EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
NTN COMMUNICATIONS, INC.
NTN Communications, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a new series of the Company's previously authorized
preferred stock, $.005 par value per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of eighty-five
thousand (85,000) shares of Series B Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 85,000 shares of
Series B Convertible Preferred Stock (the "SERIES B PREFERRED SHARES"),
$.005 par value per share, and the stated value shall be $100 per share
(the "STATED VALUE") which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The holders of the outstanding Series B Preferred
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Shares shall be entitled to receive cumulative dividends at the annual rate
of $4.00 per Series B Preferred Share. Such dividends shall be payable in
quarterly payments of $1.00 per share on the last day of January, April,
July and October of each year, commencing on January 31, 1998 (each of such
dates being a "DIVIDEND PAYMENT DATE"). Such dividend shall accrue on each
Series B Preferred Share from October 31, 1997 and shall accrue from
day-to-day, whether or not earned or declared. Dividend payments made with
respect to Series B Preferred Shares may be made, subject to the terms
hereof, in cash or, at the option of and in the sole discretion of the
Board of Directors, in full or in part, (i) by issuing fully paid and
nonassessable Series B Preferred Shares such that the Stated Value of such
Series B Preferred Shares plus the amount of cash dividend paid in part, if
any, is equal to the amount of the cash dividend which would otherwise be
paid on such Dividend Payment Date if such dividend were paid entirely in
cash or (ii) by increasing
the Stated Value of the Series B Preferred Shares by the amount of such
dividend such that the amount of such increase in the Stated Value of the
Series B Preferred Shares plus the amount of cash dividend paid in part, if
any, is equal to the amount of the cash dividend which would otherwise be
paid on such Dividend Payment Date if such dividend were paid entirely in
cash. If the Board of Directors shall elect to pay any part of a dividend
by such increase in Stated Value, the Company shall provide notice to such
effect to the holders of the Series B Preferred Shares by no later than the
applicable Dividend Payment Date. The issuance of such Series B Preferred
Shares or any such increase in the Stated Value (plus the amount of cash
dividend, if any, paid together therewith) shall constitute full payment of
such dividend. In no event shall an election by the Board of Directors to
pay dividends, in full or in part, in cash on any Dividend Payment Dates
preclude the Board of Directors from electing any other available
alternative in respect of all or any portion of any subsequent dividend.
Declared but unpaid dividends shall not bear interest.
(2) Holder's Conversion of Series B Preferred Shares. A holder of
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Series B Preferred Shares shall have the right, at such holder's option, to
convert the Series B Preferred Shares into shares of the Company's common
stock, $.005 par value per share (the "COMMON STOCK"), on the following
terms and conditions:
(a) Conversion Right. Subject to the provisions of Sections
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2(f) below, any holder of Series B Preferred Shares shall be entitled to
convert at any time or times (i) 25% of the number of Series B Preferred
Shares owned by such holder on or after the earlier of (I) the date the
Registration Statement (as defined below) is declared effective by the
United States Securities and Exchange Commission (the "SEC") and (II) 120
days after the initial date of issuance of the Series B Preferred Shares
(the "SCHEDULED EFFECTIVE DATE"), (ii) an additional 25% of the Series B
Preferred Shares held by such holder commencing on or after 60 days after
the first 25% of such shares becomes convertible, (iii) an additional 25%
of the Series B Preferred Shares held by such holder commencing on or after
90 days after the first 25% of such shares becomes convertible and (iv) the
remaining 25% of the Series B Preferred Shares held by such holder
commencing on or after 120 days after the first 25% of such Shares becomes
convertible, into fully paid and nonassessable shares (rounded to the
nearest whole share in accordance with Section 2(g) below) of Common Stock,
at the Conversion Rate (as defined below); provided, however, that in no
event shall any holder be entitled to convert Series A Preferred Shares in
excess of that number of Series A Preferred Shares which, upon giving
effect to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates to exceed
4.9% of the outstanding shares of the Common Stock following such
conversion. For purposes of this paragraph beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
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issuable upon conversion of each of the Series B Preferred Shares pursuant
to
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Sections (2)(a) and 2(f) shall be determined according to the following
formula (the "CONVERSION RATE"):
$100 + amount of accrued but unpaid dividends
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Conversion Price
For purposes of this Certificate of Designations, the following terms shall
have the following meanings:
(i) "CONVERSION PRICE" means as of any Conversion Date (as
defined below) or other date of determination, the lower of (I) 140% of the
average Closing Bid Prices of the Common Stock on the five trading days
immediately preceding the date on which the first 25% of the Series B Preferred
Shares becomes convertible in accordance with Section 2(a), but in no event
greater than $3.50 (the "Conversion Ceiling") and (II) 85% of the lowest average
of Closing Bid Prices of the Common Stock on any three trading days during the
20 trading days immediately preceding the Conversion Date, subject to adjustment
as provided herein;
(ii) "CLOSING BID PRICES" means, for any security as of any
date, the last closing bid price on the American Stock Exchange ("AMEX") as
reported by Bloomberg, L.P. ("Bloomberg"), or, if the AMEX is not the principal
securities exchange for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc., the
last closing trade price of such security as reported by Bloomberg; and
(iii) "AVERAGE MARKET PRICE" means the average of the Closing
Bid Prices of the Common Stock for the five trading days immediately preceding
the applicable date.
(c) Effect of Failure to Obtain and Maintain Effectiveness of
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Registration Statement. If the registration statement (the "REGISTRATION
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STATEMENT") covering the resale of the shares of Common Stock issuable upon
conversion of the Series B Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the Company and
the initial holders of the Series B Preferred Shares (THE "REGISTRATION RIGHTS
AGREEMENT") is not declared effective by the SEC on or before the Scheduled
Effective Date, then each holder of Series B Preferred Shares shall be entitled
to the following payments until such time as the Registration Statement is
declared effective by the SEC (all such payments to be made in cash and
nonrefundable on the first day of the relevant thirty (30) day period):
(A) for the thirty (30) day period beginning immediately
following the Scheduled Effective Date and ending 30 days following the
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Scheduled Effective Date, an amount equal to the product of (I) (.01),
multiplied by (II) the quotient of (y) 100 (plus any accrued but unpaid
dividends thereon) divided by (z) the Conversion Price, multiplied by (III)
the number of Series B Preferred Shares held by such holder.
(B) for each consecutive thirty (30) day period beginning 31
days following the Scheduled Effective Date, an amount equal to the product
of (I) (.02), multiplied by (II) the quotient of (y) 100 (plus any accrued
but unpaid dividends thereon) divided by (z) the Conversion Price,
multiplied by (III) the number of Series B Preferred Shares held by such
holder; provided however that if, and only if, the Company has at all times
used its best efforts to have the Registration Statement declared effective
by the SEC and such Registration Statement shall not have been declared
effective within 90 days after the Scheduled Effective Date the Company
shall be required to redeem the Series B Preferred Shares in accordance
with Section 3(a) and in connection therewith the Company shall pay the
holders of the Series B Preferred Shares a price per Series B Preferred
Share equal to the Major Transaction Redemption Price.
(d) Adjustment to Conversion Price--Dilution and Other Events. In
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order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Ceiling and the Closing Bid Prices for any days
during any measuring period prior to any of the events set forth below (the
"Adjusting Closing Bid Prices") will be subject to adjustment from time to time
as provided in this Section 2(d).
(i) Adjustment upon Declaration of Dividends and Other Events.
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If the Company shall (I) declare a dividend or make a distribution in shares of
Common Stock, (II) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares, or (III) combine or reclassify the
outstanding Common Stock into a smaller number of shares, the Conversion Ceiling
and the Adjusting Closing Bid Prices in effect on the record date of such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted.
(ii) Adjustment upon Issuance of Convertible Securities with
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Conversion Ceilings. If and whenever on or after the date of issuance of the
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Series B Preferred Shares, the Company in any manner issues or sells any stock
or other securities convertible into or exchangeable for Common Stock
("Convertible Securities") and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible Securities is
subject to a Conversion Ceiling (the "New Convertible Securities Ceiling") which
is greater than the Conversion Ceiling immediately prior to such time, then from
and after the time of such issue or sale, the Conversion Ceiling shall be
increased, if necessary, so that it shall not be less than the New Convertible
Securities Ceiling.
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(iii) Notices.
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(A) Immediately upon any adjustment pursuant hereto of
the Conversion Price, the Company will give written notice thereof to each
holder of Series B Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to each holder
of Series B Preferred Shares at least twenty (20) days prior to the date on
which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, or (II) for determining
rights to vote with respect to any Organic Change, dissolution or
liquidation; provided that in no event shall such notice be provided to
such holder prior to such information being made known to the public.
"Organic Change" shall mean any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all
of the Company's assets to another Person or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock. "Person" shall mean
an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or
any department or agency thereof.
(C) The Company will also give written notice to each
holder of Series B Preferred Shares at least twenty (20) days prior to the
date on which any Organic Change, dissolution or liquidation will take
place.
(iv) Successive adjustments in the Conversion Ceiling and the
Adjusting Closing Bid Prices shall be made whenever any event specified
above shall occur. All calculations under this Section 2(d) shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. No adjustment in the Conversion Price shall be made if the amount
of such adjustment would be less than $0.01, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the
time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
(e) Mechanics of Conversion. Subject to the Company's inability to
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fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert Series B
Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"), the holder thereof shall (A) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m., Pacific Time on such
date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit I (the "CONVERSION NOTICE"), to the Company or its
designated transfer agent (the "TRANSFER AGENT"), and (B) surrender to a
common carrier
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for delivery to the Company or the Transfer Agent as soon as practicable
following such date, the original certificates representing the Series B
Preferred Shares being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction)
(the "PREFERRED STOCK CERTIFICATES") and the originally executed Conversion
Notice.
(ii) Company's Response. Upon receipt by the Company of a
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facsimile copy of a Conversion Notice, the Company shall immediately send,
via facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company or the Transfer Agent of the Preferred
Stock Certificates to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, on the next business day following
the date of receipt (or the second business day following the date of
receipt if received after 11:00 a.m. local time of the Company or Transfer
Agent, as applicable), (I) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or
(II) credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account
with The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
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determination of the Conversion Price, the Company shall promptly issue to
the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) business day of receipt of such
holder's Conversion Notice. If such holder and the Company are unable to
agree upon the determination of the Conversion Price within one (1)
business day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall within one (1) business day
submit via facsimile the disputed determination of the Conversion Price to
an independent, reputable accounting firm of national standing acceptable
to the Company and such holder of Series B Preferred Shares. The Company
shall cause such accounting firm to perform the determinations or
calculations and notify the Company and the holder of the results no later
than forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such accounting firm's determination, shall
be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
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the shares of Common Stock issuable upon a conversion of Series B Preferred
Shares shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If the Company shall
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fail (other than as a result of the situations described in Section 4(a)
with respect to which the holder has elected, and the Company has satisfied
its obligations under, one of
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the options set forth in subparagraphs (i) through (iv) of Section 4(a)) to
issue to a holder on a timely basis as described in this Section 2(e), a
certificate for the number of shares of Common Stock to which such holder
is entitled upon such holder's conversion of Series B Preferred Shares, the
Company shall pay damages to such holder equal to the greater of (A) actual
damages incurred by such holder as a result of such holder's needing to
"buy in" shares of Common Stock to satisfy its securities delivery
requirements ("Buy In Actual Damages") and (B) after the effective date of
the Registration Statement if the Company fails to deliver such
certificates within five days after the last possible date which the
Company could have issued such Common Stock to such holder without
violating this Section 2(e), on each date such conversion is not timely
effected in an amount equal to 1% of the product of (A) the number of
shares of Common Stock not issued to the holder on a timely basis and to
which such holder is entitled and (B) the Closing Bid Price of the Common
Stock on the last possible date which the Company could have issued such
Common Stock to such holder without violating this Section 2(e).
(f) Mandatory Conversion. If any Series B Preferred Shares
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remain outstanding on the Mandatory Conversion Date (as defined below),
then all such Series B Preferred Shares shall be converted as of such date
in accordance with this Section 2 as if the holders of such Series B
Preferred Shares had given the Conversion Notice on the Mandatory
Conversion Date, and the Conversion Date had been fixed as of the Mandatory
Conversion Date, for all purposes of this Section 2, and all holders of
Series B Preferred Shares shall thereupon and within two (2) business days
thereafter surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series B Preferred Shares, except
the right to receive shares of Common Stock on conversion thereof as
provided in this Section 2. "MANDATORY CONVERSION DATE" means October 31,
2000.
(g) Fractional Shares. The Company shall not issue any
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fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more
than one Series B Preferred Share by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction
of a share of Common Stock up or down to the nearest whole share.
(h) Taxes. The Company shall pay any and all taxes which may be
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imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Series B Preferred Shares.
(3) Redemption.
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(a) Redemption Upon Major Transaction. After a Major Transaction
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(as defined below), the Company shall be required to redeem all of the
Series B Preferred
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Shares at a price per Series B Preferred Share equal to the product of (I)
the aggregate number of shares of Common Stock for which each such Series B
Preferred Share would be converted into on the date of the public
announcement of such Major Transaction or the next date on which the
exchange or market on which the Common Stock is traded is open if such
public announcement is made (X) after 12:00 p.m., Pacific Time, time on
such date or (Y) on a date on which the exchange or market on which the
Common Stock is traded is closed, multiplied by (II) the Average Market
Price of the Common Stock on such date ("Major Transaction Redemption
Price").
(b) Redemption Option Upon Triggering Event. In addition to all
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other rights of the holders of Series B Preferred Shares contained herein,
after a Triggering Event (as defined below), each holder of Series B
Preferred Shares shall have the right in accordance with Section 3(f), at
such holder's option, to require the Company to redeem all or a portion of
such holder's Series B Preferred Shares at a price per Series B Preferred
Share equal to the product of (I) the aggregate number of shares of Common
Stock for which each such Series B Preferred Share would be converted into
as of the date immediately preceding such Triggering Event on which the
exchange or market on which the Common Stock is traded is open multiplied
by (II) the Average Market Price of the Common Stock on such date
("TRIGGERING EVENT REDEMPTION PRICE" and, collectively with "Major
TRANSACTION REDEMPTION PRICE," the "REDEMPTION PRICE").
(c) "Major Transaction". A "Major Transaction" shall be deemed
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to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with or
into another Person (other than pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company or pursuant to a merger after which the holders of the Company's
outstanding capital stock immediately prior to the merger own a number of
shares of the resulting company's outstanding capital stock sufficient to
elect a majority of the resulting company's board of directors);
(ii) the sale or transfer of substantially all of the
Company's assets (other than a sale or transfer to an entity controlling,
controlled by or under common control with the Company); or
(iii) a purchase, tender or exchange offer for more than
50% of the outstanding shares of Common Stock is made and accepted by the
holders thereof.
(d) "Triggering Event". A "Triggering Event" shall be deemed
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to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock issued or
issuable upon conversion of the Series B Preferred Shares cannot be sold
under the Registration Statement (the "Suspension Period"), for any period
of 45 consecutive days that is (A) after the date the Registration
Statement has been declared effective by the SEC and (B) prior to the time
that the Conversion Shares may be sold without limitation
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in accordance with Rule 144(k) under the 1933 Act; provided that any demand
for redemption under this Section 3(d)(i) must be made by a holder of
Series B Preferred Shares within 10 days after receipt of notice from the
Company of the termination of the Suspension Period; and, provided further
that if the aggregate number of days in all Suspension Periods (the
"Suspension Days") is equal to or greater than forty-five (45) days, then
the Mandatory Conversion Date shall be extended by the number of Suspension
Days;
(ii) the failure of the Common Stock or the Conversion
Shares to be listed on the AMEX, The New York Stock Exchange or the Nasdaq
National Market System for a period of 15 consecutive days; provided
however that any demand for redemption under this Section 3(d)(ii) must be
made by a holder of Series B Preferred Shares within 30 days after receipt
of the Notice of Triggering Event (as defined in Section 3(f)); or
(iii) the Company's notice to any holder of Series B
Preferred Shares, including by way of public announcement, at any time, of
its intention not to comply with proper requests for conversion of any
Series B Preferred Shares into shares of Common Stock, including due to any
of the reasons set forth in Section 4(a) below, except in any case in which
the basis for such intention by the Company is a bona fide dispute as to
the right of such holder to such conversion.
(e) Mechanics of Redemption Upon Major Transaction. No sooner
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than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR
TRANSACTION") to each holder of Series B Preferred Shares.
(f) Mechanics of Redemption at Option of Holder Upon Triggering
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Event. Within one (1) day after the occurrence of a Triggering Event, the
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Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to each holder of Series B Preferred
Shares. At any time after receipt of a Notice of Triggering Event, but only
for as long as the facts giving rise to the Triggering Event continue to
exist, the holders of at least two-thirds (2/3) of the Series B Preferred
Shares then outstanding may require the Company to redeem all of the Series
B Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of HolderUpon Triggering
Event") to the Company, which Notice of Redemption at Option of Holder Upon
Triggering Event shall indicate (i) the number of Series B Preferred Shares
that such holders are voting in favor of redemption and (ii) the applicable
Redemption Price, as calculated pursuant to Section 3(b) above.
(g) Payment of Redemption Price. Upon the occurrence of a Major
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Transaction or the Company's receipt of a Notice(s) of Redemption at Option
of Holder Upon Triggering Event from the holders of at least two-thirds
(2/3) of the Series B Preferred Shares then outstanding, the Company shall
immediately notify each holder by
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facsimile of the mechanics of the delivery of each holder's Preferred Stock
Certificate and, if applicable, the Company's receipt of such requisite
notices necessary to effect a redemption and each holder of Series B
Preferred Shares shall thereafter promptly send such holder's Preferred
Stock Certificates to be redeemed to the Company or its Transfer Agent. The
Company shall deliver the applicable Redemption Price to such holder within
thirty (30) days after the Company's delivery of a Notice of Major
Transaction or the Company's receipt of the requisite notices required to
affect a redemption; provided that a holder's Preferred Stock Certificates
shall have been so delivered to the Company or its Transfer Agent; provided
further that if the Company is unable to redeem all of the Series B
Preferred Shares, the Company shall redeem an amount from each holder of
Series B Preferred Shares equal to such holder's pro-rata amount (based on
the number of Series B Preferred Shares held by such holder relative to the
number of Series B Preferred Shares outstanding) of all Series B Preferred
Shares being redeemed. If the Company shall fail to redeem all of the
Series B Preferred Shares submitted for redemption (other than pursuant to
a dispute as to the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Series B Preferred Shares may have
under this Certificate of Designations and the Securities Purchase
Agreement between the Company and the initial holders of the Series B
Preferred Shares (the "SECURITIES PURCHASE AGREEMENT"), the Redemption
Price payable in respect of such unredeemed Series B Preferred Shares shall
bear interest at the rate of 1.25% per month (prorated for partial months)
until paid in full. In the case of a Triggering Event, until the Company
pays such unpaid Redemption Price in full to each holder, holders of at
least two-thirds (2/3) of the Series B Preferred Shares then outstanding,
including shares of Series B Preferred Shares submitted for redemption
pursuant to this Section 3 and for which the applicable Redemption Price
has not been paid, shall have the option (the "VOID OPTIONAL REDEMPTION
OPTION") to, in lieu of redemption, require the Company to promptly return
to each holder all of the Series B Preferred Shares that were submitted for
redemption by such holder under this Section 3 and for which the Redemption
Price has not been paid, by sending written notice thereof to the Company
via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's
receipt of such Void Optional Redemption Notice(s) and prior to payment of
the full Redemption Price to each holder, (i) the Notice(s) of Redemption
at Option of Holder Upon Triggering Event shall be null and void with
respect to those Series B Preferred Shares submitted for redemption and for
which the Redemption Price has not been paid, and (ii) the Company shall
immediately return any Series B Preferred Shares submitted to the Company
by each holder for redemption under this Section 3(i) and for which the
Redemption Price has not been paid. Notwithstanding the foregoing, in the
event of a dispute as to the determination of the arithmetic calculation of
the Redemption Price, such dispute shall be resolved pursuant to Section
2(e)(iii) above. Payments provided for in this Section 3 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(4) Inability to Fully Convert.
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(a) Holder's Option if Company Cannot Fully Convert. If, upon
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the Company's receipt of a Conversion Notice, the Company cannot issue
shares of Common
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Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or its
Securities, including without limitation the AMEX, from issuing all of the
Common Stock which is to be issued to a holder of Series B Preferred Shares
pursuant to a Conversion Notice or (z) fails to have a sufficient number of
shares of Common Stock registered for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock as
it is able to issue in accordance with such holder's Conversion Notice and
pursuant to Section 2(e) above and, with respect to the unconverted Series
B Preferred Shares, the holder, solely at such holder's option, can elect
to (unless the Company issues and delivers the Conversion Shares underlying
the unconverted Series B Preferred Shares prior to the holder's election
hereunder, in which case such holder shall only be entitled to receive Buy
In Actual Damages under Section 2(e)(v)) :
(i) require the Company to redeem from such holder those
Series B Preferred Shares for which the Company is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("MANDATORY
REDEMPTION") at a price per Series B Preferred Share (the "MANDATORY
REDEMPTION PRICE") equal to the Triggering Event Redemption Price as of
such Conversion Date;
(ii) if the Company's inability to fully convert Series B
Preferred Shares is pursuant to Section 4(a)(z) above, require the Company
to issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(e) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series B Preferred Shares
that were to be converted pursuant to such holder's Conversion Notice; or
(iv) if the Company's inability to fully convert Series B
Preferred Shares is pursuant to the AMEX rules and regulations described in
Section 4(a)(y) above, require the Company to issue shares of Common Stock
in accordance with such holder's Conversion Notice and pursuant to Section
2(e) above at a Conversion Price equal to the Average Market Price of the
Common Stock for the five (5) consecutive trading days preceding such
holder's Notice in Response to Inability to Convert (as defined below).
(b) Mechanics of Fulfilling Holder's Election. The Company shall
------------------------------------------
immediately send via facsimile to a holder of Series B Preferred Shares,
upon receipt of a facsimile copy of a Conversion Notice from such holder
which cannot be fully satisfied as described in Section 4(a) above, a
notice of the Company's inability to fully satisfy such holder's Conversion
Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully
Convert Notice shall indicate (i) the reason why the Company is unable
-11-
to fully satisfy such holder's Conversion Notice, (ii) the number of Series
B Preferred Shares which cannot be converted and (iii) the applicable
Mandatory Redemption Price. Such holder must within five (5) business days
of receipt of such Inability to Fully Convert Notice deliver written notice
via facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT")
of its election pursuant to Section 4(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
---------------------------
have its shares redeemed pursuant to Section 4(a)(i) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within
thirty (30) days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis as
described in this Section 4(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Series B Preferred Shares may have
under this Certificate of Designations and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 1.25% per
month (prorated for partial months) until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder may
void the Mandatory Redemption with respect to those Series B Preferred
Shares for which the full Mandatory Redemption Price has not been paid and
receive back such Series B Preferred Shares. Notwithstanding the foregoing,
if the Company fails to pay the applicable Mandatory Redemption Price
within such thirty (30) days time period due to a dispute as to the
determination of the arithmetic calculation of the Redemption Price, such
dispute shall be resolved pursuant to Section 2(e)(iii) above.
(d) Pro-rata Conversion and Redemption. In the event the Company
----------------------------------
receives a Conversion Notice from more than one holder of Series B
Preferred Shares on the same day and the Company can convert and redeem
some, but not all, of the Series B Preferred Shares pursuant to this
Section 4, the Company shall convert and redeem from each holder of Series
B Preferred Shares electing to have Series B Preferred Shares converted and
redeemed at such time an amount equal to such holder's pro-rata amount
(based on the number of Series B Preferred Shares held by such holder
relative to the number of Series B Preferred Shares outstanding) of all
Series B Preferred Shares being converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
--------------------------
redemption pursuant to this Certificate of Designations of less than all of
the Series B Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Series B Preferred Shares a preferred stock certificate
representing the remaining Series B Preferred Shares which have not been so
converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
---------------------
Series B Preferred Shares are outstanding, reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Shares, such number of
shares of Common Stock as shall from time to
-12-
time be sufficient to effect the conversion of all of the Series B
Preferred Shares then outstanding; provided that the number of shares of
Common Stock so reserved shall at no time be less than 200% of the number
of shares of Common Stock for which the Series B Preferred Shares are at
any time convertible; provided further that such shares of Common Stock so
reserved shall be allocated for issuance upon conversion of Series B
Preferred Shares pro rata among the holders of Series B Preferred Shares
based on the number of Series B Preferred Shares held by such holder
relative to the total number of authorized Series B Preferred Shares.
(7) Voting Rights. Holders of Series B Preferred Shares shall have no
-------------
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided
in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
------------------------------------
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series B Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital or
from earnings available for distribution to its stockholders (the
"PREFERRED FUNDS"), before any amount shall be paid to the holders of any
of the capital stock of the Company of any class junior in rank to the
Series B Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Company, an amount per Series B Preferred Share equal to the sum of
(i) $100 and (ii) all accrued and unpaid dividends (such sum being referred
to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series B
Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Series B
Preferred Shares as to payments of Preferred Funds (the "PARI PASSU
SHARES"), then each holder of Series B Preferred Shares and Pari Passu
Shares shall receive a percentage of the Preferred Funds equal to the full
amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount of
Preferred Funds payable to all holders of Series B Preferred Shares and
Pari Passu Shares. The purchase or redemption by the Company of stock of
any class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed
to be a liquidation, dissolution or winding up of the Company.
(9) Preferred Rank. All shares of Common Stock shall be of junior
--------------
rank to all Series B Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up
of the Company. The rights of the shares of Common Stock shall be subject
to the preferences and relative rights of the Series B Preferred Shares. As
long as at least one-third (1/3) of the Series B Preferred Shares initially
issued remain outstanding, then without the prior express written consent
-13-
of the holders of not less than two-thirds (2/3) of the then outstanding
Series B Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior rank to the
Series B Preferred Shares in respect of the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Company. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series B Preferred
Shares, the Company shall not hereafter authorize or make any amendment to
the Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Delaware
Secretary of State containing any provisions, which would adversely affect
or otherwise impair the rights or relative priority of the holders of the
Series B Preferred Shares relative to the holders of the Common Stock or
the holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the
Series B Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(10) Restriction on Redemption and Cash Dividends with respect to
------------------------------------------------------------
Other Capital Stock. Until all of the Series B Preferred Shares have been
-------------------
converted or redeemed as provided herein, the Company shall not, directly
or indirectly, declare or pay any cash dividend on its Common Stock without
the prior express written consent of the holders of not less than two-
thirds (2/3) of the then outstanding Series B Preferred Shares.
(11) Vote to Change the Terms of Series B Preferred Shares. The
-----------------------------------------------------
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3)
of the then outstanding Series B Preferred Shares, shall be required for
any change to this Certificate of Designations or the Company's Certificate
of Incorporation which would amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series B Preferred
Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
---------------------------
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series B
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall
not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Series B Preferred
Shares into Common Stock.
-14-
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Gerald Sokol, its President and Chief Executive Officer, as of
the 31st day of October 1997.
NTN COMMUNICATIONS, INC.
By: /s/ Gerald Sokol, Jr.
----------------------------------
Name: Gerald Sokol
Its: President and Chief Executive
Officer
-15-
EXHIBIT I
NTN COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
NTN Communications, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series B Convertible Preferred Stock,
$.005 par value per share (the "SERIES B PREFERRED SHARES"), of NTN
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.005 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series B Preferred Shares specified below as of the date specified below.
Date of Conversion: ________________________________________
Number of Series B
Preferred Shares to be converted: ________________________________________
Stock certificate no(s). of Series B
Preferred Shares to be converted: ________________________________________
Please confirm the following information:
Conversion Price: _________________________________________
Number of shares of Common Stock
to be issued: _________________________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Series B Preferred Shares are being converted in
the following name and to the following address:
Issue to: _________________________________________
_________________________________________
_________________________________________
_________________________________________
Facsimile Number: _________________________________________
Authorization: _________________________________________
By:______________________________________
Title:___________________________________
Dated: _________________________________________