represent any business
that is competitive with the Business or any product of the Business as the
Business is conducted or proposed to be conducted from and after the date
hereof in any way; or
(b) solicit, divert or take away, or attempt to solicit, divert or
take away, the business, account or patronage of any of the clients,
customers or suppliers of Buyer; or
(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 business that
competes with the Business; or
(d) induce, or attempt to induce, any customer, salesperson,
distributor, supplier, vendor, manufacturer, representative, agent, jobber,
licensee or other Person transacting business with Buyer or any Affiliate
thereof to reduce or cease doing business with Buyer or any Affiliate
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thereof, or in any way to interfere with the relationship between any such
customer, salesperson, distributor, supplier, vendor, manufacturer,
representative, agent, jobber, licensee or business relation, on the one
hand, and Buyer or any Affiliate thereof, on the other hand.
Notwithstanding the foregoing, Seller and any Seller Shareholder is
permitted to own, individually, as a passive investor up to a 5% interest in any
publicly-traded entity. The restrictions in this Section 8.1 will be effective
in the United States of America (the "Location"). Seller and the Seller
Shareholders acknowledge that the Business is national, rather than local, in
scope.
8.2 RESTRICTIONS ON SOLICITING EMPLOYEES. Neither Seller nor any Seller
Shareholder will, for four (4) 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 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, or to work for any other entity or
business.
8.3 CONFIDENTIALITY.
(a) Seller and the Seller Shareholders have had access to, and there
has been disclosed to each 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 each of the Seller Shareholders will not, for four (4)
years following the Closing Date, use or divulge any Confidential
Information, except: (i) to Buyer's personnel or representatives; (ii) if
such Confidential Information, at the time it is disclosed, is generally
available to the public; (iii) 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 Seller; (iv) 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; (v) if
such Confidential Information is independently created, developed or
derived by Buyer; (vi) to the extent disclosure may be required by Law; or
(vii) if such information becomes lawfully obtainable from other sources.
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 outside the scope of Seller's engagement by Buyer.
8.4 REASONABLENESS OF RESTRICTIONS AND ENFORCEABILITY. Seller and each of
the Seller Shareholders acknowledge that their strong business ties are
significant to the growth of the Business, and Seller and each of the Seller
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Shareholders 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.
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 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 TAX COVENANTS. Buyer and Seller shall cooperate fully in connection
with the filing of Tax Returns and any audit, litigation or other proceedings
with respect to Taxes. Such cooperation shall include the retention and the
provision of records and information reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material hereunder. All Tax Returns with the appropriate federal, state, local
and foreign Governmental Entities relating to Seller for periods ending on or
prior to the Closing Date shall be prepared and filed by Seller as applicable,
on or before the due date thereof, as extended. Seller shall pay all Taxes due
with respect to such Tax Returns.
8.8 REPURCHASE.
(a) If, on or prior to the third year after the Closing Date, Parent
shall determine to dispose of all or substantially all the assets of the
Business, or to cease operations of the Business (the "Trigger Event"),
except as otherwise set forth in this Section 8.8, Parent will retain an
investment banking firm of its choosing to value the assets and related
liabilities directly associated with the conduct of the Business. Upon
obtaining the valuation from the investment banking firm, the Parent will
as soon as commercially practicable notify the Seller in writing of the
amount. Within ten business days of receipt Seller may notify the Parent
33
that it has elected to purchase all or substantially all of the assets of
the Business and all related liabilities for such price, such election
subject to proof of financing to Buyer's reasonable satisfaction; provided,
however, Parent may choose to abandon the sale of all or substantially all
of the assets of the Business to Seller at any time. If the Seller or its
designee elects to purchase the Business pursuant to Section 8.8(b),
Section 1.2(g) shall be of no force or effect and Parent shall be relieved
of its obligations thereunder and from all further obligations (including
any then disputed obligations) regarding the Contingent Payments.
(b) The structure of the transaction shall be an asset purchase by the
Seller without representation, warranty or indemnification obligations by
the Parent pursuant to such transfer documents as are consistent with this
section and are otherwise customary for asset and liability transfers.
Parent agrees to terminate the non-competition provisions set forth in
Sections 8.1 and 8.2 with respect to Seller concurrently with the closing
of such a transaction.
(c) If within 25 days after the Seller or its designee elects to
purchase the Buyer or substantially all of its assets the transaction has
not been consummated for any reason, then Parent may thereafter cease
operation of Business or attempt to dispose of Buyer or all or
substantially all the assets of the Business. Parent, Buyer and Seller
acknowledge that the price at which Buyer or all or substantially all of
the assets of the Business are sold may be lower than the price at which
all or substantially all of the assets of the Business were offered to
Seller pursuant to this Section 8.8 and that such a fact shall in no way be
a breach of this Section 8.8 or this Agreement.
(d) This Section 8.8 shall not apply to the following transactions:
(1) Any transaction that Parent reasonably believes ,or is
advised by written advice of its counsel would constitute, a sale of
all or substantially all of the assets of the Parent as a whole or an
acquisition of the Parent;
(2) Any transaction that occurs within one year subsequent to the
receipt of an unsolicited indication of interest for the acquisition
of the Business, whether or not the initial inquirer is the ultimate
acquiror and regardless of whether the Parent markets the Business
and/or conducts a bidding process subsequent to receipt of the
indication of interest; or
(3) Any licensing transaction relating to the Business.
(e) The Parties hereby agree that specific performance will not be
available to enforce the provisions of this Section 8.8 but that the sole
remedy will be the right to recover money damages for breach of this
section.
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 any Seller Shareholder set forth in this Agreement, which breach has not
34
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
(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 August 29, 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 Governmental Entity 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 the other Party to this Agreement; provided that if such
termination shall result from the failure of either 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 either Party to this Agreement,
then such Party shall be fully liable for any and all Losses incurred or
suffered by the other Party as a result of such failure or breach. The
provisions of Section 12.4, and the Confidentiality Agreement dated as of March
3, 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 three (3) years. The
representations and warranties in Sections 2.1, 2.2, 2.8, 2.9, 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.
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10.2 INDEMNIFICATION BY SELLER AND SELLER SHAREHOLDERS. 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,
Seller and each Seller Shareholder hereby agrees to indemnify and hold Parent
and Buyer, together with its directors, officers, employees, 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 Seller Shareholders in this Agreement, including the
Schedules and exhibits hereto or any other document or agreement delivered
by or on behalf of Seller or Seller Shareholders in connection therewith;
(b) the Retained Liabilities;
(c) any claim by OpenTable, Inc. relating to the transactions
contemplated by this Agreement;
(d) 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.
10.3 TAX MATTERS. Seller agrees to indemnify, defend and hold harmless
Buyer, its Affiliates and each of their respective officers, directors and
employees from all Losses attributable to all liability for Taxes of Seller for
any taxable period ending on or before the Closing Date and the portion ending
on the Closing Date of any taxable period beginning on or before the Closing
Date and ending after the Closing Date, except for such Losses arising from any
breach by Parent or Buyer of any representation, warranty, covenant or agreement
made by Parent or Buyer in this Agreement.
10.4 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, 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,
if any, or any other document or agreement delivered by or on behalf of Parent
or Buyer in connection herewith.
10.5 PROCEDURES.
(a) Any claim for recovery pursuant to this indemnification 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 was claimed 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.
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(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, or (b) 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.
10.6 INDEMNIFICATION RECOVERY.
(a) If any Party gives written notice to the other Party of a Loss 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 10.6(c) below.
(b) Any payment made pursuant to this Article X will be treated as an
adjustment to the Purchase Price for purposes of federal and state Taxes.
Any payment under this Article X may, but is not required to, be satisfied
by setting off against the amounts payable to the Seller Shareholders under
Section 1.3.
(c) At the time of delivery of notice of a claim of a Loss hereunder
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 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
37
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.
(d) Except to the extent that the obligation arises from the willful
misconduct or fraud of a Seller Shareholder, the obligation of each
respective Seller Shareholder to indemnify will be limited to such Seller
Shareholder's Allocable Portion of the Total Consideration (for example, if
the Total Consideration were $100 and the Seller Shareholder's Allocable
Portion was 25%, then the obligation would be limited to $25); provided,
however that if such Seller Shareholder is Xxxx X. Xxxx XX, then the limit
on the obligation will be increased by $ 70,000.68 and if such Seller
Shareholder is Xxxxxx X. Xxxxx, Xx., the limit on the obligation will be
increased by $ $157,260.45. Seller Shareholders shall be jointly and
severally liable with the Seller but no Seller Shareholder shall be liable
for a breach solely by another Seller Shareholder.
(e) This Section X will be the exclusive remedy for claims of breaches
of representations and warranties under Article II and Article III of this
Agreement, but shall not otherwise limit Buyer, Parent or Seller's remedies
with respect to this Agreement or the Transactions.
ARTICLE XI
TAX MATTERS
11.1 TAXES ON SALE. The responsibility for paying all transfer,
documentary, sales, use, registration, value-added 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 TAX ALLOCATION. All property and ad valorem Taxes, leasehold rentals
and other customarily proratable items relating to the Purchased Assets, payable
on or after the Closing Date and relating to a period of time both prior to and
on the Closing Date will be prorated as of the Closing Date between Seller and
Buyer. If the actual amount of any such item is not known as of the Closing
Date, the aforesaid proration shall be based on the previous year's assessment
of such item and the parties agree to adjust said proration and pay any
underpayment or reimburse any overpayment within thirty (30) days after the
actual amount becomes known.
11.3 TAX TREATMENT. Unless not permitted by law, the Parties shall treat
the Transactions as a tax-free reorganization for all purposes on their
respective books and records, both for financial accounting and tax accounting
purposes.
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
38
with the Exhibits and Schedules hereto, the Employment Agreements and the
Confidentiality Agreement, 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 each 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 any 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 Shareholders shall be either paid immediately at the Closing
pursuant to Section 1.2(b) or be explicitly assumed by the Seller Shareholders
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.
0000 Xx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx XxXxxxxx
with a copy to:
C. Xxxxx Xxxxx, Esq.
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
39
(ii) If to Seller:
Breakaway International, Inc.
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
with a copy to:
Xxx Xxxxx, Esq.
Shannon, Gracey, Xxxxxxx & Xxxxxx, LLP
0000 Xxxxxxxx Xxx, Xxx 000
Xxxxxxxxx, XX 00000]
(iii) If to the Seller Shareholders:
Xxxx Xxxx XX
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxx X. Xxxxx, Xx.
000 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxx
0000 Xxxxxxxxx Xxxxx Xx
XxXxxxxx, XX 00000
Xxxxxxx X. Xxx
0000 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxx X. Xxxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
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 to be made.
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.
40
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.
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 the Seller Shareholders 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 the Seller Shareholders 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 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.
[remainder of this page intentionally left blank]
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 SOFTWARE SOLUTIONS, INC.
By: ____________________________________
Name:
Title:
S-1
BREAKAWAY INTERNATIONAL, INC.
By: ____________________________________
Name:
Title:
SELLER SHAREHOLDERS
By: ____________________________________
Name: Xxxx Xxxx XX
By: ____________________________________
Name: Xxxxxx X. Xxxxx, Xx.
By: ____________________________________
Name: Xxxxxxx X. Xxxxx
By: ____________________________________
Name: Xxxxxxx X. Xxx
By: ____________________________________
Name: Xxxx X. Xxxxxxx
X-0
SPOUSAL CONSENT
[to be signed by the spouse of each Seller Shareholder]
I, ________________, hereby acknowledge the Asset Purchase Agreement (the
"Agreement") signed by my spouse, _______________, dated July 30, 2003,
concerning the Parent Common Stock offered to my spouse. I agree that the Parent
Common Stock and any interest, community or otherwise, that I have in them, is
subject to the provisions of the Agreement. I agree that my spouse may in the
future join in any amendments or modifications of the Agreement without any
further signature, acknowledgment, agreement of consent on my part. I agree that
I will neither assign or attempt to assign any interest I have in the Parent
Common Stock other than in the manner prescribed in the Agreement.
_________________________ Date: ____________________
S-3
EXHIBIT A
DEFINITIONS
"Accountants" is defined in Section 1.2(f)(2).
"Adjustment Amount" is defined in Section 1.2(e).
"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.
"Allocable Portion" means, with respect to the share of any Seller
Shareholder in a particular amount, that fraction equal to the number of shares
of common stock of Seller the Seller Shareholder holds in Seller over the total
number of shares of common stock of Seller that all of the Seller Shareholders
hold in the aggregate as of the Closing Date.
"Assumed Liabilities" means (i) all obligations and liabilities incurred in
respect of 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 to the
extent fully reflected on the Preliminary Balance Sheet. The Assumed Liabilities
do not include any Retained Liabilities.
"Business" means Seller's business operated under the name Breakaway
International or otherwise relating to point-of-sale, reservations and
table-seating management software solutions for the food service industry,
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 Software Solutions, Inc., a Delaware corporation.
"Closing" is defined in Section 1.4.
"Closing Date" is defined in Section 1.4.
"Closing Date Balance Sheet" is defined in Section 1.2(f)(1).
"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.
"Contingent NTN Shares" is defined in Section 1.3(c).
"Contingent Payments" is defined in Section 1.3.
A-1
"Contracts" means any written or oral purchase or sales commitments,
financing or security agreements, warranties, guaranties, licenses, 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.
"Determination Date" is defined in Section 1.3(b).
"EBT" means, for purposes of calculating the Contingent Payments, the
consolidated net income generated by the Business for the period in question,
determined in accordance with generally accepted accounting principles as
adopted by Buyer consistently applied during the relevant period, and on the
basis of first-in-first-out accounting for inventories and with depreciation and
amortization determined on a straight line basis over the asset lives of all
property and equipment, and in respect of leasehold interests, over the lesser
of their economic life or the lease period including option periods where
appropriate, in accordance with Buyer's policies, but (i) without any reduction
or provision for taxes based upon or measured by income, (ii) without reduction
by the amount of any general "corporate charge" or its equivalent which may be
imposed by Buyer or its affiliates, (iii) without reduction for interest on the
purchase price by Buyer for the assets of Sellers, and (vi) without inclusion of
gain or losses from sales of capital or other assets or leaseholds not in the
ordinary course.
"Employment Agreements" means the employment agreements between Buyer and
each of Xxxx Xxxx, Xxx Xxxxx, Xxxx Xxxxx, Xxxx Xxxxxxx and Xxxxx Rock,
respectively, in form and substance satisfactory to those Persons party to such
agreements.
"Encumbrances" means liens, mortgages, pledges, security interests,
restrictions, prior 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 or being contested in
good faith; (b) material men's, mechanics', carriers', warehouse men's,
landlords', workmen's, repairmen's, employees' or other similar liens arising in
the Ordinary Course; (c) any restrictions on transfer imposed by applicable Laws
(other than environmental 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.
"ERISA" is defined in Section 2.15.
"ERISA Affiliate" is defined in Section 2.15.
"Filings" means all filings, reports, notices, certificates, forms or other
documents filed with or submitted to Governmental Entities.
"Financial Statements" means (i) a balance sheet as of December 31, 2000,
December 31, 2001 and December 31, 2002, (ii) a statement of operations for
Seller for the 12-month periods ended on December 31, 2000, December 31, 2001
and December 31, 2002, and (iii) the Preliminary Balance Sheet.
A-2
"First Baseline Year" is defined in Section 1.3(a).
"Governmental Entities" means federal, state 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 xxxx registrations and applications therefore; (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.
"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" means (i) with respect to Seller, the knowledge after
reasonable inquiry of Seller's personnel responsible for the subject matter in
question, and (ii) with respect to a Seller Shareholder, the actual knowledge of
such Seller Shareholder without investigation or inquiry. Seller (but not a
Seller Shareholder) shall be deemed to have 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. For purposes of this Agreement, phrases such as Seller's Knowledge or
the Knowledge of Seller shall also include actual knowledge of the Seller
Shareholders without investigation or inquiry.
"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, permit, registration, license or authorization.
"Leases" means those oral and written agreements between the Seller and DSW
Properties with respect to the Leased Property.
A-3
"Leased Property" means all real property in which Seller or any subsidiary
has a leasehold interest held under leases.
"Location" is defined in Section 8.1.
"Loss" and "Losses" is defined in Section 10.2.
"Material Adverse Effect" means a material adverse effect on the assets,
liabilities, results of operations, condition (financial or other), business or
prospects of the Business or the Purchased Assets.
"Material Contracts" is defined in Section 2.10.
"Non-competition and Payment Agreement" means that Non-competition and
Payment Agreement by and between Buyer and Seller in form and substance
satisfactory to both parties.
"NTN Shares" is defined in Section 1.2(c).
"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 Common Stock" is defined in the preamble.
"Party" or "Parties" means the parties to this Agreement and any successors
or assignees thereto.
"Pension Plan" is defined in Section 2.15.
"Permits" means all consents, approvals, or waivers from Governmental
Entities 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
Entity.
"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.
"Piggyback Registration" is defined in Section 7.4.
"Piggyback Notice" is defined in Section 7.4.
"Plan" means any pension, benefit, welfare, retirement, profit-sharing,
deferred compensation, medical, dental, health, disability, bonus, option,
insurance or other benefit plan or arrangement listed on any Schedule covering
any employee of Seller.
A-4
"Preliminary Balance Sheet" means a balance sheet and income statement for
the Business as of July 31, 2003, a copy of which is attached hereto as Exhibit
C.
"Proceeding" means any action, suit, investigation or proceeding, whether
at law or in equity, whether civil or criminal in nature, before any
Governmental Entity 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:
Breakaway VISION, Breakaway Enterprise, Breakaway ProHost and Breakaway RSViP,
and all customized versions and upgrades and modifications thereof (but
specifically excluding Domino's Pulse).
"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 4.3;
(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;
(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
Proprietary Software) used or useful in the Business;
(i) any refund for overpayment of income or franchise Taxes or other
Taxes of Seller or relating to the Business attributable to periods (or
portions of periods) ending on or before the Closing Date;
(j) Seller's rights under any loan by Seller to any employee, officer,
director, agent or shareholder of Seller;
(k) Seller's deposit and security accounts;
A-5
(l) all rights in and under Contracts except with respect to the
Retained Contract;
(m) all Permits used in or required for the lawful conduct of the
Business;
(n) 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;
(o) all causes of action, choses in action, complaints and rights
currently in litigation or which could result in litigation which would or
could benefit the Business;
(p) all goodwill arising out of or associated with the Business; and
(q) any assets shown on any Schedule.
"Registration Expenses" is defined in Section 7.7.
"Registrable Securities" means the NTN Shares acquired by Seller at Closing
under this Agreement and any Contingent NTN Shares subsequently acquired
pursuant to Section 1.3.
"Required Consents" is defined in Section 2.10(a).
"Retained Contract" means that Asset Purchase Agreement by and between
OpenTable, Inc. and Seller dated as of February 25, 2002.
"Retained Liabilities" means any debts, liabilities, 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 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; (f) liabilities for borrowed money, including interest accrued or
payable thereon; (g) other than accounts payable set forth on the Preliminary
Balance Sheet, liabilities relating to the conduct of the Business before the
Closing Date; (h) all liabilities and obligations under the Plans, including
without limitation, all liabilities and obligations arising from or related to
any Pension Plans or Welfare Plans or under ERISA; (i) liabilities and
obligations arising under the Worker Adjustment and Retraining Notification Act
("WARN"), Section 4980 of the Code ("COBRA"), and Section 402(f) of the Code
("Rollover Notice") based on any alleged acts, errors or omissions that
allegedly occurred or should have occurred on or prior to the Closing Date; (j)
liabilities and obligations with respect to any stock option plans of Seller;
(k) any claims for product warranty, product liability, refunds, returns,
personal injury and property damage, and all other liabilities and obligations,
A-6
relating to products sold or services provided by Seller on or prior to the
Closing Date; (l) liabilities arising from employees of Seller incorrectly being
categorized or treated as "exempt" under federal and state wage and hour laws;
(m) liabilities for any costs related to a shut down, layoff, dissolution or
wind-up, (n) Transaction Costs of the Seller and the Seller Shareholders
(including but not limited to any obligation of any kind whatsoever to any party
for a finder's fee (or similar compensation) in connection with the
Transactions); (o) liabilities relating to the Retained Contract; and (p) 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.
"Second Baseline Year" is defined in Section 1.3(a)(2).
"SEC" means the Securities and Exchange Commission or any other
Governmental Authority at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means Breakaway International, Inc., a Texas corporation.
"Seller Notes" is defined in the preamble.
"Seller Intellectual Property" is defined in Section 2.12(b).
"Seller Shareholders" is defined in the preamble.
"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.
"Short Form Registration" is defined in Section 7.2.
"Significant Customer" is defined in Section 2.25.
"Significant Partner" is defined in Section 2.25.
"Significant Supplier" is defined in Section 2.25.
"Sophisticated Purchaser Questionnaire" means a Questionnaire completed by
Xxxx X. Xxxxxxx in substantially the form attached as Exhibit D hereto.
"Taxes" means all federal, foreign, state, local, and other taxes, fees,
assessments, duties and other similar governmental charges owed by Seller or
related to the Business (including interest and penalties).
"Tax Returns" means federal, foreign, state, local, and other tax returns
and reports.
"Termination Date" is defined in Section 9.1(d).
A-7
"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.
"Total Consideration" means the sum of (i) $2,603,523.45 and (ii) the value
of all Contingent Payments.
"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.
"Trigger Event" is defined in Section 8.8(a).
"Welfare Plans" is defined in Section 2.15.
A-8
EXHIBIT B
XXXX OF SALE
THIS XXXX OF SALE is made this ____ day of ________, 2003, by Breakaway
International, Inc., a Texas corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, Seller owns certain assets used or useful in Seller's business
relating to the business of point of sale, restaurant reservations and table
seating management software solutions; and
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as of
July 30, 2003, (the "Purchase Agreement"), by and among Seller, NTN Software
Solutions, Inc., a Delaware corporation (the "Buyer"), NTN Communications, Inc.,
a Delaware corporation (the "Parent"), and those Seller Shareholders 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 Xxxx of
Sale.
As a material part of the consideration for the Purchase Agreement, Seller
and Buyer agree that Buyer is taking the "Personal Property" (as such term in
B-1
defined in the Purchase Agreement) "AS IS" with any and all latent and patent
defects and that there is no warranty by Seller that the Personal Property is
fit for a particular purpose. Buyer acknowledges that it is not relying upon any
representation, statement or other assertion with respect to the condition of
the Personal Property, but is relying upon its examination of the Personal
Property. Buyer takes the Personal Property under the express understanding
there are no express or implied warranties (except for limited warranties of
title set forth in the closing documents).
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B-2
IN WITNESS WHEREOF, Seller has caused this Xxxx of Sale to be executed and
delivered as of the day and year first above written.
BREAKAWAY INTERNATIONAL, INC.
By: ______________________________
Name:
Title:
X-0
XXXXXXX X
XXXXXXXXXXX XXXXXXX XXXXX
X-0
XXXXXXX X
SOPHISTICATED PURCHASER QUESTIONNAIRE
1. Identity.
Name_________________________________________________
(Exact name as it should appear on stock certificate)
Residence Address_______________________________________
Home Telephone________________________________________
Date of Birth__________________________
2. BUSINESS
Occupation_____________________________________________
Number of Years________
Present Employer__________________________________________
Position/Title_____________________________________________
Business Address__________________________________________
Business Telephone_________________________________
Business Facsimile_________________________________
3. RESIDENCE INFORMATION
(a) Set forth in the space provided below the state(s)/countries in
which you have maintained your principal residence during the past three
years and the dates during which you resided in each state/country.
--------------------------------------------------
--------------------------------------------------
D-1
(b) Are you registered to vote in, or do you have a driver's license
issued by, or do you maintain a residence in any other state/country? If
yes, in which state(s)/ country(ies)?
--------------------------------------------------
4. EDUCATION
Please describe your educational background and degrees obtained, if any.
-----------------------------------------------------------
-----------------------------------------------------------
5. BUSINESS AND FINANCIAL EXPERIENCE
Please describe in reasonable detail the nature and extent of your
business, financial and investment experience which you believe gives you
the capacity to evaluate the merits and risks of the proposed investment
and the capacity to protect your interests.
-----------------------------------------------------------
-----------------------------------------------------------
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6. FINANCIAL ADVISORS
In evaluating this investment, will you use the services of any of the
following advisors? (If so, please identity, providing address and
telephone number.)
Accountant: ________________________________
--------------------------------
--------------------------------
D-2
Attorney: ________________________________
--------------------------------
--------------------------------
Other: ________________________________
--------------------------------
--------------------------------
7. REPRESENTATION AND WARRANTIES
The undersigned hereby acknowledges, represents and warrants to, and agrees
with, NTN Communications, Inc. ("Company"), as follows:
(a) The undersigned understands that the offering of the shares of
common stock of the Company (the "Shares") are intended to be exempt from
registration under the Securities Act of 1933, as amended, (the "Securities
Act"), by virtue of Section 4(2) and Rule 506 of Regulation D promulgated
under the Securities Act, and in accordance therewith and in furtherance
thereof, the undersigned represents and warrants and agrees as follows:
(i) The undersigned and the undersigned's advisers have been
afforded an opportunity to review and receive the reports filed by the
Company under the Securities Exchange Act of 1934 (the "Exchange Act")
and other publicly available information relating to the Company, the
Company's business and finances (collectively, the "Information"), and
any and all other information deemed relevant by the undersigned in
order to make an informed investment decision regarding the Shares,
and have reviewed and received such Information and understand the
Information;
(ii) No written representations have been made other than as
stated, or in addition to those stated, in the Information;
(iii) If the undersigned is a natural person, the undersigned has
reached the age of majority in the state in which the undersigned
resides;
(iv) The address set forth below is the undersigned's true and
correct domicile;
(v) The undersigned has adequate means of providing for the
undersigned's current financial needs and contingencies, is able to
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bear the substantial economic risks of an investment in the Shares for
an indefinite period of time, has no need for liquidity in such
investment, and, at the present time, could afford a complete loss of
such investment;
(vi) The undersigned has such knowledge and experience in
financial, tax, and business matters so as to enable the undersigned
to utilize the Information made available to the undersigned in
connection with the offering of the Shares to evaluate the merits and
risks of an investment in the Company and to make an informed
investment decision with respect thereto;
(vii) The undersigned is not relying on the Company with respect
to the legal, tax, and other economic considerations of an investment
and has obtained, or had the opportunity to obtain the advice of the
undersigned's own legal, tax, and other advisors;
(viii) THE UNDERSIGNED UNDERSTANDS AND ACKNOWLEDGES THAT HIS OR
HER INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS WHO HAVE NO IMMEDIATE
NEED FOR LIQUIDITY OF THE AMOUNT INVESTED, AND THAT SUCH INVESTMENT
INVOLVES A RISK OF LOSS OF ALL OR A SUBSTANTIAL PART OF SUCH
INVESTMENT..
(b) The undersigned's overall commitment to investments which are not
readily marketable is reasonable in relation to the undersigned's net
worth.
(c) The undersigned acknowledges:
(i) In making an investment decision the undersigned has relied
on the undersigned's own examination of the Company and the terms of
the offering of the Shares, including the merits and risks involved.
THE SHARES OFFERED HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED
THE ADEQUACY OF THE INFORMATION OR THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE;
(d) The statements given in response to the questions attached are
true, correct and complete in all material respects with no omissions whose
omission would result in such statements being materially inaccurate.
By: ____________________________________
Name:
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