<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1997
Reg. No. 333-14129
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1103425
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
The Campus
5966 La Place Court
Carlsbad, California 92008
(760) 438-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Gerald Sokol, Jr., President and Chief Executive Officer
NTN Communications, Inc.
The Campus
5966 La Place Court
Carlsbad, California 92008
(760) 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>
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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered (1) per share (2) offering price (2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, $.005 par value.... 565,000 shares $4.91(3) $2,774,150 $ 841(4)
=======================================================================================================================
</TABLE>
(1) Consists of shares underlying the warrants described herein. In accordance
with Rule 416 of the General Rules and Regulations under the Securities Act
of 1933, there are also being registered such indeterminate number of
additional shares of Common Stock as may become issuable pursuant to
antidilution provisions of such warrants.
(2) Estimated solely for the purpose of calculating the registration fees.
(3) Based, pursuant to Rule 457(c), on the average of the high and low sale
prices of the Common Stock as reported on the American Stock Exchange on
October 9, 1996.
(4) Previously paid.
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>
PROSPECTUS
565,000 Shares
NTN COMMUNICATIONS, INC.
Common Stock
All of the 565,000 shares of Common Stock offered hereby are being offered
by NTN Communications, Inc. for issuance and sale upon the exercise of certain
Redeemable Common Stock Purchase Warrants (the "Settlement Warrants"). Unless
otherwise indicated herein, references herein to the "Company" mean NTN
Communications, Inc. and its business units and subsidiaries.
The Settlement Warrants are being distributed pursuant to a court-approved
settlement of a class-action lawsuit previously pending against the Company.
See "Plan of Distribution." Each Settlement Warrant entitles the holder thereof
to purchase one share of Common Stock at an exercise price of $_______ per
share. The exercise price and number of shares of Common Stock issuable upon
exercise of the Settlement Warrants are subject to adjustment under certain
circumstances. During the period from the second anniversary of the date of
issuance until the expiration of the Settlement Warrants, holders of Settlement
Warrants will have the right to require the Company to redeem their Settlement
Warrants for $3.25 per Settlement Warrant. This redemption right will expire,
however, if at any time during the exercise period the closing price per share
of Common Stock as reported on the American Stock Exchange ("AMEX") exceeds the
exercise price of the Settlement Warrants by more than $3.25 per share for any
seven trading days, whether or not consecutive. See "Description of Securities
- -- Settlement Warrants."
The Common Stock is traded on the AMEX under the symbol "NTN." On
December 17, 1997, the last sale price for the Common Stock as reported on the
AMEX was $1-1/16. See "Price Range of Common Stock and Dividend Policy."
Prior to this offering, there has been no public market for the Settlement
Warrants. The Settlement Warrants have been approved for listing on the AMEX
under the symbol "NTNW," subject to official notice of issuance. See "Plan of
Distribution" for a description of how the exercise price and other terms of the
Settlement Warrants were determined.
The Company anticipates that the holders of the Settlement Warrants may
sell the shares of Common Stock issuable upon exercise of the Settlement
Warrants directly, or through brokers, in negotiated transactions or in one or
more transactions on the AMEX, or otherwise, as prices prevailing at the time of
sale. Certain costs, expenses and fees in connection with the registration of
the shares of Common Stock issuable upon exercise of the Settlement Warrants are
being borne by the Company. See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 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 December __, 1997.
<PAGE>
THE COMPANY
NTN Communications, Inc. ("NTN" or the "Company"), through its business
units and subsidiaries, develops, produces and distributes individual and multi-
player interactive programs to a variety of media platforms. These interactive
sports, trivia game and educational programs permit multiple viewers to
simultaneously respond to and participate with the programming content. The
Company has an exclusive licensing arrangement with the National Football
League, as well as nonexclusive arrangements or agreements with Major League
Baseball, the National Hockey League in Canada and others to provide interactive
play-along programming, such as the Company's proprietary QB1(R) football game,
in conjunction with live televised broadcasts. The Company broadcasts a wide
variety of popular games, trivia and informational programming to group viewing
locations such as hotels, sports bars and restaurants through its interactive
NTN Network. In addition, the Company brings multi-player interactive games
into consumer households through personal computer on-line services, the
Internet and interactive television services. Since the Company distributes its
programs via satellite, cable, telephone and wireless transmission technologies,
it is not dependent on any particular hardware or technical platform.
The Company currently provides its products and services to markets in
various stages of development. Each market is directly related to multi-player
interactive entertainment and education programs as follows:
Network Services ("Network Services", formerly referred to as
"Hospitality") -- Live interactive television network ("NTN Network") featuring
sports and trivia games which are broadcast to group environments.
Online/Internet Services ("Online/Internet Services", formerly referred to
as "Home") -- Live interactive sports and trivia games, including those
currently broadcast over the NTN Network, for the home consumer market provided
via third-party providers such as America On-Line, CompuServe and GTE
MainStreet.
LearnStar ("LearnStar") -- An interactive, multimedia, curriculum-based
educational system marketed to educational institutions. Marketed through the
Company's wholly-owned subsidiary, LearnStar, Inc.
IWN ("IWN") -- Interactive and transaction processing software and
technology for the gaming industry. Developed through the Company's wholly-owned
subsidiary IWN, Inc. and IWN, L.P.
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 and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by
the Company 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. Such
materials also may be obtained electronically at the Commission's site on the
World Wide Web at http:/www.sec.gov. The Common Stock is listed on the AMEX,
and the Company's reports, proxy and information statements and other
information
2
<PAGE>
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, the Settlement Warrants and
the shares of Common Stock offered hereby is contained in the Registration
Statement of which this Prospectus forms 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 such
securities, 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 or obtained electronically at
the Commission's World Wide Web site referred to above. 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, 1996, which contains consolidated financial statements of the
Company for the year then ended; (b) Amendment No. 1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, filed with the
Commission on April 30, 1997; (c) Amendment No. 2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 filed with the
Commission on March 28, 1997; (d) Amendment No. 2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, filed with the Commission on
December 18, 1997; (e) Amendment No. 1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 filed with the Commission on May 20,
1997; (f) Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 filed with the Commission on August 13, 1997; (g)
Amendment No. 2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 filed with the Commission on August 13, 1997; (h) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997, respectively; (i) Amendment No. 1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 filed with the
Commission on November 25, 1997; (j) Amendment No. 1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 filed with the
Commission on August 29, 1997; (k) Amendment No. 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 filed with the
Commission on December 16, 1997; (l) the Company's Current Reports on Form 8-K
filed with the Commission on March 20, 1997 and November 7, 1997, respectively;
and (m) the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A (File No. 0-19383) filed with the Commission
on July 31, 1991.
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 securities 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 Judy Piercey, Director of Marketing Communications, NTN
Communications, Inc., The Campus, 5966 La Place Court, Carlsbad, California
92008. Telephone requests may be directed to Ms. Piercey at (760) 438-7400.
3
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RISK FACTORS
The Settlement Warrants and the underlying shares of Common Stock 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 securities offered hereby.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties, including statements of the Company's
strategies, plans, objectives, expectations and intentions. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus. The cautionary statements made in
this Prospectus should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this Prospectus.
HISTORY OF SIGNIFICANT LOSSES; RECENT RESULTS OF OPERATIONS
The Company has a history of significant losses and had an accumulated
deficit of $55,848,000 as of September 30, 1997. The Company reported a net loss
of $22,952,000 and $9,709,000 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, and has continued to incur losses
since September 30, 1997. These results included substantial charges related to
the resignation or termination of certain former executive officers and the
reduction in workforce referred to below, the cancellation of notes receivable
from the former executives, write-downs of assets associated with discontinued
business activities and obsolete inventory and equipment, accruals for
litigation settlement costs and other litigation expenses, and charges relating
to stock-based compensation. There can be no assurance that the Company will not
incur similar charges in the future or that it will ever operate profitably. See
"Selected Consolidated Financial Data."
UNCERTAINTY AS TO ABILITY TO CONTINUE AS A GOING CONCERN.
The audit report on the Company's consolidated financial statements for
the year ended December 31, 1996 includes an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a net
working capital deficiency that raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
See "Experts."
NEED FOR ADDITIONAL FINANCING; RECENT PRIVATE PLACEMENT
The Company had a working capital deficiency of $2,120,000 at December 31,
1996, compared to working capital of $19,468,000 at December 31, 1995. The
reduction in working capital during 1996 was due primarily to a reclassification
of inventory to broadcast equipment and substantial charges incurred in 1996 as
previously reported in the Company's Exchange Act reports incorporated in this
Prospectus by reference and to the use of cash on hand and other current assets
to fund the Company's ongoing losses from operations. See "Recent
Developments." The Company's continuing losses from operations during 1997
resulted in an increase in the working capital deficiency to $5,838,000 as of
September 30, 1997, and the Company has continued to experience operating losses
since September 30, 1997.
In October 1997, the Company completed a private placement of $7,000,000 of
Series B Convertible Preferred Stock, $100 stated value per share (the "Series B
Preferred Stock"). The Company realized net proceeds from the private placement
of approximately $6,740,000, of which approximately $3,900,000 was used to repay
certain indebtedness (included accrued interest) of the Company incurred in June
1997 in connection with a previously proposed merger transaction with GTECH
Corporation. The balance of the net proceeds has been and will be used to
augment the Company's working capital and for general corporate purposes. Based
upon current plans and assumptions relating to the Company's business and
operations, the Company believes that the remaining net proceeds of the Private
Placement, together with revenues from operations, will be sufficient to fund
the Company's cash requirements for the foreseeable future. If, however, the
Company's plans change or its assumptions prove inaccurate, or if the Company's
funds otherwise prove insufficient, the Company may be required to seek
additional financing. There can be no assurance that the Company's currently
available resources will be sufficient to support the Company's operations
until such time, if any, as the Company is able to operate profitably and the
Company may require additional financings to fund its ongoing operations. There
also can be no assurance as to whether or on what terms any needed financing may
be available to the Company. If the Company were unable to obtain any needed
financing on terms acceptable to it, the Company could be required to curtail
its non-core business activities until such time, if any, as it is able to
generate sufficient funds from operations to resume such activities and expand
its business.
PENDING LITIGATION
On April 18, 1995, a class action lawsuit entitled Lenora Isaacs, On behalf
------------------------
of Herself and All Others Similarly Situated vs. NTN Communications and Patrick
- -------------------------------------------------------------------------------
J. Downs, was filed in the United States District Court for the Southern
- --------
District of California. The complaint alleges violations of federal securities
laws based upon the Company's projections for the fourth quarter of 1994 and for
the 1994 fiscal year, and further alleges that certain of the Company's insiders
sold stock on information not generally known to the public. The Company, which
has assumed the defense of this matter on behalf of all defendants, has denied
liability based upon the allegations contained in the complaint. Plaintiffs have
claimed to be entitled to damages between $8 million and $10 million. The
Company believes, based in part on the advice of outside counsel, that the
actual damages, if any, would be substantially less than such amount. As
previously announced, in order to avoid the costs and expenses associated with
complex litigation, including attorney fees, expert fees and costs, analyses
which must be conducted, and other costs necessary to prepare to defend this
case at trial and perhaps through the appeals process, in addition to the
business disruption occasioned by such protracted litigation, the Company has
agreed to an out-of-court settlement having a total value of $1,450,000. It is
anticipated that the settlement, would be payable $250,000 in cash and
$1,200,000 either in shares of the Company's common stock or in cash, at the
Company's election. The Common Stock would be valued for this purpose at
approximately the market price of the Common Stock when the settlement is
effected. The proposed settlement is subject to court approval, and there can be
no assurance that the settlement will be approved by the Court as proposed.
In May 1997, a shareholder derivative action was filed against the Company
and certain of its former officers and directors in Superior Court of
California, North County Branch. The complaint, which sought injunctive relief
and an unspecified amount of damages, alleged that the Company was injured by a
lack of independence and breach of business judgment by the defendant officers
and directors by virtue of the Resignation Agreements and related transactions
entered into in connection with the recent management reorganization. See
"Recent Developments--Management Reorganization." On June 10, 1997, the
plaintiff voluntarily dismissed the lawsuit, without prejudice. Although the
Company believes, based in part on the opinion of outside counsel, that the
action was without merit, there can be no assurances that the original plaintiff
or others similarly situated will not refile the same or a similar action at a
future date.
On June 11, 1997, the Company was included as a defendant in a lawsuit,
entitled Elliot Miller and Jan Iver, shareholders on behalf of themselves and
--------------------------------------------------------------------
all others similarly situated vs. NTN Communications, Inc., Patrick J. Downs,
- ------------------------------------------------------------------------------
Daniel C. Downs, Donald C. Klosterman, Ronald E. Hogan, Gerald P. McLaughlin and
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP, filed in the United States District Court for the
- ---------------------
Southern District of California. The complaint seeks classaction status for
alleged violations of state and federal securities laws based upon purported
omissions from the Company's periodic filings with the Commission. More
particularly, the complaint alleges that the Company and the defendant directors
and former officers devised an "exit strategy" to provide themselves with undue
compensation upon their resignation from the Company. Plaintiffs further allege
that the Company's financial statements misrepresented or omitted information
concerning contingent liabilities, in the form of guaranteed compensation to
management and a right, which was exercised by Symphony IWN Investment LLC
("Symphony") earlier this year, to cause the Company to repurchase from Symphony
certain stock and interests in IWN, Inc. and IWN, L.P., and phantom assets in
the form of loans recoverable from management. According to the plaintiffs,
these alleged misrepresentations and omissions served to inflate the trading
price of the Company's Common Stock.
On July 3, 1997, the Company, on behalf of itself and the named directors
and officers, filed a motion to dismiss the lawsuit. On November 6, 1997, the
motion was granted, with leave to amend, as to the state causes of action and
denied as to the federal causes of action. The Company has submitted this claim
to its insurance carriers; however, there can be no assurances that the
insurance carriers will accept coverage or that, if coverage is accepted, it
will be without a reservation of rights by the carriers.
On August 8, 1997, another purported classaction lawsuit was filed in the
United States District Court for the Southern District of California entitled
Yehuda Lefkowitz, on Behalf of Himself and Others Similarly Situated vs. NTN
- ----------------------------------------------------------------------------
Communications, Inc. and Patrick J. Downs and Daniel C. Downs, former executives
- -------------------------------------------------------------
of the Company. The complaint, which alleged that defendants made materially
false and misleading statements concerning the Company's business, operations
and products, was voluntarily dismissed by the plaintiff, without prejudice, on
September 3, 1997. Although the Company believes, based in part on the opinion
of outside counsel, that the action was without merit, there can be no
assurances that the original plaintiff or others similarly situated will not
refile the same or a similar action at a future date.
There can be no assurance that any or all of the foregoing claims will be
decided in a manner favorable to the Company. During the pendency of such
claims, the Company will continue to incur the costs of defending the claims.
The Company generally is not insured against the claims made and, if one or more
of the shareholder claims is decided in a manner adverse to the Company, the
resulting liabilities to the Company could materially and adversely affect the
Company's financial condition and result of operations.
The Company had been involved as a plaintiff or defendant in various
previously reported lawsuits in Federal courts in both the United States and
Canada involving Interactive Network, Inc. ("IN"). With the court's assistance,
the Company and IN have been able to reach a resolution of all pending disputes
in the United States and have agreed to private arbitration regarding any future
licensing, copyright or infringement issues which may arise between the parties.
There remain two lawsuits among the Company, its unaffiliated Canadian licensee
and IN, which were filed in Canada in 1992. No substantive action has been taken
in furtherance of either action. These actions affect only the Canadian
operations of the Company and its Canadian licensee and do not extend to the
Company's operations in the United States or elsewhere. Although they cannot be
estimated with certainty, any damages the Company might incur in the event the
actions are determined adversely to the Company are not expected to be material
to the Company.
Other than as set forth above, there is no material litigation pending or
threatened against the Company.
RECENT EQUIPMENT PROBLEMS
The Company's Playmaker(R) is a hand-held radio frequency device used to
enter choices and selections by players of QB-1(R) and the Company's other games
and programming broadcast to Hospitality locations. The Company's customers
have experienced certain problems with Playmakers(R) manufactured earlier this
year, and late last year, related to noise sensitivity and performance of the
Playmaker's(R) rechargeable batteries. Management believes these equipment
problems have contributed to higher than usual "disconnects" (i.e., customers
----
terminating the NTN Network service) and a build-up in the Company's accounts
receivable from customers. The Company has completed various modifications to
its Playmaker(R) in consultation with an outside engineering consulting firm,
which the Company believes adequately address these problems. For the three
months ended March 31, 1997, the Company recorded a charge of $650,000 relating
to the repair and replacement of the affected Playmakers(R) and it may incur
similar charges in the future, which cannot be predicted. The higher-than-usual
customer disconnects and the charges relating to Playmakers(R) have adversely
affected the Company's revenues and results of operations during 1997. The
recurrence of these or other equipment problems in the future also could
adversely affect the Company's results of operations.
TRANSITION TO NEW MANAGEMENT
The Company has experienced a wholesale change in its executive management
in the past year. Gerald Sokol, Jr. was appointed as Chief Executive Officer of
the Company in October 1997. He joined the Company as Chief Financial Officer
in July 1996, was appointed Chief Operating Officer in November 1996 and in
February 1997, in connection with the management reorganization described herein
under "Recent Developments," was appointed President of the Company. In
September 1997, Geoffrey D. Labat assumed from Mr. Sokol the duties of Chief
Operating Officer after having joined the Company in May 1997 as Chief Technical
Officer. Edward C. Frazier, who has served as a director of the Company since
August 1996, was appointed Chairman of the Board in March 1997. In August 1997,
three of the Company's incumbent directors resigned, and in September and
November 1997, respectively, Esther L. Rodriguez and Stanley B. Kinsey were
appointed as directors. There can be no assurance that the new management of
the Company, under the supervision of the Board of Directors, will be able to
operate the Company more successfully than prior management or that additional
management changes will not be made in the future.
4
<PAGE>
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 and hockey games. 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 exclusive license with National Football League Properties, Inc.
("NFLP") for QB-1(R)
5
<PAGE>
has been renewed by the NFLP until March 2000. 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. The Company's agreement with Major League Baseball
Properties, Inc. ("MLBP") relating to the Company's proprietary interactive
baseball game, Diamondball(R), expired December 31, 1996. Although no formal
license was issued to the Company, MLBP did grant NTN permission to play
Diamondball(R) along with MLB games. In the meantime, the Company has continued
broadcasting Diamondball(R) and otherwise dealing with MLBP in accordance with
the terms of the prior agreement with MLBP.
The Company broadcasts QB-1(R) in conjunction with college football games
without any license. Limitations on the Company's sports licenses or legal
action by the owners or licensees of broadcast rights to college football games
or other events for which the Company has no license, if determined adversely to
the Company, could have the effect of precluding the Company from broadcasting
its games in connection with these events or could result in an award of
monetary damages against the Company. The Company has not experienced any such
legal action to date and is not aware of any threatened action. There can be no
assurance, however, that such actions will not be brought in the future.
RELIANCE ON INDEPENDENT DISTRIBUTORS
The Company relies 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 operate in 49 states. The Company has no long-
term agreements with any of its distributors, and 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.
COMPETITION
The interactive entertainment industry is in its formative stage, but
currently may be divided into three major segments: (i) media distribution
services such as on-line services, telephone companies and cable television
companies and the NTN Network; (ii) equipment providers such as computer and
peripheral equipment manufacturers; and (iii) content and programming providers,
such as movie studios and software publishers. The Company does not act as a
direct provider of equipment to consumers. The Company operates as a media
distribution service through its NTN Network. Also, the Company is a program
provider to an array of other media distribution services to consumers utilizing
a variety of equipment.
The Company has a growing number of competitors in the programming segment
of the interactive entertainment industry. The Company's programming content is
not dependent upon, and consequently not bound by any particular technology or
method of distribution to the consumer. The Company's programming is, therefore,
readily available to consumers on a wide variety of entertainment and media
services including: the NTN Network; on-line services including America Online,
Genie, and CompuServe and cable television, including GTE MainStreet, which is
available to households in certain regions.
The Company is not aware of any competing interactive programming similar
to QB1, Diamondball or the Company's other programming broadcast in conjunction
with live sporting or other events. The Company's programming competes
generally, however, with broadcast television, pay-per-view, and other content
offered on cable television. In other mediums, the Company competes with other
content and services available to the consumer through on-line services such as
America Online and Prodigy. Presently, the technological capabilities of
transmitting entertainment products to the consumer exceed the supply of quality
programming and services available on the existing delivery systems.
With the entrance of motion picture, cable and TV companies, competition in
the interactive entertainment and multimedia industries will likely intensify in
the future. Moreover, the expanded use of on-line networks and the Internet
provide computer users an increasing number of alternatives to video games and
entertainment software. The Company seeks to compete by providing high quality
products at reasonable prices, thereby establishing a favorable reputation among
frequent buyers in order to achieve repeat sales on sequels and other
6
<PAGE>
products developed or distributed by the Company. There can be no assurance,
however, that the Company can compete effectively.
POTENTIAL FOR TECHNOLOGICAL OBSOLESCENCE
The computer industry and related businesses have been marked by rapid and
significant technological development and change. There can be no assurance
that ongoing technological developments will not render the Company's
interactive technology and services obsolete, or that the Company will have the
resources to respond to such technological change.
UNCERTAIN PROPRIETARY PROTECTION; DEPENDENCE ON SOLE SOURCE OF SUPPLY
The Company regards the Playmaker(R) keyboard and other technology utilized
in the NTN Network as proprietary and relies primarily on a combination of
trademark, copyright and trade secret laws and employee and third-party
nondisclosure agreements to protect its propriety rights. The Company has two
patent applications pending for its proprietary interactive technology. No
assurance can be given, however, that any of the Company's patent applications
will issue as patents, or that any issued patents will provide the Company with
significant competitive advantages. It is the Company's policy that all
employees and consultants involved in research and developmental activities sign
nondisclosure agreements; however, this may not afford the Company sufficient
protection for its know-how and proprietary information and products. Other
parties may independently develop similar or more advanced technologies. Until
recently, the Company was involved in litigation with IN concerning the
enforceability, scope and validity of proprietary rights. See "Risk Factors -
Pending Litigation." As a number of software products in the interactive
television industry increases and increasingly become available in new delivery
formats, software developers and publishers may increasingly become subject to
infringement claims. Any such future claims or litigation against the Company
may be costly and could have an adverse effect on the businesses of the Company.
The Company currently purchases its Playmaker(R) keyboard from an single,
unaffiliated Taiwanese manufacturer. As described above under "Recent Equipment
Problems," the Company has experienced certain performance problems with its
Playmakers(R). The Company also recently has experienced substantial delays in
shipments of Playmakers(R) ordered from the manufacturer, and it currently is
considering redesigning the Playmaker(R) as part of an effort to secure one or
more additional sources of supply of Playmakers(R). There can be no assurance
that the Playmaker(R) can be redesigned successfully or that the Company will be
able to secure additional sources of supply of the redesigned Playmaker(R).
Unless and until the Company succeeds in establishing additional manufacturing
relationships, it will continue to be dependent on its current sole source of
supply of Playmakers(R) and may continue to experience delays in its receipt of
new Playmaker(R) shipments.
POTENTIAL DILUTION
As described above under "--Need For Additional Financing; Recent Private
Placement," the Company recently issued and sold 70,000 shares of Series B
Preferred Stock, which are convertible into shares of Common Stock. The number
of shares of Common Stock issuable upon conversion of each share of Series B
Preferred Stock will be determined by dividing the sum of $100 plus any accrued
and unpaid dividends on the Series B Preferred Stock by the conversion price
then in effect. See "Description of Securities -- Series B Preferred Stock." The
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
may be issued at a discount from the market price of the Common Stock at the
time of conversion, which could result in dilution to the tangible book value
per share and shareholders' equity per share of the Company. The magnitude of
any such dilution will depend on the size of the discount and the number of
shares to be issued. These variables, will, in turn, depend on the timing of
conversion, the market price of the Common Stock at such time and certain other
factors which cannot be predicted by the Company.
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
7
<PAGE>
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."
TERMS OF SETTLEMENT WARRANTS
The exercise price and other terms of the Settlement Warrants were
determined as a result of settlement negotiations between the Company and
representatives of the plaintiffs in the class-action lawsuit described under
"Plan of Distribution." The exercise price does not necessarily bear any
relationship to the financial condition, results of operations or business or
financial prospects of the Company, or any other recognized investment criteria,
and should not be considered an indication of the actual value of the Company's
Common Stock. See "Plan of Distribution."
POSSIBLE FUTURE DELISTING OF THE SETTLEMENT WARRANTS
The Settlement Warrants have been approved for listing on the AMEX, subject
to official notice of issuance. Under current AMEX guidelines, to remain
eligible for trading on the AMEX the Settlement Warrants either must continue to
be held by at least 300 holders, or the number of Settlement Warrants publicly
held (i.e., exclusive of holdings by directors, officers and control persons)
generally must exceed at 200,000. If, by reason of the exercise of Settlement
Warrants or otherwise, these requirements are not met at any time, the
Settlement Warrants may be delisted from trading on the AMEX. Delisting would
be likely to reduce investor interest in the Settlement Warrants and materially
adversely effect the trading market and trading prices for the Settlement
Warrants.
VOLATILITY OF STOCK PRICE; RECENT TRADING PRICES
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, including factors such as
analysts' expectations which are beyond the Company's control. 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.
The recent trading prices of the Company's Common Stock have been at or
near the 52-week low trading price, and there can be no assurance that the
trading price will not decline from its current level. 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 use in the Company's business. The terms of the recently issued Series B
Preferred Stock restrict the Company's payment of dividends on Common Stock. See
"Price Range of Common Stock and Dividend Policy."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
As of December 18, 1997, there were 6,051,225 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 $1.88 to $6.50 per
share, of which options to purchase 3,653,900 shares were exercisable as of that
date.
As of December 18, 1997, the Company also had outstanding warrants,
including the Settlement Warrants described herein, to purchase an aggregate of
4,693,750 shares of Common Stock at exercise prices
8
<PAGE>
ranging from $2.00 to $8.00 per share, of which warrants to purchase
approximately 3,428,750 shares were exercisable as of that date. Substantially
all of the shares underlying the Company's currently outstanding warrants are
subject to currently effective registration statements covering the resale of
the underlying warrant shares by the holders.
The foregoing options and warrants could adversely affect the Company's
ability to obtain future financing or engage in certain mergers or other
transactions, since the holders of those options and warrants can be expected to
exercise them 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 and warrants. For the life of such options and
warrants, 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.
See "Recent Developments" for a discussion of the Company's agreement to
issue shares of Common Stock in exchange for the surrender and cancellation of
certain of the Company's outstanding options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 5,820,000 shares of Common Stock outstanding as of the date
of this Prospectus 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 one year has
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 two years is entitled to sell such shares under Rule 144(k)
without regard to any of the limitations described above.
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.
9
<PAGE>
RECENT DEVELOPMENTS
PROPOSED EXCHANGE OF CERTAIN OUTSTANDING OPTIONS AND WARRANTS
The Company recently reached agreement with the holders of certain
outstanding options and warrants to purchase an aggregate of 1,923,250 shares of
Common Stock at exercise prices ranging from $2.00 to $5.25 per share to
surrender such options and warrants for cancellation in exchange for the
Company's issuance to the holders of a total of 664,436 shares of Common Stock.
When issued, all such shares will constitute "restricted" shares and, as such,
will not be freely tradeable until at least one year after issuance.
The terms of the exchanges were determined in privately negotiated
transactions between the Company and the option holder and warrant holders
involved based on a discount from the valuation of the options and warrants as
determined in accordance with the Black-Scholes method, which takes into account
such factors as the exercise prices and exercise periods of the options and
warrants and the volatility of the market price of the Common Stock. The Company
also may enter into similar agreements in the future to exchange shares of
Common Stock for other currently outstanding options or warrants.
Although no cash payments will be made in connection with the exchanges,
depending on the fair value of the shares which may be issued in exchange as for
options and warrants and certain other factors, the Company may incur charges
for financial accounting purposes relating to the exchanges for the period
during which the exchanges occur.
RECENT PRIVATE PLACEMENT
In October 1997, the Company issued and sold 70,000 shares of Series B
Preferred Stock to two institutional investors. The Series B Preferred Stock
provides for a cumulative annual dividend of $4 per share, payable in quarterly
installments of $1 per share on the last day of January, April, July and October
of each year, commencing January 31, 1998. Under the terms of the Certificate of
Designations, Rights and Preferences of the Series B Preferred Stock, any holder
of Series B Preferred Stock is entitled to convert 25% of the Series B Preferred
Stock owned by the holder into shares of Common Stock on or after the earlier of
(i) February 28, 1998 and (ii) the effective date of the Registration Statement
filed with the Commission on November 20, 1997 covering the shares of Common
Stock issuable upon conversion (the "Initial Conversion Date"). An additional
25% of the Series B Preferred Stock owned by a holder will become convertible on
each of the dates 60, 90 and 120 days, respectively, following the Initial
Conversion Date. Any outstanding shares of the Series B Preferred Stock not
converted by October 31, 2000 will automatically be converted as of such
date.
The number of shares of Common Stock issuable upon conversion of each share
of Series B Preferred Stock will be determined by dividing the sum of $100 plus
any accrued and unpaid dividends on the Series B Preferred Stock by the
conversion price then in effect. See "Description of Securities--Series B
Preferred Stock." The shares of Common Stock issuable upon conversion of the
Series B Preferred Stock may be issued at a discount from the market price of
the Common Stock at the time of conversion, which could result in dilution to
the tangible book value per share and shareholders' equity per share of the
Company. The magnitude of any such dilution will depend on the size of the
discount and the number of shares to be issued. These variables, will, in turn,
depend on the timing of conversion, the market price of the Common Stock at such
time and certain other factors which cannot be predicted by the Company.
In connection with the sale of the Series B Preferred Stock, the Company
agreed to file on behalf of the Series B Preferred Stock holders a Registration
Statement under the Securities Act covering the possible future resale of the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
The Company filed such a Registration Statement with the Commission on November
20, 1997. If the Registration Statement has not been declared effective on or
before February 28, 1998, the Company will be required to pay the holders of
the Series B Preferred Stock, in cash, certain amounts until the Registration
Statement is declared effective, as follows: (i) for the 30-day period beginning
March 1, 1998, an amount equal to 1% of the quotient of $100 plus any accrued
but unpaid dividends, divided by the conversion price, for each share of Series
B Preferred Stock; and (ii) for each consecutive 30-day period beginning April
1, 1998, an amount equal to 2% of the quotient of $100 plus any accrued and
unpaid dividends, divided by the conversion price, for each share of Series B
Preferred Stock. Moreover, in the event the Registration Statement shall not
have been declared effective on or before May 29, 1998, the Company will be
required to redeem the Series B Preferred Stock for cash at a redemption price
per share of Series B Preferred Stock equal to the product of the number of
shares of Common Stock then issuable upon conversion of a share of Series B
Preferred Stock multiplied by the average of the closing bid prices of the
Common Stock on the five trading days preceding May 29, 1998. There can be no
assurance as to whether or when such Registration Statement will be declared
effective.
The terms of the sale of Series B Preferred Stock were determined by
arm's-length negotiations between the Company and the purchasers of the Series B
Preferred Stock and their representatives. The purchasers and the
representatives are not affiliated with the Company or any of its officers,
directors or affiliates.
MANAGEMENT REORGANIZATION
In late 1996, the Company's former Chief Financial Officer resigned as an
executive officer of the Company and the Company discontinued certain consulting
arrangements with Alan P. Magerman, who was serving as a director of the Company
at the time. In March 1997, following an internal review by the Company's
independent directors acting with the advice of outside counsel to the
independent directors, the Company announced a further reorganization of its
executive management personnel in which Patrick J. Downs, then Chief Executive
Officer and Chairman of the Board of the Company, Daniel C. Downs, then the
Company's President, Gerald McLaughlin, then an Executive Vice President of the
Company, and Michael Downs, then President of the Company's Learnstar
subsidiary, resigned or were terminated. The Company has entered into separate
Resignation and General Release Agreements (the "Resignation Agreements") with
each of the former officers pursuant to which the officers' prior employment
agreements were terminated and each former officer entered into a Consulting
Agreement under which he agreed to consult with the Company on such matters as
it may request from time to time. The three-year terms of the Consulting
Agreements coincided with the remaining terms of the executives prior employment
agreements. In consideration of entering into the Consulting Agreements, the
Company agreed to extend the expiration dates of certain options and warrants
held by the former officers and, with respect to Patrick J. Downs and Daniel C.
Downs, to waive provisions of certain stock options which required that the
options be exercised within a specified period of time following termination. In
the first quarter of 1997, the Company recorded charges of $1,458,000 related to
the modifications of options and warrants held by the former executives.
Under the Resignation Agreements with the former executives, the Company
agreed to honor certain provisions of the officers' prior employment agreements
to continue to pay the former executives their prior annual salaries and other
benefits for the remaining terms of such agreements. These payments will total
approximately $1,711,000 in 1997, $1,350,000 in 1998, and $1,269,000 in 1999,
and are expected to be funded from on-going operations. Charges for severance
related to resignations or terminations amounted to $840,000 for 1996.
Additional severance charges in 1997 have totalled approximately $5,298,000. The
Company will continue to provide the former executives with certain medical
benefits and life insurance and, for 36 months, will continue to pay Patrick J.
Downs, Daniel C. Downs and Gerald P. McLaughlin a monthly car allowance.
Most of the former executives, along with Donald Klosterman and Mr.
Magerman, directors of the Company, were indebted to the Company for certain
loans that were made in previous years. By their terms, these loans were
cancelable under certain circumstances in connection with the termination of the
officers' employment. Accordingly, the management reorganization triggered the
cancellation of the outstanding notes receivable from the former officers. In
conjunction with the management reorganization, the Company also agreed to
cancel similar loans outstanding to Messrs. Klosterman and Magerman. The
cancellation of the notes receivable from the directors and former officers
resulted in a charge for 1996 of $4,252,000 for principal and accrued
interest.
In connection with the management reorganization, NTN agreed to the vesting
of certain options held by Mr. McLaughlin to purchase 100,000 shares of Common
Stock and issued to Mr. McLaughlin a fully vested option to purchase 150,000
shares of Common Stock. NTN also paid Mr. Magerman an aggregate of $225,000 and
purchased from him for a price of $81,250 certain warrants to purchase 325,000
shares of Common Stock.
In the fourth quarter of 1996, the Company laid off approximately 16% of
its workforce as a cost-cutting measure. Severance payments related to the
layoff will not effect the Company's future liquidity, since the majority of the
related severance and other benefit payments were made in 1996. The Company also
has laid off a significant number of employees in fiscal 1997 and may continue
trimming its workforce to reduce costs.
DISCONTINUANCE OF SALE-LEASEBACK TRANSACTIONS
In 1996, the Company discontinued selling and leasing back the equipment
utilized at its Network Services locations and repurchased certain equipment
that was the subject of prior sale-leaseback transactions. The Company reported
a charge related to the repurchase transactions of approximately $2,007,000 for
the fourth quarter of 1996. The Company may enter into similar repurchases in
the future, which depending on the terms of repurchase, may also result in
charges during the periods in which they occur. In addition, although the
discontinuance of the sale-leaseback transactions and the repurchase of
equipment has resulted in improved cash flow, depreciation charges associated
with owning its equipment have contributed to the Company's losses for financial
accounting purposes.
USE OF PROCEEDS
The proceeds to the Company from the sale of the shares of Common Stock
upon exercise of the Settlement Warrants will be realized only if and to the
extent any of the Settlement Warrants are exercised. The holders of the
Settlement Warrants are not obligated to exercise the Settlement Warrants, and
there can be no assurance that the holders will choose to exercise the
Settlement Warrants in whole or in part. The Settlement Warrants are redeemable
under certain circumstances at the option of the holders. See "Description of
Securities - Settlement Warrants." The estimated proceeds to the Company in the
event that the Settlement Warrants are exercised in full would be $__________,
without deduction for an estimated $100,000 of offering expenses payable by the
Company relating to this Offering and the concurrent registration of shares
described herein.
The Company intends to apply any net proceeds it receives from the exercise
of the Settlement Warrants to augment its working capital and for general
corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Prior to this offering, there has been no public market for the Settlement
Warrants. 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>
1995
----
First Quarter.............................. $5-5/8 $8-1/4
Second Quarter............................. 4-7/16 5-13/16
Third Quarter.............................. 4-3/8 6-1/8
Fourth Quarter............................. 4-1/8 5-3/16
1996
----
First Quarter.............................. $3-1/8 $4-7/8
Second Quarter............................. 3-7/8 5-1/8
Third Quarter.............................. 4-9/16 6-1/8
Fourth Quarter............................. 3-7/16 5-3/16
1997
----
First Quarter.............................. $3-3/8 $4-7/16
Second Quarter............................. 2-5/16 4-3/4
Third Quarter.............................. 2-3/16 4-7/16
Fourth Quarter (through December 18, 1997). 1-1/16 2-1/4
</TABLE>
For a recent closing price for the Common Stock as reported on the AMEX
see the cover page of this Prospectus. As of December 1, 1997, there were
approximately 4,000 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.
Under the terms of the Certificate of Designations, Rights and Preferences
of the Series B Preferred Stock, until all of the Series B Preferred Stock have
been converted into Common Stock or redeemed, no dividends may be declared or
paid on the Common Stock without the prior consent of the holders of at least
two-thirds of the outstanding Series B Preferred Stock.
10
<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, 1996, are derived from the consolidated financial statements
of NTN and its subsidiaries, which financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1996 and 1995, and for each
of the years in the three-year period ended December 31, 1996, and the report
thereon, are incorporated by reference in this Prospectus. The selected data
should be read in conjunction with the consolidated financial statements for the
three-year period ended December 31, 1996, the related notes and the independent
auditors' report, which contains an explanatory paragraph that states that the
Company has suffered recurring losses from operations and has a net working
capital deficiency that raise substantial doubt about its ability to continue as
a going concern which report is incorporated by reference in this Prospectus.
The consolidated financial statements and selected consolidated data do not
include any adjustments that might result from the outcome of this uncertainty.
The following selected consolidated statement of operations data for the nine
months ended September 30, 1997 and 1996 and related consolidated balance sheet
data as of September 30, 1997 are derived from the unaudited consolidated
financial statements of NTN and reflect all adjustments which in the opinion of
management of NTN are necessary for presentation of NTN's financial position and
results of operations for these periods. Certain data for the five-year period
ended December 31, 1996 and nine months ended September 30, 1996 have been
reclassified to conform to the format used for the nine months ended September
30, 1997. The following data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Consolidated Financial Statements and notes thereto incorporated by
reference in this Prospectus.
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
----------------------------------------------------- --------------------
1996 1995 1994 1993 1992 1997 1996
-------- ------- ------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............................... $ 25,711 $20,082 $16,146 $ 11,123 $ 6,047 $ 19,640 $ 19,687
Total operating expenses..................... 51,566 25,508 16,102 13,210 8,466 28,895 30,753
-------- ------- ------- -------- -------- -------- --------
Operating income (loss)...................... (25,855) (5,426) 44 (2,087) (2,419) (9,255) (11,066)
Other income, net ........................... 1 1,409 412 457 24 (454) --
-------- ------- ------- -------- -------- -------- --------
Earnings (loss) from continuing operations... (25,854) (4,017) 456 (1,630) (2,395) (9,709) (11,066)
Earnings (loss) from discontinued operations. (1,317) 69 251 329 155 -- (1,317)
Gain from discontinued operations............ 4,219 -- -- -- -- -- 3,235
-------- ------- ------- -------- -------- -------- --------
Net earnings (loss).......................... (22,952) (3,948) 707 (1,301) (2,240) (9,709) (9,148)
-------- ------- ------- -------- -------- -------- --------
Earnings (loss) per share:
Continuing operations...................... $ (1.15) $ (0.19) $ 0.02 $ (0.10) $ (0.21) $ (0.41) $ (0.49)
Discontinued operations.................... 0.13 -- 0.01 0.02 -- -- 0.09
-------- ------- ------- -------- -------- -------- --------
Net earnings (loss) per share................ $ (1.02) $ (0.19) $ 0.03 $ (0.08) $ (0.20) $ (0.41) $ (0.40)
Weighted average equivalent shares
outstanding................................ 22,568 20,301 21,124 17,135 11,344 23,411 22,599
</TABLE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------- September 30,
1996 1995 1994 1993 1992 1997
-------- -------- -------- -------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total current assets......... $ 10,655 $ 26,009 $ 18,844 $ 23,102 $ 9,004 $ 6,209
Total assets................. 28,504 41,221 31,239 27,240 10,171 20,556
Total current liabilities.... 12,775 6,541 4,958 2,933 2,554 12,047
Total liabilities............ 18,282 7,770 5,782 3,587 2,379 16,212
Accumulated deficit.......... (46,139) (23,187) (19,239) (19,946) (18,645) (55,848)
Shareholders' equity......... 10,222 33,451 25,457 23,653 7,432 4,344
</TABLE>
11
<PAGE>
PLAN OF DISTRIBUTION
The Settlement Warrants are being offered and distributed in an offering
exempt from registration under the Securities Act pursuant to Section 3(a)(10)
thereof, in settlement of a class-action lawsuit (the "Action"). The Action,
originally filed by various shareholders of the Company in June 1993 in the
United States District Court for the Southern District of California (San Diego)
(the "Court"), was a consolidation of four lawsuits seeking class action status
to recover damages for a drop in the market price of the Company's Common Stock
following an announcement that an anticipated agreement under which the Company
would sell certain equipment and services to an arm of the Mexican Government
may be put out for bid. While the Company denies any wrongdoing or liability,
it agreed to the settlement in order to avoid substantial expenses and the
inconvenience and distraction of burdensome and protracted litigation. The
settlement was entered into by the parties on June 18, 1996, and approved by the
Court, after a hearing, by order dated and entered on September 23, 1996.
Pursuant to the settlement, the Company agreed to establish a settlement
fund consisting of $400,000 in cash, plus the Settlement Warrants to purchase an
aggregate of 565,000 shares of the Company's Common Stock. For a description of
the terms of the Settlement Warrants, see "Description of Securities --
Settlement Warrants." Claimants submitting claims to the administrator
administering the settlement which are timely filed and satisfactorily
demonstrate proof of loss are considered approved claimants under the terms of
the settlement. Approved claimants are entitled to participate in a distribution
of the settlement fund (which includes the Settlement Warrants) in proportion to
their recognized loss. The Company anticipates that there will be approximately
1,400 initial holders of record of the Settlement Warrants immediately upon
their issuance.
The exercise price and other terms of the Settlement Warrants were
determined as a result of settlement negotiations among the Company and its
counsel in its Action and representatives of the plaintiffs in the Action. The
exercise price does not necessarily bear any relationship to the financial
condition, results of operations, or business or financial prospects of the
Company, or any other recognized investment criteria, and should not be
considered an indication of the actual value of the Company's Common Stock.
The Company anticipates that the holders of the Settlement Warrants may
sell the shares of Common Stock issuable upon exercise of such Settlement
Warrants directly, or through brokers, in negotiated transactions or in one or
more transactions on the AMEX, or otherwise, at prices prevailing at the time of
sale.
Certain costs, expenses and fees in connection with the registration of the
shares of Common Stock issuable upon exercise of the Settlement Warrants are
being borne by the Company.
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 are a series of 5,000,000 shares of Series
A Convertible Preferred Stock (the "Series A Preferred Stock") and a series of
85,000 shares of Series B Convertible Preferred Stock (the "Series B Preferred
Stock").
COMMON STOCK
On December 18, 1997, there were approximately 23,672,000 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 Series B Preferred
Stock, and may be subject to the rights of the holders of such
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<PAGE>
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.
SERIES A PREFERRED STOCK
On December 18, 1997, there were 161,112 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 currently is
convertible into approximately .2908 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 antidilution provisions. The holders of the Series A
Preferred Stock do not have any voting, preemptive, subscription or redemption
rights.
SERIES B PREFERRED STOCK
On December 18, 1997, there also were outstanding 70,000 shares of Series
B Preferred Stock. The Series B Preferred Stock bears a cumulative annual
dividend of $4 per share, payable in quarterly installments of $1 per share on
the last day of January, April, July and October of each year, commencing
January 31, 1998. Any holder of Series B Preferred Stock is entitled to convert
25% of the Series B Preferred Stock owned by the holder into shares of Common
Stock at any time on or after the earlier of (i) February 28, 1998 and (ii) the
effective date of the Registration Statement filed with the Commission on
November 20, 1997 covering the shares of Common Stock issuable upon conversion
(the "Initial Conversion Date"). An additional 25% of the Series B Preferred
Stock owned by a holder will become convertible on each of the dates 60, 90 and
120 days, respectively, following the Initial Conversion Date. Notwithstanding
the foregoing, no holder will be entitled to convert Series B Preferred Stock to
the extent that the shares of Common Stock issuable upon such conversion would
cause the aggregate shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.9% of the shares of Common Stock outstanding
following such conversion. Any outstanding shares of the Series B Preferred
Stock not converted by October 31, 2000 will automatically be converted as of
such date.
The number of shares of Common Stock issuable upon conversion of each share
of Series B Preferred Stock will be determined by dividing the sum of $100 plus
any accrued and unpaid dividends on the Series B Preferred Stock by the
conversion price then in effect. The conversion price on any conversion date
will be equal to the lesser of (a) 140% of the average of the closing bid prices
of the Common Stock on the AMEX on the five trading days immediately preceding
the Initial Conversion Date, but in no event more than $3.50 per share, (the
"conversion ceiling") and (b) 85% of the lowest average of the closing bid
prices of the Common Stock on any three trading days during the 20 trading days
immediately preceding the conversion date. The actual number of shares of Common
Stock into which the Series B Preferred Stock shall be converted will depend on
the conversion price and conversion rate in effect on the relevant conversion
date. See "Risk Factors--Potential Dilution." The number of shares issuable on
conversion of the Series B Preferred Stock also is subject to adjustment in the
event of a stock split, stock dividend or similar transaction involving the
Common Stock. The Company will not be required to issue shares of Common Stock
on any conversion to the extent that it is prohibited from doing so by
applicable law or the rules or regulations of the AMEX or other exchange on
which the Common Stock is then traded. In such event, the holders may elect to
have the Company either (i) redeem the Series B Preferred Stock for cash at the
redemption price described below, (ii) rescind the conversion and retain the
Series B Preferred Stock, subject to the future right to convert on the terms
described herein or (iii) issue shares of Common Stock at a conversion price
equal to the average of the closing bid prices of the Common Stock for the five
trading days immediately preceding the date on which the Company receives the
holders election.
In the event of liquidation, dissolution and winding up of the Company,
each holder of Series B Preferred Stock will be entitled to receive an amount
equal to $100, plus any accrued and unpaid dividends, per share of Series B
Preferred Stock, before any payment shall be made with respect to outstanding
shares of the Common Stock. As long as at least one-third of the currently
outstanding Series B Preferred Stock remains outstanding, the Company will be
prohibited from authorizing or issuing additional stock that ranks senior to the
Series B Preferred Stock as to dividends and distributions or payments on
liquidation, dissolution and winding up.
Except as described above, the holders of the Series B Preferred Stock do
not have any voting, preemptive, subscription or redemption rights.
The Company's sale of Series B Preferred Stock was not registered under
the Securities Act in reliance on exemptions from registration for offers and
sales not involving a public offering. As a result, neither the Series B
Preferred Stock nor the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock may be resold or transferred unless subsequently
registered under the Securities Act or an exemption from such registration is
available. In this connection, on November 20, 1997, the Company filed on behalf
of the Series B Preferred Stock holders a Registration Statement under the
Securities Act covering the possible future resale of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock.
If the foregoing Registration Statement has not been declared effective on
or before February 28, 1998, the Company will be required to pay the holders of
the Series B Preferred Stock, in cash, certain amounts until the Registration
Statement is declared effective, as follows: (i) for the 30-day period beginning
March 1, 1998, an amount equal to 1% of the quotient of $100 plus any accrued
but unpaid dividends, divided by the conversion price, for each share of Series
B Preferred Stock; and (ii) for each consecutive 30-day period beginning April
1, 1998, an amount equal to 2% of the quotient of $100 plus any accrued and
unpaid dividends, divided by the conversion price, for each share of Series B
Preferred Stock. Moreover, in the event the Registration Statement shall not
have been declared effective on or before May 29, 1998, the Company will be
required to redeem the Series B Preferred Stock for cash at a redemption price
per share of Series B Preferred Stock equal to the product of the number of
shares of Common Stock then issuable upon conversion of a share of Series B
Preferred Stock multiplied by the average of the closing bid prices of the
Common Stock on the five trading days preceding May 29, 1998. There can be no
assurance as to whether or when such Registration Statement will be declared
effective.
The terms of the sale of Series B Preferred Stock were determined by arm's-
length negotiations between the Company and the purchasers of the Series B
Preferred Stock and their representatives. The purchasers and the
representatives are not affiliated with the Company or any of its officers,
directors or affiliates.
Additional shares of Preferred Stock may be issued without securityholder
approval, subject to the rights of any holders of outstanding Series B Preferred
Stock. 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
Preferred Stock.
SETTLEMENT WARRANTS
The Settlement Warrants will be issued in registered form, and will be
subject to the terms and conditions of a Warrant Agreement between the Company
and American Stock Transfer & Trust Company, as Warrant Agent. The following
description of the Settlement Warrants is not complete and is qualified in all
respects by the Warrant Agreement, the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
Each Settlement Warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price equal to $__________, which equalled
the average closing price of the Company's Common Stock as reported on the AMEX
during the 20 trading days immediately preceding the date the Settlement
Warrants were mailed to authorized claimants. The Settlement Warrants will be
exercisable for a period of three years from the date of issuance, and during
the period from the second anniversary of the date of issuance until the
expiration of the Settlement Warrants, the holders will have the right (but will
not be obligated) to require the Company to redeem the Settlement Warrants for
cash at a price of $3.25 per Settlement Warrant unless the Settlement Warrants
have previously been exercised. The redemption right will expire, however, if
at any time during the exercise period the closing price per share of Common
Stock as reported on the AMEX exceeds the exercise price by more than $3.25 per
share for any seven trading days, whether or not consecutive. In the event the
Company is required to redeem all or a portion of the Settlement Warrants, there
can be no assurance that the Company will have available funds sufficient to pay
for the redemption price of the Settlement Warrants so tendered for redemption.
The cost to the Company to redeem all of the Settlement Warrants would be
$1,836,250. Upon expiration of the redemption right, NTN will have no further
obligation to repurchase the Settlement Warrants. On and after the expiration
date, the Settlement Warrants become wholly void and of no value.
The Settlement Warrants contain antidilution provisions to avoid dilution
of the equity interest represented by the underlying shares upon the occurrence
of certain events such as share dividends or splits, reorganizations,
consolidations, mergers or like occurrences.
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<PAGE>
Pursuant to the settlement of the Action, the Company has agreed to file
the Registration Statement of which this Prospectus is a part in order to
register the issuance of the shares of Common Stock underlying the Settlement
Warrants. The Company will use its best efforts to keep the Registration
Statement and any registration or qualification required under state securities
laws with respect to the shares of Common Stock offered hereby effective during
the term of the Settlement Warrants. The Settlement Warrants may not be
exercised during any period in which any such registration or qualification is
required but is not in effect.
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 divide the Board of Directors into three
classes, each class to be nearly equal in number as possible, each class serving
staggered three-year terms. Approximately two-thirds of the 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.
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
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<PAGE>
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
Restricted Stock
On December 18, 1997, there were approximately 23,672,000 shares of Common
Stock outstanding. Approximately 5,820,400 of such shares of Common Stock 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 effective. 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 Securities 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 one year. 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 two years without regard to the volume,
manner of sale or notice requirements.
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.
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<PAGE>
Options and Warrants
As of December 18, 1997, there were 6,051,225 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 $1.88 to $6.50 per
share, of which options to purchase 3,653,900 shares were exercisable as of that
date.
As of December 18, 1997, the Company also had outstanding warrants,
including the Settlement Warrants, to purchase an aggregate of 4,693,750 shares
of Common Stock at exercise prices ranging from $2.00 to $8.00 per share, of
which warrants to purchase approximately 3,438,750 shares were exercisable as of
that date. Concurrently with the registration of the shares of Common Stock
offered hereby, the Company is registering for resale on behalf of certain
selling shareholders an aggregate of 627,500 shares of Common Stock which are
issuable upon exercise of outstanding warrants of the Company. The Company also
currently has effective registration statements covering the resale of
substantially all of the shares issuable upon exercise of the Company's other
outstanding warrants.
The foregoing options and warrants could adversely affect the Company's
ability to obtain future financing and engage in certain mergers and similar
transactions, since such options and warrants are likely to be exercised into
shares of Common Stock, if at all, only at a time when the exercise price is
less than the market price of the Common Stock. For the life of such options and
warrants, 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 and warrants can be expected to exercise
them 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 and warrants. 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.
As described under "Recent Developments," the Company has agreed to issue
an aggregate of 664,436 restricted shares of Common Stock in exchange for the
surrender and cancellation of currently outstanding options and warrants to
purchase an aggregate of 1,923,250 shares of Common Stock at exercise prices
ranging from $2.00 to $5.25 per share. The Company may in the future enter into
similar aggregate to issue shares of Common Stock in exchange for cancellation
of other outstanding options and warrants.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Common Stock and Warrant Agent for the
Settlement Warrants 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 of Common Stock offered
hereby, when issued and paid for as provided in the Settlement Warrants, will be
duly and validly issued, fully paid and nonassessable. Such counsel owns
3,171 shares of Common Stock as of the date of this Prospectus with a current
value of $3,369, based on the last sale price of the Common Stock as
reported on the AMEX on December 18, 1997.
EXPERTS
The financial statements and schedules of NTN Communications, Inc. as of
December 31, 1996, and for each of the years in the three-year period ended
December 31, 1996, 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, 1996, financial
statements contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has a net working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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================================================================================
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. 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................ 3
Risk Factors........................... 4
Recent Developments....................
Use of Proceeds........................ 9
Price Range of Common Stock
and Dividend Policy................... 10
Selected Consolidated Financial Data... 11
Plan of Distribution................... 12
Description of Securities.............. 12
Legal Matters.......................... 16
Experts................................ 16
</TABLE>
================================================================================
================================================================================
COMMON STOCK
NTN COMMUNICATIONS, INC.
565,000 SHARES
____________
PROSPECTUS
____________
_____________, 1997
================================================================================
<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 distributions
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 1,519
Printing expenses................................................. 15,000
Accounting fees and expenses...................................... 20,000
Legal fees and expenses........................................... 55,000
Fees and expenses for qualification under state securities laws... 2,000
Miscellaneous..................................................... 6,481
--------
Total............................................................ $100,000
========
</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 Company has entered into indemnity agreements with certain of its
outside directors. Pursuant to such indemnity agreements, the Company has
agreed 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 Warrant Agreement between NTN Communications, Inc. and American
Stock Transfer & Trust Company, including Specimen Warrant Certificate*
4.3 Specimen form of Class WCA Warrants*
4.4 Securities Purchase Agreement, dated as of October 31, 1997, between NTN
Communications, Inc. and the investors named therein (previously filed as
an exhibit to the Company's Current Report on Form 8-K filed with the
Commission on November 7, 1997 and incorporated herein by reference).
4.5 Certificate of Designations, Rights and Preferences of the Series B
Preferred Stock (previously filed as an exhibit to the Company's Current
Report on Form 8-K filed with the Commission on November 7, 1997 and
incorporated herein by reference).
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*
- ------------------------------------
* Previously filed.
** Included herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, 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; and
(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
II-2
<PAGE>
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.
(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.
(d) The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
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-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 Amendment No. 4 to
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 December 19, 1997.
NTN COMMUNICATIONS, INC.
By: /s/ GERALD SOKOL, JR.
-------------------------------
Gerald Sokol, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Amendment No. 4 to
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ EDWARD C. FRAZIER* Chairman of the Board December 19, 1997
- -----------------------------------
Edward C. Frazier
/s/ GERALD SOKOL, JR. President, Chief Executive December 19, 1997
- ----------------------------------- Officer and Chief Financial
Gerald Sokol, Jr. Officer (Principal Financial
and Accounting Officer)
/s/ ROBERT M. BENNET* Director December 19, 1997
- -----------------------------------
Robert M. Bennett
/s/ DONALD C. KLOSTERMAN* Director December 19, 1997
- -----------------------------------
Donald C. Klosterman
</TABLE>
- -----------
* By Gerald Sokol, Jr. as Attorney-in-Fact.
II-4
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
NTN Communications, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the references to our firm under the headings "Selected Consolidated Financial
Data" and "Experts" in the Prospectus.
Our report dated April 10, 1997, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and has a
net working capital deficiency that raise substantial doubt about its ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
San Diego, California
December 19, 1997
II-5
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
------- ----------- ----------
<S> <C> <C>
4.1 Specimen Common Stock Certificate (previously filed as an exhibit to the N/A
Company's Registration Statement on Form 8-A, File No. 0-19383, and
incorporated herein by reference)
4.2 Form of Warrant Agreement between NTN Communications, Inc. and N/A
American Stock Transfer & Trust Company, including Specimen Warrant
Certificate*
4.3 Specimen form of Class WCA Warrants*
4.4 Securities Purchase Agreement, dated as of October 31, 1997, between NTN N/A
Communications, Inc. and the investors named therein (previously filed as
an exhibit to the Company's Current Report on Form 8-K filed with the
Commission on November 7, 1997 and incorporated herein by reference).
4.5 Certificate of Designations, Rights and Preferences of the Series B N/A
Preferred Stock (previously filed as an exhibit to the Company's Current
Report on Form 8-K filed with the Commission on November 7, 1997 and
incorporated herein by reference).
5 Opinion of Troy & Gould Professional Corporation**
23.1 Consent of Troy & Gould Professional Corporation (included in Exhibit 5)
23.2 Consent of Independent Auditors (included on page II-5 hereof)**
24 Power of Attorney* N/A
- --------------------------
</TABLE>
* Previously filed.
** Included herewith.
<PAGE>
EXHIBIT 5
---------
[Letterhead of Troy & Gould]
December 19, 1997
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"), as
amended by Amendments Nos. 1, 2, 3, and 4 thereto (as so amended, the
"Registration Statement"), which has been prepared for filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to an aggregate of 565,000 shares of Common Stock of the
Company (the "Shares") issuable upon exercise of the warrants described therein.
Capitalized terms not defined herein shall have the definitions ascribed to them
in the Registration Statement.
We are familiar with the corporate proceedings heretofore taken or proposed
to be taken by the Company in connection with the issuance 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.
Based upon the foregoing, it is our opinion that the Shares have been duly
and validly authorized and, when issued and paid for as provided in the warrants
relating thereto, will be duly and validly issued, fully paid and nonassessable.
We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement and the Prospectuses made part thereof, 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 Act, 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 the Act.
Very truly yours,
/s/ TROY & GOULD
Professional Corporation
