<PAGE>
As filed with the Securities and Exchange Commission on November 17, 1995
Reg. No. 33-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware The Campus 31-1103425
(State or other jurisdiction of 5966 La Place Court (I.R.S. Employer
incorporation or organization) Carlsbad, California 92008 Identification No.)
(619) 438-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Ronald E. Hogan, Chief Financial Officer
NTN Communications, Inc.
The Campus
5966 La Place Court
Carlsbad, California 92008
(619) 438-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Dale E. Short, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per share price fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.005 par value.. 2,666,667 shares(1) $ 4.84(2) $12,906,668(2)
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.005 par value.. 50,000 shares $ 7.50 $ 375,000
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.005 par value.. 96,000 shares $ 4.70 $ 451,200
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.005 par value.. 62,500 shares $4.375 $ 273,438
Total.......................... 2,875,167 shares $14,006,306 $2,802
===============================================================================================================
</TABLE>
(1) Includes 266,667 shares of Common Stock which may become issuable pursuant
to certain anti-dilution provisions of the investment agreements relating to
the original issuance of 2,400,000 of the shares registered hereunder.
(2) Estimated solely for the purpose of calculating the registration fee and
based, pursuant to Rule 457(c), on the average of the high and low sale
prices of Registrant's Common Stock as reported on the American Stock
Exchange on November 13, 1995.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
PROSPECTUS
NTN COMMUNICATIONS, INC.
2,608,500 Shares
This Prospectus relates to the offer by certain securityholders named
herein (the "Selling Securityholders") for sale to the public from time to
time of up to 2,608,500 shares (the "Shares") of common stock, $.005 par value
(the "Common Stock"), of NTN Communications, Inc. See "Selling
Securityholders." Unless otherwise indicated herein, references herein to the
"Company" mean NTN Communications, Inc. and its subsidiaries.
Of the shares of Common Stock offered hereby, 208,500 are issuable upon the
exercise of certain warrants to purchase Common Stock of the Company (the
"Warrants") and the remainder are offered by certain Selling Securityholders
who recently purchased shares of Common Stock in the Company's private
placement. See "Selling Securityholders."
The Company will not receive any proceeds from the sale of the Common Stock
offered hereby, with the exception of the exercise price of such of the
Warrants as may be exercised. See "Use of Proceeds" and "Description of
Securities."
The Common Stock is traded on the American Stock Exchange ("AMEX") under
the symbol "NTN." As of November 13, 1995, the last sale price for the Common
Stock as reported on the AMEX was $4.875. There is no established market for
the Warrants. See "Price Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN MATERIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE SHARES OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
The date of this Prospectus is ________, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
regional offices: Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 W. Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Stock is listed on the AMEX, and the
Company's reports, proxy or information statements and other information filed
with the AMEX may be inspected at the AMEX's offices at 86 Trinity Place, New
York, New York, 10006-1881.
Additional information regarding the Company and the Shares offered
hereby is contained in the Registration Statement of which this Prospectus is
a part, and the exhibits thereto, filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). For further
information pertaining to the Company and the Shares, reference is made to the
Registration Statement and the exhibits thereto, which may be inspected
without charge at, and copies thereof may be obtained at prescribed rates
from, the office of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of the document filed as an exhibit or schedule
to the Registration Statement. Each such statement is qualified in its
entirety by reference to the copy of the applicable documents filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under
the Exchange Act (Commission file no. 1-11460) are incorporated in this
Prospectus by reference: (a) the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, which contains consolidated financial statements
for the Company's year ended December 31, 1994; (b) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995; (c) the Company's
Current Report on Form 8-K dated April 21, 1995; (d) the Company's Current
Report on Form 8-K dated July 5, 1995; (e) the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995; and (f) the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Shares offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
of this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents that are not specifically
incorporated by reference in such documents). Written requests for such
copies should be directed to Ronald E. Hogan, Chief Financial Officer, NTN
Communications, Inc., The Campus, 5966 La Place Court, Carlsbad, California
92008. Telephone requests may be directed to Mr. Hogan at (619) 438-7400.
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RISK FACTORS
The Shares offered hereby are speculative in nature and involve a high
degree of risk. The following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Shares offered
by this Prospectus.
HISTORY OF SIGNIFICANT LOSSES; RECENT PROFITABILITY
The Company has a history of significant losses and had an accumulated
deficit of $20,106,000 as of September 30, 1995. The year ended December 31,
1994, in which the Company reported net earnings of $707,000, was the
Company's first year of profitable operations. The Company reported a net
loss of $867,000 for nine months ended September 30, 1995, and there can be no
assurance that the Company will operate profitably in the future. See
"Selected Consolidated Financial Data."
PENDING LITIGATION
The Company currently is defending litigation filed by securityholders of
the Company alleging violations by the Company of federal and state securities
laws. In June 1993, a class-action lawsuit against the Company was filed by
certain securityholders in the United States District Court for the Southern
District of California. The plaintiffs allege that announcements made by the
Company regarding a possible agreement in which the Company would sell certain
equipment and services to an arm of the Mexican Government were misleading.
The plaintiffs are seeking to recover unspecified damages for a drop in the
market price of the Company's Common Stock following a later announcement that
the anticipated agreement may be put out for bid. In September 1993, the
class of plaintiffs consisting of purchasers of Common stock during the period
January 27, 1993 through June 24, 1993 was certified by the District Court. A
motion by the Company to dismiss the suit was denied in February 1994.
Percipient discovery has been undertaken by the parties.
In April 1995, a securityholder of the Company filed a class-action lawsuit
against the Company in the United States District Court for the Southern
District of California. The plaintiff seeks unspecified damages for alleged
violations of securities laws based upon public statements by the Company
regarding the projected results of operations of the Company and its wholly-
owned subsidiary, New World Computing ("New World"), for the fourth quarter
1994 and for fiscal 1994. The complaint filed in the action further alleges
that certain insiders sold stock following the projections based on
information not generally known to the public and seeks certification of a
class of plaintiffs consisting of purchasers of the Company's common stock
during the period November 9, 1994 through March 28, 1995. Preliminary
discovery has been undertaken by the parties.
In July 1995, the Company was named as a defendant in a separate action
filed in the United States District Court for the Northern District of Texas
based upon substantially the same allegations as set forth in the April 1995
class-action suit against the Company. The Company recently filed its answer
to the complaint, which includes third-party claims for contribution against
the plaintiff's stock representative.
The Company plans to defend vigorously these actions, but there can be no
assurance that one or more of these actions will not be decided adversely to
the Company. Should the plaintiffs in these actions prevail, depending upon
the amount of any damages awarded, such claims could have a material adverse
effect on the Company. The Company expects to continue to incur litigation
costs and expenses relating to these and the other pending legal proceedings
discussed below. See "Certain Recent Developments -- Recent Results of
Operations."
The Company also is defending or prosecuting various lawsuits in federal
courts in both the United States and Canada involving Interactive Network,
Inc. ("IN").
On June 11, 1992, the Company commenced an action against IN in the United
States District Court for the Northern District of California seeking a
declaration that the Company's United States programming does not infringe a
United States patent held by IN (the "IN/US Patent"), or, alternatively, that
such patent is invalid and unenforceable. On June 12, 1992 the Company, NTN
Canada, an unaffiliated licensee, and NTN Canada's subsidiary NTN Sports,
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Inc. filed a similar action against IN in the Federal Court of Canada, Trial
Division, seeking a declaration that the Company's activities (and those of
NTN Canada and NTN Sports, Inc.) in Canada do not infringe a Canadian patent
held by IN (the "IN/Canada Patents"). The Company subsequently amended its
claims to include an assertion of invalidity of the IN/Canada patent based
upon untrue and material allegations made by IN in its patent petition. No
discovery has been undertaken, and the existence of this litigation has not
affected the operations of the Company's Canadian licensee in Canada.
In July 1993, the United States District Court granted IN a summary judgment
dismissing the Company's claims involving the IN/US Patent. The Company's
subsequent appeals of the summary judgment were denied. IN moved for a court
order awarding it attorneys' fees, and on September 15, 1995, the District
Court ordered NTN to pay IN an aggregate of $359,165 in attorneys' fees and
accrued interest. NTN intends to appeal the District Court's order. The
summary judgment did not affect the Company's current license with IN and did
not constitute any finding that the Company's programming is infringing on the
IN/US Patent.
On June 18, 1992, IN filed an action against the Company, NTN Sports, Inc.
and NTN Canada in the Federal Court of Canada, Trial Division, seeking a
declaration that the IN/Canada Patent is valid and infringed by the Company's
games broadcast and associated equipment sold in Canada, an injunction against
such alleged infringement, unspecified damages based on certain games sold in
Canada since the 1990 issuance of the IN/Canada Patent and interest and costs
of the action. IN has not taken any action in furtherance of this litigation,
and the existence of this litigation has not affected the operations of the
Company's Canadian licensee in Canada.
On April 28, 1993, the Company commenced an action against IN in the
Superior Court for the County of Santa Clara, California, seeking an
injunction against IN's making certain untrue statements regarding the
Company, unspecified damages and a declaration of the Company's rights with
respect to the broadcast of QB1. That action was subsequently stayed by the
court, pending the outcome of the Company's June 11, 1992 United States
District Court action against IN. The stay has now been lifted, and the
Company intends to vigorously pursue its claims.
On or about February 28, 1994, IN filed its own action against the Company
in the Superior Court for the County of Santa Clara, California, which sets
forth causes of action for malicious prosecution, defamation, interference
with economic relations and unfair competition. IN seeks compensatory damages
and punitive damages on all causes of action and injunctive relief with
respect to its claim for unfair competition. The Company has filed a motion
for summary judgment with respect to the claim for malicious prosecution,
which is scheduled to be heard on October 12, 1995. The responsibility for
the Company's legal fees in this action has been assumed by the Company's
insurance carrier under reservation of rights.
On May 5, 1994, IN filed an action against the Company in the United States
District Court for the Northern District of California seeking a declaration
that the Company's interactive boxing game, "Uppercut", infringes the IN/US
patent and request injunctive relief. The Company's motion for summary
judgment was granted by the District Court on the basis that an agreement
between the parties called for arbitration of this matter. IN's motion for
reconsideration of the Court's ruling was denied, and an order in favor of the
Company was entered on February 22, 1995 which included an award of
approximately $57,000 in attorneys' fees to the Company. IN has voluntarily
dismissed its notice of appeal of the District Court's ruling and the Company
has since collected the court-awarded attorneys' fees. The Company had
previously submitted this matter to arbitration for a declaration of non-
infringement pursuant to an earlier agreement between the parties which
provided for arbitration and for a license to the Company for a specified
royalty if infringement were to be found. There has not been any significant
action taken in furtherance of the pending arbitration.
On October 18, 1994, the Company filed a complaint against IN in the United
States District Court for the Northern District of California for alleged
trademark infringement, false designation of origin, unfair competition,
misappropriation and dilution in connection with the Company's exclusive
license from the Canadian Football League ("CFL"). In response, IN filed a
motion to dismiss the complaint, which was heard before the Court on February
17, 1995. The Court found that, since IN was not yet playing its interactive
game in connection with CFL games, the Company's claim would appropriately be
one based upon declaratory relief. The Court gave the Company the
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opportunity to amend its complaint, however, the Company will not pursue its
claim at this time since IN has ceased its business operations.
The Company believes, based in part on the advice of outside counsel, that
any adverse outcome of the foregoing litigation involving IN will not result
in a material adverse effect on the Company's financial position.
DEPENDENCE ON LICENSES FOR BROADCAST RIGHTS; LACK OF CERTAIN LICENSES
The Company's interactive sports games are broadcast in conjunction with
live telecasts of football, baseball, basketball and hockey games. In order to
effect this simultaneous broadcast, wherever possible the Company seeks to
obtain licenses from the owners of the broadcast rights to the sporting events
to utilize such telecasts for its interactive game programming. The Company's
original, exclusive license agreement with the National Football League
("NFL") expired on March 31, 1995 and in August 1995, the Company entered into
a new, exclusive license with National Football League Properties, Inc.
("NFLP") for QB1, which will expire on March 31, 1997 unless renewed by the
NFLP. The Company's rights under the license may not be transferred or
assigned without the NFLP's consent. For this purpose, an assignment
includes, among other things, a merger or consolidation of the Company or the
termination of employment of any of the Company's key management personnel.
Major League Baseball Properties, Inc. ("MLBP") has agreed to grant the
Company a license for the Company's proprietary interactive baseball game,
"Diamondball." The license, which is to expire December 31, 1996 unless
renewed, is subject to approval by the 28 major league clubs and the
execution of MLBP's standard form licensing agreement. The Company currently
is broadcasting QB1 in conjunction with college football games without any
license. Limitations on the Company's sports licenses could have an adverse
effect upon the Company's business. In addition, legal action by the owners or
licensees of broadcast rights to college football games seeking to enjoin
further broadcasts by the Company or money damages could preclude the playing
of QB1 in connection with college football games.
RELIANCE ON INDEPENDENT DISTRIBUTORS; DIRECT DISTRIBUTION BY NEW WORLD
The Company relies in large part on the efforts of independent distributors
to market and sell the NTN Network to its subscriber locations. The Company
currently uses approximately 25 distributors who cover 49 states. The Company
has entered into long-term agreements with certain of its distributors, but
such agreements are typically terminable upon short notice. The loss of a
significant number of these distributors would have a material adverse effect
on the Company's business until such time, if any, as the Company found
alternate means of servicing the markets currently served by such
distributors.
Since June 1994, the Company's New World subsidiary has relied solely on its
in-house sales force to market and sell its products. Prior to such time, New
World's products had been distributed in North America under an affiliate-
label program with Broderbund Software, Inc. New World has only limited
experience in direct marketing and sales activities, and there can be no
assurance that it will be successful in directly marketing and selling its
products.
COMPETITION
The market for interactive entertainment systems is in its formative stages
and is characterized by frequent introductions of new software and hardware
and advancing technologies. Numerous companies have commercialized, are
developing or are expected to introduce interactive products that are or may
become directly competitive with the Company's products. Most of the
Company's competitors have substantial experience and expertise in the
electronics industry and in interactive entertainment hardware systems and
multimedia technology and in producing and selling consumer products through
retail distribution, and also have substantially greater engineering,
marketing and financial resources than the Company.
Numerous major companies in the movie, cable and telecommunications
industries and in the computer and software industries have publicly announced
large development budgets and deployment plans for and field testing of
interactive television services and are developing methods for delivery of
interactive multimedia products and services through existing or planned cable
and telephone networks. To the extent that these companies provide
interactive
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functionality through cable or telephone networks, their products will compete
directly with the Company's products. Some of these companies include large,
established companies such as AT&T Corp., Microsoft Corporation, Time Warner,
Inc., Telecommunications, Inc., Intel Corporation and Motorola, Inc. All of
these companies have also devoted substantial financial resources to
development projects and many of them have commenced trial testing or have
announced their intention to commence trial testing in the immediate future.
The Company also anticipates competition from emerging companies, including
those that may be formed by persons with substantial experience and
credibility in interactive technology. There can be no assurance that the
Company can compete successfully against these companies.
The Company also competes with other providers of interactive television
services to in-home viewers. Each of the major providers of interactive video
services, which include GTE Mainstreet, ACTV, Video Jukebox Network, IN,
Interactive Systems, Explore Technology and Call Interactive, is focused on
in-home delivery of programming. The Company's strategy for in-home delivery
has been to be a provider of programming to systems operated by others, and
the Company's programming currently is available through GTE Mainstreet. The
Company may also face potential competition from businesses engaged in
information gathering and related businesses which may seek to enter the
markets served by the Company, many of which are larger and have far greater
personnel and financial resources than does the Company. If such larger
businesses enter the markets, if existing competitors increase their
activities in areas in which the Company intends to do business or if the
Company is unable to distribute its programming to home viewers through
systems operated by others, such developments may have a materially adverse
effect upon the Company.
The video game and personal computer industry also is characterized by
intense competition. New World's products compete with a variety of video
games and personal computer entertainment software on the market and with new
games and software continuously being introduced. Competition in the video
game and personal computer software industry extends to competition for shelf
space in retail outlets, and there can be no assurance that New World will be
able to compete successfully. New World will also face competition from all
other forms of interactive hardware and software providers such as the current
computer hardware and videogame manufacturers, as well as other providers of
interactive entertainment systems, including Sega, Nintendo, and 3DO, as well
as many others. Most of these competitors are large corporations with
significantly greater financial and marketing resources, market share and name
recognition than New World.
POTENTIAL FOR TECHNOLOGICAL OBSOLESCENCE
The computer industry and related services have been marked by rapid and
significant technological development and change. There can be no assurance
that technological development will not render the Company's interactive
technology and services obsolete within a relatively short period, or that the
Company will have the resources to respond to such technological change.
UNCERTAIN PROPRIETARY PROTECTION
The Company has two patent applications pending for its proprietary
interactive technology. In addition, the Company relies on a combination of
trademark and unfair competition laws, trade secrets and confidentiality
procedures and agreements to protect rights it considers proprietary. The
Company has copyrights for all of its programming, and the Company has
registered the trademark QB1 and has registered trademarks for a significant
number of its other services. However, no assurance can be given that such
patents will issue, or if issued, the scope of the protection afforded by such
patents. The Company currently is involved in litigation concerning the
enforceability, scope and validity of proprietary rights. See "Risk Factors -
Litigation."
New World regards all of its software as proprietary and attempts to protect
it. New World has no patents, and existing copyright laws afford only limited
practical protection for the New World's software. New World has entered into
license agreements with foreign entities for the translation of its software
into foreign languages and distribution in foreign countries. The laws of
some foreign countries do not protect proprietary rights to the same extent as
do the laws of the United States. In addition, New World has registered
trademarks on "New World,"
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"Might & Magic" and "King's Bounty." However, no assurance can be given as to
the scope of protection afforded by such trademarks, or that New World would
be able to effectively enforce such trademarks.
INFLUENCE OF MANAGEMENT
The Company's executive officers and directors and their affiliates own, in
the aggregate, approximately 9% of the outstanding Common Stock, and have the
right, through the exercise of currently exercisable options and warrants to
purchase 3,127,314 shares of Common Stock, to increase their percentage
ownership to 21%. Therefore, these securityholders, if acting together, would
have the ability to significantly influence the Company's affairs and
operations. See "Description of Securities."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that may discourage attempts to acquire control of the Company that
are not negotiated with the Company's Board of Directors. These provisions
may have the effect of discouraging takeover attempts that some
securityholders might deem to be in their best interests, including takeover
proposals in which securityholders might receive a premium for their shares
over the then current market price, as well as making it more difficult for
individual securityholders or a group of securityholders to elect directors.
The Board of Directors believes, however, that these provisions are in the
best interests of the Company and its securityholders because such provisions
may encourage potential acquirors to negotiate directly with the Board of
Directors, which is in the best position to act on behalf of all
securityholders. The Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% of the total voting power of
all outstanding securities of the Company then entitled to vote generally in
the election of directors, voting together as a single class, is required to
amend certain provisions of the Certificate of Incorporation, including among
others, those provisions relating to the number, election and term of
directors; the removal of directors and the filing of vacancies; and the
supermajority voting requirements of the Certificate of Incorporation. These
voting requirements will have the effect of making more difficult any
amendments, even if a majority of the Company's securityholders believes that
such amendment would be in their best interest. See "Description of
Securities -- Anti-Takeover Provisions."
VOLATILITY OF STOCK PRICE
Historically, the trading price of the Company's Common Stock has fluctuated
widely, and it may be subject to similar future fluctuations in response to
quarter-to-quarter variations in the Company's operating results,
announcements regarding litigation, technological innovations or new products
by the Company or its competitors, general conditions in the industries in
which the Company competes and other events or factors. In addition, in
recent years, broad stock market indices, in general, and the securities of
technology companies, in particular, have experienced substantial price
fluctuations. Such broad market fluctuations also may adversely affect the
future trading price of the Company's Common Stock. See "Price Range of
Common Stock and Dividend Policy."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and
anticipates that for the foreseeable future earnings, if any, will be retained
for the operation and expansion of the Company's business. See "Price Range
of Common Stock and Dividend Policy."
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND PREFERRED STOCK
As of October 16, 1995, there were 4,661,730 shares of Common Stock reserved
for issuance upon the exercise of stock options outstanding under the
Company's stock option plans at exercise prices ranging from $2.25 to $8.25
per share, of which options to purchase 2,837,866 shares are currently
exercisable. An additional 58,400 shares of Common Stock (plus any shares of
Common Stock covered by stock options currently outstanding under the
Company's 1985 Incentive Stock Option Plan and 1985 Nonqualified Stock Option
Plan which are subsequently terminated or expire without being exercised) are
reserved for issuance upon the exercise of options available for
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future grant under the Company's 1995 Stock Option Plan. In addition, the
Company has outstanding warrants to purchase an aggregate of 3,390,329 shares
of Common Stock at exercise prices ranging from $2.00 to $8.00 per share, all
of which warrants are currently exercisable. Substantially all of such
warrants, are subject to currently effective registration statements covering
the resale of the warrants and the underlying warrant shares by the holders.
The Company also has outstanding 162,612 shares of preferred stock which
entitle holders thereof, upon surrender of the shares of preferred stock, to
receive 45,548 shares of Common Stock. Such options, warrants and preferred
stock could adversely affect the Company's ability to obtain future financing,
since the holders of those options, warrants and preferred stock can be
expected to exercise or surrender them for conversion, as the case may be, at
a time when the Company would be able to obtain additional capital through a
new offering of securities on terms more favorable than those provided by such
options, warrants and preferred stock. For the life of such options, warrants
and preferred stock, the holders are given the opportunity to profit from a
rise in the market price of the Common Stock without assuming the risk of
ownership. To the extent the trading price of the Common Stock at the time of
exercise of any such options or warrants exceeds the exercise price, such
exercise will also have a dilutive effect on the Company's stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 5,153,000 shares of Common Stock outstanding as of the date of
this Prospectus, including the Shares offered hereby, are "restricted
securities," as that term is defined under Rule 144 promulgated under the Act.
All or substantially all of such shares are covered by currently effective
registration statements and can be offered and sold publicly by the beneficial
owners at any time so long as registration statements remain effective.
Moreover, in general under Rule 144 as currently in effect, subject to the
satisfaction of certain conditions, if two years have elapsed since the later
of the date of acquisition of restricted shares from an issuer or from an
affiliate of an issuer, the acquiror or subsequent holder is entitled to sell
in the open market, within any three-month period, a number of shares that
does not exceed the greater of 1% of the outstanding shares of the same class
or the average weekly trading volume during the four calendar weeks preceding
the filing of the required notice of sale. A person who has not been an
affiliate of the Company for at least the three months immediately preceding
the sale and who has beneficially owned shares of Common Stock as described
above for at least three years is entitled to sell such shares under Rule
144(k) without regard to any of the limitations described above. Of the
5,753,000 outstanding shares of Common Stock constituting restricted shares,
approximately 78,000 were eligible as of October 16, 1995 to be resold
publicly without restriction under Rule 144(k).
No predictions can be made with respect to the effect, if any, that sales of
Common Stock in the market or the availability of shares of Common Stock for
sale pursuant to currently effective registration statements or under Rule 144
will have on the market price of Common Stock prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities.
CERTAIN RECENT DEVELOPMENTS
RECENT RESULTS OF OPERATIONS
As described under "Risk Factors -- Pending Litigation," the Company
currently is involved in a number of lawsuits. During the year ended December
31, 1994 and the nine months ended September 30, 1995, the Company incurred
aggregate legal fees and expenses, including fees and expenses relating to
litigation matters, of approximately $980,000 and $1,509,000, respectively.
The Company expects to incur substantial additional legal fees and expenses
associated with its pending litigation for the balance of fiscal 1995 and,
perhaps, future periods as well.
RECENT RETENTION OF INVESTMENT BANKER
In July 1995, the Company retained Donaldson, Lufkin & Jenrette to assist in
establishing the Company's long-term financial strategy.
8
<PAGE>
USE OF PROCEEDS
Other than the exercise price of such of the Warrants as may be exercised,
the Company will not receive any of the proceeds from the sale of the Common
Stock offered hereby. The Company will pay the costs of this offering, which
are estimated to be $38,000. Holders of the Warrants are not obligated to
exercise their Warrants, and there can be no assurance that such holders will
choose to exercise all or any of such Warrants. The gross proceeds to the
Company in the event that all of the Warrants are exercised would be
$1,099,637.50 (50,000 shares at an exercise price of $7.50 per share, 96,000
shares at an exercise price of $4.70 per share and 62,500 shares at an
exercise price of $4.375 per share).
The Company intends to apply the net proceeds it receives from the exercise
of the Warrants, to the extent any are exercised, to augment its working
capital and for general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the AMEX under the symbol "NTN."
The prices below are the high and low sales prices for the Common Stock as
reported on the AMEX for periods shown.
<TABLE>
<CAPTION>
LOW HIGH
----- ------
<S> <C> <C>
1993
----
First Quarter............................... $4.37 $10.63
Second Quarter.............................. 6.37 11.50
Third Quarter............................... 5.75 10.37
Fourth Quarter.............................. 8.50 10.50
1994
----
First Quarter............................... 6.00 10.25
Second Quarter.............................. 4.63 7.50
Third Quarter............................... 6.37 8.50
Fourth Quarter.............................. 5.75 7.87
1995
----
First Quarter............................... 5.63 8.25
Second Quarter.............................. 4.44 5.81
Third Quarter............................... 4.06 6.25
Fourth Quarter (through November 13, 1995).. 4.25 5.32
</TABLE>
For a recent closing price for the Common Stock as reported on the AMEX
see the cover page of this Prospectus. As of October 16, 1995, there were
1,757 record owners of the Common Stock according to information available
from the Company's transfer agent.
To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock, and the current policy of the Board of Directors
is to retain earnings, if any, after payment of dividends on the Company's
outstanding preferred stock to provide for the growth of the Company.
Consequently, no cash dividends are expected to be paid on the Company's
Common Stock in the foreseeable future. Further, there can be no assurance
that the proposed operations of the Company will generate the revenues and
cash flow needed to declare a cash dividend or that the Company will have
legally available funds to pay dividends.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Selected
Consolidated Statement of Operations Data" and "Selected Consolidated Balance
Sheet Data" for, and as of the end of, each of the years in the five-year
period ended December 31, 1994, are derived from the consolidated financial
statements of NTN Communications, Inc., which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
The consolidated financial statements as of December 31, 1994 and 1993, and
for each of the years in the three-year period ended December 31, 1994, and
the report thereon, are incorporated by reference elsewhere in this
Prospectus. The selected data should be read in conjunction with the
consolidated financial statements for the three-year period ended December 31,
1994, the related notes and the independent auditors' report which contains an
explanatory paragraph that states that the Company is a defendant in a class
action lawsuit. The litigation is in its early stages and no prediction can
be made as to the likelihood of the ultimate outcome. Accordingly, no
provision for any liability that may result from adjudication has been
recognized in the consolidated financial statements. The report also refers
to a change in the method of accounting for investments in debt and equity
securities in 1994. The following selected consolidated statement of
operations data for the nine months ended September 30, 1995 and 1994 and
related consolidated balance sheet data as of September 30, 1995 are derived
from the unaudited consolidated financial statements of the Company and
reflect all adjustments (including only normal recurring accruals) which in
the opinion of management are necessary for a fair presentation of the
Company's financial position and results of operations for these periods. The
operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the full fiscal
year. The following data should be read in conjunction with "Management's
Discussions and Analysis of Results of Operations and Financial Condition" and
the Consolidated Financial Statements and notes thereto incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)
Nine Months
Years Ended December 31 Ended September 30,
-------------------------------------------------- -------------------
1994 1993 1992 1991 1990 1995 1994
-------- -------- -------- -------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............................. $24,646 $17,258 $10,702 $ 5,853 $ 5,871 $20,711 $16,730
Total cost of sales........................ 9,453 7,514 4,200 2,411 2,569 9,849 6,154
------- ------- ------- ------- ------- ------- -------
Gross profit............................... 15,193 9,744 6,502 3,442 3,302 10,862 10,576
Total operating expenses................... 14,898 11,198 8,636 5,260 4,094 11,794 9,788
Interest income (expense), net............. (412) (434) - 576 1,087 65 415
Income taxes............................... - 281 106 - - - 77
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before extraordinary item.. 707 (1,301) (2,240) (2,394) (1,879) (867) 1,126
Extraordinary item......................... - - - 3,889 - - -
Net earnings (loss)........................ $ 707 $(1,301) $(2,240) $ 1,495 $(1,879) $ (867) $ 1,126
------- ------- ------- ------- ------- ------- -------
Earnings (loss) per share before
extraordinary item(1).................... $.03 $(.08) $(.20) $(.38) $(.71) $(.04) $ .05
Net earnings (loss) per share.............. $.03 $(.08) $(.20) $.24 $(.71) $(.04) $ .05
------- ------- ------- ------- ------- ------- -------
Weighted average equivalent shares
outstanding(1)........................... 21,124 17,135 11,344 6,263 2,661 19,618 21,122
</TABLE>
_______________
(1) As adjusted to reflect a 1-for-20 reverse stock split effected in June 1991.
SELECTED CONSOLIDATED BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------------------- September 30
1994 1993 1992 1991 1990 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total current assets....................... $22,106 $23,102 $ 9,004 $ 5,119 $ 2,358 $29,451
Total assets............................... 31,239 27,240 10,171 5,604 2,630 42,657
Total current liabilities.................. 4,958 2,933 2,554 2,810 11,506 10,047
Long-term debt, less current portion....... 8 163 18 91 953 9
Shareholders' equity (deficiency).......... 25,457 23,653 7,432 2,703 (9,828) 31,528
</TABLE>
10
<PAGE>
SELLING SECURITYHOLDERS
In a transaction with unaffiliated third parties, the Company recently
sold an aggregate of 2,400,000 shares of Common Stock to the Selling
Securityholders named in the table below whose names are followed by a cross
(collectively, the "Private Placement Investors") at an initial purchase price
of $4.00 per share. Should the average of the closing prices (the "Average
Share Price") of the common stock as reported on the American Stock Exchange
for all trading days during the 60-day period (the "Valuation Period")
commencing on (i) January 15, 1996 or (ii) for certain Private Placement
Investors, a second additional period that commences five business days after
the First Valuation Period, be less than or greater than $4.70, then an
adjustment of the initial purchase price will be made. If the Average Share
Price is less than $4.70, the Company will issue to the buyers, at no
additional cost, additional shares of Common Stock so as to result in a
purchase price per share of Common Stock equal to 85% of the Average Share
Price. If the Average Share Price is greater than $4.70, then the Private
Placement Investors are obligated to pay the Company the dollar amount by
which the product of 85% of the Average Share Price and 2,400,000 exceeds the
$9,600,000 previously paid. For those investors with two Valuation Periods,
the magnitude of the adjustment is halved for each period. In the event that
the Company sells any shares of Common Stock on or before the expiration of an
applicable Valuation Period at a price less than the initial purchase price
per share, the purchase price per share is subject to downward adjustment to
the price paid in such subsequent sale or sales. Such adjustment will be
accomplished by the Company issuing additional shares to the Private Placement
Investors. The foregoing adjustments that require the Company to issue
additional shares of Common Stock to Private Placement Investors are subject
to the provision that a Private Placement Investor has the right to receive
cash if such issuances would cause the investor (or any group of which the
investor is a part) to own 4.99% or more of the Company's outstanding Common
Stock.
In connection with the foregoing transaction, the Company agreed to file
the Form S-3 Registration Statement of which this Prospectus is a part and to
grant to the Selling Securityholders certain demand and piggyback registration
rights under the Securities Act.
As part of the compensation for the efforts of Cappello Capital Corp. in
connection with arranging the above-described sale of Common Stock, Lawrence
K. Fleischman, Linda Cappello, Gerard K. Cappello and Index Securities Fund
received Warrants to purchase, in the aggregate, 96,000 shares of Common Stock
at an initial exercise price of $4.70 per share. The exercise price per
share, or the number of shares issuable upon exercise of the Warrants, as the
case may be, is subject to adjustment in the event the Average Share Price as
referred to above is greater than or less than $4.70. Such Warrants were
issued in October 1995, are exercisable, in whole or in part, until October
2000, contain certain other antidilution provisions that require adjustments
in the event of a stock dividend, subdivision or combination of the number of
outstanding shares of Common Stock, recapitalization and certain other events,
and provide for piggyback registration rights until October 2002. Such
Warrants also allow for a cashless exercise if the market price of the Common
Stock exceeds the exercise price. The foregoing Warrants constitute
"restricted securities" within the meaning of Rule 144 of the regulations
promulgated under the Securities Act. As such, they generally are not
currently transferable. However, the shares of Common Stock issuable upon
exercise of such Warrants are being offered hereby and when issued upon
exercise of the Warrants and sold pursuant to this Prospectus, will be
currently transferable.
In October 1994, the Company issued to Continuum Capital, Inc., a
financial consultant of the Company, in consideration of services rendered,
warrants to purchase 50,000 shares of Common Stock at an exercise price of
$7.50 per share. Such warrants are exercisable, in whole or in part, until
October 1999, contain antidilution provisions that require adjustments in the
event of a stock dividend, subdivision or combination of the number of
outstanding shares of Common Stock, recapitalization and certain other events,
and provide for piggyback registration rights from October 1995 until October
2001. The foregoing Warrants constitute "restricted securities" within the
meaning of Rule 144 of the regulations promulgated under the Securities Act.
As such, they generally are not currently transferable. However, the shares
of Common Stock issuable upon exercise of such Warrants are being offered
hereby and when issued upon exercise of the Warrants and sold pursuant to this
Prospectus, will be currently transferable.
As part of the compensation for the financial consulting services
rendered by JF Administrative Corp. in connection with sale-leaseback
transactions involving certain of the Company's equipment, Selig Zises and
Joel Magerman, each of whom is an officer of JF Administrative Corp.,
received Warrants to purchase, in the aggregate, 62,500 shares of Common Stock
at an exercise price of $4.375 per share. Such Warrants were issued in
October
11
<PAGE>
1995, and are exercisable, in whole or in part, until October 2000. Other than
the exercise price and the exercise period, such Warrants are identical to the
Warrants issued to Continuum Capital, Inc. described above. Joel Magerman is
the son of Alan Magerman, a director of the Company.
The following table sets forth as of November 13, 1995 the number and
percent of shares of Common Stock owned by each of the Selling
Securityholders, the number of shares of Common Stock offered by each of them
hereby, and the number and percent of shares of Common Stock to be held by
each of them after the conclusion of this offering. Other than as described
herein, no Selling Securityholder or its affiliates has any position, office
or other material relationship with the Company.
<TABLE>
<CAPTION>
Before Offering After Offering
------------------------ --------------------------
Number of Number of
Shares Number of Shares
Selling Beneficially Shares Beneficially
Securityholder Owned(1) Percent(2) Being Offered Owned Percent
--------------- ------------ ---------- ------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Palladin Partners I, L.P+........ 600,000 2.8% 600,000 0 0%
Kayne, Anderson Non-Traditional
Investments, L.P.+.............. 525,000 2.4 525,000 0 0
Offense Group Associates, L.P.+.. 250,000 1.1 250,000 0 0
ARBCO Associates, L.P.+.......... 250,000 1.1 250,000 0 0
Gershon Partners, L.P.+.......... 200,000 * 200,000 0 0
Granite Global Debt Fund, Ltd.+.. 200,000 * 200,000 0 0
Hudson, Inc. Panama+............. 125,000 * 125,000 0 0
Pictet et. Cie+.................. 50,000 * 50,000 0 0
Banque Scandinave en Suisse+..... 50,000 * 50,000 0 0
Mirelis S.A+..................... 50,000 * 50,000 0 0
The Gifford Fund+................ 50,000 * 50,000 0 0
Carousel Investments, Inc.+...... 50,000 * 50,000 0 0
Continuum Capital, Inc........... 312,500 1.4 50,000 262,500(3) 1.2
Selig Zises...................... 50,000 * 50,000 0 0
Joel Magerman.................... 12,500 * 12,500 0 0
Linda Cappello................... 50,625 * 39,825 10,800(4) *
Gerard K. Cappello............... 33,750 * 26,550 7,200(4) *
Lawrence K. Fleischman........... 34,125 * 22,125 12,000(4) *
Index Securities Fund............ 7,500 * 7,500 0 *
</TABLE>
- -----------------
+ Private Placement Investor.
(1) Subject to adjustment as described above.
(2) Based on 21,788,375 shares of Common Stock outstanding as of October 16,
1995. An asterisk denotes beneficial ownership of less than 1%.
(3) 87,500 of such shares may be sold pursuant to a separate prospectus.
(4) The shares shown may be sold pursuant to a separate prospectus relating
to such shares.
12
<PAGE>
PLAN OF DISTRIBUTION
Each of the Selling Securityholders has advised the Company that it may
sell, directly or through brokers, its Shares offered hereby in negotiated
transactions or in one or more transactions on the AMEX, or otherwise, at the
prices prevailing at the time of sale. In connection with such sales, the
Selling Securityholders and any participating broker may be deemed to be
"underwriters" of the Shares so sold within the meaning of the Securities Act,
although the offering of the Shares will not be underwritten by a broker-
dealer firm.
The Company will bear all costs and expenses of the registration of the
Shares under the Securities Act and certain state securities laws, other than
fees of counsel for the Selling Securityholders and any discounts or
commissions payable with respect to sales of such Shares.
The Company has informed the Selling Securityholders that the anti-
manipulation provisions of Rules 10b-6 and 10b-7 under the Exchange Act may
apply to their sales of the Shares and has furnished each of the Selling
Securityholders with a copy of these rules, as well as a copy of certain
interpretations thereof by the Securities and Exchange Commission. The
Company also has advised the Selling Securityholders of the requirement for
delivery of this Prospectus in connection with any sale of the Shares.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 10,000,000 shares of
preferred stock, par value $.005 per share ("Preferred Stock"), and 50,000,000
shares of Common Stock. The Preferred Stock may be issued in one or more
series; the only series currently designated is a series of 5,000,000 shares
of Series A Convertible Preferred Stock (the "Series A Preferred Stock").
COMMON STOCK
On October 16, 1995, there were 21,788,375 shares of Common Stock
outstanding.
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the securityholders. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Company's Board of Directors out of legally available funds,
after payment of any dividends required on the outstanding Preferred Stock.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets that are legally
available for distribution, after payment of or provision for all debts and
liabilities and for any payments with respect to the Preferred Stock. The
holders of Common Stock have no preemptive, subscription or conversion rights,
and there are no redemption or sinking fund provisions applicable to such
shares. All of the outstanding shares of Common Stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to the rights of the holders of shares of the Series A
Preferred Stock, and may be subject to the rights of the holders of such other
Preferred Stock as the Company may issue in the future, although the Company
has no plans at this time to issue additional Preferred Stock.
PREFERRED STOCK
On October 16, 1995, there were 162,612 shares of Series A Preferred Stock
outstanding. The holders of the Series A Preferred Stock are entitled to an
annual dividend of 10% of the original issue price of $1.00 per share, payable
semiannually on December 1 and June 1 of each year in cash or, at the option
of the Company, by means of the issuance of shares of Common Stock, which are
to be valued for this purpose at the fair market value of the Common Stock.
The Company is current in the payment of all dividends on the Series A
Preferred Stock. Upon liquidation, dissolution and winding up of the Company,
each holder of the Series A Preferred Stock shall be entitled to receive $1.00
per share before any payment shall be made with respect to the outstanding
shares of the Common Stock. Each share of the Series A Preferred Stock is
convertible into approximately .2801 share of Common Stock at any time at the
option of the holders of the Series A Preferred Stock. The rate of conversion
is subject to certain
13
<PAGE>
antidilution provisions. The holders of the Series A Preferred Stock do not
have any voting, preemptive, subscription or redemption rights.
Additional shares of Preferred Stock may be issued without securityholder
approval. The Board of Directors is authorized to issue such shares in one or
more series and to fix the rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights and rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or
the designation of such series, without any vote or action by the
shareholders. Any Preferred Stock to be issued could rank prior to the Common
Stock with respect to dividend rights and rights on liquidation. The Board of
Directors, without securityholder approval, may issue Preferred Stock with
voting and conversion rights that could adversely affect the voting power of
holders of Common Stock or create impediments to persons seeking to gain
control of the Company. The Company has no present plan or arrangement to
issue any additional shares of common stock.
ANTI-TAKEOVER PROVISIONS
The provisions of the Company's Restated Certificate of Incorporation (the
"Certificate") and Bylaws (the "Bylaws"), summarized in the succeeding
paragraphs, may be deemed to have anti-takeover effects and may delay, defer
or prevent a tender offer, takeover attempt or change in control that a
securityholder might consider to be in such securityholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by securityholders.
Amendment of Certain Provisions of the Certificate of Incorporation and
Bylaws
The Certificate provides that the affirmative vote of the holders of at
least 80% of the total voting power of all outstanding securities of the
Company then entitled to vote generally in the election of directors, voting
together as a single class, is required to amend certain provisions of the
Certificate, including those provisions relating to the number, election and
term of directors; the removal of directors and the filling of vacancies;
indemnification of directors, officers and others; and the supermajority
voting requirements in the Certificate. The Certificate further provides that
the Bylaws may be amended by the Board of Directors or by an affirmative vote
of the holders of not less than 80% of the total voting power of all
outstanding securities of the Company then entitled to vote generally in the
election of directors, voting together as a single class. These voting
requirements will have the effect of making more difficult any amendment by
securityholders, even if a majority of the Company's securityholders believes
that such amendment would be in their best interests.
Classified Board of Directors
The Certificate and the Bylaws divides the Board of Directors into three
classes, each class to be nearly equal in number as possible, each class
serving staggered three-year terms. Presently, two directors of the Company
are subject to re-election at each annual meeting of securityholders.
The classification of directors and provisions in the Certificate that limit
the ability of securityholders to increase the size of the Board of Directors
without the vote of at least 80% of the total voting power of all outstanding
voting securities, together with provisions in the Certificate that limit the
ability of securityholders to remove directors and that permit the remaining
directors to fill any vacancies on the Board, will have the effect of making
it more difficult for securityholders to change the composition of the Board
of Directors. As a result, at least two annual meetings of securityholders
may be required for the securityholders to change a majority of the directors,
whether or not a change in the Board of Directors would be beneficial to the
Company and its securityholders and whether or not a majority of the Company's
securityholders believes that such a change would be desirable.
Certain Securityholder Action
The Certificate requires that securityholder action be taken at an annual
meeting or special meeting of securityholders called pursuant to a resolution
adopted by a majority of the Board of Directors and prohibits securityholder
action by written consent.
14
<PAGE>
Section 203 of the Delaware General Corporation Law
The Company is governed by the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Subject to certain exceptions
summarized below, Section 203 prohibits any Interested Securityholder from
engaging in a "business combination" with a Delaware corporation for three
years following the date such person became an Interested Securityholder.
Interested Securityholder, as defined, includes (i) any person who is the
beneficial owner of 15% or more of the outstanding voting stock of the
corporation and (ii) any person who is an affiliate or associate of the
corporation and who held 15% or more of the outstanding voting stock of the
corporation at any time within three years before the date on which such
person's status as an Interested Securityholder is determined. Subject to
certain exceptions, a "business combination" includes, among other things:
(i) any merger or consolidation involving the corporation; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets
having an aggregate market value equal to 10% or more of either the aggregate
market value of all assets of the corporation determined on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; (iii) any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the Interested
Securityholder, except pursuant to a transaction that effects a pro rata
distribution to all securityholders of the corporation; (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the Interested Securityholder; and (v) any receipt by the
Interested Securityholder of the benefit (except proportionately as a
securityholder) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Section 203 does not apply to a business combination if: (i) before a
person became an Interested Securityholder, the board of directors of the
corporation approved the transaction in which the Interested Securityholder
became an Interested Securityholder or the business combination; (ii) upon
consummation of the transaction that resulted in the person becoming an
Interested Securityholder, the Interested Securityholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commences (other than certain excluded shares); or (iii) following a
transaction in which the person became an Interested Securityholder, the
business combination is (a) approved by the board of directors of the
corporation and (b) authorized at a regular or special meeting of
securityholders (and not by written consent) by the affirmative vote of the
holders of at least 66-2/3% of the outstanding voting stock of the corporation
not owned by the Interested Securityholder.
SHARES ELIGIBLE FOR FUTURE PUBLIC SALE
There are 21,788,375 shares of Common Stock outstanding. Of such shares of
Common Stock, approximately 5,153,000 shares, including the Shares offered
hereby, are "restricted securities" within the meaning of Rule 144 of the
regulations promulgated under the Securities Act. All or substantially all of
such shares are covered by currently effective registration statements and can
be offered and sold publicly by the beneficial owners at any time so long as
the registration statements remain effectively. Moreover, in general under
Rule 144 as currently in effect, a person (or persons whose shares are
aggregated), including a person who may be deemed to be an "affiliate" of the
Company as that term is defined under the Act, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then-outstanding shares of Common Stock, or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale. If the shares in question were acquired from the
Company in transactions not involving a public offering, then they may not be
sold under Rule 144 until they have been outstanding for at least two years.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and the availability of current public information about the
Company. However, a person who is not deemed to have been an affiliate of the
Company during the 90 days preceding a sale by such person is entitled to sell
shares that have been outstanding for at least three years without regard to
the volume, manner of sale or notice requirements. Of the 5,153,000
outstanding shares of Common Stock constituting restricted shares,
approximately 78,000 were eligible as of October 16, 1995 to be resold
publicly without restriction under Rule 144(k).
No predictions can be made with respect to the effect, if any, that sales of
Common Stock in the market or the availability of shares of Common Stock for
sale pursuant to currently effective registration statements or under Rule 144
will have on the market price of Common Stock prevailing from time to time.
Nevertheless, the possibility
15
<PAGE>
that substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities.
As of October 16, 1995, there were 4,661,730 shares of Common Stock reserved
for issuance upon the exercise of stock options outstanding under the
Company's stock option plans at exercise prices ranging from $2.25 to $8.25
per share, of which options to purchase 2,837,866 shares are currently
exercisable. An additional 58,400 shares of Common Stock (plus any shares of
Common Stock covered by stock options currently outstanding under the
Company's 1985 Incentive Stock Option Plan and 1985 Nonqualified Stock Option
Plan which are subsequently terminated or expire without being exercised) are
reserved for issuance upon the exercise of options available for future grant
under the Company's 1995 Stock Option Plan. In addition, the Company has
outstanding warrants to purchase an aggregate of 3,990,329 shares of Common
Stock at exercise prices ranging from $2.00 to $8.00 per share, all of which
warrants are currently exercisable. Substantially all of such warrants are
subject to currently effective registration statements covering the resale of
the warrants and the underlying warrant shares by the holders. The Company
also has 162,612 shares of preferred stock outstanding which entitle holders
thereof to receive, upon surrender of the shares of preferred stock, 45,548
shares of Common Stock. Such options, warrants and preferred stock could
adversely affect the Company's ability to obtain future financing. Such
options and warrants are likely to be exercised and such preferred stock is
likely to be converted into shares of Common Stock, if at all, only at a time
when the exercise price or conversion price, as the case may be, is less than
the market price of the Common Stock. For the life of such options, warrants
and preferred stock, the holders are given the opportunity to profit from a
rise in the market price of the Common Stock without assuming the risk of
ownership. Moreover, the holders of those options, warrants and preferred
stock can be expected to exercise or surrender them, as the case may be, at a
time when the Company would be able to obtain additional capital through a new
offering of securities on terms more favorable than those provided by such
options, warrants or preferred stock. To the extent the trading price of the
Common Stock at the time of exercise of any such options or warrants exceeds
the exercise price, such exercise will also have a dilutive effect on the
Company's securityholders.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
LEGAL MATTERS
Troy & Gould Professional Corporation, Los Angeles, California, has rendered
an opinion to the effect that the Shares offered hereby by the Selling
Securityholders, when sold and paid for, will be duly and validly issued,
fully paid and nonassessable. Such counsel owns 12,671 shares of Common Stock
as of the date of this Prospectus.
EXPERTS
The financial statements and schedules of NTN Communications, Inc. as of
December 31, 1994, and for each of the years in the three-year period ended
December 31, 1994, incorporated by reference herein and elsewhere in the
registration statement have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1994 financial
statements contains an explanatory paragraph that states that the Company is a
defendant in a class action lawsuit. The litigation is in its early stages
and no prediction can be made as to the likelihood of the ultimate outcome.
Accordingly, no provision for any liability that may result from adjudication
has been recognized in the financial statements. The report also refers to a
change in the method of accounting for investments in debt and equity
securities in 1994.
16
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or make any representations, other than those contained in this
Prospectus, in connection with the offering hereby, and, if given or made, such
information and representations must not be relied upon as having been
authorized by the Company or the Selling Securityholders. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
securities to any person in any State or other jurisdiction in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or the facts herein set
forth since the date hereof.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................. 2
Incorporation of Certain
Documents by Reference.............. 2
Risk Factors.......................... 3
Certain Recent Developments........... 8
Use of Proceeds....................... 9
Price Range of Common Stock
and Dividend Policy................. 9
Selected Consolidated Financial Data.. 10
Selling Securityholders............... 11
Plan of Distribution.................. 13
Description of Securities............. 13
Legal Matters......................... 16
Experts............................... 16
</TABLE>
================================================================================
================================================================================
2,608,500 Shares of Common Stock
NTN COMMUNICATIONS, INC.
____________
PROSPECTUS
____________
November __, 1995
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distribution
described in this Registration Statement will be as follows. All expenses
incurred with respect to the distribution will be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee...................... $ 4,830
Printing expenses......................... 5,000
Accounting fees and expenses.............. 6,000
Legal fees and expenses................... 20,000
Fees and expenses for qualification under.
state securities laws.................... 1,000
Miscellaneous............................. 1,170
-------
Total................................. $38,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws permit the Company
to indemnify officers and directors of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law. Section
145 of the Delaware General Corporation Law makes provision for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursements of expenses incurred) arising under
the Securities Act.
The Stock Purchase Agreement, dated as of April 24, 1995, between the
Company and the Selling Securityholders, provides that the Company shall
indemnify the Selling Securityholders under certain circumstances and the
Selling Securityholders shall indemnify the Company and the officers and
directors of the Company under certain circumstances.
The Company has entered into indemnity agreements with certain of its
outside directors. Pursuant to the indemnity agreement, the Company agrees
to indemnify each outside director who is a party to the indemnity agreement
under certain circumstances in which such outside director or the Company is
named as a party to a proceeding (as that term is defined).
II-1
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as
a part of this Registration Statement:
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 Form of Investment Agreement between the Company and each of the
investors named on the attached schedule, dated as of September 29,
1995.
5 Opinion of Troy & Gould Professional Corporation
23.1 Consent of Troy & Gould Professional Corporation (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP (included on page II-5 hereof)
24 Power of Attorney (included on page II-4)
___________________
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that (i) and (ii) do not apply if the
registration statement is on Form S-3, and the information required
to be included in a post-effective amendment is contained in
periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Company hereby undertakes:
That for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Carlsbad, State of
California, on November 15, 1995.
NTN COMMUNICATIONS, INC.
By: /s/ Patrick J. Downs
------------------------------------------
Patrick J. Downs,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Patrick J. Downs and Ronald E. Hogan,
and each of them, his true and lawful attorneys-in-fact and agents, each with
power of substitution, for him in any and all capacities, to sign this
Registration Statement and any amendments hereto, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might do or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his or
their substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-3 has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Patrick J. Downs Chairman of the Board of Directors November 15, 1995
--------------------- and Chief Executive Officer
Patrick J. Downs
/s/ Daniel C. Downs President, Chief Operating Officer November 15, 1995
-------------------- and Director
Daniel C. Downs
/s/ Kenneth B. Hamlet Executive Vice-President, General November 15, 1995
---------------------- Manager and Director
Kenneth B. Hamlet
/s/ Ronald E. Hogan Senior Vice President - Finance and November 15, 1995
-------------------- Secretary (Principal Financial
Ronald E. Hogan and Accounting Officer)
/s/ Donald C. Klosterman Director November 15, 1995
-------------------------
Donald C. Klosterman
/s/ Norman Lear Director November 15, 1995
----------------
Norman Lear
/s/ Alan P. Magerman Director November 15, 1995
---------------------
Alan P. Magerman
/s/ A.R. Rozelle Director November 15, 1995
----------------
A. R. Rozelle
</TABLE>
II-4
<PAGE>
The Board of Directors
NTN Communications, Inc.:
We consent to the use of our reports incorporated by reference and to the
references to our firm under the headings "Selected Consolidated Financial
Data" and "Experts" in the Prospectus.
Our report dated March 28, 1995, contains an explanatory paragraph that
states that the Company is a defendant in a class action lawsuit. The
litigation is in its early stages and no prediction can be made as to the
likelihood of the ultimate outcome. Accordingly, no provision for any
liability that may result from adjudication has been recognized in the
consolidated financial statements. Our report also refers to a change in the
method of accounting for investments in debt and equity securities in 1994.
KPMG Peat Marwick LLP
San Diego, California
November 16, 1995
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- --------- --------------- ----------
<S> <C> <C>
4.2 Form of Investment Agreement between the Company and each of the
investors named on the attached schedule, dated as of September 29, 1995.
5 Opinion of Troy & Gould Professional Corporation
23.1 Consent of Troy & Gould Professional Corporation (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP (included on page II-5)
24 Power of Attorney (included on page II-4)
</TABLE>
II-6
<PAGE>
Exhibit 4.2
INVESTMENT AGREEMENT
between
NTN COMMUNICATIONS, INC.
and
THE INVESTOR NAMED HEREIN
Dated as of September 29, 1995
The securities to be purchased and sold pursuant to this Investment
Agreement have not been registered under the Securities Act of 1933, as amended,
(the "Act") or any state securities laws. They may not be offered or sold in
the absence of an effective registration statement as to the securities under
said Act and any applicable State securities law or an applicable exemption from
the registration requirements of the Act.
<PAGE>
INVESTMENT AGREEMENT dated as of September 29, 1995 between NTN
Communications, Inc. (the "Company") and the investor whose name is set forth at
the foot of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
Section 1.1 Purchase and Sale of Common Stock. Upon the following terms
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, _________ shares of the Company's
Common Stock (the "Shares"). The number of shares to be sold shall be subject
to adjustment as hereinafter set forth.
Section 1.2 Purchase Price. The aggregate purchase price for the Shares
(the "Purchase Price") shall equal $__________ immediately available funds. The
Purchase Price shall be subject to adjustment as hereinafter set forth.
Section 1.3 Share Number, Valuation Period.
(a) The number of Shares that the Company shall be obligated to sell
and the Investor shall be obligated to purchase, in the aggregate, is referred
to herein as the "Share Number." Subject to adjustment as provided in Sections
1.3(c) and 1.3(e), the initial Share Number shall be the number set forth in
Section 1.1.
(b) The "Valuation Period" shall be a 60 trading day period commencing
January 15, 1996, or the first business day after the registration statement
referred to in Section 1.7 becomes effective, whichever is later, as the same
may be modified pursuant to Section 1.9 or Section 4.2(c) hereof; provided,
however, that the parties by mutual written consent may extend the Valuation
Period by up to 30 additional trading days; and provided further that the
Investor may, by notice to the Company, cause the Valuation Period to commence
at any time on or after April 15, 1996 if such registration statement has not
become effective by such date.
(c) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price (hereinafter defined) during the Valuation Period is less than
$4.70, then the Company shall deliver to the Investor, at no additional cost,
the number (if a positive number) of shares of Common Stock that is obtained by
subtracting (x) the initial Share Number and (y) the number of any additional
shares issued pursuant to Section 1.3(e) from (z) the quotient obtained by
dividing the Purchase Price by 85% of the Average Share Price (rounded to the
nearest whole number) (together with any additional shares issued pursuant to
Section 1.3(e), the "Additional Shares").
(d) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price during the Valuation Period is greater than $4.70, the investor
shall pay to the Company by
1
<PAGE>
wire transfer in immediately available funds the dollar amount by which (x) the
product of 85% of the Average Share Price and the initial Share Number exceeds
(y) the Purchase Price paid pursuant to Section 1.2.
(e) In the event that the Company, on or prior to the end of the
Valuation Period, issues or sells any shares of its Common Stock or any of its
securities which are convertible into or exchangeable for its Common Stock or
any warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock (other than shares or options issued pursuant
to the Company's option plans and shares issued upon exercise of options,
warrants and other rights outstanding on the Closing Date or as provided on
Exhibit A hereto), at a purchase price (the "Subsequent Sale Price") which is
less than the Purchase Price divided by the initial Share Number, then the
Company shall deliver to the Investor, at no additional cost and in addition to
the Share Number, the number of shares of Common Stock that is obtained by
subtracting (x) the Share Number from (y) the quotient obtained by dividing the
Purchase Price by the Subsequent Sale Price (rounded to the nearest whole
number).
(f) For purposes hereof, the Average Share Price shall mean the
average of the closing prices of the Company's Common Stock on the American
Stock Exchange or on the principal stock exchange on which the Common Stock is
listed, as reported by the American Stock Exchange or such other exchange, as
the case may be, for all trading days during the Valuation Period.
Section 1.4 Installment Delivery: Payment and Settlement
(a) At the end of each fifth trading day during the Valuation Period
(an "interim recomputation date") an interim computation shall be made to
determine whether additional shares would be deliverable assuming the actual
Average Share Price during the Valuation Period up to the interim recomputation
date becomes the Average Share Price for the entire Valuation Period. If, based
on the interim computation, additional shares would be required to be delivered,
then on the second business day following each successive interim recomputation
date the Company shall deliver to the Investor a portion of such additional
shares equal to the total number of such additional shares (less those already
delivered pursuant to this Section) divided by "x", where "x" is the total
number of trading days remaining in the Valuation Period after the last interim
computation date divided by five.
(b) A final determination shall be made at the end of the Valuation
Period and any shares then due pursuant to Section 1.3(c) shall be delivered on
the second business day thereafter, and any excess shares delivered shall then
be returned by the Investor. Any cash payment due from the Investor pursuant to
Section 1.3(d) shall be made on said second business day.
2
<PAGE>
Section 1.5 Termination of Reset Process
At any time prior to the end of the Valuation Period, the parties may agree
in writing to terminate the Valuation Period.
Section 1.6 The Closing.
(a) (i) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Investor, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Investor and
the Company may agree. The date on which the Closing occurs is referred to
herein as the "Closing Date."
(b) (i) On the Closing Date, the Company shall deliver to the
Investor certificates representing the Share Number to be issued and sold to the
Investor on such date and registered in the name of the Investor or deposit such
Share Number into the accounts designated by the Investor and (ii) on the
Closing Date, the Investor shall deliver to the Company the Purchase Price by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Company. In addition, each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to the Closing.
Section 1.7 Covenant to Register. For purposes of this Section 1.7, the
following definitions shall apply:
(a) (i) The terms "register," "registered," and "registration" refer
to a registration under the Securities Act of 1933, as amended (the "Act")
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Shares and any
Additional Shares issued pursuant to Section 1.3 hereof and any securities of
the Company or securities of any successor corporation issued as, or issuable
upon the conversion or exercise of any warrant, right or other security that is
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of, the Shares and any Additional Shares issued pursuant to
Section 1.3 hereof.
(iii) The term "holder of Registrable Securities" means the Investor
and any permitted assignee of registration rights pursuant to Section 1.7(h).
(b) (i) The Company shall, as expeditiously as possible following the
Closing, file a registration statement on Form S-3 or an equivalent form
covering all the Registrable Securities, and shall cause such registration
statement to become effective by January 15, 1996 (the "Initial Registration").
In the event such registration is not so declared effective or does
3
<PAGE>
not include all Registrable Securities, a holder of Registrable Securities shall
have the right to require by notice in writing that the Company register all or
any part of the Registrable Securities held by such holder (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith. The parties agree that if the holder of Registrable
Securities demands registration of less than all of the Registrable Securities,
the Company, at its option, may nevertheless file a registration statement
covering all of the Registrable Securities. If such registration statement is
declared effective with respect to all Registrable Securities and the Company is
in compliance with its obligations under Subsection (d)(ii) through (v) hereof,
the demand registration rights granted pursuant to this Section 1.7 (b) (i)
shall cease. If such registration statement is not declared. effective with
respect to all Registrable Securities the demand registration rights described
herein shall remain in effect until all Registrable Securities have been
registered under the Act.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (i) if all of the Registrable Securities held by
the holder of Registrable Securities which are demanded to be covered by the
Demand Registration are, at the time of the request of a Demand Registration,
included in an effective registration statement and the Company is in compliance
with its obligations under Subsection (d) (ii) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Section 1.7(b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC").
(iv) If a registration statement covering all Registrable Securities
is not effective by February 1, 1996, then the Company shall pay the Investor a
penalty of 3% of the total number of Registrable Securities in additional
shares, and if not effective by 30 days thereafter, an additional penalty of 3%
in additional shares for each 30 day period thereafter that such a registration
statement is not effective (pro rata as to a period of less than 30 days). Such
shares shall be issued within five business days after the end of each relevant
date or period, or part thereof. Such shares shall constitute "Shares" and
"Registrable Securities" as defined herein. If delivery of such shares would
cause Investor to be required to file a statement under Section 13(d) of the
Securities Exchange Act of 1934, then in lieu of such delivery the Company shall
pay to Investor in cash the value of such shares determined by the last reported
trading price of such shares on the last day of the relevant date or period.
This subsection is subject to the provisions of Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Investor)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) which remains
effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be
4
<PAGE>
registered under the Act all Registrable Securities that such holder of
Registrable Securities requests to be registered. However, the Company shall
have no obligation under this Subsection (c) to the extent that, with respect to
a public offering registration, any underwriter of such public offering
reasonably notifies such holder(s) in writing of its determination that the
Registrable Securities or a portion thereof should be excluded therefrom.
(d) Whenever required under this Section to effect the registration of
any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration to become effective and, upon
the request of the Investor, keep such registration statement effective,
pursuant to the provisions of Regulation (S)(S) 230.415 under the Act or
otherwise, for so long as any holder of Registrable Securities desires to
dispose of the securities covered by such registration statement (but not after
the holder of Registrable Securities, in the reasonable opinion of its counsel,
is free to sell such securities in any three month period under the provisions
of Rule 144 under the Act).
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to each holder of Registrable Securities such numbers
of copies of a current prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as each
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably requested by the holder of
Registrable Securities, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service and process in any such states or
jurisdictions.
(v) Notify each holder of Registrable Securities of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and use its best efforts to promptly update and/or correct such
prospectus.
(vi) Furnish, at the request of any holder of Registrable Securities,
an opinion of counsel of the Company, dated the effective date of the
registration statement, as
5
<PAGE>
to the due authorization and issuance of the securities being registered and
compliance with securities laws by the Company in connection with the
authorization, issuance and registration thereof.
(vii) Use its best efforts to list the Registrable Securities covered
by such registration statement with any securities exchange on which the Common
Stock is then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement.
(e) Each holder of Registrable Securities will furnish to the Company
in connection with any registration under this Section such information
regarding itself, the Registrable Securities and other securities of the Company
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) from and against, and shall
reimburse such holder with respect to, any and all claims, suits, demands,
causes of action, losses, damages, liabilities, costs or expenses
("Liabilities") to which such holder may become subject under the Act or
otherwise, arising from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company shall not be liable in any such case to the extent that any such
Liability arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished by such holders in writing specifically
for use in the preparation thereof
(ii) Any holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend and hold harmless the Company and shall reimburse the Company
with respect to any Liabilities to which the Company may become subject under
the Act or otherwise, arising from or relating to (A) any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading, in
each case if (but only if) and to the extent that any such Liability arises out
of or is based upon an untrue statement or omission so made in conformity with
information furnished by such holder in writing specifically for use in the
preparation thereof.
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(iii) Promptly after receipt by an indemnified party pursuant to the
provisions of Subsections (f)(i) or (f)(ii) of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party hereunder, promptly notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not relieve
such party from its indemnification obligations hereunder except to the extent
that the indemnifying party is materially prejudiced by such omission. The
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to the indemnified
party under this section for any legal expenses subsequently incurred in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that if the
defendants in any such action include both the Company and a holder of
Registrable Securities and the indemnified party shall have reasonably
concluded, based on the advice of counsel, that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by indemnifying party as
incurred.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; provided, however, that any securityholders
participating in such registration shall bear their pro rata share of the
underwriting discounts and commissions, if any, incurred in connection with such
registration.
(ii) The fees, costs and expenses of registration to be borne by the
Company as provided in this Subsection (g) shall include, without limitation,
all registration, filing, stock exchange and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, and all legal fees
and disbursements and other expenses of complying with state securities or Blue
Sky laws of any jurisdiction or jurisdictions in which securities to be offered
are to be registered and qualified. Fees and disbursements of counsel and
accountants for the selling securityholders shall, however, be borne by the
respective selling securityholders.
(h) (i) The rights to cause the Company to register all or any
portion of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of 20% or more, in the aggregate, of the
Shares and the Additional Shares. Within a reasonable time after such transfer
the Investor shall notify the Company of the name and address of such transferee
or assignee and the securities with respect to which such registration rights
are being assigned. Such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted
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under the Act. Any transferee shall agree in writing at the time of transfer to
be bound by the provisions of this Agreement.
(ii) From and after the date of this Agreement, the Company shall not
agree to allow the holders of any securities of the Company to include any of
their securities in any registration statement filed by the Company pursuant to
Subsection (b) unless the inclusion of such securities will not reduce the
amount of the Registrable Securities included therein.
(i) The Investor's right to receive Additional Shares shall be deemed
to be a "transferable warrant" as such term is used in General Instruction I.B.4
of Form S-3 under the Act.
Section 1.8 Adjustments. Subject to the provisions of Section 1.4, if an
Investor shall be entitled to the issuance of Additional Shares, the Company
shall deliver to the Investor at the offices of the Investor on the third (3d)
business day after the end of the Valuation Period one or more certificates
representing the Additional Shares so to be delivered in accordance with this
Agreement, registered in the name of the Investor, or deposit such Additional
Shares into accounts designated by the Investor; provided, however, that if the
sum of the shares then beneficially owned by the Investor, and any Additional
Shares then issuable to the Investor, as determined by the Investor, in its sole
determination shall equal 4.99% or more of the shares of Company's Common Stock
issued and outstanding (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) then, and in such event, (x) the number of
Additional Shares to be issued to the Investor pursuant to this paragraph shall
be reduced to the number which, together with the Share Number, shall equal
4.99% of the shares of the Company's Common Stock issued and outstanding (as so
determined), and (y) in consideration for such reduction in Additional Shares,
the Company shall pay to the Investor a sum equal to the greater of (a) the
product of 85% of the Average Share Price and the reduction in the Additional
Shares to be issued as a result of the preceding clause (x), and (b) the product
of the Subsequent Sale Price and the reduction in the Additional Shares to be
issued as a result of the preceding clause (x).
Section 1.9 Rescheduling. If after the date hereof and prior to the
expiration of the Valuation Period any person shall (a) publicly announce a
tender offer or exchange offer for the Company's Common Stock, or (b) publicly
announce plans for a merger, consolidation, sale of substantially all assets or
potential change in control of the Company, the Investor may in its sole
discretion elect by written notice to the Company to shorten the Valuation
Period so as to end on a date which is either before or after the record date
for the consummation of any such transaction, which election must be made prior
to consummation of any such transaction. For purposes of the foregoing, it is
understood and agreed that the Investor may, but shall not be required to,
reduce or entirely eliminate the Valuation Period or reschedule the Valuation
Period.
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ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
active subsidiaries, except for those identified in the SEC Documents (as
hereinafter defined). Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. "Material Adverse Effect" means
any adverse effect on the operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
material to such entity and other entities controlling or controlled by such
entity taken as a whole.
(b) Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Shares and the Additional Shares in accordance with the terms hereof,
(ii) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratoriums liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof currently issued and outstanding are as most recently
described in the SEC Documents and there have been no changes (except for
changes described on Exhibit A) therein since such description. All of the
outstanding shares of the Company's Common Stock have been validly issued and
are fully paid and nonassessable. Except as set forth in Exhibit A hereto and
as described in the SEC Documents, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, or commitments to purchase or acquire, any shares, or securities
or rights convertible into shares, of capital stock of the Company. The Company
has furnished to the Investor true and
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correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate"), and the Company's By-Laws, as in effect on the
date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares and Additional
Shares has been duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Company's Certificate or By-Laws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or result in a violation of any federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including Federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investor
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for possible violations which either singly or in the aggregate do not
have a Material Adverse Effect. The Company is not required under Federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or issue and sell the Shares or the
Additional Shares in accordance with the terms hereof (other than the filing of
a Form D with the SEC, any stock exchange filings or state securities filings
which may be required to be made by the Company subsequent to the Closing, and
any registration statement which may be filed in accordance with Section 1.7
herein); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act") and the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), in addition to one
or more registration statements and amendments thereto heretofore filed by the
Company with the SEC (all of the foregoing including filings incorporated by
reference therein being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to the Investor true and complete copies of the
quarterly and annual (including, without limitation, proxy information and
solicitation materials) SEC Documents filed with the SEC since December 31,
1994. The Company has not provided to the Investor any information which,
according to applicable law, rule or regulation, should have been disclosed
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publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since December 31, 1994, the date
through which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company except as otherwise disclosed or reflected in other SEC Documents
prepared through or as of a date subsequent to December 31, 1994, except that
the Company has continued to incur losses from operations and decreases in
working capital.
(h) No Undisclosed Liabilities. The Company has no liabilities or
obligations not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's business since June 30, 1995 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
(i) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its business, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
Section 2.2 Representations and Warranties of the Investor. The Investor
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) The Investor has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold hereunder, (ii) the execution and delivery of this Agreement
by the Investor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of the Investor or its Board of
Directors, stockholders, or partners, as the case may be, is required,
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(iii) this Agreement has been duly authorized, executed and delivered by the
Investor, and (iv) this Agreement constitutes a valid and binding obligation of
the Investor enforceable against the Investor in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Investor of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of the
Investor's charter documents or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Investor is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Investor or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate have a
Material Adverse Effect on the Investor). The business of the Investor is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. The Investor is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or purchase the
Shares or the Additional Shares in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, the Investor is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(c) Investment Representation. The Investor is purchasing the Shares
and, if any, the Additional Shares for investment purposes and not with a view
towards distribution. Investor has no present intention to sell the Shares or
the Additional Shares and the Investor has no present arrangement (whether or
not legally binding) at any time to sell the Shares or the Additional Shares to
or through any person or entity; provided, however, except as provided in
subsection (f) below, that by making the representations herein, the Investor
does not agree to hold the Shares or the Additional Shares for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Additional Shares at any time in accordance with Federal securities laws
applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor as
defined in Regulation (S)(S) 230.501 promulgated under the Act.
(e) Rule 144. The Investor understands that the Shares and any
Additional Shares must be held indefinitely unless such Shares or Additional
Shares are subsequently registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
(f) Limitations. Notwithstanding the foregoing, the Investor shall
not sell (including a short sale), transfer or otherwise dispose of the Shares,
or any Additional Shares
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issued to the Investor, at any time before January 15, 1996; provided however
that the Investor shall not be prohibited from selling at any time any
securities of the Company which were not acquired pursuant to this Agreement.
During the Valuation Period the Investor will only transfer or otherwise dispose
of its shares in accordance with all applicable laws, and in the event the
Investor engages in short sale transactions or other hedging activities during
the Valuation Period which involve, among other things, sales of Common Stock of
the Company, Investor will, to the extent within its reasonable control, conduct
such activities so as not to complete or effect any such sale on any trading day
during such period at a price which is lower than the lowest sale effected on
such day by persons other than the Investor.
ARTICLE III
Covenants
Section 3.1 Securities Compliance.
(a) The Company shall notify the SEC and the American Stock Exchange,
in accordance with their respective requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the filing of a Form D with the SEC,
for the legal and valid issuance of the Shares and the Additional Shares to the
Investor.
(b) The Investor understands that the Shares and, if any, the
Additional Shares, are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Shares.
Section 3.2 Corporate. (a) From the date hereof through the third
business day after the end of the Valuation Period the Company shall not (i)
amend its Certificate or By-Laws so as to adversely affect any rights of the
Investor; (ii) split, combine or reclassify its Common Stock or declare or set
aside or pay any dividend or other distribution with respect to its Common Stock
unless provision is made to fully protect the rights of the Investor; (iii)
issue or sell, directly or indirectly, shares of the Company's Common Stock in a
manner or upon terms as could reasonably be expected to affect the market for
the Common Stock materially and adversely; or (iv) enter into any agreement with
respect to the foregoing. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Shares or Additional Shares
hereunder, such shares of Common Stock as shall from time to time be issuable or
reasonably be expected to be issuable as Shares or Additional Shares hereunder.
(b) The Company will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to any
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registration statement filed pursuant to Section 1.7 herein, and will not take
any action or file any document (whether or not permitted by said Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said act, except as permitted
herein. The Company will take all reasonable steps necessary to continue the
listing or trading of its Common Stock on the American Stock Exchange and will
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of said exchange.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and/or sell the
Shares or the Additional Shares to the Investor is further subject to the
satisfaction, at or before the respective issuance and deliveries thereof, of
each of the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Listing. The Shares shall have been approved for listing by the
American Stock Exchange.
Section 4.2 Conditions Precedent to the Investor's Obligation to Purchase
the Shares. The obligation of the Investor hereunder to acquire and pay for the
Shares is subject to the satisfaction, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Investor's sole
benefit and may be waived by the Investor at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date), and the Shares shall have been approved for listing by the
American Stock Exchange.
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(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) Trading. From the date hereof to the Closing Date, as to the
Shares to be issued and delivered on the Closing Date, trading in the Company's
Common Stock shall not have been suspended by the SEC or the American Stock
Exchange (except for any suspension of trading of limited duration agreed to
between the Company and the American Stock Exchange solely to permit
dissemination of material information regarding the Company), and trading in
securities generally shall not have been suspended or limited or minimum prices
shall not have been established. Notwithstanding the foregoing sentence, in the
event that at any point on or prior to the first day of the Valuation Period
trading in the Common Stock is suspended by the SEC or the American Stock
Exchange, (i) calculation of the Average Stock Price shall be suspended for such
period of time as trading in the Common Stock is suspended and (ii) the
Valuation Period shall be reset so that such Valuation Period shall begin on the
2nd calendar day following the end of such suspension or the day specified in
Section 1.3(b), whichever is later, and shall end (subject to Sections 1.3(b)
and 1.9) on the 60th trading day thereafter on which quotations for the
Company's Common Stock on the American Stock Exchange are available. In the
event that the Company's Common Stock is delisted from the American Stock
Exchange at any time during the Valuation Period or in the event that trading in
the Common Stock is suspended for a period of more than thirty (30) days
subsequent to the commencement of the Valuation Period, (a) the Valuation Period
will be deemed to have concluded on the date on which the Common Stock was
delisted or such trading was suspended, (b) the Average Stock Price shall be
calculated based on the number of days in such shortened Valuation Period, and
(c) the Investor shall receive any Additional Shares pursuant to Section 1.3(c)
or shall pay any additional purchase price pursuant to Section 1.3(d) within
five (5) business days of the conclusion of the shortened Valuation Period.
References herein to the American Stock Exchange shall be interpreted to mean
the principal national securities exchange on which the Common Stock is listed,
so long as such listing remains in effect.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall have
received an opinion of counsel to the Company of the kind customary in
transactions such as those contemplated hereby, in form and substance reasonably
satisfactory to the Investor and their counsel, and such other certificates and
documents as the Investor or their counsel shall reasonably require incident to
the Closing.
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ARTICLE V
Legend on Stock
Each certificate representing the Shares issued pursuant to Section 1.3
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors or other governing body of the Investor or the Company
at any time if the Closing shall not have been consummated by the fifth business
day following the date of this Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided that the Company
shall pay, at the Closing, all attorneys' fees and expenses reasonably incurred
by the Investor and Cappello Capital Corp., up to a maximum of $25,000, in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the transactions contemplated hereunder. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance of
the Shares or the Additional Shares pursuant hereto.
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Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in California for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company
and the Investor consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and thereby and, except as specifically set forth herein, neither the Company
nor the Investor makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: NTN Communications, Inc.
Patrick Downs, Chairman and CEO
5966 La Place Court
Carlsbad, California 92008
17
<PAGE>
with copies to: Troy & Gould Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067
Attention: William D. Gould
to the Investor: At the address set forth at the foot of this
Agreement, with copies to Investor's counsel as set
forth at the foot of this Agreement or as may be
specified in writing by Investor
with copies to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Any party hereto may from time to time change its address for notices under this
Section 7.4 by giving at least 10 days' written notice of such changed address
to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may amend this Agreement without notice to or the consent of any
third party. Neither the Company nor the Investor shall assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other (which consent may be withheld for any reason in the sole discretion of
the party from whom consent is sought); provided, however, that the Company may
assign its rights and obligations hereunder to any acquirer of substantially all
of the assets or a controlling equity interest of the Company. The assignment
by a party of this Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of Delaware without
regard to the principles of conflict of laws.
18
<PAGE>
Section 7.10 Survival. The representations and warranties of the Company
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I and III shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof
NTN COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Its:
THE INVESTOR:
By:
--------------------------------------
Name:
Its:
Investor's address:
Name and address of Investor's counsel:
19
<PAGE>
SUBSTANTIVELY DIFFERENT PROVISIONS IN THE INVESTMENT AGREEMENT
WITH TWO VALUATION PERIODS
Section 1.3
(b) The "First Valuation Period" shall be a 60 trading day period
commencing January 15, 1996, or the first business day after the registration
statement referred to in Section 1.7 becomes effective, whichever is later, as
the same may be modified pursuant to Section 1.9 or Section 4.2(c) hereof and
the "Second Valuation Period" shall be a 60 trading day period commencing on the
fifth business day immediately following the last business day of the First
Valuation Period, as the same may be modified pursuant to Section 1.9 or Section
4.2(c) hereof; provided, however, that the parties by mutual written consent may
extend either Valuation Period by up to 30 additional trading days; and provided
further that the Investor may, by notice to the Company, cause the First
Valuation Period to commence at any time on or after April 30, 1996 if such
registration statement has not become effective by such date.
(c) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price (hereinafter defined) during either Valuation Period is less than
$4.70, then the Company shall deliver to the Investor, at no additional cost,
the number (if a positive number) of shares of Common Stock that is obtained by
subtracting (x) one-half the initial Share Number and (y) the number of any
additional shares issued pursuant to Section 1.3(e) from (z) the quotient
obtained by dividing one-half the Purchase Price by 85% of the Average Share
Price (rounded to the nearest whole number) (together with any additional shares
issued pursuant to Section 1.3(e), the "Additional Shares").
(d) Subject to the provisions of Section 1.4 hereof, if the Average
Share Price during either Valuation Period is greater than $4.70, the Investor
shall pay to the Company by wire transfer in immediately available funds the
dollar amount by which (x) the product of 85% of the Average Share Price and
one-half the initial Share Number exceeds (y) one-half of the Purchase Price
paid pursuant to Section 1.2.
Section 1.4 Payment and Settlement. A final determination shall be made at
the end of each Valuation Period and any shares then due pursuant to Section
1.3(c) shall be delivered on the second business day thereafter, and any excess
shares delivered shall then be returned by the Investor. Any cash payment due
from the Investor pursuant to Section 1.3(d) shall be made on said second
business day.
Section 4.2
(c) Trading. From the date hereof to the Closing Date, as to the
Shares to be issued and delivered on the Closing Date, trading in the Company's
Common Stock shall not have been suspended by the SEC or the American Stock
Exchange (except for any suspension of trading of limited duration agreed to
between the Company and the American Stock Exchange solely to permit
dissemination of material information regarding the Company), and trading in
securities generally shall not have been suspended or limited or minimum prices
shall not have been established. Notwithstanding the foregoing sentence, in the
event that at any point on or
1
<PAGE>
prior to the first day of either Valuation Period trading in the Common Stock is
suspended by the SEC or the American Stock Exchange, (i) calculation of the
Average Stock Price shall be suspended for such period of time as trading in the
Common Stock is suspended and (ii) such Valuation Period shall be reset so that
such Valuation Period shall begin on the 2nd calendar day following the end of
such suspension or the day specified in Section 1.3(b), whichever is later, and
shall end (subject to Sections 1.3(b) and 1.9) on the 60th trading day
thereafter on which quotations for the Company's Common Stock on the American
Stock Exchange are available. In the event that the Company's Common Stock is
delisted from the American Stock Exchange at any time during either Valuation
Period or in the event that trading in the Common Stock is suspended for a
period of more than five (5) days subsequent to the commencement of either
Valuation Period, (a) such Valuation Period will be deemed to have concluded on
the date on which the Common Stock was delisted or such trading was suspended,
(b) the Average Stock Price shall be calculated based on the number of days in
such shortened Valuation Period, and (c) the Investor shall receive any
Additional Shares pursuant to Section 1.3(c) or shall pay any additional
purchase price pursuant to Section 1.3(d) within five (5) business days of the
conclusion of the shortened Valuation Period. If the suspension of trading or
delisting continues for more than 30 days, the Investor may elect to have the
Average Share Price determined by independent appraisal in accordance with the
commercial arbitration rules of the American Arbitration Association.
References herein to the American Stock Exchange shall be interpreted to mean
the principal national securities exchange on which the Common Stock is listed,
so long as such listing remains in effect.
Section 7.4 Add prior to the last paragraph:
and to: James F. O'Brien, Jr.
Promethean Investment Group, Inc.
40 West 57th Street, Suite 1500
New York, New York 10019
Section 7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof.
Section 7.12 Publicity. Neither party shall state the name of the
other party in any press release or public statement without the consent of the
other party, except as required by law. The Company and the Investor shall
consult and cooperate with each other in issuing any press releases or otherwise
making public statements with respect to the transactions contemplated hereby,
provided the foregoing shall not interfere with the legal obligations of either
party with respect to public disclosure; and provided further, that neither the
Company nor the Investor shall be required to consult with the other ff any such
press release or public statement does not specifically name the other.
2
<PAGE>
Schedule of Investors and Dollar Amounts Paid
<TABLE>
<CAPTION>
Purchase Price
Selling Stockholder (Section 1.2)
- --------------------------------- ---------------
<S> <C>
Palladin Partners I, L.P. $2,400,000
Kayne, Anderson Non-Traditional 2,100,000
Investments, L.P.
Offense Group Associates, L.P. 1,000,000
ARBCO Associates, L.P. 1,000,000
Gershon Partners, L.P. 800,000
Granite Global Debt Fund, Ltd. 800,000
Hudson, Inc. Panama 500,000
Pictet et. Cie 200,000
Banque Scandinave en Suisse 200,000
Mirelis S.A. 200,000
The Gifford Fund 200,000
Carousel Investments, Inc. 200,000
</TABLE>
3
<PAGE>
Exhibit 5
[Letterhead of Troy & Gould]
November 17, 1995 NTN 1.1
NTN Communications, Inc.
The Campus
5966 La Place Court
Carlsbad, California 92008
Re: Registration Statement on Form S-3
Gentlemen:
At your request, we have examined the Registration Statement on Form S-3 (the
"Registration Statement") of NTN Communications, Inc. (the "Company") which has
been prepared for filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to 208,500 shares of Common Stock
of the Company issuable pursuant to warrants described in the Registration
Statement (the "Warrant Shares"), 2,400,000 outstanding shares of Common Stock
(the "Outstanding Shares") and 266,667 shares of Common Stock issuable pursuant
to the anti-dilution adjustment provisions of the Investment Agreements (the
"Investment Agreements"), dated as of September 29, 1995, between the Company
and the Private Placement Investors (the "Anti-Dilution Shares") of the Company
that may be resold by the securityholders identified in the Registration
Statement. The Warrant Shares, the Outstanding Shares and the Anti-Dilution
Shares are collectively referred to herein as the "Shares." All capitalized
terms not defined herein shall have the definitions ascribed to them in the
Registration Statement. We are familiar with corporate proceedings heretofore
taken by the Company in connection with the sale of the Shares. In addition, we
have examined such records of the Company as in our judgment were necessary or
appropriate to enable us to render the opinions expressed herein.
<PAGE>
NTN Communications, Inc.
November 17, 1995
Page 2
Based upon the foregoing, it is our opinion that the Outstanding Shares have
been duly and validly authorized and issued, and are fully paid and
nonassessable, and that the Anti-Dilution Shares, when issued in accordance with
the Investment Agreements, and the Warrant Shares, when issued in accordance
with the terms of their respective underlying warrants will have been duly and
validly authorized and will be validly issued, fully paid and nonassessable.
We consent to the use of our name under the caption "Legal Matters" in the
Prospectus and the Registration Statement, and to the filing of this opinion as
an exhibit to the Registration Statement. By giving you this opinion and
consent, we do not admit that we are experts with respect to any part of the
Registration Statement or Prospectus within the meaning of the term "expert" as
used in Section 11 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder, nor do we admit that we are in the category
of persons whose consent is required under Section 7 of said Act.
Very truly yours,
/s/ TROY & GOULD
TROY & GOULD
Professional Corporation
