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PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-40625
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PROSPECTUS
8,820,000 Shares
NTN COMMUNICATIONS, INC.
Common Stock
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This Prospectus relates to the offer for resale from time to time of up to
8,820,000 shares of common stock, $.005 par value (the "Common Stock"), of NTN
Communications, Inc. d/b/a The NTN Network ("NTN"), issued or issuable to Stark
International and Shepherd International Investments, Ltd. (collectively, the
"Investors"), or their assigns, as holders (the "Selling Stockholders") of
Series B Convertible Preferred Stock, $.005 par value, of the Company (the
"Series B Preferred Stock"). See "Selling Stockholders" and "Description of
Capital Stock -- Series B Preferred Stock."
All of the shares offered hereby will be offered and sold by the Selling
Stockholders. Although the Company received proceeds from the sale of the Series
B Preferred Stock in the transaction described herein, the Company will not
receive any proceeds from the sale of the shares of Common Stock offered hereby.
The shares of Common Stock offered by the Selling Stockholders hereby
include such presently indeterminate number of shares of Common Stock as may be
issued on conversion of the Series B Preferred Stock pursuant to the provisions
thereof regarding determination of the applicable conversion price. The Company
has agreed to register initially a number of shares of Common Stock equal to two
times the number of shares of Common Stock that would have been issued if all
the Preferred Stock had been converted at the conversion price in effect at the
time of the filing of the Registration Statement of which this Prospectus is a
part. By way of example, if all shares of Series B Preferred Stock had been
converted on January 13, 1998, the Company would have been obligated to issue
8,110,900 shares of Common Stock in respect thereto. The foregoing estimate is
for purposes of illustration only, and the actual number of shares of Common
Stock issued or issuable upon conversion of the Series B Preferred Stock depends
on the conversion price and conversion rate in effect at the time of conversion,
which depend upon certain factors which cannot be predicted by the Company,
including, among others, the future market price of the Common Stock and
possible future anti-dilution adjustments. The number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock also is limited in
certain respects by the terms of the Series B Preferred Stock. As a result, the
actual number of shares of Common Stock affected hereby could be materially less
or more than the estimated number of shares noted as being offered by the
Selling Stockholders. The number of shares noted as being offered by the Selling
Stockholders is also subject to increase pursuant to Rule 416 under the
Securities Act of 1933, as amended (the "Securities Act"), in the event of a
stock split, stock dividend or similar transaction involving the Common Stock.
See "Selling Stockholders."
The Common Stock is traded on the AMEX under the symbol "NTN." As of
January 13, 1998, 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."
The shares of Common Stock may be offered from time to time by the Selling
Stockholders to or through brokers, dealers or other agents or directly to other
purchasers in one or more market transactions, in one or more private
transactions or in a combination of such methods of sale, at prices then
prevailing, at prices related to such prices, or at negotiated prices. In
effecting sales, brokers, dealers or other agents engaged by the Selling
Stockholders may arrange for other brokers, dealers or agents to participate.
Such brokers, dealers or agents may receive commissions, discounts or
concessions from the Selling Stockholders in amounts to be negotiated. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act, and any such
commissions, discounts or concessions may be deemed to be underwriting discounts
or commissions under the Securities Act. See "Plan of Distribution."
Certain costs, expenses and fees in connection with the registration of the
shares offered hereby will be borne by the Company. Commissions, discounts and
transfer taxes, if any, attributable to the sales of the shares offered hereby
will be borne by the Selling Stockholders.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATERIAL RISKS ASSOCIATED WITH AN
INVESTMENT IN THE SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is February 12, 1998
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THE COMPANY
NTN Communications, Inc. d/b/a The NTN Network ("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
QB-1(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 (The 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
subsidiaries 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 filed with the AMEX may be inspected at the AMEX's offices at 86
Trinity Place, New York, New York 10006-1881.
Additional information regarding the Company and the shares 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,
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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,
June 30, 1997, and September 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 Reports 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.
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RISK FACTORS
The Shares offered hereby are speculative in nature and involve a high degree
of risk. The following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Shares.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding the Company's financing needs, business plans and
prospects, expectations and intentions. Forward-looking statements necessarily
involve risks and uncertainties, and 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 below and elsewhere in this
Prospectus. The following risk factors and other 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, and 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 statement 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
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 (the "Private
Placement") of $7,000,000 of Series B Preferred Stock, the Shares underlying
which are being offered by means of this Prospectus. 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
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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 SETTLEMENTS AND PROCEEDINGS
For a description of the Company's recent settlements of two prior class-
action lawsuits, see "Recent Developments -- Recent Settlements of Class-Action
Lawsuits."
In May 1997, a shareholder derivative complaint 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, and without any
payment from the Company. 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 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
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all others similarly situated vs. NTN Communications, Inc., Patrick J. Downs,
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Daniel C. Downs, Donald C. Klosterman, Ronald E. Hogan, Gerald P. McLaughlin and
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KPMG Peat Marwick LLP, filed in the United States District Court for the
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Southern District of California. The complaint seeks class-action 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. The plaintiffs
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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") in early 1997, 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 receivable 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, a class action complaint was filed in the United States
District Court for the Southern District of California by Yehuda Lefkowitz, on
behalf of himself and others similarly situated against the Company and Patrick
J. Downs and Daniel C. Downs, former executives of the Company. The complaint
alleged that defendants made materially false and misleading statements
concerning the Company's business, operations and products. The complaint was
voluntarily dismissed by the plaintiff, without prejudice, on September 3, 1997
without any payment by the Company. 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 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
settled or decided in a manner favorable to the Company, which generally is not
insured against the claims made. During the pendency of such claims, the Company
will continue to incur the costs of defense of same. If the shareholder
litigation 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
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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
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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.
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) expires in 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. 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.
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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
QB-1(R), 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 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
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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 a 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
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 intended to discourage attempts to acquire control of the Company
other than by means of a transaction negotiated with the Company's Board of
Directors, as well as to make it more difficult for individual securityholders
or a group of securityholders to elect 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. The Board of Directors believes, however, that these provisions
are in the best interests of the Company and its securityholders because such
provisions may encourage potential acquirors to negotiate directly with the
Board of Directors, which is in the best position to act on behalf of all
securityholders. The Certificate of Incorporation provides that the affirmative
vote of the holders of at least 80% of the total voting power of all outstanding
securities of the Company then entitled to vote generally in the election of
directors, voting together as a single class, is required to amend certain
provisions of the Certificate of Incorporation, including among others, those
provisions relating to the number, election and term of directors; the removal
of directors and the filing of vacancies; and the supermajority voting
requirements of the Certificate of Incorporation. These voting requirements will
have the effect of making more difficult any amendments, even if a majority of
the Company's securityholders believes that such amendment would be in their
best interest. See "Description of Capital Stock -- Anti-Takeover Provisions."
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 the operation and expansion of the Company's business. The terms of the
Series B Preferred Stock restrict the Company's payment of dividends on Common
Stock. See "Price Range of Common Stock and Dividend Policy."
8.
<PAGE>
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
As of January 13, 1998, there were approximately 4,988,225 shares of
Common Stock reserved for issuance upon the exercise of outstanding stock
options of the Company at exercise prices ranging from $1.88 to $6.50 per share,
of which options to purchase approximately 2,657,567 shares were exercisable as
of that date.
As of January 13, 1998, the Company also had outstanding warrants,
including for this purpose the Settlement Warrants described herein, to purchase
an aggregate of approximately 3,260,200 shares of Common Stock at exercise
prices ranging from $0.96 to $8.00 per share, of which warrants to purchase
approximately 2,216,000 shares were exercisable as of that date. Substantially
all of the shares underlying the Company's 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 recent
issuance of shares of Common Stock in exchange for the surrender and
cancellation of certain previously outstanding options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 6,559,000 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
EXCHANGE OF CERTAIN OUTSTANDING OPTIONS AND WARRANTS
The Company recently issued an aggregate of 739,436 shares of Common Stock
in exchange for the surrender and cancellation of certain previously outstanding
options and warrants to purchase an aggregate of 2,566,550 shares of Common
Stock at exercise prices ranging from $2.00 to $5.25 per share. All such shares
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
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.
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.
Under the Resignation Agreements, 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 Alan P.
Magerman, directors for 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
10.
<PAGE>
150,000 shares of Common Stock at an exercise price of $3.88 per share. 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 consideration of entering into the Consulting Agreements, NTN 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.
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 laid off a significant number of employees in fiscal 1997 and may continue
trimming its workforce to reduce costs.
RECENT SETTLEMENTS OF CLASS-ACTION LAWSUITS
On or about the date of this Prospectus, the Company proposes to distribute
Redeemable Common Stock Purchase Warrants (the "Settlement Warrants") to
purchase 565,000 shares of Common Stock at a price of $0.96 per share. The
Settlement Warrants will be distributed in an offering exempt from registration
under the Securities Act pursuant to Section 3(a)(10) thereof, in settlement of
a prior class-action lawsuit against the Company and certain individual
defendants (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 has agreed to establish a
settlement fund consisting of $400,000 in cash, plus the Settlement Warrants.
For a description of the terms of the Settlement Warrants, see "Shares Eligible
for Future Sale -- Settlement Warrants." 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 the 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.
On April 18, 1995, a class action lawsuit was filed in United States
District Court entitled Lenora Isaacs, On behalf of Herself and All Others
------ -------------------------------------------
Similarly Situated vs. NTN Communications and Patrick J. Downs. The complaint
- ---------------------------------------------------------------
alleged 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 alleged that certain of the Company's insiders sold stock on information
not generally known to the public. Plaintiffs claimed to be entitled to damages
of between $8 million and $10 million. 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. The settlement, which was recently approved
by the Court in this matter, consists of $250,000 in cash with the remaining
$1,200,000 being payable in newly issued shares of the Company's Common Stock,
or in cash, at the Company's election. At present, the Company anticipates that
it will elect to issue shares of Common Stock for this purpose, which would be
valued at the market price of the Common Stock when the settlement is effected.
Based on the recent last sale price of the Common Stock shown on the cover page
of this Prospectus, the Company would be required to issue approximately
1,129,412 shares of Common Stock pursuant to the settlement, all of which would
be freely tradeable by the recipients immediately upon issuance. It will take
approximately one to three months to complete the claims administration process,
however, and the Company cannot predict the future market price of Common Stock
at such time. As a result, the actual number of shares to be issued by the
Company to effectuate the settlement may vary from this estimated number.
The Company's issuance of the Settlement Warrants and shares of Common
Stock pursuant to the settlements described above may adversely affect the
market price of the Common Stock.
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.
11.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Shares
offered hereby. The Company will bear the costs and expenses of this offering,
which are estimated at $70,000.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
There is no public market for the Series B Preferred Stock. 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>
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............................... 1 2 1/2
1998
- ----
First Quarter (through January 12, 1998)..... $0 15/16 $1 1/16
</TABLE>
For a recent closing price for the Common Stock as reported on the AMEX see
the cover page of this Prospectus. As of January 13, 1998, 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, Preferences and Rights 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.
12.
<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 elsewhere in this Prospectus. The selected data
should be read in conjunction with the consolidated financial statements for the
three-year period ended December 31, 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 the Company and reflect all adjustments which in the
opinion of management are necessary for a fair presentation of the Company's
financial position and results of operations for these periods. Certain data
for the five-year period ended December 31, 1996 and the nine months ended
September 30, 1996 have been reclassified to conform to the format used for the
nine months ended September 30, 1997. The results for the nine months ended
September 30, 1997 are not necessarily indicative of the results that can be
expected for the full fiscal year. The following data should be read in
conjunction with "Management's Discussions and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements and notes
thereto incorporated by reference in this Prospectus.
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 (loss), 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, net... 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>
13.
<PAGE>
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>
14.
<PAGE>
SELLING STOCKHOLDERS
All of the shares offered hereby were issued or are issuable by the Company
to the Selling Stockholders based on each such Selling Stockholder's ratable
share of the shares of Common Stock issued or issuable to the Selling
Stockholder upon the conversion of Series B Preferred Stock ("Registrable
Securities") as of the date the Registration Statement of which this Prospectus
is a part, becomes effective.
Pursuant to the terms of a Registration Rights Agreement between the
Company and the Selling Stockholders, the Company agreed to register the
Registrable Securities under the Securities Act and to keep such registration
effective until the earlier of: (i) the date as of which the Selling
Stockholders may sell all of the Registrable Securities, without restriction
pursuant to Rule 144(k) under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Selling Stockholders have sold all of the Registrable
Securities and (B) none of the Series B Preferred Stock is outstanding.
The following table sets forth certain information regarding the pro forma
beneficial ownership of the Company's Common Stock that would be held by the
Selling Stockholders if the Series B Preferred Stock had been converted in full
on January 13, 1998. To the knowledge of the Company, the Selling Stockholders
have sole voting and investment power with respect to their shares of Common
Stock. None of the Selling Stockholders is currently an affiliate of the
Company or has had a material relationship with the Company during the last
three years.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Beneficially Owned Number of Shares Beneficially Owned
Selling Stockholder Before Offering(1) Being Offered(2) After Offering
------------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
Stark International....................... 4,055,450 4,055,450 - 0-
Shepherd Investments International Ltd.... 4,055,450 4,055,450 - 0-
</TABLE>
_________________
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options, warrants and
convertible securities currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding, including for
purposes of computing the percentage ownership of the person holding such
option, warrant or convertible security, but not for purposes of computing
the percentage of any other holder. The number of shares shown in the table
is as of January 13, 1998, based on the number of shares of Common Stock
issuable to each Selling Stockholder, assuming the Series B Preferred Stock
were convertible in full on that date and that all the shares of Series B
Preferred Stock held by such Selling Stockholder on that date had been
converted at a price of $0.87 per share of Common Stock, which would have
been the conversion price of the Series B Preferred Stock in effect on
January 13, 1998.
(2) The shares of Common Stock offered hereby by the Selling Stockholders
include such presently indeterminate number of shares as may be issued on
conversion of the Series B Preferred Stock pursuant to the provisions
thereof regarding determination of the applicable conversion price. The
Company has agreed to register initially a number of shares of Common Stock
equal to two times the number of shares of Common Stock that would have
been issued if all the Series B Preferred Stock had been converted at the
conversion price in effect at the time of the filing of the Registration
Statement of which this Prospectus is a part. By way of example, if all of
the shares of Series B Preferred Stock held by the Selling Stockholders had
been converted on January 13, 1998, the Company would have been obligated
to issue an aggregate of 8,110,900 shares of Common Stock in respect
thereto. The foregoing estimate is for purposes of illustration only, and
the actual number of shares of Common Stock issued or issuable upon
conversion of the Series B Preferred Stock depends on the conversion price
and conversion rate in effect at the time of conversion, which depend upon
certain factors which cannot be predicted by the Company, including, among
others, the future market price of the Common Stock and possible future
anti-dilution adjustments. By its terms, the Series B Preferred Stock is
convertible by the holders thereof only to the extent that the number of
shares of Common Stock issuable on conversion, together with the number of
shares of Common Stock then held by such holder and its affiliates (not
including shares underlying unconverted shares of Series B Preferred
Stock) would not exceed 4.9% of the then outstanding Common Stock as
determined in accordance with Section 13(d) of the Exchange Act. The
number of shares noted as being offered by the Selling Stockholders is also
subject to increase pursuant to Rule 416 under the Securities Act in the
event of a stock split, stock dividend or similar transaction involving the
Common Stock. In addition, 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 a redemption price per share 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 immediately preceding the redemption election, (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.
15.
<PAGE>
For all of the foregoing reasons, the number of shares of Common Stock set
forth in the above table for such Selling Stockholder could be materially
less or more than the actual number of shares of Common Stock that such
Selling Stockholder could own beneficially at any given time through its
ownership of the Series B Preferred Stock.
PLAN OF DISTRIBUTION
The purpose of this Prospectus is to permit each Selling Stockholder, if it
desires, to dispose of some or all of their shares at such times and at such
prices as each my choose. Whether sales of shares will be made, and the timing
and amount of any sale made, is within the sole discretion of each Selling
Stockholder.
The Common Stock covered by this Prospectus may be offered for sale from
time to time by the Selling Stockholders to or through underwriters or directly
to other purchasers or through agents in one or more market transactions, in one
or more private transactions or in a combination of such methods of sale, at
prices then prevailing, at prices related to such prices or at negotiated
prices. Such methods of distribution may include, without limitation (a) a
block trade in which the broker-dealer so engaged will attempt to sell the
Common Stock as agent but may position and resell a portion of the block as a
principal to facilitate the transaction; (b) purchases by a broker-dealer as a
principal and resale by such broker-dealer for its own account pursuant to the
Registration Statement of which this Prospectus is a part; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between sellers and purchasers without a
broker or dealer. This Prospectus may be amended and supplemented from time to
time to describe a specific plan of distribution.
In connection with distributions of the Common Stock or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions, broker-
dealers or other financial institutions may engage in short sales of Common
Stock, in the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or financial institution of the shares of
Common Stock offered hereby, which such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or amended
to reflect such transaction). The Selling Stockholders may also pledge the
shares offered hereby to a broker-dealer or other financial institution and,
upon a default, such broker-dealer or other financial institution may effect
sales of the pledged shares pursuant to this Prospectus (as supplemented or
amended to reflect such transaction). In addition, any Common Stock covered by
this Prospectus that so qualifies may be sold under Rule 144 under the
Securities Act.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholders in amounts
to be negotiated in connection with sales pursuant thereto. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, in connection with such
sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
Certain costs, expenses and fees in connection with the registration of the
shares of Common Stock offered hereby will be borne by the Company.
Commissions, discounts and transfer taxes, if any, attributable to the sales of
the Common Stock will be borne by the Selling Stockholders. The Selling
Stockholders have agreed or may agree to indemnify the Company or any
underwriter, as the case may be, and any of their respective affiliates,
directors, officers and controlling persons, against certain liabilities in
connection with
16.
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the offering of the Common Stock pursuant to this Registration Statement,
including liabilities arising under the Securities Act. In addition, the
Company has agreed to indemnify the Selling Stockholders or any underwriter, as
the case may be, and any of their respective affiliates, directors, officers and
controlling persons, against certain liabilities in connection with the offering
of the Common Stock pursuant to this Prospectus, including liabilities arising
under the Securities Act.
The Company has informed the Selling Stockholders that the anti-
manipulation provisions of Regulation M under the Exchange Act may apply to
their sales of the shares offered hereby and has furnished each of the Selling
Stockholders with a copy of these rules. The Company also has advised the
Selling Stockholders of the requirement for delivery of this Prospectus in
connection with any public sale of the shares.
DESCRIPTION OF CAPITAL STOCK
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 designed 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
As of January 13, 1998, there were approximately 24,416,000 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
understanding 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 outstanding Preferred Stock and Series B
Preferred Stock, and may be subject to the rights of the holders of such other
Preferred Stock as the Company may issue in the future, although the Company has
no plans at this time to issue additional Preferred Stock.
SERIES A PREFERRED STOCK
As of January 13, 1998, 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.
17.
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SERIES B PREFERRED STOCK
On October 31, 1997, the Company sold and issued an aggregate of 70,000
shares of Series B Preferred Stock at a purchase price of $100 per share to the
Investors, all of which were outstanding on November 17, 1997. 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
of which this Prospectus is a part (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 conversion price and conversion
ceiling are subject to adjustment in certain events, including stock dividends
or subdivisions or reclassifications of the Common Stock. 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. The number of shares issuable on conversion of
the Series B Preferred Stock 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 a redemption price per share
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 immediately
preceding the redemption election, (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.
Additional shares of authorized Preferred Stock may be issued without
stockholder 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 holders of
Common Stock. Any Preferred Stock to be issued could rank prior to the Common
Stock with respect to dividend rights and rights on liquidation.
18.
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The Board of Directors, without approval of the holders of common stock, 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.
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 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 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,
19.
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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.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
20.
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SHARES ELIGIBLE FOR FUTURE SALE
RESTRICTED STOCK
As of January 13, 1998, there were approximately 24,416,000 shares of
Common Stock outstanding. Approximately 6,559,000 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.
OPTIONS AND WARRANTS
As of January 13, 1998, there were approximately 4,988,225 shares of
Common Stock reserved for issuance upon the exercise of outstanding stock
options of the Company at exercise prices ranging from $1.88 to $6.50 per share,
of which options to purchase approximately 2,657,567 shares were exercisable as
of that date.
As of January 13, 1998, the Company also had outstanding warrants,
including for this purpose the Settlement Warrants described below, to purchase
an aggregate of approximately 3,260,200 shares of Common Stock at exercise
prices ranging from $0.96 to $8.00 per share, of which warrants to purchase
approximately 2,216,000 shares were exercisable as of that date. The Company
currently has effective registration statements covering the resale of
substantially all of the shares issuable upon exercise of the Company's
outstanding warrants.
SETTLEMENT WARRANTS
The Settlement Warrants, when issued, will be in registered form, and are
subject to the terms and conditions of a Warrant Agreement between the Company
and American Stock Transfer & Trust Company, as Warrant Agent.
Each Settlement Warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price of $0.96 per share. 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 are not 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 shall have previously been exercised. The redemption
right will expire, however, if at any time during the exercise
21.
<PAGE>
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. 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 will 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.
Pursuant to the settlement of the Action, the Company filed a Registration
Statement under the Securities Act 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.
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 recently issued
an aggregate of 739,436 restricted shares of Common Stock in exchange for the
surrender and cancellation of certain previously outstanding options and
warrants to purchase an aggregate of 2,566,550 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 agreements to issue shares of Common Stock in exchange
for cancellation of other outstanding options and warrants.
LEGAL MATTERS
Troy & Gould Professional Corporation, Los Angeles, California, has
rendered an opinion to the effect that the shares of Common Stock offered hereby
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 value
of approximately $3,369, based on the last sale price of the Common Stock as
reported on the AMEX on January 13, 1998.
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.
22.
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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 OR ANY SELLING STOCKHOLDER. 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>
The Company........................................................... 1
Available Information................................................. 1
Incorporation of Certain
Documents by Reference............................................. 2
Risk Factors.......................................................... 3
Recent Developments................................................... 10
Use of Proceeds....................................................... 12
Price Range of Common Stock
and Dividend Policy................................................ 12
Selling Stockholders.................................................. 15
Plan of Distribution.................................................. 16
Description of Capital Stock.......................................... 17
Shares Eligible for Future Sale....................................... 21
Legal Matters......................................................... 22
Experts............................................................... 22
</TABLE>
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COMMON STOCK
NTN COMMUNICATIONS, INC.
8,820,000 SHARES
____________
PROSPECTUS
____________
February 12, 1998
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