<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NTN Communications, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 16, 1996
--------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of NTN Communications, Inc. (the "Company") will be held at the
Company's offices at 5966 La Place Court, Carlsbad, California, on August 16,
1996, at 10:00 A.M., local time, for the following purposes, as more fully
described in the attached Proxy Statement:
1. To elect two persons to the Board of Directors:
2. To approve an amendment to the Company's 1995 Stock Option Plan to
increase by 2,000,000 shares the aggregate number of shares of Common
Stock that may be issued under the plan.
3. To consider and act upon such other matters as may properly come before
the meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on June 19, 1996, as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or at any adjournment thereof.
You are cordially invited to attend the Annual Meeting. In order to ensure
your representation at the meeting, however, please complete, date, sign, and
return the enclosed proxy in the accompanying envelope. The prompt return of
your proxy will help to save expenses involved in further communication. Your
proxy is revocable and will not affect your right to vote in person should you
decide to attend the Annual Meeting.
By Order of the Board of Directors
/s/ Ronald E. Hogan
Ronald E. Hogan
Secretary
Carlsbad, California
July 8, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.................................................... 1
VOTING SECURITIES............................................... 2
ELECTION OF DIRECTORS........................................... 2
BOARD OF DIRECTORS.............................................. 3
EXECUTIVE OFFICERS.............................................. 6
EXECUTIVE COMPENSATION.......................................... 8
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION.......... 16
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT................................ 16
CERTAIN TRANSACTIONS............................................ 17
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN................. 20
REPORTS UNDER FEDERAL SECURITIES LAWS........................... 24
INDEPENDENT ACCOUNTANTS......................................... 25
OTHER MATTERS................................................... 25
PROXY SOLICITATION.............................................. 25
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING................... 26
</TABLE>
(i)
<PAGE>
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
--------------------
PROXY STATEMENT
ANNUAL MEETING TO BE HELD AUGUST 16, 1996
--------------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors (sometimes
hereinafter referred to as the "Board") of NTN Communications, Inc. (the
"Company") for use at the annual meeting of stockholders (the "Annual Meeting")
to be held August 16, 1996, or at any adjournment of the Annual Meeting. The
accompanying proxy names Patrick J. Downs and Ronald E. Hogan, and each of them,
as proxies for purposes of the Annual Meeting.
All shares of Common Stock of the Company represented by a properly completed
proxy received in time for the Annual Meeting will be voted by the proxy holders
as provided therein. If no direction is given in the proxy, it will be voted
"FOR" (i) the election to the Board of Directors of the nominees named herein
and (ii) the approval of the amendment to the Company's 1995 Stock Option Plan
(the "1995 Option Plan") described in this Proxy Statement to increase the
number of shares of Common Stock available for issuance under the 1995 Option
Plan. With respect to any other item of business that may come before the
Annual Meeting, the proxy holders will vote the proxy in accordance with their
best judgment.
The proxy may be revoked at any time before it has been exercised by giving
written notice of revocation to the Secretary of the Company, by executing and
delivering to the Secretary a proxy dated a later date than the accompanying
proxy, or by attending the Annual Meeting and voting in person.
This Proxy Statement, together with the accompanying proxy, is first being
mailed to stockholders on or about July 8, 1996.
1
<PAGE>
VOTING SECURITIES
The Company has one class of voting stock outstanding, designated Common
Stock, $.005 par value. Each share of Common Stock is entitled to one vote on
each matter to be voted on at the Annual Meeting. Only holders of record of
Common Stock at the close of business on June 19, 1996 are entitled to notice of
and to vote at the Annual Meeting. There were 23,436,983 shares of Common Stock
outstanding as of the record date. The presence, in person or by proxy, of
stockholders entitled to cast at least a majority of the votes entitled to be
cast by all stockholders will constitute a quorum for the transaction of
business at the Annual Meeting.
Pursuant to Delaware law, shares represented by proxies on which abstentions
are marked will be counted as present at the Annual Meeting for purposes of
determining the presence of a quorum. So-called broker non-votes also are
counted for purposes of determining whether a quorum is present, but are not
included in the calculation of the voting power present for any matter as to
which the authority to vote is withheld.
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the Board of Directors is to consist of not
less than five nor more than thirteen directors, with the exact number of
directors within such range to be determined by the Board of Directors. At
present, there are five authorized directors. The Company's Bylaws further
provide that the Board is to be classified, with respect to the time for which
the Directors hold office, into three classes, as nearly equal in number as
possible. At each annual meeting of stockholders, the successors of the class
of directors whose term expires at that meeting are to be elected to hold office
for a term of three years.
The Board of Directors has selected the following nominees for election as
directors of the class of directors to be elected at the Annual Meeting, each to
hold office until the annual meeting of stockholders in 1999 and until their
respective successors are duly elected and qualified. The following table sets
forth certain information with respect to the persons nominated by the Board of
Directors for election as class directors:
<TABLE>
<CAPTION>
Name Age Position Held Director Since
- ----------------------- --- ----------------------- --------------
<S> <C> <C> <C>
Patrick J. Downs 59 Chairman of the Board 1985
of Directors and Chief
Executive Officer
Donald C. Klosterman 66 Director 1985
</TABLE>
Both of the nominees have indicated a willingness to serve as directors. If
either of them should decline or be unable to act as a director, however, the
proxy holders will vote for the election of another person as the Board of
Directors recommends.
Nominees receiving the highest number of affirmative votes cast at the Annual
Meeting, up to the number of directors to be elected, will be elected as
directors. Proxies may not be voted for a greater number of persons than the
number of nominees named herein.
2
<PAGE>
In April 1996, the Company restructured certain outstanding loans from the
Company to Mr. Klosterman and certain other directors and executive officers as
described under "Certain Transactions - Loans to Directors and Executive
Officers." In connection with the restructuring, Mr. Klosterman executed a
three-year promissory note in favor of the Company in an aggregate principal
amount of $1,179,043. Under the terms of the restructuring, the entire
outstanding principal of and accrued interest on the note is to be cancelled in
the event that Mr. Klosterman is not re-elected at the Annual Meeting.
Shareholders should consider this information prior to returning the enclosed
proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED. PROXIES WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES NAMED IF NO
DIRECTION IS GIVEN IN THE PROXIES.
BOARD OF DIRECTORS
DIRECTORS
The following table lists the names of the directors of the Company, along
with their respective ages, positions and offices held with the Company and
terms of office as director, the periods they have served as such, and the year
their current term will expire:
<TABLE>
<CAPTION>
Current
Director Term
Name Age Position(s) Held Since Expires
- ----------------------- --- -------------------------- -------- -------
<S> <C> <C> <C> <C>
Patrick J. Downs(1) 59 Chairman of the Board of 1985 1996
Directors and Chief
Executive Officer
Daniel C. Downs(1) 56 President, Chief 1985 1998
Operating
Officer and Director
Donald C. Klosterman 66 Director 1985 1996
Alan P. Magerman 61 Director, Vice Chairman 1991 1998
Alvin R. Rozelle 70 Director 1994 1997
</TABLE>
(1) Patrick J. Downs and Daniel C. Downs are brothers.
The following biographical information is furnished with respect to the
directors of the Company:
PATRICK J. DOWNS has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1, 1994, prior to which time Mr.
Downs served as President and Chief Executive Officer of the Company (or its
predecessor) since 1983 and a director since April 1985. Mr. Downs was an
independent marketing consultant from 1981 to 1983, during which time he also
worked on the development of QB1. From 1975 to 1977, he served as Vice
President and National Marketing Director for the Select-A-Seat Corporation; and
he was President of Datatix Systems, Inc. from 1978 through 1981. From 1973 to
1975, he served as General Manager, Western Region (11 western states) for
Ticketron, Inc. From 1970 to 1973, he was a Director of Special Projects for
Time/
3
<PAGE>
Life Broadcast Properties in San Diego. From 1964 to 1969, Mr. Downs
served as Vice President and Business Manager of the San Diego Padres baseball
team.
DANIEL C. DOWNS has been President and Chief Operating Officer of the
Company since April 1994, prior to which time Mr. Downs served as Executive Vice
President and Chief Operating Officer of the Company (or its predecessor) since
1983 and a director since April 1985. Mr. Downs was an independent marketing
consultant from 1981 to 1983, during which time he also worked on the
development of QB1. From 1979 to 1981, Mr. Downs served as Executive Vice
President and General Manager of Hollywood Park Race Course. From 1974 to 1979,
Mr. Downs served as Executive Vice President and General Manager for the
Southern California Racing Association at Los Alamitos Race Course. In 1965,
Mr. Downs became Tickets Manager and later, Stadium Manager and Director of
Sales for the Houston Oilers football team of the National Football League.
During his ten-year affiliation with that franchise, Mr. Downs became the
Assistant General Manager.
DONALD C. KLOSTERMAN currently serves as the President of Pacific Casino
Management, Inglewood, California, and has been a director of the Company (or
its predecessor) since 1983 and served as Chairman of the Board from 1985 to
April 1, 1994. From 1982 to the present, Mr. Klosterman also has acted as a
consultant to the Company. Mr. Klosterman served as Vice President and General
Manager of the Los Angeles Express football team of the U.S.F.L until the summer
of 1985; since then, he has been an independent business consultant. In 1971,
Mr. Klosterman became Vice President/General Manager of the Los Angeles Rams and
served in that capacity for eleven years, until 1982. In 1970, Mr. Klosterman
was the General Manager of the Baltimore Colts. In 1966, Mr. Klosterman was the
General Manager of the Houston Oilers. Mr. Klosterman played professional
football for Cleveland, Dallas, Los Angeles and Calgary. Mr. Klosterman is also
a director of Aldila Shaft Manufacturer.
ALAN P. MAGERMAN was appointed a director of the Company in November 1991.
From 1991 to 1995, Mr. Magerman was the founder and Chairman of the Board of
Odyssey Sports Inc., a privately held company engaged in the development and
distribution of golf clubs. Mr. Magerman is a director of The Oracle Group, a
financial and business consulting firm, and a director of Vision Development
Centers, a Company which provides vision care services. Prior to co-founding
Oracle and since 1986, Mr. Magerman acted as an independent financial
consultant. From 1981 to 1986, Mr. Magerman was President and Chief Executive
Officer of Omnimax Inc., a venture capital firm. From 1968 until 1980, Mr.
Magerman was Chairman of the Board of Data Dynamics Inc., a software management
firm specializing in hospital-related software and military-related software.
Prior to 1968, Mr. Magerman was a financial and business consultant and
President of his family's manufacturing business. Mr. Magerman also serves as a
director of several national charity organizations.
ALVIN R. ROZELLE has been a director of the Company since April 1, 1994.
Since 1989, Mr. Rozelle has served on the Board of Directors of Chris Craft
Industries. From 1960 to 1989, Mr. Rozelle served as Commissioner of the
National Football League. As Commissioner of the National Football League, Mr.
Rozelle served as President of NFL Charities for seventeen years. In 1985, Mr.
Rozelle was inducted into the Pro Football Hall of Fame in Canton, Ohio. In
1983, Mr. Rozelle and his wife Carrie received the United Way of America's
distinguished Alexis de Tocqueville Society Award which recognizes persons who
have rendered outstanding service as volunteers in their own community or
nationally. From 1957 to 1960, Mr. Rozelle served as general manager of the Los
Angeles Rams. From 1955 to 1957, Mr. Rozelle was a partner in the international
public relations firm of P.K. Macker and Company.
4
<PAGE>
MEETINGS AND ORGANIZATION
The business affairs of the Company are managed by and under the direction
of the Board of Directors. During the fiscal year ended December 31, 1995 the
Board met on six occasions. With the exception of Norman Lear, who resigned as
a director in February 1996, each director attended at least 75% of the meetings
of the Board and of each Committee of the Board on which he served.
In May 1995, the Board of Directors established a three-person Executive
Committee of the Board whose primary function is to focus on the central
activities of the Company (hospitality and entertainment) and assure tighter
daily control of the Company's activities, as well as to provide recommendations
to the Board relating to the direction and goals of the Company. During 1995,
the Executive Committee was comprised of Patrick J. Downs, Daniel C. Downs, and
Kenneth B. Hamlet. Mr. Hamlet resigned as a director and executive officer of
the Company in April 1996. No replacement for Mr. Hamlet on the Executive
Committee has yet been named.
The Board also has the following standing committees:
QUALIFIED OPTION COMMITTEE. The Qualified Option Committee administers the
Company's 1985 Incentive Stock Option Plan, as amended (the "Qualified Plan").
The Committee, composed of Patrick J. Downs and Daniel C. Downs, met twice in
1995.
NONQUALIFIED OPTION COMMITTEE. The Nonqualified Option Committee
administers the Company's 1985 Nonqualified Stock Option Plan, as amended (the
"Nonqualified Plan"). The Committee, composed of Donald C. Klosterman, Patrick
J. Downs and Daniel C. Downs, met twice in 1995.
AUDIT COMMITTEE. The primary functions of the Audit Committee are to
periodically review the Company's accounting and financial reporting and control
policies and procedures, to recommend to the Board the firm of certified public
accountants to be retained as the Company's independent auditors, and to review
Company policies and procedures relating to business conduct and conflicts of
interest. During 1995, the Audit Committee was composed of Alvin R. Rozelle and
Kenneth Hamlet. In April 1996, Mr. Klosterman was appointed to fill the vacancy
on the Audit Committee left by the resignation of Mr. Hamlet. The Audit
Committee did not meet in 1995.
COMPENSATION COMMITTEE. The primary function of the Compensation Committee
is to review and advise the Board on salaries, bonuses and other executive
compensation matters. During 1995, the Compensation Committee was composed of
Messrs. Rozelle and Hamlet. In April 1996, Mr. Klosterman also was appointed to
the Compensation Committee to fill the vacancy created by Mr. Hamlet's
resignation. The Compensation Committee met one time in 1995.
BOARD NOMINATIONS
The Board has no standing Nominating Committee. The Board in its entirety
acts upon matters that would otherwise be the responsibility of such a
committee. The Board will consider as prospective nominees for election as
directors persons recommended by the Company's stockholders. Any such
recommendations should be in writing and should be mailed or delivered to the
Company, marked for the attention of the Company's Secretary, on or before the
date for timely submission of stockholder proposals. See "Stockholder Proposals
for 1997 Annual Meeting."
5
<PAGE>
EXECUTIVE OFFICERS
The following table lists the names of the executive officers of the
Company, along with their respective ages, positions and offices held with the
Company:
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Patrick J. Downs 59 Chairman of the Board of Directors and Chief
Executive Officer
Daniel C. Downs 56 President, Chief Operating Officer and Director
Alan P. Magerman 61 Vice Chairman
Ronald E. Hogan 57 Senior Vice President - Finance, Chief
Financial
Officer and Secretary
Gerald P. McLaughlin 56 Executive Vice President - Systems
Jerry V. Petrie 53 Executive Vice President - Marketing
Jon Van Caneghem 34 President, New World Computing, Inc.
Michael J. Downs(1) 62 President, LearnStar, Inc.
Colleen Anderson 45 President, IWN, Inc.
</TABLE>
________________________
(1) Michael J. Downs is the brother of Patrick J. Downs and Daniel C. Downs.
See "Board of Directors" for the biographies of the Company's executive
officer who also serve as directors. The following biographical information is
furnished with respect to the other executive officers of the Company:
RONALD E. HOGAN has served as Secretary of the Board of Directors for the
Company since 1983 and currently serves as Senior Vice President and Chief
Financial Officer responsible for finance, accounting and administration. Mr.
Hogan had over 20 years corporate finance and data processing experience prior
to joining NTN, including being regional manager for Western Savings and Loan
Association; Vice President of Master Craft Homes; Co-founder and President of
PDPS, a computer consulting and service firm; and Vice-President of Finance for
Datatix Systems Inc.
GERALD P. MCLAUGHLIN serves as Executive Vice President and Director of
Operations/Systems, responsible for interactive programming and broadcasting as
well as PC on-line services, cable and telco. Prior to joining NTN, he served
as Vice-President of Information Systems for Atari, where he developed a network
of 2,000 terminals and personal computers linked to computer systems in other
foreign countries. He then became Director of Systems Development for Warner
Communications, in New York, where his projects included interactive cable
television and all major development projects for six Warner Communications'
subsidiaries. In addition, he has spearheaded systems development projects for
American Airlines, the New York and Midwest Stock Exchanges and several Fortune
500 companies.
6
<PAGE>
JERRY V. PETRIE serves as Executive Vice President and Director of
Marketing and is responsible for the creation of advertiser-themed programs and
marketing strategies for Network advertisers. He joined NTN in 1986, handling
all Canadian marketing and sales for NTN Canada while serving as President of
the Petrie Group, a marketing consultant firm. He also served as President of
NTN Sports, Inc., the exclusive license holder of NTN Communications,
Inc. in Canada and was President of Sports Administration, Inc., a full-service
sports management company representing numerous Canadian professional athletes
and sports personalities.
JON VAN CANEGHEM has served as President of New World Computing, Inc. ("New
World") since January 3, 1994, following the Company's merger with New World
effected on December 31, 1993. Prior to the Merger, Mr. Van Caneghem had served
as President and Chief Executive Officer of New World since its inception in
1984. In June 1996, the Company agreed to sell to the 3DO Company substantially
all of the assets of New World. It is contemplated that Mr. Van Caneghem will
become employed by 3DO in connection with the sale. See "Employment Agreements"
below.
MICHAEL J. DOWNS served as director from 1987 until 1994 at which time he
was elected President and C.E.O. of LearnStar, Inc. Corporation. Prior to NTN,
he was Vice President and General Manager of Opryland, USA and was responsible
for designing and building Nashville, Tennessee Entertainment Center. He also
served as President of a division of Twentieth Century and as President of
Health Industries. He was President and C.E.O of Coupon Systems, Inc., a
computer-based point-of-sale marketing company.
COLLEEN ANDERSON has served as President and Chief Executive Officer
of IWN since 1994. From 1987 to 1993, she was President of the Services
Division of Comdata Corporation, a public company, responsible for providing
electronic funds transfer (EFT) and on-line transaction processing services to
the gaming industry. including racetracks, casinos, riverboats, cardrooms,
Indian reservations and cruise ships. During her seven-year tenure, division
revenues grew from $17 million to over $100 million annually. In 1984, Ms.
Anderson founded Cashchek International, Inc., a competitor to Comdata in the
EFT gaming business. Cashchek was acquired by American Express in 1986, where
she continued to rune the business until joining Comdata in 1987.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows the compensation paid or
accrued with respect to each of the last three years to the Chief Executive
Officer of the Company and to the four most highly compensated executive
officers of the Company who were serving as executive officers as of December
31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation All Other
Annual Compensation(2) Awards Compensation
-------------------------- ---------------- --------------
Number of Stock Number of
Option Shares Warrant
Name and Principal Position Year Salary(1) Bonus Granted Shares Granted
- ------------------------------------ ---- ----------- ----- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Patrick J. Downs.................... 1995 $192,044 -0- 200,000 -0-
Chief Executive Officer 1994 169,950 -0- 200,000 -0-
1993 150,000(2) -0- 434,000 150,000
Jon Van Caneghem.................... 1995 $220,000 -0- -0- -0-
President, New World 1994 200,000 -0- -0- -0-
Computing, Inc. 1993 160,000 -0- -0- -0-
Daniel C. Downs..................... 1995 $192,044 -0- 200,000 -0-
President and Chief 1994 169,950 -0- 200,000 -0-
Operating Officer 1993 150,000(2) -0- 484,000 150,000
Gerald P. McLaughlin................ 1995 $184,333 -0- 75,000 -0-
Executive Vice President - Systems 1994 163,126 -0- 75,000 -0-
1993 144,360(2) -0- 125,000 -0-
Ronald E. Hogan..................... 1995 $150,177 -0- 50,000 -0-
Senior Vice President - Finance, 1994 132,900 -0- 75,000 -0-
Chief Financial Officer and 1993 117,277(2) -0- 313,000 -0-
Secretary
- -----------------
</TABLE>
(1) Includes amounts, if any, deferred under the Company's 401(k) Plan and
Deferred Compensation Plan.
(2) Each of the Named Executive Officers receives an automobile expense
allowance and certain other perquisites. In each case, the value of these
benefits derived by each Named Executive Officer does not exceed the lesser
of (i) $50,000 or (ii) 10% of the total annual salary and bonus shown for
the Named Executive Officer.
8
<PAGE>
STOCK OPTION GRANTS
The following table contains certain information concerning grants of stock
options during 1995 to the Named Executive Officers:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price Appreciation
Number of Shares Options Granted For Option Term(1)
Underlying to Employees Exercise Expiration ------------------------
Name Options Granted In Fiscal Year Price Date 5% 10%
- ----------------------- ---------------- --------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Patrick J. Downs....... 200,000 10.2% $4.50 8/4/02 $366,390 $853,845
Jon Van Caneghem....... -0- - - - - -
Daniel C. Downs........ 200,00 10.2% $4.50 8/4/02 $366,390 $853,845
Gerald P. McLaughlin... 75,000 3.8% $4.50 8/4/02 $137,396 $320,193
Ronald E. Hogan........ 50,000 2.5% $4.50 8/4/02 $ 91,598 $213,461
- ------------------------
</TABLE>
(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules
and regulations of the Securities and Exchange Commission and do not
represent management's estimate or projection of future value of the Common
Stock.
(2) Represents options granted under the Company's 1995 Stock Option Plan
which, in each case, will become exercisable in equal increments on the
first, second and third anniversaries of the date of grant.
9
<PAGE>
STOCK OPTION EXERCISES AND OPTION VALUES
The following table contains certain information concerning stock options
held by the Named Executive Officers held by which were unexercised at the end
of 1995. No stock options were exercised by any of the Named Executive Officers
during 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised,
Option Shares At In-the-Money Options
Fiscal Year-End at Fiscal Year-End (1)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick J. Downs....... 967,500 216,500 * *
Daniel C. Downs........ 1,017,500 216,500 * *
Gerald P. McLaughlin... 140,920 135,150 * *
Jon Van Caneghem....... 0 0 - -
Ronald E. Hogan........ 576,927 76,650 $17,425 *
- ----------------
</TABLE>
(1) Represents the amount by which the aggregate market price on December 31,
1995 of the shares of the Company's Common Stock subject to such options
exceeded the respective exercise prices of such options. An asterisk
denotes that the respective exercise prices of the options shown exceeded
the market price of the underlying shares of Common Stock at December 31,
1995.
PERFORMANCE ASSOCIATED SENIOR EXECUTIVE RETIREMENT PLAN
The Company maintains a Performance Associated Senior Executive Retirement
Plan (the "Retirement Plan"). The Board of Directors, in its discretion,
selects who may participate in the Retirement Plan.
The Retirement Plan provides for a retirement benefit to participants who
have attained the age of 65 and have provided the Company with at least ten
years of service. The retirement benefit entitles the participant to 240
monthly payments in an amount determined by the following formula: ((A x F x
C/2/ / N/2/) - S) x V
where
A = an average of the percentage qualified each year (which varies from zero
to 60% based on the Company's net profit before taxes as interpolated
between $5,000,000 and $8,000,000)
F = final average earnings (based on the highest 60 consecutive months
during the ten years prior to termination of employment)
C = years of service from the date of enrollment in the Retirement Plan
N = age at earliest date when a participant is entitled to a normal
retirement benefit minus age at date of enrollment as a participant in the
Retirement Plan (but, in no event, less than ten)
S = monthly amount that the participant would be eligible for under social
security based on the regulations in effect on January 1, 1994 (once
calculated, such amount does not change even if the actual benefits are
reduced)
10
<PAGE>
V = vested percentage of 10% per year up to 100% (subject to certain
adjustments for a change in control of the Company, the participant
meeting certain eligibility requirements, the participant not having
been terminated for willful misconduct or gross negligence and the
participant not becoming, within three years of termination of
employment, an employee or consultant to a company in a line of business
that competes with the Company above a certain threshold level)
If participants retire prior to qualifying for normal retirement benefits,
then certain lesser benefits are also paid to participants when they attain the
age of 65. Certain other benefits are paid upon the death of a participant
prior to age 65, including a $8,333 per month payment to the beneficiary of such
a participant until the age at which such participant would reach the age of 65.
The annual benefits payable to the Named Executive Officers cannot be
estimated because they depend on, among other things, the Company's future
earnings.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for their services as
directors, with the exception of non-employee directors, who receive $15,000 per
annum. Directors also may be granted options or warrants to purchase common
stock from time to time for services in their capacity as directors. No
director received any grant of options or warrants during 1995 for his services
as a director.
EMPLOYMENT AGREEMENTS
The Company is party to written employment agreements with each of Patrick
J. Downs, Daniel C. Downs, Ronald E. Hogan and Gerald P. McLaughlin that, as
amended, expire on December 31, 1997. The principal terms and conditions of
each of the employment agreements are identical, except for the base-level
annual compensation payable to each executive, which in 1995 was $192,044,
$192,044, $150,000 and $184,333, respectively, for Patrick J. Downs, Daniel C.
Downs, Ronald E. Hogan and Gerald P. McLaughlin. The employment agreements
provide that the executives are to receive a salary increase each year of 10% of
the prior year's base-level annual compensation, as well as inflationary
increases based upon increases in the Consumer Price Index. In the event that
the Company terminates the employment of any of the foregoing officers for any
reason, including in connection with any change of control of the Company, the
Company is obligated to pay the terminated officer an amount equal to three
years base-level compensation as provided in the officer's employment agreement.
The foregoing employment agreements also provide for a profit-sharing
program to be established annually by the Company. The pool is to be
distributed 5% to each of Patrick J. Downs, Daniel C. Downs, Ronald E. Hogan and
Gerald P. McLaughlin. The remaining 80% is to be distributed among all of the
employees of the Company as a group, including any or all of the Named Executive
Officers of the Company, in a manner determined by the Board of Directors. The
amount of the profit-sharing pool for the annual period ended December 31, 1995
was to be 25% of the Company's pre-tax income for the 12-month period then ended
in excess of $10,000,000, and for the annual period ending December 1996, the
greater of (i) 25% of the Company's pre-tax income in excess of $10,000,000 or
(ii) 10% of the Company's pre-tax income for such period. No amounts were paid
or set aside for the profit-sharing program in 1995.
11
<PAGE>
Jon Van Caneghem, the President of the Company's New World Computing, Inc.
subsidiary ("New World"), is employed pursuant to a written employment agreement
with New World and the Company. The employment agreement provided for an annual
base salary of $200,000 for 1994 and for a 10% increased in such base salary for
each successive year of the agreement. Pursuant to the employment agreement,
Mr. Van Caneghem also is entitled to an annual bonus based on the amount, if
any, New World's pre-tax income exceeds certain levels specified in the
employment agreement. No bonus amounts were paid or set aside for 1995. In
June 1996, the Company and Mr. Van Caneghem agreed to the terms on which Mr. Van
Caneghem's employment agreement would be terminated in connection with the sale
of substantially all of the assets of New World to The 3DO Company. In
connection with the sale of the New World assets, the Company is expected to
assign to Mr. Van Caneghem approximately 135,000 of the shares of common stock
of 3DO to be issued to New World in consideration for the sale of its assets.
The current value of such shares is estimated to be approximately $1,350,000.
BOARD COMPENSATION REPORT
Executive Compensation Policy
- -----------------------------
During 1995, the Compensation Committee was comprised of Messrs. Rozelle
and Hamlet. The Compensation Committee met once in 1995, and the Board of
Directors as a whole acted on matters of executive compensation.
The Company's compensation program is designed to encourage continuous
service to the Company by providing short-term cash incentives, long-term stock-
based incentives and deferred compensation and retirement plans to its executive
officers. The Company's compensation principles for the Chief Executive Officer
are identical to those of the Company's other executive officers. The Company's
executive compensation policy is based on the following:
. In order to provide short-term cash incentives to each of the
Company's executive officers and employees, the Company has agreed to establish
a profit-sharing program annually for the executive officers and other employees
of the Company, and to allocate 5% of the profit-sharing pool to each of the
Named Executive Officers other than Jon Van Caneghem. The remaining 80% of the
profit-sharing pool is to be distributed among all of the employees of the
Company as a group, including any or all of the executive officers of the
Company. The pool available under the profit-sharing program is to be based on
the Company's achievement of certain specified pre-tax income levels. The
Company has not achieved the specified income levels to date, so no profit-
sharing pool has been established in any year.
. Equity compensation, in the form of stock options and stock purchase
warrants, constitutes an important element of long-term compensation for the
executive officers. The grant of stock options and warrants increases
management's equity ownership in the Company with the goal of ensuring that the
interests of management remain closely aligned with those of the Company's
stockholders. The Board believes that stock options, warrants and other forms
of equity ownership in the Company provide a direct link between executive
compensation and stockholder value. By attaching vesting requirements, stock
options and warrants also create an incentive for executive officers to remain
with the Company for the long term.
. In 1994, the Board of Directors adopted three additional compensation
plans covering the Company's executive officers, consisting of a 401(k) Plan,
Deferred Compensation Plan and retirement plan. These plans were adopted to
complement the short-term cash incentives and the long-term equity compensation
to the Company's executives.
12
<PAGE>
. Compensation to the Named Executive Officers is subject to a $1
million compensation deduction cap pursuant to Section 162(m) of the Internal
Revenue Code, as amended. In 1995, no Named Executive Officer received
aggregate compensation of $1 million or more. However, the Company is aware
that the grant of stock options and stock purchase warrants to the Named
Executive Officers may subject the Company to the deduction cap in subsequent
years. With respect to incentive stock options, the Company does not anticipate
taking a deduction in the absence of a disqualifying distribution by a Named
Executive Officer. With respect to nonqualified options and warrants, the
Company is aware that any deduction that the Company may have at the time of
exercise will be subject to the $1 million cap. The Board does not anticipate
that the compensation deduction cap will affect its executive compensation
policies.
Chief Executive Officer Compensation
- ------------------------------------
As indicated above, the factors and criteria upon which the compensation of
Patrick J. Downs, the Company's Chief Executive Officer, is based are identical
to the criteria used in evaluating the compensation packages of the other
executive officers of the Company.
Patrick J. Downs Alan P. Magerman
Daniel C. Downs Alvin R. Rozelle
Donald C. Klosterman
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement in whole or in part, the foregoing Board
Compensation Report and the following Performance Graph shall not be
incorporated by reference into any such filings.
PERFORMANCE GRAPH
The following graph sets forth a comparison of cumulative total returns for
the Company, the American Stock Exchange Index, the Company-constructed Peer
Group Index for 1995 ("Peer Group Index 1") and the Company-constructed Peer
Group Index used for 1994 ("Peer Group Index 2"). The Company-constructed Peer
Group Index 1 consists of all companies (i) that are listed in the same industry
group as the Company in the Media General Industry Group Stock Index, and (ii)
whose securities have been registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the period covered
by the performance graph. Peer Group Index 2 consists of companies that have
the same Standard Industrial Classification industry number as the Company for
the period during which the Company's Common Stock has been registered under the
Exchange Act. The Company believes that Peer Group Index 1 contains companies
whose business is more similar to that of the Company than the companies
contained in Peer Group Index 2, and that a comparison to Peer Group Index 1 is
more reflective of how the Company has performed in comparison to its peers.
13
<PAGE>
The companies contained in Peer Group Index 1 are as follows:
American Radio Systems Jacor Communications Inc
Argyle Television Inc. A Katz Media Group Inc.
Associated Group CL A Lin Broadcasting Corp
BET Holdings CL A Lin Television Corp
BHC Communications Inc. Lodgenet Entertainment
Capital Cities/ABC Inc. Multi-Market Radio CL A
Carlton Communications Multimedia Inc.
CBS Inc. New World Comm Gr Inc.
CD Radio Inc. NTN Communications, Inc.
Central European Media Osborn Communications CP
Childrens Broadcasting Outlet Communications A
Chris-Craft Industries Paxson Communications CP
Citicasters Inc. Premiere Radio Network
Clear Channel Comm Inc. Renaissnce Comm CP
DMX Inc. Saga Communications
Emmis Broadcasting CL A SBM Industries Inc.
Evergreen Media Corp A Scandinavian Broadcast
EZ Communications CL A SFX Broadcast
Gaylord Entertainment A Silver King Comm Inc.
Granite Broadcasting N-V Sinclair Broadcast GP A
Gray Communications Syst Telemundo Group Inc. CL
Grupo Radio Centro Triathlon Broadcast Co A
Grupo Televisa Turner Broadcasting B
Heftel Broadcasting CL A United Television Inc.
Hungarian Broadcasting Video Jukebox Network
Infinity Broadcasting A Westwood One Inc.
Internat Family Ent Young Broadcasting CL A
The companies contained in Peer Group Index 2 are as follows:
ACS Enterprises Inc. Jones Intercable Inc.
Adelphia Communication A Jones Intercable Invest
American Telecasting Inc. Metrovision of N Am Inc.
Amerilink Corp National Wireless Hldgs
Ascent Entertain Gr Inc. NTN Canada Inc.
Associated Group CL A Peoples Choice TV CP
Bell Cablemedia PLC ADR PReferred Entertain
Cablemaxx Holdings Source Media Inc.
Cablevision Systems CL A Spectra Vision Inc CL A
CAI Wireless Systems Inc. TCA Cable TV Inc.
Century Communications Tel-Com Wireless Cable
Comcast Special Stock Tele-Comm Int
Cox Communications Tele-Comm SER A TCI GP
Falcon Cable Systems Co United Video SATL GP A
Galaxy Cablevision LP Viacom Inc. CL A
General Cable PLC ADR Videotron HLDG PLC
Graff-Pay-Per-View Inc. Westcott Communications
Heartland Wireless Comm Wireless Cable of Atlan
Internat Cabletel Inc. Wireless One Inc.
14
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG NTN COMMUNICATIONS, INC., AMEX MARKET INDEX AND SIC CODE INDEX
PERFORMANCE CHART APPEARS HERE
NTN COMMUNICATIONS, INC. 100 83.33 131.57 266.67 160.00 120.00
INDUSTRY INDEX 100 101.04 114.87 155.47 124.55 149.76
BROAD MARKET 100 106.74 108.20 128.55 113.55 146.37
The graph assumes that the value of the investment in the Company's Common
Stock, the American Stock Exchange Index and the peer groups of companies each
was $100 on August 19, 1991 and that all dividends were reinvested.
15
<PAGE>
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION
All compensation determinations for 1995 for the Company's executives were
made by the Board of Directors of the Company as a whole. The Company's Senior
Vice President - Finance and Chief Financial Officer also participated during
1995 in deliberations of the Board of Directors concerning executive
compensation. None of the directors or executive officers of the Company has
served on the Board of Directors or the compensation committee of any other
company or entity, any of whose officers served either on the Board of Directors
or on the Compensation Committee of the Board.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 19, 1996 the number and percentage
ownership of Common Stock by (i) all persons known to the Company to own
beneficially more than 5% of the outstanding shares of Common Stock based upon
reports filed by each such person with the Securities and Exchange Commission
(the "Commission"), (ii) each director of the Company, (iii) each of the Named
Executive Officers, and (iv) all of the officers and directors of the Company as
a group. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has 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>
Number of Shares Percent of
Name Beneficially Owned Common Stock(1)
- -------------------------------------------- -------------------- ---------------
<S> <C> <C>
Daniel C. Downs............................. 1,195,794(2) 4.9%
Patrick J. Downs............................ 1,177,319(3) 4.8%
Donald C. Klosterman........................ 757,749(4) 3.1%
Ronald E. Hogan............................. 755,974(7) 3.1%
Alan P. Magerman............................ 805,000(5) 3.3%
Jon Van Caneghem............................ 578,100 2.4%
Gerald P. McLaughlin........................ 188,382(8) *
Alvin R. Rozelle............................ 118,000(6) *
All officers and directors of the Company
as a group (nine persons) 5,674,518(9) 19.5%
- ---------------
</TABLE>
(1) Included as outstanding for purposes of this calculation are 23,436,983 of
Common Stock (the amount outstanding as of June 19, 1996) plus, in the case
of each particular holder, the shares of Common Stock subject to currently
exercisable options, warrants, or other instruments exercisable for or
convertible into shares of Common Stock (including such instruments
exercisable within 60 days after June 19, 1996) held by that person, which
instruments are specified by footnote. Shares issuable as part or upon
exercise of outstanding options, warrants or other instruments other than as
described in the preceding sentence are not deemed to be outstanding for
purposes of this calculation.
16
<PAGE>
(2) Includes 350,000 shares subject to currently exercisable warrants and
667,500 shares subject to currently exercisable options held by Mr. Daniel
Downs.
(3) Includes 350,000 shares subject to currently exercisable warrants and
617,500 shares subject to currently exercisable options held by Mr. Patrick
Downs.
(4) Includes 200,000 shares subject to currently exercisable warrants and
150,000 shares subject to currently exercisable options held by Mr.
Klosterman.
(5) Includes 325,000 shares subject to currently exercisable options held by Mr.
Magerman. Also includes 445,000 shares subject to currently exercisable
warrants held by Phyllis Magerman, Mr. Magerman's wife, and 35,000
outstanding shares owned of record by Mrs. Magerman. Mr. Magerman disclaims
beneficial ownership of all securities owned by Mrs. Magerman.
(6) Includes 100,000 shares subject to currently exercisable warrants held by
Mr. Rozelle and 8,000 shares purchased by the NFL deferred compensation
account for Mr. Rozelle's benefit.
(7) Includes 200,000 shares subject to currently exercisable warrants and
376,927 shares subject to currently exercisable options owned by Mr. Hogan.
(8) Represents 140,920 shares subject to currently exercisable options owned by
Mr. McLaughlin.
(9) Includes 1,870,000 shares subject to currently exercisable warrants and
2,551,047 shares subject to currently exercisable options held by executive
officers and directors, including those described in notes (2) through (8)
above.
CERTAIN TRANSACTIONS
LEARNSTAR, INC.
In December 1995, the Company exercised its right to reacquire from Act III
Communications ("Act III"), an affiliate of Mr. Norman Lear, who served as a
director of the Company during 1995, the 50% of LearnStar, Inc. owned by
Act III. LearnStar was originally formed by the Company and Act III in 1994.
Following its reacquisition of all of the common stock of LearnStar,
in December 1995 the Company sold 45% of the common stock of LearnStar to
Associated Ventures Management, Inc. a Delaware corporation ("Associated
Ventures"), for $2,500,000. Joel Magerman, the son of Alan P. Magerman, a
director and Vice Chairman of the Company, is the President of Associated
Ventures. The $2,500,000 sale prices was paid by means of a non-interest
bearing promissory note of Associated Ventures, which is payable in
installments of $100,000 each on or before January 30, April 30, July 30 and
October 30 1996 and a final installment of $2,100,000 on or before January 30,
1997. The promissory note is secured by the shares of LearnStar purchased by
Associated Ventures, but is otherwise nonrecourse to Associated Ventures.
17
<PAGE>
CONSULTING AGREEMENTS
In April 1990, the Company entered into a five-year consulting agreement with
Donald C. Klosterman, which was amended November 1990 and was terminated
effective March 31, 1995. In connection with the termination of the foregoing
consulting agreement, the Company and Mr. Klosterman entered into a new
consulting agreement in March 1995. Under the agreement, Mr. Klosterman is to
provide consulting services to the Company on a project-by-project basis. The
Company has agreed to compensate Mr. Klosterman on the successful completion of
a project in the amount of 5% of the first million dollars, 4% of the second
million dollars, 3% of the third million dollars, 2% of the fourth million
dollars and 1% of the fifth million dollars and all amounts above such.
WARRANTS
In April 1994, in order to provide an incentive to Mr. Rozelle to serve as
director of the Company, the Company issued to Mr. Rozelle warrants to purchase
100,000 shares of Common Stock at an exercise price of $5.75 per share, the fair
market value of the underlying shares on the date of grant.
LOANS TO OFFICERS AND DIRECTORS
As of the end of 1995, the Company had outstanding loans to its officers and
directors, including an aggregate of $174,927 principal amount of loans made
during fiscal 1995, in the following amounts; Donald C. Klosterman, $966,419;
Patrick J. Downs, $552,790; Daniel C. Downs, $517,163; Gerald P. McLaughlin,
$405,009; Ronald E. Hogan, $365,179; and Robert Klosterman, $195,236. The
majority of the loans represent withholding amounts paid by the Company on
behalf of the officers and directors to taxing authorities in order to obtain a
deduction for federal and state income tax purposes relating to compensation to
officers and directors for prior years. The loans were represented by separate
promissory notes of such officers and directors, which bore interest at annual
rates ranging from 6% and 8% per annum, were unsecured and were due on demand by
the Company. No payments were made on the notes during 1995.
In December 1995, the Company agreed to restructure the loans described
above. Pursuant to the restructuring, each director and officer executed a
three-year promissory note in favor of the Company in a principal amount equal
to the aggregate outstanding principal balance and accrued interest as of March
31, 1996 on the prior loans, as follows: Donald C. Klosterman - $1,179,043;
Patrick J. Downs - $680,429; Daniel C. Downs - $629,141; Gerald P. McLaughlin -
$429,691; Ronald E. Hogan - $445,384; and Robert Klosterman - $237,383.
Of the principal amount of each note, 10% will be due and payable at the end
of 12 months from the date of the note; an additional 30% will be due and
payable at the end of 24 months; and the balance of 60% will be due and payable
at the end of 36 months. The notes will be prepayable at any time without
penalty and will bear interest at the rate of 6% per annum, which will be
payable annually in arrears.
The maker of each note will have the option to satisfy amounts outstanding
under his note by surrendering to the Company for cancellation either (i) shares
of the Company's Common Stock (valued for this purpose at the closing market
price on the date of transfer), or (ii) certain outstanding warrants to purchase
the Company's Common Stock (valued for this purpose at the fair market value
18
<PAGE>
on the date of transfer as determined in good faith by the Board of Directors of
the Company). To the extent the maker of a note surrenders to the Company
shares of Common Stock in satisfaction of all or part of his note or interest
thereon, the executive will be granted a 10-year nontransferable option (an
incentive stock option to the extent permissible) to purchase the same number of
shares of Common Stock as are being surrendered, which would be immediately
exercisable at an exercise price equal to the value at which the Common Stock
was surrendered to the Company in satisfaction of the note obligation, subject
to shareholder approval if required by law or stock exchange rules.
The Company has agreed that, if an executive is terminated by the Company for
any reason other than for "cause" at any time within the three-year term of his
note, or in the case of Donald C. Klosterman, if the stockholders fail to
reelect him to the Board of Directors, the balance of the note and any interest
accrued thereon will be canceled. See "Election of Directors." "Cause" for this
purpose is to be defined as personal dishonesty or willful misconduct which
materially and adversely affects the Company.
In December 1995 and again in January and March 1996, the Company made
additional loans to certain directors and executive officers. Loans were made to
Donald C. Klosterman, Mr. Magerman, Patrick J. Downs and Mr. Hogan in the
amounts of $187,400, $82,000, $201,000, and $137,700, respectively. The loans
are evidenced by individual promissory notes of the directors and executive
officers, which are variously secured by a pledge of shares of Common Stock
owned by the maker of the note or other collateral and which bear interest at
the rate of 10% per annum. The principal and all accrued interest of the notes
are due and payable on December 31, 1996.
INDEMNITY AGREEMENTS
In order to initially retain Mr. Rozelle as a director, the Company entered
into an indemnity agreement with Mr. Rozelle. The indemnity agreement provides
that the Company will indemnify the director under certain circumstances in
which he or the Company is named as a party to a legal proceeding. The Company
believes that the indemnity agreement is reasonable and fair, and in its best
interests to retain experienced outside directors such as Mr. Rozelle.
The Company's Bylaws authorize the Company to indemnify its directors,
executive officers and other agents under certain circumstances for liabilities
they may incur in the performance of their duties to the Company. Pursuant to
this authority, the Company has undertaken the cost of defense of Patrick J.
Downs and Daniel C. Downs in connection with certain shareholder litigation
pending against the Company.
REPURCHASE OF COMMON STOCK
Pursuant to its previously announced stock buy-back, in January 1996, the
Company purchased from Mr. Van Caneghem in a privately negotiated transaction,
25,000 shares of the Company's Common Stock at a price of $4.3125 per share,
which was the market price of the Common Stock at the time of the transaction.
19
<PAGE>
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
The 1995 Stock Option Plan was adopted by the Board of Directors in November
1994 and was subsequently approved by the Company's stockholders at the annual
meeting of Stockholders in July 1995. As originally adopted, the 1995 Option
Plan authorized the issuance of options to purchase for 2,000,000 shares of
Common Stock, plus such additional number of shares of Common Stock as were
subject to options outstanding as of the effective date of the 1995 Option Plan
under the Company's 1985 Incentive Option Plan and its 1985 Nonqualified Stock
Option Plan (collectively, the "1985 Plans"), which subsequently expire or are
terminated without being exercised. As of the effective date of the 1995 Stock
Option Plan, a total of 2,818,930 shares were subject to outstanding options
under the 1985 Plans.
In June 1996, the Board of Directors of the Company unanimously approved an
amendment to the 1995 Stock Option Plan to increase the aggregate number of
shares of Common Stock reserved for issuance thereunder by 2,000,000 shares.
The text of the amendment is set forth as Appendix A to this Proxy Statement.
Under the terms of the 1995 Stock Option Plan, the approval of the Company's
stockholders is required to increase the maximum number of shares which may be
issued under the 1995 Stock Option Plan.
During 1995, the Company granted to officers and other employees options to
purchase a total of 1,966,600 shares of Common Stock under the 1995 Option Plan.
As a result, as of June 19, 1996, there were 33,400 shares of Common Stock
available for the future grant of options under the 1995 Option Plan (excluding
such additional number of shares as may became available by reason of the
termination or expiration of options currently outstanding under the 1985
Plans).
Management believes that the availability of an adequate number of shares of
Common Stock for the grant under the 1995 Stock Option Plan is essential to
enable the Company to attract and retain qualified officers and other key
employees of the Company. The purpose of the amendment is to increase the
number of authorized shares for this purpose.
Approval of the amendment will require the affirmative vote of a majority of
the shares present, in person or by proxy, at the Annual Meeting and entitled to
vote with respect to the amendment. Proxies on which abstentions are marked will
have the same effect as a vote "against" approval of the amendment. Shares
represented by proxies on which authority to vote on the amendment is withheld
will not be included in the calculation of the voting power present with respect
to the amendment, and so will have the effect of reducing the total number of
affirmative votes required to approve the amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN. PROXIES WILL BE VOTED "FOR" APPROVAL OF THE
AMENDMENT IF NO DIRECTION IS GIVEN IN THE PROXIES.
Description Of The 1995 Stock Option Plan
- -----------------------------------------
The directors, officers and other employees of the Company and non-employee
consultants, advisors and other persons who provide significant services for or
on behalf of the Company are eligible to participate in the 1995 Option Plan.
The Company currently has approximately 215 full-time employees.
Under the 1995 Stock Option Plan, the Company may grant both incentive stock
options ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and stock options that
do not qualify for incentive treatment under the Code ("Nonstatutory Options").
Set forth below is a summary of certain salient provisions of the 1995 Option
Plan.
The 1995 Option Plan is to be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") consisting of two or
more members of the Board, who may or may not be "disinterested persons" within
the meaning of Rule 16b-3 under the Securities
20
<PAGE>
Exchange Act of 1934, as amended ("Rule 16b-3"). The Board of Directors
currently is administering the 1995 Option Plan. References herein to the
"Committee" include the Board of Directors if it is then administering the 1995
Option Plan.
Subject to the provisions of the 1995 Option Plan and as the Board may
otherwise determine, the Committee has the authority to construe and interpret
the 1995 Option Plan, to prescribe, adopt, amend and rescind rules and
regulations relating to the administration of the 1995 Option Plan and to make
all other determinations necessary or advisable for its administration. Subject
to the limitations of the 1995 Option Plan, the Committee also selects from
among the eligible persons those individuals who will receive options, whether
an optionee will receive Incentive Stock Options or Nonstatutory Options, or
both, and the amount, price, restrictions and all other terms and provisions of
such options (which need not be identical).
In the event of a substantial decline in the market price of the Common Stock
below the exercise price of options outstanding from time to time, the Board of
Directors or the Committee may, in its sole discretion and by separate agreement
between the Company and any optionee, cancel the outstanding options of such
optionee and grant such optionee new options at the lower market price. In
addition, the Board of Directors or the Committee may grant options under the
1995 Option Plan in exchange for the cancellation of options currently
outstanding under either of the 1985 Plans.
Stock Subject to the 1995 Option Plan
- -------------------------------------
Subject to adjustment as described below, the stock to be offered under the
1995 Option Plan are shares of authorized but unissued Common Stock, including
any shares repurchased under the terms of the 1995 Option Plan or any stock
option agreement ("Stock Option Agreement") entered into pursuant to the 1995
Option Plan. If the amendment to the 1995 Stock Option Plan is approved at the
Annual Meeting, the cumulative aggregate number of shares of Common Stock to be
issued under the 1995 Option Plan will not exceed 4,000,000 shares (including
approximately 1,966,600 shares subject to options currently outstanding under
the 1995 Option Plan), plus up to 2,818,930 shares that were subject to options
outstanding as of the effective date of the 1995 Option Plan under the 1985
Plans which expire or are terminated subsequent to the effective date of the
1995 Option Plan without being exercised. The aggregate number of shares
subject to the 1995 Option Plan also is subject to adjustment as described
below.
Exercise Price
- --------------
The exercise price of each Incentive Stock Option granted under the 1995
Option Plan will be determined by the Committee, but will be not less than 100%
of the "Fair Market Value" (as defined in the 1995 Option Plan) of Common Stock
on the date of grant (or 110% of Fair Market Value in the case of an employee
who at the time owns more than 10% of the total combined voting power of all
classes of capital stock of the Company). The exercise price of each
Nonstatutory Option will be determined by the Committee, but will not be less
than 50% of the Fair Market Value of Common Stock on the date of grant. Whether
an option granted under the 1995 Option Plan is intended to be an Incentive
Stock Option or a Nonstatutory Stock Option will be determined by the Committee
at the time the Committee acts to grant the option and set forth in the related
Stock Option Agreement.
"Fair Market Value" for purposes of the 1995 Option Plan means: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day previous to such
date, or, if shares were not traded on the day previous to such date, then on
the next preceding trading day during which a sale occurred; or (ii) if Common
Stock is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, (1) the last sales price (if Common Stock is then listed on
the Nasdaq Stock Market) or (2) the mean between the closing representative bid
and asked price (in all other cases) for Common Stock on the day prior to such
date
21
<PAGE>
as reported by NASDAQ or such successor quotation system; or (iii) if there is
no listing or trading of Common Stock either on a national exchange or over-the-
counter, that price determined in good faith by the Committee to be the fair
value per share of Common Stock, based upon such evidence as it deems necessary
or advisable.
In the discretion of the Committee exercised at the time the option is
exercised, the exercise price of any option granted under the 1995 Option Plan
will be payable in full in cash, by check or by the optionee's interest-bearing
full recourse promissory note (subject to any limitations of applicable state
corporations law) delivered at the time of exercise. In the discretion of the
Committee and upon receipt of all regulatory approvals, an optionee may be
permitted to deliver as payment in whole or in part of the exercise price
certificates for Common Stock of the Company (valued for this purpose at its
Fair Market Value on the day of exercise) or other property deemed appropriate
by the Committee. So-called cashless exercises as permitted under applicable
rules and regulations of the Securities and Exchange Commission and the Federal
Reserve Board also will be permitted in the discretion of the Committee. The
Committee also has discretion to permit consecutive book entry stock-for-stock
exercises of options.
Irrespective of the manner of payment of the exercise price of an option, the
delivery of shares pursuant to the exercise will be conditioned upon payment by
the optionee to the Company of amounts sufficient to enable the Company to pay
all applicable federal, state and local withholding taxes.
Exercise Period
- ---------------
Each option granted under the 1995 Option Plan will expire on a date
determined by the Committee and set forth in the relevant Stock Option
Agreement, but in no event will any option expire prior to the first to occur of
the following events:
(a) Except as required by Section 422(c)(6) of the Code, the expiration
of ten years from the date the option was granted; or
(b) Except in the case of any optionee who is "disabled" (within the
meaning of Section 22(e)(3) of the Code), the expiration of three months from
the date of the optionee's "Termination of Employment" (as defined in the 1995
Option Plan) for any reason other than the optionee's death unless the optionee
dies within that three-month period; or
(c) In the case of an optionee who is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of six months from the date of the
optionee's Termination of Employment by reason of such disability, unless the
optionee dies within the six-month period; or
(d) The expiration of six months from the date of the optionee's death.
Exercise of Options
- -------------------
Each option granted under the 1995 Option Plan will become exercisable in a
lump sum or in such installments, which need not be equal, as the Committee
determines, provided, however, that each option will become exercisable as to at
least 20% of the shares of Common Stock covered thereby on each anniversary of
the date such option is granted. If in any given installment period the holder
of an option does not purchase all of the shares which the holder is entitled to
purchase in that installment period, the holder's right to purchase any shares
not purchased in that period will continue until the expiration or sooner
termination of such holder's option. The Committee may, at any time after grant
of the option and from time to time, increase the number of shares purchasable
in any installment, subject to the total number of shares subject to the option
and the limitations set forth in the 1995
22
<PAGE>
Option Plan as to the number of shares as to which Incentive Stock Options may
first become exercisable in any year.
Transferability of Options
- --------------------------
An option granted under the 1995 Option Plan will be nontransferable by the
optionee other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order (as defined by the Code), and will be
exercisable during the optionee's lifetime only by the optionee or by his or her
guardian or legal representative. More particularly, an option may not be
assigned, transferred (except as provided in the preceding sentence), pledged or
hypothecated (whether by operation of law or otherwise), and will not be subject
to execution, attachment or similar process.
Adjustments Upon Changes in Capitalization; Merger and Consolidation
- --------------------------------------------------------------------
If the outstanding shares of Common Stock are changed into, or exchanged for
cash or a different number or kind of shares or securities of the Company or of
another corporation through reorganization, merger, recapitalization,
reclassification, stock split-up, reverse stock split, stock dividend, stock
consolidation, stock combination, stock reclassification or similar transaction,
an appropriate adjustment will be made by the Committee in the number and kind
of shares as to which options may be granted. In the event of such a change or
exchange, other than for shares or securities of another corporation or by
reason of reorganization, the Committee will also make a corresponding
adjustment in the number or kind of shares, and the exercise price per share
allocated to unexercised options or portions thereof, of options which have been
granted prior to such change. Any such adjustment, however, will be made
without change in the total price applicable to the unexercised portion of the
option but with a corresponding adjustment in the price for each share (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices).
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market Value of
Common Stock, the Committee will make such an adjustment to the exercise prices
of options then outstanding under the 1995 Option Plan as it determines is
appropriate and equitable to reflect such diminution.
In connection with the dissolution or liquidation of the Company or a partial
liquidation involving 50% or more of the assets of the Company, a reorganization
of the Company in which another entity is the survivor, a merger or
reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
another security, a sale of more than 50% of the Company's assets, or a similar
event that the Committee determines would materially alter the structure of the
Company or its ownership, the Committee, upon 30 days prior written notice to
the option holders, may do one or more of the following: (i) shorten the period
during which options are exercisable (provided they remain exercisable for at
least 30 days after the date the notice is given); (ii) accelerate any vesting
schedule to which an option is subject; (iii) arrange to have the surviving or
successor entity grant replacement options with appropriate adjustments in the
number and kind of securities and option prices; or (iv) cancel options upon
payment to the option holders in cash, with respect to each option to the extent
then exercisable (including any options as to which the exercise has been
accelerated as contemplated in clause (ii) above), of any amount that is the
equivalent of the Fair Market Value of the Common Stock (at the effective time
of the dissolution, liquidation, merger, reorganization, sale of other event) or
the fair market value of the option.
No fractional share of Common Stock will be issued on account of any of the
foregoing adjustments.
23
<PAGE>
Amendment and Termination
- -------------------------
The Board or the Committee may at any time suspend, amend or terminate the
1995 Option Plan and may, with the consent of an optionee, make such
modifications of the terms and conditions of such optionee's option as it deems
advisable. Without approval of the Company's stockholders given within twelve
months before or after the action by the Committee, however, no action of the
Board or the Committee may increase the maximum number of shares which may be
issued under the 1995 Option Plan, materially modify the 1995 Option Plan's
eligibility requirements, reduce the 1995 Option Plan's minimum stock option
exercise price requirements or extend the limit on the period during which
options may be granted. The amendment, suspension or termination of the 1995
Option Plan will not, however, without the consent of the optionee to be
affected, alter or impair any rights or obligations under any option.
No option may be granted during any period of suspension nor after
termination of the 1995 Option Plan.
Termination
- -----------
Unless earlier terminated by the Board or the Committee, the 1995 Option Plan
will terminate automatically as of the close of business on the day preceding
the tenth anniversary date of its adoption by the Board. The termination of the
1995 Option Plan will not affect the validity of any option outstanding at the
date of such termination.
Federal Income Tax Treatment
- ----------------------------
Under the Code, neither the grant nor the exercise of Incentive Stock Options
is a taxable event to the optionee (except to the extent an optionee may be
subject to alternative minimum tax); rather, the optionee is subject to tax only
upon the sale of the Common Stock acquired upon exercise of the Incentive Stock
Option. Upon such a sale, the entire difference between the amount realized
upon the sale and the exercise price of the option will be taxable to the
optionee. Subject to certain holding period requirements, such difference will
be taxed as a capital gain rather than as ordinary income.
Optionees who receive Nonstatutory Options will be subject to taxation upon
exercise of such options on the spread between the fair market value of the
Common Stock on the date of exercise and the exercise price of such options.
This spread is treated as ordinary income to the optionee, and the Company is
permitted to deduct as an employee expense a corresponding amount. Nonstatutory
Options do not give rise to a tax preference item subject to the alternative
minimum tax.
REPORTS UNDER FEDERAL SECURITIES LAWS
Under the federal securities laws, the Company's directors and officers and
any persons holding more than 10% of the Company's Common Stock are required to
report their ownership of the Company's Common Stock and any changes in that
ownership to the Securities and Exchange Commission. Specific due dates for
these reports have been established, and the Company is required to report in
this Proxy Statement any failure to file by these dates. During 1995, all of
these filing requirements were satisfied by its directors, officers and 10%
stockholders.
In making these statements, the Company has relied upon a review of Forms 3
and 4 and amendments thereto furnished to the Company pursuant to Rule 16a-3
under the Exchange Act during fiscal year 1995 and the written representations
of its incumbent directors and officers.
24
<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed KPMG Peat Marwick independent
accountants of the Company for the fiscal year ending December 31, 1996.
KPMG Peat Marwick is a nationally recognized firm of independent accountants.
KPMG Peat Marwick audited the Company's financial statements for the fiscal
years ended December 31, 1989 through December 31, 1995. A KPMG Peat Marwick
representative will be present at the Annual Meeting and will be available to
make a statement, if he or she so desires, and to respond to appropriate
questions.
OTHER MATTERS
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1995 accompanies this Proxy Statement.
Management of the Company does not know of any matter to be acted upon at the
Annual Meeting other than the matters described above. If any other matter
properly comes before the Annual Meeting, however, the proxy holders will vote
the proxies thereon in accordance with their best judgment.
PROXY SOLICITATION
The cost of soliciting the proxies will be borne by the Company. This Proxy
Statement and the accompanying materials, in addition to being mailed directly
to stockholders, will be distributed through brokers, custodians, nominees, and
other like parties to beneficial owners of shares of Common Stock. The Company
will, upon request, reimburse such parties for their charges and expenses in
connection therewith. Officers of the Company may seek to contact beneficial
holders of the Company's Common Stock to discuss the proposals to be voted on at
the Annual Meeting and to submit proxies. Any officer who does so will not be
separately compensated for such activities.
25
<PAGE>
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1997 annual meeting of
stockholders of the Company must be received by March 9, 1997. Such proposals
should be addressed to the Secretary of the Company.
By Order of the Board of Directors
/s/ Ronald E. Hogan
Ronald E. Hogan
Secretary
Carlsbad, California
July 8, 1996
26
<PAGE>
APPENDIX A
----------
The second sentence of section 1.4 entitled Stock Subject to the 1995 Option
--------------------------------
Plan is amended to read in its entirety as follows:
- ----
"The cumulative aggregate number of shares of Common Stock to be issued under
the 1995 Option Plan will not exceed 4,000,000 (plus up to 2,818,930
additional shares subject to options outstanding under the 1985 Incentive
Stock Option Plan and the 1985 Nonqualified Stock Option Plan as of the
effective date of this Plan which expire or are terminated subsequent to the
effective date of this Plan without being exercised), subject to adjustment
as described below."
i
<PAGE>
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE.
For all nominees listed at WITHHOLD AUTHORITY
right (except as marked to to vote for all nominees
the contrary below). listed at right.
[_] [_]
1. Election Nominees: Patrick J. Downs
of Donald C. Klosterman
directors:
Instructions: To withhold authority to vote for any
nominee, draw a line through such nominee's
name.
FOR AGAINST ABSTAIN
2. Proposal to approve the amendment to the
Company's 1995 Stock Option Plan. [_] [_] [_]
3. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
SIGNATURE(S) DATE
---------------------------- ------------------------
SIGNATURE(S) DATE
---------------------------- ------------------------
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
authorized partner.
<PAGE>
NTN COMMUNICATIONS, INC.
5966 La Place Ct
Suite 100
Carlsbad, California 92008
------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------------------
The undersigned hereby appoints Patrick J. Downs and Ronald E. Hogan, and
each or either of them, as proxy holders with power to appoint his substitute,
and hereby authorizes the proxy holders to represent and vote, as designated on
the reverse side, all shares of Common Stock of NTN Communications, Inc. (the
"Company") held of record by the undersigned on June 19, 1996, at the annual
meeting of stockholders to be held on August 16, 1996 or any adjournment
thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
