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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999
REGISTRATION NO. 333-80143
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 31-1103425
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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THE CAMPUS
5966 LA PLACE COURT
CARLSBAD, CALIFORNIA 92008
(760) 438-7400
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
STANLEY B. KINSEY, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NTN COMMUNICATIONS, INC.
THE CAMPUS
5966 LA PLACE COURT
CARLSBAD, CALIFORNIA 92008
(760) 438-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
DALE E. SHORT, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION
1801 CENTURY PARK EAST, SUITE 1600
LOS ANGELES, CALIFORNIA 90067
(310) 553-4441
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE FEE(1)
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Common Stock, $.005 par value.......... 789,323 shares $0.7815 $616,856 $172
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(1) Estimated solely for the purpose of calculating the registration fee. Based,
pursuant to Rule 457(c), on the average of the high and low sale prices of
Registrant's Common Stock as reported on the American Stock Exchange on June
3, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
789,323 SHARES
NTN COMMUNICATIONS, INC.
COMMON STOCK
We develop and produce individual and multi-player interactive programs for
distribution to a variety of media platforms. The securityholders named herein
or their assigns are offering for resale from time to time up to 789,323 shares
of our common stock which they own or have the right to acquire.
All of the shares are being offered by the selling securityholders. Of the
shares being offered, 536,000 are issuable upon the exercise of warrants held by
two of the selling securityholders. We will receive the exercise price of the
warrants to the extent that they are exercised. We will not receive any other
proceeds in connection with the sale of the shares by the selling
securityholders.
The common stock is traded on the American Stock Exchange under the symbol
"NTN." On June 3, 1999 the last sale price for the common stock as reported on
the American Stock Exchange was $0.75.
The selling securityholders may offer the shares of common stock from
time-to-time to or through brokers, dealers or other agents, or directly to
other purchasers, in one or more market transactions or private transactions at
prevailing market or at negotiated prices. Brokers, dealers or other agents
engaged by the selling securityholders may arrange for other brokers, dealers or
agents to participate in sales of the shares and may receive commissions,
discounts or concessions from the selling securityholders in amounts to be
negotiated. These brokers, dealers or agents may be deemed to be "underwriters"
within the meaning of the federal securities laws, and any commissions,
discounts or concessions they receive may be deemed to be underwriting discounts
or commissions.
We will bear the costs and expenses of registration of the shares offered
by the selling securityholders. The selling securityholders will bear any
commissions, discounts and transfer taxes attributable to their sales of the
shares.
An investment in shares of common stock involves a high degree of risk.
Before purchasing any shares, you should consider carefully the risks set forth
under "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the common stock or determined that this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense. -------
The date of this Prospectus is June 7, 1999
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NTN COMMUNICATIONS, INC.
We develop and produce individual and multi-player interactive programs for
distribution to a variety of media platforms. These interactive sports, trivia
and educational programs permit multiple viewers to simultaneously respond to
and participate with the programming content. We have an exclusive licensing
arrangement with the National Football League to provide our QB-1(R) football
game, as well as nonexclusive arrangements or agreements with the National
Hockey League in Canada and others, to provide other interactive play-along
programming in conjunction with live televised broadcasts. We broadcast a wide
variety of popular games, trivia and informational programming to group viewing
locations such as hotels, sports bars and restaurants through the NTN
Network(TM), our interactive network. In addition, we bring multi-player
interactive games into consumer households through America Online, the Internet
and interactive television services. Since we distribute our programs via
satellite, cable, telephone and wireless transmission technologies, we are not
dependent on any particular hardware or technical platform.
We currently provide our products and services to two principal markets,
each of which is directly related to multi-player interactive entertainment:
- Network Services is our live interactive television network (the NTN
Network(TM)) featuring sports and trivia games which are broadcast to
restaurants and other group viewing environments.
- Studio Services are live interactive sports and trivia games, including
those currently broadcast over the NTN Network(TM), provided via America
Online and other third-party providers for the home consumer market.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and in accordance therewith file reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: Seven World Trade Center, New
York, New York 10048, and Northwestern Atrium Center, 500 W. Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such materials also may be obtained
electronically at the Commission's site on the World Wide Web at
http:/www.sec.gov. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. The common stock is listed on
the American Stock Exchange, and our reports, proxy and information statements
and other information filed with the American Stock Exchange may be inspected at
the American Stock Exchange's offices at 86 Trinity Place, New York, New York
10006-1881.
Additional information regarding us and the shares of common stock offered
by the selling securityholders 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 us and the offered shares, reference is
made to the Registration Statement and the exhibits thereto, which may be
inspected without charge at, and copies thereof may be obtained at prescribed
rates from, the office of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Commission under the Exchange
Act (Commission file no. 1-11460) are incorporated in this Prospectus by
reference in accordance with the Commission's rules and regulations: (a) our
Annual Report on Form 10-K for the three years ended December 31, 1998, which
contains consolidated financial statements of NTN for the years then ended; (b)
our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; and (c)
the description of the common stock contained in its Registration Statement on
Form 8-A (File No. 0-19383) filed with the Commission on July 31, 1991, as
amended.
All documents filed by us 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 this offering will be deemed to be incorporated by reference into
this prospectus and to be a part of this prospectus from the date they are
filed. Any statement contained in a document incorporated by reference herein
will 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.
Upon request, we will provide, without charge, to each person to whom this
prospectus is delivered a copy 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 Kendra Berger, Chief Financial Officer, NTN Communications, Inc.,
The Campus, 5966 La Place Court, Carlsbad, California 92008. Telephone requests
may be directed to Ms. Berger at (760) 438-7400.
FORWARD LOOKING STATEMENTS
This prospectus contains so-called forward-looking statements within the
meaning of the federal securities laws. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "management believes" and similar language. All
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions, including those set forth under
"Risk Factors" and "Recent Developments." Our actual results may differ
materially from results anticipated in these forward-looking statements. We base
our forward-looking statements on information currently available to us, and we
assume no obligation to update them.
RISK FACTORS
An investment in shares of common stock is speculative in nature and
involves a high degree of risk. You should consider carefully the following risk
factors before purchasing any of the shares offered by the selling
securityholders.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES
We have a history of significant losses, including net losses of $1,793,000
for the year ended December 31, 1998 and $832,000 for the three months ended
March 31, 1999. We had an accumulated deficit of $61,979,000 as of March 31,
1999. There is no assurance that we will ever operate profitability.
OUR PROSPECTS FOR GROWTH ARE UNCERTAIN
We recently launched our new Digital Interactive TV (DITV) network, which
has been installed in only a limited number of subscriber locations. We
currently plan to continue operating our original NTN network and the DITV
network concurrently until approximately June 2000. Our immediate prospects for
growth depend, in part, on the successful introduction and implementation of our
new DITV network. There is no assurance that the DITV network will be favorably
received by our current subscribers or will enable us to
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attract a significant number of new subscribers. There also is no assurance that
we can implement and operate the DITV network profitably.
In April 1999, we purchased assets of an Internet access station developer,
Sikander, Inc., as a first step in capitalizing on our national infrastructure
of relationships and experienced sales and customer service teams to expand our
hospitality product portfolio. This purchase enables us to link the
viewers/participants on our existing network to coin-operated Internet stations,
thus providing out-of-home access to the web and video games for patrons in
restaurants, hotels and other public venues. See "Recent Developments -- Asset
Purchase". We plan to execute an Internet strategy that will make it possible
for consumers to access our interactive content from a complete range of
delivery systems including our two hospitality networks, the Internet, America
Online, interactive cable services and other interactive delivery systems. There
is no assurance that we will be successful in the implementation of this
strategy.
WE HAVE LIMITED WORKING CAPITAL AND MAY NEED ADDITIONAL FINANCING
Our current assets exceeded our current liabilities at March 31, 1999 by
$2,032,000. Based upon our current plans and assumptions, we believe that our
current assets, together with anticipated cash flows from operations, will be
sufficient to fund our current level of operations through 1999. We began to
convert existing customers to the DITV network in April 1999, replacing
Playmakers(R) and broadcast equipment with new technology. Certain Year 2000
compliance issues have been eliminated as a result of the DITV network and the
new equipment purchases related to the DITV including back-end equipment.
However, we estimate that 25% of our systems resident at customer locations may
not be Year 2000 compliant. See "Our "Year 2000" Readiness is Uncertain" below
for a discussion of our Year 2000 remediation efforts.
It is likely we will require additional financing to completely implement
our plan to convert our entire existing customer base to the DITV network, to
expand the DITV network, implement our Internet station strategy and expand our
Internet business. Financing possibilities include borrowings under fixed or
revolving credit agreements or sale of additional equity securities. We
currently do not have a bank line of credit or other available financing, other
than partial vendor financing for personal computers, and there is no assurance
as to whether or on what terms any needed financing may be available.
If we were unable to obtain needed financing on terms acceptable to us, we
would have to delay or cutback the planned rollout of the new DITV network and
could be required to curtail certain of our business activities and operations
until we are able to generate sufficient funds from operations to resume these
activities. Such a delay or cutback could have a material adverse effect on our
business, financial condition and results of operations.
WE ARE INVOLVED IN PENDING LITIGATION PROCEEDINGS
On June 11, 1997, we were included as a defendant in a class-action
lawsuit, entitled Elliot Miller and Jan Iver, shareholders on behalf of
themselves and all others similarly situated vs. NTN Communications, Inc.,
Patrick J. Downs, Daniel C. Downs, Donald C. Klosterman, Ronald E. Hogan, Gerald
P. McLaughlin and KPMG Peat Marwick LLP, filed in the United States District
Court for the Southern District of California. The complaint alleges violations
of state and federal securities laws based upon purported omissions from our
periodic filings with the Commission. More particularly, the complaint alleges
that we and the defendant directors and former officers devised an "exit
strategy" to provide the directors and former officers with undue compensation
upon their resignation from NTN. The plaintiffs further allege that our
financial statements misrepresented or omitted information concerning contingent
liabilities (in the form of guaranteed compensation to management and repurchase
obligations relating to 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 common stock.
On July 3, 1997, on behalf of ourself and the other defendants, we filed a
motion to dismiss the lawsuit. On November 6, 1997, our motion was granted, with
leave to amend, as to the state causes of action and denied as to the federal
causes of action. In February 1998, one of the plaintiffs in the action filed a
suit
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entitled Dorman vs. NTN Communications, Inc. in California Superior Court in San
Diego County realleging the same causes of action that were dismissed by the
federal court. We have filed a motion for summary judgment in each action. In
April 1999, the Court granted our motion in the Dorman matter. In May 1999, the
Court denied our motion in the Miller action. We believe that the claims in
these two lawsuits are covered by directors and officers liability insurance
providing $10,000,000 of coverage. We have submitted these claims to our
directors and officers liability insurance underwriters, who have accepted such
claims subject to reservation of rights. Our deductible under the insurance
policy is $200,000.
In March 1998, our former independent sales representative for the State of
Georgia filed suit against us in Atlanta, Georgia, alleging wrongful termination
and other breaches by us under our prior distributor agreement with the former
sales representative. We deny these claims and intend to defend ourselves
vigorously. This matter is in its preliminary stages, and at present we do not
anticipate that this lawsuit will have a material adverse effect on our
financial condition or results of operations.
Last year, we were alerted to the possibility that we may have insufficient
licensing rights for the MS-DOS system used in our original Playmaker(R) systems
installed in over 2,600 hospitality locations. In response, we conducted an
internal audit and determined that we do not have the necessary licenses to
operate these Playmaker(R) systems. Settlement negotiations are currently
underway with the Business Software Alliance and Software Publishers
Association, two industry associations, in an effort to resolve this matter. It
is possible that we will be required to pay license fees or penalties for our
prior use of MS-DOS, and at present we cannot predict what effect this may have
on our future financial condition or results of operations. In the meantime,
however, we have obtained all necessary licenses for our redesigned
Playmakers(R) utilized in the DITV network. We believe that our accrual is
adequate to cover any potential settlement that we may reach.
We have been involved as a plaintiff or defendant in various previously
reported lawsuits in both the United States and Canada involving Interactive
Network, Inc., ("IN"). With the court's assistance, we 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 us. There remain two lawsuits involving us, our
unaffiliated Canadian licensee and IN, which were filed in Canada in 1992. No
action was taken in the Canadian litigation until May 1998, when IN gave notice
of its intention to proceed. In November 1998, we and our Canadian licensee
filed a counterclaim against IN. These actions affect only the operations of our
Canadian licensee and do not extend to our operations in the United States or
elsewhere. Although they cannot be estimated with certainty, any damages we
might incur are not expected to be material.
There can be no assurance that the foregoing claims will be settled or
decided in a manner favorable to us. During the pendency of such claims, we will
continue to incur costs of defense. If the plaintiffs prevail in their claims,
the resulting liabilities could materially and adversely affect our financial
condition and results of operations.
WE HAVE EXPERIENCED RECENT EQUIPMENT PROBLEMS
The Playmaker(R) used in the original NTN network is a hand-held,
49-megahertz radio frequency device used to enter choices and selections by
players of QB-1(R) and our other games and programming broadcast via the NTN
Network(TM). Our customers have experienced certain recurring problems with
these Playmakers(R) related to noise sensitivity and performance of the
Playmaker's(R) rechargeable batteries. We believe these equipment problems
contributed to higher than usual terminations and bad debt experience during
late 1997 and the first half of 1998. To address these problems, we designed a
900-megahertz Playmaker(R) in consultation with an outside engineering
consulting firm that is used in connection with the DITV network. The redesigned
Playmaker(R) is currently being manufactured by the manufacturer of the 49
megahertz Playmaker(R). We have not experienced significant equipment problems
with the 900 megahertz Playmaker(R) to date. However, there is no assurance that
equipment problems will not occur in the case of the redesigned 900-megahertz
Playmaker(R).
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WE DEPEND ON LICENSES FOR BROADCAST RIGHTS
Our interactive sports games are broadcast in conjunction with live
telecasts of football, baseball and hockey games and other events. Wherever
possible, we try to obtain licenses from the owners of the broadcast rights to
the events to utilize such telecasts for our interactive game programming. Our
exclusive license with National Football League Properties, Inc. ("NFLP") for
QB-1(R) expires in March 2000. Our rights under the license may not be
transferred or assigned without the NFLP's consent, and an assignment for this
purpose includes, among other things, a merger or consolidation of NTN or the
termination of employment of any of our key management personnel. Our agreement
with Major League Baseball Properties, Inc. ("MLBP") relating to Diamondball(R)
expired December 31, 1996. In the meantime, we have continued broadcasting
Diamondball(R) and otherwise dealing with MLBP in accordance with the terms of
the prior agreement with MLBP.
WE FACE SIGNIFICANT COMPETITION
We compete with other companies for total entertainment dollars in the
marketplace. Our programming competes generally with broadcast television,
pay-per-view, and other content offered on cable television. On other mediums,
we compete with other content and services available to the consumer through
online services. With the entrance of motion picture, cable and TV companies,
competition in the interactive entertainment and multimedia industries will
likely intensify in the future. In January 1999, The Walt Disney Company
introduced interactive programming broadcast in conjunction with live sporting
and other events which may compete directly with QB-1(R) and our other
programming. Moreover, the expanded use of online networks and the Internet
provide computer users an increasing number of alternatives to video games and
entertainment software. We seek to compete by providing high quality products at
reasonable prices, thereby establishing a favorable reputation among frequent
buyers. There can be no assurance, however, that we can compete effectively.
OUR TECHNOLOGY MAY BECOME OBSOLETE
The computer industry and related businesses are marked by rapid and
significant technological development and change. It is possible that our
interactive technology and services will be rendered obsolete by ongoing
technological developments. There also is no assurance that we will be able to
respond effectively to technological changes.
OUR PROPRIETARY PROTECTION IS UNCERTAIN
We regard the Playmaker(R) keyboard and other technology utilized in the
NTN Network(TM) as proprietary and rely on a combination of trademark, copyright
and trade secret laws and employee and third-party nondisclosure agreements to
protect our propriety rights. We have one patent application pending for our
proprietary interactive technology. There is no assurance, however, that any
patent will be issued or that any issued patent will provide us with significant
competitive advantages. It is our policy that all employees and consultants
involved in research and developmental activities sign nondisclosure agreements;
however, this may not afford us sufficient protection for our know-how and
proprietary information and products. Other parties may independently develop
similar or more advanced technologies. As the number of software products in the
interactive television industry increases and increasingly become available in
new delivery formats, software developers and publishers may increasingly become
subject to infringement claims. Any such claims or litigation brought against us
could be costly and could have an adverse effect on our business and results of
operations.
WE DEPEND ON A SINGLE SUPPLIER OF PLAYMAKERS(R)
We currently purchase the redesigned 900-megahertz Playmaker(R)from a
single, unaffiliated Taiwanese manufacturer, and we have occasionally
experienced delays in obtaining new Playmakers(R). Unless and until we succeed
in establishing additional manufacturing relationships, we will continue to be
dependent on our
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current sole source of supply of Playmakers(R) and may continue to experience
delays in new Playmaker(R) shipments.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation and Bylaws contain certain provisions
intended to discourage attempts to acquire control of us (other than by means of
a transaction negotiated with our Board of Directors) and to make it more
difficult for individual stockholders or a group of stockholders to elect
directors. These provisions may have the effect of discouraging takeover
attempts that some stockholders might deem to be in their best interests,
including takeover proposals in which stockholders might receive a premium for
their shares over the then current market price. We believe, however, that these
provisions are in our best interests and the best interests of our stockholders
because such provisions may encourage potential acquirors to negotiate directly
with the Board of Directors. The Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% of the total voting power of our
outstanding securities then entitled to vote generally in the election of
directors, voting together as a single class, is required to amend certain
provisions of our Certificate of Incorporation, including 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 our stockholders
believes that such amendment would be in their best interests. See "Description
of Capital Stock -- Anti-Takeover Provisions."
OUR STOCK PRICE IS VOLATILE
Historically, the trading price of our common stock has fluctuated widely,
and it may be subject to similar future fluctuations in response to
quarter-to-quarter variations in our operating results, announcements regarding
litigation, technological innovations or new products introduced by us or our
competitors, general industry conditions and other events or factors, including
factors such as analysts' expectations, which are beyond our control. In
addition, in recent years and months, broad stock market indices, in general,
and the securities of "small cap" companies such as NTN, in particular, have
experienced substantial price fluctuations. Such broad market fluctuations also
may adversely affect the future trading price of the common stock.
The recent trading prices of the common stock have been at or near the
historical lows, and it is possible that we will experience further declines in
the trading price in the future. See "Price Range of Common Stock and Dividend
Policy."
WE PAY NO DIVIDENDS
We have never paid cash dividends on our common stock and anticipate that
for the foreseeable future any earnings will be retained for use in our
business. The terms of our outstanding 7% Convertible Senior Subordinated Notes
prohibit payment of dividends on the common stock without the consent of the
holders of the notes. See "Price Range of Common Stock and Dividend Policy."
OUR OUTSTANDING OPTIONS AND WARRANTS MAY ADVERSELY AFFECT THE TRADING PRICE OF
COMMON STOCK
At June 3, 1999 there were approximately 6,223,000 shares of common stock
reserved for issuance upon the exercise of outstanding stock options at exercise
prices ranging from $0.63 to $6.50 per share. At June 3, 1999, we also had
outstanding warrants to purchase an aggregate of approximately 2,653,000 shares
of common stock at current exercise prices ranging from $0.96 to $7.50 per
share. Substantially all of the shares underlying these 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 our 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 we 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
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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 our stockholders, including purchasers of the offered shares.
OUR OUTSTANDING SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE TRADING
PRICE OF COMMON STOCK
Approximately 553,000 shares of common stock outstanding as of June 3, 1999
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
NTN 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 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 our ability to raise capital through the sale of
equity securities.
OUR "YEAR 2000" READINESS IS UNCERTAIN
With the assistance of independent outside consultants, we have been
assessing our "Year 2000" computer readiness and exposure to Year 2000 issues,
which relates to the inability of computer software programs to recognize the
arrival of the year 2000 because of a common software design feature that
describes the current year by only its last two digits. In connection with such
assessment, we initiated a review of the information technology systems utilized
in our business and operations. Based on this review, we have segregated our
systems into two categories: mission critical and support systems. Mission
critical systems are characterized as hardware and applications contributing to
the income of the business. Support systems are characterized as systems that
organize and create efficiencies for the corporation, but are not critical to
our operations. We have completed the assessment phase and have started the
renovation phase which should be completed by the third quarter of 1999.
Our mission critical systems are segregated between systems located in our
hospitality sites and back-end systems which support both the DITV network and
the NTN original network, for which we will incur expected costs of
approximately $1,000,000 to ensure Year 2000 compliance. We intend to fund these
costs with cash on hand, leases from vendors and internally generated funds. We
have incurred costs specific to remediation efforts of approximately $50,000
through March 31, 1999. Certain compliance issues have been eliminated as a
result of the DITV network and the new equipment purchased related to DITV
including back-end equipment. We are testing Year 2000 compliance at the system
BIOS ("Basic Input Output System"), operating system and application levels. We
have determined that 25% of hospitality site systems may not be Year 2000
compliant due to the inaccurate roll over of the system BIOS which could
compromise content scheduling. We estimate that the replacement of these systems
will cost a total of approximately $725,000 for all affected hospitality sites.
All systems in the DITV network are Year 2000 compliant. We have identified key
back-end systems that will require an upgrade of commercial hardware and data
base software. As can be determined thus far, the operating systems and
NTN-developed applications are not affected, but are being verified for
compliance. We have also initiated a review of Year 2000 compliance by our
principal
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<PAGE> 10
vendors, and this estimate assumes that we will not incur significant Year 2000
related costs on behalf of our vendors or other third parties.
Concerning the support systems, all corporate personal computers and
servers have been deemed Year 2000 compliant. The operating systems and
commercial software packages have been upgraded to compliant versions.
Our most likely worst-case scenario would be if we were unable to broadcast
our programs to our network services customers. Network services revenue
represents 85% of total revenues for the three months ended March 31, 1999. We
have not yet established a contingency plan in the event that this occurs. As a
result, a widespread or extended failure of our internal systems, or systems of
third parties, to be Year 2000 compliant would have a material adverse effect on
the our business, financial condition and operating results.
RECENT DEVELOPMENTS
ASSET PURCHASE
In April 1999 we acquired the assets and rights to certain technology,
hardware and video games used in the Internet game business from Sikander, Inc.,
a Nevada corporation. The technology will enable us to link the
viewer/participants on our existing network to coin-operated Internet stations,
thus providing out-of-home access to the Web and video games for patrons in
restaurants, hotels and other public venues. In consideration for these assets,
we paid Sikander, Inc. $40,000 in cash and executed a 10% promissory note for
$360,000 payable in twelve equal quarterly installments of $30,000, plus
interest, commencing on June 30, 1999. Additionally, we granted Sikander, Inc.
options to purchase up to a maximum of 600,000 shares of common stock at $.625
per share subject to earn-out provisions, under which all the options will be
earned in the event that the Internet game business generates a minimum of $10
million in revenues by April 30, 2000. The number of options are reduced ratably
if this target is not met and further reduced if gross margins over a four-year
period do not meet or exceed 50%. Once they have been earned, the options will
become exercisable in four installments of 25% each as of April 30, 2000 through
2003.
In connection with the acquisition, we added Sikander, Inc.'s CEO, Edward
Bevilacqua, to our management team. Bevilacqua together with Siemens, IBM,
Frogdesign and other key firms developed a public access e-commerce platform
utilizing games, a digital jukebox and other features as magnet applications.
His previous management positions have been with PlayNet Technologies and Sport
Active Television, both interactive entertainment delivery platforms designed
specifically for the hospitality industry. In connection with Mr. Bevilacqua's
employment with us, he was granted 400,000 options at fair market value to
purchase common stock under our 1995 stock option plan.
ISSUANCE OF 7% CONVERTIBLE SENIOR SUBORDINATED NOTES
In October 1998, the holders of our outstanding Series B Preferred Stock
agreed to exchange their remaining $5,600,000 of Preferred Stock (and accrued
dividends) for 7% Senior convertible subordinated notes due February 1, 2001
with a fixed conversion price of $1.275 per common share. On January 11, 1999,
the exchange was completed and notes were issued in aggregate principal amount
of approximately $5,913,000. In consideration of the debt for stock exchange,
the Company issued the Preferred Stock holders warrants expiring February 1,
2001 to purchase an aggregate of one million shares of common stock. The
warrants have an initial exercise price of $1.25 per common share which will be
subject to reduction in the event that the common stock trades at levels
significantly above the exercise price. An allocation has been made between the
7% Senior convertible notes payable and the warrants based on the relative fair
values of the securities at the time of issuance. A discount of approximately
$464,000 has been recorded against the convertible notes due to the allocation.
To recognize the discount over the term of the notes, additional interest
expense of approximately $47,000 has been accreted for the three months ended
March 31, 1999. As a result of this exchange, the Company will record interest
expense, at an effective interest rate of 11% per year, throughout the terms of
the notes which began in the first quarter of 1999. The convertible notes and
warrants were issued to the two institutional holders of the outstanding Series
B Preferred Stock in reliance on the
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<PAGE> 11
exemption from registration under Section 4(2) of the Securities Act of 1933 for
transactions not involving a public offering.
ISSUANCE OF TREASURY STOCK
On May 10, 1999, we issued 218,400 common shares of our treasury stock to
certain investors pursuant to a settlement with these investors relating to
antidilution adjustments the investors believed were triggered by certain
transactions we completed in 1995 and 1996.
USE OF PROCEEDS
We will bear the costs and expenses of registration of the shares offered
by the selling securityholders, which are estimated at $48,000. Other than the
exercise price of the warrants held by two of the selling securityholders as
described herein (to the extent that it is exercised), we will not receive any
of the proceeds from the sale of the shares offered by the selling
securityholders. The holders of the warrants are not obligated to exercise the
warrants, and there can be no assurance that the holders will choose to exercise
the warrants in whole or in part. The gross proceeds to us in the event that the
warrants are exercised in full will amount to $1,432,000.
We intend to apply any net proceeds we receive from the exercise of the
warrant to augment our working capital and for general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the American Stock Exchange (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............................................. $0 15/16 $1 1/16
Second Quarter............................................ 0 11/16 2 5/8
Third Quarter............................................. 0 5/8 1 1/4
Fourth Quarter............................................ 0 5/16 0 13/16
1999
First Quarter............................................. $0 9/16 $2 3/16
Second Quarter (through June 3, 1999)..................... $0 5/8 $1 1/8
</TABLE>
For a recent closing price for the common stock as reported on the AMEX see
the cover page of this prospectus. As of June 3, 1999, there were approximately
2,000 record owners of the common stock according to information available from
our transfer agent.
To date, we have not declared or paid any cash dividends with respect to
our common stock, and the current policy of the Board of Directors is to retain
earnings, if any, for use in our business. Consequently, no
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<PAGE> 12
cash dividends are expected to be paid on the common stock in the foreseeable
future. Further, there can be no assurance that our proposed operations will
generate the revenues and cash flow needed to declare a cash dividend or that we
will have legally available funds to pay dividends.
As of June 3, 1999, we had outstanding $5,532,389 in principal amount of 7%
Convertible Senior Subordinated Notes. So long as these convertible notes are
outstanding, no dividends may be declared or paid on the common stock without
the prior consent of the noteholders.
SELLING SECURITYHOLDERS
DIRECTORS
In December 1997 and April 1999, our directors serving at the time elected
to receive shares of our common stock in lieu of cash for directors fees earned
by them from September 1, 1996 to March 31, 1999. The stock was valued for this
purpose at a price of $1.125 per share for the period ending December 1998 and
at $0.50 per share for the period ending March 31, 1999. We also agreed to
register these shares as provided in this prospectus. The directors making the
election were: Robert Bennett, Edward Frazier, Stanley Kinsey, Donald Klosterman
and Esther Rodriguez. Gerald Sokol, Jr., made a similar election, as described
below.
GERALD SOKOL, JR.
In January 1999, Gerald Sokol, Jr., who was then our President and Chief
Financial Officer, resigned as an executive officer and director. In February
1999, we entered into a Resignation and General Release Agreement ("Resignation
Agreement") with Mr. Sokol pursuant to which Mr. Sokol's Employment Agreement,
dated July 1, 1998, was terminated.
Pursuant to the Resignation Agreement, we paid $205,850 to Mr. Sokol in
settlement of his prior Employment Agreement and in consideration of his
agreement not to compete with us for a period of one year. We also paid Mr.
Sokol an earned 1998 bonus of $128,500 and agreed to issue Mr. Sokol 40,889
shares of common stock in lieu of directors fees earned by him from April 1997
through January 1999. We agreed to issue shares in the same monthly amounts as
issued to all other directors as described above We agreed to register these
shares as provided in this prospectus.
FRAZIER/KING MEDIA HOLDING CO.
In December 1996, we retained Frazier/King Media Holding Co.
("Frazier/King"), a media consulting firm, to provide one year of consulting
services relating to the development of a local advertising sales program.
In April 1997, we entered into another Consulting Agreement with
Frazier/King. For Frazier/King's services under this later agreement, we granted
Frazier/King a warrant to purchase 1,000,000 shares of common stock at an
exercise price of $2.81, the approximate market value of the common stock on the
date of the Consulting Agreement, and agreed to reimburse Frazier/King for
expenses (other than normal operating expenses) incurred by it in performing its
consulting services. Frazier/King's warrant was immediately vested and
exercisable as to 200,000 shares of common stock and was to become vested and
exercisable as to the balance of 800,000 covered shares in quarterly
installments of 100,000 shares each as of the 15th day of each July, October,
January and April, commencing July 15, 1997 and ending April 15, 1999, provided
that the Board of Directors of NTN has determined that Frazier/King was
performing satisfactorily under the Consulting Agreement.
In January 1998, the Board and Frazier/King agreed to terminate the later
Consulting Agreement, and, in conjunction with this termination, Frazier/King
agreed that its warrant described in the previous paragraph would be immediately
vested and exercisable as to 500,000 of the shares of common stock covered by
the warrant. We also agreed to register the shares underlying the warrant as
provided in this prospectus.
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<PAGE> 13
BARRY BERGSMAN
On February 1, 1999, we entered into a Consulting Agreement with Barry
Bergsman, who has been one of our directors since August 1998, pursuant to which
Mr. Bergsman was engaged to actively provide us with consulting services under
the direction of our chief executive officer. For Mr. Bergsman's services under
the Consulting Agreement, we granted Mr. Bergsman a warrant to purchase 36,000
shares of common stock at an exercise price of $0.6875 per share. The warrant is
exercisable as to 3,000 shares on the first day of each of the twelve
consecutive months commencing March 1, 1999. In addition, we agreed to pay Mr.
Bergsman cash compensation of $3,500 per month. The Consulting Agreement expires
on January 31, 2000. We agreed to register the shares underlying the warrant as
provided in this prospectus.
SELLING SECURITYHOLDER TABLE
The following table sets forth certain information regarding the beneficial
ownership of common stock by the selling securityholders on June 3, 1999. To our
knowledge the selling securityholders have sole voting and investment power with
respect to the shares of common stock shown. An asterisk denotes beneficial
ownership of less than 1%.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) NUMBER OF AFTER OFFERING
----------------------- SHARES ----------------------
NUMBER OF BEING NUMBER OF
SELLING SECURITYHOLDER SHARES PERCENT(2) OFFERED SHARES PERCENT(2)
---------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert Bennett(3).................... 121,333 * 54,667 66,666 *
Edward Frazier(4).................... 236,167 * 32,000 208,167 *
Stanley B. Kinsey(5)................. 122,000 * 18,667 103,333 *
Donald C. Klosterman(6).............. 511,416 1.8 54,667 456,749 1.6
Esther Rodriguez(7).................. 74,766 * 40,433 34,333 *
Gerald Sokol, Jr.(8)................. 1,362,000 4.8 40,889 1,321,111 4.7
Frazier/KingMedia Holding Co......... 500,000 1.8 500,000 -- *
Barry Bergsman....................... 53,000(9) * 48,000(10) 17,000 *
</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.
(2) Included as outstanding for this purpose are 28,287,000 shares outstanding
on June 3, 1999 plus, in the case of each selling securityholder, the
shares issuable upon exercise of any options or warrants held by such
securityholder (but not including shares issuable upon exercise or
conversion of any other warrants, convertible notes or other securities
held by any other person).
(3) Includes 66,666 shares subject to currently exercisable options held by Mr.
Bennett.
(4) Includes 204,167 shares subject to currently exercisable options held by
Mr. Frazier.
(5) Includes 33,333 shares subject to currently exercisable options held by Mr.
Kinsey.
(6) Includes 350,000 shares subject to currently exercisable options and
warrants held by Mr. Klosterman. Also includes 5,000 shares held indirectly
by Mr. Klosterman.
(7) Includes 33,333 shares subject to currently exercisable options held by Ms.
Rodriguez. Also includes 1,000 shares held by The Rodriguez Family Trust,
of which Ms. Rodriguez is a co-trustee.
(8) Includes 1,300,000 shares subject to currently exercisable options held by
Mr. Sokol.
(9) Includes 24,000 shares subject to currently exercisable warrants held by
Mr. Bergsman. Also includes 17,000 shares of common stock held by the
Bergsman Family Trust.
(10) Includes 36,000 shares subject to the warrant granted to Mr. Bergsman under
the Consulting Agreement and 12,000 shares of common stock paid to Mr.
Bergsman in lieu of cash for directors fees.
12
<PAGE> 14
PLAN OF DISTRIBUTION
The purpose of this prospectus is to permit the selling securityholders, if
they desire, to dispose of some or all of their shares at such times and at such
prices as each may 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
securityholder.
The common stock covered by this prospectus may be offered for sale from
time to time by the selling securityholders 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 securityholders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with such transactions,
brokers-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
securityholders. The selling securityholders 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 securityholders 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 securityholders 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.
The costs, expenses and fees in connection with the registration of the
shares of common stock offered hereby will be borne by us. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the common
stock will be borne by the selling securityholders. The selling securityholders
have agreed or may agree to indemnify us 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 Registration Statement, including liabilities
arising under the Securities Act. In addition, we have agreed to indemnify the
selling securityholders 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.
We have informed the selling securityholders that the anti-manipulation
provisions of Regulation M under the Exchange Act may apply to their sales of
the shares offered hereby and have furnished each of the selling securityholders
with a copy of these provisions. We have also advised the selling
securityholders of the requirement for delivery of this prospectus in connection
with any public sale of the shares.
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<PAGE> 15
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 10,000,000 shares of preferred
stock, par value $.005 per share, and 50,000,000 shares of common stock. The
preferred stock may be issued in one or more series; the only series currently
designated are a series of 5,000,000 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and a series of 85,000 shares of Series B
Convertible Preferred Stock (the "Series B Preferred Stock").
COMMON STOCK
At June 3, 1999, there were approximately 28,287,000 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 stockholders. The holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by our
Board of Directors out of legally available funds, after payment of any
dividends required on the outstanding preferred stock. Upon our liquidation,
dissolution or winding up the holders of common stock are entitled to share
ratably in all assets that are legally available for distribution, after payment
of or provision for all debts and liabilities and for any payments with respect
to the preferred stock. The holders of common stock have no preemptive,
subscription or conversion rights, and there are no redemption or sinking fund
provisions applicable to such shares. All of the outstanding shares of common
stock are fully paid and nonassessable. The rights, preferences and privileges
of holders of common stock are subject to the rights of the holders of shares of
the outstanding Series A Preferred Stock, and may be subject to the rights of
the holders of such other preferred stock as we may issue in the future,
although we have no plans at this time to issue additional preferred stock.
SERIES A PREFERRED STOCK
At June 3, 1999, there were 161,000 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 our option, 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. We are current in the
payment of all dividends on the Series A Preferred Stock. Upon our liquidation,
dissolution and winding up, 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 common stock. Each share of the Series A
Preferred Stock currently is convertible into approximately .2908 share of
common stock at any time at the option of the holders of the Series A Preferred
Stock. The rate of conversion is subject to certain antidilution provisions. The
holders of the Series A Preferred Stock do not have any voting, preemptive,
subscription or redemption rights.
SERIES B PREFERRED STOCK
We previously authorized a series of 85,000 shares of Series B Convertible
Preferred Stock. In October 1997, we sold and issued an aggregate of 70,000
shares of Series B Preferred Stock at a purchase price of $100 per share, of
which 56,000 shares remained outstanding as of October 5, 1998. As of October 5,
1998, the holders of the outstanding Series B Preferred Stock entered into an
Exchange Agreement with us under which they agreed to surrender for cancellation
of all their shares of Series B Preferred Stock in exchange for our issuance to
them of the warrants and convertible notes described herein. As a result, there
are no longer any shares of Series B Preferred Stock authorized or outstanding.
PREFERRED STOCK
Additional shares of authorized preferred stock may be issued without
stockholder approval. The Board of Directors is authorized to issue such shares
in one or more series and to fix the rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights
and rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any series
or the designation of such series, without any vote or action by the holders of
common
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<PAGE> 16
stock. Any preferred stock to be issued could rank prior to the common stock
with respect to dividend rights and rights on liquidation.
The Board of Directors, without 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 us. We have no present plan or arrangement to
issue any additional shares of preferred stock.
ANTI-TAKEOVER PROVISIONS
The provisions of our 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 shareholder might
consider to be in such shareholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
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 of our outstanding securities 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 of our outstanding
securities 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 stockholders, even if a majority of our
stockholders 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 our directors are
subject to re-election at each annual meeting of stockholders. The
classification of directors and provisions in the Certificate that limit the
ability of stockholders 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 stockholders 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 stockholders to change the composition of the Board of Directors.
As a result, at least two annual meetings of stockholders may be required for
the stockholders to change a majority of the directors, whether or not a change
in the Board of Directors would be beneficial to us and our stockholders and
whether or not a majority of our stockholders believes that such a change would
be desirable.
Certain Shareholder Action
The Certificate requires that shareholder action be taken at an annual
meeting or special meeting of stockholders 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
We are 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 Shareholder from engaging in a "business
combination" with a Delaware corporation for three years following the date such
person became an Interested Shareholder. Interested Shareholder, as defined,
includes (i) any person who is the beneficial owner of 15% or more of the
outstanding voting stock of the corporation and
15
<PAGE> 17
(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 Shareholder 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 Shareholder, except pursuant to a transaction that effects a
pro rata distribution to all stockholders 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 Shareholder; and (v) any receipt
by the Interested Shareholder of the benefit (except proportionately as a
shareholder) 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 Shareholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Shareholder or the business combination; (ii) upon consummation of
the transaction that resulted in the person becoming an Interested Shareholder,
the Interested Shareholder 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 Shareholder, the business combination is (a) approved by
the board of directors of the corporation and (b) authorized at a regular or
special meeting of stockholders (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 Shareholder.
TRANSFER AGENT
The Transfer Agent for the common stock is American Stock Transfer & Trust
Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
RESTRICTED STOCK
At June 3, 1999, there were approximately 28,287,000 shares of common stock
outstanding. Approximately 553,000 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 our "affiliate" 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 us 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 us. However, a person who is not deemed to have
been our affiliate 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
16
<PAGE> 18
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 our ability to raise capital through the sale of our equity
securities.
OPTIONS AND WARRANTS
At June 3, 1999 there were approximately 6,223,000 shares of common stock
reserved for issuance upon the exercise of outstanding stock options at exercise
prices ranging from $0.63 to $6.50 per share. At June 3, 1999, we also had
outstanding warrants to purchase an aggregate of approximately 2,653,000 shares
of common stock (including 536,000 of the shares offered herein) at exercise
prices ranging from $0.96 to $7.50 per share. Substantially all of the shares
underlying our outstanding warrants are subject to currently effective
registration statements covering the resale of the underlying warrant shares by
the holders.
SETTLEMENT WARRANTS
In February 1998, we issued redeemable common stock Purchase Warrants (the
"Settlement Warrants") to purchase up to 565,000 shares of common stock. The
Settlement Warrants were issued as part of a court-approved settlement of a
prior class-action lawsuit against us and certain other defendants. The
Settlement Warrants are in registered form, are subject to the terms and
conditions of a Warrant Agreement between us and American Stock Transfer & Trust
Company, as Warrant Agent, and are listed for trading on the AMEX under the
symbol "NTNW."
Each Settlement Warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $0.96 per share. The Settlement Warrants
are exercisable for a period of three years ending February 18, 2001. During the
period from February 18, 2000 until the expiration of the Settlement Warrants,
the holders will have the right (but are not obligated) to require us 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 period
the closing price per share of common stock as reported on the AMEX exceeds
$4.21 per share for any seven trading days, whether or not consecutive. The cost
to us to redeem all of the Settlement Warrants would be $1,836,250. Upon
expiration of the redemption right, we will have no further obligation to
repurchase the Settlement Warrants.
The Settlement Warrants contain antidilution provisions to avoid dilution
of the equity interest represented by the underlying shares upon the occurrence
of certain events such as share dividends or splits, reorganizations,
consolidations, mergers or like occurrences.
Pursuant to the settlement of the Action, we filed a Registration Statement
under the Securities Act in order to register the issuance of the shares of
common stock underlying the Settlement Warrants. We agreed to use our 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
underlying the Settlement Warrants 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 our 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 we
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 our stockholders.
17
<PAGE> 19
INDEMNIFICATION
Our Certificate of Incorporation and Bylaws permit us to indemnify our
officers and directors to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law. Section 145 of the Delaware General
Corporation Law makes provision for the indemnification of officers, directors
and other corporate agents in terms sufficiently broad to indemnify such
persons, under certain circumstances, for liabilities (including reimbursements
of expenses incurred) arising under the Securities Act.
We have entered into indemnity agreements with certain of our outside
directors. Pursuant to such indemnity agreements, we have agreed to indemnify
each outside director who is a party to the indemnity agreement under certain
circumstances in which such outside director or we are named as a party to a
proceeding (as that term is defined).
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
EXPERTS
The financial statements and schedule of NTN Communications, Inc. as of
December 31, 1998 and 1997, and for each of the years in the three year period
ended December 31, 1998, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
18
<PAGE> 20
- ------------------------------------------------------
- ------------------------------------------------------
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 SECURITYHOLDER. 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>
NTN Communications, Inc.................... 2
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 3
Forward Looking Statements................. 3
Risk Factors............................... 3
Recent Developments........................ 9
Use of Proceeds............................ 10
Price Range of Common Stock and Dividend
Policy................................... 10
Selling Securityholders.................... 11
Plan of Distribution....................... 13
Description of Capital Stock............... 14
Shares Eligible for Future Sale............ 16
Indemnification............................ 18
Experts.................................... 18
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
COMMON STOCK
NTN COMMUNICATIONS, INC.
789,323 SHARES
-----------------
PROSPECTUS
-----------------
JUNE 7, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distributions
described in this Registration Statement will be as set forth below. Such costs
and expenses shall be borne by the Company. Any commissions, discounts and
transfer taxes, if any, attributable to the sales of the shares being registered
hereunder will be borne by the Selling Stockholders.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 172
AMEX listing fee............................................ 17,500
Printing expenses........................................... 10,000
Accounting fees and expenses................................ 10,000
Legal fees and expenses..................................... 10,000
Fees and expenses for qualification under state securities
laws...................................................... -0-
Miscellaneous............................................... 247
-------
Total............................................. $48,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws permit the Company to
indemnify officers and directors of the Company to the fullest extent permitted
by Section 145 of the Delaware General Corporation Law. Section 145 of the
Delaware General Corporation Law makes provision for the indemnification of
officers, directors and other corporate agents in terms sufficiently broad to
indemnify such persons, under certain circumstances, for liabilities (including
reimbursements of expenses incurred) arising under the Securities Act.
The Company has entered into indemnity agreements with certain of its
outside directors. Pursuant to such indemnity agreements, the Company has agreed
to indemnify each outside director who is a party to the indemnity agreement
under certain circumstances in which such outside director or the Company is
named as a party to a proceeding (as that term is defined).
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as a
part of this Registration Statement:
<TABLE>
<C> <S>
4.1 -- Specimen common stock Certificate (previously filed as an
exhibit to the Company's Registration Statement on Form
8-A, File No. 0-19383, and incorporated herein by
reference)
4.2 -- Warrant No. WE-011A issued to Barry Bergsman.*
4.3 -- Warrant No. WE-010 issued to Frazier/King Media Holding
Co.
5 -- Opinion of Troy & Gould Professional Corporation.
10.1 -- Resignation and General Release Agreement, dated February
18, 1999, by and between NTN Communications, Inc. and
Gerald Sokol, Jr. (previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Commission and
incorporated herein by reference).
10.2 -- Asset Purchase Agreement dated as of April 23, 1999, by
and between the Company and Sikander, Inc. (previously
filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999 filed
with the Commission and incorporated herein by
reference).
</TABLE>
II-1
<PAGE> 22
<TABLE>
<C> <S>
10.3 -- Promissory Note dated as of April 29, 1999, issued by the
Company to Sikander, Inc. (previously filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1999 filed with the
Commission and incorporated herein by reference).
10.4 -- Earn Out Option dated as of April 23, 1999, by and
between the Company and Sikander, Inc. (previously filed
as an exhibit to the Company's Quarterly Report on Form
10-Q for the three months ended March 31, 1999 filed with
the Commission and incorporated herein by reference).
10.5 -- Stock Option Agreement dated as of April 23, 1999, by and
between the Company and Edward Bevilacqua. (previously
filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999 filed
with the Commission and incorporated herein by
reference).
23.1 -- Consent of Troy & Gould Professional Corporation
(included in Exhibit 5).
23.2 -- Consent of KPMG LLP.
</TABLE>
- ---------------
* Included herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that (i) and (ii) do not apply if the registration statement
is on Form S-3, and the information required to be included in a post-effective
amendment is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 23
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(d) The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Carlsbad, State of California, on June 25, 1999.
NTN COMMUNICATIONS, INC.
By: /s/ STANLEY B. KINSEY
----------------------------------
Stanley B. Kinsey
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-3 has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STANLEY B. KINSEY Chairman of the Board and Chief June 25, 1999
- ----------------------------------------------------- Executive Officer
Stanley B. Kinsey
/s/ KENDRA BERGER Chief Financial Officer June 25, 1999
- ----------------------------------------------------- (Principal Financial Accounting
Kendra Berger Officer)
/s/ ROBERT M. BENNETT Director June 25, 1999
- -----------------------------------------------------
Robert M. Bennett
/s/ BARRY BERGSMAN Director June 25, 1999
- -----------------------------------------------------
Barry Bergsman
/s/ DONALD C. KLOSTERMAN Director June 25, 1999
- -----------------------------------------------------
Donald C. Klosterman
/s/ ESTHER L. RODRIGUEZ Director June 25, 1999
- -----------------------------------------------------
Esther L. Rodriguez
</TABLE>
II-4
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Specimen common stock Certificate (previously filed as an
exhibit to the Company's Registration Statement on Form
8-A, File No. 0-19383, and incorporated herein by
reference)
4.2 -- Warrant No. WE-011A issued to Barry Bergsman.*
4.3 -- Warrant No. WE-010 issued to Frazier/King Media Holding
Co.
5 -- Opinion of Troy & Gould Professional Corporation
10.1 -- Resignation and General Release Agreement, dated February
18, 1999, by and between NTN Communications, Inc. and
Gerald Sokol, Jr. (previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the years ended
December 31, 1998 filed with the Commission and
incorporated herein by reference)
10.2 -- Asset Purchase Agreement dated as of April 23, 1999, by
and between the Company and Sikander, Inc. (previously
filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999 filed
with the Commission and incorporated herein by reference)
10.3 -- Promissory Note dated as of April 29, 1999, issued by the
Company to Sikander, Inc. (previously filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1999 filed with the
Commission and incorporated herein by reference)
10.4 -- Earn Out Option dated as of April 23, 1999, by and
between the Company and Sikander, Inc. (previously filed
as an exhibit to the Company's Quarterly Report on Form
10-Q for the three months ended March 31, 1999 filed with
the Commission and incorporated herein by reference)
10.5 -- Stock Option Agreement dated as of April 23, 1999, by and
between the Company and Edward Bevilacqua. (previously
filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999 filed
with the Commission and incorporated herein by reference)
10.6 -- Consent of Troy & Gould Professional Corporation
(included in Exhibit 5).
10.7 -- Consent of KPMG LLP.
</TABLE>
- ---------------
* Included herewith.
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
Warrant to Purchase
WE-011A 36,000 Shares
NTN COMMUNICATIONS INC.
(Incorporated under the laws of the State of Delaware)
WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES OF
THE $.005 PAR VALUE COMMON STOCK OF NTN COMMUNICATIONS INC.
EXERCISABLE ONLY AFTER MARCH 1, 1999 AND VOID AFTER JANUARY 31, 2003.
Warrant Price: $.6875 (Sixty-Eight and Three Quarter Cents) per share.
1. THIS IS TO CERTIFY that, for value received, Barry Bergsman (the
"Holder"), is entitled to purchase, subject to the terms and conditions
hereinafter set forth, at anytime from and after March 1, 1999, and on or before
January 31, 2003 (the "Warrant Period"), up to 36,000 shares of the $.005 par
value common stock ("Common Stock") of NTN Communications Inc. (the "Company"),
and to receive certificate(s) for the Common Stock so purchased. This Warrant
shall be exercisable as to 3,000 shares the first day of each of the twelve
consecutive months commencing March 1, 1999 (the "Exercise Dates"), provided
that on each of such dates, the Board of Directors of the Company has determined
that Holder is satisfactorily providing consulting services to the Company under
that certain Letter Agreement dated February 22, 1999. If a "Change of Control
Event," as defined in Paragraph 5 hereof, occurs, then the minimum number of
shares of the Company's Common Stock subject to this Warrant shall be 18,000
shares. This Warrant may be exercised in whole or in part. Such exercise shall
be accomplished by tender to the Company of the purchase price set forth above
as the warrant price (the "Warrant Price"), either in cash or by certified check
or bank cashier's check, payable to
<PAGE> 2
the order of the Company, together with presentation and surrender to the
Company of this Warrant with an executed subscription in substantially the form
attached hereto as Exhibit A. Fractional shares of the Company's Common Stock
will not be issued upon the exercise of this Warrant.
2. The Company agrees at all times to reserve and hold available out of
the aggregate of its authorized but unissued Common Stock the number of shares
of its Common Stock issuable upon the exercise of this and all other Warrants of
like tenor then outstanding. The Company further covenants and agrees that all
shares of Common Stock that may be delivered upon the exercise of this Warrant
will, upon delivery, be fully paid and nonassessable and free from all taxes,
liens and charges with respect to the purchase thereof hereunder.
This Warrant and the Common Stock issuable upon the exercise hereof may
not be sold, transferred, pledged or hypothecated unless the Company shall have
been supplied with evidence reasonably satisfactory to it that such transfer is
not in violation of the Securities Act of 1933, as amended (the "Act") and any
applicable state laws. Subject to the satisfaction of the aforesaid condition,
this Warrant shall be transferable by the Holder.
If this Warrant is transferred, in whole or in part, upon surrender of
this Warrant to the Company, the Company shall deliver to each transferee a
Warrant evidencing the rights of such transferee to purchase the number of
shares of Common Stock that such transferee is entitled to purchase pursuant to
such transfer.
The Company may place a legend on this Warrant or any replacement
Warrant and on each certificate representing shares issuable upon exercise of
this Warrant as to which the Company has not been supplied evidence that the
transfer of such security would not be in violation of the Act and any
applicable state laws.
3. The Company shall, as expeditiously as possible, use its best
efforts to cause such shares of Common Stock required to be reserved for
purposes of exercise of this Warrant to be duly registered under a registration
statement on Form S-3 pursuant to the Securities Act of 1933, as amended, and in
accordance with the applicable rules and regulations of the Securities and
Exchange Act.
4. This Warrant does not entitle the Holder to any voting rights or
other rights as a stockholder of the Company, nor to any other rights whatsoever
except the rights herein set forth, and no dividend shall be payable or accrue
by reason of this Warrant or the interest represented hereby, or the shares
purchasable hereunder, until or unless, and except to the extent that, this
Warrant is exercised.
<PAGE> 3
This Warrant is exchangeable upon its surrender by the Holder to the
Company for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of shares purchasable hereunder, each of such
new Warrants to represent the right to purchase such number of shares as may be
designated by the Holder at the time of such surrender.
The Company shall comply with the reporting requirements of Sections 13
and 15(d) of the Securities Exchange Act of 1934 for so long as and to the
extent that such requirements apply to the Company.
5. The Warrant Price and the number of shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of any of the events specified in this Section 4.
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall be entitled to receive the kind and number of shares of Common Stock or
other securities of the Company that he would have owned or have been entitled
to receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) For the purpose of this Section 4, the term shares of
Common Stock shall mean (i) the class of stock designated as the Common Stock of
the Company at the date of this Warrant, or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of change in par value, or from par value to no par value, or from no par
value to par value.
<PAGE> 4
(d) If during the Warrant Period the Company consolidates with
or merges into another corporation or transfers all or substantially all of its
assets the Holder shall thereafter be entitled upon exercise hereof to purchase,
with respect to each share of Common Stock purchasable hereunder immediately
prior to the date upon which such consolidation or merger becomes effective, the
securities or property to which a holder of shares of Common Stock is entitled
upon such consolidation or merger, without any change in, or payment in addition
to the Warrant Price in effect immediately prior to such merger or
consolidation, and the Company shall take such steps in connection with such
consolidation or merger as may be necessary to ensure that all of the provisions
of this Warrant shall thereafter be applicable, as nearly as reasonably may be,
in relation to any securities or property thereafter deliverable upon the
exercise of this Warrant. The Company shall not effect any such consolidation,
merger or asset transfer unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting therefrom shall assume by
written agreement executed and mailed to the registered Holder at his address
shown on the books and records of the Company, the obligation to deliver to such
Holder any such securities or property as in accordance with the foregoing
provisions such Holder shall be entitled to purchase.
(e) Upon the happening of any event requiring an adjustment of
the Warrant Price, the Company shall forthwith give written notice thereof to
the registered Holder of this Warrant, stating the adjusted Warrant Price and
the adjusted number of shares of Common Stock or other securities or property
purchasable upon the exercise hereof resulting from such event and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based. The Board of Directors of the Company shall determine the
adjusted Warrant Price and the securities or property purchasable upon exercise.
If any voluntary or involuntary dissolution, liquidation, or winding up of the
Company is proposed, the Company shall give at least 20 days prior written
notice of such proposal to the registered Holder hereof stating the date on
which such event is to take place and the date (which shall be at least 20 days
after giving of such notice) as of which the holders of shares of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such dissolution, liquidation or winding up.
This Warrant and all rights hereunder shall terminate as of the date on which
such dissolution, liquidation, or winding up takes place. The notices pursuant
to this paragraph shall be given by first class mail, postage prepaid, addressed
to the registered Holder of this Warrant at his address appearing in the records
of the Company.
(f) Irrespective of any adjustments pursuant to this Section 4
to the Warrant Price or to the number of shares or other securities or other
property obtainable upon exercise of this Warrant, this Warrant may continue to
state the Warrant Price and the number of shares obtainable upon exercise, as
the same price and number of shares stated herein.
<PAGE> 5
6. Notwithstanding anything to the contrary herein the Exercise Dates
shall automatically be accelerated immediately upon a Change in Control Event. A
"Change in Control Event" shall mean:
(1) The acquisition by any individual entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (a "Person") of beneficial ownership of 50% or
more of the then outstanding voting securities of the Corporation entitled to
vote generally in the election of directors (the "Outstanding Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition by the Corporation or
(B) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the Corporation.
(2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual who becomes a director subsequent
to the date hereof whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(3) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation (a "transaction"), unless, following
such transaction in each case, more than 50% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
transaction and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entitles who were the beneficial
owners, respectively, of the outstanding Common stock and Outstanding Voting
Securities immediately prior to such transaction; or
(4) Approval by the shareholders of the Corporation of (A) a complete
liquidation or dissolution of the Corporation or (B) the sale or other
disposition of all or substantially all of the assets of the Corporation, unless
such assets are sold to a corporation and following such sale or other
disposition, the condition described in paragraph (3) above is satisfied.
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers, and the corporate seal hereunto affixed.
DATED: February 22, 1999 NTN COMMUNICATIONS INC.
By:
---------------------------------
Stanley B. Kinsey
Chairman and CEO
ATTEST:
[seal] By:
---------------------------------
Kendra Berger
Secretary
<PAGE> 7
SUBSCRIPTION FORM
(To be Executed by the Registered Holder to Exercise the Rights To Purchase
Common Stock Evidenced by the Within Warrant)
The undersigned hereby irrevocably subscribes for ________ shares (the
"Stock") of the Common Stock of NTN COMMUNICATIONS INC. (the "Company") pursuant
to and in accordance with the terms and conditions of the attached Warrant and
hereby makes payment of $___________ therefor, and requests that a certificate
for such shares be issued in the name of the undersigned and be delivered to the
undersigned at the address stated below. If such number of shares is not all of
the shares purchasable pursuant to the attached Warrant, the undersigned
requests that a new Warrant of like tenor for the balance of the remaining
shares purchasable thereunder be delivered to the undersigned at the address
stated below.
In connection with the issuance of the Stock, the undersigned hereby
represents to the Company that he is acquiring the Stock for his own account for
investment and not with a view to, or for resale in connection with, a
distribution of the shares within the meaning of the Securities Act of 1933, as
amended (the "Act"). The undersigned also understands that the Company has not
registered the Stock under the Act, in reliance upon the private offering
exemptions contained in Section 4(2) of the Act, and that such reliance is based
in part upon the undersigned's representations.
The undersigned understands that because the Stock has not been
registered under the Act, the undersigned must hold such Stock indefinitely
unless such Stock is subsequently registered and qualified under such statutes
or is exempt from such registration and qualification. Before the undersigned
makes any transfer or disposition of any shares of the Stock, the undersigned
agrees to give to the Company written notice of its intention to do so and to
describe briefly the manner of such proposed transfer or disposition. The
undersigned shall make no such transfer or disposition unless (a) such transfer
or disposition can be made without registration under the Act and qualification
under the Law by reason of specific exemptions from such registration and such
qualification, or (b) a registration statement has been filed pursuant to the
Act and has been declared effective with respect to such disposition.
The undersigned agrees that each certificate representing the Stock
delivered to him shall bear substantially the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares may
not be sold or transferred in the absence of such registration or an
exemption therefrom under said Act."
<PAGE> 8
The undersigned further agrees that the Company may place stop orders
on the certificates evidencing the Stock with the transfer agent, if any, to the
same effect as the above legend. The legend and stop transfer notice referred to
above shall be removed only upon the undersigned's furnishing to the Company an
opinion of counsel (reasonably satisfactory to the Company) to the effect that
such legend may be removed.
Date: BARRY BERGSMAN
------------------
By:
-------------------------------
Address:
419 Denslow Avenue
Los Angeles, CA 90049
Social Security Number:
----------------------------------
<PAGE> 9
ASSIGNMENT
(To be Executed by the Registered Holder to Effect Transfer of the Within
Warrant)
For Value Received _______________ hereby sells, assigns and transfers to
____________________ this warrant and the rights represented hereby to purchase
Common Stock in accordance with the terms and conditions hereof, and does hereby
irrevocably constitute and appoint _________________ ______________________ as
attorney to transfer this warrant on the books of the Company with full power of
substitution.
Date: _________________ Signed: ______________________
Please print or typewrite name Please insert Social Security or other
and address of assignee: Tax Identification Number of Assignee:
- -
- ---------------------------------- ----------------------------
- ----------------------------------
- ----------------------------------
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Zip
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE WARRANT IN EVERY PARTICULAR, WITHOUT ALTERNATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER, AND SUCH SIGNATURE(S) MUST BE GUARANTEED
IN ACCORDANCE WITH PRACTICES PREVAILING IN THE SECURITIES INDUSTRY AT THE TIME
SUCH SIGNATURE IS PRESENTED TO THE COMPANY.
