<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 1-11460
NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1103425
(State of incorporation) (I.R.S. Employer Identification No.)
The Campus 5966 La Place Court, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
(760) 438-7400
(Registrant's telephone number, including area code)
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 [ ]
At May 10, 1999 the registrant had 28,236,000 shares of common stock, $.005
par value, outstanding.
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PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1999 December 31,
Assets (Unaudited) 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,658,000 $ 4,560,000
Accounts receivable, net 2,770,000 2,471,000
Prepaid expenses and other current assets 1,001,000 1,100,000
------------ ------------
Total current assets 7,429,000 8,131,000
Broadcast equipment and fixed assets, net 7,296,000 7,249,000
Software development costs, net 638,000 1,141,000
Note receivable 51,000 70,000
Other assets 155,000 176,000
------------ ------------
Total assets $ 15,569,000 $ 16,767,000
============ ============
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable $ 717,000 $ 803,000
Accrued expenses 2,645,000 3,212,000
Accrual for management severance 866,000 866,000
Obligations under capital lease 354,000 205,000
Deferred revenue 815,000 645,000
------------ ------------
Total current liabilities 5,397,000 5,731,000
Deferred revenue 12,000 12,000
Obligations under capital lease 440,000 380,000
Accrual for settlement warrants 1,708,000 1,670,000
Accrual for management severance 291,000 619,000
7% senior convertible notes 5,496,000 --
Other long-term liabilities 30,000 30,000
------------ ------------
Total liabilities 13,374,000 8,442,000
------------ ------------
Sharholders' equity:
Series A 10% cumulative convertible preferred stock, $.005 par value,
5,000,000 shares authorized; 161,000 shares issued
and outstanding at March 31, 1999 and December 31, 1998 1,000 1,000
Series B 7% cumulative convertible preferred stock, $.005 par
value, 85,000 shares authorized; 0 and 56,000 shares issued and
outstanding at March 31, 1999 and December 31,
1998, respectively -- 1,000
Common Stock, $.005 par value, 50,000,000 shares authorized;
28,236,000 and 28,086,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 141,000 140,000
Additional paid-in capital 65,435,000 70,733,000
Accumulated deficit (61,979,000) (61,147,000)
Treasury stock, at cost, 329,000 shares at March 31, 1999
and December 31, 1998 (1,403,000) (1,403,000)
------------ ------------
Total shareholders' equity 2,195,000 8,325,000
------------ ------------
Total liabilities and shareholders' equity $ 15,569,000 $ 16,767,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Network services $ 4,817,000 $ 4,861,000
Online/Internet services 290,000 597,000
Advertising revenues 83,000 170,000
Other revenues 497,000 544,000
------------ ------------
Total revenues 5,687,000 6,172,000
------------ ------------
Operating expenses:
Direct operating costs 1,145,000 1,066,000
Selling, general and administrative 2,858,000 3,619,000
Litigation, legal and professional fees 242,000 327,000
Equipment lease expense 234,000 233,000
Stock-based compensation expense 39,000 165,000
Depreciation and amortization 1,697,000 1,346,000
Research and development 135,000 18,000
------------ ------------
Total operating expenses 6,350,000 6,774,000
------------ ------------
Operating loss (663,000) (602,000)
------------ ------------
Other income (expense)
Interest income 43,000 64,000
Interest expense (202,000) (75,000)
Other (10,000) --
------------ ------------
Total other income (expense) (169,000) (11,000)
------------ ------------
Income (loss) before income taxes (832,000) (613,000)
Provision for income taxes -- --
------------ ------------
Net loss $ (832,000) $ (613,000)
============ ============
Accretion of beneficial conversion
feature on preferred stock -- 564,000
------------ ------------
Net loss available to common shareholders $ (832,000) $ (1,177,000)
============ ============
Basic and diluted net loss per common share $ (0.03) $ (0.05)
============ ============
Weighted average shares outstanding - basic 27,875,000 23,751,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net Income (loss) $ (832,000) $ (613,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,697,000 1,346,000
Provision for doubtful accounts 193,000 400,000
Loss from disposition of broadcast
Equipment -- 60,000
Non-cash compensation charges 39,000 165,000
Accreted interest expense 142,000 67,000
Amortization of deferred revenue (51,000) (342,000)
Changes in assets and liabilities:
Accounts receivable (492,000) (1,062,000)
Prepaid expenses and other assets 87,000 226,000
Accounts payable and accrued expenses (692,000) (625,000)
Deferred revenue 221,000 377,000
Accrual for Management Severance and
other Long-Term Liabilities (385,000) (445,000)
----------- -----------
Net cash provided by (used in) operating activities (73,000) (446,000)
----------- -----------
Cash flows provided by (used in) investing activities:
Capital expenditures (875,000) (461,000)
Capital software expenditures -- (3,000)
Notes receivable 19,000 (70,000)
----------- -----------
Net cash provided by (used in) investing activities (856,000) (534,000)
----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Principal payments on capital leases (123,000) (21,000)
Exercise of stock options 150,000 --
----------- -----------
Net cash provided by (used in) financing activities 27,000 (21,000)
----------- -----------
Net decrease in cash and cash equivalents (902,000) (998,000)
Cash and cash equivalents at beginning of period 4,560,000 4,764,000
----------- -----------
Cash and cash equivalents at end of period $ 3,658,000 $ 3,766,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 26,000 $ 5,000
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in settlement of legal claim $ -- $ 132,000
=========== ===========
Equipment acquired under capital leases $ 332,000 $ --
=========== ===========
Exchange of preferred stock for convertible notes and warrants $ 5,913,000 $ --
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying consolidated financial
statements include all adjustments that are necessary for a fair presentation of
the financial position of NTN Communications, Inc. and subsidiaries
(collectively "the Company") and the results of their operations and their cash
flows for the interim periods presented. Management has elected to omit
substantially all notes to the Company's consolidated financial statements as
permitted by the rules and regulations of the Securities and Exchange
Commission. Results of operations for the interim periods are not necessarily
indicative of results to be expected for any other interim period or for the
year ended December 31,1999.
The consolidated financial statements for the three months ended March 31,
1999 are unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K,
filed for the year ended December 31, 1998.
Certain items in the prior period consolidated financial statements have
been reclassified to conform to the current period presentation.
2. Earnings (Loss) Per Share
Options, warrants and convertible preferred stock representing
approximately 5,374,000, and 15,448,000 potentially dilutive common shares have
been excluded from the computations of net loss per share for the three months
ended March 31, 1999 and 1998, respectively, as their effect is anti-dilutive.
The Company anticipates issuing 218,400 additional shares of common stock in the
second quarter of 1999 to certain investors pursuant to certain anti-dilution
provisions of the Company's agreement with the investors.
Reflected in the net loss available to common shareholders for the three
months ended March 31, 1998 is the accretion of the beneficial conversion
feature on the Series B Preferred Stock in the amount of $564,000. The amount of
the beneficial conversion feature is measured at the date of issue of the
convertible security as the difference between the conversion price and the
market value of the common stock into which the security is convertible. This
amount is accounted for as a non-cash dividend on the convertible preferred
stock with the same amount credited to additional paid-in capital, allocated
over the period from issuance to first convertibility. Therefore, there is no
impact to shareholders' equity. The beneficial conversion feature was fully
accreted as of June 30, 1998.
On January 11, 1999, the Company reacquired the Series B Preferred Stock
in exchange for 7% senior convertible notes and warrants. The notes were issued
in aggregate principal amount of approximately $5,913,000 and are due on
February 1, 2001. In consideration of the debt for stock exchange, the Company
issued the Preferred Stock holders warrants expiring February 1, 2001 to
purchase an aggregate of one million shares of common stock. The warrants have
an initial exercise price of $1.25 per common share which will be subject to
reduction in the event that the common stock trades at levels significantly
above the exercise price. An allocation has been made between the 7% senior
convertible notes payable and the warrants based on the relative fair values of
the securities at the time of issuance. A discount of approximately $464,000 has
been recorded against the 7% senior convertible notes payable due to the
allocation. To recognize the discount over the term of the notes, additional
interest expense of approximately $47,000 has been accreted for the three months
ended March 31, 1999. As a result of this exchange, the Company will record
interest expense, at an effective interest rate of 11% per year, throughout the
terms of the notes which began in the first quarter of 1999.
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3. Segment Information
The Company analyzes segment performance based on revenue. Network
Services comprise 85% of the Company's total revenue and is the only reportable
segment. The following tables set forth certain information regarding the
Company's segments and other operations:
<TABLE>
<CAPTION>
March 31
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Network Services $ 4,817,000 $ 4,861,000
Other 870,000 1,311,000
----------- -----------
TOTAL REVENUES $ 5,687,000 $ 6,172,000
=========== ===========
Operating loss:
Network Services $ 1,961,000 $ 2,448,000
Other 96,000 466,000
Corporate (2,720,000) (3,516,000)
----------- -----------
TOTAL OPERATING LOSS $ (663,000) $ (602,000)
=========== ===========
</TABLE>
4. Subsequent Events
The following significant events have occurred subsequent to March 31,
1999:
Effective April 23, 1999 the Company acquired the assets and rights to
certain technology, hardware and video games used in the Internet game business
from Sikander, Inc., a Nevada corporation. The technology enables NTN to link
the viewer/participants on its existing network to coin-operated Internet
stations, thus providing out-of-home access to the Web and video games for
patrons in restaurants, hotels and other public venues. In consideration for
these assets, the Company paid Sikander, Inc. $40,000 in cash and executed a 10%
promissory note for $360,000 payable in twelve equal quarterly installments of
$30,000, plus interest, commencing on June 30, 1999. Additionally, the Company
granted Sikander, Inc. options to purchase up to a maximum of 600,000 shares of
common stock at $.625 per share subject to earn-out provisions, under which all
the options will be earned in the event that the Internet game business
generates a minimum of $10 million in revenues by April 30, 2000. The number of
options are reduced ratably if this target is not met and further reduced if
gross margins over a four-year period do not meet or exceed 50%. Once they have
been earned, the options will become exercisable in four installments of 25%
each as of April 30, 2000 through 2003.
As part of the acquisition, NTN has added Sikander, Inc. CEO, Edward
Bevilacqua, to its management team. Bevilacqua together with Siemens, IBM,
Frogdesign and other key firms developed a public access e-commerce platform
utilizing games, a digital jukebox and other features as magnet applications.
His previous management positions have been with PlayNet Technologies and Sport
Active Television, both interactive entertainment delivery platforms designed
specifically for the hospitality industry. In connection with Mr. Bevilacqua's
employment with the Company, he was granted 400,000 options at fair market value
to purchase common stock under the Company's 1995 stock option plan.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward Looking Statements
This Quarterly Report contains forward looking statements, including
statements relating to the success of the DITV network, future growth and
successful implementation of Internet station strategy which are subject to
risks and uncertainties including, the impact of the Y2K remediation costs,
product demand, market acceptance, and other risk factors detailed in the
Company's Securities and Exchange Commission filings, including the Company's
Report on Form 10-K for the fiscal year ended December 31, 1998.
General
NTN Communications, Inc. develops, produces and distributes individual
and multi-player interactive programs to a variety of media platforms. The
Company broadcasts to a variety of delivery platforms 24 hours a day, providing
entertainment and informational programming, including multi-player sports and
trivia games. The NTN networks distribute programming to more than 17.7 million
viewer/participants per month in the United States through hospitality
locations, such as hotels, bars and restaurants. Additionally, NTN distributes
programming to approximately 500 sites in Canada through its Canadian licensee.
NTN has launched the Company's new DITV network, which was installed in
the first NTN subscriber location late in March, 1999. The hospitality
industry's initial reaction to DITV has been positive. The launch of the DITV
network, coupled with the purchase of the assets of Internet access station
developer, Sikander, Inc., is NTN's first step in capitalizing on its national
infrastructure of relationships and experienced sales and customer service teams
to expand its hospitality product portfolio.
In addition to the introduction of NTN's DITV network and the purchase of
the assets related to the Internet game business, the Company's Internet
business plan will make it possible for consumers to access NTN's interactive
content from a complete range of delivery systems including NTN's two
hospitality networks, the Internet, America Online, interactive cable services
and other interactive delivery systems.
Results of Operations
Three months ended March 31, 1999 and March 31, 1998
Total revenues decreased 8% to $5,687,000 for the three months ended
March 31, 1999 from $6,172,000 for the three months ended March 31, 1998,
primarily due to declines in Online/Internet revenues.
Revenue from Online/Internet services decreased 51% to $290,000 for the
three months ended March 31, 1999 from $597,000 for the three months ended March
31, 1998. The decrease was largely due to revenue recognized for production
services provided in 1998 that did not occur in 1999. Additionally, the Company
entered into a new contract in the second quarter of 1998 with its Internet
partner, America Online. The contract provides for a flat monthly fee rather
than fees based on AOL member usage of the Company's content which resulted in a
reduction of revenue of $55,000 for the first quarter of 1999 compared to the
first quarter of 1998.
Other revenues decreased 9% to $497,000 for the three months ended March
31, 1999 from $544,000 for the three months ended March 31, 1998. The first
quarter of 1998 included approximately $285,000 in sales generated by LearnStar,
Inc. (LearnStar) As a result of the sale of an 82.5% interest in LearnStar in
June 1998, no such revenue was recorded for the three months ended March 31,
1999. Other revenues for the current period consist primarily of revenue
resulting from the Company's license agreement with its Canadian licensee.
Excluding the revenue generated by LearnStar in 1998, other revenue increased
92% primarily due to an increase in revenue generated from the Canadian
licensee.
Direct operating costs increased 7% to $1,145,000 for the three months
ended March 31, 1999 from $1,066,000 for the three months ended March 31, 1998.
This increase related to technical site service fees
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being paid at a higher rate than in the three months ending March 31, 1998 and
freight from existing sites increasing in January 1999 to accommodate the need
for additional Playmakers(R) at the sites for the Company's interactive football
strategy game, QB1. This increase is partially offset by decreases related to a
reduction in site visit fees, installations and other field expenses due to the
Company's decreased reliance on independent representatives in favor of employed
field and marketing personnel.
Selling, general and administrative expenses decreased 21% to $2,858,000
for the three months ended March 31, 1999 from $3,619,000 for the three months
ended March 31, 1998. The first quarter of 1998 included approximately
$276,000 in selling, general and administrative expenses incurred by LearnStar.
As a result of the sale of an 82.5% interest in LearnStar in June 1998, no such
expenses were recorded for the three months ended March 31, 1999. Additionally,
effective March 31, 1999 the company significantly curtailed its operations of
its subsidiary, IWN, Inc., thereby reducing selling, general and administrative
expenses by approximately $200,000 for the three months ended March 31, 1999,
compared to the three months ended March 31, 1998. Other decreases included
office lease expenses due to the sublet of office space beginning in September
1998 which was previously occupied by the Company and a decrease in promotional
and marketing material expenses. Bad debt expense also decreased significantly
as the Company has placed a greater emphasis on collecting outstanding amounts
due. These decreases were partially offset by an increase in employee-related
costs associated with the shift from independent representatives to employed
field and marketing staff.
Stock-based compensation expenses decreased 76% to $39,000 for the three
months ended March 31, 1999, compared to $165,000 for the three months ended
March 31, 1998. The 1999 charges resulted from the issuance of stock, warrants
and options to non-employees and can vary from period-to-period.
Research and development expenses were $135,000 for the three months ended
March 31, 1999, compared to $18,000 for the three months ended March 31, 1998.
The current period expenses result from the Company's research and development
efforts related to the development of the DITV network.
Interest expense increased 169% to $202,000 for the three months ended
March 31, 1999 from $75,000 for the three months ended March 31, 1998. The
increase was primarily due to interest expense recorded in 1999 related to
convertible notes payable and additional capital leases for equipment
acquisitions.
Liquidity and Capital Resources
At March 31, 1999, the Company had cash and cash equivalents of $3,658,000
and working capital (current assets in excess of current liabilities) of
$2,032,000, compared to cash and cash equivalents of $4,560,000 and working
capital of $2,400,000 at December 31, 1998. Net cash used in operations was
$73,000 for the three months ended March 31, 1999 and net cash used in
operations was $446,000 for the three months ended March 31, 1998. The principal
uses of cash for the three months ended March 31, 1999 were to fund the
Company's net loss and for severance payments made by the Company in compliance
with management resignation agreements with former officers totaling $385,000.
The uses were offset by an increase in deferred revenue of $221,000,
depreciation, amortization and other non-cash charges. Net cash used in
investing activities was $856,000 for the three months ended March 31, 1999 and
$534,000 for the three months ended March 31, 1998. Included in net cash used in
investing activities for the three months ended March 31, 1999 were $875,000 in
capital expenditures. Net cash provided by financing activities was $27,000 for
the three months ended March 31, 1999 and net cash used in financing activities
was $21,000 for the three months ended March 31, 1998. Net cash provided by
financing activities for the three months ended March 31, 1999 included proceeds
of $150,000 from the exercise of stock options, which was offset by principal
payments under capital leases of $123,000.
The Company has launched a second hospitality network, the DITV network,
which includes improvements to its Playmakers(R) and a Windows-based platform.
The Company believes that its cash on hand and anticipated cash flows from its
operations will be sufficient to meet its operating needs through 1999. It is
likely the Company will require additional financing to completely implement its
plan to convert its entire existing customer base to the new DITV network, to
expand the DITV network, implement the Company's Internet station strategy and
expand the Company's Internet business. Capital financing possibilities may
include borrowing arrangements under fixed and revolving credit agreements or
sale of additional equity securities. The Company began to convert existing
customers to the new DITV network in April 1999, replacing Playmakers(R) and
broadcast equipment with new technology. The Company plans to continue operating
the DITV network and the NTN
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original network concurrently for approximately 15 more months. The Company has
evaluated the estimated useful lives of the equipment and technology relating to
the original Network. Accordingly, beginning in February 1999, the Company began
depreciating these amounts over the estimated remaining life of 18 months.
In October 1998, the holders of the Company's outstanding Series B
Preferred Stock agreed to exchange their remaining $5,600,000 of Preferred Stock
(and accrued dividends) for 7% senior convertible subordinated notes due
February 1, 2001 with a fixed conversion price of $1.275 per common share. On
January 11, 1999, the exchange was completed and notes were issued in aggregate
principal amount of approximately $5,913,000. In consideration of the debt-for-
stock exchange, the Company issued the Preferred Stock holders warrants expiring
February 1, 2001 to purchase an aggregate of one million shares of common stock.
The warrants have an initial exercise price of $1.25 per common share which will
be subject to reduction in the event that the common stock trades at levels
significantly above the exercise price. An allocation has been made between the
7% senior convertible notes payable and the warrants based on the relative fair
values of the securities at the time of issuance. A discount of approximately
$464,000 has been recorded against the convertible notes due to the allocation.
To recognize the discount over the term of the notes, additional interest
expense of approximately $47,000 has been accreted for the three months ended
March 31, 1999. As a result of this exchange, the Company will record interest
expense, at an effective interest rate of 11% per year, throughout the terms of
the notes which began in the first quarter of 1999.
The Company, with the assistance of independent outside consultants, has
been assessing its "Year 2000" computer readiness and exposure to Year 2000
issues, which relates to the inability of computer software programs to
recognize the arrival of the year 2000 because of a common software design
feature that describes the current year by only its last two digits. In
connection with such assessment, the Company initiated a review of the
information technology systems utilized in the Company's business and
operations. Based on this review, the Company has segregated its systems into
two categories: mission critical and support systems. Mission critical systems
are characterized as hardware and applications contributing to the income of the
business. Support systems are characterized as systems that organize and create
efficiencies for the corporation, but are not critical to its operations. The
Company has completed the assessment phase and is starting the renovation phase
which should be completed by the third quarter of 1999.
The Company's mission critical systems are segregated between systems
located in our hospitality sites (Locations) and back-end systems which support
both the DITV network and the NTN original network, for which the Company will
incur expected costs of approximately $1,000,000 to ensure Year 2000 compliance.
The Company intends to fund these costs with cash on hand, leases from vendors
and internally generated funds. The Company has incurred costs specific to
remediation efforts of approximately $50,000 through March 31, 1999. Certain
compliance issues have been eliminated as a result of the DITV network and the
new equipment purchased related to DITV including back-end equipment. The
Company is testing Year 2000 compliance at the system BIOS, operating system and
application levels. The Company has determined that 25% of Location systems may
not be Year 2000 compliant due to the inaccurate roll over of the system BIOS
which could compromise content scheduling. It is estimated that the replacement
of these systems will cost a total of approximately $725,000 for all affected
Locations. All Location systems in the DITV network are Year 2000 compliant. The
Company has identified key back-end systems that will require an upgrade of
commercial hardware and data base software. As can be determined thus far, the
operating systems and Company-developed applications are not affected, but are
being verified for compliance. The Company has also initiated a review of Year
2000 compliance by its principal vendors, and this estimate assumes that the
Company will not incur significant Year 2000 related costs on behalf of its
vendors or other third parties.
Concerning the support systems, all corporate personal computers and
servers have been deemed Year 2000 compliant. The operating systems and
commercial software packages have been upgraded to compliant versions.
The Company's most likely worst-case scenario would be if the Company were
unable to broadcast its program to its network services customers. Network
services revenue represents 85% of total revenues
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for the three months ended March 31, 1999. The Company has not yet established a
contingency plan in the event that this occurs. As a result, a widespread or
extended failure of the Company's internal systems, or systems of third parties,
to be Year 2000 compliant would have a material adverse effect on the Company's
business, financial condition or operating results.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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PART II OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In October 1998, the holders of the Company's outstanding Series B
Preferred Stock agreed to exchange their remaining $5,600,000 of Preferred Stock
(and accrued dividends) for 7% senior convertible subordinated notes due
February 1, 2001 with a fixed conversion price of $1.275 per common share. On
January 11, 1999, the exchange was completed and notes were issued in aggregate
principal amount of approximately $5,913,000. In consideration of the debt for
stock exchange, the Company issued the Preferred Stock holders warrants expiring
February 1, 2001 to purchase an aggregate of one million shares of common stock.
The warrants have an initial exercise price of $1.25 per common share which will
be subject to reduction in the event that the common stock trades at levels
significantly above the exercise price. An allocation has been made between the
7% senior convertible notes payable and the warrants based on the relative fair
values of the securities at the time of issuance. A discount of approximately
$464,000 has been recorded against the convertible notes due to the allocation.
To recognize the discount over the term of the notes, additional interest
expense of approximately $47,000 has been accreted for the three months ended
March 31, 1999. As a result of this exchange, the Company will record interest
expense, at an effective interest rate of 11% per year, throughout the terms of
the notes which began in the first quarter of 1999. The convertible notes and
warrants were issued to the two institutional holders of the outstanding Series
B Preferred Stock in reliance on the exemption form registration under Section
4(2) of the Securities Act of 1933 for transactions not involving a public
offering.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.1 Specimen common stock certificate (previously filed as an
exhibit to the Company's Registration Statement on Form 8-A,
File No. 0-19383, and incorporated herein by reference).
4.2 Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock (previously filed as an exhibit to
the Company's Current Report on Form 8-K filed with the
Commission on November 7, 1997 and incorporated herein by
reference).
4.3 Exchange Agreement dated as of October 5, 1998, by and among the
Company, Stark International and Shepherd Investments
International, Ltd. *
4.4 Registration Rights Agreement dated as of October 5, 1998, by
and among the Company, Stark International and Shepherd
Investments International, Ltd. *
4.5 Warrant No. 10/05/98-1 issued to Stark International *
4.6 Warrant No. 10/05/98-2 issued to Shepherd Investments
International, Ltd. *
4.7 Form of 7% Convertible Senior Subordinated Note of the Company *
10.1 Asset Purchase Agreement dated as of April 23, 1999, by and
between the Company and Sikander, Inc.
10.2 Promissory Note dated as of April 29, 1999, issued by the
Company to Sikander, Inc.
10.3 Earn Out Option dated as of April 23, 1999, by and between the
Company and Sikander, Inc.
13
<PAGE> 14
10.4 Stock Option Agreement dated as of April 23, 1999, by and
between the Company and Edward Bevilacqua.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None
* Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ending September 30, 1998 filed with the Commission and
incorporated herein by reference.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NTN COMMUNICATIONS, INC.
Date: May 10, 1999 By: /s/ Kendra Berger
------------------------------
Kendra Berger
Chief Financial Officer
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
4.1 Specimen common stock certificate (previously filed as an
exhibit to the Company's Registration Statement on Form 8-A,
File No. 0-19383, and incorporated herein by reference).
4.2 Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock (previously filed as an exhibit to
the Company's Current Report on Form 8-K filed with the
Commission on November 7, 1997 and incorporated herein by
reference).
4.3 Exchange Agreement dated as of October 5, 1998, by and among the
Company, Stark International and Shepherd Investments
International, Ltd. *
4.4 Registration Rights Agreement dated as of October 5, 1998, by
and among the Company, Stark International and Shepherd
Investments International, Ltd. *
4.5 Warrant No. 10/05/98-1 issued to Stark International *
4.6 Warrant No. 10/05/98-2 issued to Shepherd Investments
International, Ltd. *
4.7 Form of 7% Convertible Senior Subordinated Note of the Company *
10.1 Asset Purchase Agreement dated as of April 23, 1999, by and
between the Company and Sikander, Inc.
10.2 Promissory Note dated as of April 29, 1999, issued by the
Company to Sikander, Inc.
10.3 Earn Out Option dated as of April 23, 1999, by and between the
Company and Sikander, Inc.
10.4 Stock Option Agreement dated as of April 23, 1999, by and
between the Company and Edward Bevilacqua.
27. Financial Data Schedule.
</TABLE>
* Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ending September 30, 1998 filed with the Commission and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of April 23, 1999, by and among NTN
Communications, Inc., a Delaware corporation ("Buyer"), and Sikander, Inc., a
Nevada corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Seller and Seller desires to
sell to Buyer certain of the assets of Seller relating to the Internet/Game
Kiosk business (the "Assets") in exchange for cash, a promissory note and
options to purchase shares of common stock of Buyer from Buyer; and
WHEREAS, the parties desire to enter into this Asset Purchase Agreement
to set forth their mutual agreements concerning the above matter;
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and of good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is mutually agreed by and between the parties
hereto as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS; CLOSING
1.1 Exchange. (a) Sale of Assets. Subject to the terms and conditions
of this Agreement, at the closing of the transactions contemplated hereby (the
"Closing"), Seller will sell, convey, assign and transfer the Assets to Buyer,
and Buyer will purchase the Assets from Seller. The Assets shall be free and
clear of any liens, royalty payments or other liabilities, and shall include,
without limitation, the following:
(i) all of Seller's right, title and interest in intellectual
properties, trademarks and associated goodwill, patents, service marks,
copyrights, any pending applications for trademarks or patents or service marks
or copyrights, trade secrets, design know-how, and engineering and other plans,
drawings and diagrams, including, without limitation, all right, title and
interest of Seller in and to the software relating to the items listed on
Exhibit A whether owned, leased or licensed by Seller and including without
limitation all such software for which Seller holds "a right to use", including
without limitation all source codes, object codes, data and related
documentation (the "Proprietary Technology").
(ii) all of the tangible personal property of Seller
including, but not limited to, countertop units, floor units and all other fixed
assets, equipment, computers, inventory, manuals and other such tangible
personal property (a complete listing of such tangible assets is attached hereto
as Exhibit A);
<PAGE> 2
(iii) all real and personal property of any kind,
including, without limitation, leasehold interests, licenses and sublicenses
granted and obtained with respect thereto, contracts and agreements of any kind,
accounts, notes and other receivables, deposits, prepayments, refunds, causes of
action, rights of recovery, franchises, permits, licenses, registrations and
similar rights obtained from governmental agencies; and
(iv) all of Seller's right to operate the Assets as a
business, including all licenses, consents, certificates, authorizations and
privileges.
(b) Taxes. Seller shall pay all federal, state and local taxes and
fees related to the transfer of the Assets to Buyer.
(c) Liability relating to Assets. Buyer shall not assume any
liabilities of or relating to Seller or the Assets.
1.2 Consideration. In consideration of the transfer by Seller of the
Assets to Buyer, Buyer at Closing shall deliver to Seller:
(a) $40,000 payable by Buyer's check;
(b) a 10% promissory note for $360,000 payable in twelve equal
quarterly installments of $30,000 plus interest commencing on June 30, 1999 and
containing such other terms as set forth in the form of promissory note attached
hereto as Exhibit B (the "Note");
(c) Buyer shall grant Seller options to purchase up to 600,000
shares of common stock of Buyer at a price of $.625 per share (the "Earn Out
Options"), subject to the terms described in Exhibit C hereto. All
determinations in calculating and determining the number of shares subject to
the Earn Out Options shall be made by the Board of Directors of Buyer in its
good faith discretion. In the event Seller disputes any such determination, the
final determination which shall be binding on all parties shall be made by KPMG
Peat Marwick. All of the Earn Out Options will expire on April 30, 2006.
(d) The aggregate consideration set forth in paragraphs (a)
through (c) of this Section 1.2 is referred to herein as the "Purchase Price."
1.3 Closing. The Closing will take place at the offices of Troy & Gould
at 1801 Century Park East, Suite 1600, Los Angeles, CA 90067, at 10:00 a.m.
(local time) on April 28, 1999, or at such other time and place as the parties
may agree (the "Closing Date").
1.4 Closing Obligations. At Closing, Buyer and Seller shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
<PAGE> 3
(a) Conveyance Instruments. Seller shall deliver to Buyer such
warranty deeds, bills of sale, assignments, and other instruments of conveyance
and transfer as Buyer may reasonably request to effect the assignment to Buyer
of the Assets.
(b) Assumption Agreement. Buyer shall deliver to Seller an
assumption agreement, pursuant to which Buyer assumes all of the benefits to the
contracts which Buyer in its sole discretion determines to assume.
(c) Certificates. Each party shall deliver the certificates as to
the accuracy of the representations and warranties contained herein, the
compliance with the covenants and agreements contained herein, and the
satisfaction of the conditions to Closing contained herein.
(d) Consideration. Buyer will deliver to Seller the Purchase Price
specified in Section 1.2 above.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that, except as provided
in a Disclosure Schedule provided by Seller to Buyer:
2.1 Organization. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Nevada with the
power and authority to conduct its business and to own and lease its properties
and assets (including the Assets).
2.2 Power and Authority. Seller has the power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments to
be executed and delivered by it in connection with the transactions contemplated
hereby and thereby, has taken all necessary company action (including approval
of its shareholders) to authorize the execution and delivery of this Agreement
and such other agreements and instruments and the consummation of the
transactions contemplated hereby and thereby. This Agreement is, and when such
other agreements and instruments are executed and delivered, the other
agreements and instruments to be executed and delivered by Buyer in connection
with the transactions contemplated hereby and thereby shall be, the valid and
legally binding obligations of Buyer, enforceable in accordance with their
respective terms.
2.3 No Conflict. Neither the execution and delivery of this Agreement
and the other agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby or thereby, nor the
consummation, of the transactions contemplated hereby or thereby, will violate
or conflict with: (a) any federal, state, or local law, regulation, ordinance,
zoning requirement, governmental restriction, order, judgment or decree
applicable to Seller or the Assets; (b) any provision of any charter, bylaw or
other
<PAGE> 4
governing or organizational instruments of Seller; or (c) any mortgage,
indenture, license, instruments trust, contract, agreement, or other commitment
or arrangement to which Seller is a party or by which Seller or any of the
Assets is bound.
2.4 Required Government Consents. No approval, authorization,
certification, consent, variance, permission, license, or permit to or from, or
notice, filing, or recording to or with, federal, state, or local governmental
authorities is necessary for the execution and delivery of this Agreement and
other agreements and instruments to be executed and delivered in connection with
the transactions contemplated hereby or thereby by Seller or the consummation by
Seller of the transactions contemplated hereby or thereby, or the ownership and
use of the Assets and the conduct of the Seller's business.
2.5 Required Contract Consents. No approval, authorization, consent,
permission, or waiver to or from, or notice, filing, or recording to or with,
any person is necessary for: (a) the execution and delivery of this Agreement
and the other agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby or thereby by Seller or the
consummation by Seller of the transactions contemplated hereby; or (b) the
ownership and use of the Assets and the conduct of Seller's business.
2.6 Title to Assets; Sufficiency, etc. Seller has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by or
in connection with its business (real, personal and mixed, tangible or
intangible), shown on the most recent balance sheet or acquired after the date
thereof, free and clear of all liens, security interests, encumbrances or other
restrictions on transfer, except for properties and assets disposed of in the
ordinary course of business since the date of the most recent balance sheet.
Seller owns or leases all buildings, machinery, equipment, and other tangible
assets necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted.
2.7 Title to Intellectual Property.
(a) Buyer shall receive title to the Proprietary Technology at
Closing, free and clear of all liens or encumbrances.
(b) Seller owns all Proprietary Technology necessary for the
operation of its business utilizing the Assets as presently conducted and as
presently proposed to be conducted. Seller has provided Buyer with a list
(Exhibit A) of all patents, trade names, copyrights, trademarks and service
marks owned by Seller relating to the Assets. Seller has taken all necessary and
desirable action to maintain and protect each item of Proprietary Technology.
(c) Seller does not interfere with, infringe upon, misappropriate,
or otherwise come into conflict with any proprietary technology rights of third
parties, and has never received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that Seller
<PAGE> 5
must license or refrain from using any proprietary technology rights of any
third party) in connection with the conduct of its business. No third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Proprietary Technology rights of Seller.
(d) Seller has delivered to Buyer correct and complete copies of
all items of Proprietary Technology (Exhibit A). With respect to each item of
Proprietary Technology (i) Seller possesses all right, title, and interest in
and to the item, free and clear of any security interest, license, or other
restriction; (ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge; (iii) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or, to
the knowledge of Seller, its the directors and officers (and employees with
responsibility for Proprietary Technology matters), is threatened, which
challenges the legality, validity, enforceability, use, or ownership of the
item; and (iv) Seller has never agreed to indemnify any person (other than its
customers) for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
2.8 Financial Statements. Seller has provided the following financial
statements (the "Financial Statements"): unaudited balance sheet as of March 31,
1999, and a statement of income for the ten months ended March 31, 1999. The
Financial Statements, including the notes thereto, are true and correct in every
material respect and properly reflect all assets and assumed liabilities as then
in existence. The Financial Statements, including the notes thereto, fairly
present the results of operation and the financial position of Seller as of the
date thereof and the period then ended in conformity with GAAP consistently
applied with the principles and procedures employed in prior periods by Seller.
2.9 Conduct of Business. (a) Ordinary Course of Business: No Removal or
Disposal of Assets. Since December 31, 1998, Seller has operated its business in
the ordinary course consistent with past practices, and has not removed or
disposed of any assets except in the ordinary course.
(b) No Material Adverse Change. Since December 31, 1998 there has
been no material adverse change in the Assets or in the financial condition,
operations, or prospects of the Seller's business.
(c) Absence of Particular Events. Since December 31, 1998 Seller
has not: (i) suffered any damage or destruction adversely affecting its business
or involving the Assets; (ii) incurred any liability or obligation other than in
the ordinary course consistent with past practice; (iii) made any change in any
method, practice, or principle of accounting; or (iv) paid, loaned, or advanced
any material monetary amount or other asset to, or sold, transferred, or leased
any asset to, any employee except for normal compensation involving salary and
benefits.
<PAGE> 6
(d) Absence of Joint Ventures, etc. Seller is not a party to any
joint venture or other similar agreement or arrangement that involves any
sharing of profits or is similar to or competitive with its business.
2.10 Major Vendors and Customers. There is no distributor, supplier of
property or services to, or licensee, end-user, or customer of, Seller, to whom
Seller paid or billed in the aggregate $10,000 or more during the ten months
ended March 31, 1999.
2.11 Legal Compliance. The Seller has all permits, licenses, orders and
approvals of all foreign, federal, state or local governmental or regulatory
bodies required for it to conduct its business as presently conducted. Seller
has complied with all applicable laws (including environmental laws) of federal,
state, provincial, local, and foreign governments.
2.12 Litigation. No claim, action, suit, proceeding, inquiry, hearing,
arbitration, administrative proceeding, or investigation is pending, or, to
Seller's best knowledge threatened against Seller, or any party to any contract,
affecting, involving, or relating to its business or any of the Assets.
2.13 Hardware. Exhibit A includes a complete list of the countertop
units, floor units and additional hardware which are part of the Assets, all of
which, to the best knowledge of Seller, are merchantable. Exhibit A also sets
forth an estimate of the cost of Seller's hardware, which estimate is within 5%
of the actual cost of such hardware.
2.14 Contracts. There are no material contracts relating to the Assets
to which Seller is a party.
2.15 Product Warranty; Liability. To the best knowledge of Seller, each
product manufactured, sold, leased, or delivered by Seller in connection with
the operation of its business has been in conformity with all applicable
contractual commitments and all express and implied warranties, and Seller does
not have any liability (and there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any liability) for replacement or repair
thereof or other damages in connection therewith. To the best knowledge of
Seller, no product manufactured, sold, leased, or delivered by Seller is subject
to any guaranty, warranty, or other indemnity beyond the applicable standard
terms and conditions of sale or lease.
2.16 Environmental, Health and Safety Matters.
(a) Seller has obtained and complied with, and is in compliance
with, all material permits, licenses and other authorizations that are required
pursuant to environmental, health, and safety laws, rules and regulations for
the occupation of its facilities and the operation of its business.
(b) Seller has not received any written or oral notice, report or
other information regarding any actual or alleged material violation of any
environmental, health,
<PAGE> 7
and safety regulations, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under environmental, health, and safety laws, rules and
regulations.
2.17 Tax Matters. (a) Seller has filed or caused to be filed all tax
returns that it was required to file pertaining to the Assets. All such tax
returns were correct and complete in all respects. All taxes owed by Seller
pertaining to the Assets (whether or not shown on any tax return) have been
paid. Seller is not the beneficiary of any extension of time within which to
file any tax return. No claim has ever been made by an authority in a
jurisdiction where Seller does not file tax returns that Seller is or may be
subject to taxation by that jurisdiction. There are no security interests on any
of the Assets that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) Seller has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or third party.
(c) Neither Seller or any director of officer of Seller expects
any authority to assess any additional taxes for any period for which tax
returns have been filed. There is no dispute or claim concerning any tax
liability of Seller either (A) claimed or raised by any authority in writing or
(B) as to which Seller and the directors and officers (and employees responsible
for tax matters) of Seller has knowledge based upon personal contact with any
agent of such authority. Seller has delivered to Buyer correct and complete
copies of all tax returns, examination reports, and statements of deficiencies
assessed against or agreed to by Seller since December 31, 1997.
(d) Seller has not waived any statute of limitations in respect of
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency.
2.18 Share Ownership. Seller has authorized 20 million shares of $.001
par value common stock ("Seller's Common Stock") of which 4,516,670 are issued
and outstanding. Seller warrants that all outstanding shares of Seller are duly
authorized, fully paid and non assessable and free and clear of any preemptive
rights, liens, claims, charges or encumbrances and no preemptive or similar
rights will arise as a result of the transactions contemplated by this
Agreement. Seller further warrants that it has only one class of common stock,
and there are no outstanding commitments to purchase, reacquire or redeem any of
its capital stock, nor are there any declared but unpaid dividends on such
capital stock.
2.19 Broker's or Finder's Fees. Seller has not authorized any person to
act as broker or finder or in any other similar capacity in connection with the
transactions contemplated by this Agreement in any manner that may or will
impose liability on Buyer.
<PAGE> 8
2.20 Disclosure. No representation, warranty, or statement made by
Seller in this Agreement or in any document or certificate furnished or to be
furnished to Buyer pursuant to this Agreement contains or will contain any
untrue statement or omits or will omit to state any fact necessary to make the
statements contained herein or therein not misleading. Seller has disclosed to
Buyer all facts known or reasonably available to Seller that are material to the
financial condition, operation, or prospects of Seller's business and the
Assets.
2.21 Unregistered Stock. Seller and the shareholders of Seller set
forth in Exhibit D (the "Shareholders") understand and acknowledge that (i) the
Earn Out Options being issued in connection with this Agreement as set forth in
Section 1.2 and the shares of Buyer's Common Stock issuable upon conversion or
exercise thereof (the "Underlying Shares", together with the Earn Out Options
("Buyer's Securities"), have not been registered under the Securities Act of
1933, as amended (the Securities Act") and are therefore restricted securities;
(ii) Buyer's Securities may not be sold or transferred unless they are
registered under the Securities Act or an exemption from such registration is
available; and (iii) a legend to that effect will be placed on the certificates
representing Buyer's Securities.
2.22 Investor Representations. Seller and each Shareholder who receives
Buyer's Securities in connection with the transactions contemplated by this
Agreement warrants and represents that (i) it or he is an accredited investor as
defined in Regulation D under the Securities Act, or by reason of his business
and financial experience, and the business and financial experience of those
persons unaffiliated with Buyer retained by him, if any, to advise him with
respect to his investment in Buyer's Securities, such Shareholder together with
such advisers have such knowledge, sophistication and experience in business and
financial matters as to be capable of evaluating the merits and risk of the
prospective investment, and (ii) that it or he is acquiring Buyer's Securities
for his own account or for one or more separate accounts maintained by him, if
any, for investment and not with a view to the distribution thereof except in
compliance with the Securities Act or an exemption available thereunder.
2.23 Truth at Closing. All of: (a) the representations, warranties, and
agreements of Seller contained in this Article 2 and (b) the representations,
warranties and agreements of Seller contained in the Exhibits attached hereto
shall be true and correct and in full force and effect on and as of the Closing
Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
3.1 Organization. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware with the
power and authority to conduct its business and to own and lease its properties
and assets.
<PAGE> 9
3.2 Power and Authority. Buyer has the power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments to
be executed and delivered by it in connection with the transactions contemplated
hereby and thereby, and Buyer has taken all necessary action to authorize the
execution and delivery of this Agreement and such other agreements and
instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement is, and, when such other agreements and instruments are
executed and delivered, the other agreements and instruments to be executed and
delivered by Buyer in connection with the transactions contemplated hereby and
thereby shall be, the valid and legally binding obligations of Buyer,
enforceable in accordance with their respective terms.
3.3 Buyer's SEC Filings. Buyer has provided Seller with a copy of
Buyer's Annual Report on Form 10-K for the year ended December 31, 1998. Such
Report on Form 10-K complies in all material respects with the rules and
regulations promulgated by the Securities and Exchange Commission and does not
contain any 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, in
light of the circumstances under which they were made, not misleading.
3.4 Broker's or Finder's Fees. Buyer has not authorized any person to
act as broker, finder, or in any other similar capacity in connection with the
transactions contemplated by this Agreement.
3.5 No Conflict. Neither the execution and delivery by Buyer of this
Agreement and of the other agreements and instruments to be executed and
delivered by Buyer in connection with the transactions contemplated hereby or
thereby, nor the consummation by Buyer of the transactions contemplated hereby
or thereby will violate or conflict with: (a) any federal, state, or local law,
regulation, ordinance, governmental restriction, order, judgment or decree
applicable to Buyer; or (b) any provision of any charter, bylaw, or other
governing or organizational instrument of Buyer.
3.6 Truth at Closing. All of: (a) the representations, warranties, and
agreements of Buyer contained in this Article 3 and (b) the representations,
warranties and agreements of Buyer contained in the Exhibits attached hereto
shall be true and correct and in full force and effect on and as of the Closing
Date.
ARTICLE 4
COVENANTS OF SELLER PRIOR TO CLOSING
4.1 Course of Business. Prior to the Closing Date, Seller shall conduct
its business diligently and substantially in the same manner heretofore
conducted, and Seller shall not institute any new methods of accounting or
operation or engage in any transaction or activity, enter into any agreement, or
make any commitment, except in the ordinary course of such business and
consistent with past practice, and except as would not reasonably be expected to
have a material adverse effect on its business.
<PAGE> 10
4.2 Prohibited Actions. In no event, without the prior written consent
of Buyer, shall Seller:
(a) Liens. Permit any of the Assets to be subjected to any
mortgage, pledge, lien, or encumbrance.
(b) Disposition of Assets. Waive any claims or rights of
substantial value respecting the Assets, or sell, transfer, or otherwise dispose
of any of the Assets, except in the ordinary course of business and consistent
with past practice.
(c) Licenses. Other than in the ordinary course of its licensing
activities and consistent with past practice, dispose of, license, or permit to
lapse any rights in any intellectual property.
4.3 Access. From the date of this Agreement to the Closing Date, Seller
shall: (a) provide Buyer with such information as Buyer may from time to time
reasonably request; (b) provide the Buyer and its officers, counsel, and other
authorized representatives access during regular business hours and upon
reasonable notice to its books, records, and offices, as Buyer may from time to
time reasonably request; and (c) permit Buyer to make such inspections thereof
as it may reasonably request. Any investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of Seller's business.
4.4 Non-Solicitation. Until the completion or termination of the
transactions contemplated by this Agreement, neither Seller nor any of its
representatives will solicit, offer or encourage any sale of any of the Assets.
ARTICLE 5
CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of Seller to be performed hereunder shall be
subject to the satisfaction (or waiver by Seller) at or prior to the Closing
Date of each of the following conditions:
5.1 Representations and Warranties True at Closing Date. Buyer's
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date.
5.2 Litigation. No Litigation shall be threatened or pending against
Buyer or Seller before any court or governmental agency that, in the reasonable
opinion of counsel for Seller, could result in the restraint or prohibition of
any such party, or the obtaining of damages or other relief from such party, in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
<PAGE> 11
5.3 Documents Satisfactory in Form and Substance. All agreements,
certificates, and other documents delivered by Buyer to Seller hereunder shall
be in form and substance satisfactory to counsel for Seller, in the exercise of
such counsel's reasonable judgment.
ARTICLE 6
CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of Buyer to be performed hereunder shall be
subject to the satisfaction (or the waiver by Buyer) at or prior to the Closing
Date of each of the following conditions:
6.1 Representations and Warranties True at Closing Date. Seller's
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date.
6.2 Performance. Seller, shall have performed and complied with all
agreements, obligations, and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing.
6.3 Consents. All required approvals, consents and authorizations shall
have been obtained, including, without limitation, those of federal, state and
local regulatory authorities and all Required Contract Consents.
6.4 No Litigation. No Litigation shall be threatened or pending against
Buyer or Seller before any court or governmental agency that, in the reasonable
opinion of counsel for Buyer, could result in the restraint or prohibition of
any such party, or the obtaining of damages or other relief from such party, in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
6.5 No Material Adverse Change. From the date of this Agreement until
the Closing Date, Seller shall not have suffered any material adverse change
(whether or not such change is referred to or described in any supplement to the
Exhibits), or the financial condition, operations, or prospects of Seller.
ARTICLE 7
COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING
7.1 Allocation of Purchase Price; Post Closing Adjustment. The purchase
price shall be allocated to the Assets, based on mutual agreement between Seller
and Buyer and all tax returns and reports filed or prepared by Seller and Buyer
with respect to the transactions contemplated by this Agreement shall be
consistent with that allocation.
<PAGE> 12
7.2 Transfer Taxes. All sales, transfer, and similar taxes and fees
(including all recording fees, if any) incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by Seller, and
Seller shall file all necessary documentation with respect to such taxes.
7.3 Non-Competition Covenant. For a period of three years after the
termination of the employment of Edward Bevilacqua, Mr. Bevilacqua agrees to
refrain from carrying on a business similar to that sold to Buyer hereunder in
any state or locality in which Seller presently conducts business in the United
States. Edward Bevilacqua also agrees to refrain from soliciting any customers
or employees of Buyer during such three-year period. This Section will be of no
force and effect in the event Mr. Bevilacqua's employment with Buyer is
terminated without cause. It is understood that Buyer may compete with any
business retained by Seller.
7.4 Further Assurances. Subject to the terms and conditions of this
Agreement, each party agrees to use all of its reasonable efforts to take, or
cause to be taken, all actions and to do or cause to be done, all things
necessary and proper or advisable to consummate and make effective the
transactions contemplated by this Agreement (including the execution and
delivery of such further instruments and documents) as the other party may
reasonably request.
7.5 Registration Rights. Within ninety days after exercise of the
Earnout Options Buyer will use its best efforts to register all the issued and
outstanding Underlying Securities.
7.6 Bevilacqua Employment. On the Closing Date Mr. Bevilacqua will be
employed full time on an "at will" basis by Buyer at a salary of $1,000 per week
and shall be granted options to purchase 400,000 shares of Buyer's Common Stock
pursuant to Buyer's Stock Option Plan.
ARTICLE 8
INDEMNITY; OFFSET
8.1 Indemnification by Seller. Seller shall indemnify, defend, and hold
harmless Buyer at, and at any time after, the Closing, from and against any and
all demands, claim, actions, or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including reasonable fees and expenses of
counsel, other expenses of investigation, handling, and litigation, and
settlement amounts, together with interest and penalties (collectively, a "Loss"
or "Losses"), asserted against, resulting to, imposed upon, or incurred by
Buyer, directly or indirectly, by reason of, resulting from, or arising in
connection with any of the following:
<PAGE> 13
(a) Breach or Obligation. Any breach of any representation,
warranty, or agreement of Seller contained in or made pursuant to this
Agreement, including the agreements and other instruments contemplated hereby.
(b) Liabilities. Any of Seller's liabilities or obligations of any
kind or nature whatsoever, whether accrued, absolute, contingent or otherwise,
known or unknown.
(c) Incidental Matters. To the extent not covered by the
foregoing, any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including
reasonable fees and expenses of counsel, other expenses of investigation,
handling, and litigation and settlement amounts, together with interest and
penalties, incident to the foregoing.
8.2 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless Seller at, and at any time after, the Closing, from and against any and
all demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including reasonable fees and expenses of
counsel, other expenses of investigation, handling, and litigation, and
settlement amounts and including any net income tax amount associated with all
such indemnification recoveries (collectively, a "Loss" or "Losses"), asserted
against, resulting to, imposed upon, or incurred by the Seller Group, to the
extent arising from any of the following:
(a) Breach of Obligation. Any breach of any representation,
warranty, or agreement of Buyer contained in or made pursuant to this Agreement,
including the agreements and other instruments contemplated hereby.
(b) Incidental Matters. To the extent not covered by the
foregoing, any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including
reasonable fees and expenses of counsel, other expenses of investigation,
handling, and litigation, and settlement amounts, together with interest and
penalties, incident to the foregoing.
8.3 Offset by Buyer Against the Note. Buyer shall be entitled to the
following offset: In the event any amounts are owed to Buyer to indemnify Buyer
for a Loss or Losses pursuant to Section 8.1 of this Agreement, Buyer shall have
the right to offset the amount of such Loss or Losses against any amounts owing
to Seller pursuant to the Note.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidentiality Obligation of Buyer Prior to Closing. Until
Closing, Buyer shall, and shall use its best efforts to cause its personnel and
agents to, hold in strict confidence, not disclose to any person without the
prior written consent of Seller, and not use
<PAGE> 14
in any manner except in connection with the transactions contemplated hereby,
any confidential business or technical information obtained from Seller in
connection with the transactions contemplated hereby concerning Seller or the
Assets. This obligation shall cease to apply to Buyer upon the occurrence of
Closing. In the event this Agreement terminates for any reason, Buyer shall
return to Seller or destroy all materials in its possession containing any such
confidential information, including all copies, extracts, adaptations, and
transcriptions thereof.
9.2 Confidentiality Obligation of Seller Following Closing. For a
period of three years from the date hereof, Seller shall, and shall use its best
efforts to cause its personnel and agents to, hold in strict confidence, not
disclose to any person without the prior written consent of Buyer, and not use
in any manner whatsoever (except as otherwise provided herein), any confidential
business or technical information remaining in its possession concerning Buyer's
business or assets. Such confidential information specifically includes all
technical documentation, including any proposed design and specifications for
future products and products in development, marketing plans, and all other
technical and business information concerning Buyer's business and assets. In
the event that this Agreement terminates for any reason, Seller shall surrender
to Buyer or destroy all materials remaining in its possession containing any
such confidential information, including all copies, extracts, adaptations, and
transcriptions thereof.
9.3 Permitted Disclosures. Notwithstanding Sections 9.1 and 9.2, either
party may disclose confidential information where such disclosure is required of
law.
9.4 Scope of Confidential Information. For purposes of this Agreement,
information shall not be deemed confidential (1) if such information is
available in full from public sources; (2) if such information is received from
a third party not under an obligation to keep such information confidential; or
(3) if the recipient can conclusively demonstrate that such information was
independently developed by the recipient.
ARTICLE 10
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including the Exhibits), and the
other certificates, agreements, and other instruments to be executed and
delivered by the parties in connection with the transactions contemplated hereby
constitute the sole understanding of the parties with respect to the subject
matter hereof. No amendment, modification, or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
10.2 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof.
<PAGE> 15
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
10.4 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
10.5 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party that is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
he deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).
10.6 Expenses. Seller and Buyer shall each pay all costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants, and counsel.
10.7 Notices. All notices, requests, demands, claims, and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given: when received, if
personally delivered; when transmitted, if transmitted by telecopy, electronic
or digital transmission method; five business days after such notice, request,
demand claim or other communication is sent, if sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
SIKANDER, INC.
3540 West Sahara
Las Vegas, NV 89102
Attn: Edward Bevilacqua
Fax:
if to Buyer to:
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, CA 92008-8830
Attn: Stanley B. Kinsey
Fax: (760) 930-1178
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any party may change
<PAGE> 16
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
10.8 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California without giving effect
to the principles of conflicts of law thereof.
10.9 Public Announcements. Seller and Buyer shall consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement and the transactions contemplated
hereby. Neither Seller nor Buyer shall issue any such press release or make any
public statement without the agreement of the other party, except as such
party's counsel advises in writing and as may be required by law.
10.10 References. Whenever reference is made in this Agreement to any
Article, Section, paragraph or Exhibit, such reference shall be deemed to apply
to the specified Article, Section or paragraph of this Agreement or the
specified Exhibit to this Agreement.
10.11 Survival of Agreements. All covenants, agreements,
representations, and warranties made herein shall survive the execution and
delivery of this Agreement and the Closing.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf on the date indicated.
*NTN COMMUNICATIONS, INC.
By: /s/ STANLEY B. KINSEY
-----------------------------
Title: CEO
*SIKANDER, INC.
By: /s/ EDWARD BEVILACQUA
-----------------------------
Edward Bevilacqua
Title: President
* The effective delivery of this Agreement is subject to the approval of
the Board of Directors of NTN Communications, Inc. on or before April
28, 1999.
<PAGE> 17
EXHIBIT A
1.0 TANGIBLE ASSETS (per paragraph 1.1(a)(ii))
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
50 PlayNet counter top 14" touchscreen display, dollar bill validator, modem, Pentium 133 mhz processor, 1.2 GB hard
units drive, coin acceptor, cash box, credit card reader. Valued at $2,500 each. Located as follows:
NTN 1
Frontier Music 22
Atcom 1
Chris' Club 1
HTS Tustin 1
Bevilacqua 1
Open Domain 1
Storage (San Ramon) 22
-----------------------------------------------------------------------------------------------------------------------------
8 EMF floor models 13.8" flat panel touchscreen, dollar bill validator, modem, Pentium 200+ mhz processor, 4 GB
hard drive, smart card reader. Valued at $5,000 each. Located as follows:
Buffalo Joes (SD) 1
Kaminski Park 1
Frontier Music 1
Sports City 1
Hennessy's Tavern 1
Bevilacqua office 1
Open Domain 2
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.0 INTANGIBLE ASSETS (per paragraph 2.7(b))
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
PlayNet Game License Perpetual license for Balloon Bash, Beer Blast, Clear 21, Dot Quads, Dragon Flip, Draw Poker,
Elevators, Hex, Link 4, Memory Match, Marble master, Paper Scissors Rock, Play Ball, Poker
Puzzle, Scarab, Slider, Solitaire, Speed Unscramble, Yachtzee. Valued at $250,000.
Source Code (3 disks) located at HTS, Tustin.
-----------------------------------------------------------------------------------------------------------------------------
Purple Vision License Perpetual license for 15 MS-DOS based touchscreen games (Triple Crowns, TriAtholon, Run Around,
Raw Poker, Russian Rummy, Zoom 21, Solo Solitaire, Tarot Teller, Star Chart Astrology
(including: Astro-Light, The 200 +1 Stars, ExixTrology, OzTrology), The Psychic Ching. Who
Am I?, Visual OnLine Trivia, JigSaw Jones (including: Jig Saw Jamboree, Jiggy-Jam), Jigglin'
Jones & Zoom Oray. Valued at $1.00. Royalty of 5% of the gross revenue generated from the games.
Master Disk located at NTN & HTS Tustin.
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
SOFTWARE LICENSE
PURPLEVISION IS WILLING TO LICENSE THE TOUCHSCREEN GAME SOFTWARE (WHOSE NAMES
ARE ATTACHED ON EXHIBIT A, HERETO), (THE "SOFTWARE") CURRENTLY IN SIKANDER'S
POSSESSION ONLY UPON THE CONDITION THAT SIKANDER ACCEPTS ALL OF THE TERMS OF
THIS LICENSE (THE "LICENSE"). BY SIGNING THIS AGREEMENT, SIKANDER ACKNOWLEDGES
THAT IT UNDERSTANDS, ACCEPTS AND AGREES TO THE TERMS AND CONDITIONS OF THIS
LICENSE.
THIS LICENSE ONLY APPLIES TO THE SOFTWARE CURRENTLY IN SIKANDER'S POSSESSION:
1. GRANT OF LICENSE. In consideration of the promise to pay quarterly
royalties in the amount of 5% of the gross revenue generated by these games
(i.e. 5% of $.25), Purplevision. As Licensor grants Sikander as "Licensee"
an exclusive right to use the Software on all systems sold, leased or
operated by Sikander. This License does not grant to Sikander any express
or implied license to any other Purplevision software. Purplevision
reserves all rights not expressly granted to Licensee.
2. OWNERSHIP OF SOFTWARE. Sikander owns the magnetic or other physical media
on which the Software is originally or subsequently recorded or fixed, but
Purplevision or its suppliers retain title, ownership and copyrights to the
Software recorded on the original media and all subsequent copies of the
Software, regardless of the form or media in or on which the original and
other copies may exist. This License is not a sale of the original Software
or any copy.
3. COPY RESTRICTIONS. Unauthorized copying of the Software, including Software
that has been modified, merged, or included with other software, or of the
written materials is expressly forbidden. Sikander may be held legally
responsible for any infringement that is caused or encouraged by Sikander's
failure to abide by the terms of this License. Subject to these
restrictions, Sikander may make copies of the Software solely for its own
commercial purposes. Any permitted copies must include the same proprietary
and copyright notices as were affixed to the original.
4. USE RESTRICTIONS. Sikander may physically transfer the Software from one
system to another, provided that the Software is deleted from the former
system. At any given point in time, the Software must not be installed on
more than the number of systems to be sold, leased or operated by Sikander.
Sikander may access the Software from a hard disk so long as Sikander
complies with this License.
5. TRANSFER RESTRICTIONS. The Software is licensed only to Sikander for use by
Sikander, Sikander's customers, suppliers and assigns, and may not be
transferred to any other party without the prior written consent of
Purplevision. Any authorized transferee of the Software shall be bound by
the terms and conditions of this Agreement. In no event may Sikander
transfer, assign, rent, lease, sell, or otherwise dispose of the Software
on a temporary or permanent basis except as expressly provided herein.
6. TERMINATION. This Perpetual License is effective until terminated. This
License will terminate automatically without notice from Purplevision if
Sikander fails to comply with any provision of this License. Upon
termination Sikander shall destroy the written materials and all copies of
the Software, including modified copies, if any.
7. UPDATE POLICY. Purplevision may create, from time to time, update versions
of the
<PAGE> 19
Software. At its option, Purplevision will make such updates available to
Sikander and transferees who have paid an update fee, to be determined in
Purplevision's sole discretion. All such updates shall be subject to the
terms and conditions of this License.
8. WARRANTY. PURPLEVISION WARRANTS THAT IT HAS GOOD AND CLEAR TITLE TO THE
SOFTWARE. IN NO EVENT WILL PURPLEVISION BE LIABLE FOR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING FROM THE USE OF THE SOFTWARE,
OR DAMAGES FOR LOST PROFITS, BUSINESS GOODWILL, COMPUTER DATA OR PROGRAMS.
9. SOLE AND EXCLUSIVE REMEDY. IN THE EVENT OF A BREACH OF WARRANTY,
PURPLEVISION'S ENTIRE LIABILITY AND SIKANDER'S EXCLUSIVE REMEDY SHALL BE
THE RETURN OF THE PURCHASE PRICE.
10. DISCLAIMER. THE ABOVE IS THE ONLY WARRANTY OF ANY KIND THAT IS MADE BY
PURPLEVISION. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY
PURPLEVISION, ITS DEALERS, DISTRIBUTORS, AGENTS, OR EMPLOYEES SHALL CREATE
A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY AND SIKANDER
MAY NOT RELY ON ANY SUCH INFORMATION OR ADVICE. (SOME STATES IN THE UNITED
STATES OF AMERICA DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES SO THE
PRECEDING EXCLUSION MAY NOT APPLY.) IN THAT EVENT, ANY IMPLIED WARRANTIES
ARE LIMITED TO FIVE DAYS FROM THE DATE OF DELIVERY OF THE SOFTWARE. THIS
WARRANTY GIVES SIKANDER SPECIFIC LEGAL RIGHTS. SIKANDER MAY HAVE OTHER
RIGHTS, WHICH VARY FROM STATE TO STATE IN THE UNITED STATES OF AMERICA.
11. LIMITATION OF LIABILITY. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN
FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL PURPLEVISION BE LIABLE FOR
ANY DIRECT, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION WITH OR ARISING OUT OF THE EXISTENCE, FURNISHINGS, FAILURE OR
USE OF THE SOFTWARE, EVEN IF SIKANDER HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN PARTICULAR, PURPLEVISION SHALL HAVE NO LIABILITY FOR
ANY TEXT OR DATA STORED IN OR USED WITH THIS SOFTWARE, INCLUDING THE COST
OF RECOVERING OR REPRODUCING THIS TEXT OR DATA. (SOME STATES DO NOT ALLOW
THE EXCLUSION OR LIMITATION OF ACCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE
ABOVE EXCLUSION MAY NOT APPLY.)
12. JURISDICTION AND SEVERABILITY. This Agreement and this License is governed
by the laws of the State of Pennsylvania, USA without regard to or
application of choice of law rules or principles. If for any reason a
court of competent jurisdiction finds any provision, or portion thereof, to
be unenforceable, the remainder of this License shall continue in full
force and effect.
13. AUTHORITY. Each party signing this agreement warrants that it has been
properly authorized to do so.
Dated:
/s/ EDWARD BEVILACQUA
- -------------------------------------- ---------------------------------------
For Purplevision: Robert Hopkins For Sikander, Edward Bevilacqua
<PAGE> 20
[FUN-E-BUSINESS LETTERHEAD]
October 20, 1998
Mr. Robert Hopkins
President
Purple Vision Technologies
One Simon Street
West Conshohocken, PA 19428
Re: Binding Letter of Intent
Dear Robert,
Pursuant to our conversations and our meeting today, this is to act as a
binding Letter of Intent regarding the licensing and use of your current
fifteen games ("PVT Games") as follows:
ROYALTY. 5% of the net game proceeds; calculated as gross proceeds less
returns and allowances. Royalty will be paid in arrears by the 20th of each
following month.
TERM. You agree to grant us a perpetual non-exclusive license to use the PVT
Games whose names are included on page 2 herein.
DELIVERABLES. In addition to requiring that all games run under Windows NT and
that we have the ability to modify content (e.g. backgrounds, icons, color
schemes, sound and text files), we will provide you with a definitive written
list of deliverables ("Statement of Work"). You acknowledge that the
deliverables are a condition precedent to our obligation to perform. We will
use our best efforts to assist you in completion of the Deliverables per the
Statement of Work.
EXTRA'S. We understand that in addition to the deliverables, you will make
other modifications to the PVT games ("Extras") including, but not limited to,
providing us the necessary information to easily capture high score data for
each PVT Game. We agree to pay for all pre-authorized Extras by November 9,
1998.
ADVANCE AGAINST ROYALTIES. The payment for all Extra's is to be considered an
advance against royalties. Any payment for Extras is not in addition to any
royalties. Our mutual goal is to agree upon the Statement of Work and Extras,
including the total cost to us no later than November 2, 1998.
GOLDEN MASTER. You agree to provide us with one "Golden Master" including the
source code, which we hereby acknowledge is covered by the Non-Disclosure
Agreement entered into between our two firms. Our mutual goal is for you to
deliver the Golden Master no later than November 18, 1998.
TIME IS OF THE ESSENCE. You acknowledge that our goal is to include the PVT
Games on systems that we install beginning in November.
NEW GAMES. We acknowledge that this Letter of Intent only includes the fifteen
PVT Games.
<PAGE> 21
[FUN-E-BUSINESS LETTERHEAD]
FORMAL AGREEMENT. We agree to enter into a Formal Agreement by November 15th.
The Formal Agreement will supersede this agreement in its entirety. We will take
responsibility for drafting the Formal Agreement.
AUTHORITY. We hereby acknowledge to the other that we have the authority to
enter into this agreement and the formal agreement.
If the above is acceptable to you, please sign and return one copy to me no
later than Friday, October 23, 1998. Otherwise please call me at your earliest
convenience. We look forward to a long and mutually profitable relationship.
Sincerely,
/s/ EDWARD BEVILACQUA
Agreed and accepted this 20 day of October, 1998
For and on behalf of Purple Vision Technologies
/s/ ROBERT HOPKINS
- ------------------------------------------------
Mr. Robert Hopkins, President
THE PVT GAMES
1. Triple Crowns
2. TriAtholon
3. Run Around
4. Raw Poker
5. Russian Rummy
6. Zoom 21
7. Solo Solitaire
8. Tarot Teller
9. Star Chart Astrology, Astro-Light, The 2000 & 1 Stars, ErixTrology,
OzTrology
10. The Psychic Ching
11. Who Am I
12. Visual Online Trivia
13. JigSaw Jones, JigSaw Jamboree, Jiggy-Jam
14. Jigglin' Jones
15. Zoom Oray
<PAGE> 22
EXHIBIT A DESCRIPTION OF PROPERTY
All personal property including, but not limited to all general intangibles,
trademarks, tradenames, servicemarks, know how, copyrights and patents which
Allen & Company may have obtained as the result of PlayNet Properties, Inc.'s
Chapter 7 Bankruptcy (case #98-01198-PJW) filed in the District of Delaware,
including but not limited to the video games as set forth below by name and
title:
Balloon Bash
Beer Blast
Clear 21
Dot Quads
Dragon Flip
Elevators
Memory Match
Marble Master
Play Ball
Poker Puzzle
Scarab
Slider
Solitaire
Speed Unscramble
Trivia
<PAGE> 23
ASSIGNMENT & LICENSE AGREEMENT
This Assignment & License Agreement dated April 14, 1999 by and between
Sikander, Inc., a Nevada corporation ("Sikander"), PlayNet.com, Inc., a
California corporation ("PlayNet.com") and Allen & Co., a New York corporation
("Allen"):
WHEREAS, Allen may have rights to certain personal property stemming from
its earlier investment in a company known as PlayNet Technologies, Inc. (the
rights are collectively referred to as "Property"), which Property is more
particularly described in Exhibit A attached hereto and made a part hereof, and
WHEREAS, Sikander and PlayNet.com desire to jointly and independently use
said Property in a manner that will be mutually beneficial, and
WHEREAS, Allen desires to reap certain licensing fees, rights or benefits
associated with the use of the Property and is willing to do so as set forth
below.
NOW THEREFORE, the parties hereby agree as follows:
1) ASSIGNMENT OF PROPERTIES TO PLAYNET.COM: For the sum of $1.00 and other
consideration ("other consideration") to be tendered to Allen before May
15, 1999, Allen hereby promises to sell, assign and transfer whatever
rights, title and interest it may have in the Property, in an "as is"
condition, to PlayNet.com.
2) GRANT OF LICENSE TO SIKANDER: In exchange for 250,000 shares of Sikander's
Common Stock (valued at $250,000), PlayNet.com will grant an exclusive
license to the Property to Sikander. Sikander will immediately issue a
certificate for said shares in the name of "PlayNet.com". Sikander will
deliver said certificate to Allen to hold until PlayNet.com tenders the
other consideration to Allen.
3) ASSIGNMENT OF PROPERTIES TO SIKANDER: In the event that PlayNet.com does
not deliver the other consideration to Allen before May 15, 1999, the
assignment to PlayNet.com will be null and void. PlayNet.com acknowledges
that it will have no rights to the Property. Allen will return the
PlayNet.com certificate to Sikander. Allen hereby promises to sell, assign
and transfer whatever rights, title and interest it has in the Property to
Sikander in exchange for the 250,000 shares of Sikander common stock.
Sikander will issue the 250,000 shares of stock to Allen by June 1, 1999.
4) WARRANTY & LICENSE: Allen makes no representations as to the suitability
of said Property, the merchantability of the Property or the fitness for a
particular purpose. Allen warrants and represents that it has good and
merchantable title to said Property and that such Property is not
encumbered, used or infringed upon by any other party. Allen shall not be
obligated to assist or prosecute any third parties who may now or hereafter
use the Property in violation of the owner's rights therein. The license,
attached as Exhibit B hereto,
IN WITNESS WHEREOF, THE PARTIES HEREBY EXECUTE THIS AGREEMENT WITH THE
INTENT TO BE LEGALLY SOUND.
PLAYNET.COM, INC. SIKANDER, INC. ALLEN & CO.
/s/ NOLAN BUSHNELL /s/ EDWARD BEVILACQUA
- --------------------------------------------------------------------------------
Nolan Bushnell Edward Bevilacqua James Quinn
<PAGE> 24
EXHIBIT B SOFTWARE LICENSE
PLAYNET.COM IS WILLING TO LICENSE THE PLAYNET TECHNOLOGIES SOFTWARE
(THE "SOFTWARE") IN SIKANDER'S POSSESSION ONLY UPON THE CONDITION THAT SIKANDER
ACCEPTS ALL OF THE TERMS OF THIS LICENSE (THE "LICENSE"). BY SIGNING THIS
AGREEMENT, SIKANDER ACKNOWLEDGES THAT IT UNDERSTANDS, ACCEPTS AND AGREES TO THE
TERMS AND CONDITIONS OF THIS LICENSE.
THIS LICENSE ONLY APPLIES TO THE PLAYNET TECHNOLOGIES SOFTWARE OBTAINED
CURRENTLY IN SIKANDER'S POSSESSION:
1. GRANT OF LICENSE. In consideration of payment of the License fee of 250,000
shares of Sikander common stock, PlayNet.com. ("Licensor") grants Sikander
("Licensee") an exclusive right to use the Software on all systems sold,
leased or operated by Sikander. This License does not grant to Sikander
any express or implied license to any other PlayNet.com software.
PlayNet.com reserves all rights not expressly granted to Licensee.
2. OWNERSHIP OF SOFTWARE. As Licensee, Sikander owns the magnetic or other
physical media on which the Software is originally or subsequently
recorded or fixed, but PlayNet.com or its suppliers retain title, ownership
and copyrights to the Software recorded on the original disk copy(ies) and
all subsequent copies of the Software, regardless of the form or media in
or on which the original and other copies may exist. This License is not a
sale of the original Software or any copy.
3. COPY RESTRICTIONS. Unauthorized copying of the Software, including
Software that has been modified, merged, or included with other software,
or of the written materials is expressly forbidden. Sikander may be held
legally responsible for any infringement that is caused or encouraged by
Sikander's failure to abide by the terms of this License. Subject to these
restrictions, Sikander may make copies of the Software solely for its own
commercial purposes. Any permitted copies must include the same
proprietary and copyright notices as were affixed to the original.
4. USE RESTRICTIONS. As the Licensee, Sikander may physically transfer the
Software from one system to another, provided that the Software is deleted
from the former system. At any given point in time, the Software must not
be installed on more than the number of systems to be sold, leased or
operated by Sikander. Sikander may access the Software from a hard disk so
long as Sikander complies with this License.
5. TRANSFER RESTRICTIONS. The Software is licensed only to Sikander for use
by Sikander, Sikander's customers, suppliers and assigns, and may not be
transferred to any other party without the prior written consent of
PlayNet.com. Any authorized transferee of the Software shall be bound by
the terms and conditions of this Agreement. In no event may Sikander
transfer, assign, rent, lease, sell, or otherwise dispose of the Software
on a temporary or permanent basis except as expressly provided herein.
6. TERMINATION. This Perpetual License is effective until terminated. This
License will terminate automatically without notice from PlayNet.com if
Sikander fails to comply with any provision of this License. Upon
termination Sikander shall destroy the written materials and all copies of
the Software, including modified copies, if any.
7. UPDATE POLICY. PlayNet.com may create, from time to time, update versions
of the Software. At its option, PlayNet.com will make such updates
available to the Licensee
<PAGE> 25
and transferees who have paid an update fee, to be determined in
PlayNet.com's sole discretion. All such updates shall be subject to the
terms and conditions of this License.
8. WARRANTY. PLAYNET WARRANTS THAT IT HAS GOOD AND CLEAR TITLE TO THE
SOFTWARE. IN NO EVENT WILL PLAYNET.COM BE LIABLE FOR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING FROM THE USE OF THE SOFTWARE,
OR DAMAGES FOR LOST PROFITS, BUSINESS GOODWILL, COMPUTER DATA OR PROGRAMS.
9. SOLE AND EXCLUSIVE REMEDY. IN THE EVENT OF A BREACH OF WARRANTY,
PLAYNET.COM'S ENTIRE LIABILITY AND SIKANDER'S EXCLUSIVE REMEDY SHALL BE THE
RETURN OF THE PURCHASE PRICE.
10. DISCLAIMER. THE ABOVE IS THE ONLY WARRANTY OF ANY KIND THAT IS MADE BY
PLAYNET.COM, EITHER EXPRESS OR IMPLIED, AND PLAYNET.COM EXPRESSLY DISCLAIMS
ALL OTHER WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NO ORAL OR WRITTEN
INFORMATION OR ADVICE GIVEN BY PLAYNET.COM, ITS DEALERS, DISTRIBUTORS,
AGENTS, OR EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE
SCOPE OF THIS WARRANTY AND SIKANDER MAY NOT RELY ON ANY SUCH INFORMATION OR
ADVICE. (SOME STATES IN THE UNITED STATES OF AMERICA DO NOT ALLOW THE
EXCLUSION OF IMPLIED WARRANTIES SO THE PRECEDING EXCLUSION MAY NOT APPLY.)
IN THAT EVENT, ANY IMPLIED WARRANTIES ARE LIMITED TO FIVE DAYS FROM THE
DATE OF DELIVERY OF THE SOFTWARE. THIS WARRANTY GIVES SIKANDER SPECIFIC
LEGAL RIGHTS. SIKANDER MAY HAVE OTHER RIGHTS, WHICH VARY FROM STATE TO
STATE IN THE UNITED STATES OF AMERICA.
11. LIMITATION OF LIABILITY. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN
FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL PLAYNET.COM BE LIABLE FOR
ANY DIRECT, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION WITH OR ARISING OUT OF THE EXISTENCE, FURNISHINGS, FAILURE OR
USE OF THE SOFTWARE, EVEN IF SIKANDER HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN PARTICULAR, PLAYNET.COM SHALL HAVE NO LIABILITY FOR ANY
TEXT OR DATA STORED IN OR USED WITH THIS SOFTWARE, INCLUDING THE COST OF
RECOVERING OR REPRODUCING THIS TEXT OR DATA. (SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF ACCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE
EXCLUSION MAY NOT APPLY.)
12. JURISDICTION AND SEVERABILITY. This Agreement and this License is governed
by the laws of the State of California, USA without regard to or
application of choice of law rules or principles. If for any reason a court
of competent jurisdiction finds any provision, or portion thereof, to be
unenforceable, the remainder of this License shall continue in full force
and effect.
<PAGE> 26
EXHIBIT A NAMES OF LICENSED GAMES
1. Triple Crowns
2. TriAtholon
3. Run Around
4. Raw Poker
5. Russian Rummy
6. Zoom 21
7. Solo Solitaire
8. Tarot Teller
9. Star Chart Astrology, Astro-Light, The 200 & 1 Stars, ErixTrology,
OzTrology
10. The Psychic Ching
11. Who Am I
12. Visual OnLine trivia
13. JigSaw Jones, JigSaw Jamboree, Jiggy-Jam
14. Jigglin' Jones
15. Zoom Oray
<PAGE> 1
EXHIBIT 10.2
EXHIBIT B
PROMISSORY NOTE
$360,000.00 April 29, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned, NTN Communications, Inc., a
Delaware corporation ("Maker"), promises to pay to the order of Sikander, Inc.,
a Nevada corporation ("Holder"), the principal sum of $360,000.00 with interest
thereon from and after the date hereof at the rate of ten percent (10%) per
annum.
Principal shall be payable in twelve (12) consecutively quarterly
installments of $30,000 with the first payment due and payable on June 30, 1999.
Interest shall be paid with each principal payment.
Payments of principal and interest shall be made no later than 12:00
P.M. (noon) (Los Angeles time) on the date when due and in lawful money of the
United States of America at the principal office of Maker (or such other place
of payment that Holder may designate in writing to Maker).
Contemporaneously herewith Maker is acquiring certain all of the assets
of Holder and Maker is employing Mr. Edward Bevilacqua on an "at will" basis. In
the event Maker terminates Mr. Bevilacqua's employment (other than for good
cause) then all installments of principal will accelerate and become immediately
due and payable. In such event Maker shall have the option (i) to pay the entire
amount of principal and interest then owing to Maker or (ii) return to Holder
those assets acquired from Holder not already contractually committed or
delivered to a third party by Maker, in complete satisfaction of all amounts
owing to Holder.
In the event that Mr. Bevilacqua voluntarily terminates his employment
or if Maker terminates Mr. Bevilacqua's employment for cause, then Maker shall
have the option throughout the term hereof: (i) to pay the entire amount of
principal and interest as it becomes due, or (ii) return to Holder those assets
acquired from Holder not already contractually committed or delivered to a third
party by Maker, in complete satisfaction of all amounts owing to Holder.
In the event of any default in the payments due pursuant to this Note
or should suit be commenced or any attorney employed to enforce payment of this
Note, the undersigned Maker agrees to pay, in addition to all other amounts due
on this Note, all costs of collection, including reasonable attorneys' fees
whether or not suit is brought and
<PAGE> 2
including all costs, expenses, and fees on appeal, as may be incurred by the
holder of this Note.
Maker hereby waives presentment for payment, demand, protest, notice of
protest and notice of dishonor hereof, and all other notices of any kind to
which he may be entitled under applicable law or otherwise.
Holder, at its option, may extend the time for payment of this Note,
postpone the enforcement hereof, or grant any other indulgences without
affecting or diminishing Holder's right to recourse against Maker, which right
is expressly reserved.
IN WITNESS WHEREOF, Maker has executed this Promissory Note as of the
date first above written.
NTN COMMUNICATIONS, INC.
By: /s/ STANLEY B. KINSEY
---------------------------
CEO
<PAGE> 1
EXHIBIT 10.3
EXHIBIT C
NTN COMMUNICATIONS, INC.
EARN OUT OPTION
THIS EARN OUT OPTION (this "Option") is made and entered into as of
April 23, 1999 by and between NTN COMMUNICATIONS, INC., a Delaware corporation
(the "Company"), and Sikander, Inc., a Nevada corporation (the "Optionee").
W I T N E S S E T H
In consideration of the mutual promises and covenants made herein and
the mutual benefits to be derived herefrom, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
and option to purchase, in accordance with the terms and conditions of this
Agreement, an aggregate of 600,000 shares of Common Stock exercisable at $.6250
per share (the "Price"), exercisable prior to the close of business on April 30,
2006 (the "Expiration Date").
2. Vesting and Exercisability of Option. The Option will become vested
and exercisable in accordance with the terms and conditions set forth in
Attachment 1 hereto. In the event of termination of employment of Edward
Bevilacqua (other than termination by the Company without cause) with the
Company, the vested portion of this Option may only be exercised by Optionee at
any time prior to 60 days after such termination of employment, and the unvested
portion will immediately terminate and this Option will be of no further force
or effect. If Mr. Bevilacqua's employment is terminated for any reason, the
Company shall have no further obligation to use its good faith or best efforts
to maximize the number of shares of Common Stock subject to the Option.
3. Corporate Transaction. In the event of a Corporate Transaction (as
defined below), the Company shall notify the Optionee at least 30 days prior
thereto. To the extent not previously exercised, the Option shall terminate
immediately prior to the consummation of such Corporate Transaction unless the
Company determines otherwise in the exercise of its sole discretion, provided,
however, the Company must permit exercise of the Option prior to its
termination, even if the Option would not otherwise have been exercisable. A
"Corporate Transaction" means a liquidation or dissolution of the Company, a
merger or consolidation of the company with or into another corporation or
entity, a sale of all or substantially all of the assets of the Company.
4. Method of Exercise of Option and Payment of Purchase Price. Each
exercise of the Option shall be by means of a written notice of exercise
delivered to the Company and specifying the number of whole shares with respect
to which the Option is being exercised, together with any written statements
required pursuant to Section 9 below and payment of the Price in full in cash or
by check payable to the order of the Company. The delivery of shares pursuant to
an exercise of this Option will be conditional upon payment by the Optionee of
amounts sufficient to enable the Company to pay all applicable federal, state
and local withholding taxes.
<PAGE> 2
5. Non-Assignability of Option. The Option and the rights and
privileges conferred hereby are not transferable or assignable and may not be
offered, sold, pledged, hypothecated or otherwise disposed of in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment, garnishment, levy or similar process.
6. Adjustments and Other Rights. The rights of the Optionee hereunder
will be subject to adjustments and modifications in certain circumstances and
upon occurrence of certain events including a reorganization, merger,
combination, recapitalization, reclassification, stock split, reverse stock
split, stock dividend or stock consolidation.
7. Optionee Not A Stockholder. Neither the Optionee nor any other
person entitled to exercise the Option shall have any of the rights or
privileges of a shareholder of the Company. No adjustment will be made for
dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record date
is subsequent to the date upon which notice of exercise was delivered and the
tender of payment was accepted.
8. Application of Securities Laws. No shares of Common Stock may be
purchased pursuant to the Option unless and until any then applicable
requirements of the Securities and Exchange Commission, the California
Department of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the Company or
such issuance, and any exchanges upon which the Common Stock may be listed,
shall have been fully satisfied. The Optionee represents, agrees and certifies
that:
(a) If the Optionee exercises the Option in whole or in part at a
time when there is not in effect under the Securities Act of 1933, as amended
(the "Act"), a registration statement relating to the Common Stock issuable upon
exercise and available for delivery to him a prospectus meeting the requirements
of Section 10(a)(3) of the Act, the Optionee will acquire the Common Stock
issuable upon such exercise for the purpose of investment and not with a view to
resale or distribution and that, as a condition to each such exercise, he or she
will furnish to the Company a written statement to such effect, satisfactory in
form and substance to the Company, which statement also acknowledges that the
Option shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer; and
(b) If and when the Optionee proposes to publicly offer or sell the
Common Stock issued to him upon exercise of the Option, the Optionee will notify
the Company prior to any such offering or sale and will abide by the opinion of
counsel to the Company as to whether and under what conditions and
circumstances, if any, he or she may offer and sell such shares.
The Optionee understands that the certificate or certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Act and state
securities laws with respect to the transfer of such Common Stock, and the
Company may impose stop transfer instructions to implement such limitations, if
applicable.
<PAGE> 3
9. Notices. Any notice to be given under the terms of this Agreement or
pursuant to the Plan shall be in writing and addressed to the Secretary of the
Company at its principal office and any notice to be given to the Optionee shall
be addressed to him at the address given beneath the Optionee's signature
hereto, or at such other address as either party may hereafter designate in
writing to the other party. Any such notice shall be deemed to have been duly
given when enclosed in a properly sealed envelope addressed as aforesaid,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in a post office or branch post office regularly maintained by the
United States Government.
10. Effect of Agreement. This Agreement shall be assumed by, be binding
upon and inure to the benefit of any successor or successors of the Company to
the extent set forth herein.
11. Laws Applicable to Construction. The Option has been granted,
executed and delivered as of the day and year first above written in Carlsbad,
California, and the interpretation, performance and enforcement of the Option
and this Agreement shall be governed by the internal laws of the State of
California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the day and year first above written.
NTN COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ KENDRA BERGER
------------------------------------
Secretary
OPTIONEE
SIKANDER, INC.
By: /s/ EDWARD BEVILACQUA
------------------------------------
Edward Bevilacqua, President
c/o Sikander, Inc.
3540 West Sahara
Las Vegas, NV 89102
<PAGE> 4
ATTACHMENT 1
METHOD OF DETERMINING NUMBER OF EARN OUT OPTIONS
The maximum number of shares of Common Stock subject to Earn Out
Options (600,000) may be reduced on or before October 31, 2000, should the
revenues received by Buyer by October 31, 2000 attributed to orders for
Internet/game Systems ("Systems") which occurred on or before April 30, 2000
(the "Lease Revenues") be less than $10 million (the "Gross Sales Formula"). In
the event Mr. Bevilacqua's employment with Buyer is terminated for any reason
prior to April 30, 2000, the revenues received by Buyer for the purpose of this
calculation shall instead be deemed to be those revenues attributed to orders
which occurred on or prior to 90 days following such termination, but in no
event later than April 30, 2000; provided that the revenues therefrom are
received by Buyer within nine months following such termination but no later
than October 31, 2000. All sales outside of the Hospitality industry will be
subject to the prior approval of Buyer's management. The number of shares of
common stock subject to Earn Out Options may be further reduced over a four year
period based upon the gross margin generated by the Systems (the "Gross Margin
Formula"). The formula for each potential adjustment will be calculated as
follows:
The Gross Sales Formula.
The number of shares of common stock subject to Earn Out Options will
be based upon a formula whereby the number of shares will be equal to [(the
Lease Revenues) divided by ($10 million) times (600,000)]. Thus, if $8 million
of Lease Revenues are received by Buyer on or before October 31, 2000 from
orders occurring on or before April 30, 2000, the number of shares of common
stock subject to Earn Out Options will be calculated as (8/10 x 600,000), or
480,000 shares.
25% of such Options shall be available to Seller at the end of each of
four 12- month periods of time, each being April 30 of the years 2000, 2001,
2002 and 2003.
The Gross Margin Formula
The number of shares of common stock subject to Earn Out Options will
be further subject to the "gross margin" contribution of the revenues from the
systems that were recognized under the Gross Sales Formula, i.e., the same
physical systems will be tracked for ongoing profitability over their general
operating life. At each June 30 after the end of each annual period, a gross
margin calculation, as described below, will be performed to determine the
number of shares of common stock subject to Earn Out Options.
<PAGE> 5
Each of the four periods will be equal to: [(the calculated gross
margin percentage during that period) divided by (50%)] times [the number of
shares of common stock subject to Earn Out Options]. Thus, if the number of
shares for a given period is 120,000 and the gross margin percentage during that
period is 40%, the Adjusted number of shares subject to Earn Out options for
that period will be (40/50 x 120,000 shares) or 96,000 shares.
Gross Margin will be calculated to be [(Lease Revenues less all direct
costs (the "initial income contribution"), divided by (the number of years of
the lease)] plus (the incremental period's revenues to Buyer from operation of
the Systems) less (the incremental period's operating expenses (see below) from
operation of the Systems)] all divided by [the smaller of: (the Lease Revenues)
divided by (the years of the lease) or ($10 million) divided by (the years of
the lease)].
"Period operating expenses" will consist of all direct operating costs,
including, but not limited to sales commissions, service and maintenance fees
and costs, upgrade costs, communication costs, and license fees.
Thus, if the Lease Revenues were $8 million, the initial income
contribution from the sales portion of the Lease Revenues was $2 million, the
number of years of the lease was 4, the incremental period revenues were
$1,000,000, and the period operating expenses were $600,000, the calculation
would be [(2,000,000/4) + 1,000,000 - 600,000]/[8,000,000/4] or
900,000/2,000,000 or 45%.
The above calculation is based upon a plan of capital expenditures of
not more than $300,000, exclusive of the amounts paid to Sikander and Mr.
Bevilacqua pursuant to his employment with Buyer. Should the required capital
expenditures to achieve the above-noted targets be greater than $300,000, then
the parties will adjust the formulas on a good-faith basis. All capital
expenditures in excess of $1,000 shall require the prior approval of the Chief
Executive Officer of Buyer.
In the event Mr. Bevilacqua's employment is terminated for any reason,
Buyer shall have no obligation to continue any level of performance which would
bring about vesting of the Earn Out Options.
<PAGE> 1
EXHIBIT 10.4
NTN COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
as of April 28, 1999 by and between NTN COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and Edward Bevilacqua, an individual (the
"Optionee").
W I T N E S S E T H
WHEREAS, the Company's Board of Directors authorized the grant to the
Optionee pursuant to the Company's 1995 Stock Option Plan, as amended ("the
Plan"), of an option (the "Option") to purchase all or any part of 400,000
shares of Common Stock, $.005 par value, of the Company (the "Common Stock")
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
and option to purchase, in accordance with the terms and conditions of this
Agreement, an aggregate of 400,000 shares of Common Stock exercisable at $.6250
per share (the "Price"), exercisable prior to the close of business on April 15,
2009 (the "Expiration Date").
2. Vesting and Exercisability of Option. The Option will become vested
and exercisable as to 100,000 shares of Common Stock on the first anniversary of
the Date of Grant. Thereafter, the option will become vested and exercisable as
to 8,333.33 shares per month commencing on May 16, 2000. The right to purchase
any or all of such shares will terminate on the close of business on April 15,
2009; provided, however, that the right to exercise this Option is subject to
early termination upon the Optionee's "Termination of Employment" (as defined in
the Plan). In the event Optionee's employment is terminated by the Company
without cause prior to April 15, 2001, the option will become exercisable and
vested as to the lesser of (a) the number of shares that are vested at the date
of Termination of Employment plus an additional number of shares that would have
vested over the next 12 months from Optionee's Termination of Employment; or (b)
200,000 shares. In the event of the Optionee's Termination of Employment (other
than by reason of death) this Option may only be exercised by Optionee, to the
extent exercisable at Termination of Employment, at any time prior to 60 days
after Termination of Employment.
3. Corporate Transaction. In the event of a Corporate Transaction (as
defined below), the Committee administering the Plan shall notify the Optionee
at least 30 days prior thereto. To the extent not previously exercised, the
Option shall terminate immediately prior to the consummation of such Corporate
Transaction unless the Committee administering the Plan determines otherwise in
the exercise of its sole discretion, provided, however, that such Committee must
permit exercise of the Option in full prior to its termination, even if the
Option would not otherwise have been exercisable. A "Corporate Transaction"
means a liquidation or dissolution of the Company, a merger or consolidation of
the Company with or into another corporation or entity, a sale of all or
substantially all of the assets of the Company.
<PAGE> 2
4. Method of Exercise of Option and Payment of Purchase Price. Each
exercise of the Option shall be by means of a written notice of exercise
delivered to the Company and specifying the number of whole shares with respect
to which the Option is being exercised, together with any written statements
required pursuant to Section 9 below and payment of the Price in full in cash or
by check payable to the order of the Company; provided that so-called cashless
exercises may be permitted in the discretion of the Committee administering the
Plan. The delivery of shares pursuant to an exercise of this Option will be
conditional upon payment by the Optionee of amounts sufficient to enable the
Company to pay all applicable federal, state and local withholding taxes.
5. Effect of Death of Optionee. The Option and all other rights
hereunder, to the extent such rights shall not have been exercised, shall,
unless sooner terminated pursuant to the Plan, terminate and become null and
void at the end of twelve months following the Optionee's death. During the
twelve-month period after death, the Option may, to the extent exercisable on
the date of death (or earlier termination), be exercised by the executor of the
Optionee's will or the administrator of the holder's estate; provided that in no
event may the Option be exercised by any person after the Expiration Date.
6. Non-Assignability of Option. Subject to the provisions of the Plan,
the Option and the rights and privileges conferred hereby are not transferable
or assignable and may not be offered, sold, pledged, hypothecated or otherwise
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment, garnishment, levy or similar process.
During the Optionee's lifetime, the Option may be exercised only by the
Optionee, or, subject to the provisions of Section 5, within twelve months after
his death by the executor of his will or the administrator of his estate, and
not otherwise, regardless of any community property or other interest therein of
the Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse successor in interest.
7. Adjustments and Other Rights. The rights of the Optionee hereunder
will be subject to adjustments and modifications in certain circumstances and
upon occurrence of certain events including a reorganization, merger,
combination, recapitalization, reclassification, stock split, reverse stock
split, stock dividend or stock consolidation, as set forth in the Plan.
8. Optionee Not A Stockholder. Neither the Optionee nor any other
person entitled to exercise the Option shall have any of the rights or
privileges of a shareholder of the Company as to any shares of Common Stock not
actually issued and delivered to him. No adjustment will be made for dividends
or other rights for which the record date is prior to the date on which such
stock certificate or certificates are issued even if such record date is
subsequent to the date upon which notice of exercise was delivered and the
tender of payment was accepted.
9. Application of Securities Laws. No shares of Common Stock may be
purchased pursuant to the Option unless and until any then applicable
requirements of the
<PAGE> 3
Securities and Exchange Commission, the California Department of Corporations
and any other regulatory agencies, including any other state securities law
commissioners having jurisdiction over the Company or such issuance, and any
exchanges upon which the Common Stock may be listed, shall have been fully
satisfied. The Optionee represents, agrees and certifies that:
(a) If the Optionee exercises the Option in whole or in part at a
time when there is not in effect under the Securities Act of 1933, as amended
(the "Act"), a registration statement relating to the Common Stock issuable upon
exercise and available for delivery to him a prospectus meeting the requirements
of Section 10(a)(3) of the Act, the Optionee will acquire the Common Stock
issuable upon such exercise for the purpose of investment and not with a view to
resale or distribution and that, as a condition to each such exercise, he or she
will furnish to the Company a written statement to such effect, satisfactory in
form and substance to the Company, which statement also acknowledges that the
Option shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer; and
(b) If and when the Optionee proposes to publicly offer or sell the
Common Stock issued to him upon exercise of the Option, the Optionee will notify
the Company prior to any such offering or sale and will abide by the opinion of
counsel to the Company as to whether and under what conditions and
circumstances, if any, he or she may offer and sell such shares.
The Optionee understands that the certificate or certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Act and state
securities laws with respect to the transfer of such Common Stock, and the
Company may impose stop transfer instructions to implement such limitations, if
applicable. Any person or persons entitled to exercise the Option under the
provisions of Section 5 above shall be bound by and obligated under the
provisions of this Section 9 to the same extent as is the Optionee.
10. Notices. Any notice to be given under the terms of this Agreement
or pursuant to the Plan shall be in writing and addressed to the Secretary of
the Company at its principal office and any notice to be given to the Optionee
shall be addressed to him at the address given beneath the Optionee's signature
hereto, or at such other address as either party may hereafter designate in
writing to the other party. Any such notice shall be deemed to have been duly
given when enclosed in a properly sealed envelope addressed as aforesaid,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in a post office or branch post office regularly maintained by the
United States Government.
11. Effect of Agreement. This Agreement shall be assumed by, be binding
upon and inure to the benefit of any successor or successors of the Company to
the extent set forth herein.
12. Withholding. The provisions of the Plan shall govern any
withholding that the Company is required to make with respect to the exercise of
the Option.
13. Applicability of the Plan. The Option and this Agreement will
subject to, and the Company and the Optionee agree to be bound by, all of the
terms and conditions of the
<PAGE> 4
Plan. The rights of the Optionee will be subject to limitations, adjustments,
modifications, suspension and termination in certain circumstances and upon the
occurrence of certain conditions as set forth in the Plan as originally adopted,
but shall not be adversely affected by any future amendments to the Plan.
14. Laws Applicable to Construction. The Option has been granted,
executed and delivered as of the day and year first above written in Carlsbad,
California, and the interpretation, performance and enforcement of the Option
and this Agreement shall be governed by the internal laws of the State of
California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the day and year first above written.
NTN COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ KENDRA BERGER
----------------------------
Secretary
OPTIONEE
/s/ EDWARD BEVILACQUA
-------------------------------
Edward Bevilacqua
c/o Sikander, Inc.
3540 West Sahara
Las Vegas, NV 89102
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,658,000
<SECURITIES> 0
<RECEIVABLES> 4,877,000
<ALLOWANCES> 2,107,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,429,000
<PP&E> 22,481,000
<DEPRECIATION> 14,547,000
<TOTAL-ASSETS> 15,569,000
<CURRENT-LIABILITIES> 5,397,000
<BONDS> 0
0
1,000
<COMMON> 141,000
<OTHER-SE> 2,053,000
<TOTAL-LIABILITY-AND-EQUITY> 15,569,000
<SALES> 5,687,000
<TOTAL-REVENUES> 5,687,000
<CGS> 1,145,000
<TOTAL-COSTS> 6,350,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,000
<INCOME-PRETAX> (832,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (832,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (832,000)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
