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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
COMMISSION FILE NUMBER 1-11460
NTN COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 31-1103425
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5966 LA PLACE COURT, CARLSBAD, CALIFORNIA 92008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(619) 438-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.005 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K (S 229.405 of this Chapter) is not contained herein and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [_]
The aggregate market value of the voting stock held by non-affiliates of
Registrant as of April 11, 1996, computed by reference to the closing sale price
of such stock on the American Stock Exchange, was approximately $89,000,000.
(All directors and executive officers of Registrant are considered affiliates.)
At April 11, 1996 Registrant had 23,899,145 shares of Common Stock, $.005 par
value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the period ended
December 31, 1995 are incorporated by reference into Part I of this Report.
Portions of Registrant's definitive Proxy Statement for its July 1996 meeting of
stockholders are incorporated by reference into Part III of this Report.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item Page
- ---- ----
<S> <C> <C>
Part I
1. Business............................................................. 3
2. Properties........................................................... 23
3. Legal Proceedings.................................................... 23
4. Submission of Matters to a Vote of Security Holders.................. 24
Part II
5. Market for Registrant's Common Equity and Related Stockholder
Matters.............................................................. 24
6. Selected Financial Data.............................................. 25
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 26
8. Consolidated Financial Statements and Supplementary Data............. 32
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................... 32
Part III
10. Directors and Executive Officers of the Registrant................... 32
11. Executive Compensation............................................... 32
12. Security Ownership of Certain Beneficial Owners and Management....... 32
13. Certain Relationships and Related Transactions....................... 32
Part IV
14. Exhibits, Consolidated Financial Statement Schedule,
and Reports on Form 8-K............................................. 33
Index to Consolidated Financial Statements and Schedule........................ F-0
</TABLE>
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PART I
ITEM 1. BUSINESS.
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FORMATION
NTN Communications, Inc. ("NTN") was originally incorporated in the State of
Delaware on April 13, 1984 under the name of Alroy Industries. Alroy completed
a public offering of its common stock on November 26, 1984. On April 15, 1985,
Alroy acquired all of the outstanding stock of National Telecommunicator
Network, Inc. In connection with the acquisition, Alroy changed its name to NTN
Communications, Inc. In 1993, NTN completed a merger with New World Computing,
Inc. ("New World") pursuant to which New World became a wholly-owned subsidiary
of NTN. In 1994, the Company formed LearnStar, Inc. (LearnStar) and IWN, Inc.
(IWN), both currently partially-owned subsidiaries. Unless otherwise indicated,
references herein to the "Company" include NTN and its consolidated
subsidiaries, including New World, LearnStar and IWN.
RECENT DEVELOPMENTS
A discussion of the general development of the Company for the fiscal year
ended December 31, 1995 is set forth in the letter to the Company's shareholders
contained in the Company's Annual Report to Shareholders and is incorporated
herein by reference. A copy of the Annual Report to Shareholders is included as
Exhibit 13 to this Report.
In 1995, the Company purchased the shares of LearnStar, Inc. owned by ACT III
Communications to increase its ownership in LearnStar Inc. to 100%. In
December, the Company sold a 45% interest in LearnStar to Associated Ventures
Management Inc., an unaffiliated company, for $2,500,000.
In December 1995 the Company sold a 10% interest in IWN, Inc. to Symphony
LLC, an unaffiliated company for $350,000. Symphony LLC also became a limited
partner in IWN L.P., an unconsolidated limited partnership in which
IWN, Inc. is the general partner by agreeing to contribute $2,650,000 to the
partnership.
PRINCIPAL SERVICES AND PRODUCTS
NTN Communications, Inc. ("NTN" or the "Company"), through its business units
and subsidiaries, develops, produces and distributes individual and multi-player
interactive programs to a variety of media platforms. These interactive sports,
trivia game and educational programs permit multiple viewers to simultaneously
respond to and participate with the programming content. NTN has exclusive
licensing agreements with the National Football League ("NFL"), Major League
Baseball, the National Hockey League and others to provide interactive play-
along programming, such as its proprietary QB1(R) football game, in conjunction
with live television events. The Company broadcasts a wide variety of popular
games, trivia and informational programming to group viewing locations such as
hotels, sports bars and restaurants through its own interactive NTN Network. In
addition, NTN brings multi-player interactive games into consumer households
through personal computer on-line services, the Internet and interactive
television services. NTN currently has two patents pending with respect to its
interactive technology systems. Since NTN distributes its programs via
satellite, cable, telephone and wireless transmission technologies, its
applications are independent of hardware or technical platforms.
The Company currently provides its products and services through six business
units or subsidiaries in various stages of development.
Of these six, three are considered to be the Core of the Company's business,
that is, directly related to multi-player interactive entertainment programs.
The three Core business units which will be used throughout this document are as
follows:
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CORE
----
Hospitality Services ("Hospitality") - Interactive television network ("NTN
Network") featuring sports and trivia games which are broadcast to group
environments.
International Licensing ("International Licensing") - Providing the NTN
Network through exclusive licensing agreements internationally.
Home Interactive Services ("Home") - Marketing many of the same live
interactive sports and trivia games currently broadcast over the NTN Network to
the home consumer market via third-party providers.
Three others are considered to be Non-Core business units, that is, they are
indirectly related to the Core business but in different markets and/or in early
stages of development. The three Non-Core business units which will be used
throughout this document are as follows:
NON - CORE
----------
LearnStar, Inc. ("LearnStar") - Providing an interactive, multimedia,
curriculum-based educational system to schools.
IWN, Inc. ("IWN") - Developing, distributing and marketing interactive and
transaction processing software and technology for the gaming industry.
New World Computing, Inc. ("New World") - Designing, developing and
publishing interactive computer games in CD-ROM and floppy disk formats.
The following is a summary of the revenues, total expenses and operating
income for each of the Core and Non-Core business units followed by a brief
description of each:
TOTAL TOTAL OPERATING
CORE UNITS REVENUES EXPENSES INCOME (LOSS)
- ----------------- ----------- ----------- -------------
Hospitality $21,720,000 $18,173,000 $ 3,547,000
International 747,000 1,610,000 (863,000)
Home 690,000 1,532,000 (842,000)
TOTAL TOTAL OPERATING
NON-CORE UNITS REVENUES EXPENSES INCOME (LOSS)
- ----------------- ----------- ----------- -------------
LearnStar 1,095,000 3,244,000 (2,149,000)
IWN 600,000 0 600,000
New World 5,379,000 5,252,000 127,000
Hospitality--Hospitality represents the majority of the Company's business,
providing a 24-hour-a-day interactive television broadcast network featuring
sports, trivia and informational programming to over 3,000 hospitality sites in
the U.S. and Canada. These sites include bars, restaurant chains (e.g., TGI
Friday's, Ruby Tuesdays, Black Angus), national hotel chains (e.g., Hilton,
Holiday Inn, Marriott, Radisson, Sheraton), local and
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regional bowling alleys, pizzerias, sports complexes and military bases. Through
various platforms including satellite, cable and wireless transmission sources,
Hospitality can link its subscribers to encourage local, regional and national
competitions for its programming.
International Licensing--The Company has licensed independent companies to
broadcast in Australia/New Zealand and South Africa. Its exclusive licensees,
NTN Australasia, Ltd. and MultiChoice, Ltd., operate broadcast centers in
Australia/New Zealand, and South Africa, respectively. Further, the Company
licenses its programs and software to a company in Canada. Licensees, except in
Canada, operate their own broadcast center and produce interactive programs
specifically geared to the local culture and society. The Canadian licensee
uses the broadcast provided by the Company on the NTN Network.
Home--The Company provides to the home consumer market many of the same
services as Hospitality, via on-line services and interactive television
networks. Home is not dependent on any particular technology or method of
transmission to deliver its programming. For example, through an agreement with
America Online ("AOL"), NTN delivered QB1(R) to AOL customers during Super Bowl
XXX. In addition to the same sports and trivia games which are currently
broadcast over the NTN Network, Home provides other multi-player interactive
games expressly designed for the home environment. Home is divided into two
sub-markets, on-line services ("On-Line Services"), and interactive television
services ("ITV Services"). Currently, Home receives revenues from 1) play-along
services, in which NTN services are broadcast along with live events generating
subscription fees from interactive game participation, or "pay-per-play", and 2)
information services, where NTN'S database is provided as a value-added
information service to subscribers who want statistical data. Home's customers
include the AT&T Imagination Network, General Electric's GEnie, and GTE
MainStreet.
LearnStar--LearnStar, a partially-owned subsidiary of NTN, was formed in
1994. LearnStar owns the exclusive license for NTN's proprietary software
technology for educational applications in the United States. With a
comprehensive library of over 1,000 interactive academic competitions covering
16 subject areas, LearnStar offers teachers a new and exciting way to encourage
learning and motivation in kindergarten through 12th grade students.
IWN--IWN, a partially owned subsidiary of NTN, was established in 1993 to
develop, distribute and market interactive and transaction services for the
gaming industry. NTN has granted IWN the exclusive international license for
all software and technology developed by NTN for use in gaming applications.
IWN subsequently sold these rights to IWN L.P., an unconsolidated limited
partnership in which IWN is the general partner. IWN is currently pursuing its
business interests entirely through IWN, L.P. IWN, L.P. has two proprietary
software products, focusing on the pari-mutuel wagering industry which are, near
completion. Through IWN L.P., IWN is developing the IWN Gaming Host System
("Gaming Host System"), an on-line transaction processing engine that provides
security, administration, processing and switching services. The Gaming Host
System is designed to provide the back-end system and support for all of IWN's
products, regardless of market niche application or technical platform.
New World--New World is an internationally recognized designer, developer and
publisher of interactive computer games. New World has a portfolio of over 30
games for DOS, Windows and Macintosh applications in CD-ROM and floppy disk
formats. Popular titles include casino-themed games such as Vegas Games(TM),
fantasy role playing games such as Heroes of Might and Magic(TM), and strategy
adventure games such as Anvil of Dawn(TM). New World's products are designed
for general consumer use on a variety of home personal computers and console
entertainment systems, such as SEGA and Nintendo.
MARKETING AND DISTRIBUTION OF SERVICES AND PRODUCTS
Hospitality's NTN Network. The NTN Network is currently marketed primarily
to public viewing locations such as bars and lounges, that are principally
located in hotels and restaurants, as well as to military bases and country
clubs ("Locations"). The NTN Network serves over 3,000 locations throughout all
50 of the United States
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and in Canada. Locations in Canada are further served by the Company's
licensee, NTN Interactive Network ("NTN Canada").
The NTN Network presently features from 14 hours to 17 hours, depending on
the time zone, of interactive sports and entertainment trivia game programming
on weekdays, with extended programming hours on weekends. The balance of
broadcast time is devoted to an audible graphics-based service transmitting
information, including sports and upcoming program promotion.
Original programming for the NTN Network is developed and produced at the
Company's corporate offices in Carlsbad, California for distribution to
Locations. The Company's facilities are equipped with video, satellite and
communications equipment, and sophisticated multimedia computers. The Company
can provide simultaneous transmission of up to 16 live events for interactive
play and a multitude of interactive games and other programs, allowing
distribution of different programs to customers in different geographical
locations.
The Company uses two independent services to distribute NTN programming via
satellite to customers, although it is not dependent upon either service because
there are several other providers that offer similar services. The Company
attempts to use the most effective and least expensive multiple data
transmission techniques to distribute data from the Company's facilities to
customers, including FM radio transmission, direct satellite broadcast, and
television transmission via vertical blanking interval.
Each Location receives NTN proprietary equipment (a "Location System")
including a personal computer, a satellite data receiving unit (usually a small
satellite dish), and a minimum of ten hand-held, portable keypads
("Playmakers(TM)") which players use to make their selections. During live
interactive program, players participate in the play-along programs using two
television screens. One screen features the live broadcast from the television
network (e.g., ABC's Monday Night Football), while the second screen displays
the NTN Network program. Participants play the game by entering their selection
on Playmakers(TM), which transmit a radio signal to the on-site computer or
through connection to the NTN broadcast center (the "Broadcast Center") in
Carlsbad, California. At the conclusion of the broadcast, total scores are
calculated and sent via phone lines. Within seconds, results are tabulated and
scores at each participating Location are transmitted back to such Location via
the NTN Network. This allows players to compete not only with other patrons at
their Location, but against all players across the nation who are participating
interactively on the Network. The following diagram depicts the transmissions
for a typical real-time, interactive game via satellite.
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[SATELLITE FIGURE GOES HERE]
In addition to tabulating Playmaker(TM) responses at the Location and
communicating with the Company's offices, the Location System can manipulate
videotext inserts at the direction of the Location, and call up high-resolution
computer generated graphics as directed by the Company's computers.
Accordingly, the Company offers both national and local advertising.
Interactive Sports Game Programs. Hospitality offers a variety of sports and
entertainment trivia games that challenge players skill and knowledge and create
significant customer loyalty. An example of interactive sports programming is
QB1(R), the Company's first and most renowned game program. QB1(R) is an
interactive football strategy game exclusively licensed by the NFL which tests a
player's ability to predict an offensive team's plays during a live televised
football game. Points are awarded based on the accuracy of the player's
prediction, rather than whether the team scores or advances the ball. The
Company broadcasts QB1(R) in conjunction with every NFL game and selected
Canadian Football League games and college football games.
The NTN Network presently features the following interactive sports games
programs:
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NTN Play-Along Games--Interactive games played in conjunction with live,
televised events. Games include the following:
<TABLE>
<CAPTION>
GAME DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
QB1(R) NFL licensed interactive strategy game in
conjunction with live telecasts of college and
professional football games
NTN DiamondBall(R) Major League Baseball licensed interactive
strategy in conjunction with live telecasts of
baseball games
Triples(TM) Interactive horse racing game in conjunction
with live telecasts of horse races
Uppercut(R) Interactive strategy game in conjunction with
live telecasts of boxing matches
NTN PowerPlay(R) National Hockey League licensed interactive
strategy game in conjunction with live telecasts
of hockey games
</TABLE>
NTN Fantasy Games--Fantasy league games that are played in conjunction with
sporting events or rotisserie leagues. Games include the following:
<TABLE>
<CAPTION>
GAME DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
Brackets(TM) Basketball or hockey tournament prediction game
Dream Team Baseball(TM) Managing a professional all-star baseball team
Football Challenge(TM) Weekly selection of winners of college and
professional football games
Football Fantasy(TM) Managing a professional all-star football team
Hockey Draft(TM) Managing a professional all-star hockey team
Hoops(R) Managing a professional all-star basketball team
Oddsmaker Challenge(TM) Weekly selection of winners of various sporting
events
</TABLE>
Interactive Trivia Game Programs. During trivia game programs, each Location
System simultaneously displays selected trivia questions which are displayed on
the NTN television monitor at each Location. Participants use the Playmaker(TM)
to select answers, which are collected, transmitted and tabulated in a similar
manner to NTN's interactive sports games. Participants' scores are displayed on
the dedicated television monitors, along with national, regional and local
rankings, as applicable.
While certain of the Company's sports games are available only during the
seasons when the respective sports are played, the trivia game programs allow
the Company to offer year-round interactive programming. The NTN Network
generally provides the trivia programming during evening hours, when Locations,
particularly restaurants and bars, tend to be busiest. Currently, the Company
broadcasts between 14 and 17 hours of interactive programs per day. The NTN
Network presently features the following interactive trivia games programs:
NTN Premium Trivia Games--Promotion-oriented weekly game shows that generally
require 1-2 hours of participation. Prizes are awarded to the top finishers.
Games include the following:
<TABLE>
<CAPTION>
GAME DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
Passport(TM) Travel oriented game with 3-D animated graphics
Playback(TM) Music trivia
Showdown(R) Advanced trivia challenge
SportsIQ(TM) Weekly sports trivia game
Sports Trivia Challenge(R) Advanced sports trivia covering multiple topics
Spotlight(TM) Entertainment and media based trivia game
(movies, music)
</TABLE>
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NTN Trivia Games--General-themed, standard games typically one-half hour in
length. Games include the following:
<TABLE>
<CAPTION>
GAME DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
Brain Buster(R) Interactive trivia game covering esoteric topics
Countdown(R) Interactive trivia game using word plays
Topix(TM) Theme driven trivia game played under controlled timing
Wipeout(TM) Interactive trivia game eliminating incorrect answers
Nightside(R) Adult oriented trivia
Sports Trivia(R) General trivia game covering sports topics
Undercover(R) Trivia/puzzle game
Viewer's Review(R) Audience-supplied content trivia game
Retroactive(TM) Pop-culture trivia with 60's, 70's and 80's content
Football Weekend Roundup(TM) Football trivia game
Custom Games--Interactive games created specifically for media companies such as
Capital Cities/ABC for simultaneous broadcast with their live telecasts.
</TABLE>
<TABLE>
<CAPTION>
GAME DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
NTN Awards Show(TM) Interactive game played in conjunction with the
Academy Awards, Grammy Awards and other award
shows
NTN Draft Show(TM) Interactive game played in conjunction with the
annual NFL draft
Reality Check Interactive game played in conjunction with
sports round table television broadcast in
conjunction with Prime Sports
</TABLE>
Since 1987, Hospitality has broadcast the NTN Awards Show(TM) to all sites in
connection with the live Academy Awards telecast. The NTN Awards Show(TM)
contains movie trivia and biographical information on nominees and allows
players to predict winners up to the actual announcement and compete with other
players via the Network, in a manner similar to QB1(R).
Information Programming. During the hours in which the Company is not
broadcasting interactive games, the Company uses its broadcast network to
transmit sports information as well as NTN Network programming information. The
Company obtains the majority of its sports information (for which it pays a
monthly fee) from Sports Ticker wire service, electronically formats the
information and then retransmits it for broadcast to Locations.
Advertising. Hospitality operates in a manner similar to the television
broadcast medium in that a number of minutes of a broadcast hour are set aside
for advertising, promotional spots (promoting Hospitality's competitions and
special events), "tune-in spots" (promoting Hospitality's programming schedule),
and public service announcements.
Hospitality has currently set aside fourteen minutes each hour for
advertising, promotional spots and "tune-in spots." Each of the spots are
designed to be fifteen seconds in length for a total of 56 spots per hour.
Hospitality can insert advertising messages into its interactive sports and
trivia programming at any number of Locations. Further, messages can be
broadcast over the Network or custom-tailored for a specific Location or several
Locations.
Hospitality sells advertising in blocks of two-fifteen second ad spots per
hour for a total of fourteen hours per day. Hospitality has innovatively
blended programming content with the advertiser's logo and message. For
example, the Miller Lite Countdown(R) and Cuervo 1800 Countdown(R) Shows provide
30 minutes of commercial exposure to Miller and Cuervo products. Sponsorships
of programs are also available and provide advertisers with specific premium
exposure within a sponsored program.
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Advertisers are also given the opportunity to communicate directly with
Hospitality's Players Plus(R) ("Players Plus(R)") members, numbering over
250,000. Players Plus(R) is a frequent player club which members join by
entering their name, address, zip code and identification number into a
Playmaker(TM), which is then captured at the Broadcast Center. A member earns
points each time they play and also a chance to win prizes in the monthly
Players Plus(R) sweepstakes. Sponsors are capable of receiving feedback through
interaction with customers in the form of customer surveys.
Special Events. The Company provides interactive services to corporate
customers for special events such as trade shows, conventions, major sporting
events, polling, auctions, and corporate training. The NTN Special Event System
is highly portable and adaptable. It can be used in a variety of settings
including convention centers, theaters, conference centers, and major gathering
areas such as arenas and stadiums. Specific programs are tailored to the needs
of the customer for each special event, resulting in an attractive, high-tech
interactive production. The following is a partial list of customers and events
for which the NTN Special Event System was utilized in 1995:
National Football League - The NFL Experience
NFL Hall of Fame - Permanent Display
Major League Baseball - Fanfest
Major League Baseball - Hall of Fame Dinner
National Hockey League - Hockey Hall of Fame
Lexus-Toyota Motor Sales - Car Auctions
National Restaurant Association - Trade Show
Interactive Programming Under Development. The Company is continuing to
develop and market-test other interactive game programs. These include
interactive programming in conjunction with live broadcasts of basketball games
and award shows, as well as additional trivia and stand-alone interactive games.
The Company is also developing interactive games for broadcast with television
game shows, allowing NTN Network viewers to play a televised game show
simultaneously with studio contestants.
International Licensing. NTN continues to expand its international services
though licensing agreements. For many years, NTN has provided service to
customers in Canada through its unaffiliated licensee, NTN Canada. In 1993, NTN
issued a 20-year license to an unaffiliated company in Australia ("NTN
Australasia"), to create the first interactive television network in Australia
and New Zealand. In 1994, NTN issued a license to MultiChoice Ltd., an
unaffiliated company, to develop and operate an interactive broadcast network in
South Africa. Generally, the company licenses operations in foreign countries
by granting the rights to use NTN's exclusive interactive broadcast technology.
NTN provides licensees with technological know-how and assistance to build a
broadcast center, and to develop interactive products and programs.
Home. The Company provides many of the same services and programs as
Hospitality to the home consumer market via Home Interactive Services ("Home").
Home provides multi-player interactive games, which have already garnered brand
recognition via Hospitality, into the consumers' households through personal
computer on-line services and interactive television services. In addition,
Home provides other multi-player interactive games designed expressly for the
home environment. Home offers the games to end users via third party networks
such as America Online, ImagiNation Network, and GTE MainStreet. The Company
receives development fees and monthly broadcast revenues based upon usage and
certain minimum guarantees from these third-party networks. The end-user does
not pay NTN directly, but pays the distributor who is responsible for paying the
Company.
The current focus of home distribution is PC on-line services, such as AOL,
where a substantial customer base already exists. The Company's interactive
sports and trivia games are available on-line 24 hours a day, seven days a week.
The Company distributes games through PC on-line services in return for a share
of the customer revenue in excess of a minimum monthly fee. The end-user
purchases services from a distributor such as AOL who, in turn, pays NTN.
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Most of the interactive sports and trivia games currently broadcast over the
NTN Network into Hospitality locations are available directly to customers in
their homes through a variety of media, including computer on-line services and
ITV networks. Home is a unique content provider since its program is not
dependent upon, and consequently not bound by, any particular technology or
method of transmission. Regardless of which technology emerges as the primary
means of transmission on the "information highway", management believes Home's
programming content will be available to the household.
In addition to the games developed by Hospitality, Home currently offers
three on-line games: Hockey Trivia(TM), Baseball Trivia(TM), and Pigskin
Picks(TM), and four ITV games: Blackjack, Poker, Reversi and Checkers. In
1996, over two million households had access to play QB1(R) during Super Bowl
XXX. Further, the NTN Awards Show(TM) was available to over three million
households which could play along and predict the outcome of the 1996 Academy
Awards telecast.
Home distributes games to on-line and ITV networks, also known as content
distributors. These games, in turn, are made available to their customer base
for a fee. The diagram below depicts the transmissions necessary for a Home
customer to play a Home game.
[VIA CABLE/TELEPHONE FIGURE]
LearnStar. NTN formed and granted to LearnStar the exclusive license for its
proprietary technology for educational applications in the U.S. The LearnStar
teaching system (the "LearnStar System") was developed as a natural extension of
the Network and its Hospitality applications. The LearnStar System is targeted
at schools and teachers who are seeking an educational tool to increase student
interest in learning via interactive competitions in the classroom.
The LearnStar System enables a school to evaluate the academic proficiency of
the students, while creating an enjoyable environment in which students seem
more apt to participate. Using similar technology to that used for the NTN
Network, the LearnStar interactive learning system can conduct academic
competitions, collect data for
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surveys and provides local, regional and national testing capabilities. All of
these services can be utilized within a single classroom, at one distinct site,
or at multiple schools throughout the country, all with instantaneous feedback.
Students test their comprehension of material by viewing an academic
competition on a television screen, then answer questions interactively via
hand-held keypads that broadcast signals to and from the LearnStar System. The
questions are posed in a multiple choice format, similar to the nationally
administered Scholastic Aptitude Test. Many competitions feature full-motion
video, colorful graphics and sound. Students work individually or in teams to
answer the questions, with scores and team rankings displayed on the television
screen after each question. The LearnStar System offers flexibility - it can be
utilized as a stand-alone resource, moving on a portable cart from classroom to
classroom for use by the entire school, or the LearnStar System can be linked
via satellite on the NTN Network for live national competitions with schools
throughout the US. Teachers can also develop unique lesson plans by editing the
existing competitions or creating their own customized quizzes to include
current events and to highlight important information.
The LearnStar System includes a dedicated computer control system with
Pentium processor, CD-ROM unit, proprietary software, printer, satellite dish,
receiver, wireless keypad transceiver, classroom keypad pack with charging
trays, and LearnStar component cart. The LearnStar System allows teachers to
customize existing learning materials in the library to match their personal
lesson plans with proprietary editing software that allows the editing of
existing competitions, or creation of new competitions, utilizing either a PC or
Macintosh platform.
The multimedia, interactive LearnStar software features over 1,000 academic
competitions in 16 subject areas written by experienced educators, instructional
designers and software programmers. LearnStar academic competitions are
carefully written according to state guidelines, national standards, relevant
topics and age appropriateness.
IWN. IWN, a partially owned subsidiary of NTN, was established in 1993 to
develop, distribute and market interactive and transaction processing services
for the gaming wagering industry. IWN is a general partner in IWN L.P. which
has been granted the exclusive worldwide license for all existing and future
software and technology related to gaming applications. IWN, L.P. will continue
to develop its products and services for eventual mass marketing.
Initially, IWN focused on the domestic pari-mutuel market as the point of
entry due to the enabling legislation that already exists in several states.
This legislation currently allows racing fans to establish and fund an account
at the racetrack, and call in via telephone to either a live operator or an
interactive voice response unit to place their wager. New York and Connecticut
presently allow non-residents to establish accounts and place interstate
telephone wagers. Ohio and Pennsylvania are considering allowing non-resident
accounts and interstate telephone wagering.
IWN's first product, HomeStretch(TM), turns a personal computer into a
gateway for pari-mutuel wagering. The Windows 95-based product will allow
players to establish and fund an account at the racetrack, review race
information, and create wagers. Using a modem, the player will connect to IWN's
Gaming Host System, located in Carlsbad, California, which upon completion will
provide connectivity to the racetrack system, funds transfer system, and
information providers. The Gaming Host System will be an on-line transaction
processing engine that will provide the security, administration, financial
transaction processing services and switching capabilities necessary to support
interactive gaming and wagering from the home or virtually anywhere.
New World. New World was acquired in 1993 to broaden the Company's game
portfolio and to develop new platforms beyond TV to cable, satellite and
wireless networks. New World is an internationally recognized designer,
developer and publisher of interactive computer games, currently offering games
in CD-ROM and floppy disk formats. Since its inception, New World has published
over 30 titles for DOS, Windows and Macintosh applications in CD-ROM and floppy
disk formats emphasizing sequel-based fantasy role playing games. New World
primarily publishes games, most of which are developed under contract by
independent producers concentrating on original games.
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MARKETING AND EXPANSION STRATEGY
Hospitality. Hospitality markets its services to customers primarily through
advertising in national trade periodicals, national and regional industry trade
shows, telemarketing, direct mail and direct contact through the field
representatives. All sales prospects are organized and tracked through
Hospitality's distributed database software. Hospitality utilizes a full-time
telemarketing staff to set appointments for field representatives, pursue trade
show and magazine inquiries and accommodate in-bound sales calls. The
telemarketing staff plans, organizes and implements the direct mail program and
the subsequent follow-up strategy. This staff also telemarkets to prospects
generated from industry lists acquired by hospitality. Currently Hospitality
sells its services through its two-person management team and utilizes direct
salespersons as well as over 30 independent representatives. The
representatives' agreements are typically three-year agreements, subject to
earlier termination by the Company in the event the representative does not meet
certain performance goals. Customers generally execute a renewable one-year
contract to obtain the Company's services and pay a monthly fee of approximately
$600.
The Company's future business strategy related to Hospitality is to continue
to increase available programming for the NTN Network and market the NTN Network
to additional group viewing Locations. In addition, the Company intends to
develop additional revenue sources for the NTN Network such as advertising, and
increase its special event services to other types of businesses. No assurance
can be given as to whether the Company will be successful in the implementation
of its business strategy.
Home. Since the end-user is technically the distributor's customer, Home
relies on the distributor's marketing efforts to promote its products. However,
home works in conjunction with distributors to develop the promotions and
advertisements. For example, AOL may include the Company's game logo on an
initial "start-up" screen which millions of its subscribers can access at no
expense to NTN. Furthermore, Home supplies distributors such as GTE MainStreet
with existing marketing materials used by Hospitality, but GTE MainStreet
absorbs the majority of the cost associated with promoting Home's games to GTE
MainStreet customers. The company has long-term agreements with its customers
to provide its services and products. Home's customers generally pay the
company a fee based on the amount of time that consumers have participated with
Home's games and services.
In the future, Home expects its products to elicit more exposure from the
distributors as a result of increased brand recognition and continued
promotions. Home will continue to take a proactive position with respect to
marketing products to each distributor to ensure inclusion in as many of their
promotional efforts as possible. Home expects its direct marketing costs to
continue to be minimal. No assurance can be given as to whether the Company
will be successful in the implementation of its business strategy.
LearnStar. To date, LearnStar has utilized a direct sales force to target
individual schools. In the future, management plans to increase the marketing
effort by targeting inner-city school districts, the nationwide Catholic
archdiocese school system and others. LearnStar is seeking sponsorship from
public and private foundations as well as funding from federal, state and local
government agencies. LearnStar derives its revenues from selling the LearnStar
system and a site license to its customers. Current prices for the LearnStar
system range from $18,000 to $23,000 dependent upon volume and other factors.
LearnStar also is pursuing corporate sponsorship, whereby corporations will
finance the costs of an academic competition in return for promotional
consideration. Marketing and sales efforts are focused on large population
centers in states with funds designated specifically for technology in
education. Sales efforts are currently underway in Mississippi, Georgia, North
Carolina, Pennsylvania, Ohio, Missouri, Illinois and Michigan. No assurance can
be given as to whether the Company will be successful in the implementation of
its business strategy.
IWN. IWN's marketing strategy is to promote the acceptance of interactive
applications to existing gaming and wagering enthusiasts, on-line services users
and interactive television participants. IWN's marketing strategy for
HomeStretch(TM) in the interactive pari-mutuel wagering market, is to target
both the racing organization and the
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racing end-user. The development of this business will depend on the adoption of
enabling legislation in many states and countries. Utilizing database marketing,
IWN will initially target racing fans who currently use computers for
handicapping. This group has been identified as "early adopters". IWN intends to
expand the market to include on-line services users and other demographic groups
which are comfortable with technology and have an interest in sports. IWN will
seek to utilize resources from both the Hospitality and Home businesses to
generate potential customer lists. Targeted direct mail, on-line advertising and
telemarketing will all be utilized to promote the IWN services. IWN will
generate revenue through fees charged to process data including wagers and
switching and transfer services.
Promotion to the racing industry will be through trade shows and direct
sales. IWN's management team has over twenty-five years of combined experience
marketing services to the gaming and wagering industry. IWN has a relationship
with Autotote Corporation, a public company which processes approximately 75% of
the pari-mutuel handle in the U.S. and which is the exclusive licensee for
operating off-track betting establishments for the State of Connecticut. In
addition, IWN has a relationship with the Ontario Jockey Club, Canada's premier
racing organization, with plans to develop an interactive wagering system for
the Canadian market. Implementation is expected in the third quarter of 1996.
No assurance can be given as to whether the Company will be successful in the
implementation of its business strategy.
New World. Since its inception, New World has published over 30 titles for
DOS, Windows and Macintosh applications in CD-ROM and floppy disk formats
focusing on sequel-based fantasy role playing games ("RPGS"). New World
primarily publishes games, most of which are developed under contract by
independent producers, but also has an internal core group of professionals to
support developers and to produce a selected number of titles in-house. New
World focuses on bringing original games to market rather than paying premiums
to license TV or movie titles from outside parties as do many of its
competitors. The product development cycle normally takes between 12 and 18
months from concept to production. A large percentage of sales occur in the
last four months of the year during the peak Christmas holiday sales season.
The Company's current list of PC based, CD-ROM and entertainment center-based
game Products consists of the following:
Fantasy Games
-------------
Might and Magic I & II Combo
Might and Magic III, Isles of Terra
Might and Magic: Clouds of Xeen
Might and Magic: Darkside of Xeen
Might and Magic: World of Xeen
Heroes of Might and Magic
Might and Magic: Trilogy
Adventure/Strategy Games
-------------------------
Spaceward Ho!
Spaceward Ho! IV
Empire Deluxe
Empire Deluxe: The Scenarios.
Empire II
Iron Cross
Hammer of the Gods
Inherit the Earth
Zephyr
Wetlands
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Entertainment Games
-------------------
Joe & Mac: Caveman Ninja
Vegas Games
More Vegas Games
Celebrity Poker
Mind Games
Family Card Games
Productivity/Connectivity Software
----------------------------------
MacIntercomm Lite
New World is involved solely in the software aspect of the computer and video
game industry. It is not involved in the manufacturing or sales/distribution of
computer hardware other than in the form of licensing and bundling Products with
hardware manufacturers. The Company's Products are sold through mass merchants
or retailers and subsequently installed directly onto the consumer's computer.
Technical support for questions relating to video game software is provided
to the consumer free of charge. In addition, consumers have access to the 24-
hour bulletin board system for video game hints and updates. To eliminate
technical problems, the Company employs several full-time quality control
personnel who conduct tests on the various aspects of each Product.
Advertising for computer games and video game software incorporates both
traditional and non-traditional media placements. Traditional media include
magazines, trade journals, direct mail, telemarketing and newspaper advertising.
Non-traditional media include on-line marketing (including the Internet),
encrypted CD-ROM marketing and trade show promotions. New World also utilizes
cooperative advertising in conjunction with retailers in order to capture end-
caps and shelf space. New World currently advertises in leading industry
publications such as Computer Gaming World, Computer Game Review, PC Go, PC Data
and PC News. New releases are promoted through advertisements as well as
reviews in these publications. Retail prices for New World games range from
$19.95 to $59.95.
New World distributes directly to its largest 50 customers through a three
person sales force that covers both domestic and international markets. All
other sales are made through distributors. Distributors are paid a 5%
commission for every title sold. The majority of sales are made by software
specialty retailers including Egghead, Electronics Boutique and Software Etc.
New World products are also distributed through computer superstores (CompUSA,
Computer City), warehouse clubs (Price/Costco, Sam's) and consumer electronics
retailers (Circuit City, Best Buy and Good Guys!).
New World software is also distributed through mail order catalogs such as
Mac/Micro Warehouse and PC MacConnection. New World recently expanded
distribution capabilities in Europe by entering into an arrangement with an
independent company to produce, market and distribute New World's products for
which it will receive royalties. As a result of this and other pending
arrangements, New World does not employ any sales representatives in foreign
countries.
New World's future business strategy related to the software development and
distribution segment, is to produce the highest quality, most entertaining
Products in the marketplace, and to expand its distribution, both domestically
and internationally. In this regard, New World intends to increase its product
line and release additional Products in 1996 and actively pursue publishing its
own video games on additional technical platforms including SONY Playstation
systems and SEGA Genesis systems. New World will also seek out further
opportunities to publish and distribute products developed by others, and other
development avenues. In furtherance of its business strategy, New World plans
to continue to research the needs of the consumer, develop innovative
technology, improve and enhance game design, graphics, sound and musical effects
and expand its
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story lines. No assurance can be given as to whether the Company will be
successful in the implementation of its business strategy.
SOURCES OF REVENUE
The following table sets forth information with respect to the principal
sources of the Company's revenues during the years ended December 31, 1995, 1994
and 1993.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Distribution revenue - Domestic......... $16,411,000 $11,584,000 $6,198,000
Distribution revenue - Foreign.......... 896,000 660,000 580,000
Equipment sales - Domestic.............. 6,073,000 3,958,000 3,281,000
Equipment sales - Foreign............... 711,000 429,000 689,000
Licensing - Domestic.................. 672,000 1,083,000 0
Licensing - Foreign................... 1,495,000 851,000 802,000
Product sales - Domestic................ 3,884,000 5,052,000 5,468,000
Product sales - Foreign................. 0 211,000 0
Other................................... 1,629,000 818,000 240,000
</TABLE>
Distribution Revenue. The primary market for the NTN Network has been the
Hospitality market comprised of approximately 330,000 bars and restaurants in
North America, but potential Locations may also be found among approximately
30,000 hotels, 800 military bases, 3,000 college campuses, 24,000 hospitals, and
100,000 other group viewing Locations such as country clubs, fraternal
organizations, and bowling centers.
To date, the NTN Network customers have generally been bars and lounges,
principally in hotels and restaurants. Many of the Company's Locations have
multiple sites such as hotel and restaurant chains. Locations generally enter
into a one-year broadcast service agreement with the Company pursuant to which
they pay a monthly broadcast fee of approximately $600 per Location. The
Company currently serves over 3,000 Locations located in all 50 States and in
Canada. Fees from distribution services account for approximately 50% of the
Company's revenue.
Through Home, the Company also provides its services to on-line users and ITV
services pursuant to the agreements with various system providers such as AOL,
GEnie, GTE and Imagination Network. The on-line computer industry is one of the
fastest growing consumer markets in terms of subscribers. Industry analysts
project that by 1999 more than 100 million consumers will be connected to on-
line computer services. Distribution fees from on-line services and ITV services
are based on the actual use of the NTN interactive programs by their underlying
customers. Revenues from these services were $690,000 in 1995.
In 1986, the Company entered into a license with NTN Canada (the "Canadian
License"), pursuant to which NTN Canada solicits Locations to the NTN Network in
Canada. Under the Canadian License, the Company broadcasts NTN Network programs
to Canadian Locations in exchange for an annual license fee payable in monthly
installments based upon the number of Locations in Canada, which presently
number approximately 450.
The Canadian License also grants NTN Canada the exclusive right to market NTN
interactive services to cable/on-line viewers in Canada. The Company is
entitled to receive a royalty equal to 25% of revenues generated from Canadian
home customers. There are as yet no cable/on-line customers in Canada, and no
assurance can be given that any such royalties will be received by the Company.
Equipment Sales. Equipment sales of Location Systems and LearnStar Systems
is a major source of revenue for the Company. Typically, Location Systems are
sold to leasing companies under sale and leaseback agreements,
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and provided by the Company to Locations. The Company also sells interactive
equipment, particularly Playmakers(TM), to its licensees in Canada, Australia,
New Zealand and South Africa. LearnStar Systems are sold to schools and other
education providers. Equipment is generally sold to customers with no return
rights except in the case of defect.
Licensing of Technology. NTN has entered into license agreements with
unaffiliated companies in Australia/New Zealand and South Africa. Those license
agreements provide for the Company to assist licensees in establishing a
broadcast network, and for the company to receive a flat license fee. In
addition, a monthly fee based upon the number of Playmakers(TM) in use plus a
percentage of gross advertising revenue is earned by NTN. The Australia/New
Zealand licensee commenced operation of a broadcast network in 1993. The South
Africa licensee began operation of its broadcast center in 1995. In 1994 and
1995, IWN licensed IWN L.P., an affiliated unconsolidated limited partnership,
for worldwide rights to its interactive gaming technology. No assurances can be
given that any significant revenues to the Company will result from future
licensing activities.
Product Sales of Video Game Software. A majority of the Company's software
sales are through software specialty retailers, including Egghead, Electronics
Boutique, Software Etc., and Babbages. The Company has entered into
distribution arrangements with distributors who supply retailers.
The Company distributes its Products to computer superstores, such as
CompUSA, Computer City, Micro Center, Fry's Electronics and Future Shop
(Canada); warehouse clubs, such as Price/Cost Co., Inc. and Sam's; consumer
electronics retailers such as Best Buy, Inc. and Circuit City and mail order
catalogues, including Mac/Micro Warehouse, PC MacConnection, MAC Zones and
Multiple Zones. Additional orders are obtained through direct mail campaigns
through the Company's 800-sales line and product catalogues included in every
product box.
North American sales accounted for nearly all of video game Product sales for
the year ended December 31, 1995. The Company's video games are distributed in
Japan and other Asian countries through independent retailers and distributors
and in the United Kingdom, Europe and Asia by means of independent distributors
through license agreements.
RAW MATERIALS
For media platforms such as cable and on-line services, the Company
distributes its programs to the recipients who maintain their own receiving,
translation and re-broadcasting equipment. Accordingly, the Company has no raw
materials or equipment needs for these customers. For media platforms such as
the NTN Network and LearnStar applications, the System is assembled from off-
the-shelf components available from a variety of sources, except for the
Playmaker(TM) package. The Company installs and maintains service of the
Location Systems and LearnStar Systems. The Playmaker(TM) package is currently
manufactured to the Company's specifications by a non-affiliated manufacturer in
Taiwan. The Company believes that there are numerous other manufacturers who
could supply Playmakers(TM), although no assurances can be given that, if
necessary, such alternative sources could be secured at commercially reasonable
costs and without undue delay.
Computer and video game Products are manufactured by third-party fulfillment
houses using printed and pre-packaged materials, computer disks and compact
discs (CD's). These materials are readily available from a variety of sources
and the Company is not dependent on any one source for materials.
LICENSING, TRADEMARKS, COPYRIGHTS AND PATENTS
The Company's sports games make use of simultaneous telecasts of sporting
events. The promoters of such events take the position that the use of
simultaneous telecasts requires express permission from the owners of the
pertinent rights. In addition, the Company believes that a license is required
to utilize the trademarks and logos of national teams and leagues in connection
with the playing of an interactive game.
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The Company is party to an exclusive license from the NFL, which grants the
Company the exclusive right to use the trademarks and service marks of the NFL
in connection with the playing and marketing of QB1(R). The NFL license grants
the Company the exclusive data broadcast rights to conduct interactive games in
conjunction with the broadcast of NFL football games, for which the NFL receives
a royalty based on revenues billed by the Company in connection with QB1(R)
play. The agreement with the NFL had an initial term of five years which
expired in 1995. The Company's exclusive agreement with the NFL was extended
for two years and the parties are presently engaged in negotiations with respect
to their future relationship. There can be no guarantee that the Company will
be able to renew the license in the future. Further, it is uncertain as to
whether the Company's failure to renew the license will have a material adverse
effect on the Company.
In 1994, the Company entered into a three-year exclusive contract with the
Canadian Football League ("CFL") granting the Company the exclusive rights to
the simulcast of data accounts of the events occurring at CFL games, for which
the Company paid a royalty fee to the CFL. The license also includes the
exclusive right to use the CFL trademarks and logos for an interactive game in
connection with the playing and marketing of QB1(R).
The Company currently has non-exclusive licenses from Major League Baseball
and the National Hockey League to use live broadcasts of their respective games
in conjunction with broadcasts of "NTN DiamondBall(R)" and "NTN PowerPlay(R)" in
Canada. The Company does not possess such licenses with respect to the United
States and other territories. The Company may ultimately seek United States
licenses for "NTN DiamondBall(R)" and/or "NTN PowerPlay(R)", though under the
circumstances, no assurances can be given that the Company will be able to
secure such new licenses given the current moratorium, nor is it certain that
the Company will be able to secure new licenses on satisfactory terms.
No action has been brought against the Company by the owners of the
applicable rights with respect to any of the Company's broadcasts of interactive
games in conjunction with live sports events.
In connection with a settlement of a lawsuit that the Company brought in 1986
to challenge the validity of Interactive Network ("IN")'s US Patent, the Company
entered into an agreement with IN in 1987 to take a license under that Patent
which grants the Company an irrevocable, worldwide, royalty-free license for
QB1(R) such that IN cannot challenge QB1(R) as played on the NTN Network based
upon a claim of patent infringement. Non-live events in the United States, such
as the Company's popular trivia games, do not utilize IN's US Patent. In
addition, any of the Company's programming, as played on any of the on-line
services, similarly do not utilize the IN/US Patent. IN also holds the
IN/Canada Patent, issued in October, 1990, which, but for one additional claim,
is identical to the IN/US Patent. Since the issuance of the IN/Canada Patent,
the Company filed an action in Canada for a declaration that the Company's
operations in Canada do not infringe the IN/Canada Patent. In response, IN
instituted its own lawsuit in Canada seeking a declaration of infringement. The
existence of IN's claim against the Company has not precluded the Company from
broadcasting in Canada. In the event that it is determined that the Company's
programs do utilize the IN/Canada Patent, the Company could be required to pay
royalties for such programming, with the exception of QB1(R), for which the
Company has an irrevocable, worldwide and royalty-free license. Alternatively,
the Company can reconfigure the systems by which it distributes, stores,
processes or collects data to and from Canadian Locations in the course of its
interactive broadcasts at an insignificant cost. See "Legal Proceedings".
The Company keeps confidential as trade secrets the software used in the
production of its programs. The hardware used in the Company's operations is
virtually off-the-shelf, except for the Playmaker(TM) keypads. The Company owns
copyrights to all of its NTN Network programming. In addition to the
registration of the trademark for QB1(R), the Company has either received, or is
presently applying for, trademark protection for the names of its other
proprietary programming, to the extent that trademark protection is available
for same.
During 1994, the Company commenced a program directed to the protection of
its intellectual property assets. As part of this program, the Company
presently has two patents pending for an Interactive Learning System and
Automated System for Conducting Auctions with Participants in Remote Locations.
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The Company has licensed certain of its out-of-print titles to others for
inclusion in packages along with other software titles on a domestic basis. The
Company also licenses out-of-print and current titles to publishers throughout
Europe and Asia. No assurance can be given that the Company will continue to
generate significant revenues from its out-of-print titles, domestically or
internationally.
"New World Computing, Inc." and its logo are registered trademarks of New
World, Inc., a wholly owned subsidiary of NTN. "LearnStar" and its logo are
registered trademarks of LearnStar, Inc. a partially owned subsidiary of NTN.
"IWN" and its logo are registered trademarks of IWN, Inc., a partially-owned
subsidiary of NTN. The Company actively trademarks and copyrights all of its
proprietary software, game titles, game logos and software tools.
SEASONAL BUSINESS
Overall, the Company's business is not generally seasonal. However, sales of
new Locations have traditionally been higher in the Summer and early Fall months
compared to the rest of the year. Revenue from Interactive Television and
Entertainment services is billed monthly based on broadcast and production
services as provided to customers. Sales of LearnStar Systems occurred for the
first time in 1995, but management believes that sales will be higher in the
early part of the year and at the traditional beginning of school in September
with little or no activity during the Summer break period. Sales of video game
Products have been more heavily weighted in the late third quarter and fourth
quarter for the past few years but can fluctuate based on the timing of the
release of new Products.
WORKING CAPITAL
The discussion under "Liquidity and Capital Resources" included in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, is incorporated herein by reference.
SIGNIFICANT CUSTOMERS
The Company's customers are diverse and varied in size as well as location.
The distribution services are provided point to multi-point so that the Company
is not dependent on any one, or a few customers. The Company does not have any
individual customers who accounted for 10% or more of its consolidated revenues
in 1995, 1994 or 1993.
BACKLOG
The Company generally does not have a significant backlog at any time because
the Company normally can deliver and install new Location Systems within the
delivery schedule requested by customers (generally within two weeks) related to
the NTN Network, with a similar delivery and installation pattern for the
LearnStar System. At December 31, 1995, the Company had a backlog of
uninstalled Location Systems of approximately 100 new Locations which were
installed in January and February, 1996. For other distribution platforms,
there is no backlog because services are generally distributed point to multi-
point and the Company does not have to provide specific equipment to the
customer, making it relatively simple to add new customers.
Products provided to retail outlets are not backlogged since the selling
season for any given video product is generally limited and production time to
create any additionally needed copies is very short. The Company uses a number
of fulfillment houses to duplicate disks and CD-ROM's.
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GOVERNMENT CONTRACTS
The Company provides its distribution services to a small number of
government agencies (usually military base recreation units), however the number
of government customers is small compared to the overall customer base.
Contracts with government agencies are provided under the same terms and
conditions as other corporate customers and are not subject to renegotiation at
the election of the government agency.
COMPETITIVE CONDITIONS
The Interactive Entertainment industry is in its formative stage, but
currently may be divided into three major segments: (1) media distribution
services such as on-line services, telephone companies and cable television
companies and Hospitality's NTN Network; (2) equipment providers such as
computer and peripheral equipment manufacturers; and (3) content and programming
providers, such as movie studios, NTN, and software publishers. The Company does
not act as a direct provider of equipment to consumers. The Company operates as
a media distribution service through its own NTN Network. Also, the Company is
a program provider to an array of other media distribution services to consumers
utilizing a variety of equipment.
NTN has a growing number of competitors in the programming segment of the
Interactive Entertainment industry. The Company's programming content is not
dependent upon, and consequently not bound by, any particular technology or
method of distribution to the consumer. The Company's programming is,
therefore, readily available to consumers on a wide variety of entertainment and
media services including: the NTN Network; on-line services including America
Online, GEnie, and The ImagiNation Network; and cable television, including GTE
MainStreet, which is available to households in certain regions.
The Interactive Television industry is still in its infancy. Few companies
have developed the technological capabilities to broadcast Interactive
Entertainment to large audiences that can compare to the nature and scope of
programming broadcast on the NTN Network. Although few companies, if any, have
products or services identical to those provided by NTN, the Company does
compete with other companies for total entertainment dollars in the marketplace.
The Company's programming competes generally with broadcast television, pay-per-
view, and other content offered on cable television. On other mediums, the
Company competes with other content and services available to the consumer
through on-line services. The Company's programming is interactive in nature
but is distinguished from other forms of interactive programming by its
simultaneous multi-player format and the two-way interactive features.
Presently, the technological capabilities of transmitting entertainment products
to the consumer exceed the supply of quality programming and services available
on the existing delivery systems. The Company is able to utilize the wide
variety of services available for transmission of entertainment products to the
consumer by forming strategic alliances with service providers to supply the
Company's programs for re-transmission. The Company's programming thus becomes
available to the consumer over a multitude of media platforms and delivery
systems.
Hospitality. Currently, Hospitality has no competitors that furnish live,
multi-player interactive entertainment in a similar scope and nature as provided
by Hospitality. Although Hospitality has no direct competitors, it does compete
for total entertainment dollars in the marketplace. Other forms of
entertainment provided in public eating and drinking establishments include
music-based systems and cable and pay-per-view television. However, evidence
provided by customers indicates that patrons are inclined to stay longer and
consume more food and drink when Hospitality's interactive games are offered as
the main source of entertainment. Accordingly, Hospitality customers generally
tend to view Hospitality services as a profit generator rather than a cost
center.
Home. In Home's market, the consumer has a plethora of entertainment options
from which to choose, ranging from cable television to telephone based services
to computer on-line providers. Home offers the only live, multi-player games and
services which are broadcast to multiple interactive platforms in the home
today. However, Home competes for a share of the total home entertainment
dollars against broadcast television, pay-per-view and other content offered on
cable television. Home also competes with other programming available to
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consumers through on-line services such as AOL and Prodigy. Cable television,
in its various forms, provides consumers the opportunity to make viewing
selections from anywhere between 30 to 100 free and pay channels, thus limiting
the amount of time devoted to any particular channel. For the most part, cable
television is predominantly a passive medium, and does not offer the viewer the
opportunity to participate in its programming, and even less frequently, does it
offer programming designed for active participation. On-line services, such as
AOL, can provide literally thousands of options for content and entertainment,
however, such on-line services have traditionally been confined to that
company's subscriber base. Interaction among viewers is thus limited to the
particular program as offered only on the specific on-line service. The
Company, on the other hand, offers consumers the opportunity to participate and
compete against other viewers who are seeing the identical program over several
different technological media, including interactive television, personal
computers and/or the NTN network.
LearnStar. Products and services to education customers utilizing the
LearnStar System were sold beginning in 1995. The Company competes with some
established businesses which offer educational products, however, the majority
of existing products in the marketplace are passive, rather than interactive.
Such companies include Jostens' Learning, C.C.C. and the Eduquest Division of
IBM. The competitive advantage of the LearnStar System is that it provides an
easy to use, two-way interactive learning method, is very competitively priced
and requires less equipment than traditional systems. Moreover, the LearnStar
System is adaptable to the particular needs of the individual users and is
designed such that it can be used for local, regional, and national competitions
on a mass basis utilizing existing satellite technology. Although the market
for providing learning services to schools is mature, the company believes that
the market for advanced educational products which use computers, interactive
software and satellite technology is embryonic.
IWN. The U.S. gaming industry is growing at a rapid pace. In 1994,
Americans wagered over $400 billion on legal commercial gaming compared to $126
billion in 1982. A 1995 survey showed that 61% of American adults wagered in
one or more types of government-approved gambling last year. In 1994, the total
handle for pari-mutuel was $16.6 billion, of which $10.2 billion was horse
racing. In comparison, $5.8 billion was spent at the cinema and $5.7 billion
was spent on spectator sports.
One of the reasons for the growth in gaming has been the favorable regulatory
and legislative environment. Many states have accepted gaming as a means to
raise tax revenue and encourage economic development. There are approximately
200-250 pari-mutuel facilities in the U.S., and seven states have legalized
account-based telephone wagering, including New York and Connecticut, which
allow interstate telephone wagering.
Pari-mutuel wagering is the fourth largest segment in the gaming industry.
Analysts estimate that in 1994 approximately $10.2 billion was wagered on U.S.
thoroughbred horse racing, compared with $9.6 billion in 1993.
While the overall growth of the pari-mutuel handle has been stagnant over the
last five years, particularly when compared to the significant growth in the
overall gaming industry, the shift from on-track wagering to off-track betting
is an important trend. With the total U.S. thoroughbred horse racing handle in
the $10 billion range, off-track betting increased from $2.2 billion in 1987 to
$4.5 billion in 1992 to $6.1 billion in 1994. Off-track betting is allowed in
20 of the 40 states where pari-mutuel wagering is legal and is an increasingly
important source of revenue for racetracks and state governments. IWN's
HomeStretch(TM) product is intended to leverage the trend to off-track wagering
by allowing fans to place wagers from virtually anywhere to their account at the
racetrack.
IWN will eventually compete for total entertainment dollars in the market
place. Within the gaming and wagering industry, competition for the pari-mutuel
wagering dollar comes from expanded alternative gaming opportunities. Outside
the industry, pari-mutuel wagering competes with all forms of entertainment
vying for consumer spending dollars. Potential competitors in the interactive
pari-mutuel wagering and gaming market include:
21
<PAGE>
<TABLE>
<CAPTION>
COMPANY DESCRIPTION
- ---------------------------- ------------------------------------------------
<S> <C>
On Demand Services Originally part of United Video. Developed a
proprietary set-top box to deliver interactive
television racing and wagering.
Simulcast Racing Network Plans to broadcast a pay-per-view racing channel
with interactive wagering.
Gaming and Entertainment Plans to offer the hotel and sports bar markets
Television closed circuit pay-per-view and sports fantasy
leagues with participant wagering.
</TABLE>
New World. The video game and entertainment software industry is very
competitive. Competitive factors include access to licenses, brand name
recognition, product features and quality, access to distribution channels and
price. New World competes with other developers of PC and video game
entertainment software. Competitors vary in size from small companies with
limited resources to very large companies such as Microsoft, Broderbund Software
and Electronic Arts.
The industry has evolved into a very large and fragmented market in which New
World is a small competitor. Most of the industry leaders produce CD-ROM titles
and most have greater financial and marketing capabilities than New World.
However, the market is still relatively young, especially for CD-ROM technology,
and is likely to continue to grow rapidly as PC's increase their household
penetration.
With the entrance of motion picture, cable and TV companies, competition in
the Interactive Entertainment and multimedia industries will likely intensify in
the future. Moreover, new technologies, such as on-line networks and the
Internet, provide computer users an alternative to video games and entertainment
software, but also offer companies like New World an opportunity to deliver
product via new media. The Company seeks to compete by providing high quality
products at reasonable prices, thereby establishing a favorable reputation among
frequent buyers, thus providing repeat sales on sequels and other products
manufactured and/or distributed by the Company. Many companies compete in the
arena due to the relative ease of production and distribution of the products,
but no one company dominates or has a market share in excess of ten percent
(10%).
RESEARCH AND DEVELOPMENT
During the three years ended December 31, 1995, the Company expended
$1,471,000, $1,972,000, and $1,073,000 respectively, on Company-sponsored
research and development projects, including projects performed by consultants
for the Company.
The Company is currently engaged in the development of enhancements to its
interactive software for several media platforms and continues its research into
new and enhanced graphics of software for video game products. There is no
assurance that the Company will successfully complete current or planned
development projects or will do so within the time parameters and budgets
established by the Company, and there is no assurance that a market will develop
for any product successfully developed.
The Company works closely with independent user groups in an attempt to
develop enhancements and new services and products in response to customer
needs.
GOVERNMENT REGULATIONS
Compliance with federal, state and local laws have not had a material effect
upon the Company's capital expenditures, earnings or competitive position to
date. The Company does not anticipate that it will have to incur any material
expenses in the future in order to comply with federal, state or local laws
because of the nature of its current services and products. Gaming laws in many
states currently restrict the ability of individuals to place wagers off-site
from a regulated wagering facility. The ability of IWN to carry out its
business objective will be dependent upon enabling legislation in states and
other countries.
22
<PAGE>
EMPLOYEES
The Company and its subsidiaries employ approximately 215 people on a full-
time basis and 60 people on a part-time basis, and utilizes independent
contractors on a project basis. In addition, NTN retains a number of non-
affiliated programming and systems consultants. It is expected that as the
Company expands, additional employees and consultants will be required. The
Company believes that its present employees and consultants have the technical
knowledge necessary for the operation of the Company and that it will experience
no particular difficulties in engaging additional personnel with the necessary
technical skills when required. None of the Company's employees are represented
by a union and the Company believes its employee relations are satisfactory.
ITEM 2. PROPERTIES.
-----------
The Company has a membership in a limited liability company that owns "The
Campus", the three-building complex that houses the Company's headquarters.
The Company has a six-year lease for approximately 39,000 square feet of office
and warehouse space, at a rent of approximately $23,000 per month. The Company
also leases approximately 10,000 square feet of space under a lease that runs
through September, 1998, at a rent of approximately $15,000 per month. The
Company does not anticipate leasing additional space in the next year.
The Company maintains its offices for its computer and video software
division (New World) at 29800 Agoura Road, Suite 200, Agoura Hills, California.
The Company leases approximately 12,000 square feet of office space, under a
lease that runs through March, 1999, at a rent of approximately $10,000 per
month.
ITEM 3. LEGAL PROCEEDINGS.
------------------
1. NTN Communications, Inc. vs. Interactive Network, United States District
------------------------------------------------
Court for the Northern District of California, filed June 11, 1992 and related
award of attorneys' fees.
2. NTN Communications, Inc. vs. Interactive Network, filed in the Superior
------------------------------------------------
Court for the County of Santa Clara, California, on April 28, 1993.
3. Interactive Network vs. NTN Communications, Inc., filed in the Superior
------------------------------------------------
Court for the County of Santa Clara, California, on February 28, 1994.
4. NTN Communications, Inc., NTN Sports, Inc. and NTN Canada, Inc. vs.
-------------------------------------------------------------------
David Lockton and Interactive Network, Inc., filed in the Federal Court of
- -------------------------------------------
Canada, Trial Division, on June 12, 1992.
5. Interactive Network vs. NTN Communications, Inc., NTN Sports, Inc. and
----------------------------------------------------------------------
NTN Canada, filed in the Federal Court of Canada, Trial Division, on June 18,
- ----------
1992.
All litigation between the Company and Interactive Network has been
suspended pending substantive discussions regarding a global resolution of all
disputes.
The Company is also defending litigation filed by various shareholders of
the Company. The case, originally filed in June, 1993, in the United States
District Court for the Southern District of California (San Diego), is a
consolidation of four lawsuits seeking class action status to recover
unspecified damages for a drop in the market price of the Company's common stock
following an announcement that an anticipated agreement under which the Company
would sell certain equipment and services to an arm of the Mexican government
may be put out for bid. Whereas the Company has vigorously defended this
litigation and believes, in part, based upon the opinion of outside counsel, in
the merits of its defense, the Company has entered into substantive negotiations
to resolve this matter out-of-court to avoid costly and protracted litigation,
in the best interests of its shareholders. A
23
<PAGE>
preliminary framework for such a resolution has been reached, however, any
proposed settlement between the parties will be subject to notification to each
of the class members and final court approval.
On April 18, 1995, a class action lawsuit was filed in the United States
District Court for the Southern District of California (San Diego). The lawsuit
seeks unspecified damages and alleges violations of securities laws based upon
the Company's projections for the fourth quarter of 1994 and for fiscal year
1994, and further alleges that certain insiders sold stock on information not
generally known to the public. The Company has denied liability based upon the
allegations contained in the Complaint which does not contain any statement or
demand for a specific amount of damages. Much discovery has been undertaken
and, at this time, the Company intends to continue to vigorously contest the
matter.
On July 3, 1995, a single shareholder filed a separate lawsuit in Texas
containing allegations essentially identical to those raised in the shareholder
lawsuit filed in April, 1995. The Company denies the allegations in the
complaint and has filed its own counterclaim against third parties for
indemnification. Upon the Company's motion, this case has been transferred from
Texas to California, where no action has been taken since the date of transfer.
There can be no assurance that any or all of the preceding actions will be
decided in favor of the Company. The Company believes, based in part on the
advice of outside, independent counsel, that the costs of defending and
prosecuting these actions will not have a material adverse effect on the
Company's financial position or results of operations and that any adverse
outcome of the litigation involving IN also will not result in a material
adverse effect on the Company's financial position or results of operation, or
the Company's position in the interactive industry.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
-------------------------------------------------
No matters were submitted to a vote of security holders through the
solicitations of proxies or otherwise during the fourth quarter of the fiscal
year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS.
--------
The Company's Common Stock is listed on the American Stock Exchange, under
the symbol "NTN." The prices below are the high and low sales prices for the
Common Stock reported by the American Stock Exchange for the two most recent
fiscal years.
<TABLE>
<CAPTION>
1995 LOW HIGH
- ----------------- --------- ----------
<S> <C> <C>
First Quarter $5 - 5/8 $8 - 1/4
Second Quarter 4 - 7/16 5 - 13/16
Third Quarter 4 - 3/8 6 - 1/8
Fourth Quarter 4 - 1/8 5 - 3/16
1994 LOW HIGH
- ----------------- --------- ----------
First Quarter $6 - 00 $10 - 1/8
Second Quarter 4 - 5/8 7 - 1/2
Third Quarter 6 - 3/8 8 - 1/2
Fourth Quarter 5 - 3/4 7 - 7/8
</TABLE>
On April 11, 1996, the closing price for the Common Stock reported on the
American Stock Exchange was $4-1/16. On that date, there were 3,999 record
owners of the Common Stock.
To date, the Company has not declared or paid any cash dividends with respect
to its Common Stock, and the current policy of the Board of Directors is to
retain earnings, if any, after payment of dividends on the Preferred Stock to
provide for the growth of the Company. Consequently, no cash dividends are
expected to be paid on the Company's Common Stock in the foreseeable future.
Further, there can be no assurance that the proposed
24
<PAGE>
operations of the Company will generate the revenues and cash flow needed to
declare a cash dividend or that the Company will have legally available funds to
pay dividends.
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
The following table furnishes information with respect to selected
consolidated financial data of the Company over the past five years.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)
Years Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $31,771 $24,646 $17,258 $10,702 $ 5,853
Total cost of sales 15,581 9,453 7,514 4,200 2,411
------- ------- ------- ------- -------
Gross profit 16,190 15,193 9,744 6,502 3,442
Total operating expenses 20,160 14,898 11,198 8,636 5,260
Investment (income) expense, net (22) (412) (434) --- 576
Income taxes --- --- 281 106 ---
------- ------- ------- ------- -------
Earnings (loss) before extraordinary (3,948) 707 (1,301) (2,240) (2,394)
item ------- ------- ------- ------- -------
Extraordinary item(2) --- --- --- --- 3,889
------- ------- ------- ------- -------
Net earnings (loss) $(3,948) $ 707 $(1,301) $(2,240) $ 1,495
======= ======= ======= ======= =======
Earnings (loss) per share before
extraordinary item (1) $(.19) $.03 $(.08) $(.20) $(.38)
Net earnings (loss) per share (1) $(.19) $.03 $(.08) $(.20) $.24
======= ======= ======= ======= =======
Weighted average equivalent
shares outstanding (1) 20,301 21,124 17,135 11,344 6,263
======= ======= ======= ======= =======
BALANCE SHEET DATA
(in thousands)
December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Total current assets $26,680 $18,844 $23,102 $ 9,004 $ 5,119
Total assets 42,813 31,239 27,240 10,171 5,604
Total current liabilities 8,114 4,958 2,933 2,554 2,810
Long-term debt, less current portion 2 8 163 18 91
Shareholders' equity $33,451 $25,457 $23,653 $ 7,432 $ 2,703
</TABLE>
(1) Adjusted for a 1-for-20 reverse stock split effective June 14, 1991.
(2) At June 14, 1991, the Company realized an extraordinary gain on debt
restructuring, net of tax, of $3,889,000.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
GENERAL
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the selected financial data and
consolidated financial statements and notes thereto included elsewhere herein.
The Company uses existing technology to develop, produce and distribute two-
way multi-player interactive live events and also produces and distributes its
own original interactive programs. The Company's principal sources of revenue
from distribution activities are derived from (a) distribution fees in the
United States; (b) advertising fees, (c) sales of equipment; (d) distribution
fees from foreign licensees; (e) licensing fees from foreign and domestic
licensees; and (f) the licensing of the Company's technology and equipment sales
to other users.
The Company also develops and publishes interactive entertainment software
and video games for general consumer use on a variety of home personal computers
and console entertainment systems. The principal sources of revenue from
software and video game activities are derived from (a) domestic retail sales
through mass merchants, warehouse clubs, general retailers and mail order
catalogues, and (b) license fees and royalties from international licensees who
translate and publish the video games in over a dozen countries around the
world.
RESULTS OF OPERATIONS
Following is a comparative discussion by fiscal year of the results of
operations for the last three years ended December 31, 1995. The Company
believes that inflation has not had a material effect on its operations to date.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
The Company reported a net loss of $3,948,000 for the year ended December
31, 1995 compared to net earnings of $707,000 for the year ended December 31,
1994.
In 1994, the Company formed LearnStar to pursue interactive educational
applications in the United States. Most of 1994 was devoted to beta testing the
product and conducting preliminary market tests. In 1995, LearnStar began
marketing and selling its product on a full-time basis. Due to start-up costs
and relatively higher marketing costs during the first year of operations,
LearnStar recognized a net loss of $2,149,000 for the year ended December 31,
1995.
In late 1995 the Company entered into a sale and purchase agreement to sell
45% of the stock of its subsidiary, LearnStar, Inc. Although the sale was
legally consummated, the recognition of the gain of $3,354,000 was deferred in
accordance with generally accepted accounting principles and will be recognized
when principal payments are received in 1996 and 1997. Also in late 1995, the
Company set up a allowance of $1,000,000 for inventory in connection with the
upgrading of its broadcast distribution system and expensed $754,000 of costs
incurred in connection with the development of the market in Mexico. Further, in
1995 the Company experienced a substantial increase in legal expenses due to
increased activities in litigation and other legal matters along with increased
costs of developing and providing products and services, and increased marketing
expenditures. Total revenues increased 29% from $24,646,000 to $31,771,000. This
increase is the result of growth in many of the Company's principal revenue
activities.
Distribution and Production Services increased 41% from $12,244,000 to
$17,307,000. The increase in broadcast revenue is primarily due to an expansion
in the number of subscriber locations and on-line customers contracting for
services from the Company.
Equipment Sales increased 55% from $4,387,000 to $6,784,000. Equipment sales
include both sale and leaseback transactions and direct sales to the Company's
customers. Equipment sales have been highly volatile in the past and are
expected to remain so, as they are dependent on the Company's ability to engage
in lease financing, the timing of expansion plans of the Company's foreign
licensees and, its educational subscribers. As of
26
<PAGE>
December 31, 1995, the Company had sold and leased back subscriber systems in
place at a majority of the United States subscriber locations. The Company's
ability to make additional sales will be dependent on increases in the number of
subscriber locations, as well as the availability of financing, as to which
there can be no assurance.
Product Sales related to video and computer games decreased 26% from
$5,263,000 to $3,884,000. Sales of video and computer game products are
typically seasonal and will vary with the number of new products released in any
period. The decrease in net revenue is primarily due to the glut of competing
products in the market, the timing of new products released during the year and
the use of more conservative amounts provided for potential returns.
License Fees and Royalties increased 12% from $1,934,000 in 1994 to
$2,167,000 in 1995. License Fees in 1994 predominantly relate to NTN's
Hospitality and International Licensing operations whereas in 1995 license
revenues predominantly relate to the Company's New World operations. Licensing
arrangements are not dependent upon seasonal forces and will vary in type and
amount from period to period.
Other Revenue increased from $818,000 to $1,629,000 in the current year's
period. Other revenue in 1995 relates to a gain from the sale of a 10% interest
in the IWN subsidiary of $329,000 and reimbursement of previously incurred legal
expenses from the Company's insurance carrier of approximately $1,000,000.
Other Revenue in 1994 primarily consisted of inventory transferred to the
Company by its United Kingdom licensee in exchange for release from a license
agreement. Other Revenue has historically varied widely.
Cost of Services-Distribution and Production Services, which increased 68%
from $5,198,000 in the prior year to $8,756,000 in the current year, reflects
increased costs of equipment leases and other costs associated with the
expansion in the number of subscribers contracting for distribution services.
The gross margin on distribution and production services decreased from 58% to
49% as a result of increased costs related to commissions, service fees and
increased costs of equipment leases. Cost of Sales - Product Sales relates to
the Company's video game products increased from $1,502,000 to $1,844,000 or
23%. These costs vary depending upon the timing of products released, the volume
of products sold, the complexity of the games and the development costs
associated with each product. The gross margin on product sales decreased from
71% to 53% as the result of amortizing deferred development costs related to
specific products sold in 1995. The increase in Cost of Sales-Equipment from
$2,753,000 to $4,981,000, an increase of 81%, is due to the increase in
equipment sales, which can vary from period to period. Before the one-time
charge to earnings of $1,000,000 to upgrade the broadcast distribution system,
the gross margin from equipment sales increased from 37% to 41% due to lower
costs associated with certain equipment, but after consideration of this charge,
the gross margin decreased to 27%.
Operating Expenses rose from $14,898,000 in the prior year to $20,160,000 in
the current year, an increase of 35%. Legal and Professional Fees increased
214% from $590,000 to $1,851,000 due to substantial legal expenses incurred
relating to litigation and other legal matters. Selling, General and
Administrative expenses increased 36% from $12,336,000 to $16,838,000 due to an
increase in the number of employees hired to develop and produce new products
and services and large increases in marketing activities related to the
development of the LearnStar products and services. Research and Development
expense decreased from $1,972,000 to $1,471,000, or 25% as the Company increased
its efforts in projects in current production.
Net Investment Income decreased from $412,000 to $22,000 as a result of
decreased interest-bearing investments, the addition of new debt and the losses
attributed to the IWN L.P. limited partnership allocated to the Company as the
general partner of $286,000. Income Tax expense was zero in both years. The
lack of tax expense is due to the losses, the nature of revenues and expenses in
each year and net operating loss carryforwards available to the Company. The
Company currently has available approximately $26,000,000 of net operating loss
carryovers for federal tax purposes.
27
<PAGE>
YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
The Company reported net income of $707,000 for the year ended December 31,
1994 and a net loss $1,301,000 for the year ended December 31, 1993.
For the year ended 1994, revenues grew 43% to $24,646,000 from $17,258,000
for the year ended 1993. This increase is the result of growth in the number of
Locations contracting for the Company's distribution services, license fee
revenue and royalties from licensees and increased equipment sales.
Distribution revenues from Locations increased 81% to $12,244,000 in 1994 from
$6,778,000 in 1993 and equipment sales increased 11% to $4,387,000 in 1994 from
$3,970,000 in 1993. License fees and royalties in 1994 were $1,934,000 compared
to $802,000 in 1993, an increase of 141%, which resulted from new licenses
granted to both foreign and domestic companies. Retail sales of Products
decreased 4% to $5,263,000 from $5,468,000 due to the glut of competing products
on the market and the timing of new Product releases by the Company during the
year.
Total Cost of Sales grew to $9,453,000 in 1994 from $7,514,000 in 1993, an
increase of 26%, a result of increased sales. The Company improved its gross
margin on equipment sales to 37% from 32% as a result of Management's continuing
efforts in controlling equipment costs and higher marginal sales. The rise in
Cost of Services - Distribution and Production Services of $1,937,000 to
$5,198,000 in 1994 from $3,261,000 in 1993 is due to the greater number of
subscribers served. The Company improved its gross margin on Distribution and
Production Services to 58% from 52% as the result of decreasing costs associated
with service fees, equipment rentals and freight charges.
The Company's total operating expenses increased 33% to $14,898,000 in 1994
from $11,198,000 in 1993 as a result of the Company's expanding its overall
activities. Selling, General and Administrative expenses increased 32% to
$12,336,000 in 1994 from $9,347,000 in 1993 as the result of an increase in the
number of employees and continuing increased marketing and sales activities.
Research and Development expenses increased 84% to $1,972,000 in 1994 from
$1,073,000 in 1993 as the Company increased its research and development
efforts. The Company also expended $3,264,000 on software development projects
qualifying for capitalization in 1994 compared to $726,000 in the prior year.
Interest expense of $54,000 for the year ended December 31, 1994 was reduced
from $71,000 for the year ended December 31, 1993. Interest income in 1994
totaled $466,000 compared to $505,000 in 1993. The decrease in net interest
income resulted from the use of funds for operations and investments in
developed software in 1994.
Income tax expense was zero in 1994 compared to $281,000 in 1993. The
decrease in tax expense was due to the nature of the revenues and expenses in
each year and net operating loss carryforwards available to the Company.
LIQUIDITY AND CAPITAL RESOURCES
Following is a discussion of the Company's recent and future sources of and
demands on liquidity, as well as an analysis of liquidity levels.
28
<PAGE>
Expenditures have exceeded revenues from operations through most of the
Company's history and may do so in the future. The Company plans to fund any
such deficiency from its existing cash and, if necessary, from other sources, as
discussed below.
Total assets increased 37% from $31,239,000 to $42,813,000 from December 31,
1994 to December 31, 1995. Cash and Marketable Securities - Available for Sale
increased from $3,429,000 to $6,475,000 at December 31, 1995. The change
reflects additional cash proceeds from debt and equity sources net of cash used
to fund operations and invest in the development of future products and services
for the NTN Network and video game products.
The 11% decrease in Accounts Receivable - Trade from $5,881,000 to $5,247,000
at December 31, 1995, reflects an enhancement in the collection efforts as well
as an increase in the allowance for returns and doubtful accounts. Accounts
Receivable -Other increased from $600,000 to $1,750,000, primarily the result of
a large equipment sale transaction in the third quarter. The increase in
Inventory from $4,628,000 to $6,503,000 is primarily the result continued
expansion of the NTN Network and development of additional video game Products.
Prepaid Expenses increased from $1,769,000 to $2,325,000 from December 31, 1994
to December 31, 1995 primarily due to increased prepaid expenses, and security
deposits held by the Company.
Interest bearing Security Deposits (both current and non-current) increased
18% from $3,200,000 to $3,525,000 as the result of increased leasing
transactions related to the increase in new Locations. Software Development
Costs (both current and non-current) increased 66% from $3,405,000 to $5,669,000
as the result of substantial investments made in the development of new software
and Products. Net Fixed Assets increased 49% primarily due to the move to the
new headquarters and expansion of the NTN Broadcast Center. Notes Receivable
(both current and long term) increased from $3,262,000 to $5,206,000 or 60%
primarily as the result of finalizing terms related to the sales of LearnStar of
IWN and the sale of a license to IWN L.P.
Total liabilities increased 62% from $5,782,000 to $9,362,000 from December
31, 1994 to December 31, 1995. The increase in Accounts Payable and Accrued
Liabilities from $2,744,000 to $3,713,000 reflects the overall growth of the
Company and the timing of payments. Customer Deposits increased from $1,006,000
to $1,284,000 from December 31, 1994 to December 31, 1995 due to deposits
received from new customers throughout the year.
The increase in aggregate Deferred Revenue (long-term and current) from
$1,556,000 to $2,270,000 reflects additional deferred gains on the sale of the
equipment involved in lease transactions, which are amortized to revenue over
three-year periods Debt (long-term and current) increased from
$476,000 to $2,095,000 as a result of additional borrowings to augment working
capital needed for operational expenses, new software and product development,
marketing of services and purchase of broadcast-related equipment.
The increase in Common Stock and Additional Paid-in-Capital reflects the
issuance of 3,000,000 shares of Common Stock and conversion of preferred stock
and the exercise of warrants during 1995. In late 1995 the Company began to
repurchase its own shares and at year end had 50,000 shares of treasury stock.
Overall, shareholders' equity increased $7,994,000 due to equity contributions
of $12,164,000, less $222,000 for treasury stock purchases and the net loss of
$3,948,000.
Overall, the Company's working capital increased from $13,886,000 at December
31, 1994 to $18,566,000 at December 31, 1995, primarily due to significant
proceeds from financing activities. The Company may continue to require
additional working capital for operational expenses, new software and product
development, marketing of services and purchase of hardware components relating
to its services. There can be no assurance that the Company's currently
available resources will be sufficient to allow the Company to support its
operations until such time, if any, as its internally generated cash flow is
able to consistently sustain the Company.
The Company is exploring alternative capital financing possibilities that may
include (i) additional lines of credit, (ii) lease financing of equipment the
Company furnishes to subscribers, (iii) licensing of the Company's technology,
(iv) sale of interests in subsidiaries, or (v) sale of additional debt or equity
securities. With respect to lease financing, the Company has
29
<PAGE>
leased for three-year terms expiring in various amounts over the next three
years, the Location Systems at a majority of its United States Locations. The
Company has issued licenses and has received revenue for certain products and
services for Australia, South Africa and Canada. The Company will continue to
negotiate for additional lease financing and additional foreign licensing.
MARKETING AND EXPANSION PLAN
The Company's plan to maintain profitability includes the following elements:
(i) increasing sales staff; (ii) increasing advertising sales on the NTN
Network; (iii) expanding Company services to corporate and education customers;
(iv) pursuit of additional foreign licensing opportunities; (v) increasing use
of distributors who service retailers, (vi) sale of interests in subsidiaries,
and (vii) expanding products and services to a wider variety of technological
platforms.
Throughout the Company's history, the principal component of its revenues has
been derived from distribution services from Locations in the Hospitality
industry (restaurants, bars and hotels). Management believes that this
component will continue to grow in total revenues within the next year, but may
decline as a percentage of the Company's total revenues. To increase the number
of Locations, the Company has taken several steps. It increased its sales staff
to accommodate the growth in 1995 and the anticipated growth in 1996. The
Company offers sales and technical support to its independent distributors, who
are responsible for marketing the Company's services to potential Locations. In
1996, the Company will continue to attend national and regional hospitality
industry trade shows and has increased its budget for advertising in trade
publications.
In 1995, the Company enhanced its graphics capabilities and obtained
additional advertising revenues from national advertisers. The Company has a
full-time Director of Advertising Sales and is currently negotiating with
several potential advertisers for commercial spots on the NTN Network.
The Company has produced special event and corporate training programs in
which the customer uses the Company's interactive equipment to increase
participant interest in training and product knowledge and to communicate
rapidly with a large number of participants. Management believes special event
and corporate training may offer an opportunity for growth, and has a full-time
Director of Sales for special event and corporate training. In addition, the
Company has commenced the development of marketing materials and a direct mail
campaign for corporate training services. To enhance the Company's capabilities
for use in special events and corporate training, the Company has developed a
system that allows up to 800 Playmakers(TM) to be used at a single event.
Revenues from sales of equipment used in Locations has historically been a
material component of the Company's revenue. Potential growth in this area,
however, is largely dependent on the Company's success in increasing the number
of Locations and the business of the Company's foreign licensees.
Management believes that another market segment with potential for long-term
growth is the market for interactive television services in the home. The
Company expects to remain a provider of specialized programming to networks
operated by other organizations, such as cable networks, computer on-line
systems and wireless or telephone-based communication networks. The Company
expects to deliver the video portion of its programming directly to cable
television systems, with viewer responses using equipment developed by others.
In light of this, the Company expects that any significant revenues from home
use of the Company's services will be dependent upon an expansion in the overall
home viewer market for home interactive information and entertainment services.
The Company maintains excellent working relationships with major providers of
home interactive information and entertainment services. As the market for home
interactive information and entertainment services expands, the Company will
seek to capitalize on this market. Revenues to date from in-home programming
have not been significant.
The Company has plans to expand its penetration in the education sector as
well. Currently, the LearnStar System is operational at over 100 schools
throughout the nation. In 1995, the Company will focus efforts to expand into
additional schools in many states. Revenues from these sources have not been
significant in the past and no assurance can be given that plans to expand the
education market will be successful.
30
<PAGE>
Revenues from Product sales of interactive software and video games have been
fairly consistent over the past few years. In 1996, the Company plans to expand
its available Products through the publication of software developed by
independent sources and by continuing to internally create new games and
Products. Further, the Company intends to publish Products on additional
technological platforms such as the SONY Playstation and other similar type
entertainment systems. Further, the Company intends to offer its services and
Products to new media platforms such as on-line services and the Internet.
Although there can be no assurance that the Company will prove to be
successful in implementing its marketing and expansion plan, Management believes
that the Company's prospects have been materially improved by the growth of the
core business units and increased customer awareness.
The Company has several lawsuits pending as previously described in "Legal
Proceedings." There can be no assurance that any or all of the described
actions will be decided in favor of the Company. The Company believes, based in
part on the advice of outside, independent counsel, that the costs of defending
and prosecuting these actions will not have a material adverse effect on the
Company's financial position or results of operations and that any adverse
outcome of the litigation involving IN also will not result in a material
adverse effect on the Company's financial position or results of operation, or
the Company's position in the interactive industry.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires
that impairment losses for long lived assets be recognized if the estimated
undiscounted future cash flows, without interest, is less than the carrying
amount of the asset. The standard also requires that assets designated to be
disposed of are to be recorded at the lower of the asset carrying value or fair
value less cost to sell. The Company has not adopted SFAS 121. The adoption of
SFAS 121 is not expected to have a material impact on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123"), effective for fiscal years beginning after December
31, 1995. SFAS 123 establishes the fair value method of accounting for stock-
based compensation arrangements, under which compensation cost is determined
using the fair value of the stock option at the grant date and the number of
options vested, and is recognized over the period in which the related services
are rendered. If the Company were to retain its current intrinsic value based
method, as allowed by SFAS 123, it will be required to disclose the pro forma
effect of adopting the fair value based method. The Company will adopt SFAS 123
using the pro forma disclosure method.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
---------------------------------------------------------
See Index to Consolidated Financial Statements and Schedule on page F-0,
which is incorporated herein by reference, for a listing of the Consolidated
Financial Statements and Schedule filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
PART III
MANAGEMENT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
Incorporated by reference to Registrant's definitive Proxy Statement for its
July, 1996 meeting of stockholders, which will be filed with the Securities and
Exchange Commission within 120 days from December 31, 1995.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
Incorporated by reference to Registrant's definitive Proxy Statement for its
July, 1996 meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
31
<PAGE>
Incorporated by reference to Registrant's definitive Proxy Statement for its
July, 1996 meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Incorporated by reference to Registrant's definitive Proxy Statement for its
July, 1996 meeting of stockholders.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
-------------------------------------------------------------------
FORM 8-K.
---------
(a) The following documents are filed as a part of this report:
1,2. Consolidated Financial Statements and Schedule.
The consolidated financial statements and schedule of the Company and its
consolidated subsidiaries are set forth in the "Index to Consolidated Financial
Statements" on page F-0.
3. Exhibits. The following exhibits are filed as a part of this report:
10.1 Certificate of Incorporation of the Company (1)
10.2 By-laws of the Company (2)
10.3 1985 Incentive Stock Option Plan, as amended (2)
10.4 VTV Entertainment UK Licensing Agreement (3)
10.5 Agreement with TWIN (4)
10.6* Form of Employment Agreements dated as of January 1, 1990 between the
Company and Patrick Downs, Daniel Downs, Gerald McLaughlin and Ronald
Hogan (4)
10.7* 1985 Nonqualified Stock Option Plan, as amended (4)
10.8 Lease of Executive Offices (4)
10.9 License Agreement with NTN Canada (4)
10.10 National Football League License Agreement (4)
10.11* Promissory Notes issued June 15, 1993 between the Company and
Patrick Downs, Daniel Downs, Donald Klosterman, Ronald Hogan and
Gerald McLaughlin Agreement and the Tax Indemnity and Loan dated June 6,
1993 (6)
10.12* Warrants dated January 15, 1993 issued by the Company in favor of
Patrick Downs, Daniel Downs, Mike Downs and the Oracle Group (6)
10.13 Registration Rights Agreement dated December 30, 1993 between the
Company and Jon Van Caneghem (5)
33
<PAGE>
10.14* Employment Agreement dated as of January 3, 1994 among the Company, New
World Computing, Inc. and Jon Van Caneghem (5)
10.15 Revolving Line of Credit Agreement between New World Computing, Inc.
and Merrill Lynch Business Financial Services, Inc. (7)
10.16 The Campus Limited Liability Company Agreement (7)
10.17 Lease of Office with The Campus L.L.C. (7)
10.18 Investment Agreement, dated as of December 31, 1995, among NTN
Communications, Inc., IWN, Inc. and Symphony Management Associates,
Inc., without exhibits
10.19 Third Amended and Restated Agreement of Limited Partnership of IWN,
L.P., dated as of Decmber 31, 1995.
10.20 First Amendment to the Third Amended and Restated Agreement of Limited
Partnership of IWN, L.P., dated as of March 11, 1996.
10.21 Stock Purchase Agreement, dated as of December 31, 1995, between NTN
Communications Inc., IWN, Inc. and Symphony Management Associates, Inc.
10.22 Stockholders Agreement, dated as of December 31, 1995, between NTN
Communications Inc., and Symphony Management Associates, Inc.
10.23 Registration Rights Agreement, dated as of December 31, 1995, between
NTN Communications Inc., and Symphony Management Associates, Inc.
10.24 Guaranty, dated as of December 31, 1995, from Symphony Management
Associates, Inc. in favor of IWN, Inc. and IWN, L.P.
10.25 Amended and Restated Technology and Trademark License Agreement, dated
as of December 31, 1995, between NTN Communication, Inc. and IWN, Inc.
10.26 Amended and Restated Technology and Trademark Sub-license Agreement,
dated as of December 31, 1995, between IWN, Inc. and IWN, L.P.
10.27 Worldwide Technology and Trademark Agreement, dated as of December 31,
1995, between IWN, Inc. and IWN, L.P.
10.28 Non-competition Agreement, dated as of December 31, 1995, between IWN,
Inc. and IWN, L.P.
34
<PAGE>
10.29 Non-competition Agreement, dated as of December 31, 1995, between IWN,
L.P. in favor of NTN Communications, Inc. and IWN, Inc.
10.30 Composite copy of Investment Agreements, dated as of April 24, 1995,
between NTN Communications, Inc. and the investors named therein
10.31 Composite copy of Investment Agreements, dated as of September 29,
1995, between NTN Communications, Inc. and the investors named therein
10.32 Composite copy of Investment Agreements, dated as of October 4, 1995
between NTN Communications, Inc. and the investors named therin.
10.33 Stock Purchase Agreement by and between NTN Communications, Inc. and
Associated Ventures Management, Inc., dated as of December 22, 1995
10.34 Non Recourse Secured Promissory Note issued by the Company to
Associated Ventures Management, Inc., dated December 22, 1995
10.35* Management Agreement between NTN Communications, Inc. and Associated
Ventures Management, Inc., dated December 22, 1995
23.00 Consent of KPMG Peat Marwick LLP, incorporated by reference.
27 Financial Data Schedule.
- ----------------------------
* Management Contract or Compensatory Plan.
(1) Previously filed as an exhibit to the Company's report on Form 10-Q for the
quarter ended June 30, 1991, and incorporated by reference.
(2) Previously filed as an exhibit to the Company's registration statement on
Form S-8, File No. 33-75732, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1989, and incorporated by reference.
(4) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1990, and incorporated by reference.
(5) Previously filed as an exhibit to the Company's report on Form 8-K dated
December 31, 1993, and incorporated by reference.
(6) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference.
35
<PAGE>
(7) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(b) Reports on Form 8-K.
None.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATED: April 11, 1996 NTN COMMUNICATIONS, INC.
By: /s/ PATRICK J. DOWNS
------------------------------------
Patrick J. Downs, Chairman and Chief
Executive Officer
By: /s/ RONALD E. HOGAN
------------------------------------
Ronald E. Hogan, Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ PATRICK J. DOWNS Chief Executive Officer April 11, 1996
- ----------------------------- and Chairman of the Board
Patrick J. Downs (Principal Executive Officer)
/s/ DANIEL C. DOWNS President, Chief Operating April 11, 1996
- ----------------------------- Officer and Director
Daniel C. Downs
/s/ ALVIN R. ROZELLE Director April 11, 1996
- -----------------------------
Alvin R. Rozelle
/s/ DONALD C. KLOSTERMAN Director April 11, 1996
- -----------------------------
Donald C. Klosterman
/s/ ALAN P. MAGERMAN Director April 11, 1996
- -----------------------------
Alan P. Magerman
/s/ KENNETH HAMLET Director April 11, 1996
- -----------------------------
Kenneth Hamlet
</TABLE>
37
<PAGE>
MTN COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Independent Auditors' Report........................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as December 31, 1995 and 1994...... F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993...................... F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993........ F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993...................... F-6
Notes to Consolidated Financial Statements............................. F-8
Schedule II............................................................F-20
F-0
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
NTN Communications, Inc.:
We have audited the accompanying consolidated balance sheets of NTN
Communications, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Item 14 a(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NTN Communications,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments in debt and equity securities
in 1994.
San Diego, California
April 12, 1996 KPMG Peat Marwick LLP
F-2
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,475,000 2,429,000
Marketable securities -
available for sale -- 1,000,000
Interest-bearing security
deposits (note 14) 1,575,000 1,225,000
Accounts receivable - trade,
net of allowance for returns
and doubtful accounts
of $1,417,000 in 1995 and
$1,097,000 in 1994 (Note 6) 5,247,000 5,881,000
Accounts receivable -
officers and directors 100,000 100,000
Accounts receivable - other 1,750,000 600,000
Notes receivable, related
parties (note 4) 1,030,000 --
Software development costs,
net of accumulated amortization
of $787,000 in 1995 and
$177,000 in 1994 1,525,000 1,212,000
Inventory, net 6,503,000 4,628,000
Prepaid expenses and other
current assets 2,325,000 1,769,000
------------ -----------
Total current assets 26,530,000 18,844,000
Fixed assets, net (note 5) 2,100,000 1,405,000
Interest-bearing security deposits
(note 14) 2,200,000 1,975,000
Software development costs, net of
accumulated amortization of $1,014,000
in 1995 and $408,000 in 1994 4,144,000 2,193,000
Notes receivable, related parties (note 4) 4,176,000 3,262,000
Deposits and other assets (note 6) 3,663,000 3,560,000
------------ -----------
Total assets $ 42,813,000 31,239,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued 3,713,000 2,744,000
liabilities
Short-term borrowings and current
portion of long-term debt (note 6) 2,093,000 468,000
Deferred revenue 1,024,000 740,000
Customer deposits 1,284,000 1,006,000
------------ -----------
Total current liabilities 8,114,000 4,958,000
Deferred revenue 1,246,000 816,000
Long-term debt, excluding current 2,000 8,000
portion (note 6)
------------ -----------
Total liabilities 9,362,000 5,782,000
------------ -----------
Shareholders' equity (notes 8, 9 and 10):
10% Cumulative convertible
preferred stock, $.005 par
value, 10,000,000 shares
authorized; issued and
outstanding 162,612 in 1995
and 197,612 in 1994
(liquidating preference $1 per share) 1,000 1,000
Common stock, $.005 par
value, 50,000,000 shares
authorized; shares issued
and outstanding 22,502,707
in 1995 and 19,178,060 in
1994 112,000 96,000
Additional paid-in capital 56,747,000 44,599,000
Accumulated deficit (23,187,000) (19,239,000)
------------ -----------
33,673,000 25,457,000
Less 50,000 shares of
treasury stock, at cost (222,000) --
------------ -----------
Total shareholders' equity 33,451,000 25,457,000
------------ -----------
Commitments and contingencies (notes 14
and 15)
Total liabilities and
shareholders' equity $ 42,813,000 31,239,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
(note 2)
<S> <C> <C> <C>
Distribution and production services $ 17,307,000 12,244,000 6,778,000
Product sales 3,884,000 5,263,000 5,468,000
Equipment sales 6,784,000 4,387,000 3,970,000
License fees and royalties 2,167,000 1,934,000 802,000
Other revenue 1,629,000 818,000 240,000
------------ ---------- ----------
Total revenue 31,771,000 24,646,000 17,258,000
------------ ---------- ----------
Cost of distribution and
production services 8,756,000 5,198,000 3,261,000
Cost of product sales 1,844,000 1,502,000 1,537,000
Cost of equipment sales 4,981,000 2,753,000 2,716,000
------------ ---------- ----------
Total cost of sales 15,581,000 9,453,000 7,514,000
------------ ---------- ----------
Gross profit 16,190,000 15,193,000 9,744,000
------------ ---------- ----------
Operating expenses:
Selling, general and administrative 16,838,000 12,336,000 9,347,000
Legal and professional fees 1,851,000 590,000 778,000
Research and development 1,471,000 1,972,000 1,073,000
------------ ---------- ----------
Total operating expenses 20,160,000 14,898,000 11,198,000
------------ ---------- ----------
Operating income (loss) (3,970,000) 295,000 (1,454,000)
Investment income, net of
interest expense of $170,000,
$54,000 and $71,000 in 1995,
1994 and 1993, respectively 22,000 412,000 434,000
------------ ---------- ----------
Earnings (loss) before income taxes (3,948,000) 707,000 (1,020,000)
Income taxes (note 7) -- -- 281,000
------------ ---------- ----------
Net earnings (loss) $ (3,948,000) 707,000 (1,301,000)
============ ========== ==========
Net earnings (loss) per share $ (0.19) 0.03 (0.08)
============ ========== ==========
Weighted average number of shares
outstanding 20,301,000 21,124,000 17,135,000
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
10% CUMULATIVE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------- --------- ---------- ---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 12/31/92 392,498 $ 2,000 13,214,597 $ 66,000 $26,009,000 $(18,645,000) $ -- $ 7,432,000
Issuance of stock in
conversion of debt -- -- 29,646 -- 75,000 -- -- 75,000
Issuance of stock for
exercise of warrants and
options, net of issuance
costs -- -- 5,572,868 28,000 17,419,000 -- -- 17,447,000
Conversion of preferred
stock to common stock (137,498) (1,000) 38,439 -- 1,000 -- -- --
Net loss -- -- -- -- -- (1,301,000) -- (1,301,000)
------- --------- ---------- ---------- ----------- ------------ ----------- -----------
Balance, 12/31/93 255,000 1,000 18,855,550 94,000 43,504,000 (19,946,000) -- 23,653,000
Issuance of stock for
exercise of warrants and
options, net of issuance
costs -- -- 306,440 2,000 1,095,000 -- -- 1,097,000
Conversion of preferred
stock to common stock (57,388) -- 16,070 -- -- -- -- --
Net earnings -- -- -- -- -- 707,000 -- 707,000
------- --------- ---------- ---------- ---------- ------------ ----------- -----------
Balance, 12/31/94 197,612 $ 1,000 19,178,060 $ 96,000 44,599,000 (19,239,000) -- 25,457,000
Issuance of stock for
exercise of warrants and
options, net of issuance
costs -- -- 314,843 1,000 679,000 -- -- 680,000
Conversion of preferred
stock to common stock (35,000) -- 9,804 -- -- -- -- --
Issuance of stock in
private offerings, net
of issuance costs -- -- 3,000,000 15,000 11,469,000 -- -- 11,484,000
Acquisition of 50,000
common shares -- -- -- -- -- -- (222,000) (222,000)
Net loss -- -- -- -- -- (3,948,000) -- (3,948,000)
------- --------- ---------- ---------- ----------- ------------ ----------- -----------
Balance, 12/31/95 162,612 $ 1,000 22,502,707 $ 112,000 $56,747,000 $(23,187,000) $ (222,000) $33,451,000
======= ========= ========== ========== =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ----------
(note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (3,948,000) 707,000 (1,301,000)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 2,150,000 837,000 282,000
Provision for returns and
doubtful accounts 983,000 1,037,000 206,000
Loss on sale of
marketable securities -
available for sale 70,000 -- --
Amortization of deferred
gain on sale and leaseback
transactions (1,316,000) (1,300,000) (900,000)
(Increase) decrease in:
Accounts receivable - trade (349,000) (3,430,000) (3,094,000)
Software development costs, net (1,033,000) (1,983,000) --
Inventory, net (1,875,000) (872,000) (2,265,000)
Prepaid expenses and other assets (1,729,000) (1,413,000) (1,096,000)
Increase (decrease) in:
Accounts payable and
accrued liabilities, net
of amounts paid in stock 969,000 1,076,000 (80,000)
Customer deposits 278,000 356,000 368,000
------------ --------- ----------
Net cash used in
operating activities (5,800,000) (4,985,000) (7,880,000)
------------ --------- ----------
Cash flows from investing activities:
Capital expenditures (1,196,000) (898,000) (699,000)
Notes receivable (1,944,000) (406,000) (2,653,000)
Software development costs, net (2,857,000) (1,281,000) (726,000)
Purchases of other investments (103,000) (823,000) (807,000)
Purchases of marketable
securities - available for sale -- -- (4,515,000)
Proceeds from maturities of
marketable securities -
available for sale -- 2,554,000 961,000
Proceeds from sales of
marketable securities
- available for sale 930,000 -- --
Proceeds from sale and
leaseback transactions 4,500,000 4,250,000 3,500,000
Deposits related to sale and
leaseback transactions (575,000) (2,100,000) (800,000)
------------ --------- ----------
Net cash provided by
(used in) investing
activities (1,245,000) 1,296,000 (5,739,000)
------------ --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Principal payments on debt $ (1,031,000) (557,000) (237,000)
Proceeds from issuance of debt 2,650,000 633,000 375,000
Purchase of equipment related
to sale and leaseback
transactions (2,470,000) (2,263,000) (2,103,000)
Proceeds from issuance of
common stock, less issuance
costs paid in cash 12,164,000 1,097,000 17,447,000
Payments for purchase of
treasury stock (222,000) -- --
------------ --------- ----------
Net cash provided by
(used in) financing
activities 11,091,000 (1,090,000) 15,482,000
------------ --------- ----------
Net increase (decrease) in cash and
cash equivalents 4,046,000 (4,779,000) 1,863,000
Cash and cash equivalents at beginning
of year 2,429,000 7,208,000 5,345,000
------------ --------- ----------
Cash and cash equivalents at end of year $ 6,475,000 2,429,000 7,208,000
============ ========= ==========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 59,000 54,000 38,000
============ ========= ==========
Income taxes $ -- 399,000 62,000
============ ========= ==========
Supplemental schedule of
noncash investing and
financing activities - stock
issued upon conversion of
debt, net of issuance costs $ -- -- 75,000
============ ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 1995, 1994 and 1993
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
NTN Communications, Inc. and subsidiaries ("The Company") was organized
under the laws of the state of Delaware in 1984 for the purpose of
investing in various business ventures. The Company, through its
business units and subsidiaries develops, produces and distributes
individual and multi-player interactive entertainment and education
programs to a variety of media platforms.
The Company is also engaged in the development and distribution of
interactive video game software. The Company operates under several
distribution and license agreements in the United States, United Kingdom,
Australia, Germany, France and Switzerland. These products are sold
primarily to wholesale distributors. Royalties result from licensing
rights sold to foreign publishers.
BASIS OF ACCOUNTING PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, National Telecommunicator Network,
Inc. and New World Computing, Inc., and its partially-owned subsidiaries
IWN Corporation, Inc. and LearnStar Inc. (LearnStar). During most of
1995, the Company owned 50% of LearnStar, however the Company funded all
operations of LearnStar, and accordingly LearnStar has been consolidated
as if it were wholly-owned. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For the purpose of financial statement presentation, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. Cash and cash equivalents
at December 31, 1995 and 1994, consist of operational cash accounts and
certificates of deposit with original maturities of three months or less.
MARKETABLE SECURITIES - AVAILABLE FOR SALE
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). The
Company has classified applicable investments as "available for sale".
Securities available for sale are carried at fair value with unrealized
gains and losses, net of tax, reported as a separate component of
shareholders' equity. The cost of securities sold is based on the
specific identification method.
At December 31, 1994 marketable securities available for sale consisted
of mutual funds invested in government-backed debt instruments. The fair
value of available for sale securities approximated cost.
Proceeds from the sale of investment securities available for sale was
$930,000 in 1995 and gross realized losses included in income in 1995 was
$70,000.
F-8
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
DEPRECIATION
Depreciation of fixed assets is computed using the straight-line method
over the estimated useful lives of the assets (three to five years).
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out) or market
and consists principally of finished goods and equipment.
DEPOSITS AND OTHER ASSETS
Deposits and other assets include long-term life insurance contracts
and other assets. These contracts are carried at cost which
approximates market value.
REVENUE RECOGNITION
Distribution and Production Services Revenue: Revenue is recognized as
the service is provided by the Company.
Product Sales: Revenue is recognized when the product is shipped. Subject
to limitations, the Company permits customers to obtain exchanges within
certain specified periods, and provides price protection on certain unsold
merchandise. Revenue is reflected net of an allowance for returns.
Equipment Sales: Revenue is recognized when equipment is shipped or
transferred to the purchaser.
License Fees and Royalties: For those agreements which provide the customers
the right to multiple copies in exchange for guaranteed amounts, revenue is
recognized upon execution of the agreement since the Company has no remaining
obligations or incremental costs. Per copy royalties on sales that exceed
the guarantee are recognized as earned. For those agreements which provide
for the marketing rights and the future use of the Company's name, technology
and trademarks, revenue is recognized when all material services or
conditions relating to the sale have been performed or satisfied.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases, and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
VALUATION OF STOCK TRANSACTIONS
For stock issued in return for services, the transactions have been
recorded at the value of the services received, if determinable; if such
value was not determinable, the transactions were recorded at the fair
market value of the stock issued.
F-9
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs related to the development of certain
software products. In accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Cost of Computer Software to be
Sold, Leased or Otherwise Marketed," capitalization of costs begins when
technological feasibility has been established and ends when the product
is available for general release to customers. Amortization of costs for
specific products is recognized on the relative value basis over the
estimated economic life of each specific product, generally within one
year. Amortization of costs related to interactive programs is
recognized on a straight line basis over three to five years.
ADVERTISING COSTS
The Company accounts for advertising costs in accordance with SOP No. 93-7,
Reporting on Advertising Costs. Direct response advertising is capitalized
only if customer sales can be directly correlated to the advertising costs
and if future benefit can be demonstrated. Capitalized advertising costs
are amortized using the straight-line method over the estimated benefit
period. Advertising expense for 1995, 1994 and 1993 was $290,000, $136,000,
and $172,000, respectively. Amounts capitalized at December 31, 1995 and
1994 was $310,000 and $243,000, respectively.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
EARNINGS (LOSS) PER SHARE
Earnings per share amounts are computed by dividing net earnings
increased by preferred dividends resulting from the assumed exercise of
stock options and warrants and the assumed conversion of convertible
preferred shares, by the weighted average number of common and common
equivalent shares outstanding during the period. Common stock
equivalents represent the dilutive effect of the assumed exercise of
certain outstanding options and warrants and preferred stock. The impact
of the outstanding stock options and warrants and conversion of preferred
stock would have had an anti-dilutive effect in years where losses are
reported, and accordingly, have not been included in the computation.
RECLASSIFICATIONS
Certain items in the 1994 and 1993 consolidated financial statements have
been reclassified to conform to the 1995 presentation.
(2) MERGER
On December 31, 1993, a subsidiary of the Company completed its merger
with New World Computing, Inc. (New World), a developer and distributor
of interactive video game software. The Company issued 1,025,000 shares
of common stock for all of the outstanding common stock of New World.
The transaction was accounted for as a pooling of interests. The
consolidated financial statements for 1993 were restated to reflect the
merger.
F-10
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) SALE OF SUBSIDIARY INTERESTS
In December 1995 the Company purchased the shares of LearnStar owned by
ACT III Communications to increase its ownership in LearnStar to 100%.
Also in December 1995, the Company sold a 45% interest in LearnStar to an
unaffiliated company for $2,500,000 in return for a note receivable in
the amount of $2,500,000. As the Company's basis in LearnStar is
negative, the gain on the sale of the stock was $3,354,000. The gain was
deferred and will be recognized as the Company receives proceeds on the
note receivable arising from the sale.
In December 1995, the Company entered into a sale and purchase agreement to
sell 10% of its interest in IWN Inc. to an unaffiliated company for
$350,000 A gain of $329,000 was recognized upon consummation of the sale.
(4) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ---------
<S> <C> <C>
6% unsecured notes from
officers and directors.
Revised in April 1996 to
mature in three annual
installments beginning in
April 1997 of 10%, 30% and
60%, respectively. Payable
either in cash or through
redemption of Company shares
at fair market value. $ 3,438,000 2,947,000
Non-interest bearing note of
$2,500,000 from unaffiliated
company due $400,000 in 1996
and $2,100,000 in 1997, net of
deferred gain secured by common
stock. -- --
6% - 8% unsecured notes from
officers and directors. Due
in December 1996. 680,000 315,000
Non-interest bearing unsecured
note. Payment received in
March 1996. 350,000 --
5% unsecured note. Due from
IWN L.P. an unconsolidated
limited partnership in which
the Company is a general
partner. Due March 2000 or
earlier to the extent of
available cash as provided in
the limited partnership
agreement. 738,000 --
------------ ---------
Total 5,206,000 3,262,000
Current portion (1,030,000) --
------------ ---------
$ 4,176,000 3,262,000
============ =========
</TABLE>
F-11
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Notes receivable from officers and directors include amounts advanced to
officers and directors to obtain a federal or state income tax deduction
for the Company. In 1993, the Company obtained a deduction of $6,900,000
related to compensation to officers and directors in prior years. The
amount has been recorded as an addition to the Company's existing net
operating loss carryforward. In order to obtain the deduction, the Company
was required to withhold and to deposit amounts with the appropriate
government taxing authorities on behalf of the officers and directors. In
1995, the Company converted $435,000 of accrued unpaid interest to
principal.
In 1995, the Company entered into a sale agreement to sell 45% of its
shares in LearnStar in exchange for a note of $2,500,000. The gain has been
deferred and will be recognized as the company receives proceeds on the
note receivable rising from the sale.
(5) FIXED ASSETS
Fixed assets are recorded at cost and consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Furniture and fixtures $ 767,000 271,000
Equipment 2,917,000 2,217,000
Automobile 47,000 47,000
------------ ----------
3,731,000 2,535,000
Accumulated depreciation (1,631,000) (1,130,000)
------------ ----------
$ 2,100,000 1,405,000
============ ==========
</TABLE>
(6) SHORT-TERM BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
Short-term borrowings and long-term
debt is as follows:
1995 1994
------------ ----------
<S> <C> <C>
$750,000 variable rate line of
credit (30-day commercial
paper rate plus 2.9%, 8.7% at
December 31, 1995). Matures
in October 1996. Secured by
accounts receivable. $ 722,000 445,000
Variable rate loan (8.4% at
December 31, 1995), due in
May 1996, secured by life
insurance policies. 1,356,000 --
Other 17,000 31,000
------------ ----------
Total 2,095,000 476,000
Current portion of long-term
debt (2,093,000) (468,000)
------------ ----------
$ 2,000 8,000
============ ==========
</TABLE>
F-12
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The aggregate maturities of long-term debt for years subsequent to
December 31, 1995 are as follows: 1996, $2,093,000; 1997, $2,000.
(7) INCOME TAXES
The company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS 109"). Under the assets and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax balances.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company has no net taxable temporary differences which would require
recognition of deferred tax liabilities, and due to the uncertainty of
future realizability has recorded a valuation allowance against any
deferred tax assets for deductible temporary differences and tax operating
loss carryforwards, and accordingly, no deferred taxes are contained in the
accompanying consolidated financial statements. The Company increased its
valuation allowance by approximately $1,300,000 and $300,000 for the
years ended December 31, 1995 and 1994, respectively, primarily as a result
of the increase in tax operating loss carryforwards.
At December 31, 1995, the Company has available net operating loss
carryforwards of approximately $26,000,000 for federal income tax purposes,
which begin to expire in 2006. The net operating loss carryforwards for
state purposes, which begin to expire in 1996 are less than 50% of
the federal tax amounts. The Company may have additional net operating loss
carryforwards available subject to annual limitations under Internal
Revenue Code 382.
In 1995, the Company did not recognize income tax expense as a result of
their utilization of net operating loss carryforwards. Due to certain tax
regulations relating to the merger completed in 1993, the Company was
unable to utilize its net operating loss carryforwards to offset earnings
of its subsidiary, New World, in 1993. Income taxes for 1993 resulted from
the operations of New World, and amounted to $281,000.
(8) COMMON STOCK AND COMMON STOCK OPTIONS
In 1995, The Company sold and issued an aggregate of 3,000,000 shares of
common stock. In September and October 1995, 2,400,000 of these shares were
issued at an initial price of $4.00 per share to certain institutional
investors (Investors). Pursuant to the terms of the sale, the initial
purchase price paid by the Investors is subject to adjustment based on the
average of the closing prices ("Average Share Price") of the Common Stock
for all trading days during the 60-day period commencing on January 15,
1996 ("Valuation Period"). Under the agreement, if the Average Share Price
during the Valuation Period is less than $4.70, the Company will issue to
the Investors, at no additional cost to the Investors, additional shares of
common stock so as to result in a purchase price per share of common stock
equal to 85% of the Average Share Price. Conversely, if the Average Sales
Price exceeded $4.70 during the Valuation Period, the Investors are
obligated to pay to the Company the dollar amount by which the product of
85% of the Average Share Price during the Valuation Period and 2,400,000
exceeds the amount provided to the Company. As a result of these terms, the
Company anticipates that it will issue approximately 1,200,000 additional
shares to the Investors in 1996.
F-13
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company has a qualified incentive stock option plan under which
2,000,000 restricted common shares are authorized for grant. Options
granted in or after 1993 generally vest 33% annually, commencing one year
from the date of grant and expire five years from the date of final
vesting. A summary of the status of the Company's qualified incentive stock
option plan follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTION PRICE EXERCISABLE
OPTIONS PER SHARE OPTIONS
----------- -------------- -----------
<S> <C> <C> <C>
December 31, 1993 715,097 $ 2.25 - 8.25 317,897
Options granted 705,450 5.75 - 8.25 90,000
Options that became exercisable -- 6.50 - 8.25 133,400
Options exercised (8,867) 2.25 - 6.50 (8,867)
Options lapsed and canceled (19,900) 6.38 - 6.50 --
---------- -------------- ----------
December 31, 1994 1,391,780 2.25 - 8.25 532,430
Options granted 1,691,600 4.00 - 8.00 530,000
Options that became exercisable -- 6.38 - 8.25 369,450
Options exercised (10,500) 2.25 - 6.50 (10,500)
Options lapsed and canceled (62,550) 4.50 - 6.50 (62,550)
---------- -------------- ----------
December 31, 1995 3,010,330 $ 2.25 - 8.25 1,358,830
========== ============== ==========
</TABLE>
The Company previously had a non-qualified stock option plan under which
1,455,000 restricted common shares were granted. Non-qualified options vest
50% annually, commencing one year from the date of grant and expire five
years from the date of grant. A summary of the status of the non-qualified
stock options follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTION PRICE EXERCISABLE
OPTIONS PER SHARE OPTIONS
----------- ------------- -----------
<S> <C> <C> <C>
December 31, 1993 1,260,000 $ 2.00 - 8.25 460,000
Options granted 195,000 5.75 - 8.25 --
Options that became exercisable -- -- 400,000
Options exercised -- -- --
Options lapsed and canceled -- -- --
---------- ------------- ----------
December 31, 1994 1,455,000 2.00 - 8.25 860,000
Options granted -- -- --
Options that became exercisable -- 5.75 - 8.25 497,500
Options exercised -- -- --
Options lapsed and canceled -- -- --
---------- ------------- ----------
December 31, 1995 1,455,000 $ 2.00 - 8.25 1,357,500
========== ============= =========
</TABLE>
F-14
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of 10% cumulative convertible
preferred stock, of which 162,612 and 197,612 were issued and outstanding
at December 31, 1995 and 1994, respectively. The stock has no voting
rights. At December 31, 1995, each share is currently convertible into
.2801 shares of common stock at the option of the holder. During 1995,
35,000 shares of cumulative convertible preferred stock converted into
9,804 shares of common stock.
(10) WARRANTS
The Company has issued various warrants to purchase common stock, all of
which are exercisable as of December 31, 1995. The following summarizes
warrants issued and outstanding:
<TABLE>
<CAPTION>
OUTSTANDING WARRANT PRICE EXERCISABLE
WARRANTS PER SHARE WARRANTS
----------- -------------- -----------
<S> <C> <C> <C>
December 31, 1993 3,245,121 $ 2.00 - 20.00 3,245,121
Warrants granted 437,500 5.13 - 7.50 437,500
Warrants that became exercisable -- -- --
Warrants exercised (297,573) 2.00 - 3.70 (297,573)
Warrants lapsed and canceled (3,119) 20.00 (3,119)
----------- --------------- ---------
December 31, 1994 3,381,929 2.00 - 8.00 3,381,929
Warrants granted 733,500 4.00 - 6.13 733,500
Warrants that became exercisable -- -- --
Warrants exercised (225,600) 2.00 - 3.70 (225,600)
Warrants lapsed and canceled -- -- --
----------- --------------- ---------
December 31, 1995 3,889,829 2.00 - 8.00 3,889,829
=========== =============== =========
</TABLE>
F-15
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) BUSINESS SEGMENT AND EXPORT SALES DATA
Operating results and other financial data are presented for the
principal business segments of the Company for the years ended December
31, 1995, 1994 and 1993. The Company's principal business units are its
Hospitality Network (Hospitality Interactive Services), Learnstar, Inc.
(Education Interactive Services) and New World (Software Development and
Distribution). Corporate and Other includes other smaller segments and
the corporate operations.
<TABLE>
<CAPTION>
1995 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
Net Sales
Hospitality Interactive Services $ 21,720,000 16,710,000 8,970,000
Education Interactive Services 1,095,000 -- --
Software Development and Distribution 5,379,000 5,747,000 6,135,000
Corporate and Other 3,577,000 2,189,000 2,153,000
------------- ---------- ----------
Total 31,771,000 24,646,000 17,258,000
============= ========== ==========
Operating Income (Loss)
Hospitality Interactive Services 3,547,000 2,839,000 1,461,000
Education Interactive Services (2,149,000) -- --
Software Development and Distribution 127,000 251,000 633,000
Corporate and Other (5,495,000) (2,795,000) (3,548,000)
------------- ---------- ----------
Total (3,970,000) 295,000 (1,454,000)
============= ========== ==========
Identifiable Assets
Hospitality Interactive Services 28,125,000 20,246,000 21,787,000
Education Interactive Services 1,320,000 1,104,000 --
Software Development and Distribution 6,152,000 4,856,000 1,706,000
Corporate and Other 7,216,000 5,033,000 3,747,000
------------- ---------- ----------
Total 42,813,000 31,239,000 27,240,000
============= ========== ==========
Capital Expenditures
Hospitality Interactive Services 945,000 763,000 629,000
Education Interactive Services 116,000 -- --
Software Development and Distribution 30,000 51,000 --
Corporate and Other 105,000 84,000 70,000
------------- ---------- ----------
Total 1,196,000 898,000 699,000
============= ========== ==========
Depreciation and Amortization
Hospitality Interactive Services 965,000 499,000 249,000
Education Interactive Services 78,000 -- --
Software Development and Distribution 1,071,000 310,000 18,000
Corporate and Other 36,000 28,000 15,000
------------- ---------- ----------
Total 2,150,000 837,000 282,000
============= ========== ==========
</TABLE>
F-16
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Sales to foreign customers are as
follows:
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Distribution and production $ 896,000 660,000 580,000
services
Equipment sales 711,000 429,000 689,000
License fees and royalties 1,521,000 851,000 802,000
------------ --------- ---------
Total $ 3,128,000 1,940,000 2,071,000
============ ========= =========
</TABLE>
(12) RETIREMENT AND SAVINGS PLANS
DEFINED BENEFIT PENSION PLAN
The Company has established a non-qualified, con-contributory pension
plan covering certain key executives. This plan is subject to
modification at any time. The plan provides retirement benefits based on
years of service and compensation. Net pension expense was $7,000 and
$5,000 in 1995 and 1994 respectively. Accrued pension liability totaled
$12,000 and $5,000 at December 31, 1995 and 1994, respectively.
DEFINED CONTRIBUTION PLAN
During 1994, the Company also established a defined contribution plan
which is organized under Section 401(k) of the Internal Revenue Code,
which allows employees who have completed at least six months of service
or reached age 21, whichever is later, to defer up to 15% of their pay on
a pre-tax basis. The Company, at its discretion, may contribute to the
plan. For the year ended December 31, 1995 and 1994 the Company made no
such contributions.
DEFERRED COMPENSATION PLAN
The Company also maintains an unfunded, non-qualified deferred
compensation plan, which was created in 1994 for certain members of
management. This plan allows participants to defer a minimum of $5,000
up to limits set by the Internal Revenue Code.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The Company
believes that the fair value of financial instrument assets and financial
instrument liabilities approximate their carrying value, except
that the carrying value of notes receivable at December 31, 1995 exceeds
the fair value by approximately $250,000. The following methods and
assumptions were used to estimate the fair value of financial
instruments:
The carrying values of cash and cash equivalents, marketable securities,
accounts receivable, other assets, accounts payable and accrued
liabilities and short-term borrowings approximates fair value because of
the short maturity of those instruments. The fair value of notes
receivable and interest-bearing security deposits are determined as the
present value of expected future cash flows discounted at the interest
rate currently offered by the Company which approximates rates currently
offered by local lending institutions for instruments of similar terms
and risks.
F-17
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) COMMITMENTS AND CONTINGENCIES
The Company leases office and production facilities and equipment under
agreements which expire at various dates. In 1995, the Company entered
into a noncancelable operating lease with an entity which is partially
owned by the Company. The Company incurred no lease expense under the
lease in 1994 and 1993. Certain leases contain renewal provisions and
generally require the Company to pay utilities, insurance, taxes and
other operating expenses. Additionally, the Company has entered into
agreements for the sale and leaseback of certain equipment used in
broadcast operations. Deferred gains on sale and leaseback transactions
is amortized to operations over the three year lease terms. Each lease
provides an option to the Company to repurchase the equipment at the
estimated fair market value at the end of the lease terms. Included in
assets are interest-bearing security deposits totaling $3,775,000
relating to these agreements. Lease expense under operating leases
totaled $4,763,000, $3,272,000 and $1,425,000 in 1995, 1994 and 1993,
respectively.
Future minimum lease obligations under noncancelable operating leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING RELATED PARTY OTHER
------------ ------------- ---------
<S> <C> <C>
1996 $ 285,000 4,822,000
1997 314,000 3,179,000
1998 350,000 1,198,000
1999 373,000 162,000
2000 378,000 161,000
Thereafter 189,000 12,000
---------- ---------
Total $1,889,000 9,534,000
========== =========
</TABLE>
The Company provides services to group viewing locations, generally bars
and lounges, and to third party distributors primarily throughout the
United States. In addition, the Company licenses its technology and
products to licensees outside of the United States. Concentration of
credit risk with respect to trade receivables are limited due to the
large number of customers comprising the Company's customer base, and
their dispersion across many different industries and geographies. The
Company performs ongoing credit evaluations of its customers financial
condition and, generally, requires deposits from its customers. At
December 31, 1995, the Company had no significant concentration of credit
risk.
(15) LEGAL ACTIONS
Beginning in 1992 the Company has been involved in various lawsuits with
Interactive Network, Inc. The remaining lawsuits have all been suspended
pending substantive discussions regarding a global resolution of all
disputes. The Company believes, based in part on the advice of outside
independent counsel, that these actions and possible resolutions will not
have a material adverse effect on the Company's financial position or
results of operations.
The Company is also defending litigation filed by various shareholders of
the Company. The class action suit seeks to recover unspecified damages
for a drop in the market price of the Company's Common Stock following an
announcement that an anticipated agreement under which the Company would
sell certain equipment and services to an arm of the Mexican Government
may be put out for bid. Whereas the Company has vigorously defended this
litigation and believes, in part, based upon the opinion of outside
counsel, on the merits of its defense, the Company has
F-18
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
entered into substantive negotiations to resolve this matter out-of-court
to avoid costly and protracted litigation, in the best interests of its
shareholders. A preliminary framework for such a resolution has been
reached, however, any proposed settlement between the parties will be
subject to notification to each of the class members and final court
approval.
In April 1995, a second class action lawsuit was filed against the
Company. The lawsuit seeks unspecified damages and alleges violations of
securities laws based upon the Company's projections for the fourth
quarter of 1994 and for fiscal year 1994, and further alleges that
certain insiders sold stock on information not generally known to the
public. In July 1995, a single shareholder filed a separate lawsuit in
Texas containing allegations essentially identical to those raised in the
shareholder lawsuit filed in April, 1995. The Company denies the
allegations in the complaints and has filed its own counterclaim against
third parties for indemnification. The Company has denied liability based
upon the allegations contained in the complaints which do not contain any
statement or demand for a specific amount of damages. Much discovery has
been undertaken and, at this time, the Company intends to continue to
vigorously contest these matters.
There can be no assurance that any or all of the preceding actions will
be decided in favor of the Company. The Company believes, based in part
on the advice of outside, independent legal counsel, that the costs of
defending and prosecuting these actions will not have a material adverse
effect on the Company's financial position or results of operations.
F-19
<PAGE>
Schedule II
-----------
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
ADDITIONS BALANCE
ALLOWANCE FOR BALANCE AT CHARGED TO AT END
DOUBTFUL ACCOUNTS BEGINNING EXPENSE DEDUCTIONS (a) OF PERIOD
- ------------------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
1993 $ 70,000 206,000 96,000 180,000
1994 $ 180,000 375,000 120,000 435,000
1995 $ 435,000 987,000 663,000 759,000
</TABLE>
(a) Reflects trade accounts receivable written off during the year.
<TABLE>
<CAPTION>
ADDITIONS BALANCE
ALLOWANCE FOR BALANCE AT OFFSET TO AT END
SALES RETURNS BEGINNING REVENUE DEDUCTIONS (b) OF PERIOD
- --------------- ------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
1993 $ - - - -
1994 $ - 1,261,000 599,000 662,000
1995 $ 662,000 1,186,000 1,190,000 658,000
</TABLE>
(b) Reflects actual returns and allowances charged against the allowance during
the year.
F-20
<PAGE>
EXHIBIT 10.18
INVESTMENT AGREEMENT
by and among
NTN COMMUNICATIONS, INC.
IWN, INC.
and
SYMPHONY MANAGEMENT ASSOCIATES, INC.
Dated and Effective of December 31, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Certain Definitions......................................... 1
SECTION 2. Amendment and Restatement of
Partnership Agreement...................................... 2
2.1 Withdrawal of Existing Partners............................ 2
2.2 Amended and Restated Partnership Agreement................. 2
SECTION 3. Future Grant of Warrant; Reservation
of Warrant Shares.......................................... 2
3.1 Grant of Warrant........................................... 2
3.2 Reservation of Warrant Shares.............................. 2
3.3 Registration Rights Agreement.............................. 2
3.4 Other Documents............................................ 3
SECTION 4. Purchase and Sale of IWN Stock; Tax
Allocation and Other Business Agreements................... 3
4.1 Purchase of IWN Stock...................................... 3
4.2 Tax Allocation and Other Agreements........................ 3
SECTION 5. Representations and Warranties............................. 4
5.1 Representations and Warranties of NTN
and IWN.................................................... 4
5.2 Representations and Warranties of Symphony................. 18
SECTION 6. Symphony "Put" Right........................................ 20
6.1 "Put" Right; Notice of Exercise............................ 20
6.2 Put Price.................................................. 20
6.3 Closing.................................................... 21
6.4 Noncompetition Agreement................................... 22
6.5 Compromise................................................. 22
SECTION 7. Additional Agreements....................................... 23
7.1 Additional Agreements of NTN and IWN....................... 23
7.2 Additional Agreements of Symphony.......................... 28
SECTION 8. Indemnification............................................. 30
8.1 NTN and IWN Indemnification................................ 30
8.2 Symphony Indemnification................................... 32
8.3 Notice of Indemnity Claim.................................. 32
8.4 Indemnity Exclusive Remedy................................. 33
</TABLE>
i.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9. Miscellaneous............................................... 33
9.1 Fees and Expenses........................................... 33
9.2 Specific Enforcement........................................ 33
9.3 Entire Agreement............................................ 34
9.4 Notices..................................................... 34
9.5 Waivers..................................................... 35
9.6 Headings.................................................... 35
9.7 Assignment.................................................. 35
9.8 No Third-Party Beneficiaries................................ 35
9.9 Governing Law............................................... 35
9.10 Survival of Representations and Warranties.................. 36
9.11 Execution; Facsimile Signatures............................. 36
9.12 Publicity................................................... 36
</TABLE>
ii.
<PAGE>
Symphony Management Associates, Inc.
900 Bestgate Road
Suite 400
Annapolis, Maryland 21401
Gentlemen:
The undersigned, NTN Communications, Inc., a Delaware corporation ("NTN"),
and IWN, Inc., a Delaware corporation ("IWN"), hereby agree with Symphony
Management Associates, Inc., a Delaware corporation ("Symphony"), as follows:
SECTION 1. Certain Definitions
-------------------
When used in this letter agreement (this "Agreement"), the following terms
have the meanings indicated:
1.1 "CPNI" means Command Performance Network, Inc., a Delaware
corporation.
1.2 "Effective Date" means December 31, 1995.
1.3 "IWN Common Stock" means the common stock, $.001 par value per share,
of IWN.
1.4 "LLC" means Symphony IWN Investment LLC, a limited liability company
to be formed following the Effective Date under the laws of the State of
Delaware and to which Symphony shall assign and transfer all of its right, title
and interest in and to this Agreement.
1.5 "NTN Common Stock" means the common stock, $.005 par value per share,
of NTN.
1.6 "Partnership" means IWN, L.P., a Delaware limited partnership.
1.7 "Partnership Agreement" means the Agreement of Limited Partnership of
the Partnership, dated as of September 30, 1994, by and among IWN and StarBet,
as the general partners, and CPNI, as the original limited partner, as amended
by a First Amendment thereto dated as of December 19, 1994.
1.8 "Partnership Business" means the development, distribution, and
operation of interactive applications for the worldwide gaming and wagering
industry.
1.9 "StarBet" means StarBet, Inc., a Delaware corporation.
1.
<PAGE>
SECTION 2. Amendment and Restatement of Partnership Agreement
--------------------------------------------------
2.1 Withdrawal of Existing Partners. As of the Effective Date, CPNI and
-------------------------------
StarBet have withdrawn as partners of the Partnership pursuant to a Second
Amendment to the Partnership Agreement dated as of the Effective Date, a copy of
which is attached hereto as Schedule 2.1.
------------
2.2 Amended and Restated Partnership Agreement. Concur rently with the
------------------------------------------
withdrawal of CPNI and StarBet referred to in Section 2.1, IWN and Symphony are
entering into a certain Third Amended and Restated Agreement of Limited
Partnership of the Partnership, substantially in the form attached as Exhibit 1
---------
hereto (the "Restated Partnership Agreement"). Pursuant to the Restated
Partnership Agreement, Symphony is making an initial cash capital contribution
of $100 and is being admitted as a limited partner of the Partnership on the
terms set forth in the Restated Partnership Agreement. Pursuant to the Restated
Partnership Agreement, Symphony (or LLC) also shall make an additional aggregate
cash capital contribution of $2,649,900 at the times and in the install ments
set forth therein.
SECTION 3. Future Grant of Warrant; Reservation of Warrant Shares.
------------------------------------------------------
3.1 Grant of Warrant. As soon as is practicable following the formation
----------------
of LLC, NTN shall execute and deliver to LLC, against delivery by LLC to NTN of
a check in the amount of $400, a warrant, substantially in the form attached as
Exhibit 2 to this Agreement (the "Warrant"), to purchase 400,000 shares of NTN
- ---------
Common Stock at an exercise price of $4.125 per share and on the other terms set
forth in the Warrant.
3.2 Reservation of Warrant Shares. NTN agrees to reserve and keep
-----------------------------
available at all times during which the Warrant remains outstanding, free from
preemptive rights, out of its authorized but unissued shares of Common Stock,
400,000 shares of Common Stock plus such additional number of shares as may
become issuable pursuant to the antidilution provisions thereof (collectively,
the "Warrant Shares") in order to provide for the exercise of the Warrant as
provided therein.
3.3 Registration Rights Agreement. Concurrently with the execution and
-----------------------------
delivery of the Warrant, NTN also shall execute and deliver to LLC a
registration rights agreement, substantially in the form attached as Exhibit 3
---------
to this Agreement (the "Registration Rights Agreement"), pursuant to which LLC
shall be granted certain registration rights with respect to the Warrant Shares.
2.
<PAGE>
3.4 Other Documents. Concurrently with the execution and delivery of the
---------------
Warrant, each of the parties also shall execute and deliver such additional
documents and instruments as the other party may reasonably request, including,
without limitation, a legal opinion, in form and substance acceptable to
Symphony, of Troy & Gould Professional Corporation, counsel for NTN, IWN and the
Partnership, and a corresponding opinion, in form and substance acceptable to
NTN and IWN, of Stradley, Ronon, Stevens & Young, LLP, counsel for Symphony and
LLC.
SECTION 4. Purchase and Sale of IWN Stock; Tax Allocation and Other Business
-----------------------------------------------------------------
Agreements.
- ----------
4.1 Purchase of IWN Stock. Concurrently with the execution of this
---------------------
Agreement, NTN and Symphony are entering in a Stock Purchase Agreement,
substantially in the form attached as Exhibit 4 to this Agreement (the "Stock
---------
Purchase Agreement"), pursuant to which Symphony is purchasing from NTN, and
NTN is selling to Symphony, 100,000 shares of (the "IWN Shares") IWN Common
Stock for an aggregate purchase price of $350,000. As part of and in connection
with entering into the Stock Purchase Agreement, NTN and Symphony also are
entering into a Stockholders Agreement, substantially in the form attached as
Exhibit 5 to this Agreement (the "Stockholders Agreement").
- ---------
4.2 Tax Allocation and Other Agreements. Concurrently with the execution
-----------------------------------
of this Agreement:
(a) NTN and IWN are entering into a Tax Allocation Agreement (the
"Tax Allocation Agreement") and a Support Services Agreement (the "Support
Services Agreement"), substantially in the forms attached as Exhibits 6 and 7,
----------------
respectively, to this Agreement;
(b) NTN, IWN and the Partnership are entering into a Noncompetition
Agreement related to the Partnership Business (the "Noncompetition Agreement"),
substantially in the form attached as Exhibit 8 to this Agreement; and
(c) IWN and the Partnership are entering into an Amended and
Restated Technology and Trademark Sublicense Agreement (the "Amended Sublicense
Agreement") and a Worldwide Technology and Trademark Sublicense Agreement (the
"New Sublicense Agreement"), substantially in the forms attached as Exhibits 9
----------
and 10, respectively, to this Agreement.
- ------
The Registration Rights Agreement, Stock Purchase Agreement, Stockholders
Agreement, Tax Allocation Agreement, Support Services Agreement, Noncompetition
Agreement, Amended Sublicense Agreement, New Sublicense Agreement and Warrant
are collectively referred to herein as the "Other Agreements."
3.
<PAGE>
SECTION 5. Representations and Warranties.
------------------------------
5.1 Representations and Warranties of NTN and IWN. In order to induce
---------------------------------------------
Symphony to enter into and to consummate the transactions contemplated by this
Agreement, NTN and IWN, jointly and severally, hereby make as of the Effective
Date the following representations and warranties to Symphony and its assigns,
all of which are intended to survive the consummation of this transaction to
the extent provided in Section 9.10:
(a) Organization and Qualification of NTN. NTN is a corporation
-------------------------------------
duly incorporated and existing in good standing under the laws of the State of
Delaware, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. NTN does not have any active
subsidiaries, except for those identified on Schedule 5.1(a). Each of the
---------------
Company and its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any adverse effect on the operations,
properties, prospects or financial condition of NTN or the subsidiary with
respect to which such term is used and which is material to NTN and its
subsidiaries taken as a whole.
(b) Authorization; Enforcement. (i) NTN has the requisite corporate
--------------------------
power and authority to enter into and perform this Agreement and the Other
Agreements and to grant the Warrant and issue and sell the Warrant Shares in
accordance with the terms hereof and of the Warrant, respectively, (ii) the
execution and delivery by NTN of this Agreement and the Other Agreements and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of NTN or its Board of Directors or stockholders is required,
(iii) this Agreement, the Other Agreements and the Warrant have been or will be
duly executed and delivered by NTN, and (iv) this Agreement, the Other
Agreements and the Warrant constitute or will, when executed and delivered by
NTN, constitute valid and binding obligations of NTN enforceable against NTN in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization of NTN and IWN. The authorized capital stock of
-----------------------------
NTN consists solely of 50,000,000 shares of
4.
<PAGE>
NTN Common Stock, of which 22,460,879 shares are issued and outstanding at
December 31, 1995, all of which are voting shares, and 10,000,000 shares of
preferred stock, of which 162,602 shares are issued and outstanding at December
31, 1995. Each share of NTN Common Stock is duly and validly authorized and
issued, fully paid and nonassessable, and was not issued in violation of the
preemptive rights of any stockholder. The authorized capital stock of IWN
consists solely of 1,000,000 shares of IWN Common Stock, all of which shares are
issued and outstanding. All of the outstanding shares of IWN Common Stock are
owned by NTN. Each share of IWN Common Stock is duly and validly authorized and
issued, fully paid and nonassessable. Copies of the charter documents and
by-laws of NTN and IWN, as amended to the date hereof, in each case certified as
of the date hereof by the Secretary of NTN or IWN, as the case may be, have been
delivered to Symphony. Except for the Registration Rights Agreement and the
Stockholders Agreement, and other than as set forth in Schedule 5.1(c) hereto,
---------------
no shares of NTN Common Stock or IWN Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of NTN or IWN, as the case may be, or contracts, commitments,
understandings or arrange ments by which NTN or IWN, as the case may be, is
bound to issue additional shares of capital stock of NTN or IWN, as the case may
be, or options, warrants, scrip, rights to subscribe to, or commitments to
purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of NTN or IWN, as the case may be.
(d) Issuance of Warrant Shares. The grant and issuance of the
--------------------------
Warrant and the issuance of the Warrant Shares upon exercise of the Warrant have
been duly authorized and the Warrant Shares, when paid for or issued in
accordance with the terms of the Warrant, will be validly issued, fully paid and
nonassessable. The Warrant and the Warrant Shares are not subject to preemptive
or other preferential rights or similar statutory or contractual rights.
(e) No Conflicts. The execution, delivery and performance by NTN of
------------
this Agreement, the Warrant and the Other Agreements and the consummation by NTN
of the transactions contemplated hereby and thereby do not and will not (i)
result in a violation of NTN's Certificate of Incorporation By-Laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time, or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which NTN or any of its subsidiaries is a party or by
which any property or asset of NTN or any of its subsidiaries is bound or
affected
5.
<PAGE>
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). The business of NTN is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for possible violations which either singly or in the aggregate do not
have a Material Adverse Effect. NTN is not required under federal, state or
local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Warrant or the Warrant
Shares in accordance with the terms hereof and thereof, respectively (other than
the filing of a Form D with the SEC (as hereinafter defined), any stock exchange
filings or state securities filings which may be required to be made by NTN in
connection with or subsequent to the date hereof and except for any registration
statement which may be filed in accordance with the Registration Rights
Agreement); provided; however, that for purposes of the representation made in
this sentence, NTN is assuming and relying upon the accuracy of the relevant
representations, warranties and agreements of Symphony herein.
(f) SEC Reports. The NTN Common Stock is regis tered pursuant to
-----------
Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and NTN has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being hereinafter referred to herein as the
"SEC Reports"). True and complete copies of the quarterly and annual SEC Reports
filed with the SEC since December 31, 1994 have been delivered to Symphony. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder.
(g) No Material Adverse Change. Since September 30, 1995, the date
--------------------------
through which the most recent quarterly report of NTN on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC Reports,
no Material Adverse Effect has occurred or exists with respect to NTN except as
otherwise disclosed on Schedule 5.1(g).
---------------
(h) Organization and Qualification of IWN. IWN is a corporation
-------------------------------------
duly incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted.
6.
<PAGE>
(i) Authorization; Enforcement. (i) IWN has the requisite corporate
--------------------------
power and authority to enter into and perform this Agreement, the Restated
Partnership Agreement and the Other Agreements to which it is a party, (ii) the
execution and delivery of this Agreement, the Restated Partnership Agreement and
such Other Agreements by IWN and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of IWN or its Board of
Directors or stockholder is required, (iii) this Agreement, the Restated
Partnership Agreement and such Other Agreements have been or will be duly
executed and delivered by IWN, and (iv) this Agreement, the Restated Partnership
Agreement and such Other Agreements constitute or will, when executed and
delivered by IWN, constitute valid and binding obligations of IWN enforceable
against IWN in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(j) No Conflicts. The execution, delivery and performance by IWN of
------------
this Agreement, the Restated Partnership Agreement and the Other Agreements to
which it is a party and the consummation by IWN of the transactions contemplated
hereby and thereby do not and will not (i) result in a violation of IWN's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time, or both, would become a
default) under, or give to other any rights of termination amendment,
acceleration or cancellation of any material agreement, indenture or instrument
to which IWN is a party. IWN is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Restated Partnership Agreement or such
Other Agreements.
(k) Partnership Matters. (i) The Partnership is a limited
-------------------
partnership duly formed and validly existing under the laws of the State of
Delaware, and has the requisite power to own its properties and to carry on its
business as currently being conducted, (ii) IWN has delivered to Symphony true
and complete copies of the Partnership Agreement, as amended to date, (iii)
other than this Agreement and as set forth in the Restated Partnership
Agreement, and other than as set forth on Schedule 5.1(k), there are no
---------------
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any equity interest in the Partnership, or contracts,
commitments, understandings or
7.
<PAGE>
arrangements by which the Partnership is become bound to issue additional equity
interests in the Partnership, or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire any equity interest or securities or
rights convertible into equity interests, in the Partnership, (iv) IWN has
delivered to Symphony a true and complete unaudited balance sheet of the
Partnership as of December 31, 1995, which has been prepared from the books and
records of the Partnership and fairly presents in all material respects the
financial position of the Partnership as of the date thereof, and (v) the
Partnership has full partnership power and authority to execute and deliver by
it all of the documents and agreements to be executed and delivered in
connection with the transactions contemplated by this Agreement.
(l) Warrant; Authority. NTN has the requisite corporate right,
------------------
power and authority to grant and issue the Warrant to LLC and the delivery of
the Warrant to LLC as herein provided will transfer valid title thereto, free
and clear of all liens, encumbrances, claims, options, calls and commitments of
any kind other than those of which may be created or incurred by Symphony. NTN
has complied and will comply with all applicable federal and state securities
laws in connection with the grant and issuance of the Warrant. Neither NTN nor
anyone acting on its behalf has offered or will offer to sell the Warrant or
other securities to, or solicit offers with respect thereto from, or enter into
any preliminary conversations or negotiations relating thereto with, any person,
so as to bring the grant and issuance of the Warrant under the registration
provisions of the Securities Act of 1933, as amended.
(m) Subsidiaries of IWN. IWN has no subsidiaries and owns no
-------------------
securities (i.e., stock, warrants, calls, options, notes, bonds or other
evidences of ownership or indebtedness) of any other person, firm or corporation
except the Partner ship and except as set forth in Schedule 5.1(m).
---------------
(n) Financial Statements of NTN. The consolidated audited financial
---------------------------
statements of NTN as of December 31, 1994 and December 31, 1993 and for the
periods then ended (the "NTN Financial Statements") and the unaudited
consolidated annual financial statements of NTN as at December 31, 1995 and for
the period then ended (the "1995 NTN Financial Statements") are attached hereto
as Schedule 5.1(n). The NTN Financial Statements present fairly, in all
---------------
material respects, the financial position of NTN as at their respective dates in
conformity with generally accepted accounting principles, applied on a basis
consistently applied throughout the periods indicated. The 1995 NTN Financial
Statements present fairly, in all material respects, the consolidated financial
condition and results of operations of NTN at the date and for the
8.
<PAGE>
period indicated. Except for the absence of footnotes and normal and customary
year-end adjustments (which for this purpose shall include adjustments of any
nature relating to the transactions contemplated hereby), the 1995 NTN Financial
Statements were prepared in accordance with generally accepted accounting
principles consistently applied.
(o) Financial Statements of IWN. The unaudited financial statements
---------------------------
of IWN as of December 31, 1995 (the "1995 IWN Financial Statements") and
December 31, 1994 for the periods then ended (collectively, the "IWN Financial
Statements") are attached hereto as Schedule 5.1(o). The IWN Financial
---------------
Statements present fairly, in all material respects, the financial position of
IWN as at their respective dates. Except for the absence of footnotes and normal
and customary year-end adjustments, the 1995 IWN Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied.
(p) Financial Statements of Partnership. The unaudited financial
-----------------------------------
statements of the Partnership as of December 31, 1995 (the "1995 Partnership
Financial Statements") and December 31, 1994 and for the periods then ended
(collectively, the "Partnership Financial Statements") are attached hereto as
Schedule 5.1(p). The Partnership Financial Statements present fairly, in all
material respects, the financial position as at their respective dates. Except
for the absence of footnotes and normal and customary year-end adjustments, the
1995 Partnership Financial Statements were prepared in accordance with generally
accepted accounting principles consistently applied.
(q) Liabilities. Except to the extent reflected or reserved for on
-----------
the 1995 NTN Financial Statements, the 1995 IWN Financial Statements or the 1995
Partnership Financial Statements (collectively, the "1995 Financial Statements")
and other than as set forth in Schedule 5.1(q), there are no liabilities or
---------------
obligations of NTN, IWN or the Partnership, or their respective businesses, of
any nature (absolute, accrued, contingent or otherwise) of the sort required in
accordance with generally accepted accounting principles to be set forth or
reflected in such financial statements which are not set forth or reflected in
the respective 1995 Financial Statements and which individually or in the
aggregate materially and adversely affect the respective businesses or
properties of NTN, IWN or the Partnership.
(r) Permits and Licenses.
--------------------
(i) Attached hereto as Schedule 5.1(r)(i) is a description of
------------------
all licenses and license applications, franchises, trademarks, tradenames,
service marks, patents, patent applications and copyrights owned or held by NTN,
IWN
9.
<PAGE>
or the Partnership, as the case may be, used in the operation of the Partnership
Business as presently conducted. Except as disclosed in Schedule 5.1(r)(i), all
------------------
of the licenses, applications, franchises and other items described in Schedule
--------
5.1(r)(i) are valid and in full force and effect and adequate for the operation
- ---------
of IWN's and the Partnership Business as presently conducted.
(ii) Except as set forth in Schedule 5.1(r)(i) and except for
------------------
rights subject to the Amended Sublicense Agreement or the New Sublicense
Agreement, NTN, IWN and the Partnership own no patents or patent applications
used in or relating to the Partnership Business. All United States and foreign
patents and pending patent applications (either granted, issued or applied for)
licensed to NTN, IWN and the Partnership relating to or used in the Partnership
Business are listed and briefly described in Schedule 5.1(r)(ii) and, except as
-------------------
described in Schedule 5.1(r)(ii), require no consent, approval or other
-------------------
authorization from any third party to assign and transfer all of IWN's rights
therein to the Partnership pursuant to a certain Bill of Sale (Patent, Trademark
and Intellectual Property Assignment) executed by IWN in favor of the
Partnership (the "Bill of Sale").
(iii) Except as set forth in Schedule 5.1(r)(iii) and except
--------------------
for rights subject to the Amended Sublicense Agreement or the New Sublicense
Agreement, there are no trademarks or service marks owned by IWN and used in or
relating to the Partnership Business that will not be assigned and transferred
to the Partnership pursuant to the Bill of Sale. Neither NTN, IWN nor the
Partnership has in effect any license to any third party to use any trademark,
service mark or trade name used in the Partnership Business.
(iv) Except as described in Schedule 5.1(r)(iv), there are no
-------------------
actions, suits, proceedings or investigations pending or, to the best of NTN's
and IWN's knowledge, threatened against NTN, IWN or the Partnership (i) relating
to any patent, patent application, trade name, trade secret, trademark,
trademark application, service mark, service mark application, copyright,
process, design, computer program, invention, know-how or technology of IWN or
the Partnership in any court or before or by any governmental agency or
instrumentality, domestic or foreign, or before any arbitrator, or (ii) against
NTN's, IWN's or the Partnership's making, using and selling all of the products
which it is presently making, using or selling, and (iii) to the best of NTN's
and IWN's knowledge, NTN's, IWN's and the Partnership's making, using and
selling of its present products and services does not infringe any patents of
others and, to the best of NTN's and IWN's knowledge, no other person has
infringed upon or is infringing upon any material patent or other proprietary
right of NTN, IWN or the Partnership.
10.
<PAGE>
(s) Fixed Assets. All fixed assets used by IWN and the Partnership
------------
in the operation of their respective businesses are either owned by it or leased
under an agreement reflected in Schedule 5.1(s).
---------------
(t) Leases. Attached hereto as Schedule 5.1(t) is a description, as
------ ---------------
of the date hereof, of all leases of IWN and the Partnership requiring payments
per annum of more than $5,000, whether or not reflected on the books of the
respective entity as operating leases or capital leases, to which each entity is
a party and which relate to any property, real or personal, used by IWN or the
Partnership in the conduct of its business.
(u) Contracts and Agreements: Adverse Restrictions.
----------------------------------------------
(i) Attached hereto as Schedule 5.1(u)(i) is a list of all
------------------
contracts and agreements (other than the leases described on Schedule 5.1(t)) to
---------------
which either IWN or the Partnership is a party or by which it or any of its
property is bound and which provide for aggregate future pay ments by or to IWN
or the Partnership of more than $10,000 and are not cancelable by IWN or the
Partnership, as the case may be on 90 days' notice or less (including, without
limitation, sales representative agreements, equipment purchase agree ments,
equipment service agreements, joint venture or part nership agreements,
contracts with any labor organizations, loan agreements, bonds, mortgages,
liens, pledges or other security agreements). All such contracts and agreements
included in Schedule 5.1(u)(i) are in full force and effect and neither IWN nor
------------------
the Partnership, or to the best of NTN's and IWN's knowledge, any other party is
in breach of any of the material provisions thereof.
(ii) Except as disclosed in Schedule 5.1(u)(ii), neither IWN
-------------------
nor the Partnership is a party to any contract, agreement or other commitment or
instrument or subject to any charter or other corporate restriction or subject
to any restriction or condition contained in any permit, license, judgment,
order, writ, injunction, decree or award which, singly in or in the aggregate,
materially and adversely affects the business of IWN or the Partnership as
currently conducted.
(iii) All contracts and agreements (whether written or
otherwise) relating to the Partnership Business ("Partnership Contracts"),
whether entered into by NTN, IWN or their respective affiliates (with the
exception of the Partnership) are listed on Schedule 5.1(u)(iii). All
--------------------
Partnership Contracts are in full force and effect and, to the best of NTN's and
IWN's knowledge, no party thereto is in breach of any of the material provisions
thereof. All
11.
<PAGE>
Partnership Contracts shall be assigned to the Partnership pursuant to a certain
Assignment and Assumption Agreement dated of even date herewith which shall be
amended and supplemented by NTN and IWN as of the date of NTN's delivery of the
Warrant to LLC as provided herein with respect to any Partnership Contracts
entered into by NTN and IWN prior to March 1, 1996.
(v) Insurance. Attached as Schedule 5.1(v) is a list of all
--------- ---------------
insurance policies of IWN and the Partnership. Such list specifies, for each
policy, the name of the insurer, the name of the insured, the expiration date
and whether the premiums are paid and current, a summary description of the
property or interest insured and the type of risks insured, the deductible and
limits of coverage, whether such coverage is on "an occurrence" or a "claims
made" basis and the annual premium therefor. Such policies are presently in full
force and effect and shall not be cancelled by IWN or the Partner ship on or
before NTN's delivery of the Warrant to LLC as provided herein without 30 days'
prior notice to Symphony.
(w) Personnel. Schedule 5.1(w) contains a true and correct list of
--------- ---------------
all of IWN's and the Partnership's employees, their names and present hourly
rates or salaries.
(x) Collective Bargaining Agreement; Benefit Plans.
----------------------------------------------
(i) None of the employees of NTN, IWN or the Partnership are
represented by a labor union or associ ation. Except as set forth on Schedule
--------
5.1(x)(i), to the best of NTN's and IWN's knowledge, IWN and the Partnership are
- ---------
in compliance in all material respects with all material federal, state or local
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours and neither is party to a labor dispute.
(ii) Neither IWN nor the Partnership main tains or contributes
to any employee benefit plan ("Employee Benefit Plan") as that term is defined
in Section 3(3) of ERISA, other than as set forth in Schedule 5.1(x)(ii). No
-------------------
Employee Benefit Plan is a multiemployer plan as described in Section 4001(a)(3)
of ERISA or a multiple employer plan as described in Sections 4063 and 4064 of
ERISA, Other than as set forth in Schedule 5.1(x)(ii), there are no employment
-------------------
or consulting agreements, severance agreements, plans or arrangements providing
for the payment of "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), employee
pension or retirement plans, profit-sharing plans, savings plans, deferred
compensation plans (either funded or unfunded), bonus, stock option, stock
purchase, restricted stock, incentive, supplemental retirement, retiree medical,
12.
<PAGE>
disability or life insurance plans, or any other plans, programs or arrangements
providing similar benefits to directors, officers, employees, former employees
or retired employees of IWN or the Partnership. Schedule 5.1(x)(ii) also sets
-------------------
forth (i) each employee benefit plan for which IWN or the Partnership could
incur liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated and (ii) any plan in respect of which IWN or the
Partnership could incur liability under Section 4212(c) of ERISA, and each such
plan shall also be considered an Employee Benefit Plan for purposes of this
Agreement. A true, accurate and complete copy of each such plan, a copy of each
trust or other funding arrangement, the most recently filed Internal Revenue
Service ("IRS") Form 5500, the most recently received IRS determina tion letter
for each such plan, and the applicable summary plan description, if any, have
been provided to Symphony.
(iii) Except as described in Schedule 5.1(x)(iii), each
--------------------
Employee Benefit Plan has been maintained in compliance (including all material
filing requirements) with the requirements of ERISA and the Code, the violation
of which would have a material adverse effect on IWN or the Partnership.
(iv) Each employee pension benefit plan, as defined in Section
3(2) of ERISA, and related trust maintained by IWN or the Partnership is
qualified as to its written form under Sections 401(a) and 501(a) of the Code.
(v) No employee pension benefit plan main tained by IWN or
the Partnership has incurred an "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA and Section 412 of the Code (whether or not
waived). A true and correct copy of the most recent actuarial report for any
defined benefit pension plan maintained by IWN and the Partnership has been
provided to Symphony.
(vi) No "reportable event" as such term is defined in Title IV
of ERISA has occurred with respect to any defined benefit pension plan
maintained by IWN or the Partner ship. To the best of NTN's and IWN's knowledge,
no prohibited transaction, as such term is defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Benefit
Plan. Except as disclosed on Schedule 5.1(x)(vi), no complete or partial
-------------------
termination has occurred within the five years preceding the date hereof with
respect to any employee pension benefit plan; all contributions, premiums or
payments required to be made with respect to any Employee Benefit Plan have been
made on or before their due dates; and neither IWN nor the Partnership has
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums arising in the ordinary course).
13.
<PAGE>
(vii) Except as disclosed on Schedule 5.1(x)(vii), there are no
--------------------
actions, suits or claims pending, other than routine claims for benefits, with
respect to the Employee Benefit Plans, and to the best of NTN's and IWN's
knowledge there are no such actions, suits or claims threatened arising out of,
or in connection with, the existence, operation, maintenance or administration
of such Employee Benefit Plans.
(viii) Schedule 5.1(x)(viii) sets forth a complete and accurate
---------------------
list of each Employee Benefit Plan which provides or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of IWN or the Partnership, a list of each employee to whom such
benefits are provided, specifying which benefits are provided to each employee
so listed.
(ix) No event has occurred with respect to any Employee
Benefit Plan maintained by any individual or entity that is or has been a member
of any group of organizations described in Section 414(b) or (c) of the Code of
which IWN or the Partnership is a member which would result in a liability of
the IWN or the Partnership, as the case may be, by virtue of the IWN's or the
Partnership's membership in such group.
(y) Operations. NTN, IWN and the Partnership each owns, leases or
----------
has licenses to use all material assets being used in and necessary to the
operation of its business as currently being conducted.
(z) Laws and Regulations; Litigation. Except as set forth in
--------------------------------
Schedule 5.1(z), to the best of NTN's and IWN's knowledge, neither NTN, IWN nor
- --------------
the Partnership has violated or currently is in violation of or default under
any law or regulation, or under any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction it, the violation of which would have a
material adverse effect on its respective business or operations. Except as
described in Schedule 5.1(z), there are no claims, actions, suits or proceedings
---------------
pending or, to the best of NTN's and IWN's knowledge, threatened against NTN,
IWN or the Partnership, at law or in equity, before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over IWN or the Partnership which, if
determined adversely to IWN or the Partnership, would have a material adverse
effect on their respective businesses or financial condition.
(aa) Bank Accounts. Attached as Schedule 5.1(aa) is a list of the
------------- ----------------
bank accounts of IWN and the Partnership:
14.
<PAGE>
(i) the name of each bank in which IWN or the Partnership have
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iv) the type of account; and
(v) the name of each person authorized to draw thereon or have
access thereto.
(bb) Environmental Matters. The operations of NTN, IWN and the
---------------------
Partnership have at all times been, and are currently being conducted in
material compliance with all material federal, state and local laws, rules,
ordinances and regulations relating to the protection of the environment and
there are presently no actions pending or, to the best of NTN's and IWN's
knowledge, threatened by any regulatory agency in any forum, whether judicial or
regulatory, arising out of any environmental laws, rules, ordinances or
regulations relating to NTN, IWN or the Partnership or their respective assets
or property.
(cc) Accurate and Complete Records. The books, ledgers, financial
-----------------------------
records and other records of NTN, IWN and the Partnership:
(i) are in the possession of NTN, IWN and the Partnership, as
the case may be; and
(ii) accurately reflect as of the dates shown thereon all items
of income and expense and all assets, liabilities and accruals of NTN, IWN and
the Partnership, as the case may be, required to be reflected thereon in
accordance with generally accepted accounting principles.
Neither NTN, IWN nor the Partnership has received any advice from its or
independent public accountants that there are any material weaknesses in its
system of internal controls. NTN has provided Symphony with copies of all (i)
management letters received from its independent public accountants and
management's responses thereto for NTN's, IWN's and the Partnership's three most
recent fiscal years (or such shorter period as they have been in existence) and
(ii) responses from its legal counsel to auditor's requests for information in
conjunction with NTN's, IWN's and the Partnership's annual audit for such
period.
(dd) Transactions with Insiders. Except as reflected in the SEC
--------------------------
Reports (or filings by NTN under the Securities Act of 1933) filed on or before
November 14, 1995, or as set forth in Schedule 5.1(dd) (or Schedules 5.1(w) or
----------------
5.1(x)), there are no officers or directors of IWN (or any
15.
<PAGE>
other subsidiary or affiliate of NTN), the Partnership or, to the best of NTN's
knowledge, holder of more than 5% of NTN Common Stock or NTN Preferred Stock,
that is a party to any contract, loan, agreement, arrangement or continuing
transactions (individually, an "Insider Transaction") involving NTN, IWN, the
Partnership or any affiliate of the foregoing or otherwise requiring payments by
NTN, IWN or the Partnership to, any such person, or, to the best of NTN's
knowledge, any member of such person's family or any corporation, partnership or
other entity in which such person, or, to the best of NTN's knowledge, any
member of his family, is an officer, director, trustee or beneficiary.
(ee) Assumptions or Guarantees of Indebtedness of Other Persons.
----------------------------------------------------------
Except as set forth on Schedule 5.1(ee), neither IWN nor the Partnership has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, provide funds for payments, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss) any indebtedness of any person.
(ff) Certain Agreements of Employees.
-------------------------------
(i) Except as set forth on Schedule 5.1(ff), to the best of
----------------
NTN's and IWN's knowledge, no key employee of IWN or the Partnership is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment by such person, which adversely affects or in the future may
adversely affect the business or operations of IWN or the Partnership or the
right of any such person to participate in the affairs of IWN or the
Partnership.
(ii) To the best of NTN's and IWN's knowl edge, no key employee
of IWN or the Partnership has any present intention of terminating his or her
employment with IWN or the Partnership in the foreseeable future.
(gg) Business Assets. As of the date hereof, except as otherwise set
---------------
forth on Schedule 5.1(gg), NTN, IWN or the Partnership has good, valid and
----------------
marketable title, free and clear of any liens, pledges, claims and encumbrances
whatsoever, to all of the assets used in the conduct of the Partnership Business
("Assets") as presently conducted except as contemplated by the Operating Budget
of the Partnership, a copy of which is attached as an exhibit to the Partnership
Agreement, which includes, without limitation, all tradenames, trademarks,
trademark applications, copyrights, franchises, rights (including, without
limitation, rights to software and rights to technology, trade secrets and
proprietary informa-
16.
<PAGE>
tion, processes and know-how), software (including "Home stretch"), and other
intellectual property utilized in or reasonably necessary to the conduct of the
Partnership Business as now being conducted. The Assets are not subject to any
material liens, pledges, claims and encumbrances except for:
(i) liens for current taxes and assessments that are not yet
due and payable;
(ii) leases listed on Schedule 5.1(t); and
(iii) liens disclosed in Schedule 5.1(gg).
(hh) Contracts. Schedule 5.1(hh) sets forth a list of all contracts,
--------- ----------------
agreements, licenses, leases and undertakings and obligations (collectively,
"Contracts") relating to the Partnership Business as currently being conducted,
all of which shall be conveyed, transferred, and assigned (collectively,
"Transfer") by NTN or IWN, as the case may be, to the Partnership
contemporaneously with the execution of this Agreement, and none of which shall
require the consent or approval of any third party to effect the Transfer except
as described on Schedule 5.1(hh). NTN and IWN shall further assign and transfer
----------------
to the Partnership as of the date of NTN's delivery of the Warrant to LLC as
provided herein all such other Contracts, if any, as may be entered into prior
to such date.
(ii) Taxes. NTN, IWN and the Partnership have (a) filed all returns,
-----
declarations of estimated tax, tax reports, information returns and statements
(collectively, the "Returns") required to be filed by them prior to the date
hereof (other than those for which extensions shall have been granted prior to
the date hereof) relating to any Taxes (as defined below) with respect to any
income, properties or operations of NTN, IWN and the Partnership, and have paid
all Taxes shown thereon to be due; (b) as of the time of filing, the Returns
were complete and correct; (c) NTN, IWN and the Partnership have timely paid or
made provisions for all Taxes payable for all periods and for any period that
began on or before the date hereof and ends after the date hereof, to the extent
such Taxes are attributable to the portion of any such period ending on or
before the date hereof; (d) neither NTN, IWN nor the Partnership is delinquent
in the payment of any Taxes, nor have they requested any extension of time
within which to file any Return, which Return has not since been filed; (e)
there are no pending tax audits of any Returns of NTN, IWN or the Partnership,
(f) no tax liens have been filed and no deficiency or addition to Taxes,
interest or penalties for any Taxes with respect to any income, properties or
operations of NTN, IWN or the Partnership has been proposed, asserted or
assessed in writing against NTN, IWN or the
17.
<PAGE>
Partnership; (g) neither NTN, IWN nor the Partnership has granted any extension
of the statute of limitations applicable to any Return or other Tax claim with
respect to any income, properties or operations of NTN, IWN or the Partnership.
As used in this Agreement, the term "Tax" shall mean any of the Taxes and the
term "Taxes" shall mean, with respect to any Person (as hereinafter defined),
(i) all income taxes (including any tax on or based upon net income, or gross
income, or income as specifically defined, or earnings, or profits, or selected
items of income, earnings or profits) and all gross receipts, sales, use, ad
valorem, transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, documentary, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
levies, imposts, deductions, withholding assessments or charges of any kind
whatsoever, together with any interests and any penalties, additions to tax or
additional amounts imposed by any taxing authority (domestic or foreign) on such
person or entity, (ii) any liability for the payment of any amount of the type
described in the immediately preceding clause (i) as a result of being a
"transferee" (within the meaning of Section 6901 of the I.R.C. or any applicable
law of another person or entity or a member of an affiliated or combined group
and (iii) all other liabilities with respect to any of the foregoing.
5.2 Representations and Warranties of Symphony. Symphony, on it own
------------------------------------------
behalf and on behalf of LLC, hereby represents and warrants to NTN and IWN as
follows:
(a) Authorization, Enforcement. (i) Symphony has and LLC will have
--------------------------
the requisite power and authority to enter into and perform this Agreement, the
Restated Partnership Agreement and the Other Agreements to which either is a
party and to purchase the interests in the Partnership and make the capital
contributions to be purchased and made by it (or LLC) under the Restated
Partnership Agreement, (ii) the execution and delivery by Symphony and LLC of
this Agreement, the Restated Partnership Agreement and such Other Agreements and
the consummation by them of the transactions contemplated hereby and thereby
have been or will be duly authorized by all necessary corporate or member
action, and no further consent or authorization of Symphony or LLC, their
respective Board of Directors or managers, stockholders, partners or members or
any other person or entity, is or will be required, (iii) this Agreement, the
Restated Partnership Agreement and such Other Agreements have been or will be
duly authorized, executed and delivered by Symphony and LLC and (iv) this
Agreement, the Restated Partnership Agreement and such Other Agreements
constitute or will constitute valid and binding obligations of Symphony and LLC,
as the case may be, enforceable against Symphony and LLC in accordance with
their respective terms, except as enforceability may be limited by applicable
18.
<PAGE>
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance by
------------
Symphony and LLC, as the case may be, of this Agreement, the Restated
Partnership Agreement and the Other Agreements to which either is a party and
the consummation by Symphony and LLC of the transactions contemplated hereby and
thereby or relating hereto or thereto do not and will not (i) result in a
violation of the Symphony's Certificate of Incorporation or By-Laws or the
charter documents of LLC or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time, or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which Symphony or LLC
is a party. Neither Symphony nor LLC is or will be required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, the Restated Partnership Agreement or
such Other Agreements in accordance with the terms thereof and to purchase the
interests in the Partnership and make the capital contributions to be purchased
and made in accordance with the terms of the Restated Partnership Agreement.
(c) Investment Representation. LLC will acquire the Warrant and any
-------------------------
Warrant Shares, for its own account, for investment and not with a view to the
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(d) Restrictions or Transfer. Symphony understands and agrees that
------------------------
(i) the Warrant and (except as contemplated by the Registration Rights
Agreement) the Warrant Shares will not be registered under the Securities Act,
by reason of their issuance in transactions exempt from the registration
requirements of the Securities Act and (ii) that the Warrant and any Warrant
Shares must be held by LLC indefinitely unless a subsequent disposition thereof
is registered under the Securities Act or is exempt from registration
thereunder. Symphony further understands and agrees that transfer of the
interests in the Partnership will be restricted in the manner provided in the
Restated Partnership Agreement.
(e) Rule 144. Symphony understands that Rule 144 (the provisions of
--------
which are known to them) promulgated under the Securities Act ("Rule 144") are
not, and will not become available with respect to the Warrant and that, with
respect to the Warrant Shares, the exemption from registration
19.
<PAGE>
afforded by Rule 144, if applicable, depends on the satisfaction of various
conditions, and that Rule 144 may only afford the basis for sales of Warrant
Shares only in limited amounts.
(f) No Broker or Finder. Neither Symphony nor its affiliates have
-------------------
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(g) Accredited Investors. Symphony is and LLC will be an
--------------------
"accredited investors" within the meaning of Rule 501 under the Securities Act,
and are experienced in the evaluation of businesses and investments, are able to
fend for themselves in the transactions contemplated by this Agreement and the
Restated Partnership Agreement, have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of
their investment in the Warrant, any Warrant Shares and the interests in the
Partnership and have the ability to bear the economic risks of such investment.
(h) Opportunity to Ask Questions. During the course of the
----------------------------
transactions contemplated hereby and prior to the purchase of the Warrant and
the interests in the Partnership, Symphony and its affiliates have had the
opportunity to ask questions of and receive answers from NTN and IWN concerning
NTN, IWN, the Partnership, NTN's and IWN's respective businesses, financial
condition and prospects, and the business, financial condition and prospects of
the Partnership.
SECTION 6. Symphony "Put" Right
--------------------
6.1 "Put" Right; Notice of Exercise. LLC shall have the right and option
-------------------------------
(the "Put Option"), subject to the terms hereof, to cause NTN to purchase, at
any time on or after April 1, 1997 and on or before December 1, 1997 (the
"Exercise Period"), all (but not less than all) right, title and interest of
Symphony, LLC and their respective assignees in and to the Partnership (the
"Partnership Interests") and all (but not less than all) of the IWN Shares for
an aggregate purchase price (the "Put Price") determined as provided in Section
6.2. The Put Option may be exercised by LLC at any time during the Exercise
Period by written notice (the "Notice of Exercise") to NTN given as provided in
this Agreement. Unless previously exercised as provided above, the Put Option
shall automatically expire at 5:00 P.M., Pacific Standard Time, on December 1,
1997.
20.
<PAGE>
6.2 Put Price.
---------
(a) The Put Price shall be an amount, determined as of the date of
the Notice of Exercise, equal to (i) the sum of (1) $295,000.00 plus Symphony's
and LLC's aggregate "Adjusted Capital Contribution" (as defined in the Restated
Partnership Agreement) plus (2) a non-compounded return on such Adjusted Capital
Contribution determined based on a variable interest rate equal to the prime,
base or reference lending rate announced from time-to-time by Bank of America
NTSA, reduced by (ii) the "aggregate appreciated value" of the Warrant Shares.
For this purpose, the "aggregate appreciated value" per Warrant Share shall
equal (x) with respect to any Warrant Shares that have theretofore been sold or
otherwise disposed of by LLC, the difference (if a positive number) between the
gross sale price per share (which shall include any and all cash and the fair
value of any non-cash consideration received or to be received, directly or
indirectly, by or for the benefit of LLC or its affiliates in connection with
such sale or disposition) and the exercise price per share of such Warrant
Shares, and (y) with respect to any Warrant Shares as to which the Warrant has
not been exercised, the difference (if a positive number) between the average of
the closing sale price per share of Common Stock during the 60 trading-day
period ending on the date of the Notice of Exercise (the "Average Sale Price")
and the exercise price per share of such Warrant Shares. Closing sale prices
shall be as reported on the American Stock Exchange or such other principal
exchange or automated quotation service on which Common Stock is then listed. In
the event that any portion of the Partnership Interests or the IWN Shares
originally acquired by Symphony or LLC shall have been further assigned or
transferred by Symphony and LLC to one or more third parties as permitted in
this Agreement, the Stock Purchase Agreement, the Stockholders Agreement and the
Restated Partnership Agreement, the Put Option shall nonetheless remain
exercisable solely by LLC, whose election to exercise or not exercise the Put
Option, as the case may be, may be relied upon by NTN and shall be binding upon
Symphony, LLC and all such assignees of any of the Partnership Interests or IWN
Shares. In no event shall the Put Option be exercisable with respect to less
than all of the Partnership Interests and IWN Shares owned or acquired by
Symphony, LLC and all such assignees.
(b) In the event for any reason that the Put Option is terminated or
expires without being exercised, NTN shall, within five business days
thereafter, pay and deliver to LLC (or its designees) $295,000.00 in the
aggregate in immediately available funds by Federal Reserve wire transfer in
accordance with instructions provided by LLC.
21.
<PAGE>
6.3 Closing.
-------
(a) The closing of the purchase and sale of the Partnership
Interests and the IWN Shares pursuant to the exercise of the Put Option (the
"Put Closing") shall be held as soon as practicable following the Notice of
Exercise, but in no event later than 60 days following receipt of the Notice of
Exercise. At the Put Closing, NTN shall purchase, and the holders shall sell,
all of the Partnership Interests and the IWN Shares for the Put Price, which
shall be payable, at LLC's election as stated in the Notice of Exercise, either
in cash (by certified or bank cashier's check payable to the holders) or by
NTN's issuance to the holders of shares of Common Stock, or a combination of
cash and such shares, with Common Stock being valued for this purpose at an
amount per share equal to 85% of the Average Sale Price. In the event that any
of the Partnership Interests or the IWN Shares are subject to an encumbrance at
the Put Closing (whether or not in breach of the Restated Partnership Agreement,
this Agreement or the Stock Purchase Agreement), the Put Price shall be reduced
by the amount of the encumbrance and by the reasonable costs and expenses
incurred by NTN in connection with removal of the encumbrance or NTN's
acquisition or assumption of the liability or obligation which the encumbrances
secures.
(b) NTN will use its best efforts, and will take all action,
corporate and otherwise, to make available funds necessary to effect the
purchase of the Partnership Interests and the IWN Shares at the Put Closing,
including the sale of assets of NTN or its affiliates and obtaining any
necessary consents or waivers from, inter alia, any lenders to NTN or its
affiliates; provided, however, that if as of the Put Closing NTN has determined
-------- -------
in good faith that it has insufficient funds available, NTN shall promptly so
notify LLC in writing after which LLC may, at LLC's sole option, elect to have
NTN deliver to LLC promissory notes of NTN in a form acceptable to LLC which
shall contain normal and customary terms and conditions including, without
limitation, a confession of judgment provisions, secured by substantially all
the assets of NTN, in lieu of cash, will be delivered by NTN to the holders of
the Partnership Interests and the IWN Shares in payment of the Put Price. Such
promissory notes will be non-interest bearing and will mature, at the election
of NTN, either (a) one year from the date of the Put Closing and will be payable
in a principal amount equal to one hundred twenty-seven and one-half percent
(127 1/2%) of the Put Price otherwise payable by NTN at the Put Closing; or (b)
two years from the Put Closing and will be payable in a principal amount equal
to one hundred fifty-five percent (155%) of the Put Price otherwise payable by
NTN at the Put Closing. In such event, NTN shall also execute and deliver to the
holders of the Partnership Interests and the IWN Shares a security agreement,
UCC-1 financing statements and such other documents and
22.
<PAGE>
instruments as are reasonably necessary to perfect the security interest of such
holders.
6.4 Noncompetition Agreement. At the Put Closing, and in consideration
------------------------
for the payment of the Put Price, each of the holders of any Partnership
Interests or IWN Shares shall execute and deliver to NTN a noncompetition
agreement, substantially in the form of the Noncompetition Agreement, evidencing
their agreement not to compete with NTN, IWN or the Partnership in any territory
for a period of two years from such closing.
6.5 Compromise. The Put Price to be paid upon exercise of the Put Option
----------
shall be in complete liquidation and satisfaction of all rights and interests of
Symphony, LLC and their respective assignees (and of any and all persons
claiming by, through, or under Symphony, LLC or their respective assignees) in
and with respect to the Partnership or IWN including, without limitation, any
Partnership interest or IWN stock, any rights to specific Partnership or IWN
business, property or assets, and any rights against the Partnership or IWN
(and, insofar as the affairs of the Partnership or IWN are concerned against the
other partners or shareholders thereof and their affiliates), and shall
constitute a compromise to which Symphony, LLC and their respective assignees
agree. Symphony, on its own behalf and on behalf of LLC and such assignees,
hereby waives any right to challenge the terms of the Put Option or to contest
the sufficiency of the Put Price determined as provided herein.
SECTION 7. Additional Agreements
---------------------
7.1 Additional Agreements of NTN and IWN.
------------------------------------
(a) For so long as LLC shall hold the Warrant, NTN and IWN shall
afford to LLC and its employees, counsel and other authorized representatives
reasonable access, upon reasonable advance notice, during normal business hours
to all of the books, records and properties of NTN or IWN for any purpose
reasonably related to the transactions contemplated by LLC. LLC, its employees,
counsel and other authorized repre sentatives shall maintain the confidentiality
of any informa tion of NTN or IWN so obtained by it.
(b) Financial Reports. For so long as LLC holds the Warrant, NTN
-----------------
agrees to furnish LLC with such annual and quarterly financial statements,
annual budgets and other financial information prepared in the regular course of
business of NTN as LLC may reasonably request, as well as that information made
available by NTN to its securityholders generally.
23.
<PAGE>
(c) No Change; IWN and the Partnership. Between the date of this
----------------------------------
Agreement and NTN's execution and delivery to LLC of the Warrant as provided
herein, NTN shall cause each of IWN and the Partnership to:
(i) carry on its business in substantially the same manner as
it has heretofore and not introduce any new method or discontinue any existing
method of management, operation or accounting;
(ii) maintain its properties and facilities in as good working
order and condition as at present, ordinary wear and tear excepted;
(iii) perform all its obligations under all agreements relating
to or affecting its assets, properties, business operations and rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) maintain and preserve its business organization
substantially intact, retain its present key employees and maintain its
relationships with suppliers, customers and others having business relations
with it;
(vi) advise Symphony promptly in writing of any material
change or inaccuracy in any document, schedule or other information delivered
pursuant to this Agreement;
(vii) file on a timely basis all notices, reports or other
filings required to be filed with or reported to any federal, state, municipal
or other governmental depart ment, commission, board, bureau, agency or any
instrumentality of any of the foregoing, wherever located, with respect to the
continuing operations of IWN and the Partnership; and
(viii) file on a timely basis all applications or other
documents necessary to maintain, renew or extend any material permit, license,
variance or any other approval required by any governmental authority necessary
or required for the continuing operation of IWN and the Partnership; and
(ix) except as contemplated by this Agreement and the Restated
Partnership Agreement, refrain, without Symphony's prior written consent, from:
1. making any change in its charter documents, bylaws or
organizational documentation;
2. authorizing, issuing, transferring or distributing
any of its securities or partnership interests, as the case may be;
24.
<PAGE>
3. declaring or paying any dividend or distributions or
making any distribution in respect of its stock or partnership interests, as the
case may be, whether now or hereafter outstanding, or purchasing, redeeming or
otherwise acquiring or retiring for value any shares of its stock or partnership
interests, as the case may be;
4. entering into any contract or commitment or incurring
or agreeing to incur any liability or making any capital expenditures, except
for sales and purchase orders in the ordinary course of business and except for
expenditures for machinery and equipment necessary for the continued operation
of the its business not exceeding $10,000 in the aggregate;
5. creating, assuming or otherwise permitting the
imposition of any mortgage, pledge or other material lien or encumbrance upon
any of its assets or properties;
6. selling, assigning, leasing or otherwise transferring
or disposing of any property or equipment that are fixed assets;
7. merging or consolidating or agreeing to merge or
consolidate with or into any firm, corporation or other entity;
8. waiving any rights or claims;
9. amending or terminating any contract, agreement,
permit, license or other right which it has or may have;
10. entering into any other transaction outside the
ordinary course of its business or prohibited hereunder; and
11. engaging in any Insider Transaction.
(d) No Material Change; NTN. Between the date of this Agreement and
-----------------------
NTN's execution and delivery to LLC of the Warrant as provided herein, NTN
shall:
(i) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new method or discontinue any
existing material method of management, operation or accounting;
(ii) maintain its properties and facilities in as good working
order and condition as at present, ordinary wear and tear excepted;
25.
<PAGE>
(iii) perform all its material obligations under all agreements
relating to or affecting its assets, properties, business operations and rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its best efforts to maintain and preserve its
business organization substantially intact, retain its present key employees and
maintain its relation ships with material suppliers, customers and others having
material business relations with it;
(vi) advise Symphony promptly in writing of any material
change or inaccuracy in any document, schedule or other information delivered
pursuant to this Agreement;
(vii) file on a timely basis all material notices, reports or
other filings required to be filed with or reported to any federal, state,
municipal or other govern mental department, commission, board, bureau, agency
or any instrumentality of any of the foregoing, wherever located, with respect
to the continuing operations of NTN;
(viii) file on a timely basis all applications or other
documents necessary to maintain, renew or extend any material permit, license,
variance or any other approval required by any governmental authority necessary
or required for the continuing operation of NTN; and
(ix) except as contemplated by this Agreement and the Restated
Partnership Agreement, refrain, without Symphony's prior written consent, from:
1. making any change in its charter documents, bylaws or
organizational documentation;
2. authorizing, issuing, transferring or distributing
any of its securities except as described on Schedule 7.1(d)(ix)(2);
----------------------
3. declaring or paying any dividend or distributions, or
making any distribution in respect of its stock, whether now or hereafter
outstanding, or purchasing, redeeming or otherwise acquiring or retiring for
value any shares of its stock except as described on Schedule 7.1(d)(ix)(3);
----------------------
4. entering into any contract or commitment or incurring
or agreeing to incur any liability or making any capital expenditures, except
for sales and purchase orders in the ordinary course of business and except for
expenditures for machinery and equipment necessary for the
26.
<PAGE>
continued operation of the its business not exceeding $50,000 in the aggregate;
5. creating, assuming or otherwise permitting the
imposition of any material mortgage, pledge or other material lien or
encumbrance upon any of its assets or properties;
6. selling, assigning, leasing or otherwise transferring
or disposing of any material property or equipment that are fixed assets;
7. merging or consolidating or agreeing to merge or
consolidate with or into any firm, corporation or other entity;
8. waiving any rights or claims;
9. except as described on Schedule 7.1(d)(ix)(9),
----------------------
amending or terminating any material contract, agreement, permit, license or
other right which it has or may have;
10. entering into any material transaction outside the
ordinary course of its business or prohibited hereunder; and
11. except as described in Schedule 7.1(d)(ix)(10),
-----------------------
engaging in any Insider Transaction.
(e) Litigation Update. On or before NTN's execution and delivery to
-----------------
LLC of the Warrant as provided herein, NTN shall prepare and deliver to Symphony
a written update describing the current status of all securities litigation in
which NTN is a party; and (ii) actions filed by NTN or Interactive Network, Inc
against each other. During the period from the Effective Date until NTN's
execution and delivery of the Warrant as aforesaid, NTN will not enter into any
settlement agreement with any party unless it first notifies Symphony in writing
of the possibility of a settlement at least five days prior thereto and provides
Symphony with any and all information reasonably requested by Symphony to
properly evaluate any proposed settlement agreement and NTN shall cause its
executives to be available for substantive discussions regarding any proposed
settlement prior to the date on which NTN is intending to finalize such
settlement. During such period only, Symphony shall have the right, at its sole
option, at any time to notify NTN of its objections to any such proposed
settlement if it believes that such settlement is not in the best interests of
NTN.
(f) Right of First Refusal. IWN, on its own behalf and on behalf of
----------------------
the Partnership, hereby grants to
27.
<PAGE>
Symphony on terms set forth below the right of first refusal with respect to the
future debt or equity offerings proposed to be made by IWN or the Partnership.
If, at any time at which Symphony, LLC or their respective affiliates own
interests in the Partnership or the IWN shares, IWN or the Partnership
determines to undertake to raise funds in a debt or equity offering (other than
an "Excluded Offering" as defined below), IWN or the Partnership, as the case
may be, shall promptly furnish Symphony with a definitive written proposal
setting forth the essential terms and conditions of such offering. Symphony
shall have the first right for the 30-day period following receipt of such
proposal to negotiate in good faith to provide funding on the terms and
conditions set forth in the proposal. In the event that, despite their
respective good-faith efforts to do so, IWN or the Partnership, as the case may
be, and Symphony fail for any reason to agree within such 30-day period on the
terms on which Symphony shall provide funding, IWN or the Partnership, as the
case may be, shall be free to pursue and obtain from one or more other persons
or entities such funding on the terms and conditions set forth in the written
proposal to Symphony (or on terms and conditions that are demonstrably more
favorable to IWN or the Partnership) without restriction under this Agreement,
and neither Symphony, LLC nor any of their respective affiliates shall have any
rights or interest in or with respect to such offering.
(g) Notwithstanding the provisions of Section 7.1(f), neither IWN
nor the Partnership shall have any obligation to present to Symphony or its
affiliates any of the following proposed financings (each an "Excluded
Offering"):
(i) any offer or sale of securities to officers, directors,
employees and consultants to IWN or the Partnership primarily in exchange for
services rendered to IWN or the Partnership;
(ii) any bank or institutional loan financing not involving
any equity ownership of the lender in IWN or the Partnership; or
(iii) any joint venture or similar transaction, the principal
purpose of which is a strategic business relationship rather than financing
relationship.
Other than is expressly provided in Section 7.1(f) and in the
Noncompetition Agreement, Symphony, for itself and on behalf of LLC and their
respective affiliates, agrees that IWN and its officers, directors,
shareholders, employees, associates, agents and affiliates may engage or invest
in any activity so long as such activity does not violate the terms of the
Restated Partnership Agreement and that neither Symphony nor any other person
shall have any right in or to
28.
<PAGE>
such other activities or the income or proceeds derived therefrom.
7.2 Additional Agreements of Symphony.
---------------------------------
(a) Restrictions on Transfer. The Warrant and any Warrant Shares
------------------------
shall not be sold, transferred, assigned, pledged, encumbered or otherwise
disposed of (each, a "Transfer") by LLC or its assignees except upon the
conditions specified in this Section 7.2, which conditions are intended to
insure compliance with the provisions of the Securities Act.
(b) The Warrant and each certificate for the Warrant Shares held by
LLC and each certificate for any such securities issued to subsequent
transferees of any such certificate shall (unless otherwise permitted by the
provisions of Sections 7.2(c) and 7.2(d) below) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION FROM SAID ACT. ADDITIONALLY, THE TRANSFER OF
THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 7 OF THE
INVESTMENT AGREEMENT, DATED AS OF DECEMBER 31, 1995, AMONG NTN
COMMUNICATIONS, INC., IWN, INC. AND SYMPHONY MANAGEMENT ASSOCIATES, INC.
AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. A COPY OF SAID AGREEMENT MAY BE INSPECTED
AT THE OFFICES OF NTN COMMUNICATIONS, INC."
(c) Prior to any Transfer of the Warrant or any such Warrant Shares,
the holder shall give written notice to NTN of the holder's intention to effect
such Transfer and to comply in all other respects with the provisions of this
Section 7.2. Each such notice shall describe the manner and circumstances of the
proposed Transfer and shall be accom panied by the written opinion, addressed to
NTN, of counsel for the holder of such shares, stating that in the opinion of
such counsel (which opinion and counsel shall be reasonably satisfactory to NTN)
such proposed Transfer does not involve a transaction requiring registration or
qualification of such shares or Warrant under the Securities Act or the
securities "blue sky" laws of any relevant state of the United States; provided,
however, that no such opinion of counsel shall be necessary for a Transfer
pursuant to Rule 144. The holder shall thereupon be entitled to Transfer the
Warrant or any Warrant Shares in accordance with the terms of the notice
delivered by it to NTN. Each certificate or other instrument
29.
<PAGE>
evidencing the securities issued upon the Transfer of the Warrant or any such
shares (and each certificate or other instrument evidencing any untransferred
balance of the Warrant or such shares) shall bear the legend set forth in
Section 7.2(b) unless (x) in such opinion of counsel registration of any future
Transfer is not required by the applicable provisions of the Securities Act or
(y) NTN shall have waived the requirement of such legends; provided, however,
that such legend shall not be required on any certificate or other instrument
evidencing the securities issued upon such Transfer in the event such Transfer
shall be made in compliance with the requirements of Rule 144. No holder shall
Transfer the Warrant or any Warrant Shares until such opinion of counsel has
been given (unless waived by NTN or unless such opinion is not required in
accordance with the provisions of this Section 7.2(c)).
(d) Notwithstanding the foregoing provisions of this Section 7.2,
the restrictions imposed by this Section 7.2 upon the transferability of the
Warrant Shares shall cease and terminate when (i) such or Warrants Shares are
sold or otherwise disposed of pursuant to an effective registration statement
under the Securities Act or as otherwise contemplated by Section 7.2(c) and,
pursuant to Section 7.2(c) the securities so transferred are not required to
bear the restrictive legend therein noted.
SECTION 8. Indemnification.
---------------
8.1 NTN and IWN Indemnification. NTN and IWN, jointly and severally,
---------------------------
covenant and agree that they will indemnify and hold harmless Symphony and its
affiliates (including, without limitation, LLC) and their respective
shareholders (and members, if the LLC), directors, officers and employees
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") from and after the date hereof, from and against any and all losses,
damages, liabilities, claims, deficiencies, costs, expenses or expenditures of
any kind or nature whatsoever which any of the Indemnified Parties may suffer or
incur with respect to any of the events or contingencies described below:
(a) the material breach of any representation, warranty, covenant,
or agreement contained in this Agreement or any of the Other Agreements; or
(b) any liability for any federal, state or local tax interest,
penalty or other cost, including, without limitation, reasonable attorneys' fees
(all such tax, interest, penalties and other costs being referred to herein as
"Tax Liabilities") incurred by Symphony, LLC or any subsidiary or affiliate of
Symphony or LLC, or by the Partnership to the extent Symphony's and LLC's
interest
30.
<PAGE>
therein for any period on or after the date hereof which arises out of the
transactions contemplated hereby (other income or gain resulting from the
exercise of the Warrant or the Put Option, or from any transfers or assignments
of the Warrant, any Warrant Shares or Partnership Interests, and other than with
respect to the allocations and distributions contemplated by the Restated
Partnership Agreement), including, without limitation, any such Tax Liabilities
resulting from the failure of the Partnership or any Indemnifying Party to make
a federal, state or local tax election which would have produced a tax benefit
to an Indemnified Party or reduced an Indemnified Party's tax liability;
provided, however, that in the case of any Tax Liabilities resulting from the
failure of the Partnership or any Indemnifying Party to make a federal, state or
local tax election which would have produced a tax benefit to an Indemnified
Party or reduced an Indemnified Party's tax liability (an "election"), the
Indemnified Parties shall have jointly requested such election in writing which
is received by IWN (with ample time for the request to be considered and the
election timely made). The items covered by the first clause of this Section
8.1(b) include, but are not limited to, Tax Liabilities incurred by Symphony or
LLC by reason of the following:
(i) the Partnership is not characterized as a partnership for
federal, state or local income tax purposes and is treated as an association
taxable as a corporation, a publicly traded partnership (under Internal Revenue
Code ("I.R.C.") Section 7704) or any other form of entity as of December 31,
1995, or at any time thereafter.
(ii) the interest of Symphony and LLC in the Partnership is
not characterized for federal, state or local income tax purposes as a
partnership interest but as any other form of interest or arrangement
(including, without limitation, a debt arrangement, royalty arrangement or any
other type of arrangement) and Symphony or LLC are viewed as other than a
partner (including, without limitation, a creditor or royalty holder) or
Symphony's or LLC's distributive share of partnership income, gain, loss,
deduction and credit is characterized as other than a distributive share
(including, without limitation, a guaranteed payment under I.R.C. (S)707);
(iii) the withdrawal of CPNI and StarBet and the admission of
Symphony and/or LLC to the Partnership, or the issuance of Class B Limited
Partnership Interests pursuant to the Restated Partnership Agreement (including,
without limitation, Section 3.5 thereof), or the transfer of any interest in the
Partnership from Symphony to LLC which results in a termination of the
Partnership under to I.R.C. (S)708 (or any successor provision thereto);
31.
<PAGE>
(iv) CPNI and StarBet not being treated, for federal, state or
local income tax purposes, as having withdrawn from the Partnership as of
December 31, 1995;
(v) the admission of Symphony and/or LLC as a partner to the
Partnership and the contributions of Symphony and LLC to the capital of the
Partnership resulting in any gain or loss to Symphony or LLC for federal, state
or local income tax purposes; or
(vi) the allocations of income, gain, loss, deduction and/or
credit pursuant to the Restated Partnership Agreement not at all times having
substantial economic effect within the meaning of I.R.C. (S)704(b) and the
Treasury Regulations promulgated thereunder, and/or Symphony's and LLC's
distributive share of such income, gain, loss, deduction and credit as
contemplated by the Restated Partnership Agreement (including the distributive
share allocated to it for all periods beginning after December 31, 1995,
including the period from January 1, 1996 through the date that Symphony and LLC
contribute funds to the capital of the Partnership) not being respected for
federal, state or local income tax purposes; and
(c) all actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses of investigation) incidental to any of the
foregoing.
If an Indemnified Party elects, in its discretion, to apply any credit or net
operating or capital loss deduction or carryback attributable to periods
beginning after the date hereof in satisfaction of all or any portion of such
Tax Liability, NTN and IWN shall nevertheless remain liable to indemnify such
Indemnified Party against the full amount of such Tax Liability without regard
to any such election or application by that Indemnified Party.
8.2 Symphony Indemnification. Symphony covenants and agrees that it will
------------------------
indemnify and hold harmless NTN, IWN and the Partnership and their respective
affiliates, shareholders, directors, officers, partners and employees
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") from and after the date hereof, from and against any and all losses,
damages, liabilities, claims, deficiencies, costs, expenses or expenditures
which any of the Indemnified Parties may suffer or incur with respect to any
material breach of any representation, warranty, covenant or agreement of
Symphony contained in this Agreement.
32.
<PAGE>
8.3 Notice of Indemnity Claim.
-------------------------
(a) In respect of any indemnity event as to which indemnity is
sought hereunder, an Indemnified Party shall (i) within 15 days after receipt of
written notice of commencement of any third party litigation for which indemnity
is claimed, (ii) within 20 days after receipt by such Indemnified Party of
written notice of any third party claim (i.e., invoice, notice of claim or
assessment, etc.) against such Indemnified Party, or (iii) within a reasonable
time after such Indemnified Party becomes aware of the existence of any other
indemnity event, in respect of which indemnification may be sought from an
Indemnifying Party under this Section 8, notify NTN in writing thereof.
(b) If NTN and IWN or Symphony, as the case may be, within a
reasonable time after notice of any such claim, fails to defend such claim, the
Indemnified Party will (upon further notice to NTN and IWN or Symphony, as the
case may be) have the right to undertake the defense, compromise or settlement
of such claim on behalf of and for the account and risk of the Indemnifying
Party, subject to the right of the Indemnifying Party to assume the defense of
such claim at any time prior to settlement, compromise or final determination
thereof. If there is a reasonable probability that a claim may materially and
adversely affect the Indemnified Party other than as a result of money damages
or other money payments, the Indemnified Party shall have the right, at its own
cost and expense, to defend, compromise or settle such claim. NTN and IWN or
Symphony, as the case may be, shall not, without the written consent of the
Indemnified Party, which shall not unreasonably be withheld, settle or
compromise any claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such claim.
8.4 Indemnity Exclusive Remedy. The sole and exclusive remedy in the
--------------------------
nature of monetary damages of the Indemnified Parties for any and all claims of
the nature described in this Section 8 shall be the indemnity set forth in this
Section 8.
SECTION 9. Miscellaneous
-------------
9.1 Fees and Expenses. The Partnership shall pay the fees and expenses of
-----------------
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by it incident to the negotiation, preparation, execution,
delivery and performance of this Agreement and also shall pay all attorneys'
fees and expenses reasonably incurred by Symphony in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder; provided, however, that the aggregate
amount
33.
<PAGE>
payable to the respective counsel to the Partnership and Symphony pursuant to
this Section 9.1 shall not exceed $75,000 each.
9.2 Specific Enforcement. The parties acknowledge and agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
9.3 Entire Agreement. This Agreement and the documents and agreements to
----------------
be delivered hereunder contain the entire understanding of the parties with
respect to the matters covered hereby and thereby and supersedes any and all
prior understandings and agreements with respect to the same subject matter and,
except as specifically set forth herein or therein, no party makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
9.4 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to NTN: NTN Communications, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
FAX: (619) 929-5289
to IWN: IWN, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
FAX: (619) 930-1174
34.
<PAGE>
in each case,
with copies to: Troy & Gould Professional
Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067
Attention: William D. Gould, Esq.
FAX: (310) 201-4746
to Symphony and LLC: At the address set forth in the
introduction of this Agreement
Attention: Chief Financial Officer
FAX: (410) 573-5205
with copies to: Stradley, Ronon, Stevens & Young,
LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attention: William R. Sasso, Esq.
FAX: (215) 564-8120
Any party hereto may from time to time change its address for notices under this
Section 9.4 by giving at least 10 days' written notice of such changed address
to the other parties hereto.
9.5 Waivers. No waiver by any party of any default with respect to any
-------
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
9.6 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
9.7 Assignment. This Agreement and the rights of NTN, IWN and the
----------
Partnership hereunder may not be assigned by any of these parties without the
prior written consent of Symphony or LLC. This Agreement shall be binding upon
and shall inure to the benefit of Symphony and successors and assigns permitted
under this Agreement and the other agreements being delivered hereunder. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such assigning party under this Agreement.
9.8 No Third-Party Beneficiaries. This Agreement is intended solely for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
35.
<PAGE>
9.9 Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal laws of Delaware without regard to the
principles of conflict of laws.
9.10 Survival of Representations and Warranties.
------------------------------------------
(a) The parties hereto hereby acknowledge and agree that the
representations and warranties and covenants set forth in this Agreement and the
Other Agreements shall survive the Effective Date until the period ending on the
earlier of (a) March 31, 1998, or (b) the date of the Put Closing; provided,
however, that the representations, warranties and covenants of NTN and IWN set
forth in Sections 5.1(ii) and 8.1(b) shall expire concurrently with the
execution of any applicable statute of limitations with respect to the matters
set forth therein.
9.11 Execution; Facsimile Signatures. This Agreement may be executed, by
-------------------------------
original or facsimile signature, in two or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when counter
parts have been signed by each party and delivered to the other party, it being
understood that all parties need not sign the same counterpart. In the event any
signature is delivered by facsimile transmission, the party using such means or
delivery shall cause four additional executed signature pages to be physically
delivered to the other party within five days of the execution and delivery
hereof.
9.12 Publicity. The parties shall consult and cooperate with each other in
---------
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby, provided the foregoing shall not interfere
with the legal obligations of any party with respect to public disclosure; and
provided further, that no party shall be required to consult with the other if
any such press release or public statement does not specifically name the other.
36.
<PAGE>
9.13 Severability. If any provision of this Agreement or any other
------------
Agreements, or the application of such provision to any person, entity or
circumstance, is declared by a court of competent jurisdiction to be invalid for
any reason, such invalidity shall not affect the remaining provisions hereof or
the application of such provisions to persons, entities or circumstances other
than those to which it is held invalid and this Agreement and any Other
Agreements will be construed and enforced as if such invalid provisions had
never been inserted.
Very truly yours,
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
---------------------------
Name: Patrick J. Downs
Its: President
IWN, INC.
By: /s/ Daniel C. Downs
---------------------------
Name: Daniel C. Downs
Its: Chairman
AGREED AND ACCEPTED AS OF:
December 31, 1995
Symphony Management Associates, Inc.
By: /s/ Richard J. Donnelly
--------------------------------
Name: Richard J. Donnelly
Its: Treasurer and Secretary
37.
<PAGE>
EXHIBIT 10.19
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
IWN, L.P.
DATED AND EFFECTIVE AS OF DECEMBER 31, 1995
The securities evidenced hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), or any state securities law and may not be
transferred except pursuant to an effective registration statement under the Act
relating thereto and qualification under applicable state securities laws, or in
reliance upon an available exemption from such registration and qualification.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS.................................................. 1
1.1 "Adjusted Capital Contribution".............................. 1
1.2 "Affiliate".................................................. 1
1.3 "Amended Agreement".......................................... 1
1.4 "Capital Account"............................................ 2
1.5 "Capital Account Deficit".................................... 2
1.6 "Capital Contribution"....................................... 2
1.7 "Change of Partner Control................................... 2
1.8 "Class A Limited Partner..................................... 2
1.9 "Class B Limited Partners"................................... 2
1.10 "Code"....................................................... 2
1.11 "Control," "Controls," or "Controlled........................ 2
1.12 "Default Interest Rate"...................................... 2
1.13 "Distributable Cash"......................................... 3
1.14 "Executive Committee"........................................ 3
1.15 "Fiscal Year"................................................ 3
1.16 "Founders Plan".............................................. 3
1.17 "General Partner"............................................ 3
1.18 "Initiating Partner"......................................... 3
1.19 "Interest"................................................... 3
1.20 "Investment Agreement"....................................... 3
1.21 "IWN"........................................................ 3
1.22 "Limited Partners"........................................... 3
1.23 "LLC"........................................................ 4
1.24 "Major Transactions"......................................... 4
1.25 "Majority-in-Interest Consent"............................... 4
1.26 "Mandatory Capital Contribution"............................. 4
1.27 "Members".................................................... 4
1.28 "Net Income" and "Net Loss".................................. 4
1.29 "NTN"........................................................ 4
1.30 "Operating Budget"........................................... 4
1.31 "Original Partnership Agreement"............................. 5
1.32 "Partners"................................................... 5
1.33 "Partnership"................................................ 5
1.34 "Percentage Interest"........................................ 5
1.35 "Person"..................................................... 5
1.36 "Plan"....................................................... 5
1.37 "Regulations................................................. 5
1.38 "Reserves"................................................... 5
1.39 "Responding Partner"......................................... 5
1.40 "Return"..................................................... 5
1.41 "Stockholders Agreement"..................................... 5
1.42 "Support Services Agreement"................................. 6
1.43 "Symphony"................................................... 6
1.44 "Tax Matters Partner"........................................ 6
1.45 "Technology Sublicense"...................................... 6
</TABLE>
i.
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ARTICLE II FORMATION; CONTINUATION AND AMENDMENT........................ 6
2.1 Formation.................................................... 6
2.2 Worldwide License; Purpose and
Nature of Business........................................... 6
2.3 Name......................................................... 7
2.4 Principal Place of Business.................................. 7
2.5 Agent........................................................ 7
2.6 Term of the Partnership...................................... 7
ARTICLE III ADMISSION OF ADDITIONAL PARTNER; CAPITAL AND
LOANS........................................................ 7
3.1 Admission of Class A Limited Partner......................... 7
3.2 Capital Contributions of General Partner..................... 7
3.3 Capital Contributions of Symphony............................ 8
3.4 Grant of Security Interest................................... 10
3.5 Founders Plan................................................ 10
3.6 Other Additional Capital Contributions and
Issuance of Additional Partnership Interests................. 11
3.7 Payment of Capital Contributions............................. 11
3.8 No Return of Capital Contribution; No Interest............... 12
3.9 No Priority.................................................. 12
ARTICLE IV CAPITAL ACCOUNTS; ALLOCATION OF NET INCOME AND
NET LOSS..................................................... 12
4.1 Capital Accounts............................................. 12
4.2 Allocation of Net Income..................................... 13
4.3 Allocation of Net Loss....................................... 13
4.4 Other Allocations............................................ 14
4.5 Gross Asset Value............................................ 14
4.6 Special Allocations.......................................... 14
4.7 Curative Allocations......................................... 15
4.8 Distributions of Distributable Cash.......................... 16
4.9 Distribution to Pay Taxes.................................... 16
ARTICLE V OPERATING BUDGET............................................. 16
ARTICLE VI RIGHTS AND DUTIES OF THE GENERAL PARTNER..................... 17
6.1 Management Power and Authority............................... 17
6.2 Executive Committee.......................................... 17
6.3 Transfer of General Partner Interest; Withdrawal
and Removal of the General Partner........................... 21
6.4 Time and Attention of the General Partner; Other
Business Activities.......................................... 21
6.5 Good Faith................................................... 21
6.6 Exculpation and Indemnification of the General
Partner...................................................... 21
6.7 Interested-Party Transactions................................ 22
6.8 Proscriptions................................................ 22
6.9 Contracts and Documents...................................... 23
6.10 Tax Matters Partner.......................................... 23
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................... 24
7.1 No Participation in Management............................... 24
7.2 Limitation of Liability...................................... 24
7.3 Assignability of Interests; Change of Partner
Control...................................................... 24
</TABLE>
ii.
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<S> <C> <C>
7.4 Status of Assignees.......................................... 25
7.5 Allocations and Distributions Subsequent to
Assignment................................................... 25
7.6 Receipt of Written Assignment................................ 26
ARTICLE VIII CERTAIN COVENANTS OF THE GENERAL PARTNER..................... 26
8.1 Conduct of Business.......................................... 26
8.2 Compensation................................................. 26
ARTICLE IX EXPENSES OF THE PARTNERSHIP; REIMBURSEMENTS.................. 27
9.1 Expenses..................................................... 27
9.2 Reimbursements to the General Partner........................ 27
9.3 Nature of Expenses and Fees.................................. 28
ARTICLE X ADDITIONAL COVENANTS......................................... 28
10.1 Disability of Officers or Directors of a
Partner...................................................... 28
ARTICLE XI RECORDS, ACCOUNTING AND REPORTS, AND PARTNERSHIP
FUNDS........................................................ 28
11.1 Records and Accounting....................................... 28
11.2 Independent Audit............................................ 29
11.3 Tax Information.............................................. 29
11.4 Annual Reports to Partners................................... 29
11.5 Tax Returns.................................................. 30
11.6 Partnership Funds............................................ 30
ARTICLE XII DISSOLUTION AND WINDING UP................................... 30
12.1 Events Causing Dissolution................................... 30
12.2 Liquidation.................................................. 31
ARTICLE XIII AMENDMENTS................................................... 31
ARTICLE XIV SPECIAL POWER OF ATTORNEY.................................... 32
14.1 General Partner as Attorney-in-Fact.......................... 32
14.2 Scope and Power of Attorney.................................. 33
14.3 Copy of Amendment............................................ 33
ARTICLE XV VOTING RIGHTS................................................ 33
15.1 Voting Rights................................................ 33
15.2 Meetings..................................................... 33
15.3 Proxies...................................................... 34
15.4 Conduct of Meetings.......................................... 34
ARTICLE XVI BUY-SELL OPTIONS............................................. 34
16.1 Buy-Sell Options............................................. 34
16.2 Closing...................................................... 35
16.3 Compromise................................................... 35
16.4 Expenses..................................................... 36
ARTICLE XVII MISCELLANEOUS................................................ 36
17.1 Notices...................................................... 36
17.2 Governing Law................................................ 37
17.3 Successors and Assigns....................................... 37
17.4 Entire Agreement............................................. 37
17.5 Counterparts; Facsimile signatures........................... 37
</TABLE>
iii.
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<S> <C> <C>
17.6 Partners Not Agents.......................................... 37
17.7 Counsel to the Partnership................................... 37
</TABLE>
SCHEDULES
1 -- Schedule of Partners
2 -- Funding Schedule
EXHIBITS
A -- Form of Unsecured Promissory Note
($600,000 Principal Amount)
B -- Operating Budget for Fiscal Year Ending
December 31, 1996 and Five-Year Plan
C -- Form of Unsecured Promissory Note
($138,000 Principal Amount)
D -- IWN, L.P. Founders Plan
iv.
<PAGE>
This Third Amended and Restated Agreement of Limited Partnership is made
and entered into effective as of December 31, 1995 by and among IWN, Inc., a
Delaware corporation ("IWN"), and Symphony Management Associates, Inc., a
Delaware corporation ("Symphony"), together with all other Persons who shall
hereafter become Partners in accordance with the terms hereof, with reference to
the following facts:
RECITALS:
A. Concurrently with the execution of this Amended Agreement and
Symphony's admission to the Partnership, StarBet, Inc., a Delaware corporation,
and Command Performance Network,Inc., a Delaware corporation, are withdrawing
from the Partnership pursuant to a Second Amendment to Agreement of Limited
Partnership of the Partnership of even date herewith.
B. IWN and Symphony now desire to continue the Partnership and to make
certain changes in the Original Partnership Agreement as set forth in this
Amended Agreement.
NOW, THEREFORE, it is hereby agreed by and among the Partners as follows:
ARTICLE I
DEFINITIONS
When used in this Amended Agreement, the following terms shall have the
meanings set forth below:
1.1 "Adjusted Capital Contribution" means, with respect to the Class A
Limited Partner, the sum of $350,000 plus the Class A Limited Partner's Capital
Contribution at any time, reduced by all Partnership distributions theretofore
received by the Class A Limited Partner other than distributions under Sections
4.8(b) and 4.8(c).
1.2 "Affiliate" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, Controlling,
Controlled by or under common Control with such Person.
1.3 "Amended Agreement" means this Third Amended and Restated Agreement
of Limited Partnership, as originally executed and as amended from time to time
as herein provided. References to "hereof" or "herein," and similar references,
mean this Amended Agreement as a whole.
1.4 "Capital Account" means, with respect to any Partner, the book entry
account to be established and maintained by the Partnership for the Partner as
provided in Section 4.1.
1.
<PAGE>
1.5 "Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in the Partner's Capital Account.
1.6 "Capital Contribution" means, with respect to any Partner, the
cumulative sum of the Partner's contributions, if any, to the capital of the
Partnership pursuant to Article III.
1.7 "Class A Limited Partner" means Symphony and any successor thereto,
including without limitation LLC, admitted as substituted Class A Limited
Partner as herein provided, so long as it has not withdrawn or been removed as a
Class A Limited Partner as herein provided.
1.8 "Class B Limited Partners" means any Persons admitted to the
Partnership as Class B Limited Partners as provided herein and as reflected on
Schedule 1 hereto, as it may be amended from time to time, and any successors
thereto admitted as substituted Class B Limited Partners as herein provided, so
long as they have not withdrawn or been removed as a Class B Limited Partner as
herein provided.
1.9 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.10 "Default Interest Rate" means a variable interest rate equal to the
lesser of (a) 2% per annum plus the prime, base, or reference lending rate
announced from time to time by Bank of America NT&SA and (b) the maximum rate,
if any, permitted by applicable law.
1.11 "Distributable Cash" means cash on hand of the Partnership from all
sources available for distribution to the Partners after taking into account all
Partnership expenses, debts, liabilities and obligations, and less any Reserves.
1.12 "Executive Committee" means the Executive Committee of the Board of
Directors of IWN established pursuant to the Stockholders Agreement and Section
6.2 and acting in the capacity described in Section 6.2.
1.13 "Fiscal Year" means the annual accounting period of the Partnership,
which initially shall coincide for all purposes with the calendar year.
1.14 "Founders Plan" has the meaning set forth in Section 3.5.
1.15 "General Partner" means IWN and any successor thereto and any other
Person admitted to the Partnership as a general partner as herein provided and
as reflected on Schedule 1 hereto, so long as they have not withdrawn or been
removed as a General Partner as herein provided. Reference to
2.
<PAGE>
the General Partner shall mean the Person or all of the Persons then acting in
such capacity pursuant to the provisions of this Amended Agreement, unless the
context otherwise requires.
1.16 "Initiating Partner" has the meaning set forth in Section 16.1.
1.17 "Interest" means, with respect to any Partner, the Partner's entire
ownership interest in the Partnership at any particular time, including the
rights, powers and privileges to which such Partner may be entitled as provided
in this Amended Agreement, together with the obligations of such Partner to
comply with the terms and provisions hereof.
1.18 "Investment Agreement" has the meaning set forth in Section 7.3.
1.19 "IWN" has the meaning set forth in the introduction paragraph hereof.
1.20 "Limited Partners" means the Class A Limited Partner and Class B
Limited Partners, collectively. A Limited Partner shall be deemed to be the
owner of any Interest assigned by it unless and until the assignee of such
Interest has been admitted to the Partnership as a substituted Limited Partner
as herein provided. References herein to a "Majority-in-Interest" of the Limited
Partners means a Limited Partner or Limited Partners holding Interests
representing more than 50% of the aggregate Percentage Interests of all Limited
Partners.
1.21 "LLC" means Symphony IWN Investment LLC, a limited liability company
to be formed by Symphony under the laws of the State of Delaware to succeed to
Symphony's initial Interest and to be substituted as the Class A Limited Partner
as contemplated herein.
1.22 "Major Transactions" means transactions outside the ordinary course
of the Partnership's business as then being conducted as determined by reference
to the Operating Budget then in effect.
1.23 "Majority-in-Interest Consent" means the consent described in
Internal Revenue Code Revenue Procedure 94-46, 1994-28 IRB 129, as amended from
time to time.
1.24 "Mandatory Capital Contribution" has the meaning set forth in Section
3.3(b).
1.25 "Members" means the members of the Executive Committee consisting at
all times of the individuals designated in accordance with Section 6.2.
References to a "Member" mean any one of the Members.
3.
<PAGE>
1.26 "Net Income" and "Net Loss" mean, for each Fiscal Year, the
Partnership's income or loss, as the case may be, for U.S. federal income tax
purposes, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
determining Net Income or Net Loss), with the following adjustments:
(a) any income of the Partnership that is exempt from U.S. federal
income tax and not otherwise taken into account shall be added to Net Income or
subtracted from Net Loss; and
(b) any expenditures of the type described in Section 705(a)(2)(B) of
the Code, or treated as Section 705(a)(2)(B) of the Code expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account, shall be subtracted from Net Income or added to Net Loss.
1.27 "NTN" means NTN Communications, Inc., a Delaware corporation.
1.28 "Operating Budget" means for each Fiscal Year, the budget of the
Partnership reflecting all items of anticipated income, expense, revenue and
expenditure of the Partnership of every kind and character, including without
limitation capital expenses and expenditures, as provided for in Article V.
1.29 "Original Partnership Agreement" has the meaning set forth in Section
2.1.
1.30 "Partners" means the General Partner and the Limited Partners,
collectively. Reference to a "Partner" means any of the Partners.
1.31 "Partnership" means the partnership formed under the Original
Partnership Agreement and continued under this Amended Agreement and any
partnership further continuing the business of such partnership in the event of
a dissolution and continuation as herein provided.
1.32 "Percentage Interest" means, with respect to any Partner, the
Partner's percentage interest in certain of Partnership distributions and
allocations as set forth on Schedule 1, as such percentage may be adjusted from
time to time as provided herein.
1.33 "Person" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate or other
entity.
1.34 "Plan" has the meaning set forth in Article V.
4.
<PAGE>
1.35 "Regulations" means, at any particular time, the regulations
currently in force as final or temporary regulations of the U.S. Department of
Treasury promulgated under the Code.
1.36 "Reserves" means all such amounts from time to time reserved,
designated or set aside from Partnership funds for the payment of, among other
amounts, actual or anticipated costs, payments, obligations and liabilities of
the Partnership of any kind, character or description, or to reflect appropriate
valuations of assets, all in accordance with generally accepted accounting
principles.
1.37 "Responding Partner" has the meaning set forth in Section 16.1.
1.38 "Return" means, with respect to a Class A Limited Partner, a sum
payable to the Class A Limited Partner equal to 27.5% per annum (cumulative and
noncompounded) of the Class A Limited Partner's Adjusted Capital Contribution.
Such amount shall be computed monthly (prorated for any period of less than one
month) based on the average daily balance of such Class A Limited Partner's
Adjusted Capital Contribution during such month.
1.39 "Stockholders Agreement" means that certain Stockholders Agreement of
even date herewith among NTN, IWN and Symphony.
1.40 "Support Services Agreement" has the meaning set forth in Section
9.2(a).
1.41 "Symphony" has the meaning set forth in the introductory paragraph
hereof.
1.42 "Tax Matters Partner" means the General Partner in the capacity
described in Section 6.10.
1.43 "Technology Sublicense" means, collectively, the Technology
Sub-License Agreement dated as of September 30, 1994, between the Partnership
and IWN, as amended and restated by the Amended and Restated Technology and
Trademark Sublicense Agreement, dated as of December 31, 1995, between the
Partnership and IWN (the "Amended Sublicense Agreement"), and the Worldwide
Technology and Trademark Sublicense Agreement, dated as of December 31, 1995,
between the Partnership and IWN (the "New Sublicense Agreement"), in each case
as the same may be amended from time to time as therein provided.
5.
<PAGE>
ARTICLE II
FORMATION; CONTINUATION AND AMENDMENT
2.1 Formation. The Partnership was formed under and pursuant to Chapter
---------
17, Title 6, of the Delaware Code Annotated (the "Act") by means of an Agreement
of Limited Partnership, dated as of September 30, 1994, as amended by a First
Amendment and a Second Amendment thereto, dated as of December 19, 1994 and
December 31, 1995, respectively (as so amended, the "Original Partnership
Agreement"). The Partners now desire to continue the Partnership and to make
certain changes in the Partnership Agreement as set forth in this Amended
Agreement. Promptly following the execution of this Amended Agreement, the
General Partner shall cause an appropriate amendment to the Partnership's
original Certificate of Limited Partnership to be prepared, filed and recorded
in all offices as required by the Act.
2.2 Worldwide License; Purpose and Nature of Business.
-------------------------------------------------
(a) Concurrently with the execution of this Amended Agreement, the
Partnership and IWN are entering into the Amended Sublicense Agreement and the
New Sublicense Agreement. In consideration of IWN's entering into the New
Sublicense Agreement, the Partnership is delivering to IWN a promissory note of
the Partnership, substantially in the form attached as Exhibit A to this Amended
---------
Agreement.
(b) The purpose, nature and character of the business of the
Partnership is to exploit its rights under the Technology Sublicense and to
develop and market commercial gaming applications for interactive technologies
worldwide and to engage in any and all business activities incidental thereto.
2.3 Name. The name of the Partnership shall be IWN, L.P. or such other
----
name as may be designated by the General Partner, provided, however, that the
Partnership may not use the name of any Limited Partner as part of the name of
the Partnership without the Limited Partner's prior written consent. From time
to time after the execution of this Amended Agreement, the General Partner shall
cause a Fictitious Business Name Statement for the Partnership to be filed,
published and maintained if and to the extent required by applicable law. The
names and affiliations of the Partners may be used and disclosed publicly in
connection with the business and affairs of the Partnership.
2.4 Principal Place of Business. The principal place of business of the
---------------------------
Partnership shall be 5966 La Place Court, Carlsbad, California 92008. The
General Partner may at any time and from time to time change the Partnership's
principal place of business and may establish such additional places of
6.
<PAGE>
business as it may select, in which event it shall so notify the Limited
Partners.
2.5 Agent. The General Partner shall cause The Corporation Trust Company
-----
(or such other qualified Person) to be designated the agent of the Partnership
for service of process in the State of Delaware and any other jurisdiction where
the Partnership's business requires that an agent be designated.
2.6 Term of the Partnership. The Partnership commenced on September 28,
-----------------------
1994, the date of the filing under the Act of the original Certificate of
Limited Partnership, and shall continue until December 31, 2024, unless sooner
terminated in accordance with the provisions of this Amended Agreement or as
otherwise provided by law.
ARTICLE III
ADMISSION OF ADDITIONAL PARTNER; CAPITAL AND LOANS
3.1 Admission of Class A Limited Partner. Symphony is hereby admitted to
------------------------------------
the Partnership as a Class A Limited Partner.
3.2 Capital Contributions of General Partner. Concurrently with the
----------------------------------------
execution of this Amended Agreement, the General Partner shall surrender or
cause to be surrendered to the Partnership for cancellation (i) that certain
Promissory Note of the Partnership to the General Partner, as payee, dated
September 30, 1994, in the original principal amount of $600,000 and (ii) that
certain Demand Promissory Note of the Partnership to NTN, as payee, dated
December 31, 1995, in the principal amount of $600,000 as contributions by the
General Partner to the capital of the Partnership. The Partners agree that, upon
such surrender and cancellation, the General Partner's Capital Account shall be
increased by an aggregate amount equal to $1,200,000, representing the principal
amount of said Promissory Notes.
3.3 Capital Contributions of Symphony.
---------------------------------
(a) As of the date of this Amended Agreement, Symphony has
contributed $100.00 in cash to the capital of the Partnership. Unless the
Executive Committee determines otherwise, Symphony shall make, or shall cause
LLC to make an additional aggregate cash contribution to the capital of the
Partnership of $2,649,900.00, which shall be payable on the respective dates and
in the respective amounts set forth on Schedule 2 hereto. All amounts paid by
Symphony (or LLC) pursuant to this Section 3.3(a) shall constitute Capital
Contributions of Symphony (or LLC, as the case may be).
(b) In the event that Symphony fails to pay, or cause LLC to pay, all
or any portion of any additional capital contribution as provided in Section
3.3(a) (a "Mandatory Capital Contribution"), the Partnership, at the election of
7.
<PAGE>
the General Partner, shall exercise one or more of the following remedies as
directed by the General Partner, and shall so notify Symphony in writing at
least five days prior to taking such action:
(i) taking such action (including, without limitation, court
proceedings) as the General Partner may deem appropriate to obtain payment by
Symphony and LLC, or either of them, of that portion of the Mandatory Capital
Contribution that is in default, together with interest thereon at the Default
Interest Rate from the date that such Mandatory Capital Contribution was due
until the date that it is made, all at the cost and expense of the Class A
Limited Partner;
(ii) permitting (but not requiring) any other Partner (the
"Lending Partner") to pay and deliver to the Partnership on behalf of Symphony
and LLC, jointly and severally, all or any portion of the Mandatory Capital
Contribution that is in default, with the following results:
(1) the sum delivered shall constitute a loan from the
Lending Partner to Symphony and LLC, jointly and severally, and shall be deemed
for all purposes of this Amended Agreement to be a Capital Contribution of that
sum to the Partnership by Symphony and LLC;
(2) the principal balance of the loan and all accrued and
unpaid interest thereon shall be due and payable in whole on the fifth business
day after written demand therefor by the Lending Partner to Symphony;
(3) the unpaid principal balance of the loan shall bear
interest at the Default Interest Rate from the date that the advance is made
until the date that the loan, together with all interest accrued on it, is
repaid to the Lending Partner;
(4) all distributions from the Partnership that otherwise
would be made to Symphony and LLC instead shall be paid to the Lending Partner,
for credit against the unpaid principal balance of the loan and all accrued and
unpaid interest thereon, until the loan and all interest accrued thereon shall
have been paid in full to the Lending Partner (with payments being applied first
to accrued and unpaid interest and then to principal);
(5) the repayment of the loan and interest accrued thereon
is secured by a security interest in Symphony's and LLC's Interests, as more
fully set forth in Section 3.4; and
(6) the Lending Partner shall have the right, in addition
to the other rights and remedies granted to
8.
<PAGE>
it pursuant to this Amended Agreement or available to it at law or in equity, to
take such action (including, without limitation, court proceedings) as the
Lending Partner may deem appropriate to obtain payment by Symphony and LLC of
the loan and all accrued and unpaid interest on it, at the cost and expense of
Symphony and LLC;
(iii) permitting (but not requiring) another Partner or any
other person, who shall thereupon be admitted as an additional Class A Limited
Partner of the Partnership without further action by the Executive Committee or
any Partner (the "Contributing Partner"), to pay and deliver to the Partnership
all or any portion of the Mandatory Capital Contribution that is in default,
with the following results:
(1) the sum delivered shall constitute a Capital
Contribution by the Contributing Member;
(2) Symphony's and LLC's aggregate Percentage Interests
shall be reduced pro rata, and the Percentage Interest of the Contributing
Partner shall be increased, by a number of percentage points equal to the
percentage derived by dividing (A) 120% of the amount of the Capital
Contribution made by the Contributing Partner pursuant to this subparagraph
(iii)(2) by (B) the cumulative aggregate Capital Contributions of all Class A
Limited Partners after giving effect to the Contributing Member's Capital
Contribution as aforesaid;
(iv) exercising the rights of a secured party under the Uniform
Commercial Code of the State of Delaware, as more fully set forth in Section
3.4; or
(v) exercising any other rights and remedies available at law
or in equity.
3.4 Grant of Security Interest.
--------------------------
(a) Symphony, on its own behalf and on behalf of LLC, hereby grants
to the Partnership and to each Lending Partner with respect to any loans made or
deemed to be made by the Lending Partner to Symphony and LLC as permitted in
Section 3.3, as security, equally and ratably, for the payment of all Mandatory
Capital Contributions, together with interest thereon as provided in Section
3.3(b)(ii), and the payment of all loans and interest accrued on them made by a
Lending Partner to Symphony and LLC pursuant to Section 3.4, a security interest
in, and a lien on, its Interest and the proceeds thereof, all under the Uniform
Commercial Code of the State of Delaware. On any default in the payment of a
Mandatory Capital Contribution or in the payment of such a loan or interest
accrued on it, the Partnership or the Lending Partner, as applicable, is
entitled to all the rights and remedies of a secured party under the Uniform
Commercial Code
9.
<PAGE>
of the State of Delaware with respect to the security interest granted in this
Section 3.4. Symphony and LLC shall execute and deliver to the Partnership and
any Lending Partner all financing statements and other instruments as the
Partnership or a Lending Partner may reasonably request to effectuate and carry
out the preceding provisions of this Section 3.4. At the option of the
Partnership or a Lending Partner, this Amended Agreement or a carbon,
photographic, or other copy hereof may serve as a financing statement.
(b) Symphony, on its own behalf and on behalf of LLC, acknowledges
and agrees that the rights and remedies described in this Section 3.4 bear a
reasonable relationship to the damages which the Partners estimate at present
may be suffered by the Partnership and the other Partners by reason of the
failure of Symphony or LLC to make a Mandatory Capital Contribution. Each
Partner further acknowledges and agrees that such rights and remedies have been
specified as permitted under Section 17-306 of the Act.
3.5 Founders Plan.
-------------
(a) The Partnership hereby reserves for grant and issuance to
officers and other key employees and agents of the Partnership and/or the
General Partner restricted Class B Limited Partner Interests and options to
purchase restricted Class B Limited Partner Interests representing, in the
aggregate, Percentage Interests (or the right to acquire Percentage Interests)
of not more than 10%. Such Class B Limited Partner Interests and options shall
be granted and issued pursuant to a written founders plan in the form attached
hereto as Exhibit D (the "Founders Plan") and individual restricted partnership
---------
interest award or option agreements with each recipient of such Class B Limited
Partner Interests or options. The Founders Plan shall be administered by the
Executive Committee, shall incorporate by reference all of the terms and
provisions of this Amended Agreement and shall provide, among other things, that
the Executive Committee will have discretion to select the Persons to whom such
Class B Limited Partner Interests and options shall be granted and the vesting
requirements, purchase or exercise price, exercise period, repurchase rights,
and all other terms and conditions of such Class B Limited Partner Interests or
options, which need not be identical. The Partners hereby consent to the
admission as Class B Limited Partners of the Partnership of the recipients of
any Class B Limited Partner Interests issued pursuant to the Founders Plan.
(b) The respective purchase prices or exercise prices of the Class B
Limited Partner Interests and options referred to in this Section 3.5, when paid
to the Partnership as provided therein, shall constitute contributions to the
capital of the Partnership.
10.
<PAGE>
(c) Each of the Partners understands and agrees that the Percentage
Interests of each Partner shall be subject to reduction ratably as a result of
the grant or issuance of any Class B Limited Partner Interests or options
pursuant to the Founders Plan. Schedule 1 shall be amended from time to time to
reflect the admission of any Class B Limited Partners upon the grant or issuance
of any Class B Limited Partner and exercise of options under the Founders Plan.
3.6 Other Additional Capital Contributions and Issuance of Additional
-----------------------------------------------------------------
Partnership Interests. Except as otherwise expressly provided herein or as
- ---------------------
required under the Act, no Partner shall be required or permitted to make any
Capital Contribution. Except as otherwise specifically provided in this
Agreement, the Partnership will not sell or issue any partner interests in the
Partnership or admit any Person as an additional Limited Partner.
3.7 Payment of Capital Contributions. Except as otherwise expressly
--------------------------------
provided or permitted in this Amended Agreement, all Capital Contributions made
by the Partners shall be in cash and shall be reflected by an appropriate entry
on the Partnership's books and records.
3.8 No Return of Capital Contribution; No Interest.
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(a) Except as otherwise expressly provided herein, no Partner shall
have any right to demand or receive the return of all or any portion of his
Capital Contribution. The General Partner will have no obligation to return all
or any portion of any Partner's Capital Contribution. Under circumstances
permitting or requiring a return of a Partner's Capital Contribution, the
Partner shall have no right to receive property other than cash, except as the
General Partner may otherwise determine in its discretion.
(b) Except as otherwise expressly provided herein, no Partner shall
be entitled to interest on any Capital Contribution or on his Capital Account.
3.9 No Priority. Except as otherwise expressly provided herein, no
-----------
Partner shall have a priority over any other Partner as to the return of a
Capital Contribution upon the dissolution of the Partnership.
ARTICLE IV
CAPITAL ACCOUNTS; ALLOCATION OF NET INCOME AND NET LOSS
4.1 Capital Accounts. The Partnership shall establish and maintain on
----------------
its books a single Capital Account for each Partner, which shall be maintained
strictly in accordance with Regulations Section 1.704-1(b). Subject to the
foregoing, Capital Accounts shall be adjusted from time to time as follows:
11.
<PAGE>
(a) there shall be credited to a Partner's Capital Account the
Partner's Capital Contribution, the Partner's allocable share of Net Income and
the amount of the Partnership's liabilities, if any, assumed by the Partner or
which are secured by any asset of the Partnership distributed to the Partner;
(b) there shall be debited to a Partner's Capital Account an amount
equal to the Distributable Cash and other amounts distributed to the Partner
pursuant to this Amended Agreement, the Partner's allocable share of any Net
Loss and the amount of the Partner's liabilities, if any, assumed by the
Partnership or which are secured by any asset contributed by the Partner to the
Partnership; and
(c) in the event all or a portion of a Partner's Interest is
transferred in accordance with the terms of this Amended Agreement, the
transferee shall succeed to the portion of the Capital Account of the
transferor-Partner relating to the Interest transferred.
In determining the amount of any liability for purposes of paragraphs (a) and
(b) of this Section 4.1, there shall be taken into account Section 752(c) and
any other applicable provisions of the Code. In addition, the Partners' Capital
Accounts shall be subject to adjustment as the Executive Committee may determine
is necessary in order to comply with Section 704 of the Code and the Regulations
promulgated thereunder.
4.2 Allocation of Net Income. Subject to Sections 4.4 through 4.7, in
------------------------
each Fiscal Year any Net Income shall be allocated and apportioned among the
Partners as follows:
(a) first, 99% to the Class A Limited Partner and 1% to the General
Partner pro rata in accordance with and to the extent of all prior allocations
of Net Loss;
(b) next, 99% to the Class A Limited Partner and 1% to the General
Partner until an aggregate of $350,000 has been allocated to the Class A Limited
Partner pursuant to this Section 4.2(b);
(c) next, 1% to the General Partner and 99% to the Class A Limited
Partner until the Class A Limited Partner has been allocated an amount equal to
its Return for the current Fiscal Year and all prior Fiscal Years, less prior
allocations of Net Income to the Class A Limited Partner pursuant to this
Section 4.2(c);
(d) next, 1% to the General Partner and 99% to the Class A Limited
Partner until an aggregate of $1,167,314 has been allocated to the Class A
Limited Partner pursuant to this Section 4.2(d); and
12.
<PAGE>
(e) the balance, to the Partners in accordance with their respective
Percentage Interests.
The intent of this Section 4.2 is to allocate Net Income to the Partners so
that the Capital Accounts of the Partners are maintained, to the greatest extent
possible, in such a manner as to facilitate the distribution methodology
contemplated by Section 4.8 (including, by reference, distributions on the
termination and liquidation of the Partnership).
4.3 Allocation of Net Loss. Subject to Sections 4.4 through 4.7, each
----------------------
Fiscal Year, any Net Loss shall be allocated and apportioned among the Partners
as follows:
(a) first, to the Partners pro rata in accordance with and to the
extent of all prior allocations of Net Income pursuant to Section 4.2(c) less
prior allocations of Net Loss pursuant to this Section 4.3(a);
(b) next, to the Partners pro rata in accordance with and to the
extent of all prior allocations of Net Income pursuant to Section 4.2(b) less
prior allocations of Net Loss pursuant to this Section 4.3(b); and
(c) the balance, 1% to the General Partner and 99% to the Class A
Limited Partner.
4.4 Other Allocations. Notwithstanding the provisions of Sections 4.2
-----------------
and 4.3, allocations shall, to the extent possible, be made in such a manner as
to result in the Partners receiving total distributions (including, for these
purposes, liquidating distributions pursuant to Section 12.2) from the
commencement of the Partnership through the date of liquidation, in the order
and amounts contemplated by Section 4.8.
4.5 Gross Asset Value. If the gross asset value of a Partnership asset
-----------------
differs from its adjusted basis for U.S. federal income tax purposes, items of
income, gain, loss, depreciation and amortization shall be allocated for U.S.
federal income tax purposes consistent with the principles of Sections 704(b)
and (c) of the Code, so as to take account of the variation between gross asset
value and adjusted basis.
4.6 Special Allocations. Notwithstanding the provisions of Sections 4.2
-------------------
and 4.3, the following special allocations shall be made in the following order:
(a) Notwithstanding any other provision of this Article IV, if there
is a net decrease in Partnership minimum gain during any Fiscal Year, except as
otherwise permitted by Sections 1.704-2(f)(2), (3), (4) and (5) of the
Regulations, items of Partnership income and gain for such Fiscal Year (and
subsequent years, if necessary) in the order provided in
13.
<PAGE>
Section 1.704-2(j)(2)(i) of the Treasury Regulations shall be allocated among
all Partners whose shares of Partnership minimum gain decreased during that year
in proportion to and to the extent of such Partner's share of the net decrease
in Partnership minimum gain during such year. The allocation contained in this
Section 4.5(a) is intended to be a minimum gain chargeback within the meaning of
Section 1.704-2 of the Regulations, and shall be interpreted consistently
therewith.
(b) Notwithstanding any other provision of this Article IV, if there
is a net decrease in Partner nonrecourse debt minimum gain, except as provided
in Section 1.704-2(i) of the Regulations, items of Partnership income and gain
for such fiscal year (and subsequent years, if necessary) in the order provided
in Section 1.7042(j)(2)(ii) of the Regulations shall be allocated among all
Partners whose share of Partner nonrecourse debt minimum gain decreased during
that year in proportion to and to the extent of such Partner's share of the net
decrease in Partner nonrecourse debt minimum gain during such year. This Section
4.5(b) is intended to comply with the Partner nonrecourse debt minimum gain
chargeback requirement in Section 1.704-2 of the Regulations and shall be
interpreted consistently therewith.
(c) In the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) of the Regulations, items of partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Capital Account
Deficit of such Partner as quickly as possible, provided that an allocation
pursuant to this Section 4.5(c) shall be made only if and to the extent that
such Partner would have a Capital Account Deficit after all other allocations
provided for in this Article IV have been tentatively made as if this Section
4.5(c) were not in this Amended Agreement.
(d) In the event any Partner has a Capital Account Deficit at the
end of any Fiscal Year, each such Partner shall be specially allocated items of
Partnership income and gain in the amount of such excess as quickly as possible,
provided that an allocation pursuant to this Section 4.5(d) shall be made only
if, and to the extent that, such Partner would have a Capital Account Deficit
after all other allocations provided for in this Article IV have been made as if
this Section 4.5(d) were not in this Amended Agreement.
(e) Nonrecourse deductions (as defined in Section 1.704-2(b)(1) of
the Regulations) for any fiscal year or other period shall be specifically
allocated to the Partners in accordance with the allocation of Net Loss.
14.
<PAGE>
(f) Any Partner nonrecourse deductions (as defined in Section 1.704-
2(i)(1) of the Regulations) for any fiscal year or other period shall be
allocated to the Partner who bears the economic risk of loss with respect to the
Partner nonrecourse debt to which such Partner nonrecourse deductions are
attributable.
4.7 Curative Allocations. The allocations set forth in Section 4.6
--------------------
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Regulations. It is the intent of the Partners that, to the
extent possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Partnership
income, gain, loss or deduction pursuant to this Section 4.7. Therefore,
notwithstanding any other provision of this Section 4 (other than the Regulatory
Allocations), the General Partner shall make such offsetting special allocations
of Partnership income, gain, loss or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations were not part
of the Agreement and all Partnership items were allocated pursuant to Sections
4.2, 4.3 and 4.4 hereof.
4.8 Distributions of Distributable Cash. Subject to Section 4.9 and any
-----------------------------------
restrictions under applicable law, Distributable Cash, if any, with respect to
each Fiscal Year shall be distributed as follows, with the amount and timing of
such distribution to be determined in the discretion of the Executive Committee:
(a) first, 1% to the General Partner and 99% to the Class A Limited
Partner until the Class A Limited Partner's Adjusted Capital Contribution has
been reduced to zero;
(b) next, 1% to the General Partner and 99% to the Class A Limited
Partner until the Class A Limited Partner has received a cumulative amount for
all periods pursuant to this Section 4.8(b) equal to the Return;
(c) next, 1% to the General Partner and 99% to the Class A Limited
Partner until each has received in the aggregate pursuant to this Section 4.8(c)
48.6% of the Net Income allocated to each under Section 4.2(d); and
(d) the balance, to the Partners in accordance with their respective
Percentage Interests.
4.9 Distribution to Pay Taxes. In the General Partner's discretion with
-------------------------
respect to any Fiscal Year, the Partnership shall use its best efforts to make a
cash distribution to the Partners pro rata in an amount equal to the taxes
payable in
15.
<PAGE>
respect of the Net Income of the Partnership for such Fiscal Year assuming for
this purpose that each of the Partners are subject to a combined effective
federal and applicable state income tax rate of 48.6% on such Net Income. Any
cash distributed pursuant to this Section 4.9 shall reduce the amount the
Partners otherwise would be entitled to receive pursuant to Section 4.8.
ARTICLE V
OPERATING BUDGET
Prior to the execution of this Amended Agreement, the General Partner
prepared a budget (the "Operating Budget") reflecting the Partnership's
projected balance sheet, income statement, statement of cash flows, receipts,
expenses and expenditures for the period from January 1, 1996 through December
31, 1996 and a five-year plan (the "Plan"), copies of which are attached as
Exhibit B to this Amended Agreement. The Partners hereby approve such Operating
- ---------
Budget and Plan. The General Partner shall timely prepare and submit to the
Executive Committee for its review and approval a new Operating Budget, in
substantially the same form as Exhibit B to this Amended Agreement, for the
---------
Fiscal Year ending December 31, 1997 and for each succeeding Fiscal Year
thereafter. The Operating Budget shall be accompanied by such schedules as are
necessary to understanding of the principal items therein. The Operating Budget
shall be subject to review by the Executive Committee on a quarterly basis, and
each such Operating Budget shall be subject to such modifications and amendments
as the Executive Committee shall approve at the time of the quarterly review.
The Partnership's business and operations shall be conducted, to the extent
feasible and subject to the other limitations and restrictions set forth in this
Amended Agreement, in accordance with the Operating Budget. In the event, and so
long as, the General Partner and the Executive Committee are unable to agree on
a new Operating Budget for any Fiscal Year, the General Partner shall be
entitled to continue to operate and manage the Partnership in accordance with
the costs, expenses and expenditures reflected in the prior Operating Budget, as
it may have been modified by the Executive Committee as provided above as of the
last quarter in which a modification was made. The General Partner shall notify
the Executive Committee promptly upon learning of any material variance in the
Partnership's actual results of operations from either the aggregate income,
expenses and expenditures reflected in the Operating Budget or any single
category of income, expense or expenditure enumerated in the Operating Budget.
Each Operating Budget prepared and approved or carried forward from the prior
Fiscal Year as provided in this Article V shall be deemed approved for all
purposes of this Amended Agreement.
16.
<PAGE>
ARTICLE VI
RIGHTS AND DUTIES OF THE GENERAL PARTNER
6.1 Management Power and Authority. Except for matters as to which this
------------------------------
Amended Agreement specifically reserves to the Limited Partners, or any
particular Partner, the authority to Act, or to grant or withhold their consent
or approval of an action, and subject to the provisions of Sections 6.2, the
General Partner shall have full, complete and exclusive right, power and
authority to manage and control the Partnership's business and affairs of the
Partnership and all decisions regarding the business and affairs of the
Partnership shall be made by the General Partner.
6.2 Executive Committee.
-------------------
(a) In connection with the execution of this Amended Agreement, the
Board of Directors of the General Partner has established an Executive Committee
to which it has delegated all rights, responsibilities and powers of the Board
of Directors (and only such rights, powers and responsibilities) to review,
consider and approve of those matters enumerated in Section 6.2(c) and such
other matters, if any, as the Board of Directors of the General Partner may
hereafter determine. Except as the Class A Limited Partner and the General
Partner may otherwise agree, the Executive Committee shall at all times consist
of five members, two of whom shall be appointed by the Board of Directors of the
General Partner, two of whom shall be appointed by the Class A Limited Partner
and one of whom shall be appointed jointly by the Board of Directors of the
General Partner and the Class A Limited Partner. Such Members may, but need not
be, Partners or directors, officers or employees of any Partner or of the
Partnership. Daniel C. Downs and Colleen Anderson have been appointed by the
Board of Directors of the General Partner, and Richard J. Donnelly and Valerie
S. Hart have been appointed by the Class A Limited Partner, as the initial
Members of the Executive Committee to serve until such time as they resign or
are removed from the Executive Committee and their respective successors are
appointed as provided herein. As soon as is practicable following the execution
of this Amended Agreement, the Board of Directors of the General Partner and the
Class A Limited Partner shall jointly appoint the fifth Member of the Executive
Committee as provided above. Any Member may resign as a Member at any time or be
removed as a Member at any time by the Person or Persons which appointed such
Member. Any vacancy on the Executive Committee arising upon the death or
disability of a Member or a Member's resignation or removal shall be filled by
the Person or Persons which originally appointed such Member. Notwithstanding
any other provision of this Amended Agreement, during the period from the date
hereof through December 1, 1997, the Class A Limited Partner agrees that either
Frank Scarpa,
17.
<PAGE>
Richard Donnelly or Valerie Hart shall at all times serve as one of the Members
designated by the Class A Limited Partner.
(b) Regular meetings of the Executive Committee may be held without
notice if the time and place of such meetings have been fixed prior to such
meetings by resolution of the Executive Committee. Special meetings of the
Executive Committee may be called at any time by any Member upon notice of the
time and place thereof delivered to each Member at least five days prior to the
date of the meeting. Members may participate in a meeting through use of
conference telephone or similar communications equipment, and each Member
participating in the meeting shall be considered present in person as long as
the Member can hear and be heard by all other Members. At a meeting of the
Executive Committee, the presence of at least four Members will constitute a
quorum for the transaction of business, except that a majority of the Members
present, whether or not a quorum is present, may adjourn any meeting to another
time and place, provided that notice of the adjournment shall be given at least
five days prior to the date of the adjourned meeting to each of the Members (and
the Person or Persons which appointed them) who are not present at the time of
the adjournment. Notwithstanding any other provision of this Section 6.2(b),
every act of the Executive Committee taken at any meeting of the Executive
Committee at which a quorum is present, however called and noticed or wherever
held, shall be valid as though made or performed at a meeting duly held after
regular call and notice. Every act or decision done or made by vote or written
consent of at least four Members present at a meeting at which a quorum is
present shall constitute an act of the Executive Committee, and any action
required or permitted to be taken by the Executive Committee may be taken
without a meeting if all of the Members shall individually or collectively
consent in writing to such action. Subject to any contrary items of any
employment agreement or other written agreement between a Member and the
Partnership, any Member shall have the right to vote on or consent to any matter
with respect to which action by the Executive Committee is properly to be taken,
irrespective of whether or not such matter involves a transaction between the
Partnership and the Person or Persons (or an Affiliate thereof) which appointed
the Member, provided only that the interest of such Person or Persons (or
Affiliate) in the transaction has been previously disclosed in writing (or at a
meeting of the Executive Committee and duly recorded in minutes thereof approved
by the Members) to the Executive Committee.
(c) Notwithstanding any other provision of this Amended Agreement,
without the prior approval of the Executive Committee, the General Partner shall
have no right, power or authority on behalf of the Partnership to do or cause
the Partnership to do any of the following:
18.
<PAGE>
(i) adopt or approve any Operating Budget or make any
amendment or modification thereto;
(ii) authorize or approve any transaction, cost, expense,
expenditure or commitment of the Partnership which would vary materially from
the Operating Budget then in effect;
(iii) appoint, or, once appointed, remove any president,
chief executive officer or other senior executive employee employed by the
Partnership or establish or, once established, modify the compensation payable
by the Partnership to such president, chief executive officer or other senior
executive employee;
(iv) purchase, lease or otherwise acquire any property or
asset other than in the ordinary course of business in accordance with the
Operating Budget, except for purchases, leases and acquisitions in any Fiscal
Year of property and assets with a purchase price of less than $25,000 for any
single acquisition and $100,000 in the aggregate;
(v) sell, assign, transfer, convey or dispose of all or any
properties or assets of the Partnership or any interest therein other than in
the ordinary course of business in accordance with the Operating Budget, except
for sales, assignments, transfers, conveyances and dispositions of properties
and assets in any Fiscal Year with a fair value of less than $25,000 for any
single acquisition and $100,000 in the aggregate;
(vi) enter into, modify or terminate any transaction or
agreement with the General Partner or an Affiliate of the General Partner, or
enter into any Major Transaction, other than in accordance with the Operating
Budget;
(vii) borrow money or guarantee or incur any indebtedness
other than trade credit on an open-account basis customarily extended (and, in
fact extended) in connection with the purchase of goods and services incurred in
the ordinary course of business, except for borrowings, guarantees and
indebtedness incurred in accordance with the Operating Budget;
(viii) make any distribution of Distributable Cash;
(ix) submit a claim or liability of the Partnership in
excess of $100,000 to arbitration or confess a judgment in excess of $100,000
against the Partnership;
(x) borrow any money from banks and other lending
institutions for any Partnership purpose, and in that connection to hypothecate
Partnership assets;
19.
<PAGE>
(xi) borrow or raise monies, from time to time, to
facilitate or enable the Partnership to carry on its business or affairs;
(xii) engage in any transaction or transactions with the
General Partner or its officers, directors, shareholders, members of the
Executive Committee or Affiliates;
(xiii) defend, settle or compromise any claim, action or
demand made against the Partnership; or
(xiv) enter into, modify or terminate any contract, agreement
or commitment to do any of the foregoing.
6.3 Transfer of General Partner Interest; Withdrawal and Removal of the
-------------------------------------------------------------------
General Partner. The General Partner may not sell, assign or otherwise transfer
- ---------------
or encumber all or any portion of its Interest in the Partnership or withdraw as
a General Partner without Majority-in-Interest Consent of the remaining
Partners. The General Partner may not be removed as a General Partner.
6.4 Time and Attention of the General Partner; Other Business Activities.
--------------------------------------------------------------------
The General Partner and its officers, directors and employees shall devote to
the management of the Partnership and the accomplishment of the Partnership's
purposes, only so much of their time and attention as the General Partner and
its officers, directors and employees deem necessary or appropriate in its
discretion. The General Partner and its officers, directors, shareholders and
its Affiliates may engage in any other business activity without offering the
opportunity to any other Partner or to the Partnership.
6.5 Good Faith. The General Partner shall perform its obligations under
----------
this Amended Agreement to the best of its ability and shall use its best efforts
to carry out the purposes of the Partnership for the benefit of all of the
Partners.
6.6 Exculpation and Indemnification of the General Partner.
------------------------------------------------------
(a) Neither the General Partner nor any officer, director, employee,
Affiliate, members of the Executive Committee, associate or agent of the General
Partner, shall be liable to the Partnership or to the other Partners for any act
or omission based upon errors in judgment, negligence or other fault in
connection with the business or affairs of the Partnership, so long as the
action or failure to act does not constitute fraud, bad faith, criminal conduct
or gross negligence.
20.
<PAGE>
(b) The Partnership, its receiver or trustee shall indemnify the
General Partner and its officers, directors, employees, Affiliates, associates,
and agents to the fullest extent permitted by law and shall hold them harmless
from and with respect to all (i) fees, costs, and expenses, including, without
limitation, reasonable attorneys' fees (which shall be paid as incurred)
incurred in connection with or resulting from any claim, action or demand
against the General Partner or against any of its officers, directors,
employees, Affiliates, associates or agents that arise out of or in any way
relate to the Partnership, its assets, business or affairs; and (ii) any
resulting losses or damages from any such claim, action or demand, including
amounts paid in settlement or compromise of the claim, action or demand. This
indemnification shall apply, however, only so long as the action or failure to
act by the General Partner or its officers, directors, employees, Affiliates,
associates or agents does not constitute fraud, bad faith, criminal conduct or
gross negligence. The termination of any action, suit or proceeding by judgment,
order or settlement, or upon a plea of nolo contendere or its equivalent, shall
not of itself create a presumption that any person acted fraudulently, in bad
faith or criminally or was grossly negligent.
(c) For purposes of this Section 6.6, acts or failures to act
undertaken upon the informed advice of counsel shall be deemed to be actions
undertaken in good faith, within the scope of authority, and in the best
interests of the Partnership.
6.7 Interested-Party Transactions. The Partners agree that the
-----------------------------
Partnership may engage in any other transaction not specifically referred to
herein with the General Partner or its officers, directors, employees,
associates and Affiliates, provided only that in causing the Partnership to
engage in such a transaction the provisions of Section 6.2, if applicable, are
complied with.
6.8 Proscriptions. Notwithstanding any provision of this Amended
-------------
Agreement to the contrary, without the written approval of the Limited Partners,
the General Partner shall have no authority to:
(a) do any act in contravention of this Amended Agreement;
(b) assign the assets of the Partnership in trust for the benefit of
creditors or on the assignee's promise to pay the debts of the Partnership;
(c) do any act that would make it impossible to carry on the
ordinary business of the Partnership;
21.
<PAGE>
(d) sell, assign, transfer or convey in a single transaction or a
series of related transactions all or substantially all of the assets or
business of the Partnership;
(e) admit any Person as an additional General Partner;
(f) terminate or dissolve the Partnership; or
(g) amend the provisions of this Section 6.8 in any manner which
would reduce or eliminate the rights of the Limited Partners hereunder.
6.9 Contracts and Documents. All contracts, instruments, and documents
-----------------------
requiring the signature of the Partnership shall be executed solely by the
General Partner in the name of the Partnership only. The General Partner may, by
appropriate resolution of its Board of Directors, designate and authorize one or
more Members of the Executive Committee or specified directors, officers or
employees of the General Partner or the Partnership to execute documents on its
behalf in its capacity as the General Partner. Any document executed in the
manner set forth in this Section 6.9, as to persons dealing with the
Partnership, shall be conclusively deemed to be binding upon the Partnership.
The Partners acknowledge and agree that any person doing business with the
Partnership may rely solely on the authority of the General Partner, and that no
consent of any other Partner will be required to effect any transaction by the
Partnership within the scope of the General Partner's authority as provided in
this Amended Agreement.
6.10 Tax Matters Partner. The General Partner shall serve as the "Tax
-------------------
Matters Partner" of the Partnership as defined by Section 6231(a)(7) of the
Code. In that capacity, the General Partner is authorized and empowered to act
and represent the Partnership and each of the Partners before the Internal
Revenue Service in any audit or examination of any Partnership tax return and
before any court selected by the General Partner for judicial review of any
adjustments assessed by the Internal Revenue Service. By the execution of this
Amended Agreement, each of the Partners consents and acknowledges that the
General Partner shall be the Tax Matters Partner, and that each Partner agrees
to be bound by, and agrees not to take any action inconsistent with, the actions
or inaction of the Tax Matters Partner, including, but not limited to, the
extension of the statute of limitations or any contest, settlement or other
action or position that the Tax Matters Partner deems proper under the
circumstances. Each Partner agrees to notify the Tax Matters Partner of any such
action to be taken by the Partner, in violation of this Amended Agreement or
otherwise, at least ten days prior to the date the Partner takes the action. The
Tax Matters Partner shall notify each Partner in writing of all administrative
and
22.
<PAGE>
judicial proceedings for the adjustment of Partnership items and shall include
in the periodic reports to the Partners information it deems appropriate in its
discretion to keep the Limited Partners informed of the status of the
proceedings. The Tax Matters Partner shall have the authority to take all
actions necessary or desirable in its discretion to accomplish the matters set
forth in this Section 6.10.
6.11 Expenses of Tax Matters Partner. The Partnership shall bear all
-------------------------------
expenses, including legal and accounting fees, claims, liabilities, losses, and
damages incurred by the Tax Matters Partner in connection with any
administrative or judicial proceeding with respect to the tax liability of the
Partners. The Partners shall have no obligation to provide funds for such
purpose. The taking of any action and the incurring of any expense by the Tax
Matters Partner in its discretion and the provisions of limitations of liability
of General Partners and indemnification set forth in Section 6.6 shall be fully
applicable to the Tax Matters Partner in its capacity as such.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 No Participation in Management. No Limited Partner shall, in its
------------------------------
capacity as a Limited Partner, participate in the control of the Partnership's
business, transact any business in the Partnership's name or have the power or
authority to sign documents for or bind the Partnership in any other way.
7.2 Limitation of Liability. Except as otherwise provided in the Act,
-----------------------
subject to the condition that a Limited Partner does not, in addition to the
exercise of his rights and powers as a Limited Partner, take part in the control
of the business of the Partnership within the meaning of the Act, no Limited
Partner shall have any personal liability whatever in his capacity as a Limited
Partner for the debts, liabilities or losses of the Partnership beyond the
amount of the Limited Partner's committed but as yet unpaid Capital
Contribution.
7.3 Assignability of Interests.
--------------------------
(a) Subject to the provisions of any written restricted Partnership
interest purchase agreement or option agreement entered into between the
Partnership and a Class B Limited Partner, a Class B Limited Partner may not
sell, assign or otherwise transfer or encumber all or any portion of its
Interest without the prior written consent of the General Partner, which may be
withheld by the General Partner in its discretion or granted subject to such
conditions as the General Partner may determine in its discretion.
23.
<PAGE>
(b) The Partners agree that Symphony may assign and transfer all or
a portion of its initial Interest to LLC, who shall thereupon be admitted to the
Partnership as a substituted Class A Limited Partner with respect to the
Interest transferred by means of an appropriate form of assignment and
substitution agreement; provided, however, that such assignment shall not
relieve Symphony of any of its obligations hereunder. Except as set forth above
or as otherwise specifically provided in this Agreement, the Class A Limited
Partner may not sell, assign or otherwise transfer or encumber all or any
portion of its Interest without the prior written consent of the General
Partner, which may be withheld by the General Partner in its discretion or
granted subject to such conditions as the General Partner may determined in its
discretion; provided, however, that the Class A Limited Partner may, without the
consent or concurrence of the General Partner, pledge, assign as collateral or
otherwise encumber its Interest in connection with a bank or institutional loan
transaction. The foregoing notwithstanding, the Partners also acknowledge that
the Class A Limited Partner's Interest is subject to the "Put Option" (as
defined in the certain Investment Agreement, of even date herewith, among
Symphony, NTN and IWN (the "Investment Agreement")) and agree that the Class A
Limited Partner's Interest may be sold and assigned pursuant to the exercise of
such Put Option without the consent or approval of any Partner.
(c) Any purported transfer of a Limited Partner's Interest other
than as specifically provided in this Agreement shall be void and of no effect.
No Limited Partner shall have the right to have any assignee (including
permitted assignees) admitted as a substituted Limited Partner except upon the
prior written consent of the General Partner, which consent may be withheld by
the General Partner in its discretion or granted subject to such conditions as
the General Partner may determine in its discretion.
7.4 Status of Assignees. A permitted assignee of all or a portion of a
-------------------
Limited Partner's Interest who does not become a substituted Limited Partner
shall have the same rights, responsibilities and liabilities hereunder as the
assignor Limited Partner; provided, however, that no such assignee shall have
any right to require any information or account as to Partnership transactions
or to inspect the Partnership's books and records or to vote on any matter
submitted to a vote of the Limited Partners.
7.5 Allocations and Distributions Subsequent to Assignment. The Net
------------------------------------------------------
Income or Net Loss of the Partnership attributable to any Interest acquired by
reason of any assignment shall be allocated between the assignor and assignee by
taking into account their varying interests during the period in accordance with
Section 706(d) of the Code, using any conventions permitted by law and selected
by the
24.
<PAGE>
General Partner. All distributions on or before the date such transfer occurs
shall be made to the transferor, and all distributions thereafter shall be made
to the transferee. Neither the Partnership nor the General Partner shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 7.5 whether or not the Partnership or the General
Partner has knowledge of any transfer or ownership of any Interest.
7.6 Receipt of Written Assignment. Anything herein to the contrary
-----------------------------
notwithstanding, both the Partnership and the General Partner shall be entitled
to treat the assignor of an Interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions of cash made in good
faith to it, until such time as a valid written assignment has been received by
and recorded on the books of the Partnership.
ARTICLE VIII
CERTAIN COVENANTS OF THE GENERAL PARTNER
8.1 Conduct of Business. In addition to its other obligations under this
-------------------
Amended Agreement, the General Partner covenants and agrees as follows:
(a) the General Partner shall devote such time to the management,
business, operations and affairs of the Partnership as is reasonably necessary
to further the Partnership's business and purpose as contemplated herein;
(b) all business activities within the scope and purposes of the
Partnership performed or undertaken by the General Partner during the term of
the Partnership shall be solely for the benefit and on behalf of the
Partnership; and
(c) the General Partner shall promptly forward to the Partnership
any and all funds received by it or in its possession from time to time which
rightfully constitute revenues or other funds of the Partnership hereunder.
8.2 Compensation. The General Partner and its Affiliates shall receive
------------
no compensation or other payments for their services provided and functions
performed in their capacity as such other than their interest in distributions
of Distributable Cash and other amounts pursuant to this Amended Agreement and
reimbursements pursuant to Section 9.2.
25.
<PAGE>
ARTICLE IX
EXPENSES OF THE PARTNERSHIP; REIMBURSEMENTS
9.1 Expenses. All expenses incurred in connection with the negotiation
--------
and execution of this Amended Agreement and the sale and issuance of Interests
to Symphony and LLC, including the fees and expenses of the respective counsel
to the Partnership, Symphony and LLC, and all expenses incurred by or on behalf
of the Partnership in carrying on the Partnership's business and operations,
including without limitation, expenses incurred by members of the Executive
Committee in accordance with the Operating Budget, shall be borne and paid by
the Partnership. All such reimbursements shall be subject to the relevant
limitations set forth in the Investment Agreement.
9.2 Reimbursements to the General Partner.
-------------------------------------
(a) Concurrently with the execution of this Amended Agreement, the
Partnership shall execute and deliver to NTN a promissory note of the
Partnership, substantially in the form attached as Exhibit C to this Amended
---------
Agreement, representing certain costs and expenses properly incurred by NTN in
connection with the management of the Partnership and operation of the
Partnership's business prior to the date of this Amended Agreement and currently
owing from the Partnership. Concurrently with the execution of the Agreement,
the Partnership and NTN have entered a Support Services Agreement, of even date
herewith (the "Support Services Agreement"), with respect to certain
administrative support services to be provided by NTN to the Partnership.
(b) Subject to the terms of the Support Services Agreement as
amended from time to time as therein provided, the Partnership shall reimburse
the General Partner and its Affiliates for costs and expenses hereafter incurred
by the General Partner and its Affiliates while acting on the Partnership's
behalf within the scope of the General Partner's authority under this Amended
Agreement or the Stockholders Agreement and in accordance with the Operating
Budget, including without limitation, all allocable direct and indirect costs
and expenses of the General Partner and overhead and administrative costs and
expenses paid or incurred by it in furnishing necessary administrative services
to the Partnership. The Partnership shall adopt and promulgate from time to time
an appropriate expense reimbursement policy.
(c) Subject to any contrary provisions of the Support Services
Agreement, all of the reimbursements pursuant to paragraph (b) above shall be
paid promptly by the Partnership following the end of the month in which such
costs and expenses were incurred by the Partners or their respective Affiliates.
As a condition to such reimbursement, each
26.
<PAGE>
Partner or Affiliate shall furnish the Partnership with billing reports, expense
summaries and other records in such form and detail as the Executive Committee
may reasonably require. Except as provided in Sections 9.1 and 9.2, no Partner
shall be entitled to be reimbursed by the Partnership for any cost or expense
paid or incurred by it or its Affiliates.
9.3 Nature of Expenses and Fees. The expenses and fees payable to the
---------------------------
Partners pursuant to Sections 9.1 and 9.2 shall constitute amounts paid with
respect to liabilities of the Partnership for income tax purposes and shall not
be construed to be draws against the Partners' respective distributive shares of
Distributable Cash or as a distribution with respect to their respective
Interests.
ARTICLE X
ADDITIONAL COVENANTS
10.1 Disability of Officers or Directors of a Partner.
------------------------------------------------
(a) In the event at any time a Partner or any of its officers,
directors or 5% or greater shareholders have anything in their background that
could disable such Partner or the Partnership from obtaining a license to
operate a gaming establishment or enterprise in any jurisdiction or from being
found suitable as an investor in any such activity, in addition to all other
rights and remedies available to the Partnership and after having afforded such
Partner a reasonable opportunity to cure such disability, the Partnership or the
General Partner (as determined by the General Partner) shall have the option to
purchase all of the Interests of such Partner for an amount equal to the fair
market value of such Interests (determined as if such Partner were not
disabled), which shall be determined in the manner provided in Article XVI.
(b) All option payments hereunder shall be made in cash at the
closing of the purchase of Interests pursuant to the exercise of the option.
ARTICLE XI
RECORDS, ACCOUNTING AND REPORTS, AND PARTNERSHIP FUNDS
11.1 Records and Accounting.
----------------------
(a) Proper and complete records and books of account of the
Partnership's business shall be maintained at the Partnership's principal place
of business; and each Partner, or its duly authorized representative, shall have
access to such records, upon reasonable notice and for a proper Partnership
purpose, at all reasonable times during the Partnership's business hours. Such
books and records shall include, without limitation, (i) a current list of the
full
27.
<PAGE>
name and last known business, residence or mailing address of each Partner, set
forth in alphabetical order, together with the Capital Contribution of each
Partner and the Percentage Interest of each Partner in Partnership distributions
and allocations; (ii) a copy of the Certificate of Limited Partnership and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which any such certificate was executed; (iii) a copy of the
Partnership's federal, state, and local tax and information returns and reports,
if any, for the six most recent taxable years of the Partnership (or such
shorter period as the Partnership shall have been in business); (iv) a copy of
this Amended Agreement, as originally executed and as amended from time to time;
(v) financial statements of the Partnership as provided in Section 11.2 for the
six most recent Fiscal Years of the Partnership (or such shorter period as the
Partnership shall have been in business); and (vi) other books and records of
the Partnership for at least the last four Fiscal Years of the Partnership (or
such shorter period as the Partnership shall have been in business). Each
Partner agrees to keep confidential all information obtained from the
Partnership other than information already in the public realm, and not to use
any such information for other than a Partnership purpose.
(b) Books and records of the Partnership shall be kept pursuant to
the accrual method of accounting, which shall be the method of accounting
followed by the Partnership for U.S. federal income tax purposes.
11.2 Independent Audit. The records and books of account of the
-----------------
Partnership shall be audited as of the end of each Fiscal Year by independent
certified public accountants selected by the Executive Committee in its
discretion from among the "Big Six" accounting firms.
11.3 Tax Information. Within 90 days after the end of each Fiscal Year,
---------------
the General Partner shall cause to be mailed to each person who was a Partner at
any time during that Fiscal Year all information reasonably necessary, in the
discretion of the General Partner, for the preparation of the Partner's federal
income tax returns, including a Schedule K-1 (Form 1065) statement showing the
Partner's share of Net Income or Loss, deductions, and credits for the Fiscal
Year for U.S. federal income tax purposes and the amount of any distributions
made to or for the account of the Partner pursuant to this Amended Agreement.
11.4 Annual Reports to Partners. Within 90 days after the end of each
--------------------------
Fiscal Year, the General Partner shall cause to be mailed to each Partner an
audited income statement of the Partnership for the Fiscal Year and an audited
balance sheet and statement of changes in financial position of the Partnership
as of the end of the Fiscal Year.
28.
<PAGE>
11.5 Tax Returns. The General Partner shall cause all necessary or
-----------
appropriate tax and information returns for the Partnership to be prepared and
timely filed with the appropriate authorities.
11.6 Partnership Funds. The funds of the Partnership shall be deposited
-----------------
in a bank account or accounts, or invested in interest-bearing investments, as
shall be selected by the General Partner from time to time. The Partnership's
funds shall not be commingled with funds of any other person. Withdrawals from
deposited Partnership funds shall be made upon the signature of the General
Partner or of any person or persons designated by the General Partner from time
to time.
ARTICLE XII
DISSOLUTION AND WINDING UP
12.1 Events Causing Dissolution. The Partnership shall dissolve upon the
--------------------------
happening of any of the following events:
(a) the bankruptcy, death, insanity, termination of corporate or
partnership existence, dissolution or adjudication of incompetency of the
General Partner, unless the remaining Partners elect to admit one or more new
General Partners and to reconstitute and continue the Partnership as permitted
under the Regulations;
(b) the sale or other disposition, whether in a single transaction
or a series of transactions, of all of the business and assets of the
Partnership;
(c) the election by the General Partner and the Limited Partners to
dissolve the Partnership;
(d) the happening of any other event causing the dissolution of the
Partnership under the Act; or
(e) the expiration of the term of the Partnership as provided in
Section 2.6.
Dissolution of the Partnership shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Partnership shall not terminate
until the Certificate of Limited Partnership is cancelled in accordance with the
laws of the State of Delaware and the assets of the Partnership are distributed
as provided in Section 12.2. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership as aforesaid its business and the
affairs of the Partners, as such, shall continue to be covered by this Amended
Agreement.
12.2 Liquidation. Upon the dissolution of the Partnership following which
-----------
the Partnership is not reconstituted and continued as permitted in Section 12.1,
the Partnership's
29.
<PAGE>
business shall be wound up and all of the Partnership's assets, if any, shall be
liquidated expeditiously but in an orderly and businesslike manner. The General
Partner (or if there is no General Partner, one or more Persons selected by the
Limited Partners) shall supervise and be solely responsible for the liquidation
of the Partnership. Before the end of the Fiscal Year during which the
liquidation of the Partnership occurs (or, if later, within 90 days after the
date of such liquidation, as determined under Regulations Section 1.704-
1(b)(2)(ii)(g)), the Partnership shall apply and distribute the net proceeds
-
from its liquidation in the following order of priority:
(a) first, to pay Partnership indebtedness owed to creditors other
than Partners and to fund Reserves for contingent liabilities relating to
Partnership assets sold in liquidation to third parties in such amount and for
such period of time as the General Partner shall determine;
(b) next, to pay any Partnership indebtedness, including without
limitation any accrued and unpaid management fees, owed to the Partners or any
of them, in proportion to the respective amounts owed to each Partner; and
(c) next, to the Partners, in accordance with their positive Capital
Account balances after giving effect to all allocations for such Fiscal Year
pursuant to Article IV and distributions of Distributable Cash and other
distributions previously made.
ARTICLE XIII
AMENDMENTS
Except as otherwise provided herein, this Amended Agreement may be further
amended, in whole or in part, by the affirmative vote or written consent of the
General Partner and a Majority-in-Interest of the Limited Partners; provided,
however, that no amendment shall be effective as to any non-consenting Partner
to (a) restrict rights of withdrawal from his Capital Account or from the
Partnership; (b) require the non-consenting Partner to make any Additional
Capital Contribution; or (c) alter the limited liability of the non-consenting
Partner if he is a Limited Partner. In addition, any provision of this Amended
Agreement may be further amended by the General Partner without the concurrence
or approval of any other Partner in any manner that does not, in the discretion
of the General Partner, adversely affect any Partner. The General Partner shall
promptly furnish the Partners with a copy of any amendment of this Amended
Agreement executed by the General Partner on behalf of the Partners pursuant to
the power-of-attorney granted the General Partner in Article XIV.
30.
<PAGE>
ARTICLE XIV
SPECIAL POWER OF ATTORNEY
14.1 General Partner as Attorney-in-Fact. Each Partner hereby grants to
-----------------------------------
the General Partner a special power of attorney irrevocably making, constituting
and appointing the General Partner as the Partner's attorney-in-fact, with power
and authority to act in his name and on his behalf to execute, acknowledge and
swear to the execution, acknowledgment and filing of documents except as
otherwise provided herein, which shall include, by way of illustration but not
of limitation, the following:
(a) any Certificates of Limited Partnership, as well as any
amendments to this Amended Agreement or any Certificates of Limited Partnership
permitted or provided for herein or which, under the laws of the State of
Delaware or the laws of any other state, are required to be executed or filed or
which the General Partner deems to be advisable to execute or file;
(b) any other instrument or document which may be required to be
filed by the Partnership under the laws of any state or by any governmental
agency, or which the General Partner deems advisable to file; and
(c) any instrument or document which may be required to effect the
continuation of the Partnership, the admission of an additional or substituted
Partner, or the dissolution and termination of the Partnership (provided the
continuation, admission or dissolution and termination are in accordance with
the terms of this Amended Agreement), or to reflect any reduction in amount of
Capital Contributions of the Partners.
Notwithstanding the foregoing, the General Partner shall only have such
power of attorney with respect to the Class A Limited Partner if the General
Partner has provided at least ten (10) days prior written notice to the Class A
Limited Partner of the need to execute one or more documents and such Class A
Limited Partner has not executed and delivered such document to the General
Partner within ten (10) days after the date such request was received by the
Class A Limited Partner. In the event that the Class A Limited Partner notifies
the General Partner within ten (10) days following receipt of such request by
the Class A Limited Partner that the Class A Limited Partner believes that the
execution of such document is not in its best interest, then in such event, the
General Partner shall not have such power of attorney with respect to the Class
A Limited Partner relating to that document.
14.2 Scope and Power of Attorney. The special power of attorney granted
---------------------------
by each Partner:
31.
<PAGE>
(a) is a special power of attorney coupled with an interest, is
irrevocable, shall survive the death or incapacity of the granting Partner;
(b) may be exercised by the General Partner (and if there is more
than one Person acting in such capacity, then by any such Person acting in such
capacity) acting for each Partner by a facsimile signature of the General
Partner or by one of its officers, or by listing all of the Partners executing
any instrument with a signature of the General Partner or one of its officers
acting as an attorney-in-fact for all of them; and
(c) shall survive an assignment by a Partner of all or any portion of
his Interest in the Partnership but only until the assignee thereof is admitted
as herein provided as a substituted Partner.
14.3 Copy of Amendment. The General Partner shall promptly furnish to the
-----------------
Partners a copy of any amendment to this Amended Agreement executed by the
General Partner pursuant to the special power of attorney from the Partners.
ARTICLE XV
VOTING RIGHTS
15.1 Voting Rights. The Limited Partners shall not be entitled to vote
-------------
on, consent to or approve of any matter affecting the Partnership except as
specifically provided in this Amended Agreement or required under the Act.
Except as otherwise specifically provided herein, the vote, consent or approval
of a Majority-in-Interest of the Limited Partners shall be sufficient to approve
any matter as to which the vote, consent or approval of the Limited Partners is
required or permitted under this Amended Agreement. The vote, consent or
approval of the Limited Partners, wherever required or permitted hereunder, may
be obtained in any manner permitted hereunder or under the Act.
15.2 Meetings. Meetings of the Limited Partners may be called by the
--------
General Partner, or by a Partner or Partners whose aggregate Percentage
Interests represent in excess of 10% of the aggregate Percentage Interests of
all Partners, for any matter on which the Partners may vote as set forth in this
Amended Agreement. The call, notice, holding and conduct of meetings of the
Limited Partners shall otherwise be as set forth in the Act, as the same may be
amended from time to time.
15.3 Proxies. The use of proxies in connection with any meeting of the
-------
Limited Partners shall be governed by provisions of Delaware law governing
proxies in a corporate context.
32.
<PAGE>
32.
15.4 Conduct of Meetings. Each meeting of the Limited Partners shall be
-------------------
conducted by an authorized representative of the General Partner, or such other
Person as it shall appoint, pursuant to such rules for the conduct of the
meeting as it shall deem appropriate.
ARTICLE XVI
BUY-SELL OPTIONS
16.1 Buy-Sell Options.
----------------
(a) On and after December 1, 1997, either the General Partner or the
Class A Limited Partner (the "Initiating Partner") shall have the right to
notify the other (the "Responding Partner") in writing (the "Notice") that the
Responding Member shall elect either to purchase the Initiating Partner's
Interest for the purchase price (the "Purchase Price") set forth in the Notice,
or to sell its Interest to the Initiating Partner (or its designee) for the sale
price (the "Sale Price") set forth therein. Within 45 days after receipt of the
Notice, the Responding Partner shall notify the Initiating Partner that the
Responding Partner has elected to (i) purchase the Initiating Partner's Interest
for an all-cash price equal to the Purchase Price, (ii) to sell its Interest to
the Initiating Partner for an all-cash purchase price equal to the Sale Price,
or (iii) neither purchase the Initiating Partner's Interest or sell its
Interest. Should the Responding Partner fail to so notify the Initiating
Partner within said 45-day period, the Responding Partner shall be deemed
conclusively to have elected to purchase the Initiating Partner's Interest for
the Purchase Price. In the event that the Interest to be purchased is subject
to an encumbrance (whether or not in breach of this Agreement), the Purchase
Price or Sale Price, as the case may be, shall be reduced by the amount of the
encumbrance and by the reasonable costs and expenses incurred by the purchaser
in connection with removal of the encumbrance or its assumption or acquisition
of the liability or obligation which the encumbrance secures.
(b) In the event the Responding Partner notifies the Initiating
Partner within the 45-day period referred to above that the Responding Partner
elects not to purchase the Initiating Partner's Interest or sell its Interest as
provided above, the Initiating Member may thereafter offer and sell its Interest
to any Person on any terms agreed to by the Initiating Partner and such Person,
free of any rights or restrictions under Section 16.1(a), and to have such
Person substituted as a General Partner or Class A Limited Partner, as the case
may be, with respect to any Interest sold without the consent or concurrence of
any other Partner. As a condition to any sale and substitution pursuant to this
Section 16.1(b), the purchaser shall agree in writing to comply with all of the
terms and provisions of this Agreement.
33.
<PAGE>
16.2 Closing. The closing of the purchase and sale of an Interest
-------
pursuant to Section 16.1 shall be held at a mutually convenient place on a
mutually acceptable date not more than 60 days after the date of delivery of the
Initiating Partner's Notice pursuant to Section 16.1. At the closing, the
following actions shall be taken and deliveries made:
(a) the Partner selling its Interest shall assign the same to the
purchaser, together with all of the selling Partner's interest in the
Partnership's business and assets, free and clear of all liens, claims, and
encumbrances and with covenants of special warranty to the effect that no
transfer or encumbrance of the selling Partner's interest therein in favor of a
third party has occurred in breach of this Agreement, or, at the purchaser's
election, join in a conveyance by grant deed by the Partnership to the purchaser
and shall execute and deliver to the purchaser all other documents, if any, that
may be required to give effect to the purchase of the selling Partner's
Interest;
(b) the Partner selling its Interest shall indemnify the purchaser
from and against all liabilities and other obligations resulting from any breach
by the selling Partner of any of the provisions set forth in Section 16.2(a);
(c) the purchaser shall pay to the selling Partner (or its
representative), by cashier's or certified check, the entire Purchase Price;
(d) the purchaser shall agree in writing to indemnify and hold the
selling Partner harmless from and against all indebtedness, liabilities, and
other obligations of the Partnership arising from and after the closing; and
(e) the selling Partner shall agree in writing that it will not, and
it will cause its Affiliates to not, compete, directly or indirectly, through
one or more intermediaries, with the Partnership in any territory for a period
of three years following the closing.
16.3 Compromise. The payment to be made to a Partner selling its Interest
----------
pursuant to this Article 16 shall be in complete liquidation and satisfaction of
all the rights and interest of the selling Partner (and of any and all persons
claiming by, through, or under the selling Partner) in and in respect of the
Partnership, including, without limitation, any Interest, any rights in specific
Partnership property, and any rights against the Partnership, and (insofar as
the affairs of the Partnership are concerned) against the other Partners, and
shall constitute a compromise to which the Class A Limited Partner and the
General Partner agree. The Class A Limited Partner and the General Partner
hereby waive any right to challenge the procedures established in this Article
16 or to
34.
<PAGE>
contest the sufficiency of the purchase price of a Interest determined as
provided herein.
16.4 Expenses. Each Partner shall bear and pay its own expenses incurred
--------
in connection with initiating, responding, and complying with the procedures set
forth in this Article 16. Should any Partner fail to purchase or sell, as the
case may be, its Interest required to be purchased or sold by it within the
period specified in this Article 16, time being of the essence, in addition to
all other rights and remedies that may be available to the other Partner in such
event, the defaulting Partner shall be liable for all loss, liability, or
expense incurred by the other Partner, including without limitation, reasonable
attorneys' fees and expenses, in connection with the proposed purchase or sale
of the Interest. In addition, the Class A Limited Partner and the General
Partner acknowledge and agree that, in view of the reliance and change of
position which must necessarily result from an Initiating Partner's Notice and
Responding Partner's election to purchase or sell hereunder and the fact that
the damages which would result from a default by either Partner in its
obligation to consummate such a purchase or sale are uncertain in amount and
cannot be determined with certainty, the provisions of this Article 16 shall be
specifically enforceable by the other.
ARTICLE XVII
MISCELLANEOUS
17.1 Notices. Notices that may or are required to be given under this
-------
Amended Agreement by any Partner shall be in writing and shall be deemed given
upon (a) transmitter's confirmation of the receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier or (c) the expiration of
five business days after the day when deposited in the U.S. mail, postage
prepaid, addressed to the respective Partners at their addresses set forth on
Schedule 1 to this Amended Agreement or to any other address designated by any
Partner by notice addressed to the Partnership in the case of any Limited
Partner, and to the Partnership and the Limited Partners in the case of the
General Partner. The General Partner agrees to promptly forward to Symphony and
LLC any notice the General Partner receives under the Founders Plan or any award
agreement thereunder.
17.2 Governing Law. This Amended Agreement, and the rights of the
-------------
Partners under it shall be governed by and in accordance with the laws of the
State of Delaware without giving effect to principles of conflicts of law.
17.3 Successors and Assigns. This Amended Agreement shall inure to the
----------------------
benefit of, and shall be binding upon, the heirs, executors, administrators or
other representatives, successors, and permitted assigns of the Partners.
35.
<PAGE>
17.4 Entire Agreement. This Amended Agreement constitutes the entire
----------------
understanding and agreement of the Partners and supersedes all other prior
understandings and agreements, written or oral, among the Partners.
17.5 Counterparts; Facsimile signatures. This Amended Agreement may be
----------------------------------
executed, by original or facsimile signature, in several counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument. In the event any signature is delivered by facsimile
transmission, the Partner using such means of delivery shall cause two
additional executed signature pages to be physically delivered to the other
Partners within five days of the execution and delivery hereof.
17.6 Partners Not Agents. Nothing contained in this Amended Agreement
-------------------
shall be construed to constitute any Partner the agent of another Partner,
except as specifically provided in this Amended Agreement.
17.7 Counsel to the Partnership. By executing this Agreement, each
--------------------------
Partner acknowledges and agrees that Troy & Gould Professional Corporation
("Partnership Counsel") is counsel to the Partnership and IWN and does not
represent and shall owe no duties to any other Partner. In the event any
dispute or controversy arises between any Partner (or Affiliate of a Partner)
that Partnership Counsel represents, on the other hand, then each Partner agrees
that Partnership Counsel may represent either the Partnership or such Partner
(or an Affiliate), or both, in any such dispute or controversy to the extent
permitted by the California Rules of Professional Conduct, and each Partner
hereby consents to such representation. Each Partner further acknowledges that
Partnership Counsel has not represented the interests of any Partner other than
IWN in the preparation and negotiation of this Agreement.
IN WITNESS WHEREOF, the General Partner and the Limited Partners have
executed this Amended Agreement on the date set forth above.
GENERAL PARTNER:
IWN, INC.
By: /s/ Colleen Anderson
------------------------------
Name: Colleen Anderson
Its: President and
Chief Executive Officer
36.
<PAGE>
CLASS A LIMITED PARTNER:
SYMPHONY MANAGEMENT ASSOCIATES,
INC.
By: /s/ Richard J. Donnelly
------------------------------
Name: Richard J. Donnelly
Its: Treasurer and Secretary
37.
<PAGE>
Schedule 1
IWN, L.P.,
a Delaware Limited Partnership
Schedule of Partners
--------------------
<TABLE>
<CAPTION>
Name and Address Percentage
Of Limited Partner Interest
- ------------------ --------
<S> <C>
GENERAL PARTNERS:
IWN, Inc
5966 La Place Court
Carlsbad, CA 92008
FAX: 619-930-1174 .................................... 50%
with a copy to:
NTN Communications, Inc.
5966 La Place Court
Carlsbad, CA 92008
FAX: 619-929-5289
Attention: Laura Kass, Esq.
CLASS A LIMITED PARTNER:
Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, MD 21401
FAX: 410-573-5205 ..................................... 50%
Attention: Chief Financial Officer
with a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
FAX: 215-564-8120
Attention: William R. Sasso, Esq.
CLASS B LIMITED PARTNERS:
___________
TOTAL ............................................ 100.00%
=======
</TABLE>
<PAGE>
Schedule 2
Funding Schedule
----------------
<TABLE>
<CAPTION>
Additional
Due Date Capital Contribution
----------------- --------------------
<S> <C>
March 12, 1996... $1,149,900
April 2, 1996.... $ 550,000
July 2, 1996..... $ 250,000
October 1, 1996.. $ 300,000
January 7, 1997.. $ 100,000
April 1, 1997.... $ 300,000
----------
$2,649,900
==========
</TABLE>
<PAGE>
EXHIBIT 10.20
FIRST AMENDMENT TO THIRD AMENDED
AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF IWN, L.P.
a Delaware limited partnership
-----------------
This First Amendment (this "Amendment") is made and entered into on March
11, 1996, by and among IWN, Inc., a Delaware corporation ("IWN"), Symphony
Management Associates, Inc., a Delaware corporation ("Symphony"), and Symphony
IWN Investment LLC, a Delaware limited liability company ("LLC"), in order to
amend the Third Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"), effective as of December 31, 1995, of IWN, L.P., a
Delaware limited partnership (the "Partnership").
1. Defined Terms. Unless otherwise defined herein, all capitalized terms
-------------
used but not defined herein shall have the meanings ascribed to such terms in
the Partnership Agreement.
2. Substitution of Class A Limited Partner. Concurrently with the
---------------------------------------
execution of this Amendment, Symphony has assigned to LLC all of Symphony's
right, title and interest in and to the Partnership. In connection with and as
part of such assignment, Symphony hereby withdraws as a Class A Limited Partner
in the Partnership and LLC is hereby substituted as a Class A Limited Partner in
its place with respect to the interest so transferred.
3. Addition of Class B Limited Partners. Colleen Anderson and Edward R.
------------------------------------
Foy are hereby admitted as Class B Limited Partners in the Partnership with
respect to the respective Interests awarded to each of them pursuant to the
respective Founders Award Agreements, of even date herewith, between each of
them and the Partnership.
4. Amendment of Schedule 1. To reflect the withdrawal of Symphony and
-----------------------
substitution of LLC and the admission of Ms. Anderson and Mr. Foy as Class B
Limited Partners as aforesaid, Schedule 1 of the Partnership Agreement is hereby
amended to read in its entirety as set forth in Exhibit 1 attached hereto.
5. Counterparts. This Amendment may be executed, by original or
------------
facsimile signature, in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument. Photographic copies of such signed counterparts may be used in lieu
of the originals for any purpose.
1.
<PAGE>
6. No Other Effect. Except as set forth in this Amendment, the
---------------
Partnership Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
IWN, INC.
By: /s/ Daniel C. Downs
------------------------------
Name: Daniel C. Downs
Its: Chairman
SYMPHONY MANAGEMENT ASSOCIATES,
INC.
By: /s/ Richard J. Donnelly
------------------------------
Name: Richard J. Donnelly
Its: Treasurer and Secretary
SYMPHONY IWN INVESTMENT LLC
By: /s/ Valerie S. Hart
------------------------------
Name: Valerie S. Hart
Its: Vice President and
Secretary
2.
<PAGE>
Schedule 1
EXHIBIT 1
---------
IWN, L.P.,
a Delaware Limited Partnership
Schedule of Partners
as of March , 1996
---------------------
<TABLE>
<CAPTION>
Name and Address Percentage
Of Limited Partner Interest
- ------------------ --------
<S> <C>
GENERAL PARTNERS:
IWN, Inc
5966 La Place Court
Carlsbad, CA 92008
FAX: 619-930-1174 ..................................... 47.125%
with a copy to:
NTN Communications, Inc.
5966 La Place Court
Carlsbad, CA 92008
FAX: 619-929-5289
Attention: Laura Kass, Esq.
CLASS A LIMITED PARTNER:
Symphony IWN Investment LLC
c/o Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, MD 21401
FAX: 410-573-5205 ...................................... 47.125%
Attention: Chief Financial Officer
with a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
FAX: 215-564-8120
Attention: William R. Sasso, Esq.
CA CLASS B LIMITED PARTNERS:
Colleen Anderson
2159 Via Tiempo
Cardiff, CA 92007 ..................................... 3.00%
Edward R. Foy
2946 Avenida Valera ....................................
Carlsbad, CA 92009 .................................... 2.75%
-----
___________
TOTAL ............................................. 100.00%
=======
</TABLE>
<PAGE>
EXHIBIT 10.21
STOCK PURCHASE AGREEMENT
by and among
NTN COMMUNICATIONS, INC.
IWN, INC.
and
SYMPHONY MANAGEMENT ASSOCIATES, INC.
Dated and effective as of December 31, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. Sale and Purchase of IWN Common Stock;
Stockholders Agreement.................................... 1
1.1 Sale and Purchase of IWN Common Stock..................... 1
1.2 Stockholders Agreement.................................... 1
SECTION 2. Representations and Warranties of IWN..................... 1
2.1 Organization; Qualification............................... 1
2.2 Authorization of the Shares............................... 2
2.3 Capitalization............................................ 2
2.4 Financial Information; Absence
of Undisclosed Liabilities................................ 2
2.5 Absence of Certain Changes................................ 2
2.6 Title to Assets, Properties and Rights.................... 4
2.7 Intellectual Property Rights.............................. 4
2.8 Litigation................................................ 4
2.9 ERISA Plans............................................... 4
2.10 No Defaults............................................... 5
2.11 Equity Investments........................................ 5
2.12 Compliance................................................ 5
SECTION 3. Representations and Warranties of Symphony................ 5
3.1 Investment Intent......................................... 5
3.2 Corporate Power and Authorization
No Conflicts.............................................. 6
3.3 No Consent or Approval Required........................... 7
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4. Representations and Warranties of NTN........................ 7
4.1 Title to Shares.............................................. 7
4.2 Corporate Power and Authorization;
No Conflicts................................................. 7
4.3 No Consent or Approval Required.............................. 8
SECTION 5. Additional Agreements of IWN................................. 8
5.1 Access to Records............................................ 8
5.2 Financial Reports............................................ 8
SECTION 6. Restriction on Transfer...................................... 8
SECTION 7. Remedies..................................................... 10
SECTION 8. Successors and Assigns....................................... 10
SECTION 9. Entire Agreement............................................. 10
SECTION 10. Notices...................................................... 10
SECTION 11. Amendment.................................................... 10
SECTION 12. Counterparts................................................. 11
SECTION 13. Headings..................................................... 11
SECTION 14. Nouns and Pronouns........................................... 11
SECTION 15. Governing Law................................................ 11
EXHIBITS:
A- Form of Promissory Note .................................... A-1
B- Form of Stockholders Agreement ............................. B-1
</TABLE>
ii
<PAGE>
Symphony Management Associates, Inc.
900 Bestgate Road
Suite 400
Annapolis, Maryland 21401
Gentlemen:
The undersigned, NTN Communications, Inc., a Delaware corporation ("NTN"),
and IWN, Inc., a Delaware corporation ("IWN"), hereby agree with Symphony
Management Associates, Inc., a Delaware corporation ("Symphony"), as follows:
SECTION 1. Sale and Purchase of IWN Common Stock; Stock holders Agreement.
--------------------------------------------------------------
1.1 Sale and Purchase of IWN Common Stock. Concurrently with the
-------------------------------------
execution of this Agreement, NTN is selling and as signing to Symphony, and
Symphony is purchasing and acquiring from NTN, 100,000 shares (the "Shares") of
common stock, $.001 par value per share ("Common Stock"), of IWN for an
aggregate purchase price of $350,000, which is being paid by delivery to NTN of
a Promissory Note of Symphony in the form attached as Exhibit A to the Agreement
(the "Note"). Symphony hereby acknowledges receipt of one or more certificates
evidencing the Shares against delivery by Symphony of the Note, receipt of which
is hereby acknowledged by NTN.
1.2 Stockholders Agreement. Concurrently with the execution of this
----------------------
Agreement, the parties also are entering into a stockholders agreement,
substantially in the form attached as Exhibit B to this Agreement (the
"Stockholders Agreement").
SECTION 2. Representations and Warranties of IWN. IWN hereby represents and
-------------------------------------
warrants to Symphony as follows:
2.1 Organization; Qualification. IWN is a corporation duly organized,
---------------------------
validly existing and in good standing under the laws of the State of Delaware
and is qualified to transact business as a foreign corporation and is in good
standing in those jurisdictions, if any, wherein the character of the property
owned or leased or the nature of the activities conducted by IWN makes such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on the business, operations or financial condition of
IWN (a "Material Adverse Effect"). IWN has provided Symphony with true, correct
and complete copies of the Certificate of Incorporation and the Bylaws of IWN,
in each case, as amended to, and as in effect on, the date hereof.
1.
<PAGE>
2.2 Authorization of the Shares. The Shares have been duly authorized by
---------------------------
all requisite corporate and shareholder action of IWN, and are validly issued
and outstanding, fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, and not subject to preemptive or any other
similar rights of the shareholders of IWN or others. The Shares are owned
beneficially and of record as of the date hereof by NTN, free and clear of any
liens or encumbrances whatsoever and the transfer and delivery of the Shares by
NTN to Symphony as contemplated herein will transfer good title to the Shares
free and clear of any liens or encumbrances whatsoever.
2.3 Capitalization. The authorized capital stock of IWN immediately upon
--------------
the consummation of the transaction contemplated hereby consists of 1,000,000
shares of Common Stock, all of which shares have been validly issued and are
outstanding, fully paid and nonassessable. There are no outstanding warrants,
options, agreements, convertible securities or other commitments pursuant to
which IWN is or may become obligated to issue any shares of the capital stock or
other securities of IWN, and there are no preemptive or similar rights to
purchase or otherwise acquire shares of the capital stock of IWN pursuant to any
provision of law, the Certificate of Incorporation or the Bylaws of IWN or any
agreement to which IWN is a party or otherwise; and, except as otherwise
contemplated hereby, there is no agreement, restriction or encumbrance (such as
a right of first refusal, right of first offer, proxy, voting trust or voting
agreement) with respect to the sale or voting of any shares of capital stock of
IWN (whether outstanding or issuable upon conversion or exercise of outstanding
securities).
2.4 Financial Information; Absence of Undisclosed Liabilities. Attached
---------------------------------------------------------
hereto as Schedule 2.4 is the unaudited balance of IWN at December 31, 1995 (the
"Balance Sheet"), which presents fairly the financial condition of IWN at that
date.
2.5 Absence of Certain Changes. From the date of the Balance Sheet
--------------------------
through the date of NTN's delivery to Symphony IWN Investment LLC of the Warrant
(as defined in Section 3.1 of the Investment Agreement, dated as of even date,
among NTN, IWN and Symphony), IWN shall not suffer or permit any of the
following:
(a) any material adverse change in the business, operations, assets,
liabilities, results of operations, condition (financial or otherwise),
performance or prospects of IWN (a "Material Adverse Change");
2.
<PAGE>
(b) any borrowing or agreement to borrow funds or any material
liability incurred by IWN, other than current liabilities incurred in the
ordinary course of business;
(c) any material asset or property of IWN made subject to a lien of
any kind;
(d) any waiver of any material right of IWN, or the cancellation of
any material debt or claim held by IWN;
(e) any payment of dividends on, or other distributions with respect
to, or any direct or indirect redemption or acquisition of, any shares of the
capital stock of IWN, or any agreement or commitment therefor;
(f) any issuance of any stock, bond or other security of IWN, or any
agreement or commitment therefor (including, without limitation, options,
warrants or rights or agreements or commitments to purchase such securities or
grant such options, warrants or rights other than options issuable pursuant to
IWN employee stock option plans or agreements);
(g) any sale, assignment, pledge, license, mortgage or transfer of
any tangible or intangible assets of IWN, except in the ordinary course of
business;
(h) any loan by IWN to any officer, director, employee, consultant or
shareholder of IWN or other person, or any agreement or commitment therefor
(other than advances to such persons in the ordinary course of business in
connection with business expenses incurred on behalf of IWN);
(i) any damage, destruction or casualty loss (whether or not covered
by insurance) to any material assets or property of IWN;
(j) any transaction relating to IWN other than in the ordinary course
of business;
(k) any change in the accounting methods or practices of IWN;
(l) any liability or obligation (whether absolute or contingent)
incurred by IWN except liabilities incurred, and obligations under agreements
entered into, in the ordinary course of IWN's business;
(m) any capital expenditure or commitment for additional purchases in
excess of $10,000 in the aggregate;
(n) any agreement or commitment by IWN other than as set forth in
Schedule 2.5; or
- -------------
3.
<PAGE>
(o) any agreement entered into with respect to any of the foregoing.
2.6 Title to Assets, Properties and Rights. IWN has good and valid title
--------------------------------------
to all of the properties, interests in properties and assets, real, personal,
intangible or mixed, reflected on the Balance Sheet as being owned by IWN or
acquired after the date of the Balance Sheet (except inventory or other property
sold or otherwise disposed of since such date, in the ordinary course of
business and accounts receivable and notes receivable paid in full subsequent to
such date), free and clear of all mortgages, judgments, claims, liens, security
interests, pledges, escrows, charges or other encumbrances of any kind or
character whatsoever, except liens for current taxes not yet due and payable
(collectively, "Encumbrances"). Any material assets or properties used or
utilized by IWN which are not owned by IWN are leased or licensed to IWN under
valid, binding and enforceable agreements in full force and effect.
2.7 Intellectual Property Rights. To the best knowledge of IWN (but
----------------------------
without having conducted any special investigation or patent search), IWN owns
or possesses, has access to, or can become licensed on reasonable terms under,
all material patents, inventions, trademarks, trade names, copyrights, licenses,
trade secrets, information, proprietary rights and processes necessary for the
lawful conduct of its business as now conducted and as proposed to be conducted,
without any infringement of or conflict with the rights of others. IWN has
taken reasonable measures to protect the secrecy, confidentiality and value of
all material trade secrets, know-how, inventions, designs, processes, computer
programs and technical data required for or incident to the development,
manufacture, operation and sale of all products proposed to be sold by IWN.
2.8 Litigation. There is no action, suit, claim, arbitration, proceeding
----------
or investigation at law or in equity or by or before any Governmental Authority
(as hereinafter defined) now pending nor, to the best knowledge of IWN,
threatened against or affecting IWN. There are no judgments of any Governmental
Authority to which IWN is a party or by which any of its properties or assets
are bound.
2.9 ERISA Plans. IWN does not maintain and is not a party to (and has
-----------
never maintained or been a party to) any "employee welfare benefit plan" as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any "employee pension benefit plan" as defined in
Section 3(2) of ERISA, and IWN does not contribute (and has never contributed)
to any "multiemployer plan" as defined in Section 3(37) of ERISA or "multiple
employer plan" as defined in Section 413 of the Code.
4.
<PAGE>
2.10 No Defaults. IWN is not in default (i) under its Certificate of
-----------
Incorporation or the Bylaws of IWN, or any material indenture, mortgage, lease,
purchase or sales order, or other contract to which IWN is a party or by which
IWN or any of its properties is bound or affected or (ii) with respect to any
judgment of any Governmental Authority. To the best knowledge of IWN, there
exists no condition, event or act which constitutes, or which after notice,
lapse of time or both, would constitute, a default under any of the foregoing.
2.11 Equity Investments. IWN has had, and does not presently have, any
------------------
subsidiaries, nor has it owned, nor does it presently own, any capital stock or
other proprietary interest, directly or indirectly, in any Person other than
IWN, L.P., a Delaware limited partnership.
2.12 Compliance. To the best knowledge of IWN, IWN has (or has applied
----------
for) all governmental approvals, authoriza tions, consents, licenses and permits
necessary or required to conduct its business as presently conducted, except
those the failure of which to obtain would not have a Material Adverse Effect.
All such licenses and permits are in full force and effect and no violations
exist in respect of any such licenses or permits and no proceeding is pending
or, to the best knowledge of IWN, threatened to revoke or limit any thereof. To
the best knowledge of IWN, it is presently and at all times since its inception
has been in compliance with all laws, statutes, ordinances, rules, regulations,
certificates, permits and judgments of any Governmental Authority applicable to
IWN, its business or the ownership of its assets or properties ("Applicable
Laws").
SECTION 3. Representations and Warranties of Symphony. Symphony hereby
------------------------------------------
represents and warrants to IWN and NTN as follows:
3.1 Investment Intent.
-----------------
(a) Symphony is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act of 1933, as amended (the "Securities Act").
(b) Symphony understands that the Shares have not been registered
under the Securities Act and must be held by Symphony indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from registration thereunder.
(c) Symphony will not transfer the Shares except in compliance with
this Agreement and the Stockholders Agreement.
5.
<PAGE>
(d) Symphony has not employed any broker or finder in connection with
the transactions contemplated by this Agreement.
(e) Symphony is an "accredited investor" within the meaning of Rule
501 under the Securities Act.
(f) Symphony is experienced in the evaluation of businesses and
investments, is able to fend for itself in the transactions contemplated by this
Agreement, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of its investment in the
Shares and this Agreement, and has the ability to bear the economic risks of
such investment.
(g) During the course of the transactions contemplated hereby and
prior to the purchase of the Shares Symphony has had the opportunity to ask
questions of and receive answers from IWN concerning IWN, IWN's business and its
financial condition and prospects.
3.2 Corporate Power and Authorization; No Conflicts. Symphony has the
-----------------------------------------------
corporate power to execute, deliver and perform its obligations under this
Agreement and the Stockholders Agreement and to purchase and acquire the Shares
hereunder. The execution, delivery and performance by Symphony of this
Agreement and the Stockholders Agreement have been duly authorized by all
requisite corporate and shareholder action by Symphony, and this Agreement and
the Stockholders Agreement constitute legal, valid and binding obligations of
Symphony, enforceable against Symphony in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Stockholders Agreement and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof by Symphony will not (a)
violate or conflict with any provision of any Applicable Law, or any ruling,
writ, injunction, order, judgment or decree (a "Judgment") of any Governmental
Authority applicable to Symphony or any of its properties or assets, or the
Certificate of Incorporation or the Bylaws of Symphony, (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under any material
lease, license, franchise, contract, agreement, commitment, arrangement,
understanding or instrument, oral or written, to which the Symphony is a party
or by which its properties or assets is bound or affected or (c) result in the
creation or imposition of any material Encumbrance upon the properties or assets
of Symphony.
6.
<PAGE>
3.3 No Consent or Approval Required. No consent of any natural person,
-------------------------------
company, partnership, joint venture, corporation, business trust, unincorporated
organization or other entity (a "Person") and no consent, approval or
authorization of, or declaration to or filing with, any federal, state,
municipal or other government department, commission, board, bureau, agency or
instrumentality, or any court, arbitral tribunal or arbitrator, and any non-
governmental regulating body, to the extent that the rules and regulations or
orders of such body have the force of law, in each case whether of the United
States of America or any foreign country (a "Governmental Authority"), is or
will be required for the valid authorization, execution and delivery by Symphony
of this Agreement or the Stockholders Agreement or for the consummation of the
transactions contemplated hereby, other than those consents, approvals,
authorizations, declarations or filings which have been obtained or made, as the
case may be.
SECTION 4. Representations and Warranties of NTN. NTN hereby represents and
-------------------------------------
warrants to Symphony as follows:
4.1 Title to Shares. NTN owns the Shares, of record and beneficially,
---------------
free and clear of all encumbrances whatsoever.
4.2 Corporate Power and Authorization; No Conflicts. NTN has the
-----------------------------------------------
corporate power to execute, deliver and perform its obligations under this
Agreement and the Stockholders Agreement and to sell and deliver the Shares
hereunder. The execution, delivery and performance by NTN of this Agreement and
the Stockholders Agreement have been duly authorized by all requisite corporate
and shareholder action by NTN, and this Agreement and the Stockholders Agreement
constitute legal, valid and binding obligations of NTN, enforceable against NTN
in accordance with their respective terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof by NTN will not
(a) violate or conflict with any provision of any Applicable Law, or any
Judgment of any Governmental Authority applicable to NTN or any of its
properties or assets, or the Certificate of Incorporation or the Bylaws of NTN,
(b) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any material lease, license, franchise, contract, agreement, commitment,
arrangement, understanding or instrument, oral or written, to which the NTN is a
party or by which its properties or assets is bound or affected or (c) result in
the creation or imposition of any material Encumbrance upon the properties or
assets of NTN.
7.
<PAGE>
4.3 No Consent or Approval Required. No consent of any natural person,
-------------------------------
company, partnership, joint venture, corporation, business trust, unincorporated
organization or other entity (a "Person") and no consent, approval or
authorization of, or declaration to or filing with, any Governmental Authority,
is or will be required for the valid authorization, execution and delivery by
NTN of this Agreement or the Stockholders Agreement or for the consummation of
the transactions contemplated hereby, other than those consents, approvals,
authorizations, declarations or filings which have been obtained or made, as the
case may be.
SECTION 5. Additional Agreements of IWN.
----------------------------
5.1 Access to Records. For so long as Symphony or its affiliates shall
-----------------
hold any Shares, IWN shall afford to Symphony and its affiliates and its
employees, counsel and other authorized representatives reasonable access, upon
reasonable advance notice during normal business hours, to all of the books,
records and properties of IWN and to all officers and employees of IWN, for any
purpose reasonably related to the transactions contemplated hereby. The
investor, its employees, counsel and other authorized representatives shall use
their best efforts to maintain the confidentiality of any confidential or
propriety information of IWN so obtained by it.
5.2 Financial Reports. For so long as Symphony holds any Shares, IWN
-----------------
agrees to furnish Symphony and its affiliates with such annual and quarterly
financial statements (which need not be audited), annual budgets and other
financial information prepared in the regular course of business of IWN as
Symphony may reasonably request.
SECTION 6. Restriction on Transfer.
-----------------------
(a) The Shares shall not be sold, transferred, assigned, pledged,
encumbered or otherwise disposed of (each, a "Transfer") except upon the
conditions specified in this Section 6 or in the Stockholders Agreement, which
conditions are intended to assure compliance with the provisions of the
Securities Act.
(b) Each certificate for the Shares held by Symphony and each
certificate for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Sections 6(c)
and 6(d) below) be stamped or otherwise imprinted with a legend in substantially
the following form:
8.
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGIS TRATION OR AN EXEMPTION THEREFROM."
(c) With the exception of the Transfer of the Shares to Symphony IWN
Investment LLC, an affiliate of Symphony ("LLC"), Symphony agrees, prior to any
Transfer of any Shares, to give written notice to IWN of Symphony's intention to
effect such Transfer and to comply in all other respects with the provisions of
this Section 6. In connection with and as a condition to any Transfer of the
Shares to LLC, LLC shall agree in writing to be bound by the terms and
provisions of the Agreement and the Stockholders Agreement and shall represent
and warrant to IWN and NTN the matters set forth in Section 3. Each such notice
shall describe the manner and circumstances of the proposed Transfer and shall
be accompanied by the written opinion, addressed to IWN, of counsel for the
holder of such Shares, stating that in the opinion of such counsel (which
opinion and counsel shall be reasonably satisfactory to IWN) such proposed
Transfer does not involve a transaction requiring registration or qualification
of such Shares under the Securities Act or the securities "blue sky" laws of any
relevant state of the United States. Each certificate or other instrument
evidencing the securities issued upon the Transfer of any such Shares (and each
certificate or other instrument evidencing any untransferred balance of such
Shares) shall bear the legend set forth in Section 6(b) unless (x) in such
opinion of counsel registration of any future Transfer is not required by the
applicable provisions of the Securities Act or (y) IWN shall have waived the
requirement of such legends. Symphony shall not Transfer any Shares until such
opinion of counsel has been given (unless waived by IWN or unless such opinion
is not required in accordance with the provisions of this Section 6(c)).
(d) Notwithstanding the foregoing provisions of this Section 6, the
restrictions imposed by this Section 6 upon the transferability of any Shares
held by Symphony shall cease and terminate when (i) any such Shares are sold or
otherwise disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by Section 6(c) and, pursuant to
Section 6(c), the Shares so transferred are not required to bear the legend set
forth in Section 6(b) or (ii) the holder of such Shares has met the requirements
for Transfer of such shares pursuant to subparagraph (k) of Rule 144. Whenever
the restrictions imposed by this Section 6 shall terminate, as herein provided,
Symphony shall be entitled to receive from IWN, without expense, a new
certificate not bearing the restrictive legend
9.
<PAGE>
set forth in Section 6(b) and not containing any other reference to the
restrictions imposed by this Section 5.
SECTION 7. Remedies. In case any one or more of the covenants and agreements
--------
set forth in this Agreement shall have been breached by any Party, the non-
breaching party or parties may proceed to protect and enforce their rights
either by suit in equity or by action at law, including, but not limited to, an
action for damages as a result of any such breach, or an action for specific
performance of any such covenant or agreement contained in this Agreement, or
any combination of such remedies.
SECTION 8. Successors and Assigns. Subject to the restrictions on Transfer of
----------------------
the Shares set forth herein, this Agreement shall bind and inure to the benefit
of the parties and their respective successors and assigns.
SECTION 9. Entire Agreement. This Agreement, the Stockholders Agreement, and
----------------
that certain Investment Agreement, of even date herewith, among the parties (the
"Investment Agreement") and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
SECTION 10. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if given in the manner
specified in the Investment Agreement.
SECTION 11. Amendment. The terms and provisions of this Agreement may not be
---------
modified or amended, nor may any of the provisions hereof be waived, temporarily
or permanently, except pursuant to a written instrument executed by the parties.
SECTION 12. Counterparts. This Agreement may be executed by original or
------------
facsimile signatures, in any number of counterparts, each of which shall be
deemed to be an original instrument, but all of which together shall constitute
but one agreement.
SECTION 13. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
SECTION 14. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice-
versa.
10.
<PAGE>
SECTION 15. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed wholly therein.
Very truly yours,
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-----------------------------
Name: Patrick J. Downs
Its: President
IWN, INC.
By: /s/ Daniel C. Downs
-----------------------------
Name: Daniel C. Downs
Its: Chairman
ACCEPTED AND AGREED
TO AS OF DECEMBER 31, 1995:
SYMPHONY MANAGEMENT
ASSOCIATES, INC.
By: /s / Valerie S. Hart
-------------------------
Name: Valerie S. Hart
Its: Vice President
11.
<PAGE>
EXHIBIT 10.22
STOCKHOLDERS AGREEMENT (this "Agreement") made and entered into effective
as of December 31, 1995 by and among IWN, Inc., a Delaware corporation (the
"Corporation"), and the Shareholders (as hereinafter defined), with reference to
the following facts:
A. Each Shareholder owns or has the right to acquire that number of shares
of Stock (as herein defined) set forth opposite such Shareholder's name on
Schedule 1 hereto.
B. It is deemed to be in the best interests of the Corporation and the
Shareholders that provision be made for the continuity and stability of the
business and policies of the Corporation and, to this end, the Corporation and
the Shareholders hereby set forth their agreement with respect to the Stock
owned by the Shareholders.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
-----------
meanings indicated:
(a) "Affiliate" means, with respect to any Shareholder, any Person
that directly or indirectly Controls, is Controlled by or is under common
Control with such Shareholder.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Corporation, as in effect on the date hereof.
(d) "Change of Control" means any event or series of events
following which (a) any "person" (as defined in sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as in effect on the date hereof) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as in effect on the date hereof) of securities
or other interests representing 35% or more of the voting power of the
outstanding securities and interests of NTN; or (b) more than 50% of the members
of the Board are not continuing directors (which term, as used in this
paragraph, means the directors of NTN (i) who are directors on the date of this
Agreement, or (ii) who subsequently become directors and who were admitted,
elected, or designated as such, or whose admission, election, or nomination as
such was otherwise approved, by a vote of a majority of the continuing directors
then a director).
1.
<PAGE>
(e) "Common Stock" shall mean the common stock of the Corporation.
(f) "Control" shall mean, with respect to any Person, the power to
direct or cause the direction of the management and policies of such Person,
whether directly or indirectly, through ownership of voting securities, by
contract or otherwise.
(g) "Group" means, with respect to any Shareholder, such Shareholder
and any Affiliate of such Shareholder.
(h) "Investor" means Symphony Management Associates, Inc., a
Delaware corporation ("Symphony"), and any Affiliate thereof to which Symphony
shall transfer its Stock as permitted in this Agreement.
(i) "Non-Affiliated Person" means any Person that is not an
Affiliate of the Corporation, any Shareholder or any member of the Group of any
Shareholder.
(j) "NTN" shall mean NTN Communications, Inc.
(k) "Partnership Agreement" means the Third Amended and Restated
Agreement of Limited Partnership of IWN, L.P., a Delaware limited partnership,
as the same may be amended as provided therein.
(l) "Person" means any individual, partnership, corporation, group,
trust, joint venture or other legal entity.
(m) "Proportionate Percentage" means, the percentage of the number
of shares of Stock to which a Section 4 Offer relates that the Investor shall be
entitled to sell to the Section 4 Offeror, which shall be the percentage that
expresses the ratio, based on Common Stock equivalents, that the number of
shares of Stock owned by the Investor bears to the aggregate number of such
shares of Stock owned by all Shareholders at the date of determination.
(n) "Purchase Agreement" means the Stock Purchase Agreement, of even
date herewith, between the Shareholders.
(o) "Qualified Merger" means a merger or consolidation of the
Corporation into or with any Non-Affiliated Person or the merger or
consolidation of any Non-Affiliated Person into or with the Corporation, in
which consolidation or merger the holders of capital stock of the Corporation
(i) hold less than a majority of the voting power of the resulting or surviving
corporation and (ii) receive distributions of cash or voting common stock of the
Non-Affiliated Person as a result of such consolidation or merger in exchange
for all of the shares of capital stock of the Corporation
2.
<PAGE>
held by such holders; provided, however, that in the event that the holders of
capital stock of the Corporation are to receive voting common stock of the
offeror in any such transaction, such voting common stock must be (A) validly
registered under the Securities Act of 1993, as amended (the "Securities Act"),
and the Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provisions thereto, (B) traded on a national securities exchange or included on
the automated quotation system of the National Association of Securities
Dealers, Inc. ("NASDAQ"), and (C) immediately upon issuance to the Shareholders
in connection with such transaction, freely tradeable without any restriction
under the Exchange Act or the Securities Act or any of the rules and regulations
promulgated pursuant to such Acts (including, without limitation, Rule 144
promulgated under the Securities Act or any successor provision thereto), other
than pursuant to Rule 145 promulgated under the Securities Act or any successor
provision thereto.
(p) "Qualified Offer" means a bona fide written offer that shall (i)
be at a specified price per share of capital stock of the Corporation and on
specified terms and conditions, (ii) provide reasonably satisfactory evidence of
the offeror's financial ability to consummate the contemplated transaction, and
(iii) be structured as either a Qualified Merger, Qualified Stock Transaction or
Qualified Sale of Assets.
(q) "Qualified Public Offering" means the consummation of a bona
fide underwritten public offering of Common Stock of the Corporation at an
aggregate public offering price of not less than $5,000,000.
(r) "Qualified Sale of Assets" means the sale, lease, license,
transfer or other disposition of all or substantially all of the assets of the
Corporation as an entirety to any Non-Affiliated Person, in which transaction
the Corporation would (i) receive solely cash in consideration for such assets,
(ii) dissolve and wind up immediately following the consummation of such
transaction, and (iii) distribute the cash proceeds thereof to its shareholders.
(s) "Qualified Stock Transaction" means the Sale of all, but not
less than all, of the outstanding capital stock of the Corporation to any Non-
Affiliated Person solely in exchange for cash.
(t) "Sell" (or "Sale"), as to any Stock, means to sell, or in any
other way directly or indirectly to transfer, assign, pledge, distribute,
encumber or otherwise dispose of, either voluntarily or involuntarily and with
or without consideration, including, but not limited to, any event pursuant to
which an Affiliate which holds Stock ceases to be an Affiliate.
3.
<PAGE>
(u) "Selling Group" means any Group proposing to Sell its Stock, or
which has delivered notice of its intention to Sell its Stock, pursuant to
Sections 3, 5, 6 or 7 hereof .
(v) "Shareholders" means NTN and the Investor, and shall include any
other Person who agrees in writing with the parties hereto to be bound by and to
comply with all applicable provisions of this Agreement.
(w) "Stock" means (i) the outstanding shares of Common Stock and any
other issued and outstanding shares of capital stock of the Corporation and any
options or stock subscription warrants exercisable therefor (which options and
warrants shall be deemed to be equivalent to that number of outstanding shares
of Common Stock or other capital stock of the Corporation for which they are
convertible or exercisable), (ii) any additional shares of capital stock of the
Corporation hereafter issued and outstanding and (iii) any shares of capital
stock of the Corporation into which such shares may be converted or for which
they may be exchanged or exercised.
SECTION 2. Limitations on Sales of Stock by the Investor.
---------------------------------------------
(a) NTN and each member of the Group of NTN hereby agrees that
during the term of this Agreement it shall not Sell any Stock except:
(i) by Sale in accordance with Sections 3, 4 or 5 hereof; or
(ii) by Sale to another member of the Group of NTN; provided,
however, that the recipient of such Stock shall agree in advance in writing with
the parties hereto to be bound by and to comply with all applicable provisions
of this Agreement and to be deemed a member of such Group.
(b) The Investor and each member of the Group of the Investor hereby
agrees that during the term of this Agreement he or it shall not Sell any Stock
except:
(i) by Sale in accordance with Section 4, 6 or 7 hereof; or
(ii) by Sale to a member of the Group of the Investor;
provided, however, that the recipient of such Stock shall agree in advance in
writing with the parties hereto to be bound by and to comply with all applicable
provisions of this Agreement and to be deemed a member of such Group.
4.
<PAGE>
SECTION 3. Sale of Stock to Third Parties by NTN.
-------------------------------------
(a) In the event that NTN or any member of the Group of NTN
(collectively, the "Section 3 Offeree") receives a bona fide written offer,
other than a Qualified Offer, from a Non-Affiliated Person (the "Section 3
Offeror") to purchase from such Section 3 Offeree shares of Stock for a
specified price payable in cash or otherwise and on specified terms and
conditions, and such Section 3 Offeree desires to accept such offer, the Selling
Group shall first deliver to the Investor a written offer notice complying with
Section 8 hereof (the "Section 3 Offer Notice"), which shall be irrevocable for
a period of 30 days from the date of delivery thereof, offering (the "Section 3
Offer") to sell to the Investor all of the shares of Stock proposed to be Sold
by the Selling Group to the Section 3 Offeror (the shares so offered being
referred to herein as the "Offered Shares") at the purchase price and on the
other terms and conditions of such proposed Sale. The Investor shall thereupon
have the right and option for a period of 30 days from the date of delivery of
the Section 3 Offer Notice to accept for purchase all or, subject to Section
3(e) hereof, any portion of the Offered Shares at the purchase price and on the
terms specified therein. Such acceptance shall be made by delivering a written
notice to the Selling Group within such 30-day period.
(b) Sales of Stock under the terms of Section 3(a) above shall be
made at the offices of the Corporation on a mutually satisfactory business day
within 15 days after the expiration of the aforesaid 30-day period or, at the
option of the Investor, on such date as was proposed for Sale to the Section 3
Offeror. Delivery of certificates or other instruments evidencing such Stock
duly endorsed for transfer to the Investor shall be made on such date against
payment of the purchase price therefor.
(c) If effective acceptance shall not be received pursuant to Section
3(a) above with respect to all Offered Shares, then, subject to compliance with
Section 4 hereof, the Selling Group may Sell all or any part of the remaining
Offered Shares, if any, not so offered to be purchased to the Section 3 Offeror
at the price and on the identical terms stated in the original Section 3 Offer
Notice, at any time within 90 days after the expiration of the Section 3 Offer.
In the event the remaining Offered Shares are not Sold by the Selling Group to
the Section 3 Offeror during such 90-day period, the right of the Selling Group
to Sell such remaining Offered Shares to the Section 3 Offeror shall expire and
the obligations of this Section 3 shall be reinstated; provided, however, that
if the Selling Group determines, at any time during such 90-day period, that the
sale of all or any part of such Offered Shares on the terms set forth in the
Section 3 Offer Notice is impractical, then they can terminate the offer and
reinstate the procedures provided in this Section 3 without waiting for the
expiration of such 90-day period.
5.
<PAGE>
(d) The Selling Group may specify in the Section 3 Offer Notice that
all Offered Shares must be sold, in which case an acceptance received pursuant
to Section 3(a) shall be deemed conditioned upon receipt of written notices of
acceptance with respect to all such Offered Shares or the Sale of the remaining
Offered Shares, if any, pursuant to Section 3(c) above.
(e) Anything contained herein to the contrary notwithstanding, NTN
and any member of the Group of NTN shall, in addition to complying with the
provisions of this Section 3 in the event of a proposed sale of Stock, comply
with the provisions of Section 4 hereof.
SECTION 4. Investor's Right of Co-Sale. In the event that NTN or any
---------------------------
member of the Group of NTN holding Stock (collectively, the "Section 4 Offeree")
receives a bona fide written offer other than a Qualified Offer (the "Section 4
Offer") from a Non-Affiliated Person (the "Section 4 Offeror") to purchase from
such Section 4 Offeree shares of Stock for a specified price payable in cash or
otherwise and on specified terms and conditions, and such Section 4 Offeree
desires to accept such offer, such Section 4 Offeree shall promptly forward a
notice complying with Section 8 hereof (the "Section 4 Offer Notice") to the
Investor. Subject to Sections 3(b) and (c), the Section 4 Offeree shall not
Sell any Stock to the Section 4 Offeror unless the terms of the Section 4 Offer
are extended to the Investor with respect to its Proportionate Percentage of the
aggregate number of shares of Stock (based on Common Stock equivalents) held by
it to which the Section 4 Offer relates, whereupon the Investor shall be
entitled to Sell to the Section 4 Offeror pursuant to the Section 4 Offer all of
such shares of Stock. The Section 4 Offeree and the Investor shall bear all
costs and expenses incurred in connection with the consummation of the Sale of
Stock to the Section 4 Offeror pro rata in accordance with their proportionate
percentage of the aggregate number of shares of Stock sold to the Section 4
Offeror. The Investor shall have the right and option for a period of 30 days
from the date of delivery of the Section 4 Offer Notice to sell all or any
portion of such shares of Stock to the Section 4 Offeror at the purchase price
and on the terms specified therein. Such acceptance shall be made by delivering
a written notice to the Section 4 Offeree within such 30-day period. Anything
contained herein to the contrary notwithstanding, in the event that a Section 4
Offeree receives a bona fide written offer to purchase from such Section 4
Offeree shares of Stock pursuant to a Qualified Offer, such Section 4 Offeree
shall have the right to accept such Qualified Offer without complying with the
other provisions of this Section 4.
SECTION 5. Investor's Obligation to Purchase Stock.
---------------------------------------
(a) If NTN or any member of the Group of NTN holding
6.
<PAGE>
Stock receives a Qualified Offer (the "Section 5 Offer"), which NTN and each
member of the Group of NTN desires to accept, from any Non-Affiliated Person
(the "Section 5 Offeror"), written notice of which shall be sent promptly by NTN
to the Corporation and the Investor, and each of the following conditions is
satisfied (the "Section 5 Trigger Event"):
(i) the Section 5 Offer is approved by (A) the Board and (B) (x)
in the case of a Qualified Merger or Qualified Sale of Assets, the holders of
Common Stock (excluding the Investor) entitled to vote on such transaction,
including, without limitation, the Selling Group, in each case, in accordance
with the applicable provisions of the Delaware General Corporation Law (the
"GCL"), the Certificate of Incorporation and the By-laws of the Corporation (the
"By-laws") or (y) in the case of a Qualified Stock Transaction, the Selling
Group by means of a notice to the Corporation in writing of its intention to
Sell its Stock to the Section 5 Offeror; but
(ii) the transaction(s) contemplated by the Qualified Offer
cannot be legally consummated because the Investor either (A) in the case of a
Qualified Merger or Qualified Sale of Assets, fails to approve of such Qualified
Merger or Qualified Sale of Assets, as the case may be, pursuant to Section 11
hereof or (B) in the case of a Qualified Stock Transaction, notifies the
Corporation in writing of its determination not to Sell its Stock to the Section
5 Offeror;
then, concurrently with the occurrence of such Section 5 Trigger Event, the
Investor shall have the obligation to purchase, and the Selling Group shall have
the obligation to sell, all, but not less than all, of the shares of Stock held
by the Selling Group at a per share purchase price (the "Section 5 Purchase
Price") in cash equal to the Fair Market Value (as defined below) of the
consideration that the Selling Group would have received for each share of its
Stock (on a Common Stock equivalents basis) had the Section 5 Offer been
accepted and the transaction(s) contemplated thereby consummated in accordance
with the terms of the Section 5 Offer. For purposes hereof, the Section 5
Trigger Event shall be deemed to have occurred on the date that all of the
conditions set forth in this Section 5(a) have been satisfied.
(b) In determining the fair market value (the "Fair Market Value") of
the consideration which would be payable to the holders of Stock pursuant to any
Qualified Offer, the following provisions shall be applicable:
(i) cash shall be valued at the face value thereof;
(ii) the value of one share of voting common stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending on the fifth business day
7.
<PAGE>
before the day the Selling Group received the Qualified Offer (as adjusted for
any stock dividend, split-up, combination or reclassification that took effect
during such 30 business day period). The closing price for each day shall be the
last reported sales price or, in case no such reported sales took place on such
day, the average of the last reported bid and asked prices, in either case on
the principal national securities exchange on which such common stock is listed
or admitted to trading (or if such common stock is not at the time listed or
admitted for trading on any such exchange, then such price as shall be equal to
the last reported sale price, or if there is no such sale price, the average of
the last reported bid and asked prices, as reported by NASDAQ on such day, or
if, on any day in question, the security shall not be quoted on the NASDAQ, then
such price shall be equal to the last reported bid and asked prices on such day
as reported by the National Quotation Bureau, Inc. (or any similar reputable
quotation and reporting service, if such quotation is not reported by the
National Quotation Bureau, Inc.); and
(iii) all consideration shall be net of any applicable selling
expenses, withholding taxes and similar charges and expenses.
(c) Any purchase of Stock by the Investor pursuant to this Section 5
shall be made at the offices of the Corporation on a mutually satisfactory
business day within 45 days following the date of the Section 5 Trigger Event.
Delivery of certificates representing Stock purchased hereunder shall be made
against payment of the Section 5 Purchase Price for the Stock evidenced thereby.
SECTION 6. NTN's Obligation to Purchase Stock.
----------------------------------
(a) If the Investor or any member of the Group of the Investor
receives a Qualified Offer (the "Section 6 Offer"), which the Investor and each
member of the Group of the Investor desires to accept, from any Non-Affiliated
Person (the "Section 6 Offeror"), written notice of which shall be sent promptly
by the Investor to the Corporation and NTN, and each of the following conditions
is satisfied (the "Section 6 Trigger Event"):
(i) the Selling Group either (A) in the case of a Qualified
Merger or Qualified Sale of Assets, votes all of its shares of Stock in favor of
such Qualified Merger or Qualified Sale of Assets, as the case may be, or (B) in
the case of a Qualified Stock Transaction, notifies the Corporation in writing
of its or his intention to Sell its Stock to the Section 6 Offeror; but
(ii) the transaction(s) contemplated by the Qualified Offer
cannot be legally consummated because NTN and each member of the Group of NTN
either (A) in the case of a Qualified
8.
<PAGE>
Merger or Qualified Sale of Assets, votes all of its shares of Stock against, or
otherwise fails to approve, such Qualified Merger or Qualified Sale of Assets,
as the case may be, and as a result thereof, such Qualified Merger or Qualified
Sale of Assets is not approved by the requisite percentage of the shareholders
of the Corporation entitled to vote on such transaction in accordance with the
applicable provisions of the GCL, the Certificate of Incorporation and the
By-laws or (B) in the case of a Qualified Stock Transaction, notifies the
Corporation in writing of its determination not to Sell its Stock to the Section
6 Offeror;
then, concurrently with the occurrence of such Section 6 Trigger Event, the
Corporation and NTN shall have the joint and several obligation to purchase, and
the Selling Group shall have the obligation to sell, all, but not less than all,
of the shares of Stock held by the Selling Group (including shares of Common
Stock issuable upon exercise of the Warrant) at a per share purchase price (the
"Section 6 Purchase Price") in cash equal to the Fair Market Value of the
consideration that the Selling Group would have received for each share of its
Stock (on a Common Stock equivalents basis) had the Section 6 Offer been
accepted and the transaction(s) contemplated thereby consummated in accordance
with the terms of the Section 6 Offer. For purposes hereof, the Section 6
Trigger Event shall be deemed to have occurred on the date that all of the
conditions set forth in this Section 6(a) have been satisfied.
(b) Any purchase of Stock by the Corporation or NTN pursuant to this
Section 6 shall be made at the offices of the Corporation on a mutually
satisfactory business day within 45 days following the date of the Section 6
Trigger Event. Delivery of certificates representing Stock purchased hereunder
shall be made against payment of the Section 6 Purchase Price for the Stock
evidenced thereby.
SECTION 7. Procedures on Sale of Stock to Third Parties by Investor.
--------------------------------------------------------
(a) In the event that the Investor or any member of the Group of the
Investor (collectively, the "Section 7 Offeree") receives a bona fide written
offer, other than a Qualified Offer, from a Non-Affiliated Person (the "Section
7 Offeror") to purchase from such Section 7 Offeree shares of Stock for a
specified price payable in cash or otherwise and on specified terms and
conditions, and such Section 7 Offeree desires to accept such offer, the Selling
Group shall first deliver to NTN a written offer notice complying with Section 8
hereof (the "Section 7 Offer Notice"), which shall be irrevocable for a period
of 30 days from the date of delivery thereof, offering (the "Section 7 Offer")
to sell to NTN all of the shares of Stock proposed to be Sold by the Selling
Group to the Section 7 Offeror (the shares so offered being referred to herein
as the "Offered Shares") at the purchase price and on the
9.
<PAGE>
other terms and conditions of such proposed Sale. NTN shall thereupon have the
first right and option as to all (but not part) of the Offered Shares for a
period of 30 days after delivery of the Section 7 Offer Notice, to accept for
purchase (subject to Section 7(e) hereof) the Offered Shares at the purchase
price and on the terms specified therein. Such acceptance NTN shall be made
within said 30-day period by delivering a written notice to the Investor.
(b) Sales of Stock under the terms of Section 7(a) shall be made at
the offices of the Corporation on a mutually satisfactory business day within 15
days after the expiration of the latest of the aforesaid periods. Delivery of
certificates or other instruments evidencing such Stock duly endorsed for
transfer to NTN shall be made on such date against payment of the purchase price
therefor.
(c) Subject to Section 7(e) hereof, if effective acceptance shall not
be received pursuant to Section 7(a) with respect to all the Offered Shares,
then, at any time within 90 days after the expiration of the offer required by
Sections 4(a), the Selling Group may sell all or any part of the Offered Shares
not to be purchased pursuant to Section 7(a) to any Person or Persons. Any such
sale shall be made at a price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the original
Section 7 Offer Notice. If such Offered Shares are not sold by the Selling
Group during such 90-day period, their right to Sell such Offered Shares shall
expire and the obligations of this Section 7 shall be reinstated; provided,
however, that if the Selling Group determines, at any time during such 90-day
period, that the sale of all or any part of such Offered Shares on the terms set
forth in the Section 7 Offer Notice is impractical, then they can terminate the
offer and reinstate the procedures provided in this Section 7 without waiting
for the expiration of such 90-day period.
(d) Anything contained herein to the contrary notwithstanding, any
purchaser of Stock pursuant to this Section 7 who is not a Shareholder shall
agree in writing in advance with the parties hereto to be bound by and to comply
with all applicable provisions of this Agreement and shall be deemed to be an
Investor for all purposes of this Agreement.
(e) The Investor may specify in the Section 7 Offer Notice that all
of the Offered Shares must be sold, in which case acceptances received pursuant
to Section 7(a) shall be deemed conditioned upon (i) receipt of written notices
of acceptance with respect to all of the Offered Shares and/or (ii) the Sale of
the remaining Offered Shares, if any, pursuant to Section 7(c) above.
10.
<PAGE>
SECTION 8. Notice of Offer From Non-Affiliated Persons. Any notice
-------------------------------------------
required to be delivered pursuant to Sections 3, 4, 5, 6 or 7 in respect of any
offer received from a Non-Affiliated Person shall set forth (i) the name and
address of the offeree, (ii) the name and address of the Non-Affiliated Person,
(iii) the number of shares of Stock (based on Common Stock equivalents) to which
the offer relates, (iv) the proposed date of Sale of such shares of Stock to the
Non-Affiliated Person, (v) the proposed amount and type of consideration
(including, if the consideration consists in whole or in part of non-cash
consideration, such information available to the offeree as may be reasonably
necessary for the Investor or NTN, as the case may be, to properly analyze the
economic value and investment risk of such non-cash consideration) and the terms
and conditions of payment offered by the Non-Affiliated Person, and (vi) all
other relevant terms of the proposed Sale. The Selling Group shall also furnish
to the Investor or NTN, as the case may be, such additional information relating
to the offer and/or the Non-Affiliated Person as may reasonably be requested by
the Investor or NTN, as the case may be.
SECTION 9. Election of Directors. On or before the date of NTN's delivery
---------------------
to Symphony IWN Investment LLC of the Warrant (as defined in the Investment
Agreement as hereinafter defined), Richard J. Donnelly shall be appointed by the
Board to serve as a director of the Corporation until the next annual meeting of
stockholders of the Corporation and until his or her successor is duly elected
and qualified. Unless NTN and Investor shall otherwise agree, thereafter the
Board of Directors of the Corporation shall at all times during the term of this
Agreement consist of three persons, two of whom shall be nominated by NTN and
one of whom shall be nominated by Investor as provided in this Section 9. At
each annual meeting of the holders of the capital stock of the Corporation, and
at each special meeting of the holders of the capital stock of the Corporation
called for the purpose of electing directors of the Corporation, and at any time
at which holders of the capital stock of the Corporation shall have the right
to, or shall, vote for or consent in writing to the election of directors of the
Corporation, including, but not limited to, upon the occurrence of any vacancy
created on the Board, then, and in each such event, NTN, each member of the
Group of NTN, the Investor and each member of the Group of the Investor shall
vote or cause to be voted all shares of Stock owned by them for, or consent in
writing with respect to such shares in favor of, the election of a Board
consisting of three persons, one of whom shall be the nominee of the Investor,
and two of whom shall be nominees of NTN.
SECTION 10. Establishment of Executive Committee. The Board shall at all
------------------------------------
times during the term of this Agreement establish and maintain in existence an
Executive Committee to which it shall
11.
<PAGE>
delegate all rights, responsibilities and powers of the Board of Directors (and
only such rights, powers and responsibilities) to review, consider and approve
of those matters enumerated in Section 6.2(c) of the Partnership Agreement and
such other matters, if any, as the Board may hereafter delegate to it. Except as
the Shareholders and the Corporation may otherwise agree in writing, such
Executive Committee shall at all times consist of such members and act in the
manner specified in the Partnership Agreement.
SECTION 11. Investor Approval Rights. The Corporation shall not, and NTN
------------------------
and each member of the Group of NTN shall not suffer or permit the Corporation
to, directly or indirectly, without the affirmative vote or prior written
approval of the holders of not less than a majority of the shares of Stock held
by the Investor and permitted transferees of the Investor, adopt or undertake
any of the following actions:
(a) sell, abandon, transfer, lease, license or otherwise dispose of
all or substantially all of the Corporation's properties or assets, or merge or
consolidate with or into, or permit any subsidiary of the Corporation to merge
with or into, any other person; or
(b) authorize, create, designate, issue or sell any shares of capital
stock (including any shares of treasury stock) or rights, options, warrants or
other securities convertible into or exercisable or exchangeable for capital
stock or any debt security which by its terms is convertible into or
exchangeable for any equity security or has any other equity feature or any
security that is a combination of debt and equity or enter into any commit ment
to do the same, provided, however, that the restrictions contained in this
subsection (a) shall not apply to a Qualified Public Offering; or
(c) take any action to voluntarily liquidate, dissolve or wind up or
carry out any partial liquidation or dissolution or transaction in the nature of
a partial liquidation or dissolution; or
(d) declare or pay any dividends or make any distribution of cash or
property or both to holders of shares of capital stock or other securities of
the Corporation or repurchase, retire or redeem any shares of capital stock
except pursuant to the exercise of the Put Option (as defined in the Investment
Agreement, dated as of December 31, 1995, by and among the Corporation, NTN and
the Investor (the "Investment Agreement")), provided, however, that the
restriction contained in this subsection (b) shall not preclude the Board from
(A) declaring dividends on a pro rata basis to holders of shares of Stock or (B)
complying with the terms of any shares of capital stock which may be issued in
accordance with the terms hereof; or
12.
<PAGE>
(e) in any manner alter or change the designation, powers,
preferences or rights, or the qualifications, limitations or restrictions of,
the Common Stock; or
(f) take any action to cause any amendment, alteration or repeal of
any of the provisions of the Certificate of Incorporation or of the By-laws; or
(g) enter into any "Insider Transaction" (as defined in the
Investment Agreement); or
(h) enter into or become subject to any agreement which restricts or
purports to restrict the Corporation from engaging or otherwise competing in any
aspect of its business anywhere in the world or which otherwise limits the
business in which the Corporation may engage or compete; or
(i) other than as contemplated in the Corporation's Operating Budget
as in effect from time to time and except for trade debt incurred in the
ordinary course of business, incur, create or assume any indebtedness; or
(j) incur, create, assume or suffer or permit to exist on any of its
properties or assets or any income or rights any lien or encumbrance with
respect to liabilities or obligations in excess of $25,000, excluding for
purposes of calculating the amount of such liens and encumbrances the value of
any liens and encumbrances in connection with indebtedness permitted under
subsection (i) above; or
(k) sell, transfer, assign, license, lease or otherwise dispose of
any material assets or properties or other rights of the Corporation having a
value in excess of $25,000 in any fiscal year of the Corporation other than as
contemplated in the Operating Budget and except inventory in the ordinary course
of business; or
(l) purchase or otherwise acquire for value, directly or
beneficially, any assets, properties or securities of any other person having a
value in excess of $25,000, or make any loans or advances to, any other person
having a value in excess of $25,000; or
(m) make any investment or acquire any interest whatsoever in any
other person other than the Partnership; or
(n) make any payment of any compensation, directly or indirectly, in
cash, shares of capital stock or otherwise to any employee of the Corporation
other than as provided for in such employee's employment agreement;
13.
<PAGE>
(o) make any capital expenditures (as such term is defined in
accordance with generally accepted accounting principles) in an amount in excess
of $25,000 other than as contemplated in the Operating Budget; or
(p) engage in any business activities other than its activities as
General Partner of IWN, L.P.
SECTION 12. Legend on Stock Certificates. Each certificate representing
----------------------------
shares of Stock held by the Shareholders shall bear a legend containing the
following words:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF THE HOLDER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IN RESPECT OF THE ELECTION OF
DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCKHOLDERS
AGREEMENT DATED AS OF DECEMBER 31, 1995, AMONG IWN, INC. AND CERTAIN
HOLDERS OF THE OUTSTANDING SECURITIES OF SUCH CORPORATION. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF IWN, INC."
SECTION 13. Additional Shares of Stock. In the event additional shares of
--------------------------
Stock are issued by the Corporation to a Shareholder at any time during the term
of this Agreement, either directly or upon the exercise or exchange of
securities of the Corporation exercisable for or exchangeable into shares of
Stock, such additional shares of Stock shall, as a condition to such issuance,
become subject to the terms and provisions of this Agreement.
SECTION 14. Change of Control. In the event of a Change of Control (the
-----------------
date of such occurrence being the "Change of Control Date"), the Corporation
shall, within 5 days of the Change of Control Date, notify the Investor in
writing (such notification being referred to herein as the "Notice") of such
occurrence and shall make an offer to redeem (the "Change of Control Offer") all
shares of Stock owned by Investor and any of Investor's trans ferees, in
exchange for the transfer by the Corporation to Investor and such transferees of
a portion of the Corporation's interest in IWN, L.P. representing an aggregate
Percentage Interest (as defined in the Partnership Agreement) equal to the
proportion of the Corporation's aggregate Percentage Interest on the date of the
Notice that the number of shares of Stock then owned by Investor and such
transferees bears to the total number of shares of Stock. Upon such issuance,
Investor and any such transferees shall be substituted as limited partners of
IWN, L.P. with respect to the interests so transferred. The Change of Control
Offer shall expire if the Corporation does not receive notice of the Investor's
acceptance thereof within 30 days of Investor's receipt of the
14.
<PAGE>
Notice.
SECTION 15. Duration of Agreement. This Agreement shall terminate on
----------------------------------
the consummation of a Qualified Public Offering; provided, however, that the
rights and obligations of each Shareholder under this Agreement shall terminate
as to such Shareholder upon the earlier transfer in compliance with the terms of
this Agreement of all Stock owned by such Shareholder. The parties hereto shall
act in good faith and shall refrain from taking any actions to circumvent or
frustrate the provisions of this Agreement. Each of the Shareholders agrees to
execute and deliver any such documents or instruments and to take any such
actions as shall be reasonably necessary to carry out the terms of this
Agreement.
SECTION 16. Severability; Governing Law. If any provisions of this
---------------------------
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts made
and to be performed wholly therein.
SECTION 17. Assignment, Successors and Assigns. Except as otherwise
----------------------------------
specifically provided in this Agreement, this Agreement may not be assigned by
any party without the prior written consent of the other parties. This
Agreement shall bind and inure to the benefit of the parties and their
respective permitted successors and assigns, legal representatives and heirs.
SECTION 18. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy or sent by
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or at such other address as may hereafter be designated
in writing by such party to the other parties:
(i) if to the Corporation or NTN:
NTN Communications, Inc.
5966 La Place Court
Carlsbad, CA 92008
Telecopy: (619) 929-5289
Attention: President
15.
<PAGE>
with a copy to:
Troy & Gould
1801 Century Park East
16th Floor
Los Angeles, CA 90067
Telecopy: (310) 201-4746
Attention: William D. Gould, Esq.
(ii) if to the Investor:
Symphony Management Associates, Inc.
900 Best Road
Suite 400
Annapolis, MD 21401
Telecopy: (410) 573-5205
Attention: Chief Financial Officer
with a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Telecopy: (215) 564-8120
Attention: William R. Sasso, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 19. Modification. Except as otherwise provided herein, neither
------------
this Agreement nor any provisions hereof can be modified, changed, discharged or
terminated except by an instrument in writing signed by the Corporation, and the
Shareholders.
SECTION 20. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 21. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
16.
<PAGE>
SECTION 22. Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements and understandings with respect
thereto.
SECTION 23. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 24. Attorneys' Fees. In the event that any party hereto brings an
---------------
action or proceeding for a declaration of the rights of the parties under this
Agreement, for injunctive relief, for an alleged breach or default of, or any
other action arising out of, this Agreement or the transactions contemplated
hereby, or in the event any party is in default of its obligations pursuant
hereto, whether or not suit is filed or prosecuted to final judgment, the
prevailing party in any such action or proceeding shall be entitled to
reasonable attorneys' fees, in addition to any court costs incurred and in
addition to any other damages or relief awarded.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
IWN, INC.
By: /s/ Daniel C. Downs
-----------------------------------
Name: Daniel C. Downs
Its: Chairman
SHAREHOLDERS:
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
------------------------------
Name: Patrick J. Downs
Its: President
SYMPHONY MANAGEMENT ASSOCIATES, INC.
By: /s/ Valerie S. Hart
------------------------------
Name: Valerie S. Hart
Its: Vice President
17.
<PAGE>
SCHEDULE 1
# of shares
of Common Stock
---------------
NTN Communications, Inc. 900,000
Symphony Management Associates, Inc. 100,000
18.
<PAGE>
EXHIBIT 10.23
REGISTRATION RIGHTS AGREEMENT (this "Agreement") made and entered into as
of March 11, 1996, by and between NTN Communications, Inc., a Delaware
corporation (the "Corporation"), and Symphony IWN Investment LLC (the
"Investor"), with reference to the following facts:
A. The Investor has the right to acquire shares of the common stock,
$.005 par value per share, of the Corporation (the "Common Stock") pursuant to a
Warrant to Purchase Common Stock of even date.
B. The Corporation and the Investor desire to set forth the Investor's
rights in connection with certain public offerings and sales of the Common
Stock.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the Corporation and the Investor hereby
agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
(a) "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
(c) "Investment Agreement" means Investment Agreement, of even date
herewith, among the Corporation, IWN, Inc. and the Investor.
(d) "Other Shares" means at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
(e) "Person" shall mean any individual, corporation, partnership,
limited liability company, trust, estate, association, cooperative, government
or governmental entity or any other entity.
(f) "Primary Shares" means at any time the authorized but unissued
shares of Common Stock.
(g) "Registrable Shares" means (i) the shares of Common Stock or
other securities issued or issuable upon the exercise of the Warrant ("Warrant
Shares") or (ii) any Common Stock or other securities issued or issuable with
respect to the Warrant Shares by way of a stock dividend or stock split or in
connection with a
1.
<PAGE>
combination of shares, recapitalization, merger, consolidation or other
reorganization held by the Investor. For purposes of this Agreement, a Person
shall be deemed to be a holder of Registrable Securities whenever such Person
has a right to acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restriction or limitation upon the exercise of such right),
whether or not such acquisition has been effected.
(h) "Registration Date" means the date upon which the registration
statement pursuant to which the Corporation shall have initially registered
shares of Common Stock under the Securities Act for sale to the public shall
have been declared effective.
(i) "Restricted Shares" means at any time the shares of Common Stock
held by the Investor which have been acquired upon exercise of the Warrant and
which theretofore have not been sold to the public pursuant to a registration
statement under the Securities Act or pursuant to Rule 144.
(j) "Rule 144" means Rule 144 promulgated under the Securities Act or
any successor rule thereto or any complementary rule thereto (including Rule
144A under the Securities Act), all as the same shall be in effect from time to
time.
(k) "Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, as the same shall be in effect from time to time.
(l) "Transfer" means any disposition of any Restricted Shares (or of
any interest therein) which would constitute a sale thereof within the meaning
of the Securities Act, other than any such disposition pursuant to an effective
registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
(m) "Warrant" means the Warrant to Purchase Common Stock of the
Corporation purchased by the Investor pursuant to the Investment Agreement.
SECTION 2. Demand Registration. On or before May __, 1996, the
-------------------
Corporation shall file a Registration Statement on Form S-3 under the Securities
Act covering all of the Warrant Shares and use its best efforts to cause such
Registration Statement to thereafter be declared effective under the Securities
Act (a "Demand Registration"). The registration shall not be counted as a
Demand Registration until it has become effective with respect to all of the
Warrant Shares; provided, however, that in any event the Corporation shall pay
all Registration Expenses (as defined in Section 5 herein) in connection with
any registration initiated as a Demand Registration pursuant to this Section 2
whether or not it has become effective. The foregoing notwithstanding, the
Corpo-
2.
<PAGE>
ration shall not be obligated to effect a Demand Registration except in
accordance with the following provisions:
(a) the Corporation shall not be obligated to file and cause to
become effective (i) more than one registration statement initiated pursuant to
this Section 2 pursuant to which all Warrant Shares have been effectively
registered for sale thereunder (irrespective of whether they are so sold);
(b) with respect to any registration pursuant to this Section 2, the
Corporation may include in such registration any Primary Shares or Other Shares;
provided, however, that if the managing underwriter advises the Corporation that
- -------- -------
the inclusion of all Warrant Shares, Primary Shares and Other Shares proposed to
be included in such registration would interfere with the successful marketing
(including pricing) of the Registrable Shares proposed to be included in such
registration, then the number of Warrant Shares, Primary Shares and Other Shares
proposed to be included in such registration shall be included in the following
order:
(i) first, the Warrant Shares;
(ii) second, the Primary Shares; and
(iii) third, the Other Shares; and
(c) the distribution of Warrant Shares, Primary Shares and Other
Shares, if any, to be included in such registration shall be effected by means
of a firm commitment underwriting, and the Corporation, the Investor and any
holders of Other Shares to be registered by such registration statement shall
enter into an underwriting agreement in customary form with a managing
underwriter selected for such underwriting by the Investor from a list of such
underwriters provided by the Investor to the Corporation for its approval, which
shall not unreasonably be withheld.
SECTION 3. Piggyback Registration. (a) If the Corporation proposes for
----------------------
any reason to register Primary Shares or Other Shares under the Securities Act
(other than on Form S-4, Form S-8 or other limited-purpose form promulgated
under the Securities Act) at any time at which all Warrant Shares have not
theretofore been included in a registration statement under Section 2, it shall
promptly give written notice to the Investor of its intention to do so and, upon
the written request, given within 15 days after delivery of any such notice by
the Corporation, of the Investor to include in such registration any such
Warrant Shares or other Registrable Shares (which request shall specify the
number of Registrable Shares proposed to be included in such registration), the
Corporation shall use its best efforts to cause all such Registrable Shares to
be included in such registration on the same terms and conditions as the
securities otherwise being sold in such registration ("Piggyback Registration");
provided, however, that if the managing underwriter advises the Corporation or
- -------- -------
the Board of Directors of
3.
<PAGE>
the Corporation otherwise determines in good faith that the inclusion of all
Registrable Shares or Other Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of Primary
Shares proposed to be registered by the Corporation, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(i) first, the Primary Shares; and
-----
(ii) second, the Registrable Shares and the Other Shares
------
requested to be included in such registration pro rata in accordance with the
total number of such Registrable Shares and Other Shares.
(b) If the distribution of Primary Shares, Registrable Shares and
Other Shares, if any, to be included in such registration is to be effected by
means of an underwriting, the Corporation, the Investor and any holders of Other
Shares to be registered by such registration statement shall enter into an
underwriting agreement in customary form with a managing underwriter selected
for such underwriting by the Corporation.
SECTION 4. Preparation and Filing. If and whenever the Corporation is
----------------------
under an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Corporation
shall, as expeditiously as practicable:
(a) use its best efforts to cause a registration statement that
registers such Registrable Shares to become and remain effective until all of
such Registrable Shares have been disposed of;
(b) furnish, at least three business days before filing a
registration statement that registers such Registrable Shares, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to the Investor's counsel (which documents
shall be subject to the review and comment of such counsel), copies of all such
documents proposed to be filed (it being understood that such three-business-day
period need not apply to successive drafts of the same document proposed to be
filed so long as such successive drafts are supplied to the Investor's counsel
in advance of the proposed filing by a period of time that is customary and
reasonable under the circumstances);
(c) prepare and file with the Commission 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
until all of such Registrable Shares have been disposed of, to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of such Registrable Shares and notify each holder of Registrable
4.
<PAGE>
Shares of the effectiveness of each registration statement filed hereunder;
(d) notify in writing the Investor's counsel promptly (i) of the
receipt by the Corporation of any notification with respect to any comments by
the Commission with respect to such registration statement or prospectus or any
amendment or supplement thereto or any request by the Commission for the
amending or sup plementing thereof or for additional information with respect
thereto, (ii) of the receipt by the Corporation of any notification with respect
to the issuance by the Commission of any stop order suspending the effectiveness
of such registration statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that purpose and
(iii) of the receipt by the Corporation of any notification with respect to the
suspension of the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes;
(e) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as the
Investor reasonably requests and do any and all other acts and things which may
be reasonably necessary or advisable to enable the Investor to consummate the
disposition in such jurisdictions of the Registrable Shares; provided, however,
-------- -------
that the Corporation will not be required to qualify generally to do business,
subject itself to general taxation or consent to general service of process in
any jurisdiction where it would not otherwise be required to do so but for this
paragraph (e);
(f) furnish to the Investor such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as the Investor may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Corporation
to enable the Investor to consummate the disposition of such Registrable Shares;
(h) notify the Investor on a timely basis at any time when a
prospectus relating to such Registrable Shares is required to be delivered under
the Securities Act within the appropriate period mentioned in subparagraph (a)
of this Section 3, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request of
the Investor, prepare and furnish to the Investor a reasonable number of copies
of a sup-
5.
<PAGE>
plement to or amendment of such prospectus as may be necessary so that, as
thereafter delivered to the offerees of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) make available for inspection by the Investor, any underwriter
participating in any disposition pursuant to such registration statement and
any attorney, accountant or other agent retained by the Investor or any
underwriter (collectively, the "Inspectors"), all pertinent financial and other
records, pertinent corporate documents and properties of the Corporation
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Corporation's
officers, directors and employees to supply all information (together with the
Records, the "Information") reasonably requested by any such Inspectors in
connection with such registration statement. Any of the Information which the
Corporation determines in good faith to be confidential, and of which
determination the Inspectors are so notified, shall not be disclosed by the
Inspectors unless (i) the disclosure of such Information is necessary to avoid
or correct a misstatement or omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (iii) such Information has been made
generally available to the public. the Investor agrees that it will, upon
learning that disclosure of such Information is sought in a court of competent
jurisdiction, give notice to the Corporation and allow the Corporation, at the
Corporation's expense, to undertake appropriate action to prevent disclosure of
the Information deemed confidential;
(j) use its best efforts to obtain from its independent certified
public accountants "cold comfort" letters in customary form and at customary
times and covering matters of the type customarily covered by cold comfort
letters;
(k) use its best efforts to obtain from the Corporation's counsel an
opinion or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the same
entity and which may be the Corporation) for such Registrable Shares;
(m) issue to any underwriter to which the Investor may sell shares in
such offering certificates evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities exchange
on which any shares of the Common Stock are listed or, if the Common Stock is
not listed on a national securities exchange, use its best efforts to qualify
such Registrable Shares for inclusion on the Automated Quotation System of
6.
<PAGE>
the National Association of Securities Dealers, Inc. (the "NASDAQ") or such
other national securities exchange as the Investor shall request;
(o) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make available to its
securityholders, as soon as reasonably practicable, earnings statements (which
need not be audited) covering a period of 12 months beginning within three
months after the effective date of the registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(p) use its best efforts to take all other steps necessary to effect
the registration of such Registrable Shares contemplated hereby.
The above shall be done at the effectiveness of such registration statement
and each closing under any underwriting or similar agreement as and to the
extent reasonably required thereunder and from time to time as may be reasonably
requested by any selling holder in connection with the disposition of
Registrable Shares pursuant to a registration statement.
SECTION 5. Expenses. All expenses incurred by the Corporation in
--------
complying with Sections 2 and 3 ("Registration Expenses"), including, without
limitation, all registration and filing fees (including all expenses incident to
filing with the NASD), fees and expenses of complying with securities and blue
sky laws, printing expenses, fees and expenses of the Corporation's counsel and
Corporation's accountants and reasonable fees and disbursements of counsel to
the holders of Registrable Shares (provided that the Corporation shall not be
obligated to pay fees or disbursements of more than one counsel to the holders),
shall be paid by the Corporation; provided, however, that underwriting discounts
-------- -------
and selling commissions applicable to the Registrable Shares shall not be borne
by the Corporation but shall be borne solely by the Investor or, to the extent
the securities of other holders are included in any registration statement, then
such underwriting discounts and commissions shall be equally borne by all
sellers of such securities thereunder.
SECTION 6. Indemnification. In connection with any registration of any
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Corporation shall indemnify and hold harmless the Investor, each underwriter,
broker or any other person acting on behalf of the Investor, including, but not
limited to, its directors, officers, employees and agents and each other person,
if any, who controls any of the foregoing persons within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which any of the foregoing persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
7.
<PAGE>
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the registration statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state securities or
blue sky laws applicable to the Corporation and relating to action or inaction
required of the Corporation in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
the Investor, such underwriter, such broker or such other person acting on
behalf of the Investor and each such controlling person for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the Corporation shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with information
furnished to the Corporation by the Investor or underwriter specifically for use
in the preparation thereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, the Investor shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 6) the Corporation, each director of the
Corporation, each officer of the Corporation who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of the
Investor and each person who controls any of the foregoing persons within the
meaning of the Securities Act with respect to any statement or omission from
such registration statement, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification of
any Registrable Shares, if such statement or omission was made in reliance upon
and in conformity with written information furnished to the Corporation or such
underwriter through an instrument duly executed by the Investor specifically for
use in connection with the preparation of such registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document;
provided, however, that the maximum amount of liability in respect of such
- -------- -------
indemnification shall be limited, in the case of the Investor, to an amount
equal to the aggregate public offering price
8.
<PAGE>
of the Registrable Shares offered by him pursuant to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 6, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. The failure of the indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Agreement, unless such failure actually prejudices the
ability of the indemnifying party to defend the action. In case any such action
is brought against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
-------- -------
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 6, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided in
this Section 6. No indemnifying party, in the defense of any such claim or
litigation, shall consent to entry of judgment or enter into any settlement with
respect to such claim or litigation without the consent of the indemnified
party.
If the indemnification provided for in this Section 6 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action 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 which resulted in such loss, claim, damage, liability or action 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
9.
<PAGE>
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, the liability of any
-------- -------
holder of Registrable Shares for indemnification or contribution under this
Section shall be individual to each holder and shall not exceed an amount equal
to the number of shares sold by such holder of Registrable Shares multiplied by
the public offering price per share which he receives in the offering.
SECTION 7. Underwriting Agreement. Notwithstanding the provisions of
----------------------
Sections 4, 5 and 6, to the extent that the Investor shall enter into an
underwriting or similar agreement, which agreement contains provisions covering
one or more issues addressed in such Sections, the provisions contained in such
underwriting or similar agreement shall control as to the party or parties so
entering into such underwriting agreement.
SECTION 8. Information by Investor. The Investor shall furnish to the
-----------------------
Corporation such written information regarding the Investor and the distribution
proposed by the Investor as the Corporation may reasonably request and as shall
be reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
SECTION 9. Termination. This Agreement shall terminate and be of no
-----------
further force or effect at the first date as of which all of the Restricted
Shares may be sold publicly during any 90-day period pursuant to Rule 144.
SECTION 10. Successors and Assigns. This Agreement shall bind and inure
----------------------
to the benefit of the Corporation, the Investor and, subject to Section 11, the
respective successors and assigns of the Corporation and the Investor.
SECTION 11. Assignment. The rights to cause the Corporation to register
----------
all or any portion of Registrable Securities pursuant to this Agreement may be
assigned by the Investor to a permitted transferee or assignee of 50% or more,
in the aggregate, of the Warrant Shares. Within a reasonable time after such
transfer, the Investor shall notify the Corporation of the name and address of
such transferee or assignee and the Warrant Shares with respect to which such
registration rights are being assigned. Such assignment shall be effective only
if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. Any
transferee shall agree in writing at the time of transfer to be bound by the
provisions of this Agreement.
SECTION 12. Entire Agreement. This Agreement and the Investment
----------------
Agreement, and the other writings referred to therein or delivered pursuant
thereto, contain the entire agreement among the parties with respect to the
subject matter hereof and supersede all
10.
<PAGE>
prior and contemporaneous arrangements or understandings with respect thereto.
SECTION 13. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Corporation:
NTN Communications, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-929-5289
with a copy to:
Troy & Gould Professional Corporation
1801 Century Park East
16th Floor
Los Angeles, CA 90067
Attention: William D. Gould, Esq.
Telecopier No.: 310-201-4746
(ii) if to the Investor:
Symphony Management Associates, Inc.
900 Bestgage Road, Suite 400
Annapolis, Maryland 21401
Attention: Chief Executive Officer
Telecopier No.: 410-573-5205
with a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
Attn: William Sasso, Esq.
Telecopier No.: 215-564-8120
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the fifth business day after the
posting thereof.
11.
<PAGE>
SECTION 14. Modifications; Amendments; Waivers. The terms and provisions
----------------------------------
of this Agreement may not be modified or amended, nor may any provision be
waived, except pursuant to a writing signed by the Corporation and the Investor.
SECTION 15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 16. Headings. The headings of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 17. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
NTN Communications, Inc.
By: /s/ Patrick J. Downs
--------------------------------
Name: Patrick J. Downs
Its: President
Symphony IWN Investment LLC
By: /s/ Valerie S. Hart
--------------------------------
Name: Valerie S. Hart
Its: Vice President and
Secretary
12.
<PAGE>
EXHIBIT 10.24
GUARANTY
--------
To: IWN, L.P.,
a Delaware limited partnership
IWN, Inc.
a Delaware corporation
Effective as of December 31, 1995, IWN, Inc., a Delaware corporation
(hereinafter referred to as "IWN"), is entering into that certain Third Amended
and Restated Agreement of Limited Partnership of IWN, L.P., dated and effective
as of December 31, 1995 (the "Agreement"), together with Symphony Management
Associates, Inc., a Delaware corporation ("SYMPHONY"), pursuant to which
SYMPHONY agreed to make certain capital contributions to IWN, L.P., a Delaware
limited partnership ("COMPANY"). SYMPHONY now desires to transfer and assign
its entire Interest (as defined in the Agreement) in the Partnership to Symphony
IWN Investment LLC, a Delaware limited liability company affiliated with
SYMPHONY ("LLC"), pursuant to that certain Assignment and Substitution of
Limited Partner, of even date herewith, among the COMPANY, SYMPHONY and LLC. In
consideration of the assignment and substitution and of the financial
considerations heretofore or hereafter granted by IWN and the COMPANY and LLC
pursuant to the Agreement and the assignment and substitution, the undersigned
(hereinafter referred to as "GUARANTOR") hereby guarantees, promises and
undertakes as follows:
1. GUARANTOR unconditionally, absolutely and irrevocably guarantees and
promises to pay and perform in full all of LLC's obligations to make Capital
Contributions as that term is defined in Section 3.3 of the Agreement (herein
referred to as the "Obligations").
2. This Guaranty is for the punctual payment and performance of LLC's
Obligations in accordance with Section 3.3 of the Agreement, and not of
collection. As such GUARANTOR agrees that it is directly and primarily liable
hereunder to COMPANY and IWN, that the obligations hereunder are independent of
the Obligations of LLC, or of any other guarantor, and that a separate action or
actions may be brought and prosecuted by COMPANY and/or IWN against GUARANTOR,
whether action is brought against LLC or any other guarantor or whether LLC or
any other guarantor is joined in any such action or actions. GUARANTOR agrees
that any releases which may be given by COMPANY and/or IWN to LLC or any other
guarantor or endorser shall not release it from this Guaranty.
As a condition to payment or performance by GUARANTOR under this
Guaranty, COMPANY and/or IWN shall not be required to, and GUARANTOR hereby
waives any and all rights to require COMPANY and/or IWN to: prosecute or seek to
enforce any remedies against LLC or any other party liable to COMPANY and/or IWN
on account of
<PAGE>
the obligations and/or to require COMPANY and/or IWN to seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to COMPANY and/or IWN by LLC or any other party on account
of the obligations.
3. GUARANTOR hereby authorizes IWN, without notice or demand and without
affecting its liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate, or otherwise change the time for payment or the terms of any
of the obligations, or any part thereof; and (b) release or substitute any one
or more endorser(s) or GUARANTOR(s); GUARANTOR agrees that IWN may do any or all
of the foregoing in such manner, upon such terms and at such times as IWN, in
its discretion, deems advisable, without, in any way or respect, impairing,
affecting, reducing or releasing GUARANTOR from its undertakings hereunder and
GUARANTOR hereby consents to each and all of the foregoing acts, events and/or
occurrences.
4. GUARANTOR hereby waives any right to assert against COMPANY and/or IWN
any defense (legal or equitable), set-off, counterclaim, and/or claim which
GUARANTOR may now or at any time hereafter have against LLC and/or any other
party liable to COMPANY and/or IWN in any way or manner.
GUARANTOR hereby waives all defenses, counterclaims and off-sets of
any kind or nature, arising directly or indirectly from the present or future
lack of perfection, sufficiency, validity and/or enforceability of the
Agreement.
GUARANTOR hereby waives any right of subrogation GUARANTOR has or may
have as against LLC with respect to the Obligations. In addition, GUARANTOR
hereby waives any right to proceed against LLC, now or hereafter, for
contribution, indemnity, reimbursement, and any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which GUARANTOR may
now have or hereafter have against the LLC with respect to the Obligations.
GUARANTOR also hereby waives any rights to recourse to or with respect to any
asset of LLC.
GUARANTOR hereby waives any defense arising by reason of any claim
based upon an election of, remedies by COMPANY and/or IWN, which, in any manner
impairs, affects, reduces, releases, destroys and/or extinguishes GUARANTOR'S
subrogation rights, rights to proceed against LLC for reimbursement, and/or any
other rights of the GUARANTOR to proceed against LLC, against any other
GUARANTOR, or against any other person or security. GUARANTOR waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, notices of default, notice of
acceptance of this Guaranty, and notices of the existence, creation, or
incurring of new or additional indebtedness, and all other notices or
formalities to which GUARANTOR may be entitled.
-2-
<PAGE>
5. GUARANTOR is presently informed of the financial condition of the LLC
and COMPANY and of all other circumstances which a diligent inquiry would reveal
and which bear upon the risk of nonpayment of the Obligations. GUARANTOR hereby
covenants that it will continue to keep itself informed of LLC's and COMPANY's
financial condition, the status of other Guarantors, if any, and of all other
circumstances which bear upon the risk of nonpayment. GUARANTOR hereby waives
its right, if any, to require COMPANY and/or IWN to disclose to it any
information which COMPANY and/or IWN may now or hereafter acquire concerning
such condition or circumstances including, but not limited to, the release of or
revocation by any other GUARANTOR.
6. This Guaranty shall continue in full force and effect until LLC's
Obligations are fully paid, performed and discharged.
7. This Guaranty shall be binding upon the successors and assigns of
GUARANTOR and shall inure to the benefit of COMPANY's and/or IWN's successors
and assigns.
8. No modification of this Guaranty shall be effective for any purpose
unless it is in writing and executed by COMPANY and IWN. This Guaranty merges
all negotiations, stipulations and provisions relating to the subject matter of
this Guaranty which preceded or may accompany the execution of this Guaranty.
9. GUARANTOR agrees to pay reasonable attorneys' fees and all other costs
and expenses which may be incurred by COMPANY and/or IWN in the enforcement of
this Guaranty or in any way arising out of, following, or consequential to the
enforcement of LLC's Obligations under this Guaranty.
10. All acts and transactions hereunder and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of Delaware without choice of law or conflicts of law
principles.
11. GUARANTOR, COMPANY AND IWN EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ARISING OUT OF COMPANY
AND/OR IWN's TRANSACTION WITH LLC.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this 11th
day of March, 1996.
("GUARANTOR")
Symphony Management Associates, Inc.
/s/ Richard J. Donnelly
----------------------------------
Name: Richard J. Donnelly
Its: Treasurer and Secretary
-4-
<PAGE>
EXHIBIT 10.25
AMENDED AND RESTATED TECHNOLOGY AND
TRADEMARK LICENSE AGREEMENT
This Amended and Restated Technology and Trademark License Agreement
("Agreement") is entered into as of the 31st day of December, 1995, by and
between NTN Communications, Inc., a Delaware corporation ("NTN") and IWN, Inc.,
a Delaware corporation ("IWN").
BACKGROUND
NTN has developed and is the sole owner of certain technology,
together with certain inventions and improvements for a two-way interactive
computerized broadcast system and certain other Technology (as defined herein)
which may be utilized for Gaming Applications (as that term is defined herein).
NTN and IWN have previously entered into a certain Technology License
Agreement dated as of November 2, 1993 ("Original License") in order to secure
the exclusive right and license to use, develop, manufacture and exploit the
Technology and the Trademarks for Gaming Applications (as those terms are
defined herein). Prior to the date hereof, IWN has exploited the Technology in
order to develop, research, sell, distribute and market products and services to
businesses throughout the world engaged in Gaming Applications.
Pursuant to a certain Investment Agreement of even date herewith by
and between NTN, IWN and Symphony Management Associates, Inc. ("Symphony") and
Symphony IWN Investment LLC ("LLC"), an affiliate of Symphony to be formed, is
purchasing, and (i) NTN is selling to Symphony 10% of the issued and outstanding
stock of IWN; and (ii) IWN, LP, a limited partnership formed under the laws of
the State of Delaware ("LP") is selling and issuing to Symphony and LLC 50% of
the LP.
NTN and IWN now desire to amend and restate the Original License in
order, inter alia, to clarify and amend certain terms and conditions as more
----- ----
fully described herein which is a condition precedent to Symphony entering into
the Investment Agreement. It is intended by NTN, IWN and Symphony that IWN be
the sole and exclusive licensee of the Technology for Gaming Applications, but
that IWN shall not use the Technology for any purpose and shall so sublicense
all of the Technology to LP so that LP acquires all of IWN's right and interest
in and to the Technology for Gaming Applications consistent with terms and
conditions set forth herein.
NTN is also granting to IWN an exclusive right to use the Trademarks
(as defined herein) for Gaming Applications (as that term is defined herein), as
more fully described herein.
The licenses granted herein and in the Original License were granted
in partial consideration for IWN's agreement to use its best efforts to
research, develop, sell, distribute and market the Technology.
NOW, THEREFORE, in consideration of the premises and of the promises
and covenants contained herein, and intending to be legally bound hereby, the
parties agree as follow:
1.
<PAGE>
1. LICENSE OF TECHNOLOGY/TERM. Commencing on the date hereof, up through
--------------------------
and including December 31, 2024 (the "Term"), NTN hereby grants to IWN, subject
to the terms herein, and as permitted by law, an exclusive, paid-up, royalty-
free, worldwide right and license ("License") to the Technology for Gaming
Applications. For purposes herein, "Gaming Applications" shall be defined as
any interaction where any sum of money is risked on an uncertain outcome, such
as casino gaming, pari-mutuel wagering, lottery, sports betting, bingo, or other
forms of gaming or wagering. For purposes herein, "Technology" shall mean the
source code, object code and written documentation therefor, as contained in a
manual entitled "The Book of All Knowledge", which relates to interactive
-------------------------
computerized broadcast systems ("Systems"), use or sale of the Systems,
specifications and data which NTN has heretofore developed or owns, or may
hereafter develop or own, and possesses at any time during the term of this
Agreement as are more specifically set forth in Exhibit A hereto, except in the
event that NTN does not wholly own such Technology, or in the event that such
Technology is based upon or derived from a third party, such rights and license
granted herein shall be subject to any and all restrictions imposed by such
third party. Absent an event which causes the release of the Technology from
escrow to any entity other than NTN as depositor pursuant to the Escrow
Agreement to be entered into by and among NTN, IWN and Data Securities
International, Inc. ("Technology Escrow"), as more fully described in Section 8
hereof, the Technology and Trademarks, and all rights and licenses granted
herein, shall automatically revert back to NTN at the expiration of the Term.
2. IMPROVEMENTS. NTN and IWN agree that for purposes of carrying out the
------------
terms and conditions of this Agreement, all additions, improvements and
modifications to the Technology, together with the documentation therefor which
is contained in a manual entitled "The Book of All Knowledge" (collectively,
-------------------------
"Improvements"), NTN shall furnish directly to IWN and IWN shall have the right
to sublicense the Improvements as permitted hereunder without cost or
restriction to IWN, except that in the event that NTN does not wholly own such
Technology and in the event that NTN's rights in and to such Technology and/or
improvements are based upon or derived from a third party, such right to
sublicense granted herein shall be subject to any and all restrictions imposed
upon NTN by such third party.
3. LICENSE OF TRADEMARKS. NTN hereby grants to IWN, subject to the terms
---------------------
herein and as permitted by law, an exclusive, paid-up, royalty-free, worldwide
right and license ("Trademark License") to use all trademarks, service marks,
trade names, copyrights and identifying slogans, whether registered or not
(collectively, "Trademarks"), which include, without limitation, those
Trademarks listed on Exhibit B attached hereto, for Gaming Applications in
connection therewith during the Term, and IWN hereby accepts the Trademark
License, except that in the event that NTN does not wholly own such Trademark or
in the event that NTN's rights in and to such Trademarks are based upon or
derived from a third party, such right and license granted herein shall be
subject to any and all restrictions imposed upon NTN by such third party.
4. REPRESENTATIONS AND WARRANTIES OF NTN. NTN represents and warrants
-------------------------------------
that it is the sole and exclusive owner of the Technology and Trademarks for
which the License and Trademark License is granted, that it has the legal right
and authority to grant the licenses hereunder under the terms and conditions set
forth in this Agreement, and that to the best of its knowledge, there are no
suits or other actions pending or threatened against NTN for patent
2.
<PAGE>
infringement or other claims that may affect IWN's right to make, use or
otherwise exploit the Technology in the manner contemplated by this Agreement,
with the exception of those actions disclosed in the Investment Agreement. NTN
further represents that to the best of its knowledge, there is nothing that
would affect the validity of its ownership of its Technology nor would require
the payment of any royalty, license fee or other charge or fee of any kind to
any person or entity, and NTN has not received any notice of any adverse claim
by any third party with respect thereto, with the exception of those actions
disclosed in the Investment Agreement. NTN covenants and agrees that throughout
the Term, it will take all steps necessary to maintain and preserve IWN's rights
to the Technology and the License hereunder.
5. REPRESENTATIONS AND WARRANTIES OF IWN. IWN represents and warrants
-------------------------------------
that it shall take all reasonable steps to establish, maintain and protect NTN's
rights in the Technology and Trademarks, including, without limitation, taking
any actions reasonably requested by NTN to confirm or vest ownership in NTN, at
NTN's sole cost and expense. IWN shall not, directly or indirectly, nor shall
it permit any of its sublicensees, assigns, affiliates (as defined herein),
officers, directors or employees to misuse, misappropriate, hypothecate or take
any other actions which may reasonably be considered to be inconsistent with the
ownership rights of NTN in and to such Technology and Trademarks and goodwill
associated therewith.
6. CONFIDENTIALITY AND NON-COMPETITION.
-----------------------------------
(a) NTN hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to Gaming Applications for the
Technology ("Confidential Information") which includes, without limitation, the
identity of customers and confidential information of those customers, contracts
with vendors and suppliers of IWN, IWN documentation, IWN finances and
operations, and applications of Technology to Gaming Applications, is
confidential and proprietary to IWN, as the case may be. NTN shall keep
confidential and not divulge to any other person (except for those designated by
IWN in writing) all of the Confidential Information.
(b) For so long as this Agreement remains in effect, NTN shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest (with the exception of its investment in IWN),
nor shall it permit any of its subsidiaries, affiliates (with respect to any
individual or entity regardless of form ("Person"), any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control), directors or officers to engage in any form of business
competing directly or indirectly with any of the businesses of IWN anywhere in
the world, which the parties agree for purposes of this provision shall be
limited to all Gaming Applications. Ownership by any of the foregoing of stock
listed on a national securities exchange of any corporation conducting such
competing business shall not be deemed to be a violation of this Section 6(b),
provided that such person does not own more than an aggregate of 5% of the stock
of such corporation. Nothing contained herein shall affect NTN's right to use
or exploit the Technology in connection with any and all applications other than
Gaming Applications.
(c) In the event of a breach or any threatened breach by NTN of the
provisions of this Agreement, IWN shall be entitled to an injunction restraining
NTN from disclosing, in
3.
<PAGE>
whole or in part, the Confidential Information or from participation in
violation of this Agreement in any business which competes directly or
indirectly with any of the businesses described herein. Nothing in this
Agreement shall be construed as prohibiting IWN from pursuing any other remedies
available to it for any such breach or threatened breach, including without
limitation, the recovery of damages from NTN. The covenants contained in this
Agreement shall run in favor of IWN and its permissible successors and assigns,
including its sublicensee(s).
(d) IWN hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to NTN's Systems and the information
contained in "The Book of All Knowledge", ("Proprietary Information"), excepting
-------------------------
only as such applies to Gaming Applications for the Technology, and which
further includes, without limitation, the identity of customers and confidential
information of those customers, contracts with vendors and suppliers of NTN, NTN
documentation, NTN finances and operations, and applications of Technology to
other than Gaming Applications, is confidential and proprietary to NTN, as the
case may be. IWN shall keep confidential and not divulge to any other person
(except for those designated by NTN in writing) all of the Proprietary
Information.
(e) For so long as this Agreement remains in effect, IWN shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest (with the exception of its investment in NTN),
nor shall it permit any of its subsidiaries, affiliates (with respect to any
Person, any other Person directly, or indirectly through one or more
intermediaries, controlling, controlled by or under common control), directors
or officers to engage in any form of business competing directly or indirectly
with any of the businesses of NTN anywhere in the world, which the parties agree
for purposes of this provision shall be relating to NTN's Systems and the
information contained in "The Book of All Knowledge", other than as such is used
-------------------------
in connection with Gaming Applications. Ownership by any of the foregoing of
stock listed on a national securities exchange of any corporation conducting
such competing business shall not be deemed to be a violation of this Section
6(e), provided that such person does not own more than an aggregate of 5% of the
stock of such corporation.
(f) In the event of a breach or any threatened breach by IWN of the
provisions of this Agreement, NTN shall be entitled to an injunction restraining
IWN from disclosing, in whole or in part, the Proprietary Information or from
participation in violation of this Agreement in any business which competes
directly or indirectly with any of the businesses described herein. Nothing in
this Agreement shall be construed as prohibiting NTN from pursuing any other
remedies available to it for any such breach or threatened breach, including
without limitation, the recovery of damages from IWN. The covenants contained
in this Agreement shall run in favor of NTN and its permissible successors and
assigns, including its sublicensee(s) and shall bind permissible successors,
assigns and sublicensees of IWN.
7. INDEMNIFICATION.
---------------
(a) NTN agrees to indemnify, defend and hold harmless IWN, its
sublicensees and its permissible assignees from any and all claims brought by
any party, and any expenses (including reasonable attorneys' fees) incurred by
IWN which arise from the Technology and the
4.
<PAGE>
Trademarks relating to (i) a breach of any of the representations and warranties
hereunder and (ii) any claim of infringement of a patent or other proprietary
right held by a third party.
(b) In the event of a claim by a third party, IWN, its sublicensees
or its permissible assignee, as the case may be, shall so notify NTN in writing
of any claim within twenty (20) days following receipt of a claim made by a
third party with respect to an alleged infringement of the Technology and the
Trademarks. IWN or its permissible assignees, as the case may be, shall be
entitled to control the defense and settlement thereof, provided, however, that
any such settlement shall not impose any obligations or restrictions upon NTN
without its prior consent.
8. TECHNOLOGY ESCROW/REMEDIES. Not later than ninety (90) days after
--------------------------
December 31, 1995, NTN shall deposit into escrow all of the source code relating
to the software, and the documentation in the possession of NTN contained in a
manual entitled "The Book of All Knowledge" relating to the software and
-------------------------
hardware used in, or in conjunction with, the System and the Technology and
shall enter into a mutually agreeable technology escrow agreement. In the event
of a breach of this Agreement by IWN, NTN shall have the right to cancel this
License Agreement, but not any permissible sublicenses thereof, provided that
such breach is not the result of any actions taken by such sublicensee. In the
event that NTN is entitled to cancel this Agreement and a sublicense of this
Agreement, as set forth herein, such right shall include the right to cancel the
Technology escrow and remove all deposited items therefrom.
9. ASSIGNMENT. This Agreement may not be assigned by either party without
----------
the prior written consent of the non-assigning party. Notwithstanding anything
to the contrary stated herein, NTN hereby acknowledges and agrees that IWN shall
be permitted to enter into one or more sublicenses with LP, consistent with the
terms and conditions set forth in this Agreement. For all purposes herein, LP
shall be considered a third party beneficiary with respect to the terms and
conditions of this Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of California without regard
to conflicts of law principles.
11. NOTICES. Notices, statements, reports or other communications under
-------
this Agreement shall be in writing and shall be deemed as having been received
as of the date dispatched if sent by telecopier, express mail and addressed as
follows:
If to NTN:
5966 La Place Court
Carlsbad, California 92008
Attn: Laura Kass, Esquire
Telecopier No. 619-929-5293
If to IWN: 5966 La Place Court
Carlsbad, California 92008
Attn: Colleen Anderson, President
Telecopier No. 619-930-1174
5.
<PAGE>
With copies to:
Troy & Gould, Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
Attn: William D. Gould Esquire
Telecopier No. 310-201-4746
Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21801
Attn: Richard J. Donnelly
Telecopier No. 410-573-5205
and Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103
Attn: William R. Sasso, Esquire
Telecopier No.: 215-564-8120
or to such other addresses and telecopier numbers as the party to whom notice is
to be given may have previously furnished to the other party in writing.
12. MISCELLANEOUS. This Agreement may be executed in several
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement,
including the exhibits hereto, constitutes the entire agreement between the
parties concerning the subject matter hereof, and will supersede all previous
communications, representations, understandings, and agreements, either oral or
written between the parties. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement. This Agreement shall be deemed to obligate, extend to, and
inure to the benefit of the permitted successors, transferees, grantees,
affiliates, indemnities, agents and representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
NTN COMMUNICATIONS, INC. IWN, INC.
By: [SIGNATURE NOT LEDGIBLE] By: [SIGNATURE NOT LEDGIBLE]
----------------------------------- -----------------------------------
Its: :Chairman Its: :Chairman
-------------------------------- --------------------------------
6.
<PAGE>
EXHIBIT A
---------
BROADCAST CENTER ( SERVER ) - CONTROL SOFTWARE
Sender
Queue Manager
Satmon
Operator
Director
Ed Scores
Site Activity
BROADCAST CENTER ( SERVER ) - APPLICATION SOFTWARE
Ref
Emcee
Umpire
Lineman
Commissioner
Judge
Players Plus
HOSPITALITY SITE ( CLIENT ) - CONTROL SOFTWARE
Supervisor
Idsio
HOSPITALITY SITE ( CLIENT ) - APPLICATION SOFTWARE
Trivia ( Countdown/Showdown )
Trivia2 ( Trivial Pursuit )*
Tivia3 ( Sports IQ/Passport/Spotlight)
Qb1*
Diamondball*
Triples
PowerPlay*
Uppercut
Fantasy
ONLINE HOST ( SERVER ) - CONTROL SOFTWARE
Router ( TCP/IP)
Host
7.
<PAGE>
ONLINE HOST ( SERVER ) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
ONLINE USER ( CLIENT ) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
INTERNATIONAL SITE ( CLIENT ) UNIQUE APPLICATION SOFTWARE
Ruggers ( Rugby )*
ARF ( Australian Rules Football )*
CABLE TV HEADEND ( SERVER ) SOFTWARE
Qb1*
Poker
BlackJack
Reversi
Checkers
Trivia
Uppercut
Triples
REMOTE DATA TERMINAL HARDWARE ( PLAYMAKER )
HOME DATA TERMINAL HARDWARE ( BASE STATION )
*Rights derived from third party; restricted
8.
<PAGE>
EXHIBIT B
---------
NTN COMMUNICATIONS, INC. TRADEMARKS
-----------------------------------
Brain Buster(R)
Countdown(R)
Dreamteam Baseball and Design(R)
Hoops and Design(R)
Link-up Live and Play The World(R)
Nightside(R)
NTN(R)
NTN DiamondBall(R)*
NTN Entertainment Network(R)
NTN Power Play(R)*
Playmaker(R)
Playersplus(R)
QB1(R)*
Showdown(R)
Sports Trivia(R)
Sports Trivia Challenge(R)
The Face of Entertainment(R)
Triviaoke(R)
Undercover(R)
Uppercut(R)
Viewer's Review(R)
*Rights derived from third party; restricted
9.
<PAGE>
EX 10.26
AMENDED AND RESTATED TECHNOLOGY AND
TRADEMARK SUBLICENSE AGREEMENT
This Amended and Restated Technology and Trademark Sublicense Agreement
("Agreement") is entered into as of the 31st day of December, 1995 by and
between IWN, Inc., a Delaware corporation ("IWN") and IWN, L.P. a limited
partnership formed under the laws of the State of Delaware ("LP").
BACKGROUND
NTN Communications, Inc. ("NTN") has developed and is the sole owner of
certain technology, together with certain inventions and improvements for a two-
way interactive computerized broadcast system and certain other Technology (as
defined herein) which may be utilized for Gaming Applications (as that term is
defined herein). NTN and IWN have previously entered into a certain Technology
License Agreement dated as of November 3, 1993, as amended and restated pursuant
to a certain Amended and Restated Technology and Trademark License Agreement
dated as of December 31, 1995 (the "License Agreement").
IWN and LP have previously entered into a certain Technology Sublicense
Agreement dated as of September 30, 1994 ("Original Sublicense "), in order to
secure the exclusive right and license to use, develop, manufacture and exploit
the Technology and the Trademarks for Gaming Applications (as that term is
defined herein). Prior to the date hereof, LP has exploited the Technology in
order to develop, research, sell, distribute and market the products and
services to businesses engaged in Gaming Applications (as that term is defined
herein).
IWN and LP now desire to amend and restate the Original Sublicense in
order, inter alia, to clarify and amend certain terms and conditions as more
----- ----
fully described. It is intended that LP be the sole and exclusive sublicensee
of the Technology for Gaming Applications.
IWN is also granting to LP an exclusive sublicense of its right to use the
Trademarks (as defined herein) for Gaming Applications (as that term is defined
herein), as more fully described herein.
The sublicenses granted herein and in the Original Sublicense were granted
in partial consideration for IWN's agreement to use its best efforts to
research, develop, sell, distribute, and market the Technology.
NOW, THEREFORE, in consideration of the premises and of the promises and
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follow:
1. SUBLICENSE OF TECHNOLOGY/TERM. Commencing on the date hereof, up
-----------------------------
through and including December 31, 2024 (the "Term"), IWN hereby grants to LP,
subject to the terms herein, and as permitted by law, an exclusive, paid-up,
royalty-free, right and sublicense to the Technology for Gaming Applications
("Sublicense") and for no other purpose whatsoever in the United States and
Canada (the "Territory"). For purposes herein, "Gaming Applications" shall be
defined as any interaction where any sum of money is risked on an uncertain
outcome, such as casino gaming, pari-mutuel wagering, lottery, sports betting,
bingo, or other forms of gaming or wagering. For purposes herein, "Technology"
shall mean the source code, object code, software and written documentation
therefor as contained in a manual entitled "The Book of All Knowledge", which
-------------------------
relates to interactive computerized broadcast systems
1
<PAGE>
("Systems"), use or sale of the Systems, specifications and data which NTN has
heretofore developed or owns, or may hereafter develop or own, at any time
during the Term of this Agreement, to which Technology IWN is the exclusive
licensee for Gaming Applications, as are more specifically set forth in Exhibit
A hereto, except in the event that NTN does not wholly own such Technology, or
in the event that such Technology is based upon or derived from a third party,
such rights and sublicense granted herein shall be subject to any and all
restrictions imposed by such third party. Absent an event which causes the
release of the Technology from escrow to any entity other than NTN as depositor,
pursuant to the Escrow Agreement to be entered into by and among NTN, IWN and
Data Securities International, Inc. ("Technology Escrow") as more fully
described in Section 8 hereof, the Technology and Trademarks, and all rights and
sublicenses granted herein, shall automatically revert back to IWN at the
expiration of the Term.
2. IMPROVEMENTS. IWN and LP agree that for purposes of carrying out the
------------
terms and conditions of this Agreement, all additions, improvements and
modifications to the Technology, together with the documentation therefor which
is contained in a manual entitled "The Book of All Knowledge" (collectively,
-------------------------
"Improvements"), IWN shall furnish directly to LP and LP shall have the right
and license to employ such information in its business without cost or
restriction to LP, except that in the event that such Technology and/or
improvements are based upon or derived from a third party other than NTN, such
right and sublicense granted herein shall be subject to any and all restrictions
imposed upon NTN by such third party.
3. SUBLICENSE OF TRADEMARKS. Subject to the terms herein, and as
------------------------
permitted by law, IWN hereby grants to LP an exclusive, paid-up, royalty-free
right and license ("Trademark License") to use all trademarks, service marks,
trade names, copyrights and identifying slogans, whether registered or not
(collectively, "Trademarks"), which include, without limitation, those
Trademarks listed on Exhibit B attached hereto, for Gaming Applications in
connection therewith in the United States and Canada (the "Territory") during
the Term, and LP hereby accepts the Trademark License, except that in the event
that NTN does not wholly own such Trademark or in the event that NTN's rights in
and to such Trademarks are based upon or derived from a third party, such right
and sublicense granted herein shall be subject to any and all restrictions
imposed upon NTN by such third party.
4. REPRESENTATIONS AND WARRANTIES OF IWN. IWN represents and warrants
-------------------------------------
that it is the sole and exclusive licensee of the Technology for which the
Sublicense is granted, that it has the legal right and authority to grant the
sublicenses hereunder under the terms and conditions set forth in this
Agreement, and that to the best of its knowledge, there are no suits or other
actions pending or threatened against IWN for patent infringement or other
claims that may affect LP's right to make, use or otherwise exploit the
Technology in the manner contemplated by this Agreement, with the exception of
those actions disclosed pursuant to the Investment Agreement between NTN, IWN
and Symphony Management Associates, Inc. (the "Investment Agreement"). IWN
further represents that to the best of its knowledge, there is nothing that
would affect the validity of its rights in and to the Technology nor would
require the payment of any royalty, license fee or other charge or fee of any
kind to any person or entity and IWN has not received any notice of any adverse
claim by any third party with respect thereto, with the exception of those
actions disclosed in the Investment Agreement. IWN covenants and agrees that
throughout the Term of this Agreement, it will take all steps necessary to
maintain and preserve LP's rights to the Technology and the Sublicense
hereunder.
2
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF LP. LP hereby represents and
------------------------------------
warrants that it shall take all reasonable steps to establish, maintain and
protect NTN's rights in the Technology and Trademarks, including, without
limitation, taking any actions reasonably requested by NTN to confirm or vest
ownership in NTN, at NTN's sole cost and expense. LP shall not, directly or
indirectly, nor shall it permit any of its permissible sublicensees, assigns,
affiliates (as defined herein), officers, directors or employees to misuse,
misappropriate, hypothecate or take any other actions which may reasonably be
considered to be inconsistent with the ownership rights of NTN in and to such
Technology and Trademarks and goodwill associated therewith.
6. CONFIDENTIALITY AND NON-COMPETITION.
-----------------------------------
(a) IWN hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to Gaming Applications for the
Technology ("Confidential Information") which includes, without limitation, the
identity of customers and confidential information of those customers, contracts
with vendors and suppliers of LP, LP documentation, LP finances and operations,
and applications of Technology to Gaming Applications, is confidential and
proprietary to LP. IWN shall keep confidential and not divulge to any other
person (except for those designated by LP in writing) all of the Confidential
Information.
(b) For so long as this Agreement remains in effect, IWN shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest (with the exception of its investment in LP), nor
shall it permit any of its subsidiaries, affiliates (with respect to any
individual or entity regardless of form ("Person"), any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control), directors or officers to engage in any form of business
competing directly or indirectly with any of the businesses of LP anywhere in
the world, which the parties agree for purposes of this provision shall be all
Gaming Applications. Ownership by any of the foregoing of stock listed on a
national securities exchange of any corporation conducting such competing
business shall not be deemed to be a violation of this Section 6(b), provided
that such person does not own more than an aggregate of 5% of the stock of such
corporation.
(c) In the event of a breach or any threatened breach by IWN of the
provisions of this Agreement, LP shall be entitled to an injunction restraining
IWN from disclosing, in whole or in part, the Confidential Information or from
participation in violation of this Agreement in any business which competes
directly or indirectly with any of the businesses described herein. Nothing in
this Agreement shall be construed as prohibiting LP from pursuing any other
remedies available to it for any such breach or threatened breach, including
without limitation, the recovery of damages from IWN. The covenants contained
in this Agreement shall run in favor of LP and its permissible successors and
assigns.
(d) LP hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to NTN's Systems and the information
contained in "The Book of All Knowledge" ("Proprietary Information"), excepting
-------------------------
only as such applies to Gaming Applications for the Technology, and which
further includes, without limitation, the identity of customers and confidential
information of those customers, contracts with vendors and suppliers of NTN, NTN
documentation, NTN finances and operations, and applications of Technology to
other than Gaming Applications, is confidential and
3
<PAGE>
proprietary to NTN, as the case may be. IWN shall keep confidential and not
divulge to any other person (except for those designated by NTN in writing) all
of the Proprietary Information.
(e) For so long as this Agreement remains in effect, LP shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest (with the exception of its investment in NTN),
nor shall it permit any of its subsidiaries, affiliates (with respect to any
Person, any other Person directly, or indirectly through one or more
intermediaries, controlling, controlled by or under common control), directors
or officers to engage in any form of business competing directly or indirectly
with any of the businesses of NTN anywhere in the world, which the parties agree
for purposes of this provision shall be relating to NTN's Systems and the
information contained in "The Book of All Knowledge", other than as such is used
-------------------------
in connection with Gaming Applications. Ownership by any of the foregoing of
stock listed on a national securities exchange of any corporation conducting
such competing business shall not be deemed to be a violation of this Section
6(e), provided that such person does not own more than an aggregate of 5% of the
stock of such corporation.
(f) In the event of a breach or any threatened breach by LP of the
provisions of this Agreement, NTN and/or IWN shall be entitled to an injunction
restraining LP from disclosing, in whole or in part, the Proprietary Information
or from participation in violation of this Agreement in any business which
competes directly or indirectly with any of the businesses described herein.
Nothing in this Agreement shall be construed as prohibiting NTN and/or IWN from
pursuing any other remedies available to it for any such breach or threatened
breach, including without limitation, the recovery of damages from LP. The
covenants contained in this Agreement shall run in favor of NTN and IWN and
its/their permissible successors and assigns, and shall bind LP and its
permissible successors, assigns and sublicensees.
7. INDEMNIFICATION.
---------------
(a) IWN agrees to indemnify, defend and hold harmless LP and its
permissible assignees from any and all claims brought by any party and any
expenses (including reasonable attorneys' fees) which arise from the Technology
and the Trademarks relating to (i) a breach of any of the representations and
warranties hereunder and (ii) any claim of infringement of a patent or other
proprietary right held by a third party.
(b) In the event of a claim by a third party, LP or its permissible
assignees shall so notify NTN in writing of any claim within twenty (20) days
following receipt of a claim made by a third party with respect to an alleged
infringement of the Technology and the Trademarks. LP or its permissible
assignees, as the case may be, shall be entitled to control the defense and
settlement thereof provided, however, that any such settlement shall not impose
any obligations or restrictions upon IWN without its prior consent.
8. TECHNOLOGY ESCROW. Not later than ninety (90) days after December 31,
-----------------
1995, NTN shall deposit into escrow all of the source code relating to the
software, and the documentation therefor which is contained in a manual entitled
"The Book of All Knowledge" relating to the software and hardware used in, or in
-------------------------
conjunction with, the System and the Technology, NTN, IWN and LP shall enter
into a mutually agreeable Technology Escrow Agreement governing such deposit
into escrow.
4
<PAGE>
9. ASSIGNMENT. This Agreement may not be assigned by IWN or LP without
----------
the prior written consent of the non-assigning party and NTN, except that LP
shall be permitted to assign its rights herein to a successor to LP, pursuant to
a reorganization of LP for the sole purpose of changing to a corporate form or
other form of business entity, which entity continues the business of LP and is
further subject to the terms and conditions of this Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of California without regard
to conflicts of law principles.
11. CONSENT OF NTN TO SUBLICENSE. NTN hereby acknowledges and consents to
----------------------------
this Sublicense. Provided that there has not been a material breach by LP of
this Agreement or the Worldwide Technology and Trademark Sublicense Agreement,
which breach is reasonably capable of being cured and of which LP has been given
written notice and has cured such breach within ten (10) days of receipt of such
notice, this Agreement shall remain in effect for the Term. In the event of a
material breach of this Agreement by LP, NTN shall have the right, in its sole
discretion, to cancel the License Agreement and all sublicenses thereof, which
right shall further entitle NTN to cancel the Technology Escrow and remove all
items deposited therein. Notwithstanding the foregoing, NTN hereby agrees to
take no action to either cancel this Agreement or to remove any deposits made by
NTN into the Technology Escrow in the event of a breach by IWN, provided that
such breach is not directly or indirectly the result of any actions taken by LP
or any of it permissible successors, assigns or sublicensees.
12. NOTICES. Notices, statements, reports or other communications under
-------
this Agreement shall be in writing and shall be deemed as having been received
as of the date dispatched if sent by telecopier, express mail and addressed as
follows:
If to NTN or IWN:
5966 La Place Court
Carlsbad, California 92008
Attn: Laura Kass, Esquire
Telecopier No. 619-929-5293
With copies to:
Troy & Gould, Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
Attn: William D. Gould, Esquire
Telecopier No. 310-201-4746
If to LP: IWN, L.P.
5966 La Place Court
Carlsbad, California 92008
Attention: Colleen Anderson, President
Telecopier No. (619) 930-1174
5
<PAGE>
and Symphony IWN Investment LLC
Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21801
Attn: Richard J. Donnelly
Telecopier No. 410-573-5205
and Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn: William R. Sasso, Esquire
Telecopier No. 215-564-8120
or to such other addresses and telecopier numbers as the party to whom notice is
to be given may have previously furnished to the other party in writing.
13. MISCELLANEOUS. This Agreement may be executed in several
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement, including
the exhibits hereto, constitutes the entire agreement between the parties
concerning the subject matter hereof, and will supersede all previous
communications, representations, understandings, and agreements, either oral or
written between the parties. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement. This Agreement shall be deemed to obligate, extend to, and
inure to the benefit of the permitted successors, transferees, grantees,
affiliates, indemnities, agents and representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
IWN, INC. IWN, LP
[SIGNATURE ILLEGIBLE] /s/ Colleen Anderson
By:------------------------------ By:---------------------------------
Chairman President & CEO - G.P.
Its:----------------------------- ---------------------------------
The undersigned acknowledges the terms and conditions contained in Section 11
hereof and agrees to be legally bound thereby.
NTN COMMUNICATIONS, INC.
[SIGNATURE ILLEGIBLE]
By:-------------------------------
Chairman
Its:------------------------------
6
<PAGE>
EXHIBIT A
---------
BROADCAST CENTER ( SERVER ) - CONTROL SOFTWARE
Sender
Queue Manager
Satmon
Operator
Director
Ed Scores
Site Activity
BROADCAST CENTER ( SERVER ) - APPLICATION SOFTWARE
Ref
Emcee
Umpire
Lineman
Commissioner
Judge
Players Plus
HOSPITALITY SITE ( CLIENT ) - CONTROL SOFTWARE
Supervisor
Idsio
HOSPITALITY SITE ( CLIENT ) - APPLICATION SOFTWARE
Trivia ( Countdown/Showdown )
Trivia2 ( Trivial Pursuit )*
Tivia3 ( Sports IQ/Passport/Spotlight)
Qb1*
Diamondball*
Triples
PowerPlay*
Uppercut
Fantasy
ONLINE HOST ( SERVER ) - CONTROL SOFTWARE
Router ( TCP/IP)
Host
7
<PAGE>
ONLINE HOST ( SERVER ) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
ONLINE USER ( CLIENT ) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
INTERNATIONAL SITE ( CLIENT ) UNIQUE APPLICATION SOFTWARE
Ruggers ( Rugby )*
ARF ( Australian Rules Football )*
CABLE TV HEADEND ( SERVER ) SOFTWARE
Qb1*
Poker
BlackJack
Reversi
Checkers
Trivia
Uppercut
Triples
REMOTE DATA TERMINAL HARDWARE ( PLAYMAKER )
HOME DATA TERMINAL HARDWARE ( BASE STATION )
*Rights derived from third party; restricted
8
<PAGE>
EXHIBIT B
---------
NTN COMMUNICATIONS, INC. TRADEMARKS
-----------------------------------
Brain Buster(R)
Countdown(R)
Dreamteam Baseball and Design(R)
Hoops and Design(R)
Link-up Live and Play The World(R)
Nightside(R)
NTN(R)
NTN DiamondBall(R)*
NTN Entertainment Network(R)
NTN Power Play(R)*
Playmaker(R)
Playersplus(R)
QB1(R)*
Showdown(R)
Sports Trivia(R)
Sports Trivia Challenge(R)
The Face of Entertainment(R)
Triviaoke(R)
Undercover(R)
Uppercut(R)
Viewer's Review(R)
*Rights derived from third party; restricted
9
<PAGE>
EXHIBIT 10.27
WORLDWIDE TECHNOLOGY AND
TRADEMARK SUBLICENSE AGREEMENT
This Worldwide Technology and Trademark Sublicense Agreement ("Agreement")
is entered into as of the 31st day of December, 1995, by and between IWN, Inc.,
a Delaware corporation ("IWN") and IWN, L.P., a limited partnership formed under
the laws of the State of Delaware ("LP").
BACKGROUND
NTN Communications, Inc. ("NTN") has developed and is the sole owner of
certain technology, together with certain inventions and improvements for a two-
way interactive computerized broadcast system and certain other Technology (as
defined herein) which may be utilized for Gaming Applications (as that term is
defined herein). NTN and IWN have previously entered into a certain Technology
License Agreement dated as of November 3, 1993, as amended and restated in the
Amended and Restated Technology and Trademark License Agreement dated as of
December 31, 1995.
IWN and LP have previously entered into a certain Technology Sublicense
Agreement dated as of September 30, 1994 ("Original Sublicense"), as amended and
restated in the Amended and Restated Technology and Trademark Sublicense
Agreement dated as of December 31, 1995, in order to secure the exclusive right
and license to use, develop, manufacture and exploit the Technology and the
Trademarks for Gaming Applications (as that term is defined herein) in the
United States and Canada ("North America Sublicense Agreement"). Prior to the
date hereof, LP has exploited the Technology in order to develop, research,
sell, distribute and market the products and services to businesses throughout
the United States and Canada engaged in Gaming Applications (as that term is
defined herein).
IWN and LP now desire to enter into this Agreement on the terms and
conditions as more fully described. It is intended that LP be the sole and
exclusive sublicensee of the Technology for Gaming Applications.
IWN is also granting to LP an exclusive sublicense of its right to use the
Trademarks (as defined herein) for Gaming Applications (as that term is defined
herein), as more fully described herein.
The sublicenses granted herein and in the Original Sublicense were granted
in partial consideration for IWN's agreement to use its best efforts to
research, develop, sell, distribute, and market the Technology.
NOW, THEREFORE, in consideration of the premises and of the promises and
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follow:
1. SUBLICENSE OF TECHNOLOGY/TERM. Commencing on the date hereof, up
-----------------------------
through and including December 31, 2024 (the "Term"), IWN hereby grants to LP,
subject to the terms herein,
1
<PAGE>
and as permitted by law, an exclusive, paid-up, royalty-free, right and
sublicense to the Technology for Gaming Applications ("Sublicense") and for no
other purpose whatsoever throughout the Territory as that term is defined
herein. For purposes herein, "Gaming Applications" shall be defined as any
interaction where any sum of money is risked on an uncertain outcome, such as
casino gaming, pari-mutuel wagering, lottery, sports betting, bingo, or other
forms of gaming or wagering. For purposes herein, "Technology" shall mean the
source code, object code, software and written documentation therefor contained
in a manual entitled "The Book of All Knowledge" which relates to interactive
---------------------------
computerized broadcast systems ("Systems"), use or sale of the Systems,
specifications and data which NTN has heretofore developed or owns, or may
hereafter develop or own, at any time during the Term of this Agreement, to
which Technology IWN is the exclusive licensee for Gaming Applications, as are
more specifically set forth in Exhibit A hereto, except in the event that NTN
does not wholly own such Technology, or in the event that such Technology is
based upon or derived from a third party, such rights and sublicense granted
herein shall be subject to any and all restrictions imposed by such third party.
Absent an event which causes the release of the Technology from escrow to any
entity other than NTN as depositor pursuant to the Escrow Agreement to be
entered into by and among NTN, IWN and Data Securities International Inc.
("Technology Escrow"), as more fully described in Section 9 hereof, the
Technology and Trademarks and all rights and sublicenses granted herein shall
automatically revert back to IWN at the expiration of the Term.
2. TERRITORY. The grant of rights and sublicenses set forth herein are
---------
made on a worldwide basis. As consideration for the expansion of the territory
in the North America Sublicense and Amendment and Restatement thereof, to
include the remainder of the world beyond the United States and Canada (the
"Territory"), receipt of which is hereby acknowledged, LP shall pay to IWN the
sum of Six Hundred Thousand Dollars ($600,000.00), evidenced by a Promissory
Note executed contemporaneously with the execution of this Agreement.
3. IMPROVEMENTS. IWN and LP agree that for purposes of carrying out the
------------
terms and conditions of this Agreement, all additions, improvements and
modifications to the Technology, together with the documentation therefor which
is contained in a manual entitled "The Book of All Knowledge" (collectively,
-------------------------
"Improvements"), IWN shall furnish directly to LP and LP shall have the right
and sublicense to employ such information in its business without cost or
restriction to LP, except that in the event that such Technology and/or
improvements are based upon or derived from a third party other than NTN, such
right and sublicense granted herein shall be subject to any and all restrictions
imposed upon NTN by such third party.
4. SUBLICENSE OF TRADEMARKS. IWN hereby grants to LP an exclusive, paid-
------------------------
up, royalty-free right and license ("Trademark License") to use all trademarks,
service marks, trade names, copyrights and identifying slogans, whether
registered or not (collectively, "Trademarks"), which include, without
limitation, those Trademarks listed on Exhibit B attached hereto, for Gaming
Applications in connection therewith throughout the Territory and during the
Term, and LP hereby accepts the Trademark License, except in the event that NTN
does not wholly own such Trademarks , or in the event that NTN's rights in and
to such Trademarks are based upon or derived from a third party, such rights and
sublicense granted herein shall be subject to any and all restrictions imposed
by such third party.
2
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF IWN. IWN represents and warrants
-------------------------------------
that it is the sole and exclusive licensee of the Technology for which the
Sublicense is granted, that it has the legal right and authority to grant the
sublicenses hereunder under the terms and conditions set forth in this
Agreement, and that to the best of its knowledge, there are no suits or other
actions pending or threatened against IWN for patent infringement or other
claims that may affect LP's right to make, use or otherwise exploit the
Technology in the manner contemplated by this Agreement, with the exception of
those actions disclosed pursuant to the Investment Agreement between NTN, IWN
and Symphony Management Associates, Inc. ("Investment Agreement"). IWN further
represents that to the best of its knowledge, there is nothing that would affect
the validity of its rights in and to the Technology nor would require the
payment of any royalty, license fee or other charge or fee of any kind to any
person or entity, except for the additional sublicensee fee set forth herein,
and IWN has not received any notice of any adverse claim by any third party with
respect thereto, with the exception of those actions disclosed pursuant to the
Investment Agreement. IWN covenants and agrees that throughout the Term of this
Agreement, it will take all steps necessary to maintain and preserve LP's rights
to the Technology and the Sublicense hereunder.
6. REPRESENTATIONS AND WARRANTIES OF LP. LP hereby represents and
------------------------------------
warrants that it shall take all reasonable steps to establish, maintain and
protect NTN's rights in the Technology and Trademarks, including, without
limitation, taking any actions reasonably requested by NTN to confirm or vest
ownership in NTN at NTN's sole cost and expense. LP shall not, directly or
indirectly, nor shall it permit any of its sublicensees, assigns, affiliates (as
defined herein), officers, directors or employees to misuse, misappropriate,
hypothecate or take any other actions which may reasonably be considered to be
inconsistent with the ownership rights of NTN in and to such Technology and
Trademarks and goodwill associated therewith.
7. CONFIDENTIALITY AND NON-COMPETITION.
-----------------------------------
(a) IWN hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to Gaming Applications for the
Technology ("Confidential Information") which includes, without limitation, the
identity of customers and confidential information of those customers, contracts
with vendors and suppliers of LP, LP documentation, LP finances and operations,
and applications of Technology to Gaming Applications, is confidential and
proprietary to LP. IWN shall keep confidential and not divulge to any other
person (except for those designated by LP in writing) all of the Confidential
Information.
(b) For so long as this Agreement remains in effect, IWN shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest (with the exception of its investment in LP), nor
shall it permit any of its subsidiaries, affiliates (with respect to any
individual or entity regardless of form ("Person"), any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control), directors or officers to engage in any form of business
competing directly or indirectly with any of the businesses of LP anywhere in
the world, which the parties agree for purposes of this provision shall be all
Gaming Applications. Ownership by any of the foregoing of stock listed on a
national
3
<PAGE>
securities exchange of any corporation conducting such competing business shall
not be deemed to be a violation of this Section 7(b), provided that such person
does not own more than an aggregate of 5% of the stock of such corporation.
(c) In the event of a breach or any threatened breach by IWN of the
provisions of this Agreement, LP shall be entitled to an injunction restraining
IWN from disclosing, in whole or in part, the Confidential Information or from
participation in violation of this Agreement in any business which competes
directly or indirectly with any of the businesses described herein. Nothing in
this Agreement shall be construed as prohibiting LP from pursuing any other
remedies available to it for any such breach or threatened breach, including
without limitation, the recovery of damages from IWN. The covenants contained
in this Agreement shall run in favor of LP and its permissible successors and
assigns.
(d) LP hereby acknowledges and agrees that all documents, records,
techniques, processes and other business secrets and confidential information
which has come into its possession relating to NTN's Systems and the information
contained in "The Book of All Knowledge" ("Proprietary Information"), excepting
-------------------------
only as such applies to Gaming Applications for the Technology, and which
further includes, without limitation, the identity of customers and confidential
information of those customers, contracts with vendors and suppliers of NTN, NTN
documentation, NTN finances and operations, and applications of Technology to
other than Gaming Applications, is confidential and proprietary to NTN, as the
case may be. LP shall keep confidential and not divulge to any other person
(except for those designated by NTN in writing) all of the Proprietary
Information.
(e) For so long as this Agreement remains in effect, LP shall not,
directly or indirectly, as agent, joint venturer or otherwise, have any direct
or indirect financial interest, nor shall it permit any of its subsidiaries,
affiliates (with respect to any Person, any other Person directly, or indirectly
through one or more intermediaries, controlling, controlled by or under common
control), directors or officers to engage in any form of business competing
directly or indirectly with any of the businesses of NTN anywhere in the world,
which the parties agree for purposes of this provision shall be relating to
NTN's Systems and the information contained in "The Book of All Knowledge",
-------------------------
other than as such is used in connection with Gaming Applications. Ownership by
any of the foregoing of stock listed on a national securities exchange of any
corporation conducting such competing business shall not be deemed to be a
violation of this Section 7(e), provided that such person does not own more than
an aggregate of 5% of the stock of such corporation.
(f) In the event of a breach or any threatened breach by LP of the
provisions of this Agreement, NTN and/or IWN shall be entitled to an injunction
restraining LP from disclosing, in whole or in part, the Proprietary Information
or from participation in violation of this Agreement in any business which
competes directly or indirectly with any of the businesses described herein.
Nothing in this Agreement shall be construed as prohibiting NTN and/or IWN from
pursuing any other remedies available to it for any such breach or threatened
breach, including without limitation, the recovery of damages from LP. The
covenants contained in this Agreement shall run
4
<PAGE>
in favor of NTN, IWN and its/their permissible successors and assigns, and shall
bind LP and its permissible successors, assignees and sublicensees.
8. INDEMNIFICATION.
---------------
(a) IWN agrees to indemnify, defend and hold harmless LP and its
permissible assignees from any and all claims brought by any party and any
expenses (including reasonable attorneys' fees). which arise from the Technology
and the Trademarks relating to (i) a breach of any of the representations and
warranties hereunder and (ii) any claim of infringement of a patent or other
proprietary right held by a third party.
(b) In the event of a claim by a third party, LP or its permissible
assignee shall so notify NTN in writing of any claim within twenty (20) days
following receipt of a claim made by a third party with respect to an alleged
infringement of the Technology and the Trademarks. LP or its permissible
assignees, as the case may be, shall be entitled to control the defense and
settlement thereof provided, however, that any such settlement shall not impose
any obligations or restrictions upon IWN without its prior consent.
9. TECHNOLOGY ESCROW. Not later than ninety (90) days after December 31,
-----------------
1995, NTN shall deposit into escrow all of the source code relating to the
software, and the documentation therefor which is contained in a manual entitled
"The Book of All Knowledge" relating to the software and hardware used in, or in
-------------------------
conjunction with, the System and the Technology, NTN, IWN and LP shall enter
into a mutually agreeable Technology Escrow Agreement governing such deposit
into escrow.
10. ASSIGNMENT. This Agreement may not be assigned by IWN or LP without
----------
the prior written consent of the non-assigning party and NTN, except that LP
shall be permitted to assign its rights herein to a successor to LP, pursuant to
a reorganization of LP for the sole purpose of changing to a corporate form or
other form of business entity, which entity continues the business of LP and is
further subject to the terms and conditions of this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of California without regard
to conflicts of law principles.
12. CONSENT OF NTN TO SUBLICENSE. NTN hereby acknowledges and consents to
----------------------------
this Sublicense. Provided that there has not been a material breach by LP of
this Agreement, or of the North Sublicense Agreement, which breach is reasonably
capable of being cured and of which LP has been given written notice and has
cured such breach within ten (10) days of receipt of such notice, the License
Agreement shall remain in effect for the Term. In the event of a material
breach by LP of this Agreement, NTN shall have the right, in its sole
discretion, to cancel the License Agreement and all sublicenses thereof, which
right shall further entitle NTN to remove all items deposited into the
Technology Escrow as described in Section 9 hereof. Notwithstanding the
foregoing, NTN hereby agrees to take no action to either cancel this Agreement
or to remove any deposits made by NTN into the Technology Escrow in the event of
a breach by IWN, provided that
5
<PAGE>
such breach is not directly in violation of this Agreement or the result of any
actions taken by LP or any of its permissible successors, assigns or
sublicensees.
13. NOTICES. Notices, statements, reports or other communications under
-------
this Agreement shall be in writing and shall be deemed as having been received
as of the date dispatched if sent by telecopier, express mail and addressed as
follows:
If to NTN or IWN:
5966 La Place Court
Carlsbad, California 92008
Attn: Laura Kass, Esquire
Telecopier No. 619-929-5293
With copies to:
Troy & Gould, Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
D. Gould, Esquire
Telecopier No. 310-201-4746
If to LP:
IWN, L.P.
5966 La Place Court
Carlsbad, California 92008
Attn: Colleen Anderson, President
Telecopier No. 619-930-1174
and Symphony IWN Investment LLC
Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21801
Attn: Richard J. Donnelly
Telecopier No. 410-573-5205
and Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn: William R. Sasso, Esquire
Telecopier No. 215-564-8120
or to such other addresses and telecopier numbers as the party to whom notice is
to be given may have previously furnished to the other party in writing.
14. MISCELLANEOUS. This Agreement may be executed in several
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same
6
<PAGE>
instrument. This Agreement, including the exhibits hereto, constitutes the
entire agreement between the parties concerning the subject matter hereof, and
will supersede all previous communications, representations, understandings, and
agreements, either oral or written between the parties. Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
is held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement. This Agreement shall be
deemed to obligate, extend to, and inure to the benefit of the permitted
successors, transferees, grantees, affiliates, indemnities, agents and
representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
<TABLE>
<CAPTION>
<S> <C>
IWN, INC. IWN, L.P.
[SIGNATURE ILLEGIBLE] /s/ Colleen Anderson
By:---------------------------------- By:------------------------
Chairman President & CEO - G.P
Its:--------------------------------- Its:-----------------------
The undersigned acknowledges the terms
and conditions contained in Section 12
hereof and agrees to be legally bound
thereby.
NTN COMMUNICATIONS, INC.
[SIGNATURE ILLEGIBLE]
By:----------------------------------
Chairman
Its:---------------------------------
</TABLE>
7
<PAGE>
EXHIBIT A
- ---------
BROADCAST CENTER ( SERVER ) - CONTROL SOFTWARE
Sender
Queue Manager
Satmon
Operator
Director
Ed Scores
Site Activity
BROADCAST CENTER ( SERVER ) - APPLICATION SOFTWARE
Ref
Emcee
Umpire
Lineman
Commissioner
Judge
Players Plus
HOSPITALITY SITE ( CLIENT ) - CONTROL SOFTWARE
Supervisor
Idsio
HOSPITALITY SITE ( CLIENT ) - APPLICATION SOFTWARE
Trivia ( Countdown/Showdown )
Trivia2 ( Trivial Pursuit )*
Tivia3 ( Sports IQ/Passport/Spotlight)
Qb1*
Diamondball*
Triples
PowerPlay*
Uppercut
Fantasy
ONLINE HOST ( SERVER ) - CONTROL SOFTWARE
Router ( TCP/IP)
Host
8
<PAGE>
ONLINE HOST (SERVER) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
ONLINE USER (CLIENT) - APPLICATION SOFTWARE
Trivia
Qb1*
Fantasy*
INTERNATIONAL SITE (CLIENT) UNIQUE APPLICATION SOFTWARE
Ruggers (Rugby)*
ARF (Australian Rules Football)*
CABLE TV HEADEND (SERVER) SOFTWARE
Qb1*
Poker
BlackJack
Reversi
Checkers
Trivia
Uppercut
Triples
REMOTE DATA TERMINAL HARDWARE (PLAYMAKER)
HOME DATA TERMINAL HARDWARE (BASE STATION)
*Rights derived from third party; restricted
9
<PAGE>
EXHIBIT B
- ---------
NTN COMMUNICATIONS, INC. TRADEMARKS
- -----------------------------------
Brain Buster(R)
Countdown(R)
Dreamteam Baseball and Design(R)
Hoops and Design(R)
Link-up Live and Play The World(R)
Nightside(R)
NTN(R)
NTN DiamondBall(R)*
NTN Entertainment Network(R)
NTN Power Play(R)*
Playmaker(R)
Playersplus(R)
QB1(R)*
Showdown(R)
Sports Trivia(R)
Sports Trivia Challenge(R)
The Face of Entertainment(R)
Triviaoke(R)
Undercover(R)
Uppercut(R)
Viewer's Review(R)
*Rights derived from third party; restricted
10
<PAGE>
EXHIBIT 10.28
Exhibit "8"
NONCOMPETITON AGREEMENT
This Agreement ("Agreement") dated as of December 31, 1995 between and
among IWN, L.P., a limited partnership formed under the laws of the State of
Delaware, with its executive offices located at 5966 La Place Court, Carlsbad,
California 92008 ("Partnership"), IWN, Inc., a Delaware corporation, with its
executive offices located at 5966 La Place Court, Carlsbad, California 92008
("IWN") and NTN Communications, Inc., a Delaware corporation, with its executive
offices located at 5966 La Place Court, Carlsbad, California 92008 ("NTN").
BACKGROUND
Effective as of the date hereof, the Partnership has acquired by
license and otherwise, certain of the business assets of NTN and IWN which
involve two-way interactive, computerized broadcast systems ("Systems") and
certain other related technology ("Technology") used for Gaming Application (as
that term is described herein), all as more fully described in a certain
Investment Agreement dated as of December 31, 1995 ("Investment Agreement"),
among NTN, IWN and Symphony Management Associates, Inc. ("Symphony").
In connection with the Investment Agreement, NTN and IWN shall assign,
transfer and sell certain of its assets related to the Partnership Business (as
that term is defined in the Investment Agreement) and each of NTN, IWN, Symphony
and Symphony IWN Investment LLC shall execute and deliver noncompetition
agreements substantially in the form of this Agreement.
In order to induce NTN to consummate the transactions contemplated by
the Investment Agreement, IWN and the Partnership are willing to make the
covenants and agreements herein set forth.
In consideration of the mutual covenants herein contained and of the
mutual benefits, and intending to be legally bound hereby, the Partnership
agrees as follows:
1. IWN and the Partnership hereby acknowledge and agree that all
proprietary and confidential documents, records, techniques, formulas, processes
and other business secrets and confidential information which have come into its
possession related to the Systems and the Technology other than in connection
with Gaming Applications (collectively, "Interactive Technologies") from
time-to-time which have been used in connection with the Partnership Business
prior to the date hereof or could be used in connection with the Partnership
Business in the future shall be deemed to be confidential and proprietary to NTN
and IWN, as the case may be, whether written or oral, and, if oral, if it is
identified as "confidential" prior to disclosure and which, by virtue of the
nature of the circumstances
<PAGE>
surrounding such disclosure should be considered, in good faith, to be treated
as proprietary and confidential.
2. IWN and the Partnership shall keep confidential and not divulge
to any other person any of the business secrets and confidential information of
NTN which, without limitation, relates to such matters as NTN's business
finances and operations, NTN's materials, processes, equipment, techniques,
plans,formulae, know-how used or related to NTN's business (the Interactive
Technologies as they relate to non-Gamimg Applications), the names of NTN's
customers and their requirements and the names of NTN's suppliersfollowing the
date hereof.
ALL OF NTN's business secrets and confidential information shall,
subject to any licenses and sublicenses between the parties, shall be the sole
and exclusive property of NTN and IWN.
3. For a period of three (3) years from the date hereof, neither
IWN, the Partnership, nor any of its respective directors, officers, owners,
employees, or affiliates shall compete directly or indirectly, or participate
directly or indirectly, as agent, representative or otherwise, or as a
stockholder, joint venturer, partner or otherwise, or have any direct or
indirect material financial interest, including without limitation the interest
of a creditor, in any form in any business competing directly or indirectly with
the business of NTN as presently conducted or with any business of NTN involving
the research, development, marketing, manufacture, distribution, sale or license
of Systems and Interactive Technologies anywhere in the world other than for
Gaming Applications. Ownership by IWN, the Partnership and its respective
owners, directors, officers, employees or affiliates of (1) any stock of NTN in
any amounts whatsoever, and (ii) of other stock other than NTN's stock which is
listed on a national securities exchange of any corporation conducting such
competing business, shall not be deemed a violation of this Section 1, provided
that with respect to clause (ii), that IWN, the Partnership and its respective
associates (as such term is defined in Regulation 14A of the Securities Exchange
Act of 1934, as in effect on the date hereof) collectively do not own more than
an aggregate of 5% of the stock of such entity. For purposes of this Agreement,
"Gaming Applications" shall mean any interaction where any sum of money is
risked on an uncertain outcome, such as casino gaming, pari-mutuel wagering,
lottery, sports betting, bingo, or other forms of gaming or wagering.
4. For a period of three (3) years after the date hereof, IWN and
the Partnership shall not (1) induce or attempt to induce, directly or
indirectly, any customer of NTN to cease doing business in whole or in part with
NTN or solicit the
-2-
<PAGE>
business of any such customer for any products or services which compete with
any of the products or own account or for any other person (including without
limitation any firm, corporation, association or business employee of NTN) to
leave his employment with NTN or induce or attempt to induce any such employee
to breach his employment agreement with NTN.
5. In the event of a breach or any threatened breach by IWN or the
Partnership of the provisions of this Agreement, NTN shall be entitled to an
injunction restraining IWN or the Partnership from participation in violation of
this Agreement in any business which competes directly or indirectly with any of
the business of NTN as currently being conducted or with any business of NTN
involving the research, development, manufacture, distribution, sale or license
of Systems and Interactive Technologies anywhere in the world other than for
Gaming Applications. Nothing contained in this Agreement shall be construed as
prohibiting NTN from pursuing any other remedies available to it for any such
breach or threatened breach, including without limitation the recovery of
damages from the Partnership and any third parties. The covenants contained in
this Agreement shall run in favor of NTN and their respective successors and
assigns and shall survive the expiration or earlier termination of this
Agreement.
In the event of any breach by IWN or the Partnership of the
provisions of Sections 3 and 4 of this Agreement, the time periods set forth in
such paragraphs shall be extended by the length(s) of time during which such
breach was continuing.
6. This Agreement shall not be assigned by the parties hereto except
that NTN shall have the right to assign its rights hereunder or any successor in
interest of NTN, as the case may be, whether by merger, consolidation, purchase
of assets or otherwise.
7. All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand, telecopied or mailed by first class, registered mail, return receipt
requested, postage fees prepaid, or by overnight courier of national reputation
addressed as follows:
(a) If to NTN: NTN Communications, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-929-5289
with a copy to: Troy & Gould, Professional Corporation
1801 Century Park East, 16th Floor
-3-
<PAGE>
Los Angeles, California 90067
Attention: William D. Gould, Esquire
Telecopier No.: 310-201-4746
(b) If to IWN or the Partnership:
c/o IWN, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-930-1174
and
c/o Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21401
Attention: Chief Financial Officer
Telecopier No.: 410-573-5205
and
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Attention: William R. Sasso, Esquire
Telecopier No.: 215-564-8120
Addresses and telecopier numbers may be changed by notice in
writing signed by the addressees.
8. This Agreement embodies the entire agreement and understanding
related to the subject matter hereof between the parties hereto and supersedes
all prior agreements and understandings, oral or written, relating to the
subject matter hereof, and no change, alteration or modification hereof may be
made except in writing signed by the parties hereto. The headings in this
Agreement are for convenience of reference only and shall not be considered as
part of this Agreement nor limit or otherwise affect the meaning hereof. This
Agreement shall in all respects be governed and construed in accordance with the
laws of the State of Delaware.
9. If any one or more of the provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, it shall be enforced to the extent
permitted by law and the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby. To the extent
permitted by applicable law, each party waives any provision of
-4-
<PAGE>
law which renders any portion of this Agreement invalid, illegal or
unenforceable in any respect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
<PAGE>
EXHIBIT 10.29
NONCOMPETITION AGREEMENT
This Agreement ("Agreement") dated as of December 31, 1995 between
IWN, L.P., a limited partnership formed under the laws of the State of Delaware,
with its executive offices located at 5966 La Place Court, Carlsbad, California
92008 ("Partnership"), NTN Communications, Inc., a Delaware corporation, with
its executive offices located at 5966 La Place Court, Carlsbad, California 92008
("NTN"), IWN, Inc., a Delaware corporation ("IWN"), and Symphony Management
Associates, Inc., a Delaware corporation, with its executive offices located at
900 Bestgate Road, Suite 400, Annapolis, Maryland 21401 ("Symphony").
BACKGROUND
Effective as of the date hereof, the Partnership has acquired by
license and otherwise, certain of the business assets of NTN and IWN which
involve two-way interactive, computerized broadcast systems ("Systems") and
certain other related technology ("Technology") used for Gaming Applications (as
that term is described herein), all as more fully described in a certain
Investment Agreement dated as of December 31, 1995 ("Investment Agreement"),
among NTN, IWN and Symphony.
In connection with the Investment Agreement, NTN and IWN shall assign,
transfer and sell certain of its assets related to the Partnership Business (as
that term is defined in the Investment Agreement) and each of NTN, IWN, Symphony
and Symphony IWN Investment LLC shall execute and deliver noncompetition
agreements substantially in the form of this Agreement.
In order to induce Symphony and LLC to consummate the transactions
contemplated by the Investment Agreement, NTN and IWN are each willing to make
the covenants and agreements herein set forth.
In consideration of the mutual covenants herein contained and of the
mutual benefits, and intending to be legally bound hereby, NTN and IWN agree as
follows:
1. NTN and IWN hereby acknowledge and agree that all proprietary and
confidential documents, records, techniques, formulas, processes and other
business secrets and confidential information which have come into its
respective possession related to the Systems and the Technology used in
connection with Gaming Applications (collectively, "Interactive Technologies")
from time-to-time which have been used in connection with the Partnership
Business prior to the date hereof or could be used in connection with the
Partnership Business in the future shall be deemed to be confidential and
proprietary to the Partnership, whether written or oral, and, if oral, if it is
identified as "confidential" prior to disclosure and which, by virtue of the
nature of the circumstances surrounding such disclosure should be
<PAGE>
considered, in good faith, to be treated as proprietary and confidential.
2. NTN and IWN shall each keep confidential and not divulge to any
other person any of the business secrets and confidential information of the
Partnership which, without limitation, relates to such matters as the
Partnership Business' finances and operations, the Partnership's materials,
processes, equipment, techniques, plans, formulae, products, methods and
know-how used or related to the Partnership's Business (the Interactive
Technologies as they relate to Gaming Applications), the names of the
Partnership's customers and their requirements and the names of the
Partnership's suppliers following the date hereof.
All of the Partnership's business secrets and confidential
information shall, subject to any licenses and sublicenses between the parties,
shall be the sole and exclusive property of the Partnership.
3. For a period of three (3) years from the date hereof, neither
NTN, IWN, nor any of its respective directors, officers, shareholders,
employees, or affiliates shall compete directly or indirectly, or participate
directly or indirectly, as agent, representative or otherwise, or as a
stockholder, joint venturer, partner or otherwise, or have any direct or
indirect material financial interest, including without limitation the interest
of a creditor, in any form in any business competing directly or indirectly with
the Partnership Business as presently conducted or with any business of the
Partnership involving the research, development, marketing, manufacture,
distribution, sale or license of Systems and Interactive Technologies anywhere
in the world for Gaming Applications with the exception of IWN's ownership
interest in the Partnership. Ownership by NTN or IWN of stock listed on a
national securities exchange of any corporation conducting such competing
business shall not be deemed a violation of this Section 3, provided NTN or IWN
and its respective associates (as such term is defined in Regulation 14A of the
Securities Exchange Act of 1934, as in effect on the date hereof) collectively
do not own more than an aggregate of 5% of the stock of such entity. For
purposes of this Agreement, "Gaming Applications" shall mean any interaction
where any sum of money is risked on an uncertain outcome, such as casino gaming,
pari-mutuel wagering, lottery, sports betting, bingo, or other forms of gaming
or wagering.
4. For a period of three (3) years after the date hereof, neither
NTN nor IWN shall (i) induce or attempt to induce, directly or indirectly, any
customer of the Partnership to cease doing business in whole or in part with the
Partnership or solicit the business of any such customer for any products or
services which compete with any of the products or own account or
-2-
<PAGE>
for any other person (including without limitation any firm, corporation,
association or business employee of the Partnership) to leave his employment
with the Partnership or induce or attempt to induce any such employee to breach
his employment agreement with the Partnership.
5. In the event of a breach or any threatened breach by NTN or IWN
of the provisions of this Agreement, each of Symphony, LLC and the Partnership
shall be entitled to an injunction restraining NTN and IWN, as the case may be,
from disclosing, in whole or in part, the business secrets and confidential
information described herein, and from rendering services to any other person to
whom such business secrets and confidential information have been disclosed or
are threatened to be disclosed and from participation in violation of this
Agreement in any business which competes directly or indirectly with any of the
business of the Partnership described herein. Nothing contained in this
Agreement shall be construed as prohibiting Symphony, LLC or the Partnership
from pursuing any other remedies available to it for any such breach or
threatened breach, including without limitation the recovery of damages from
NTN, IWN and any third parties. The covenants contained in this Agreement shall
run in favor of Symphony, the Partnership and LLC and their respective
successors and assigns and shall survive the expiration or earlier termination
of this Agreement.
In the event of any breach by NTN or IWN of the provisions of
Section 3 and 4 of this Agreement, the time periods set forth in such paragraphs
shall be extended by the length(s) of time during which such breach was
continuing.
6. This Agreement shall not be assigned by the parties hereto except
that each of Symphony, LLC and the Partnership shall have the right to assign
its rights hereunder or any successor in interest of Symphony, LLC or the
Partnership, as the case may be, whether by merger, consolidation, purchase of
assets or otherwise.
7. All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand, telecopied or mailed by first class, registered mail, return receipt
requested, postage fees prepaid, or by overnight courier of national reputation
addressed as follows:
(a) If to NTN; NTN Communications, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-929-5289
<PAGE>
(b) If to IWN: IWN, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-930-1174
with a copy to: Troy & Gould, Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067
Attention: William D. Gould, Esquire
Telecopier No:. 310-201-4746
(c) If to Symphony or LLC:
Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21401
Attn: Chief Financial Officer
Telecopier No:. 410-573-5205
with a copy to: Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Attention: William R. Sasso, Esquire
Telecopier No:. 215-564-8120
(d) If to the Partnership:
c/o IWN, Inc.
5966 La Place Court
Carlsbad, California 92008
Attention: Chief Executive Officer
Telecopier No.: 619-930-1174
and
c/o Symphony Management Associates, Inc.
900 Bestgate Road, Suite 400
Annapolis, Maryland 21401
Attention: Chief Financial Officer
Telecopier No.: 410-573-5205
Addresses and telecopier numbers may be changed by notice in
writing signed by the addressees.
8. This Agreement embodies the entire agreement and understanding
related to the subject matter hereof between the parties hereto and supersedes
all prior agreements and understandings, oral or written, relating to the
subject matter hereof, and no change, alteration or modification hereof may be
made except in writing signed by the parties hereto. The headings in this
Agreement are for convenience of reference only
-4-
<PAGE>
and shall not be considered as part of this Agreement nor limit or otherwise
affect the meaning hereof. This Agreement shall in all respects be governed and
construed in accordance with the laws of the State of Delaware.
9. If any one or more of the provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, it shall be enforced to the extent
permitted by law and the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby. To the extent
permitted by applicable law, each party waives any provision of law which
renders any portion of this Agreement invalid, illegal or unenforceable in any
request.
10. This Agreement may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed to be an original and
all of which when taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
NTN COMMUNICATIONS, INC
By:_______________________________
Its:
IWN, INC.
By:________________________________
Its: Chairman
SYMPHONY MANAGEMENT ASSOCIATES, INC.
By:________________________________
Its: Treasurer and Secretary
IWN, L.P.
By:________________________________
Its:
-5-
<PAGE>
EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of April
24, 1995, between NTN Communications, Inc., a Delaware corporation, (the
- --
"Corporation"), and an entity advised by Dimensional Fund Advisors Inc. whose
name is set forth at the foot of this Agreement (the "Purchaser").
The Corporation and the purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
---------------------------------------------
1.1 Authorization of the Stock. The Corporation has authorized
--------------------------
issuance and sale of 308,000 shares of its common stock (the "Stock") to
-------
Purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
------------------------------
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $4,3563 per share, $1,341,740.40 in total.
------ ------------
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing shall be held as
---------------------------------
soon as practicable, and in no event more than 10 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
--------------------
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the Stock, with instructions that such certificates are to
held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
---------------------------------------
Purchaser agree to use their respective best
1
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of April
24, 1995, between NTN Communications, Inc., a Delaware corporation, (the
- --
"Corporation") and an entity advised by Dimensional Fund Advisors Inc. whose
name is set forth as the foot of this Agreement (the "Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
---------------------------------------------
1.1 Authorization of the Stock. The Corporation has authorized
--------------------------
issuance and sale of 161,500 shares of its common stock (the "Stock") to
---------
purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
------------------------------
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase of $ 4.3563 per share, $ 703,542.45 in total.
------- -----------
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing shall be held as
---------------------------------
soon as practicable, and in no event more than 10 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
--------------------
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the Stock, with instructions that such certificates are to
be held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
---------------------------------------
Purchaser agree to use their respective best
1
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of April
24, 1995, between NTN Communications, Inc., a Delaware corporation, (the
- --
"Corporation") and an entity advised by Dimensional Fund Advisors Inc. whose
name is set forth as the foot of this Agreement (the "Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
---------------------------------------------
1.1 Authorization of the Stock. The Corporation has authorized
--------------------------
issuance and sale of 124,200 shares of its common stock (the "Stock") to
---------
purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
------------------------------
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $ 4.3563 per share, $ 541,052.46 in total.
------- -----------
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing shall be held as
---------------------------------
soon as practicable, and in no event more than 10 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
--------------------
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the Stock, with instructions that such certificates are to
be held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
---------------------------------------
Purchaser agree to use their respective best
1
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of April
24, 1995, between NTN Communications, Inc., a Delaware corporation, (the
- --
"Corporation") and an entity advised by Dimensional Fund Advisors Inc. whose
name is set forth as the foot of this Agreement (the "Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
---------------------------------------------
1.1 Authorization of the Stock. The Corporation has authorized
--------------------------
issuance and sale of 6,300 shares of its common stock (the "Stock") to
---------
purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
------------------------------
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase of $ 4.3563 per share, $ 27,444,69 in total.
------- ----------
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing shall be held as
---------------------------------
soon as practicable, and in no event more than 10 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
--------------------
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the Stock, with instructions that such certificates are to
be held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
---------------------------------------
Purchaser agree to use their respective best
1
<PAGE>
efforts and to act in good faith to cause to occur all conditions to Closing
which are in their respective control.
SECTION 3
Purchase Price Adjustment
-------------------------
3.1. Subsequent Sale at Lower Price. If during the twelve month
------------------------------
period following the Closing Date, the Corporation sells any shares of its
common stock for a selling price lower than the purchase price per share set
forth in Section 1.2 hereof, the purchase price per share of the Stock sold to
Purchaser hereunder shall be adjusted downward to equal such lower selling
price. The Corporation shall give to the Purchaser prompt written notice of any
such sale.
3.2. Adjustment Mechanism. If an adjustment of the purchase price is
--------------------
required pursuant to this Section the Corporation shall promptly deliver to
Purchaser such number of additional shares of common stock as will cause (i) the
total number of shares of common stock delivered to Purchaser hereunder,
multiplied by (ii) the adjusted purchase price per share, to equal (iii) the
total purchase price set forth in Section 1.2 hereof; provided however, that the
----------------
Corporation shall effect such adjustment in cash, in whole or in part, to the
extent required by the following subsection.
3.3. Limitation on Number of Shares. Purchaser and other entities
------------------------------
advised by Dimensional Fund Advisors Inc. shall not be required to accept, by
way of any such adjustment, a number of shares of the Corporation such that the
total number of such shares held by Purchaser and such other entities, which
were held by them on the date of this Agreement or acquired by them pursuant to
this Agreement or agreements of like tenor with such other entities, would
exceed 4.99% of the total outstanding stock of the Corporation. The Corporation
shall effect the adjustment required by this Section by cash refund to the
extent necessary to avoid causing the aforesaid limitation to be exceeded.
3.4. Capital Adjustments. In case of any stock split or reverse stock
-------------------
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the common stock
of the Corporation, the provisions of this Section shall be applied as if such
capital adjustment event had occurred immediately prior to the Closing Date and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof.
2
<PAGE>
3.5. Exclusions. Section 3.1 shall not apply to sales of shares by the
----------
Corporation (i) upon conversion or exercise of any convertible securities,
options or warrants outstanding on the date hereof, (ii) pursuant to the
provisions of any shareholder-approved employee benefit or incentive plan
heretofore or hereafter adopted by the Corporation, or (iii) to an entity which
is a strategic investor in the Corporation or an investor which is in a related
industry, as opposed to a financial investor.
3.6. Definitions. For purposes of Section 3.1 hereof, a sale of
-----------
shares shall mean and include the sale or issuance of rights, options, warrants
or convertible securities under which the Corporation is or may become obligated
to issue shares of common stock, and the "selling price" of the common stock
covered thereby shall be the exercise or conversion price thereof plus the
consideration (if any) received by the Corporation upon such sale or issuance.
If shares are issued for a consideration other than cash, the "selling price"
shall be the fair value of the such consideration as determined in good faith by
the Board of Directors of the Corporation. The term "Stock" as used in this
Agreement shall include shares issued pursuant to this Section.
SECTION 4
Representations and Warranties of the Corporation
-------------------------------------------------
The Corporation hereby represents and warrants to the Purchaser that:
4.1 Corporate Power, Qualification and Standing. The Corporation and
-------------------------------------------
its subsidiaries are validly existing and in good standing under the laws of
their respective jurisdictions of incorporation and each of them is qualified to
transact business in each jurisdiction in which its ownership of property or
conduct of activities requires such qualification. The Corporation has all
requisite corporate power and authority to enter into this Agreement, to sell
the Stock and to carry out and perform its other obligations under this
Agreement.
4.2 S.E.C. Reports; Financial Statements. The common stock of the
-------------- --------------------
Corporation is registered under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and the Corporation is in full compliance with its reporting and
filing obligations under said Act. The Corporation has delivered to Purchaser
its Annual Reports to shareholders and its reports on Form 10K for its last
three fiscal years, and all its quarterly reports to shareholders, quarterly
reports on Form 10Q, and each other report, registration statement, definitive
proxy statement or other document filed with the S.E.C. since the beginning of
said three fiscal years (collectively, the "SEC Reports"). The SEC Reports do
not (as of their respective dates) contain any untrue statement of a material
fact or omit to state a material fact required to be stated
3
<PAGE>
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The audited and
unaudited financial statements of the Corporation included in the SEC Reports
(the "Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as stated
in such Financial Statements or the notes thereto) and fairly present the
financial position of the Corporation and its consolidated subsidiaries as of
the dates thereof and the results of their operations and changes in financial
position for the periods then ended. Except as publicly disclosed by the
Corporation in the SEC Reports or otherwise, since the end of the most recent of
said fiscal years there has been no material adverse change in the business,
financial condition, or results of operations of the Corporation and its
subsidiaries taken together, and there is no existing condition, event or series
of events which can reasonably be expected to have a material adverse effect on
the business, financial condition or results of operations of the Corporation
and its subsidiaries taken together, or its ability to perform its obligations
under this Agreement.
4.3 Authorization; No Conflict. Execution and delivery of this
--------------------------
Agreement and issuance and sale of the Stock have been duly authorized by all
necessary corporate action of the Corporation, and the Stock when issued will be
validly issued, fully paid and non-assessable. Performance by the Corporation of
its obligations under this Agreement will not conflict with or violate (i) the
charter documents or bylaws of the Corporation, (ii) any indenture, loan
agreement, lease, mortgage or other material agreement binding on the
Corporation, (iii) any order of a court or administrative agency binding on the
Corporation, or (iv) any applicable law or governmental regulation; and such
performance does not and will not require the permission or approval of any
governmental agency, and will not result in the imposition or creation of any
lien or charge against any assets of the Corporation. Except as disclosed in the
Financial Statements or the SEC Reports, (i) the Corporation has no obligation
to redeem or repurchase any of its equity securities, (ii) no shareholder or
other person has pre-emptive or other rights to aquire equity securities of the
Corporation, and (iii) the Corporation has no obligation to register any of its
securities otherwise than pursuant to Section 8 of this Agreement or as
disclosed on Exhibit A hereto.
4.4 Material Agreements; No Defaults. All material indentures, loan
--------------------------------
agreements, leases, mortgages and other agreements binding on the Corporation or
its subsidiaries are identified in the list of exhibits contained in the
Corporation's most recent 10K report ("Other Agreements"). No material default
on the part of the Corporation or any of its subsidiaries (including any event
which, with notice or the passage of time, would constitute a default) exists
under any of the Other Agreements.
4
<PAGE>
4.5 Material Liabilities. Except for liabilities disclosed in the
--------------------
Financial Statements or the SEC Reports, and obligations under the Other
Agreements, the Corporation and its subsidiaries have no material liabilities or
obligations, absolute or contingent, other than liabilities arising in the
ordinary course of business subsequent to the date of the most recent of the
Financial Statements.
4.6 Properties. The Corporation and its subsidiaries (i) have good
----------
title to the properties and assets reflected in the Financial Statements as
owned by them, (ii) have valid leasehold interests in the properties leased by
them, and (iii) own or have the right to use under valid license agreements all
trademarks, trade names, copyrights, patents and other intellectual property
rights regularly utilized by them; subject in each case to no material liens,
security interests or adverse claims except as disclosed in the Financial
Statements or the SEC Reports.
4.7 Litigation. There are no material legal actions, arbitrations,
----------
or administrative proceedings pending against the Corporation or its
subsidiaries, except for the matters disclosed in the SEC Reports.
4.8 Tax Matters. The Corporation and its subsidiaries have filed on
-----------
a timely basis all tax returns required to be filed by them and have paid their
taxes prior to delinquency, and have made adequate accruals for tax liabilities
on the Financial Statements in accordance with generally accepted accounting
principles.
4.9 ERISA Compliance. Neither the Corporation nor any of its
----------------
subsidiaries has incurred any material funding deficiency within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
material liability to the Pension Benefit Guarantee Corporation in connection
with any employee benefit plan. The Corporation and its subsidiaries are in
compliance in all material respects with all applicable provisions of ERISA, and
have no obligations with respect to any multi-employer plan. No "reportable
event" as such term is defined in ERISA, which may result in any material
liability, has occurred with respect to any employee benefit or other plan
maintained for employees of the Corporation or any subsidiary.
4.10 Environmental Matters. Except as disclosed in the SEC Reports,
---------------------
neither the Corporation nor any of its subsidiaries (i) has been notified by
any governmental authority that it is, or may be, a Responsible Party with
respect to cleanup or remediation of any environmental condition or hazardous
waste site, (ii) has violated any law, regulation, order or requirement of
governmental authority with respect to Hazardous Substances, or (iii) has
incurred any material liability for violation or noncompliance with applicable
Environmental Regulations. The term "Environmental Regulations" means any law,
regulation, order or
5
<PAGE>
requirement relating to protection of the environment, including without
limitation, the Clean Air Act, the Clean Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act and
the Toxic Substances Control Act. The term "Hazardous Substance" means any
substance defined or listed as such in any Environmental Regulation.
4.11 Other Matters. The Corporation is not now and will not be after
-------------
giving effect to the receipt of the proceeds from the sale of the Stock an
"Investment Company" within the meaning of the Investment Company act of 1940,
nor will it be controlled by or acting on behalf of any person which is such an
investment company. The Corporation is not selling the Stock "for the purpose of
purchasing or carrying any margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System. The Corporation has not
offered the Stock to any person other than the Purchaser.
SECTION 5
Representations and Warranties of the Purchaser
-----------------------------------------------
The Purchaser represents and warrants to the Corporation that:
5.1 Corporate Power and Authority. It is validly existing and in
-----------------------------
good standing with all requisite power and authority to enter into this
Agreement and carry out its obligations hereunder and has taken all actions
necessary to authorize it to enter into this Agreement and carry out such
obligations.
5.2 Investment. It is acquiring the Stock for investment and not
----------
with the view to, or for resale in connection with, any distribution thereof. It
is an "accredited investor" within the meaning of the Securities Act of 1933 and
the rules thereunder. It understands that the Stock has not been registered
under the Securities Act of 1933 nor qualified under any State blue sky law by
reason of specified exemptions therefrom which depend upon, among other things,
the bona fide nature of its investment intent as expressed herein.
5.3 Rule 144. It acknowledges that the Stock must be held
--------
indefinitely unless it is subsequently registered under the Securities Act of
1933 or an exemption from such registration is available. It has been advised or
is aware of the provisions of the Rule 144 promulgated under the Securities Act.
6
<PAGE>
SECTION 6
Conditions to Obligations of the Purchaser
------------------------------------------
The obligation of the Purchaser to purchase the Stock is subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Corporation shall be true and correct in all material respects
on the Closing Date.
(b) Performance. All covenants, agreements and conditions
-----------
contained in this Agreement to be performed or complied with by the Corporation
on or to the Closing Date shall have been performed or complied with in all
material respects.
(c) Opinion of Corporation's Counsel. The Purchaser shall have
--------------------------------
received from counsel to the Corporation an opinion confirming the
representations set forth in the first sentence of Section 4.3 hereof, and on
the basis of such counsel's review of the Other Agreements and certificates of
officers of the Corporation as to factual matters, confirming the
representations set forth in the second and third sentences of Section 4.3
hereof.
(d) Legal Issuance. At the time of the Closing, the issuance
--------------
and purchase of the Stock shall be legally permitted by all laws and regulations
to which the Purchaser and the Corporation are subject.
(e) Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory in
form and substance to the Purchaser and its counsel.
(f) Satisfaction of Obligations to Broker. The Corporation
-------------------------------------
shall have furnished the Purchaser with assurances satisfactory to the Purchaser
that the Corporation has satisfied its obligations to any broker entitled to
compensation in connection with the sale of the Stock.
SECTION 7
Conditions to Obligations of the Corporation
--------------------------------------------
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
7
<PAGE>
(a) Representation and Warranties. The representations
-----------------------------
and warranties made by the Purchaser shall be true and correct in all material
respects on the Closing Date.
(b) Legal Issuance. At the time of the Closing, the issuance
--------------
and purchase of the stock shall be legally permitted by all laws and
regulations to which the Purchaser and the Corporation are subject.
(c) Payment. The Corporation shall concurrently receive payment
-------
for the stock as provided in Section 2.
SECTION 8
Covenant to Register
--------------------
(a) For purposes of this Section 8, the following definitions shall
apply:
(i) The terms "register", "registered", and "registration" refer
to a registration under the Securities Act of 1933, as amended (the "Act")
effected by preparing and filing a registration statement or similar
document in compliance with the Act or an amendment thereto, and the
declaration or ordering of effectiveness of such registration statement,
document or amendment thereto.
(ii) The term "Registrable Securities" means the Stock and any
securities of the Corporation or securities of any successor corporation
issued as, or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as, a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Stock.
(b) (i) The Corporation shall file a registration statement on
Form S-3 promptly after the Closing Date, covering all the Registrable
Securities, and shall use its best efforts to cause such registration
statement to become effective within 45 days. From time to time
thereafter, Purchaser shall have the right to require by notice in writing
that the Corporation register all or any part of the Registrable Securities
held by Purchaser (a "Demand Registration") and the Corporation shall
thereupon such registration in accordance herewith.
(ii) The Corporation shall not be obligated to effect Demand
Registration (i) if all intended of the Registrable Securities held by
Purchaser which are intended to be covered by the Demand Registration are,
at the time of the request of a Demand Registration, included in an
effective registration
8
<PAGE>
statement and the Corporation is in compliance with its obligations under
Subsection (d)(ii) through (v) hereof with respect to such registration
statement, or (ii) within 120 days after the effective date of any other
registration as to which Purchaser was given piggy-back rights pursuant to
subsection (c) hereof and in which Purchaser was able to register and sell
at least eighty percent (80%) of the Registrable Securities requested by
Purchaser to be included in such registration.
(c) If the Corporation proposes to register (including for this
purpose a registration effected by the Corporation for shareholders other than
the Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
S-4, Form S-8 or other limited purpose form) and the Registrable Securities have
not heretofore been included in a registration statement under Subsection (b),
which remains effective, the Corporation shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after receipt of such notice by the
Purchaser, the Corporation shall use its best efforts to cause to be registered
under the Act all Registrable Securities that the Purchaser requests to be
registered. However, the Corporation shall have no obligation under this
Subsection (c) to the extent that, with respect to a public offering
registration, any underwriter of such public offering reasonably requests that
the Registrable Securities or a portion thereof be excluded therefrom.
(d) Whenever required under this Section 8 to effect the registration
of any Registrable Securities, the Corporation shall, as expeditiously as
reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration to become effective and, upon the request of the
Purchaser, keep such registration statement effective for so long as
Purchaser desires to dispose of the securities covered by such registration
statement (but not after Purchaser in the reasonable opinion of its counsel
is free to sell such securities under the provisions of Rule 144(k) under
the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus,
9
<PAGE>
in conformity with the requirements of the 1933 Act, and such other
documents as the Purchaser may reasonably request in order to facilitate
the disposition of Registrable Securities owned by Purchaser.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested
by Purchaser, provided that the Corporation shall not be required in
connection therewith or as a condition thereto to qualify to do business
or to file a general consent to service and process in any such states
or jurisdictions.
(v) Notify Purchaser of the happening of any event as a result
of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therin or necessary to make the
statements therein not misleading in light of the circumstances then
existing.
(vi) Furnish, at the request of Purchaser, an opinion of counsel
of the Corporation, dated the effective date of the registration statement,
as to the due authorization and issuance of the securities being registered
and compliance with securities laws by the Corporation in connection with
the authorization and issuance thereof.
(e) The Purchaser will furnish to the Corporation in connection with
any registration under this Section 8 such information regarding itself, the
Registrable Securities and other securities of the Corporation held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by Purchaser.
(f) (i) The Corporation shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c), any
underwriter (as defined in the Act) for such holder, and the directors,
officers and controlling persons of such holder or underwriter from and
against, and shall reimburse all of them with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities,
costs or expenses ("Liabilities") to which any of them may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in
10
<PAGE>
which they were made, not misleading; provided, however, that the
-------- -------
Corporation shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing
specifically for use in the preparation thereof.
(ii) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend, and hold harmless the Corporation, its directors and
officers, and shall reimburse the Corporation, its directors and officers
with respect to, any and all Liabilities to which any of them may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict conformity
with written information furnished by or on behalf of such holder
specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant to
the provisions of Subsection (f) (i) or (f) (ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
Subsection (f)(i) or (f)(ii), promptly notify the indemnifying party of the
commencement thereof; provided, however, that the failure to so notify the
-------- -------
indemnifying party shall not relieve it from its indemnification
obligations hereunder except to the extent that the indemnifying party is
materially prejudiced by such failure. If such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to the assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however, if
-------- -------
the defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses different from or in addition to
those available to the indemnifying party, or if there is conflict of
interest which would prevent counsel for the indemnifying
11
<PAGE>
partly from also representing the indemnified party, the indemnified party
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party pursuant to Subsection (f) (i) or (f) (ii) for any
expense of counsel subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation,unless (A) the indemnified party shall have employed counsel
in accordance with the provisions of the preceding sentence, or (B) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action. An indemnifying
party shall not be responsible for amounts paid in settlement without its
consent, provided that its consent may not be unreasonably withheld .
(g) (i) With respect to the inclusion of Registrable Securities in
a registration statement pursuant to subsections (b) or (c), all fees,
costs and expenses of and incidental to such registration, inclusion and
public offering shall be borne by the Corporation; provided, however, that
any securityholders participating in such registration shall bear their pro
rata share of the underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne by
the Corporation as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses fees
and disbursements of counsel and accountants for the Corporation, and all
legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Fees and
disbursements of counsel and accountants for the selling securityholders
shall, however, be borne by respective selling securityholder.
(h) The rights to cause the Corporation to register all or any
portion of Registrable Securities pursuant to this Section 8 may be
assigned by Purchaser to a transferee or assignee of 20% or more of the
Stock. Within a reasonable time after such transfer the Purchaser shall
notify the Corporation of the name and address of such transferee or
assignee and the securities with respect to which such registration rights
are being assigned. Such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act. Any transferee
asserting
12
<PAGE>
registration rights hereunder shall be bound by the provisions of Section 8.
(i) From and after the date of this Agreement, the Corporation
shall not agree to allow the holders of any securities of the Corporation to
include any of their securities in any registration statement filed by the
Corporation pursuant to Subsection (b) unless the inclusion of such securities
will not reduce the amount of the Registrable Securities included therein.
SECTION 9
Affirmative Covenants of the Corporation
----------------------------------------
The Corporation hereby covenants that, during such time as the
Purchaser (or one of its affiliates) owns any Stock, or for four years,
whichever period is shorter :
9.1 Reports and Financial Statements.
--------------------------------
(a) The Corporation will cause its common stock to continue to
be registered under Sections 12(b) or 12(g) of the Securities Exchange Act of
1934, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Corporation will take all action necessary to continue the
listing or trading of its common stock on any national securities exchange or
the Automated Quotation System of the National Association of Securities Dealers
on which such common stock is listed or traded, and will comply in all respects
with its reporting, filing and other obligations under respects with its
reporting, filing and other obligations under the bylaws or rules of said
exchange or Association.
(b) The Corporation will furnish to the Purchaser, concurrently
with the public distribution or filing thereof, each annual and quarterly report
to its shareholders, its reports on Form 10K and 10Q, and each other report,
registration statement, definitive proxy statement or other document filed with
the S.E.C., and each press release or other public announcement issued by the
Corporation.
9.2 Maintenance of Office. The Corporation will maintain an office
---------------------
or agency in the United States at such address as may be designed in writing
from time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
13
<PAGE>
9.3 Maintenance and Compliance. The Corporation will (i) maintain
---------------------------
its corporation existence, rights, powers and privileges in good standing, (ii)
comply in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
Section 13(b) (2) of the Securities Exchange Act of 1934, and (iv) retain
independent public accountants of recognized national standing as auditors of
the Corporation's annual financial statements.
9.4 Assignment of Rights. The rights of the Purchaser hereunder may
---------------------
be assigned by the Purchaser in connection with the transfer or assignment to a
single transferee of not less than 20% of the Stock originally purchased by the
Purchaser hereunder, and such rights may be further reassigned by such
transferee to another such single transferee. Any transferee asserting rights
under this Agreement shall be bound by its provisions.
9.5 Effect of Covenants. The covenants in Section 9.1 and 9.3 shall
--------------------
not be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 10
Legend on Stock
---------------
Each certificate representing the Stock shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under any applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of any
such legend, if the Corporation shall have received either an opinion of counsel
or a no-action" letter of the S.E.C., in either case reasonably satisfactory in
14
<PAGE>
substance to the Corporation and its counsel, to the effect that such legend is
no longer required.
SECTION 11
Miscellaneous
-------------
11.1 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California. Any action or
proceeding relating to this Agreement may be brought in the courts of California
sitting in Los Angeles County, or in the United States courts located in Los
Angeles County, California, and each of the parties irrevocably consents to the
jurisdiction of such courts in any such action or proceeding.
11.2 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 Entire Agreement; Amendment. This Agreement (including any
---------------------------
Exhibit hereto) and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated except by a written instrument
signed by the Corporation and the Purchaser.
11.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger, addressed (a) if to the Purchaser, as
indicated below the Purchaser's signature, or at such other address as the
Purchaser shall have furnished to the Corporation in writing, or (b) if to any
other holder of any Stock, at the address of such holder as shown on the records
of the Corporation, or (c) if to the Corporation, at its address set forth below
or at such other address as the Corporation shall have furnished to the
Purchaser and each such other holder in writing. All such notices or
communications shall be deemed given when actually delivered by hand, messenger,
facsimile or mailgram or, if mailed, three days after deposit in the U.S. mail.
11.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement (including any holder of
Stock), upon any breach or default of another party under this Agreement, shall
impair any such right, power or remedy of such party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or
15
<PAGE>
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement or by law or
otherwise afforded to any party, shall be cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and subtitles. The titles of the Sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one investment.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
NTN Communications, Inc.
By: /s/ Patrick J. Downs
-------------------------------------
Address: 2121 Palomar Airport Road
Suite 205
Carished, California 92009-1422
Purchaser: U.S. 6-10 Small Company Series
By: The DFA Investment Trust Company
By: /s/ Irene R. Diamont
-------------------------------------
Address: c/o Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, California 90401
15
<PAGE>
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement or by law or
otherwise afforded to any party, shall be cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and subtitles. The titles of the Sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one investment.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
NTN Communications, Inc.
By: /s/ Patrick J. Downs
-------------------------------------
Address: 2121 Palomar Airport Road
Suite 205
Carished, California 92009-1422
Purchaser: DFA Group Trust - 6-10 Subtrust
By: Dimensional Fund Advisors, Inc.
By: /s/ Irene R. Diamont
-------------------------------------
Address: Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, California 90401
16
<PAGE>
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement or by law or
otherwise afforded to any party, shall be cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and subtitles. The titles of the Sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one investment.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
NTN Communications, Inc.
By: /s/ Patrick J. Downs
-------------------------------------
Address: 2121 Palomar Airport Road
Suite 205
Carished, California 92009-1422
Purchaser: U.S. 9-10 Small Company Portfolio
By: DFA Investment Dimensions Group, Inc.
By: /s/ Irene R. Diamont
-------------------------------------
Address: Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, California 90401
16
<PAGE>
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement or by law or
otherwise afforded to any party, shall be cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and subtitles. The titles of the Sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one investment.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
NTN Communications, Inc.
By: /s/ Patrick J. Downs
-------------------------------------
Address: 2121 Palomar Airport Road
Suite 205
Carished, California 92009-1422
Purchaser: DFA Group Trust - Small Company
Subtrust
By: Dimensional Fund Advisors, Inc.
By: /s/ Irene R. Diamont
-------------------------------------
Address: Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, California 90401
16
<PAGE>
Exhibit A
---------
Registration Rights
The holders of the following securities of the Company have the
registration rights indicated:
<TABLE>
<CAPTION>
Number of
Securities Outstanding Nature of
Security (4/21/95) Rights
-------- ---------------------- ---------
<S> <C> <C>
WC Warrants 759,000 Piggyback rights; Form S-3
currently effective as to
496,500 warrants and
warrant shares
WE Warrants 770,000 Piggyback rights; Form S-3
currently effective as to
all warrants and warrant
shares
Nonredeemable Warrants 1,570,429 Piggyback rights; Form S-3
currently effective as to
all warrants and warrant
shares
Common Stock 155,500 Form S-3 currently effective
as to all shares
Common Stock 512,500 Piggyback rights
Common Stock * *
</TABLE>
__________________
* The Company also has in effect a Form S-3 registration statement relating
to the sale by certain selling shareholders of shares of Common Stock
originally issued in 1991. As of July 11, 1994, the date of the last
amendment to this Form S-3, there were 2,168,000 such shares registered.
All or substantially all of such shares are otherwise currently saleable,
without restriction, under Rule 144(k).
<PAGE>
EXHIBIT 10.31
INVESTMENT AGREEMENT
between
NTN COMMUNICATIONS, INC.
and
THE INVESTOR NAMED HEREIN
Dated as of September 29, 1995
The securities to be purchased and sold pursuant to this Investment
Agreement have not been registered under the Securities Act of 1933, as amended,
(the "Act") or any state securities laws. They may not be offered or sold in
the absence of an effective registration statement as to the securities under
said Act and any applicable State securities law or an applicable exemption from
the registration requirements of the Act.
<PAGE>
INVESTMENT AGREEMENT dated as of September 29, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, 250,000 shares of the Company's Common
Stock (the "Shares"). The number of shares to be sold shall be subject to
adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal $1,000,000, payable in cash by wire transfer
or cashier's check in immediately available funds. The Purchase Price shall be
subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Period.
------------------------------
(a) The number of Shares that the Company shall be obligated to sell
and the Investor shall be obligated to purchase, in the aggregate, is referred
to herein as the "Share Number." Subject to adjustment as provided in Sections
1.3(c) and 1.3(e), the initial Share Number shall be the number set forth in
Section 1.1.
(b) The "Valuation Period" shall be a 60 trading day period commencing
January 15, 1996, or the first business day after the registration statement
referred to in Section 1.7 becomes effective, whichever is later, as the same
may be modified pursuant to Section 1.9 or Section 4.2(c) hereof; provided,
however, that the parties by mutual written consent may extend the Valuation
Period by up to 30 additional trading days; and provided further that the
Investor may, by notice to the Company, cause the Valuation Period to commence
at any time on or after April 15, 1996 if such registration statement has not
become effective by such date.
(c) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price (hereinafter defined) during the Valuation Period is less than
$4.70, then the Company shall deliver to the Investor, at no additional cost,
the number (if a positive number) of shares of Common Stock that is obtained by
subtracting (x) the initial Share Number and (y) the number of any additional
shares issued pursuant to Section 1.3(e) from (z) the quotient obtained by
dividing the Purchase Price by 85% of the Average Share Price (rounded to the
nearest whole number) (together with any additional shares issued pursuant to
Section 1.3(e), the "Additional Shares").
<PAGE>
INVESTMENT AGREEMENT dated as of September 29, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, 250,000 shares of the Company's Common
Stock (the "Shares"). The number of shares to be sold shall be subject to
adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal $1,000,000, payable in cash by wire transfer
or cashier's check in immediately available funds. The Purchase Price shall be
subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Period.
------------------------------
(a) The number of Shares that the Company shall be obligated to sell
and the Investor shall be obligated to purchase, in the aggregate, is referred
to herein as the "Share Number." Subject to adjustment as provided in Sections
1.3(c) and 1.3(e), the initial Share Number shall be the number set forth in
Section 1.1.
(b) The "Valuation Period" shall be a 60 trading day period commencing
January 15, 1996, or the first business day after the registration statement
referred to in Section 1.7 becomes effective, whichever is later, as the same
may be modified pursuant to Section 1.9 or Section 4.2(c) hereof; provided,
however, that the parties by mutual written consent may extend the Valuation
Period by up to 30 additional trading days; and provided further that the
Investor may, by notice to the Company, cause the Valuation Period to commence
at any time on or after April 15, 1996 if such registration statement has not
become effective by such date.
(c) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price (hereinafter defined) during the Valuation Period is less than
$4.70, then the Company shall deliver to the Investor, at no additional cost,
the number (if a positive number) of shares of Common Stock that is obtained by
subtracting (x) the initial Share Number and (y) the number of any additional
shares issued pursuant to Section 1.3(e) from (z) the quotient obtained by
dividing the Purchase Price by 85% of the Average Share Price (rounded to the
nearest whole number) (together with any additional shares issued pursuant to
Section 1.3(e), the "Additional Shares").
1
<PAGE>
INVESTMENT AGREEMENT dated as of September 29, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, 525,000 shares of the Company's Common
Stock (the "Shares"). The number of shares to be sold shall be subject to
adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal $2,100,000, payable in cash by wire transfer
or cashier's check in immediately available funds. The Purchase Price shall be
subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Period.
------------------------------
(a) The number of Shares that the Company shall be obligated to sell
and the Investor shall be obligated to purchase, in the aggregate, is referred
to herein as the "Share Number." Subject to adjustment as provided in Sections
1.3(c) and 1.3(e), the initial Share Number shall be the number set forth in
Section 1.1.
(b) The "Valuation Period" shall be a 60 trading day period commencing
January 15, 1996, or the first business day after the registration statement
referred to in Section 1.7 becomes effective, whichever is later, as the same
may be modified pursuant to Section 1.9 or Section 4.2(c) hereof; provided,
however, that the parties by mutual written consent may extend the Valuation
Period by up to 30 additional trading days; and provided further that the
Investor may, by notice to the Company, cause the Valuation Period to commence
at any time on or after April 15, 1996 if such registration statement has not
become effective by such date.
(c) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price (hereinafter defined) during the Valuation Period is less than
$4.70, then the Company shall deliver to the Investor, at no additional cost,
the number (if a positive number) of shares of Common Stock that is obtained by
subtracting (x) the initial Share Number and (y) the number of any additional
shares issued pursuant to Section 1.3(e) from (z) the quotient obtained by
dividing the Purchase Price by 85% of the Average Share Price (rounded to the
nearest whole number) (together with any additional shares issued pursuant to
Section 1.3(e), the "Additional Shares").
1
<PAGE>
(d) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price during the Valuation Period is greater than $4.70, the Investor
shall pay to the Company by wire transfer in immediately available funds the
dollar amount by which (x) the product of 85% of the Average Share Price and the
initial Share Number exceeds (y) the Purchase Price paid pursuant to Section
1.2.
(e) In the event that the Company, on or prior to the end of the
Valuation Period, issues or sells any shares of its Common Stock or any of its
securities which are convertible into or exchangeable for its Common Stock or
any warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock (other than shares or options issued pursuant
to the Company's option plans and shares issued upon exercise of options,
warrants and other rights outstanding on the Closing Date or as provided on
Exhibit A hereto), at a purchase price (the "Subsequent Sale Price") which is
- ---------
less than the Purchase Price divided by the initial Share Number, then the
Company shall deliver to the Investor, at no additional cost and in addition to
the Share Number, the number of shares of Common Stock that is obtained by
subtracting (x) the Share Number from (y) the quotient obtained by dividing the
Purchase Price by the Subsequent Sale Price (rounded to the nearest whole
number).
(f) For purposes hereof, the Average Share Price shall mean the
average of the closing prices of the Company's Common Stock on the American
Stock Exchange or on the principal stock exchange on which the Common Stock is
listed, as reported by the American Stock Exchange or such other exchange, as
the case may be, for all trading days during the Valuation Period.
Section 1.4 Installment Delivery; Payment and Settlement
--------------------------------------------
(a) At the end of each fifth trading day during the Valuation Period
(an "interim recomputation date") an interim computation shall be made to
determine whether additional shares would be deliverable assuming the actual
Average Share Price during the Valuation Period up to the interim recomputation
date becomes the Average Share Price for the entire Valuation Period. If, based
on the interim computation, additional shares would be required to be delivered,
then on the second business day following each successive interim recomputation
date the Company shall deliver to the Investor a portion of such additional
shares equal to the total number of such additional shares (less those already
delivered pursuant to this Section) divided by "x", where "x" is the total
number of trading days remaining in the Valuation Period after the last interim
computation date divided by five.
(b) A final determination shall be made at the end of the Valuation
Period and any shares then due pursuant to Section 1.3(c) shall be delivered on
the second business day thereafter, and any excess shares delivered shall then
be returned by the Investor. Any cash payment due from the Investor pursuant to
Section 1.3(d) shall be made on said second business day.
2
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Section 1.5 Termination of Reset Process
----------------------------
At any time prior to the end of the Valuation Period, the parties may
agree in writing to terminate the Valuation Period.
Section 1.6 The Closing.
-----------
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Investor, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Investor and
the Company may agree. The date on which the Closing occurs is referred to
herein as the "Closing Date."
(b) (i) On the Closing Date, the Company shall deliver to the
Investor certificates representing the Share Number to be issued and sold to the
Investor on such date and registered in the name of the Investor or deposit such
Share Number into the accounts designated by the Investor and (ii) on the
Closing Date, the Investor shall deliver to the Company the Purchase Price by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Company. In addition, each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to the Closing.
Section 1.7 Covenant to Register. For purposes of this Section 1.7, the
--------------------
following definitions shall apply:
(a) (i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the "Act")
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Shares and any
Additional Shares issued pursuant to Section 1.3 hereof and any securities of
the Company or securities of any successor corporation issued as, or issuable
upon the conversion or exercise of any warrant, right or other security that is
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of, the Shares and any Additional Shares issued pursuant to
Section 1.3 hereof.
(iii) The term "holder of Registrable Securities" means the
Investor and any permitted assignee of registration rights pursuant to Section
1.7(h).
(b) (i) The Company shall, as expeditiously as possible following
the Closing, file a registration statement on Form S-3 or an equivalent form
covering all the Registrable Securities, and shall cause such registration
statement to become effective by January
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15, 1996 (the "Initial Registration"). In the event such registration is not so
declared effective or does not include all Registrable Securities, a holder of
Registrable Securities shall have the right to require by notice in writing that
the Company register all or any part of the Registrable Securities held by such
holder (a "Demand Registration") and the Company shall thereupon effect such
registration in accordance herewith. The parties agree that if the holder of
Registrable Securities demands registration of less than all of the Registrable
Securities, the Company, at its option, may nevertheless file a registration
statement covering all of the Registrable Securities. If such registration
statement is declared effective with respect to all Registrable Securities and
the Company is in compliance with its obligations under Subsection (d)(ii)
through (v) hereof, the demand registration rights granted pursuant to this
Section 1.7 (b) (i) shall cease. If such registration statement is not declared
effective with respect to all Registrable Securities the demand registration
rights described herein shall remain in effect until all Registrable Securities
have been registered under the Act.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (i) if all of the Registrable Securities held by
the holder of Registrable Securities which are demanded to be covered by the
Demand Registration are, at the time of the request of a Demand Registration,
included in an effective registration statement and the Company is in compliance
with its obligations under Subsection (d) (ii) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Section 1.7(b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC").
(iv) If a registration statement covering all Registrable
Securities is not effective by February 1, 1996, then the Company shall pay the
Investor a penalty of 3% of the total number of Registrable Securities in
additional shares, and if not effective by 30 days thereafter, an additional
penalty of 3% in additional shares for each 30 day period thereafter that such a
registration statement is not effective (pro-rata as to a period of less than 30
days). Such shares shall be issued within five business days after the end of
each relevant date or period, or part thereof. Such shares shall constitute
"Shares" and "Registrable Securities" as defined herein. If delivery of such
shares would cause Investor to be required to file a statement under Section
13(d) of the Securities Exchange Act of 1934, then in lieu of such delivery the
Company shall pay to Investor in cash the value of such shares determined by the
last reported trading price of such shares on the last day of the relevant date
or period. This subsection is subject to the provisions of Section 7.2(a)
hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Investor)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) which remains
effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder
4
<PAGE>
of Registrable Securities given within twenty (20) days after receipt of such
notice by the holder of Registrable Securities, the Company shall use its best
efforts to cause to be registered under the Act all Registrable Securities that
such holder of Registrable Securities requests to be registered. However, the
Company shall have no obligation under this Subsection (c) to the extent that,
with respect to a public offering registration, any underwriter of such public
offering reasonably notifies such holder(s) in writing of its determination that
the Registrable Securities or a portion thereof should be excluded therefrom.
(d) Whenever required under this Section to effect the registration
of any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration to become
effective and, upon the request of the Investor, keep such registration
statement effective, pursuant to the provisions of Regulation (S)(S) 230.415
under the Act or otherwise, for so long as any holder of Registrable Securities
desires to dispose of the securities covered by such registration statement (but
not after the holder of Registrable Securities, in the reasonable opinion of its
counsel, is free to sell such securities in any three month period under the
provisions of Rule 144 under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus, including a preliminary prospectus,
in conformity with the requirements of the Act, and such other documents as each
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by the
holder of Registrable Securities, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service and process in any such states
or jurisdictions.
(v) Notify each holder of Registrable Securities of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus.
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<PAGE>
(vi) Furnish, at the request of any holder of Registrable
Securities, an opinion of counsel of the Company, dated the effective date of
the registration statement, as to the due authorization and issuance of the
securities being registered and compliance with securities laws by the Company
in connection with the authorization, issuance and registration thereof.
(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Common Stock is then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement.
(e) Each holder of Registrable Securities will furnish to the Company
in connection with any registration under this Section such information
regarding itself, the Registrable Securities and other securities of the Company
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) from and against, and shall
reimburse such holder with respect to, any and all claims, suits, demands,
causes of action, losses, damages, liabilities, costs or expenses
("Liabilities") to which such holder may become subject under the Act or
otherwise, arising from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
----------
the Company shall not be liable in any such case to the extent that any such
Liability arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished by such holders in writing specifically
for use in the preparation thereof.
(ii) Any holder of Registrable Securities which are included in
a registration statement pursuant to the provisions of Subsection (b) or (c)
shall indemnify, defend and hold harmless the Company and shall reimburse the
Company with respect to any Liabilities to which the Company may become subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading, in
each case if (but only if) and to the extent that any such Liability arises out
of or is based upon an untrue statement or omission so made in conformity
6
<PAGE>
with information furnished by such holder in writing specifically for use in the
preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant to
the provisions of Subsections (f)(i) or (f)(ii) of notice of the commencement of
any action involving the subject matter of the foregoing indemnity provisions,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party hereunder, promptly notify the indemnifying party
in writing thereof, but the omission so to notify the indemnifying party shall
not relieve such party from its indemnification obligations hereunder except to
the extent that the indemnifying party is materially prejudiced by such
omission. The indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to the
indemnified party under this section for any legal expenses subsequently
incurred in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided, however, that
----------
if the defendants in any such action include both the Company and a holder of
Registrable Securities and the indemnified party shall have reasonably
concluded, based on the advice of counsel, that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by indemnifying party as
incurred.
(g) (i) With respect to the inclusion of Registrable Securities in
a registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; provided, however, that any securityholders
participating in such registration shall bear their pro rata share of the
underwriting discounts and commissions, if any, incurred in connection with such
registration.
(ii) The fees, costs and expenses of registration to be borne
by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing, stock exchange and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company, and
all legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Fees and
disbursements of counsel and accountants for the selling securityholders shall,
however, be borne by the respective selling securityholders.
(h) (i) The rights to cause the Company to register all or any
portion of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of 20% or more, in the aggregate, of the
Shares and the Additional Shares. Within a
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<PAGE>
reasonable time after such transfer the Investor shall notify the Company of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned. Such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Act. Any
transferee shall agree in writing at the time of transfer to be bound by the
provisions of this Agreement.
(ii) From and after the date of this Agreement, the Company
shall not agree to allow the holders of any securities of the Company to include
any of their securities in any registration statement filed by the Company
pursuant to Subsection (b) unless the inclusion of such securities will not
reduce the amount of the Registrable Securities included therein.
(i) The Investor's right to receive Additional Shares shall be deemed
to be a "transferable warrant" as such term is used in General Instruction I.B.4
of Form S-3 under the Act.
Section 1.8 Adjustments. Subject to the provisions of Section 1.4, if an
-----------
Investor shall be entitled to the issuance of Additional Shares, the Company
shall deliver to the Investor at the offices of the Investor on the third (3d)
business day after the end of the Valuation Period one or more certificates
representing the Additional Shares so to be delivered in accordance with this
Agreement, registered in the name of the Investor, or deposit such Additional
Shares into accounts designated by the Investor; provided, however, that if the
sum of the shares then beneficially owned by the Investor, and any Additional
Shares then issuable to the Investor, as determined by the Investor, in its sole
determination shall equal 4.99% or more of the shares of Company's Common Stock
issued and outstanding (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) then, and in such event, (x) the number of
Additional Shares to be issued to the Investor pursuant to this paragraph shall
be reduced to the number which, together with the Share Number, shall equal
4.99% of the shares of the Company's Common Stock issued and outstanding (as so
determined), and (y) in consideration for such reduction in Additional Shares,
the Company shall pay to the Investor a sum equal to the greater of (a) the
product of 85% of the Average Share Price and the reduction in the Additional
Shares to be issued as a result of the preceding clause (x), and (b) the product
of the Subsequent Sale Price and the reduction in the Additional Shares to be
issued as a result of the preceding clause (x).
Section 1.9 Rescheduling. If after the date hereof and prior to the
------------
expiration of the Valuation Period any person shall (a) publicly announce a
tender offer or exchange offer for the Company's Common Stock, or (b) publicly
announce plans for a merger, consolidation, sale of substantially all assets or
potential change in control of the Company, the Investor may in its sole
discretion elect by written notice to the Company to shorten the Valuation
Period so as to end on a date which is either before or after the record date
for the consummation of any such transaction, which election must be made prior
to consummation of any such transaction. For purposes of the foregoing, it is
understood and agreed that the Investor may, but shall not be required to,
reduce or entirely eliminate the Valuation Period or reschedule the Valuation
Period.
8
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ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation
------------------------------
duly incorporated and existing in good standing under the laws of the State of
Delaware, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
active subsidiaries, except for those identified in the SEC Documents (as
hereinafter defined). Each of the Company and its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary and where the failure so to qualify would
have a Material Adverse Effect. "Material Adverse Effect" means any adverse
effect on the operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlling or controlled by such entity taken as a
whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement and to
issue the Shares and the Additional Shares in accordance with the terms hereof,
(ii) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
--------------
the shares thereof currently issued and outstanding are as most recently
described in the SEC Documents and there have been no changes (except for
changes described on Exhibit A) therein since such description. All of the
outstanding shares of the Company's Common Stock have been validly issued and
are fully paid and nonassessable. Except as set forth in Exhibit A hereto and
---------
as described in the SEC Documents, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, or commitments to purchase or acquire, any shares, or securities
or rights convertible into shares, of capital stock of the Company. The Company
has furnished to the Investor true and correct copies of the
9
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Company's Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as in effect on the date hereof (the
"By-Laws").
(d) Issuance of Shares. The issuance of the Shares and Additional
------------------
Shares has been duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(e) No Conflicts. The execution, delivery and performance of
------------
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Company's Certificate or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree (including Federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investor
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for possible violations which either singly or in the aggregate do not
have a Material Adverse Effect. The Company is not required under Federal, state
or local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Additional
Shares in accordance with the terms hereof (other than the filing of a Form D
with the SEC, any stock exchange filings or state securities filings which may
be required to be made by the Company subsequent to the Closing, and any
registration statement which may be filed in accordance with Section 1.7
herein); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of
-----------------------------------
the Company is registered pursuant to Section 12(g) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d), in addition to
one or more registration statements and amendments thereto heretofore filed by
the Company with the SEC (all of the foregoing including filings incorporated by
reference therein being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to the Investor true and complete copies of the
quarterly and annual (including, without limitation, proxy information and
solicitation materials) SEC Documents filed with the SEC since December 31,
1994. The Company has not provided to the Investor any information
10
<PAGE>
which, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since December 31, 1994, the date
--------------------------
through which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company except as otherwise disclosed or reflected in other SEC Documents
prepared through or as of a date subsequent to December 31, 1994, except that
the Company has continued to incur losses from operations and decreases in
working capital.
(h) No Undisclosed Liabilities. The Company has no liabilities
--------------------------
or obligations not disclosed in the SEC Documents, other than those incurred in
the ordinary course of the Company's business since June 30, 1995 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
(i) No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its business, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
Section 2.2 Representations and Warranties of the Investor. The Investor
----------------------------------------------
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) The Investor has the
--------------------------
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold hereunder, (ii) the execution and delivery of
this Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of the Investor
11
<PAGE>
or its Board of Directors, stockholders, or partners, as the case may be, is
required, (iii) this Agreement has been duly authorized, executed and delivered
by the Investor, and (iv) this Agreement constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of
------------
this Agreement and the consummation by the Investor of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Investor's charter documents or By-Laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Investor is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Investor or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate have a Material Adverse Effect on the Investor). The business of the
Investor is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not have a Material Adverse Effect. The Investor is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or purchase the
Shares or the Additional Shares in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, the Investor is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(c) Investment Representation. The Investor is purchasing the
-------------------------
Shares and, if any, the Additional Shares for investment purposes and not with a
view towards distribution. Investor has no present intention to sell the Shares
or the Additional Shares and the Investor has no present arrangement (whether or
not legally binding) at any time to sell the Shares or the Additional Shares to
or through any person or entity; provided, however, except as provided in
subsection (f) below, that by making the representations herein, the Investor
does not agree to hold the Shares or the Additional Shares for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Additional Shares at any time in accordance with Federal securities laws
applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor
-------------------
as defined in Regulation (S)(S) 230.501 promulgated under the Act.
(e) Rule 144. The Investor understands that the Shares and any
--------
Additional Shares must be held indefinitely unless such Shares or Additional
Shares are subsequently registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
12
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(f) Limitations. Notwithstanding the foregoing, the Investor shall
-----------
not sell (including a short sale), transfer or otherwise dispose of the Shares,
or any Additional Shares issued to the Investor, at any time before January 15,
1996; provided however that the Investor shall not be prohibited from selling at
any time any securities of the Company which were not acquired pursuant to this
Agreement. During the Valuation Period the Investor will only transfer or
otherwise dispose of its shares in accordance with all applicable laws, and in
the event the Investor engages in short sale transactions or other hedging
activities during the Valuation Period which involve, among other things, sales
of Common Stock of the Company, Investor will, to the extent within its
reasonable control, conduct such activities so as not to complete or effect any
such sale on any trading day during such period at a price which is lower than
the lowest sale effected on such day by persons other than the Investor.
ARTICLE III
Covenants
---------
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the SEC and the American Stock Exchange,
in accordance with their respective requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the filing of a Form D with the SEC,
for the legal and valid issuance of the Shares and the Additional Shares to the
Investor.
(b) The Investor understands that the Shares and, if any, the
Additional Shares, are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Shares.
Section 3.2 Corporate. (a) From the date hereof through the third
---------
business day after the end of the Valuation Period the Company shall not (i)
amend its Certificate or By-Laws so as to adversely affect any rights of the
Investor; (ii) split, combine or reclassify its Common Stock or declare or set
aside or pay any dividend or other distribution with respect to its Common Stock
unless provision is made to fully protect the rights of the Investor; (iii)
issue or sell, directly or indirectly, shares of the Company's Common Stock in a
manner or upon terms as could reasonably be expected to affect the market for
the Common Stock materially and adversely; or (iv) enter into any agreement with
respect to the foregoing. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Shares or Additional
13
<PAGE>
Shares hereunder, such shares of Common Stock as shall from time to time be
issuable or reasonably be expected to be issuable as Shares or Additional Shares
hereunder.
(b) The Company will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to any registration statement filed pursuant to
Section 1.7 herein, and will not take any action or file any document (whether
or not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said act, except as permitted herein. The Company will take
all reasonable steps necessary to continue the listing or trading of its Common
Stock on the American Stock Exchange and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of said exchange.
ARTICLE IV
Conditions
----------
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
-------------------------------------------------------------
the Shares. The obligation hereunder of the Company to issue and/or sell the
- ----------
Shares or the Additional Shares to the Investor is further subject to the
satisfaction, at or before the respective issuance and deliveries thereof, of
each of the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor' Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed,
---------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such date.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Listing. The Shares shall have been approved for listing by the
-------
American Stock Exchange.
Section 4.2 Conditions Precedent to the Investor's Obligation to Purchase
-------------------------------------------------------------
the Shares. The obligation of the Investor hereunder to acquire and pay for the
- ----------
Shares is subject to the satisfaction, at or before the Closing, of each of the
conditions set forth below. These conditions
14
<PAGE>
are for the Investor's sole benefit and may be waived by the Investor at any
time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date), and the Shares shall have been approved for listing by the
American Stock Exchange.
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) Trading. From the date hereof to the Closing Date, as to the
-------
Shares to be issued and delivered on the Closing Date, trading in the Company's
Common Stock shall not have been suspended by the SEC or the American Stock
Exchange (except for any suspension of trading of limited duration agreed to
between the Company and the American Stock Exchange solely to permit
dissemination of material information regarding the Company), and trading in
securities generally shall not have been suspended or limited or minimum prices
shall not have been established. Notwithstanding the foregoing sentence, in the
event that at any point on or prior to the first day of the Valuation Period
trading in the Common Stock is suspended by the SEC or the American Stock
Exchange, (i) calculation of the Average Stock Price shall be suspended for such
period of time as trading in the Common Stock is suspended and (ii) the
Valuation Period shall be reset so that such Valuation Period shall begin on the
2nd calendar day following the end of such suspension or the day specified in
Section 1.3(b), whichever is later, and shall end (subject to Sections 1.3(b)
and 1.9) on the 60th trading day thereafter on which quotations for the
Company's Common Stock on the American Stock Exchange are available. In the
event that the Company's Common Stock is delisted from the American Stock
Exchange at any time during the Valuation Period or in the event that trading in
the Common Stock is suspended for a period of more than thirty (30) days
subsequent to the commencement of the Valuation Period, (a) the Valuation Period
will be deemed to have concluded on the date on which the Common Stock was
delisted or such trading was suspended, (b) the Average Stock Price shall be
calculated based on the number of days in such shortened Valuation Period, and
(c) the Investor shall receive any Additional Shares pursuant to Section 1.3(c)
or shall pay any additional purchase price pursuant to Section 1.3(d) within
five (5) business days of the conclusion of the shortened Valuation Period.
References herein to the American Stock Exchange shall be interpreted to mean
the principal national securities exchange on which the Common Stock is listed,
so long as such listing remains in effect.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
15
<PAGE>
(e) Opinion of Counsel, Etc. At the Closing the Investor shall have
-----------------------
received an opinion of counsel to the Company of the kind customary in
transactions such as those contemplated hereby, in form and substance reasonably
satisfactory to the Investor and their counsel, and such other certificates and
documents as the Investor or their counsel shall reasonably require incident to
the Closing.
ARTICLE V
Legend on Stock
---------------
Each certificate representing the Shares issued pursuant to Section 1.3
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
16
<PAGE>
ARTICLE VI
Termination
-----------
Section 6.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by action
-----------------
of the Board of Directors or other governing body of the Investor or the Company
at any time if the Closing shall not have been consummated by the fifth business
day following the date of this Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
-------------
Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses
-----------------
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided that the Company
shall pay, at the Closing, all attorneys' fees and expenses reasonably incurred
by the Investor and Cappello Capital Corp., up to a maximum of $25,000, in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the transactions contemplated hereunder. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance of
the Shares or the Additional Shares pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in California for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or
17
<PAGE>
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Investor consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
in this paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and thereby and, except as specifically set forth herein, neither the Company
nor the Investor makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: NTN Communications, Inc.
Patrick Downs, Chairman and CEO
5966 La Place Court
Carlsbad, California 92008
with copies to: Troy & Gould Professional
Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067
Attention: William D. Gould
to the Investor: At the address set forth at the foot of
this Agreement, with copies to
Investor's counsel as set forth at the
foot of this Agreement or as may be
specified in writing by Investor
18
<PAGE>
with copies to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Any party hereto may from time to time change its address for notices under this
Section 7.4 by giving at least 10 days' written notice of such changed address
to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
--------
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may amend this Agreement without notice to or the consent of any
third party. Neither the Company nor the Investor shall assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other (which consent may be withheld for any reason in the sole discretion of
the party from whom consent is sought); provided, however, that the Company may
assign its rights and obligations hereunder to any acquirer of substantially all
of the assets or a controlling equity interest of the Company. The assignment
by a party of this Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of Delaware without
regard to the principles of conflict of laws.
Section 7.10 Survival. The representations and warranties of the Company
--------
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I and III shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In
19
<PAGE>
the event any signature is delivered by facsimile transmission, the party using
such means of delivery shall cause four additional executed signature pages to
be physically delivered to the other party within five days of the execution and
delivery hereof
Section 7.12 Publicity. The Company and the Investor shall consult and
---------
cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Offense Group Associates, L.P.
By: /s/ Jerry R. Welsh
-------------------------------------------------------
Name: Jerry R. Welsh
Its: Senior Vice President
Investor's address:
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Att'n: Richard J. Farber
Name and address of Investor's counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Att'n: Neil J. Wertlieb, Esq.
20
<PAGE>
the event any signature is delivered by facsimile transmission, the party using
such means of delivery shall cause four additional executed signature pages to
be physically delivered to the other party within five days of the execution and
delivery hereof
Section 7.13 Publicity. The Company and the Investor shall consult and
---------
cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Arbco Associates, L.P.
By: /s/ Jerry R. Welsh
-------------------------------------------------------
Name: Jerry R. Welsh
Its: Senior Vice President
Investor's address:
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Att'n: Richard J. Farber
Name and address of Investor's counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Att'n: Neil J. Wertlieb, Esq.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Kayne, Anderson Non-Traditional
Investments, L.P.
By: /s/ Jerry R. Welsh
-------------------------------------------------------
Name: Jerry R. Welsh
Its: Senior Vice President
Investor's address:
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Att'n: Richard J. Farber
Name and address of Investor's counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Att'n: Neil J. Wertlieb, Esq.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Banque Scandinave en Suisse
By: /s/ Jacques Pitschi
-------------------------------------------------------
Name: Jacques Pitschi
Its:
Investor's address:
Cours de Rive, 11
1211 Geneve 3
Switzerland
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: The Gifford Fund
By: /s/ Dawn Davies
-------------------------------------------------------
Name: Dawn Davies
Its: Vice President
Investor's address: P. O. Box N9204
Charlotte House, Charlotte Street
Nassau, Bahamas
20
<PAGE>
the event any signature is delivered by facsimile transmission, the party using
such means of delivery shall cause four additional executed signature pages to
be physically delivered to the other party within five days of the execution and
delivery hereof
Section 7.14 Publicity. The Company and the Investor shall consult and
---------
cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Pictet et Cie.
By:
______________________________________________________
Name:
Its:
Investor's address:
100 Rue de Rhone
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Societe Financiere Mirelis S.A.
By: /s/ Gerard Simonet and Albert Lawi
------------------------------------------------------
Name: Gerard Simonet Albert Lawi
Its: Vice President Director
Investor's address: Rue de la Corraterie 12
1211 Geneve 3
Switzerland
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Hudson, Inc. (Panama)
By: /s/ Rolain Levy
-------------------------------------------------------
Name: Roland Levy
Its: Director/Attorney in Facts
Investor's address: Avenue C. F. Ramuz, 27
1009 Pully, Vaud
Switzerland
20
<PAGE>
the event any signature is delivered by facsimile transmission, the party using
such means of delivery shall cause four additional executed signature pages to
be physically delivered to the other party within five days of the execution and
delivery hereof
Section 7.15 Publicity. The Company and the Investor shall consult and
---------
cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-------------------------------------------------------
Name: Patrick J. Downs
Its: Chairman/CEO
THE INVESTOR: Carousel Investments, Inc.
By: /s/ Peter Luggan, Jr.
------------------------------------------------------
Name: Peter Luggan, Jr.
Its: Director
Investor's address: Carousel Investments, Inc.
c/o FIZ AG
P. O. Box 4258
6304 Zug
Switzerland
20
<PAGE>
EXHIBIT 10.32
INVESTMENT AGREEMENT
between
NTN COMMUNICATIONS, INC.
and
THE INVESTOR NAMED HEREIN
Dated as of October 4, 1995
The securities to be purchased and sold pursuant to this Investment
Agreement have not been registered under the Securities Act of 1933, as amended,
(the "Act") or any state securities laws. They may not be offered or sold in
the absence of an effective registration statement as to the securities under
said Act and any applicable State securities law or an applicable exemption from
the registration requirements of the Act.
<PAGE>
INVESTMENT AGREEMENT dated as of October 4, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, [600,000] shares of the Company's
Common Stock (the "Shares"). The number of shares to be sold shall be subject
to adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal [$2,400,000], payable in cash by wire
transfer or cashier's check in immediately available funds. The Purchase Price
shall be subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Periods.
-------------------------------
(a) The number of Shares that the Company shall be obligated to
sell and the Investor shall be obligated to purchase, in the aggregate, is
referred to herein as the "Share Number." Subject to adjustment as provided in
Sections 1.3(c) and 1.3(e), the initial Share Number shall be the number set
forth in Section 1.1.
(b) The "First Valuation Period" shall be a 60 trading day
period commencing January 15, 1996, or the first business day after the
registration statement referred to in Section 1.7 becomes effective, whichever
is later, as the same may be modified pursuant to Section 1.9 or Section 4.2(c)
hereof and the "Second Valuation Period" shall be a 60 trading day period
commencing on the fifth business day immediately following the last business day
of the First Valuation Period, as the same may be modified pursuant to Section
1.9 or Section 4.2(c) hereof; provided, however, that the parties by mutual
written consent may extend either Valuation Period by up to 30 additional
trading days; and provided further that the Investor may, by notice to the
Company, cause the First Valuation Period to commence at any time on or after
April 30, 1996 if such registration statement has not become effective by such
date.
(c) Subject to the provisions of Section 1.4 hereof, if the
Average Share Price (hereinafter defined) during either Valuation Period is less
than $4.70, then the Company shall deliver to the Investor, at no additional
cost, the number (if a positive number) of shares of Common Stock that is
obtained by subtracting (x) one-half the initial Share Number and (y) the number
of any additional shares issued pursuant to Section 1.3(e) from (z) the quotient
obtained by dividing one-half the Purchase Price by 85% of the Average Share
Price (rounded to the
1
<PAGE>
INVESTMENT AGREEMENT dated as of October 4, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, [200,000] shares of the Company's
Common Stock (the "Shares"). The number of shares to be sold shall be subject
to adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal [$800,000], payable in cash by wire transfer
or cashier's check in immediately available funds. The Purchase Price shall be
subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Periods.
-------------------------------
(a) The number of Shares that the Company shall be obligated to
sell and the Investor shall be obligated to purchase, in the aggregate, is
referred to herein as the "Share Number." Subject to adjustment as provided in
Sections 1.3(c) and 1.3(e), the initial Share Number shall be the number set
forth in Section 1.1.
(b) The "First Valuation Period" shall be a 60 trading day
period commencing January 15, 1996, or the first business day after the
registration statement referred to in Section 1.7 becomes effective, whichever
is later, as the same may be modified pursuant to Section 1.9 or Section 4.2(c)
hereof and the "Second Valuation Period" shall be a 60 trading day period
commencing on the fifth business day immediately following the last business day
of the First Valuation Period, as the same may be modified pursuant to Section
1.9 or Section 4.2(c) hereof; provided, however, that the parties by mutual
written consent may extend either Valuation Period by up to 30 additional
trading days; and provided further that the Investor may, by notice to the
Company, cause the First Valuation Period to commence at any time on or after
April 30, 1996 if such registration statement has not become effective by such
date.
(c) Subject to the provisions of Section 1.4 hereof, if the
Average Share Price (hereinafter defined) during either Valuation Period is less
than $4.70, then the Company shall deliver to the Investor, at no additional
cost, the number (if a positive number) of shares of Common Stock that is
obtained by subtracting (x) one-half the initial Share Number and (y) the number
of any additional shares issued pursuant to Section 1.3(e) from (z) the quotient
obtained by dividing one-half the Purchase Price by 85% of the Average Share
Price (rounded to the
1
<PAGE>
INVESTMENT AGREEMENT dated as of October 4, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
---------------------------------
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, [200,000] shares of the Company's
Common Stock (the "Shares"). The number of shares to be sold shall be subject
to adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
--------------
(the "Purchase Price") shall equal [$800,000], payable in cash by wire transfer
or cashier's check in immediately available funds. The Purchase Price shall be
subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Periods.
-------------------------------
(a) The number of Shares that the Company shall be obligated to
sell and the Investor shall be obligated to purchase, in the aggregate, is
referred to herein as the "Share Number." Subject to adjustment as provided in
Sections 1.3(c) and 1.3(e), the initial Share Number shall be the number set
forth in Section 1.1.
(b) The "First Valuation Period" shall be a 60 trading day
period commencing January 15, 1996, or the first business day after the
registration statement referred to in Section 1.7 becomes effective, whichever
is later, as the same may be modified pursuant to Section 1.9 or Section 4.2(c)
hereof and the "Second Valuation Period" shall be a 60 trading day period
commencing on the fifth business day immediately following the last business day
of the First Valuation Period, as the same may be modified pursuant to Section
1.9 or Section 4.2(c) hereof; provided, however, that the parties by mutual
written consent may extend either Valuation Period by up to 30 additional
trading days; and provided further that the Investor may, by notice to the
Company, cause the First Valuation Period to commence at any time on or after
April 30, 1996 if such registration statement has not become effective by such
date.
(c) Subject to the provisions of Section 1.4 hereof, if the
Average Share Price (hereinafter defined) during either Valuation Period is less
than $4.70, then the Company shall deliver to the Investor, at no additional
cost, the number (if a positive number) of shares of Common Stock that is
obtained by subtracting (x) one-half the initial Share Number and (y) the number
of any additional shares issued pursuant to Section 1.3(e) from (z) the quotient
obtained by dividing one-half the Purchase Price by 85% of the Average Share
Price (rounded to the
1
<PAGE>
nearest whole number) (together with any additional shares issued pursuant to
Section 1.3(e), the "Additional Shares").
(d) Subject to the provisions of Section 1.4 hereof, if the
Average Share Price during either Valuation Period is greater than $4.70, the
Investor shall pay to the Company by wire transfer in immediately available
funds the dollar amount by which (x) the product of 85% of the Average Share
Price and one-half the initial Share Number exceeds (y) one-half of the Purchase
Price paid pursuant to Section 1.2.
(e) In the event that the Company, on or prior to the end of
either Valuation Period, issues or sells any shares of its Common Stock or any
of its securities which are convertible into or exchangeable for its Common
Stock or any warrants or other rights to subscribe for or to purchase or any
options for the purchase of its Common Stock (other than shares or options
issued pursuant to the Company's option plans and shares issued upon exercise of
options, warrants and other rights outstanding on the Closing Date or as
provided on Exhibit A hereto), at a purchase price (the "Subsequent Sale Price")
---------
which is less than the Purchase Price divided by the initial Share Number, then
the Company shall deliver to the Investor, by the second business day
immediately following the end of such Valuation Period, at no additional cost
and in addition to the Share Number, the number of shares of Common Stock that
is obtained by subtracting (x) the Share Number from (y) the quotient obtained
by dividing the Purchase Price by the Subsequent Sale Price (rounded to the
nearest whole number). In case there is more than one such event during a
Valuation Period, the number of shares delivered to the Investor shall be
determined on the basis of the lowest Subsequent Sale Price during said period.
(f) For purposes hereof, the Average Share Price shall mean the
average of the closing prices of the Company's Common Stock on the American
Stock Exchange or on the principal stock exchange on which the Common Stock is
listed, as reported by the American Stock Exchange or such other exchange, as
the case may be, for all trading days during each Valuation Period.
Section 1.4 Payment and Settlement. A final determination shall be made
----------------------
at the end of each Valuation Period and any shares then due pursuant to Section
1.3(c) shall be delivered on the second business day thereafter, and any excess
shares delivered shall then be returned by the Investor. Any cash payment due
from the Investor pursuant to Section 1.3(d) shall be made on said second
business day.
Section 1.5 Termination of Reset Process
----------------------------
At any time prior to the end of either Valuation Period, the
parties may agree in writing to terminate such Valuation Period.
2
<PAGE>
Section 1.6 The Closing.
-----------
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Investor, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Investor and
the Company may agree. The date on which the Closing occurs is referred to
herein as the "Closing Date."
(b) (i) On the Closing Date, the Company shall deliver to the
Investor certificates representing the Share Number to be issued and sold to the
Investor on such date and registered in the name of the Investor or deposit such
Share Number into the accounts designated by the Investor and (ii) on the
Closing Date, the Investor shall deliver to the Company the Purchase Price by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Company. In addition, each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to the Closing.
Section 1.7 Covenant to Register. For purposes of this Section 1.7, the
--------------------
following definitions shall apply:
(a) (i) The terms "register," "registered," and
"registration" refer to a registration under the Securities Act of 1933, as
amended (the "Act") effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Shares
and any Additional Shares issued pursuant to Section 1.3 hereof and any
securities of the Company or securities of any successor corporation issued as,
or issuable upon the conversion or exercise of any warrant, right or other
security that is issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of, the Shares and any Additional Shares
issued pursuant to Section 1.3 hereof.
(iii) term "holder of Registrable Securities" means the
Investor and any permitted assignee of registration rights pursuant to Section
1.7(h).
(b) (i) The Company shall, as expeditiously as possible
following the Closing, file a registration statement on Form S-3 or an
equivalent form covering all the Registrable Securities, and shall cause such
registration statement to become effective by January 15, 1996 (the "Initial
Registration"). In the event such registration is not so declared effective or
does not include all Registrable Securities, a holder of Registrable Securities
shall have the right to require by notice in writing that the Company register
all or any part of the Registrable Securities held by such holder (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith. The parties agree that if the holder of
3
<PAGE>
Registrable Securities demands registration of less than all of the Registrable
Securities, the Company, at its option, may nevertheless file a registration
statement covering all of the Registrable Securities. If such registration
statement is declared effective with respect to all Registrable Securities and
the Company is in compliance with its obligations under Subsection (d)(ii)
through (v) hereof, the demand registration rights granted pursuant to this
Section 1.7 (b) (i) shall cease. If such registration statement is not declared
effective with respect to all Registrable Securities the demand registration
rights described herein shall remain in effect until all Registrable Securities
have been registered under the Act.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (i) if all of the Registrable Securities held by
the holder of Registrable Securities which are demanded to be covered by the
Demand Registration are, at the time of the request of a Demand Registration,
included in an effective registration statement and the Company is in compliance
with its obligations under Subsection (d) (ii) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Section 1.7(b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC").
(iv) If a registration statement covering all Registrable
Securities is not effective by February 1, 1996, then the Company shall pay the
Investor a penalty of 3% of the total number of Registrable Securities in
additional shares, and if not effective by 30 days thereafter, an additional
penalty of 3% in additional shares for each 30 day period thereafter that such a
registration statement is not effective (pro-rata as to a period of less than 30
days). Such shares shall be issued within five business days after the end of
each relevant date or period, or part thereof. Such shares shall constitute
"Shares" and "Registrable Securities" as defined herein. If delivery of such
shares would cause Investor to be required to file a statement under Section
13(d) of the Securities Exchange Act of 1934, then in lieu of such delivery the
Company shall pay to Investor in cash the value of such shares determined by the
last reported trading price of such shares on the last day of the relevant date
or period. This subsection is subject to the provisions of Section 7.2(a)
hereof.
(c) If the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Investor) any of its stock or other securities under the Act in connection with
a public offering of such securities (other than a registration on Form S-4,
Form S-8 or other limited purpose form) and all Registrable Securities have not
theretofore been included in a registration statement under Subsection (b) which
remains effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be registered under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this Subsection
(c) to the extent that, with respect to a public offering registration, any
underwriter of such public offering
4
<PAGE>
reasonably notifies such holder(s) in writing of its determination that the
Registrable Securities or a portion thereof should be excluded therefrom.
(d) Whenever required under this Section to effect the
registration of any Registrable Securities, including, without limitation, the
Initial Registration, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration to become
effective and, upon the request of the Investor, keep such registration
statement effective, pursuant to the provisions of Regulation (S)(S) 230.415
under the Act or otherwise, for so long as any holder of Registrable Securities
desires to dispose of the securities covered by such registration statement (but
not after the holder of Registrable Securities, in the reasonable opinion of its
counsel, is free to sell such securities in any three month period under the
provisions of Rule 144 under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus, including a preliminary prospectus,
in conformity with the requirements of the Act, and such other documents as each
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by the
holder of Registrable Securities, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service and process in any such states
or jurisdictions.
(v) Notify each holder of Registrable Securities of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus.
(vi) Furnish, at the request of any holder of Registrable
Securities, an opinion of counsel of the Company, dated the effective date of
the registration statement, as to the due authorization and issuance of the
securities being registered and compliance with securities laws by the Company
in connection with the authorization, issuance and registration thereof.
5
<PAGE>
(vii) Use its best efforts to list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock is then listed;
(viii) Make available for inspection by the holder of
Registrable Securities, upon request, all SEC Documents (as defined below) filed
subsequent to the Closing and require the Company's officers, directors and
employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement.
(e) Each holder of Registrable Securities will furnish to the
Company in connection with any registration under this Section such information
regarding itself, the Registrable Securities and other securities of the Company
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities.
(f) (i) The Company shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) from and against,
and shall reimburse such holder with respect to, any and all claims, suits,
demands, causes of action, losses, damages, liabilities, costs or expenses
("Liabilities") to which such holder may become subject under the Act or
otherwise, arising from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
--------
the Company shall not be liable in any such case to the extent that any such
Liability arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished by such holders in writing specifically
for use in the preparation thereof.
(ii) Any holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of Subsection
(b) or (c) shall indemnify, defend and hold harmless the Company and shall
reimburse the Company with respect to any Liabilities to which the Company may
become subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or (B) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, in each case if (but only if) and to the extent that any such
Liability arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished by such holder in writing specifically
for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party
pursuant to the provisions of Subsections (f)(i) or (f)(ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim
6
<PAGE>
in respect thereof is to be made against an indemnifying party hereunder,
promptly notify the indemnifying party in writing thereof, but the omission so
to notify the indemnifying party shall not relieve such party from its
indemnification obligations hereunder except to the extent that the indemnifying
party is materially prejudiced by such omission. The indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to the indemnified party
under this section for any legal expenses subsequently incurred in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected, provided, however, that if the defendants in
----------
any such action include both the Company and a holder of Registrable Securities
and the indemnified party shall have reasonably concluded, based on the advice
of counsel, that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party, or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by indemnifying party as incurred.
(g) (i) With respect to the inclusion of Registrable
Securities in a registration statement pursuant to Subsections (b) or (c), all
fees, costs and expenses of and incidental to such registration, inclusion and
public offering shall be borne by the Company; provided, however, that any
securityholders participating in such registration shall bear their pro rata
share of the underwriting discounts and commissions, if any, incurred in
connection with such registration.
(ii) The fees, costs and expenses of registration to be
borne by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing, stock exchange and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company, and
all legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Fees and
disbursements of counsel and accountants for the selling securityholders shall,
however, be borne by the respective selling securityholders.
(h) (i) The rights to cause the Company to register all or any
portion of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of 20% or more, in the aggregate, of the
Shares and the Additional Shares. Within a reasonable time after such transfer
the Investor shall notify the Company of the name and address of such transferee
or assignee and the securities with respect to which such registration rights
are being assigned. Such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act. Any transferee shall agree
in writing at the time of transfer to be bound by the provisions of this
Agreement.
7
<PAGE>
(ii) From and after the date of this Agreement, the
Company shall not agree to allow the holders of any securities of the Company to
include any of their securities in any registration statement filed by the
Company pursuant to Subsection (b) unless the inclusion of such securities will
not reduce the amount of the Registrable Securities included therein.
(i) The Investor's right to receive Additional Shares shall be
deemed to be a "transferable warrant" as such term is used in General
Instruction I.B.4 of Form S-3 under the Act.
Section 1.8 Adjustments. Subject to the provisions of Section 1.4, if an
-----------
Investor shall be entitled to the issuance of Additional Shares, the Company
shall deliver to the Investor at the offices of the Investor on the third (3d)
business day after the end of each Valuation Period one or more certificates
representing the Additional Shares so to be delivered in accordance with this
Agreement, registered in the name of the Investor, or deposit such Additional
Shares into accounts designated by the Investor; provided, however, that if the
sum of the shares then beneficially owned by the Investor, and any Additional
Shares then issuable to the Investor, and shares held by or issuable to persons
who may constitute a "group" with Investor for purposes of Section 13(d) of the
Securities Exchange Act of 1934 as determined by the Investor in its sole
determination, shall equal 4.99% or more of the shares of Company's Common Stock
issued and outstanding (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) then, and in such event, (x) the number of
Additional Shares to be issued to the Investor pursuant to this paragraph shall
be reduced to the number which, together with the Share Number, shall equal (as
to such group) 4.99% of the shares of the Company's Common Stock issued and
outstanding (as so determined), and (y) in consideration for such reduction in
Additional Shares, the Company shall pay to the Investor a sum equal to the
greater of (a) the product of 85% of the Average Share Price and the reduction
in the Additional Shares to be issued as a result of the preceding clause (x),
and (b) the product of the Subsequent Sale Price and the reduction in the
Additional Shares to be issued as a result of the preceding clause (x).
Section 1.9 Rescheduling. If after the date hereof and prior to the
------------
expiration of the Valuation Periods any person shall (a) publicly announce a
tender offer or exchange offer for the Company's Common Stock, or (b) publicly
announce plans for a merger, consolidation, sale of substantially all assets or
potential change in control of the Company, the Investor may in its sole
discretion elect by written notice to the Company to shorten each Valuation
Period so as to end on a date which is either before or after the record date
for the consummation of any such transaction, which election must be made prior
to consummation of any such transaction. For purposes of the foregoing, it is
understood and agreed that the Investor may, but shall not be required to,
reduce or entirely eliminate either Valuation Period or reschedule either
Valuation Period.
ARTICLE II
Representations and Warranties
8
<PAGE>
Section 2.1 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a
------------------------------
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any active subsidiaries, except for those identified in the SEC
Documents (as hereinafter defined). Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. "Material Adverse Effect" means
any adverse effect on the operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
material to such entity and other entities controlling or controlled by such
entity taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the
--------------------------
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Shares and the Additional Shares in accordance with the terms
hereof, (ii) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
--------------
and the shares thereof currently issued and outstanding are as most recently
described in the SEC Documents and there have been no changes (except for
changes described on Exhibit A) therein since such description. All of the
outstanding shares of the Company's Common Stock have been validly issued and
are fully paid and nonassessable. Except as set forth in Exhibit A hereto and
---------
as described in the SEC Documents, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, or commitments to purchase or acquire, any shares, or securities
or rights convertible into shares, of capital stock of the Company. The Company
has furnished to the Investor true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as in effect on the date hereof (the
"By-Laws").
9
<PAGE>
(d) Issuance of Shares. The issuance of the Shares and
------------------
Additional Shares has been duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and non-
assessable.
(e) No Conflicts. The execution, delivery and performance of
-------------
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Company's Certificate or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree (including Federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investor
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for possible violations which either singly or in the aggregate do not
have a Material Adverse Effect. The Company is not required under Federal, state
or local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Additional
Shares in accordance with the terms hereof (other than the filing of a Form D
with the SEC, any stock exchange filings or state securities filings which may
be required to be made by the Company subsequent to the Closing, and any
registration statement which may be filed in accordance with Section 1.7
herein); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of
------------------------------------
the Company is registered pursuant to Section 12(g) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d), in addition to
one or more registration statements and amendments thereto heretofore filed by
the Company with the SEC (all of the foregoing including filings incorporated by
reference therein being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to the Investor true and complete copies of the
quarterly and annual (including, without limitation, proxy information and
solicitation materials) SEC Documents filed with the SEC since December 31,
1994. The Company has not provided to the Investor any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. As of their
respective dates, the SEC Documents complied
10
<PAGE>
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) No Material Adverse Change. Since December 31, 1994, the
---------------------------
date through which the most recent annual report of the Company on Form 10-K has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company except as otherwise disclosed or reflected in other SEC Documents
prepared through or as of a date subsequent to December 31, 1994, except that
the Company has continued to incur losses from operations and decreases in
working capital.
(h) No Undisclosed Liabilities. The Company has no liabilities
---------------------------
or obligations not disclosed in the SEC Documents, other than those incurred in
the ordinary course of the Company's business since June 30, 1995 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
(i) No Undisclosed Events or Circumstances. No event or
---------------------------------------
circumstance has occurred or exists with respect to the Company or its business,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
Section 2.2 Representations and Warranties of the Investor. The Investor
----------------------------------------------
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) The Investor has the
--------------------------
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold hereunder, (ii) the execution and delivery of
this Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of the Investor or
its Board of Directors, stockholders, or partners, as the case may be, is
required, (iii) this Agreement has been duly authorized, executed and delivered
by the Investor, and (iv) this Agreement constitutes a valid and binding
obligation of the Investor enforceable against the
11
<PAGE>
Investor in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of
-------------
this Agreement and the consummation by the Investor of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Investor's charter documents or By-Laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Investor is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Investor or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate have a Material Adverse Effect on the Investor). The business of the
Investor is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not have a Material Adverse Effect. The Investor is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or purchase the
Shares or the Additional Shares in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, the Investor is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(c) Investment Representation. The Investor is purchasing the
--------------------------
Shares and, if any, the Additional Shares for investment purposes and not with a
view towards distribution. Investor has no present intention to sell the Shares
or the Additional Shares and the Investor has no present arrangement (whether or
not legally binding) at any time to sell the Shares or the Additional Shares to
or through any person or entity; provided, however, except as provided in
subsection (f) below, that by making the representations herein, the Investor
does not agree to hold the Shares or the Additional Shares for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Additional Shares at any time in accordance with Federal securities laws
applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor
-------------------
as defined in Regulation (S)(S) 230.501 promulgated under the Act.
(e) Rule 144. The Investor understands that the Shares and any
--------
Additional Shares must be held indefinitely unless such Shares or Additional
Shares are subsequently registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
(f) Limitations. Notwithstanding the foregoing, the Investor
-----------
shall not sell (including a short sale), transfer or otherwise dispose of the
Shares, or any Additional Shares issued to the Investor, at any time before
January 15, 1996; provided however that the Investor
12
<PAGE>
shall not be prohibited from selling at any time any securities of the Company
which were not acquired pursuant to this Agreement. During the Valuation
Periods the Investor will only transfer or otherwise dispose of its shares in
accordance with all applicable laws, and in the event the Investor engages in
short sale transactions or other hedging activities during the Valuation Periods
which involve, among other things, sales of Common Stock of the Company,
Investor will, to the extent within its reasonable control, conduct such
activities so as not to complete or effect any such sale on any trading day
during such period at a price which is lower than the lowest sale effected on
such day by persons other than the Investor.
ARTICLE III
Covenants
---------
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the SEC and the American Stock
Exchange, in accordance with their respective requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the filing of a Form D with the SEC,
for the legal and valid issuance of the Shares and the Additional Shares to the
Investor.
(b) The Investor understands that the Shares and, if any, the
Additional Shares, are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Shares.
Section 3.2 Corporate. (a) From the date hereof through the third
---------
business day after the end of the Valuation Periods the Company shall not (i)
amend its Certificate or By-Laws so as to adversely affect any rights of the
Investor; (ii) split, combine or reclassify its Common Stock or declare or set
aside or pay any dividend or other distribution with respect to its Common Stock
unless provision is made to fully protect the rights of the Investor; (iii)
issue or sell, directly or indirectly, shares of the Company's Common Stock in a
manner or upon terms as could reasonably be expected to affect the market for
the Common Stock materially and adversely; or (iv) enter into any agreement with
respect to the foregoing. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Shares or Additional Shares
hereunder, such shares of Common Stock as shall from time to time be issuable or
reasonably be expected to be issuable as Shares or Additional Shares hereunder.
13
<PAGE>
(b) The Company will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to any registration statement filed pursuant to
Section 1.7 herein, and will not take any action or file any document (whether
or not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said act, except as permitted herein. The Company will take
all reasonable steps necessary to continue the listing or trading of its Common
Stock on the American Stock Exchange and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of said exchange.
ARTICLE IV
Conditions
----------
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
-------------------------------------------------------------
the Shares. The obligation hereunder of the Company to issue and/or sell the
- ----------
Shares or the Additional Shares to the Investor is further subject to the
satisfaction, at or before the respective issuance and deliveries thereof, of
each of the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor' Representations and Warranties.
--------------------------------------------------------
The representations and warranties of the Investor shall be true and correct in
all material respects.
(b) Performance by the Investor. The Investor shall have
---------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such date.
(c) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) Listing. The Shares shall have been approved for listing by
-------
the American Stock Exchange.
Section 4.2 Conditions Precedent to the Investor's Obligation to Purchase
-------------------------------------------------------------
the Shares. The obligation of the Investor hereunder to acquire and pay for the
- ----------
Shares is subject to the satisfaction, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Investor's sole
benefit and may be waived by the Investor at any time in its sole discretion.
14
<PAGE>
(a) Accuracy of the Company's Representations and Warranties.
--------------------------------------------------------
The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a particular date), and the Shares shall have been approved for listing by
the American Stock Exchange.
(b) Performance by the Company. The Company shall have
--------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.
(c) Trading. From the date hereof to the Closing Date, as to
-------
the Shares to be issued and delivered on the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the American
Stock Exchange (except for any suspension of trading of limited duration agreed
to between the Company and the American Stock Exchange solely to permit
dissemination of material information regarding the Company), and trading in
securities generally shall not have been suspended or limited or minimum prices
shall not have been established. Notwithstanding the foregoing sentence, in the
event that at any point on or prior to the first day of either Valuation Period
trading in the Common Stock is suspended by the SEC or the American Stock
Exchange, (i) calculation of the Average Stock Price shall be suspended for such
period of time as trading in the Common Stock is suspended and (ii) such
Valuation Period shall be reset so that such Valuation Period shall begin on the
2nd calendar day following the end of such suspension or the day specified in
Section 1.3(b), whichever is later, and shall end (subject to Sections 1.3(b)
and 1.9) on the 60th trading day thereafter on which quotations for the
Company's Common Stock on the American Stock Exchange are available. In the
event that the Company's Common Stock is delisted from the American Stock
Exchange at any time during either Valuation Period or in the event that trading
in the Common Stock is suspended for a period of more than five (5) days
subsequent to the commencement of either Valuation Period, (a) such Valuation
Period will be deemed to have concluded on the date on which the Common Stock
was delisted or such trading was suspended, (b) the Average Stock Price shall be
calculated based on the number of days in such shortened Valuation Period, and
(c) the Investor shall receive any Additional Shares pursuant to Section 1.3(c)
or shall pay any additional purchase price pursuant to Section 1.3(d) within
five (5) business days of the conclusion of the shortened Valuation Period. If
the suspension of trading or delisting continues for more than 30 days, the
Investor may elect to have the Average Share Price determined by independent
appraisal in accordance with the commercial arbitration rules of the American
Arbitration Association. References herein to the American Stock Exchange shall
be interpreted to mean the principal national securities exchange on which the
Common Stock is listed, so long as such listing remains in effect.
(d) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
15
<PAGE>
(e) Opinion of Counsel, Etc. At the Closing the Investor shall
-----------------------
have received an opinion of counsel to the Company of the kind customary in
transactions such as those contemplated hereby, in form and substance reasonably
satisfactory to the Investor and their counsel, and such other certificates and
documents as the Investor or their counsel shall reasonably require incident to
the Closing.
ARTICLE V
Legend on Stock
---------------
Each certificate representing the Shares issued pursuant to Section 1.3
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
ARTICLE VI
Termination
-----------
Section 6.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by action
-----------------
of the Board of Directors or other governing body of the Investor or the Company
at any time if the Closing shall not have been consummated by the fifth business
day following the date of this Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
-------------
Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses
-----------------
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such
16
<PAGE>
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at the
Closing, all attorneys' fees and expenses reasonably incurred by the Investor
and Cappello Capital Corp., up to a maximum of $25,000, in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Shares or the
Additional Shares pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in California for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company
and the Investor consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and thereby and, except as specifically set forth herein, neither the Company
nor the Investor makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid,
17
<PAGE>
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
to the Company: NTN Communications, Inc.
Patrick Downs, Chairman and CEO
5966 La Place Court
Carlsbad, California 92008
with copies to: Troy & Gould Professional
Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067
Attention: William D. Gould
to the Investor: At the address set forth at the foot of
this Agreement, with copies to
Investor's counsel as
set forth at the
foot of this Agreement or as may be
specified in writing by Investor
with copies to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
and to: James F. O'Brien, Jr.
Promethean Investment Group, Inc.
40 West 57th Street, Suite 1500
New York, New York 10019
Any party hereto may from time to time change its address for notices under this
Section 7.4 by giving at least 10 days' written notice of such changed address
to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
--------
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may amend this Agreement without notice to or the consent of any
third party. Neither the Company nor the
18
<PAGE>
Investor shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other (which consent may be withheld
for any reason in the sole discretion of the party from whom consent is sought);
provided, however, that the Company may assign its rights and obligations
hereunder to any acquirer of substantially all of the assets or a controlling
equity interest of the Company. The assignment by a party of this Agreement or
any rights hereunder shall not affect the obligations of such party under this
Agreement.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of Delaware without
regard to the principles of conflict of laws.
Section 7.10 Survival. The representations and warranties of the Company
--------
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I and III shall survive the Closing.
19
<PAGE>
Section 7.11 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof
Section 7.12 Publicity. Neither party shall state the name of the other
---------
party in any press release or public statement without the consent of the other
party, except as required by law. The Company and the Investor shall consult
and cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
----------------------------------------
Name: Patrick J. Downs
Its: Chairman and CEO
THE INVESTOR: Palladin Partners I, L.P.
By: /s/ Andrew Kaplan
-----------------------------------------
Name: Andrew Kaplan, V. P.
The Palladin Group Ltd.
Its: Investment Management by Palladin Capital
Management LLC, Its General Partner
Investor's address: 40 West 57th Street
New York, NY 10019
Name and address of Investor's counsel:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Richard L. Stone, Esq.
20
<PAGE>
Section 7.13 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof
Section 7.14 Publicity. Neither party shall state the name of the other
---------
party in any press release or public statement without the consent of the other
party, except as required by law. The Company and the Investor shall consult
and cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
----------------------------------------
Name: Patrick J. Downs
Its: Chairman and CEO
THE INVESTOR: Granite Global Dept. Fund Ltd.
By: /s/ Andrew Kaplan
-----------------------------------------
Name: Andrew Kaplan, V. P.
The Palladin Group Ltd.
Its: Investment Management by Palladin Capital
Management LLC, Its General Partner
Investor's address: c/o Bank of Bermuda
Bank of Bermuda Building, 6 Front Street
Hamilton HM-11, Bermuda
Name and address of Investor's counsel:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Richard L. Stone, Esq.
20
<PAGE>
Section 7.15 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof
Section 7.16 Publicity. Neither party shall state the name of the other
---------
party in any press release or public statement without the consent of the other
party, except as required by law. The Company and the Investor shall consult
and cooperate with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby, provided
the foregoing shall not interfere with the legal obligations of either party
with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other if any such
press release or public statement does not specifically name the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
----------------------------------------
Name: Patrick J. Downs
Its: Chairman and CEO
THE INVESTOR: Gershon Partners L.P.
By: /s/ Andrew Kaplan
-----------------------------------------
Name: Andrew Kaplan, V. P.
The Palladin Group Ltd.
Its: Investment Management by Palladin Capital
Management LLC, Its General Partner
Investor's address: c/o Citco Fund Services Ltd.
Corporate Centre, West Bay Road
P.O. Box 31106 SMB, Grand Cayman
Cayman Islands
Name and address of Investor's counsel:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Richard L. Stone, Esq.
20
<PAGE>
EXHIBIT 10.33
STOCK PURCHASE AGREEMENT
by and between
NTN COMMUNICATIONS, INC.
and
ASSOCIATED VENTURES MANAGEMENT, INC.
Dated as of December 22, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Sale and Purchase of LearnStar Common Stock... 1
1.1 Sale and Purchase of LearnStar Common Stock..... 1
1.2 Pledge Agreement................................ 1
SECTION 2. Representations and Warranties of NTN......... 1
2.1 Title to Shares................................. 1
2.2 Organization; Qualification..................... 1
2.3 Corporate Power and Authorization;
No Conflicts................................... 2
2.4 Capitalization.................................. 2
2.5 Financial Information; Absence of
Undisclosed Liabilities........................ 2
2.6 Absence of Certain Changes...................... 2
2.7 Title to Assets, Properties and Rights.......... 3
2.8 Intellectual Property Rights.................... 4
2.9 Litigation...................................... 4
2.10 Tax Matters..................................... 4
2.11 ERISA Plans..................................... 5
2.12 No Defaults..................................... 5
SECTION 3. Representations and Warranties of Associated 5
3.1 Investment Intent............................... 5
3.2 Corporate Power and Authorization;
No Conflicts................................... 6
3.3 No Consent or Approval Required................. 6
SECTION 4. Restriction on Transfer....................... 7
SECTION 5. Remedies...................................... 8
SECTION 6. Successors and Assigns........................ 8
SECTION 7. Entire Agreement.............................. 8
SECTION 8. Amendment..................................... 8
SECTION 9. Counterparts.................................. 8
SECTION 10. Confidentiality.............................. 8
SECTION 11. Headings..................................... 8
SECTION 12. Nouns and Pronouns........................... 8
SECTION 13. Governing Law................................ 9
SECTION 14. Jurisdiction and Forum....................... 9
</TABLE>
i.
<PAGE>
Gentlemen:
The undersigned, NTN Communications, Inc., a Delaware corporation ("NTN"),
hereby agrees with Associated Ventures Management, Inc., a Delaware corporation
("Associated"), as follows:
SECTION 1. Sale and Purchase of LearnStar Common Stock.
-------------------------------------------
1.1 Sale and Purchase of LearnStar Common Stock. Concurrently with the
-------------------------------------------
execution of this Agreement, NTN is selling and assigning to Associated, and
Associated is purchasing and acquiring from NTN, 45,000 shares (the "Shares") of
common stock, $.001 par value per share ("Common Stock"), of LearnStar, Inc.,
("LearnStar") representing 45% of the outstanding shares of LearnStar Common
Stock for an aggregate purchase price of $2,500,000. Payment shall be in the
form of a non-interest bearing, non-recourse promissory note in the amount of
$2,500,000 (the "Promissory Note"), in the form attached hereto as Exhibit A.
The Promissory Note is payable as follows: $100,000 to be paid by January 30,
1996; $100,000 to be paid by April 15, 1996; $100,000 to be paid by July 15,
1996; $100,000 to be paid by October 15, 1996; and the remaining balance of
$2,100,000 to be paid by January 30, 1997. The Promissory Note shall be secured
by the Shares and a pledge and security agreement between NTN and Associated
(the "Pledge Agreement") in the form attached hereto as Exhibit B. Associated
hereby acknowledges receipt of one or more certificates evidencing the Shares
against delivery by Associated of the Promissory Note, receipt of which is
hereby acknowledged by NTN.
1.2 Pledge Agreement. Concurrently with the execution of this Agreement,
----------------
the parties also are entering into the Pledge Agreement.
SECTION 2. Representations and Warranties of NTN. NTN hereby represents and
-------------------------------------
warrants to Associated as follows:
2.1 Title to Shares. NTN owns the Shares, of record and beneficially,
---------------
free and clear of all Encumbrances.
2.2 Organization; Qualification. LearnStar is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to transact business as a foreign corporation and is
in good standing in those jurisdictions, if any, wherein the character of the
property owned or leased or the nature of the activities conducted by LearnStar
makes such qualification necessary, except where the failure to so qualify would
not have a material adverse effect on the business, operations or financial
condition of LearnStar (a "Material Adverse
1.
<PAGE>
Effect"). NTN has provided Associated with true, correct and complete copies of
the Certificate of Incorporation and the Bylaws of LearnStar, in each case, as
amended to, and as in effect on, the date hereof.
2.3 Corporate Power and Authorization; No Conflicts. NTN has the
-----------------------------------------------
corporate power to execute, deliver and perform its obligations under this
Agreement and to sell and deliver the Shares hereunder. The execution, delivery
and performance by NTN of this Agreement have been duly authorized by all
requisite corporate and shareholder action by NTN, and this Agreement
constitutes a legal, valid and binding obligation of NTN, enforceable against
NTN in accordance with its terms. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof by NTN will not (a) violate or conflict
with any provision of any Applicable Law (as defined in Section 3.2), or any
Judgment (as defined in Section 3.2) of any Governmental Authority (as defined
in Section 3.3) applicable to NTN or any of its properties or assets, or the
Certificate of Incorporation or the Bylaws of NTN, or (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under any material
lease, license, franchise, contract, agreement, commitment, arrangement,
understanding or instrument, oral or written, to which NTN is a party or by
which its properties or assets are bound or affected.
2.4 Capitalization. The authorized capital stock of LearnStar consists of
--------------
100,000 shares of Common Stock, all of which shares (including the Shares) have
been validly issued and are outstanding, fully paid and nonassessable. There
are no outstanding warrants, options, agreements, convertible securities or
other commitments pursuant to which LearnStar is or may become obligated to
issue any shares of the capital stock or other securities of LearnStar, and
there are no preemptive or similar rights to purchase or otherwise acquire
shares of the capital stock of LearnStar pursuant to any provision of law, the
Certificate of Incorporation or the Bylaws of LearnStar or any agreement to
which LearnStar is a party or otherwise.
2.5 Financial Information; Absence of Undisclosed Liabilities. Attached
---------------------------------------------------------
hereto as Schedule 2.5 is the unaudited balance sheet and related income
statement of LearnStar as of September 30, 1995 (the "Balance Sheet"), which
presents fairly the financial condition of LearnStar at that date.
2.6 Absence of Certain Changes. Since the date of the Balance Sheet,
--------------------------
there has not been:
(a) any material adverse change in the business, operations, assets,
liabilities, results of operations,
2.
<PAGE>
condition (financial or otherwise), performance or prospects of LearnStar (a
"Material Adverse Change");
(b) any borrowing or agreement to borrow funds or any material
liability incurred by LearnStar, other than current liabilities incurred in the
ordinary course of business;
(c) any material asset or property of LearnStar made subject to any
Encumbrances (as defined in Section 2.7) of any kind;
(d) any waiver of any material right of LearnStar, or the
cancellation of any material debt or claim held by LearnStar;
(e) any payment of dividends on, or other distributions with respect
to, or any direct or indirect redemption or acquisition of, any shares of the
capital stock of LearnStar, or any agreement or commitment therefor;
(f) any issuance of any stock, bond or other security of LearnStar,
or any agreement or commitment therefor (including, without limitation, options,
warrants or rights or agreements or commitments to purchase such securities or
grant such options, warrants or rights other than options issuable pursuant to
LearnStar employee stock option plans or agreements);
(g) any sale, assignment, pledge, license, mortgage or transfer of
any tangible or intangible assets of LearnStar, except in the ordinary course of
business;
(h) any loan by LearnStar to any officer, director, employee,
consultant or shareholder of LearnStar or other person, or any agreement or
commitment therefor (other than advances to such persons in the ordinary course
of business in connection with business expenses incurred on behalf of
LearnStar);
(i) any damage, destruction or casualty loss (whether or not covered
by insurance) to any material assets or property of LearnStar; or
(j) any agreement entered into with respect to any of the foregoing.
2.7 Title to Assets, Properties and Rights. LearnStar has good and valid
--------------------------------------
title to all of the material properties, interests in properties and assets,
real, personal, intangible or mixed, reflected on the Balance Sheet as being
owned by LearnStar or acquired after the date of the Balance Sheet (except
inventory or other property sold or otherwise disposed of since such date, in
the ordinary course of business and accounts receivable and notes receivable
paid in full subsequent to such date), free and clear of all material mortgages,
Judgments, claims, liens, security interests, pledges,
3.
<PAGE>
escrows, charges or other encumbrances of any kind or character whatsoever,
except liens for current taxes not yet due and payable (collectively,
"Encumbrances"). Any material assets or properties used or utilized by
LearnStar which are not owned by LearnStar are leased or licensed to LearnStar
under valid, binding and enforceable agreements in full force and effect.
2.8 Intellectual Property Rights. To the best knowledge of NTN (but
----------------------------
without having conducted any special investigation or patent search), LearnStar
owns or possesses, has access to, or can become licensed on reasonable terms
under, all material patents, inventions, trademarks, trade names, copyrights,
licenses, trade secrets, information, proprietary rights and processes
necessary for the lawful conduct of its business as now conducted and as
proposed to be conducted, without any infringement of or conflict with the
rights of others. LearnStar has taken reasonable measures to protect the
secrecy, confidentiality and value of all material trade secrets, know-how,
inventions, designs, processes, computer programs and technical data required
for or incident to the development, manufacture, operation and sale of all
products proposed to be sold by LearnStar.
2.9 Litigation. There is no material action, suit, claim, arbitration,
----------
proceeding or investigation at law or in equity or by or before any Governmental
Authority now pending nor, to the best knowledge of NTN, threatened against or
affecting LearnStar. There are no Judgments of any Governmental Authority to
which LearnStar is a party or by which any of its properties or assets are
bound.
2.10 Tax Matters. LearnStar has (a) filed all returns, declarations of
-----------
estimated tax, tax reports, information returns and statements (collectively,
the "Returns") required to be filed by it prior to the date hereof (other than
those for which extensions shall have been granted prior to the date hereof)
relating to any Taxes (as defined below) with respect to any income, properties
or operations of LearnStar, and has paid all Taxes shown thereon to be due; (b)
as of the time of filing, the Returns were complete and correct; (c) LearnStar
has timely paid or made provisions for all Taxes payable for all periods and for
any period that began on or before the date hereof and ends after the date
hereof, to the extent such Taxes are attributable to the portion of any such
period ending on or before the date hereof; (d) LearnStar is not delinquent in
the payment of any Taxes, nor has it requested any extension of time within
which to file any Return, which Return has not since been filed; (e) there are
no pending tax audits of any Returns of LearnStar; (f) no tax liens have been
filed and no deficiency or addition to Taxes, interest or penalties for any
Taxes with respect to any income, properties or operations of LearnStar have
been proposed, asserted or assessed in writing against LearnStar; (g) LearnStar
has not granted any extension of the statute of limitations applicable to any
Return or other Tax claim with respect to any income,
4.
<PAGE>
properties or operations of LearnStar. As used in this Agreement, the term
"Tax" shall mean any of the Taxes and the term "Taxes" shall mean, with respect
to any Person (as hereinafter defined), (i) all income taxes (including any tax
on or based upon net income, or gross income, or income as specifically defined,
or earnings, or profits, or selected items of income, earnings or profits) and
all gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
documentary, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties or other taxes, fees, levies, imposts, deductions,
withholding assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) on such person or entity, (ii) any
liability for the payment of any amount of the type described in the immediately
preceding clause (i) as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any Applicable Law) of another person or entity or a
member of an affiliated or combined group and (iii) all other liabilities with
respect to any of the foregoing.
2.11 ERISA Plans. LearnStar does not maintain and is not a party to (and
-----------
has never maintained or been a party to) any "employee welfare benefit plan" as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any "employee pension benefit plan" as defined in
Section 3(2) of ERISA, and LearnStar does not contribute (and has never
contributed) to any "multiemployer plan" as defined in Section 3(37) of ERISA or
"multiple employer plan" as defined in Section 413 of the Code.
2.12 No Defaults. LearnStar is not in default (i) under its Certificate
-----------
of Incorporation or its Bylaws, or any material indenture, mortgage, lease,
purchase or sales order, or other contract to which LearnStar is a party or by
which LearnStar or any of its properties is bound or affected or (ii) with
respect to any Judgment of any Governmental Authority. To the best knowledge of
NTN, there exists no condition, event or act which constitutes, or which after
notice, lapse of time or both, would constitute, a default under any of the
foregoing.
SECTION 3. Representations and Warranties of Associated. Associated hereby
--------------------------------------------
represents and warrants to NTN as follows:
3.1 Investment Intent.
-----------------
(a) Associated is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act of 1933, as amended (the "Securities Act").
(b) Associated understands that the Shares have not been registered
under the Securities Act and must be held by
5.
<PAGE>
Associated indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from registration thereunder.
(c) Associated will not transfer the Shares except in compliance with
this Agreement.
(d) Associated has not employed any broker or finder in connection
with the transactions contemplated by this Agreement.
(e) Associated is experienced in the evaluation of businesses and
investments, is able to fend for itself in the transactions contemplated by this
Agreement, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of its investment in the
Shares and this Agreement, and has the ability to bear the economic risks of
such investment.
(f) During the course of the transactions contemplated hereby and
prior to the purchase of the Shares, Associated has had the opportunity to ask
questions of and receive answers from LearnStar concerning LearnStar,
LearnStar's business and its financial condition and prospects.
3.2 Corporate Power and Authorization; No Conflicts. Associated has the
-----------------------------------------------
corporate power to execute, deliver and perform its obligations under this
Agreement and to purchase and acquire the Shares hereunder. The execution,
delivery and performance by Associated of this Agreement have been duly
authorized by all requisite corporate and shareholder action by Associated, and
this Agreement constitutes a legal, valid and binding obligation of Associated,
enforceable against Associated in accordance with its terms. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof by
Associated will not (a) violate or conflict with any provision of any statute,
rule or regulation by which Associated is bound (an "Applicable Law"), or any
ruling, writ, injunction, order, judgment or decree (a "Judgment") of any
Governmental Authority applicable to Associated or any of its properties or
assets, or the Certificate of Incorporation or the Bylaws of Associated, (b)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any material lease, license, franchise, contract, agreement, commitment,
arrangement, understanding or instrument, oral or written, to which Associated
is a party or by which its properties or assets are bound or affected or (c)
result in the creation or imposition of any material Encumbrance upon the
properties or assets of Associated.
3.3 No Consent or Approval Required. No consent of any natural person,
-------------------------------
company, partnership, joint venture, corpora-
6.
<PAGE>
tion, business trust, unincorporated organization or other entity (a "Person")
and no consent, approval or authorization of, or declaration to or filing with,
any federal, state, municipal or other government department, commission, board,
bureau, agency or instrumentality, or any court, arbitral tribunal or
arbitrator, and any non-governmental regulating body, to the extent that the
rules and regulations or orders of such body have the force of law, in each case
whether of the United States of America or any foreign country (a "Governmental
Authority"), is or will be required for the valid authorization, execution and
delivery by Associated of this Agreement or for the consummation of the
transactions contemplated hereby, other than those consents, approvals,
authorizations, declarations or filings which have been obtained or made, as the
case may be.
SECTION 4. Restriction on Transfer.
-----------------------
(a) The Shares shall not be sold, transferred, assigned, pledged,
encumbered or otherwise disposed of (each, a "Transfer") except upon the
conditions specified in this Section 4, which conditions are intended to assure
compliance with the provisions of the Securities Act.
(b) Each certificate for the Shares held by Associated and each
certificate for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Sections 4(c)
and 4(d) below) be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF
THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK
PURCHASE AGREEMENT DATED AS OF DECEMBER 22, 1995, BETWEEN NTN
COMMUNICATIONS, INC. AND ASSOCIATED VENTURES MANAGEMENT, INC. AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED.
(c) Associated agrees, prior to any Transfer of any Shares, to give
written notice to NTN of Associated's intention to effect such Transfer and to
comply in all other respects with the provisions of this Section 4.
(d) Notwithstanding the foregoing provisions of this Section 4, the
restrictions imposed by this Section 4 upon the transferability of any Shares
held by Associated shall cease and terminate when (i) any such Shares are sold
or otherwise disposed of pursuant to an effective registration statement under
the Securities Act or as otherwise contemplated by Section 4(c) and, pursuant to
Section 4(c), the Shares so transferred are not required to bear the legend
7.
<PAGE>
set forth in Section 4(b) or (ii) the holder of such Shares has met the
requirements for Transfer of such shares pursuant to subparagraph (k) of Rule
144. Whenever the restrictions imposed by this Section 4 shall terminate, as
herein provided, Associated shall be entitled to receive from LearnStar, without
expense, a new certificate not bearing the restrictive legend set forth in
Section 4(b) and not containing any other reference to the restrictions imposed
by this Section 4.
SECTION 5. Remedies. In case any one or more of the covenants and agreements
--------
set forth in this Agreement shall have been breached by any party, the non-
breaching party may proceed to protect and enforce its rights either by suit in
equity or by action at law, including, but not limited to, an action for damages
as a result of any such breach, or an action for specific performance of any
such covenant or agreement contained in this Agreement, or any combination of
such remedies.
SECTION 6. Successors and Assigns. Subject to the restrictions on Transfer of
----------------------
the Shares set forth herein, this Agreement shall bind and inure to the benefit
of the parties and their respective successors and assigns.
SECTION 7. Entire Agreement. This Agreement and the other writings referred
----------------
to herein or delivered pursuant hereto which form a part hereof contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 8. Amendment. The terms and provisions of this Agreement may not be
---------
modified or amended, nor may any of the provisions hereof be waived, temporarily
or permanently, except pursuant to a written instrument executed by the parties.
SECTION 9. Counterparts. This Agreement may be executed by original or
------------
facsimile signatures, in any number of counterparts, each of which shall be
deemed to be an original instrument, but all of which together shall constitute
but one agreement.
SECTION 10. Confidentiality. Associated agrees to keep confidential all
---------------
information regarding LearnStar.
SECTION 11. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
SECTION 12. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice-
versa.
8.
<PAGE>
SECTION 13. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
made and to be performed wholly therein.
SECTION 14. Jurisdiction and Forum. The parties, on their own behalf and on
----------------------
behalf of their respective successors and permitted assigns, hereby consent to
the exclusive jurisdiction of any court of the State of California or the United
States District Court for the Central District of California over all actions or
proceedings with respect to this Agreement, and agree that all such actions or
proceedings may be instituted and maintained only in such forum. The parties
further agree that service of process in the manner specified herein for
providing notice for purposes of this Agreement shall constitute valid service
of process for all purposes with respect to any such action or proceeding.
Very truly yours,
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
-----------------------------
Patrick J. Downs,
President
ACCEPTED AND AGREED TO
AS OF December 12, 1995:
ASSOCIATED VENTURES
MANAGEMENT, INC.
By: /s/ Selig Zises
-------------------------
Selig Zises
President
9.
<PAGE>
EXHIBIT 10.34
NON RECOURSE SECURED PROMISSORY NOTE
------------------------------------
$2,500,000 Carlsbad, California
December 22, 1995
FOR VALUE RECEIVED, Associated Ventures Management, Inc., a Delaware
corporation ("Maker"), whose address is 477 Madison Avenue, 14th Floor, New
York, NY 10022, hereby promises to pay to NTN Communications, Inc., a Delaware
corporation, ("Payee") at its offices at 5966 La Place Court, Carlsbad,
California 92008-8830, the principal sum of Two Million Five Hundred Thousand
Dollars ($2,500,000), without interest, as follows:
a. $100,000 on or before January 30, 1996;
b. $100,000 on or before April 30, 1996;
c. $100,000 on or before July 30, 1996;
d. $100,000 on or before October 30, 1996;
e. The entire unpaid principal balance of this Note, on January 30,
1997.
The payment of this Note is secured by a Pledge and Security Agreement
(the "Security Agreement") dated as of the date of this Note. Payee agrees that
it will look solely to the Pledged Collateral (as defined in the Security
Agreement) for the payment of this Note, and no other property or assets of
Maker shall be subject to levy, execution, or other enforcement procedure for
the satisfaction of the remedies of Payee, for any payment required to be made
under this Note or under the Security Agreement, or for the performance of any
of the covenants or warranties contained under this Note or the Security
Agreement.
Upon default by Maker to make any payment of principal when due hereunder
and continuing for five (5) days after written notice is given by Payee to cure
the same, then at the option of Payee, the entire unpaid balance of principal
due hereunder shall become immediately due and payable without further action or
notice of any kind. In the event this Note, or any part hereof, is not paid
when due, Maker agrees to pay all costs of collection, including reasonable
attorneys' fees. Any amount of principal or other amounts due hereunder which
are not paid when due, whether by acceleration or otherwise, shall bear interest
at the rate of twelve percent (12%) or the highest rate allowed by law, if less,
until such amounts are paid.
1.
<PAGE>
If any payments of principal on this Note shall become due on Saturday,
Sunday or legal holiday under the laws of the State of California, such payments
shall be made on the next succeeding business day. Payments of principal shall
be made at the address of Payee set forth above or at such other place as Payee
may from time to time direct in writing. At the option of Maker, all or any
portion of the principal sum may be prepaid without premium or penalty.
This Note and the rights and obligations of the parties hereto shall be
governed by and construed and enforced in accordance with the laws of the State
of California. All rights and obligations of the parties hereunder shall be
binding upon and to the benefit of their respective successors and assigns;
provided, however, that this Note and Maker's obligations hereunder shall not be
assignable by Maker without the prior written consent of Payee.
Maker hereby waives presentment, demand, protest, notice of dishonor and/or
protest, notice of nonpayment and all other notices and demands, and assents to
the extension of the time of payment, forbearance or other indulgence, without
notice.
All of Payee's rights and remedies under this Note are cumulative and non-
exclusive. The acceptance by Payee of any partial payment made hereunder before
or after the maturity date will not waive, affect or diminish any right of Payee
to require strict compliance and performance herewith.
ASSOCIATED VENTURES MANAGEMENT, INC.
By: /s/ Selig Zises
---------------------------------
2.
<PAGE>
EXHIBIT 10.35
December 22, 1995
Mr. Selig Zises
President
Associated Ventures Management Inc.
477 Madison Avenue
New York, NY 10022
Dear Sig:
This letter sets forth the terms and conditions of the engagement by NTN
Communications, Inc. ("NTN") of Associated Ventures Management Inc., a Delaware
S-Corporation ("Consultant") pursuant to which Consultant will consult with and
assist NTN with respect to certain financial matters and NTN will provide
certain considerations to Consultant, all as more particularly set forth below.
Services Provided By Consultant
- -------------------------------
During the Term of Engagement (as hereinafter defined), Consultant agrees to
consult with and advise NTN and use its best efforts to provide management
consulting services related to the operations of LearnStar, Inc. (LearnStar).
Specifically, Consultant's service will include assistance with the following:
. Development of annual operating plan and budget.
. Development of executive compensation and incentive package.
. Development of capital expenditure budget.
. Development of monthly management reports and meetings to analyze the
following:
Actual financial results vs. Plan and variance analysis
Monthly reforecast based on actual operating experience
Strategic initiatives
Competition
Sales and Marketing activities and results
Tracking and reporting on other key business drivers and issues, as needed
Secondly, during the Term of Engagement, Consultant agrees to consult with and
advise NTN and use its best efforts in attempting to arrange financing for
LearnStar. Such financing may take the form of any one or more of equity
placements, debt placements, or other appropriate financial transactions which
result in LearnStar receiving funds to be used in connection with its business
activities on a basis that is acceptable to LearnStar. Consultant will advise
NTN regarding selection of, as well as arrangements with, investment bankers,
broker-dealers, other financial institutions or other investors through which
such types of financing might be obtained for LearnStar, and will also use
reasonable efforts to attempt to locate investors to provide such types of
financing on terms acceptable to LearnStar, provided, however, that NTN
understands that any recommendations Consultant may make concerning financing
matters shall not be construed as an assurance that, if such recommendations are
implemented by LearnStar, such recommendations will prove to be successful.
<PAGE>
Mr. Selig Zises
December 22, 1995
Page 2
Thirdly, during the Term of Engagement, Consultant agrees to consult with and
advise NTN and use its best efforts in attempting to obtain a strategic partner
that will invest in and assist with the growth and success of LearnStar.
Consultant will advise NTN regarding selection of, as well as arrangements with
potential partners or investors, and will also use reasonable efforts to attempt
to locate strategic on terms acceptable to LearnStar, provided, however, that
NTN understands that any recommendations Consultant may make concerning such
matters shall not be construed as an assurance that, if such recommendations are
implemented by LearnStar, such recommendations will prove to be successful.
Further, as a 45% investor in LearnStar, Consultant will provide two
representatives to sit on the LearnStar Board of Directors. The Board of
Directors will meet quarterly and will be responsible for approving the
following:
. Annual operating plan and budget
. Executive compensation and incentive plans
. Capital expenditures, liabilities or contracts in excess of $25,000
. Unanimous approval for issuance of stock or debt, pledging of assets, mergers,
acquisitions, reorganizations, dividends, stock splits, or items of a similar
nature.
NTN shall pay Consultant a monthly consulting fee of $5,000 payable on the first
day of each month. NTN shall also reimburse Consultant for the reasonable out-
of-pocket expenses incurred by it with NTN's prior approval in the course of
providing such services. As further consideration for services, Consultant or
its designees, will receive warrants to purchase 300,000 shares of NTN at a
price per share of $4.44, the closing market price of NTN shares on December 22,
1 995
Term of Engagement
- ------------------
The words "Term of Engagement mean the period commencing on January 1, 1996 and
ending on January 31, 1997 provided that 1he Term of Engagement shall continue
thereafter as long as NTN desires services of Consultant and Consultant is
willing and capable of providing such services in a professional manner. After
January 31, 1997, either Consultant or NTN may give written notice to the other
of its election to terminate this letter agreement, in which case the Term of
Engagement shall terminate immediately upon notice being given.
Indemnification
- ---------------
NTN agrees to defend, indemnify and hold harmless Consultant and each of the
officers, directors and shareholders of Consultant (collectively, Indemnities"),
against any claim, suit, action, judgment, damages or other liability imposed
upon or incurred by any of them where any of the foregoing arise, directly or
indirectly, from or in connection with any of Consultant's activities hereunder.
The foregoing shall not be construed to require NTN to defend, hold harmless or
indemnify any Indemnitee in respect of any matters arising from the gross
negligence or willful misconduct of that Indemnitee.
Miscellaneous
- -------------
This letter agreement sets forth the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be amended except
by written consent of the other party. This letter agreement shall be governed
by and construed in accordance with the laws of the state of New York applicable
for contracts under, and to be performed therein, without giving effect to the
principles of conflicts of interest.
<PAGE>
Mr. Selig Zises
December 22, 1995
Page 3
Any notice or other communication required or permitted to be given hereunder
shall be in writing and shall be deemed duly given to NTN when delivered in
person to an officer of NTN or to Consultant when delivered in person to an
officer of the Consultant, or on the third business day after being mailed by
registered or certified mail, return receipt requested, postage prepaid or on
the date transmitted by facsimile transmission at the addresses set forth above
(or to such other address as shall have furnished by like notice).
Please execute a counterpart of this letter in the designated space below, and
return the same to the undersigned, at which time it shall become a binding
agreement between us. We look forward to a mutually beneficial relationship.
Sincerely,
NTN COMMUNICATIONS, INC.
By:
-------------------------
Patrick J. Downs,
Chairman and
Chief Executive Officer
ACCEPTED AND AGREED:
ASSOCIATED VENTURES MANAGEMENT INC.
By:
-----------------------
Selig Zises
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND
ON PAGES F3 AND F4 OF THE COMPANY'S FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,475,000
<SECURITIES> 0
<RECEIVABLES> 11,119,000
<ALLOWANCES> (1,417,000)
<INVENTORY> 6,503,000
<CURRENT-ASSETS> 26,530,000
<PP&E> 3,731,000
<DEPRECIATION> (1,631,000)
<TOTAL-ASSETS> 42,813,000
<CURRENT-LIABILITIES> 8,114,000
<BONDS> 0
0
1,000
<COMMON> 112,000
<OTHER-SE> 33,338,000
<TOTAL-LIABILITY-AND-EQUITY> 42,813,000
<SALES> 31,771,000
<TOTAL-REVENUES> 31,771,000
<CGS> 15,581,000
<TOTAL-COSTS> 15,581,000
<OTHER-EXPENSES> 20,160,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> (3,948,000)
<INCOME-TAX> 0
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</TABLE>
