NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 31, 2002
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of NTN Communications, Inc. will be held at Grand Pacific Palisades
Resort, 5805 Armada Drive, Carlsbad, California, at 10:00 a.m. local time, on
May 31, 2002, for the following purposes, as more fully described in the
attached Proxy Statement:
1. To elect two directors to hold office until the 2005 annual meeting of
stockholders and until their respective successors are duly elected
and qualified;
2. To ratify the appointment of KPMG LLP as independent accountants of
NTN for the fiscal year ending December 31, 2002; and
3. To consider and act upon such other matters as may properly come
before the Annual Meeting and any adjournments thereof.
The Board of Directors fixed the close of business on April 1, 2002 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 person. In order
to ensure your representation at the meeting, however, please promptly complete,
date, sign, and return the enclosed proxy in the accompanying envelope. In
addition to voting by mail, you may vote by telephone or via the Internet as
instructed in the enclosed proxy. Do not return your proxy by mail if you have
voted by telephone or via the Internet.
The prompt return of your proxy will help to save expenses incurred in
further communication. Your proxy can be revoked as described in the Proxy
Statement and will not affect your right to vote in person should you decide to
attend the Annual Meeting.
Sincerely,
/s/ James B. Frakes
-----------------------
JAMES B. FRAKES
Chief Financial Officer
and Secretary
Carlsbad, California
April 17, 2002
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
PROXY STATEMENT
ANNUAL MEETING TO BE HELD MAY 31, 2002
SOLICITATION AND VOTING
GENERAL
The enclosed proxy is being solicited on behalf the Board of Directors of
NTN Communications, Inc. ("NTN") for use at the annual meeting of stockholders
to be held at Grand Pacific Palisades Resort, 5805 Armada Drive, Carlsbad,
California, at 10:00 a.m., local time, on May 31, 2002, and at any adjournment
or postponement thereof (the "Annual Meeting"), for purposes set forth herein
and in the accompanying Notice of Annual Meeting of Stockholders. We are first
mailing this Proxy Statement, together with the accompanying proxy solicitation
materials, to stockholders on or about April 17, 2002.
VOTING SECURITIES; RECORD DATE
We have one class of voting stock outstanding, designated common stock,
$.005 par value ("Common Stock"). Each share of our Common Stock is entitled to
one vote for each director to be elected and for each other matter to be voted
on at the Annual Meeting. Only holders of record of Common Stock at the close of
business on April 1, 2002 are entitled to notice of and to vote at the Annual
Meeting. There were 38,957,845 shares of Common Stock outstanding as of the
record date. The presence, in person or by proxy, at the Annual Meeting, 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. For purposes of determining a quorum, shares
held by brokers or nominees will be treated as present even if the broker or
nominee does not have discretionary power to vote on a particular matter or if
instructions were never received from the beneficial owner. These shares are
called "broker non-votes." Abstentions will be counted as present for quorum
purposes and for the purpose of determining the outcome of any matter submitted
to the stockholders for a vote. However, abstentions do not constitute a vote
"for" or "against" any matter and will be disregarded in the calculation of the
plurality. The inspectors of election appointed for the Annual Meeting will
tabulate all votes including separate tabulation of the affirmative and negative
votes, abstentions and broker non-votes.
The proxy holders will vote all shares of Common Stock represented by a
properly completed proxy received in time for the Annual Meeting as directed in
the proxy. If no direction is given in the proxy, it will be voted "FOR" the
election as directors of the nominees named in this Proxy Statement and "FOR"
ratification of the appointment of KPMG LLP as our independent accountants for
the fiscal year ending December 31, 2002. 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.
REVOCABILITY OF PROXIES
You may revoke a proxy at any time before it has been exercised by giving
written notice of revocation to our Secretary, by executing and delivering to
the Secretary a proxy dated as of a later date than the accompanying proxy, or
by attending the Annual Meeting and voting in person. IF, HOWEVER, YOUR SHARES
OF RECORD ARE HELD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE IN
PERSON AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THAT RECORD HOLDER A PROXY
ISSUED IN YOUR NAME. Attendance at the Annual Meeting, by itself, will not serve
to revoke a proxy.
SOLICITATION
We will bear the cost of soliciting proxies. This Proxy Statement and the
accompanying proxy solicitation materials, in addition to being mailed directly
to stockholders, will be distributed through brokers, custodians and other
nominees to beneficial owners of shares of Common Stock. We may reimburse such
parties for their reasonable expenses in forwarding solicitation materials to
beneficial owners. Our directors, officers or regular employees may follow up
the mailing to stockholders by telephone, telegram or personal solicitations,
but no special or additional compensation will be paid to those directors,
officers or employees for doing so.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Stockholder proposals intended to be included in our proxy materials for
the 2003 annual meeting of stockholders must be received by December 18, 2002.
Such proposals should be addressed to our Secretary.
With respect to any stockholder proposals to be presented at the 2003
annual meeting which are not included in the 2003 proxy materials, management
proxy holders for the 2003 annual meeting will be entitled to exercise their
discretionary authority to vote on such proposals notwithstanding that they are
not discussed in the proxy materials, unless the proponent notifies us of such
proposal by not later than March 3, 2003.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2005
Our 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 specified by the Board. The Board of Directors currently
consists of eight members.
Our bylaws provide that the Board of Directors is to be classified into
three classes, as nearly equal in number as possible, with each class having a
three-year term. Vacancies on the Board of Directors (including vacancies
created by an increase in the authorized number of directors) may be filled by
the Board of Directors. A director appointed by the Board of Directors to fill a
vacancy would serve for the remainder of the full term of the directors of the
class in which the vacancy occurs and until his or her successor is elected and
qualified.
Two directors are subject to election at the Annual Meeting. 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. If elected, the
following nominees will hold office until the annual meeting of stockholders in
2005 and until their respective successors are duly elected and qualified.
BARRY BERGSMAN, 64, has been a Director since August 1998. He is president
of Baron Enterprises, Inc., a privately owned consulting company since 1998. As
president of Intertel Communications, Inc., from 1995 to 1998, Mr. Bergsman
pioneered the use of the telephone and interactive technology for promotion,
entertainment and information. Prior to 1985, Mr. Bergsman was engaged in
television production and syndication and was an executive with CBS. He
currently serves as a director and member of the management team of
Photogenesis, Inc., a private medical device and biotechnology company.
STANLEY B. KINSEY, 48, has served as our Chairman and Chief Executive
Officer since October 1998. Mr. Kinsey was appointed as a Director in November
1997. From 1980 to 1985, Mr. Kinsey was a senior executive with The Walt Disney
Company. In 1985, Mr. Kinsey left his position as senior vice president of
operations and new technologies for The Walt Disney Studio to co-found IWERKS
Entertainment, a high-technology entertainment company. Mr. Kinsey was chairman
and chief executive officer at IWERKS from inception until 1995, when he
resigned to spend more time with his family.
The following biographical information is furnished with respect to our other
current directors:
DIRECTORS WHOSE TERM EXPIRES IN 2003
GARY H. ARLEN, 57, has been a Director since August 1999. Since 1980, he
has been president of Arlen Communications, Inc., a research and consulting firm
specializing in interactive information, transactions, telecommunications and
entertainment. Arlen Communications provides research and analytical services to
domestic and international organizations in entertainment, media,
telecommunications and Internet companies. In 1981, Mr. Arlen founded the trade
association now known as the Internet Alliance which represents the interest of
online content and service providers. Prior to establishing Arlen
Communications, Mr. Arlen held management positions at AT&T, the National Cable
TV Association and the American Film Institute. He serves on the board of
advisors of the AFI Enhanced Television Workshop and the University of Maryland
Program on Media and Society.
VINCENT A. CARRINO, 44, has been a Director since September 1999. Mr.
Carrino is founder and president of Brookhaven Capital Management, LLC, a
private investment firm focusing on technology companies, established by him in
1985. Prior to establishing Brookhaven Capital Management, LLC, Mr. Carrino was
an analyst with Alliance Capital Management and was an investment banker with
CitiBank in New York. Mr. Carrino serves on the board of directors of Rent-Way,
Inc., a publicly held retailer in the rent-to-own industry; Cash Technologies, a
company focused on ATM-based Internet commerce; and Intrenet, Inc., a public
holding company for truckload carrier subsidiaries.
MICHAEL FLEMING, 51, has been a Director since November 2001. Mr. Fleming
is currently chairman and Chief Executive Officer of the Fleming Media Group,
advising a broad range of content and technology companies on interactive
television, broadband, wireless and other convergent technology opportunities.
He is the founder and recent past-President of Game Show Network, a satellite
delivered television programming service dedicated to the world of games and
game play. Mr. Fleming has held senior executive positions at Playboy
Entertainment Group, ESPN, Turner Broadcasting and Warner Amex Satellite
Entertainment Company. He was inducted into the Cable Pioneers in 1999. Mr.
Fleming also serves as a director on the boards of Mixed Signals Technologies,
Pacific Ceramics, Bold Ventures and non-profits Cable Advertising Bureau (CAB),
Cable Positive, Los Angeles Regional Arts Council and the Alex Theatre.
DIRECTORS WHOSE TERM EXPIRES IN 2004
ROBERT M. BENNETT, 74, has been a Director since August 1996. Since 1989,
Mr. Bennett has been chairman of the board of Bennett Productions, Inc., a
production company with experience in virtually all areas of production
including syndicated sports and specialty programming, music videos, commercial
productions, home video, corporate communications and feature films. Mr. Bennett
was president of Metromedia Broadcasting from 1982 until 1986. His career in
broadcasting began at KTTV, Metromedia's broadcast division, followed by
management positions in Metromedia's broadcast division. In 1991, he acquired
full ownership from his partners of Trans Atlantic Entertainment, Inc., owner of
film and video libraries. Mr. Bennett was named to The Broadcasting and Cable
Hall of Fame on November 7, 1994.
ROBERT B. CLASEN, 57, has been a Director since November 2001. In January
2002, he was appointed Chairman and Chief Executive Officer of Inetcam, Inc., a
privately held international streaming media management software company that
develops and globally distributes high-performance multimedia webcasting
solutions. From 1999 until June 2001, Mr. Clasen served as Chairman and Chief
Executive Officer of ICTV, an interactive/Internet television provider. From
June 2001 until December 2001, Mr. Clasen remained as Chairman of the board at
ICTV and, since December 2001, he has continued to serve as a director for ICTV.
From 1997 until 1998, Mr. Clasen served as President and Chief Executive Officer
of ComStream Corporation, an international provider of digital transmission
solutions for voice, data, imaging, audio and video applications. Prior to 1997,
Mr. Clasen held positions as President of each of ComCast International
Holdings, the international division of ComCast Cable Communications, and
Comcast Cable Communications, one of the country's five largest cable television
companies. For the past ten years, Mr. Clasen has also been President and CEO of
Clasen Associates, advisors to a broad range of technology and service companies
who operate in the broadband, wireless and satellite sectors.
ESTHER L. RODRIGUEZ, 59, has been a Director since September 1997. She held
various executive positions with General Instrument (currently Motorola's
broadband group), a public telecommunications company, from November 1986 until
November 1996. At General Instrument, Ms. Rodriguez served as vice president of
worldwide business development and was instrumental in developing the first home
satellite pay-per-view business. She was also general manager and chief
operating officer of General Instrument's Satellite Video Center, a General
Instrument cable data partnership, and was a founding member of the Partnership
Council. After leaving General Instrument, Ms. Rodriguez founded and continues
to serve as chief executive officer of the Rodriguez Consulting Group, a
business development consulting firm. Ms. Rodriguez has over 25 years of
worldwide experience in the development and management of consumer and
commercial business, entertainment and educational networks and systems.
MEETINGS AND COMMITTEES
Our business affairs are managed by and under the direction of the Board of
Directors. During the fiscal year ended December 31, 2001, the Board of
Directors met on 15 occasions. During 2001, each director attended at least 75%
of the meetings of the Board of Directors and of each Committee of the Board of
Directors on which he or she served.
AUDIT COMMITTEE
The role of the Audit Committee of the Board of Directors is to assist the
Board in its oversight of our financial reporting process. The primary functions
of the Audit Committee are to periodically review our accounting and financial
reporting and control policies and procedures, to recommend to the Board of
Directors the firm of certified public accountants to be retained as our
independent auditors, and to review our policies and procedures relating to
business conduct and conflicts of interest. The Audit Committee is currently
comprised of three non-employee directors: Mr. Bennett, Mr. Bergsman and Ms.
Rodriguez. All members are independent under the rules of the American Stock
Exchange. The Audit Committee met on four occasions in 2001.
COMPENSATION COMMITTEE
The primary functions of the Compensation Committee, which consists of
non-employee directors, are to review and advise the Board of Directors on
salaries, bonuses and awards of stock options to our employees and other
compensation matters. The Compensation Committee consists of two non-employee
directors: Mr. Arlen and Mr. Bergsman. The Compensation Committee met on six
occasions in 2001.
BOARD NOMINATIONS
The Board of Directors in its entirety acts upon matters that would
otherwise be the responsibility of a nominating committee. The Board of
Directors will consider as prospective nominees for election as directors
persons recommended by our stockholders. Any such recommendations should be in
writing and should be mailed or delivered to us, marked for the attention of our
Secretary, on or before the date for timely submission of stockholder proposals.
See "Stockholder Proposals for 2003 Annual Meeting."
DIRECTOR COMPENSATION
During 2001, directors were entitled to receive cash compensation of $2,100
per month for their services as directors. Further, directors who serve on
either the audit or compensation committees or the board of directors of
Buzztime Entertainment, Inc. were entitled to receive an additional $3,000
annually. Directors are also eligible for the grant of options to purchase
common stock from time to time for services performed in their capacity as
directors.
Upon the date of commencement of a director's term of service, we grant to
each director options to purchase 20,000 shares of our common stock. These
options are priced at the closing market price of the common stock on the date
of grant. As of the date of grant, 10,000 options are fully vested and
exercisable; thereafter, the remaining 10,000 options vest and become
exercisable in equal installments each month immediately subsequent to the date
of grant and up to the date of the next annual meeting of shareholders. Further,
after the initial year of a director's term of service, options to purchase an
additional 20,000 shares of common stock shall be granted each year on the date
of our annual meeting of shareholders during the remainder of the term of
service. The additional options shall be priced at the closing market price of
the common stock on the date of grant and shall vest and become exercisable as
to 1/12 of the shares each month following the date of grant, subject to the
director's continuing service. A director who is re-elected for an additional
term of service will be granted options to purchase 20,000 shares of common
stock, priced at the closing market price of the common stock on the date of our
annual meeting of shareholders, subject to monthly vesting and continued
service. Finally, all options granted to directors as compensation for service
on the Board of Directors shall expire on the earlier of ten years from the date
of grant or two years from the date the director ceases to serve on the Board of
Directors. The options provide for immediate vesting in full in the event of a
change of control.
REQUIRED VOTE
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.
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.
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.
PROPOSAL 2
RATIFICATION OF APPOINTMENT
OF KPMG LLP AS
INDEPENDENT ACCOUNTANTS
Our independent accounting firm for the fiscal year ended December 31, 2001
was KPMG LLP. KPMG LLP is a nationally recognized firm of independent
accountants and has audited our financial statements for the fiscal years ended
December 31, 1989 through December 31, 2001. Upon the recommendation of the
Audit Committee, the Board of Directors has reappointed KPMG LLP to continue as
our independent accountants for the year ending December 31, 2002. Our bylaws do
not require that the stockholders ratify the selection of KPMG LLP as our
independent accountants. However, we are submitting the selection of KPMG LLP to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders do not ratify the selection, the Board of Directors and the Audit
Committee will reconsider whether or not to retain KPMG LLP. Even if the
selection is ratified, the Board of Directors and the Audit Committee in their
discretion may change the appointment at any time during the year if we
determine that such a change would be in the best interests of NTN and our
stockholders.
Representatives of KPMG LLP will be present at the Annual Meeting. They
will be given an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from stockholders present
at the Annual Meeting.
REQUIRED VOTE
A majority of the shares present at the meeting, either in person or by
proxy, must be voted in favor of the auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP TO SERVE AS OUR INDEPENDENT ACCOUNTANTS. PROXIES WILL BE
VOTED "FOR" THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP IF NO DIRECTION IS
GIVEN IN THE PROXIES.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers:
NAME AGE(1) POSITION(S) HELD
Stanley B. Kinsey ....48 Chief Executive Officer and Chairman of the Board
Mark deGorter ........44 President and Chief Operating Officer, NTN Network
V. Tyrone Lam ........40 President, Buzztime Entertainment, Inc.
James B. Frakes ......45 Chief Financial Officer and Corporate Secretary
Steve Riccabona ......59 Senior Vice President, Sales and Marketing, The
NTN Network
----------
(1) As of April 1, 2002.
See "Election of Directors" for Mr. Kinsey's biography.
The following biographical information is furnished with respect to our
other executive officers:
Mark deGorter was appointed President and Chief Operating Officer of the
NTN Network in January 2001. Prior to that time, Mr. deGorter served as Vice
President of Marketing of NTN's Buzztime subsidiary. In addition, during the
third quarter of 2000, Mr. deGorter assumed the additional role of Vice
President of Marketing for the NTN Network. Prior to joining Buzztime in April
2000, Mr. deGorter had served as Vice President of Marketing for MET-Rx USA, a
sports nutrition company, since July 1997. From June 1994 until July 1997, Mr.
deGorter was a senior manager with ProShot Golf, Inc., a global positioning
satellite-based communications and information system for the golf industry.
During his career, Mr. deGorter has held key management positions with Bally's
Total Fitness, a public company operating commercial fitness centers in North
America; L.A. Gear, a licensor of trademarks and trade names for use in
conjunction with apparel, accessory and consumer-related products; and J. Walter
Thompson/USA, a multi-media advertising agency with worldwide operations.
V. Tyrone Lam was appointed President of Buzztime Entertainment, Inc. in
December 1999, after serving as Executive Vice President of NTN since September
1998. He was appointed Vice President and General Manager of the NTN Network in
September 1997. Prior to this time he served as Associate Vice President of
Marketing from February 1997. Mr. Lam joined NTN in December 1994 in a marketing
position. From April 1992 to December 1994, Mr. Lam managed the interactive
television sports and games development for the EON Corporation and has held
other sales and marketing positions in the computer software industry.
James B. Frakes was appointed Chief Financial Officer and Secretary of NTN
in April 2001. Prior to joining NTN, Mr. Frakes was chief financial officer and
a director of Play Co. Toys, a publicly held chain of retail toy stores, where
he had been since 1997. On March 28, 2001, Play Co. Toys and its majority-owned
subsidiary, Toys International.com, Inc., filed a Chapter 11 petition under
federal bankruptcy laws in the Southern District in the State of New York. From
June 1990 to March 1997, Mr. Frakes was chief financial officer and a director
of Urethane Technologies, Inc., a publicly held specialty chemical company, and
two of its subsidiaries, Polymer Development Laboratories, Inc. and BMC
Acquisition, Inc., chemical companies focused on the polyurethane segment of the
plastics industry. From 1985 to 1990, Mr. Frakes was a manager at Berkeley
International Capital Corporation, an investment banking firm specializing in
later stage venture capital and leveraged buyout transactions. Mr. Frakes serves
on the board of Shopnet.com, Inc., a designer and distributor of swimwear.
Steve Riccabona was named Senior Vice President of Sales and Marketing in
March 2002. He joined the company as Vice President of Hospitality Sales in July
2000. Mr. Riccabona began his business career as a Sales Representative for IBM.
During a ten-year career with IBM, Mr. Riccabona held several major sales and
marketing positions including Regional Sales Training Manager and IBM Branch
Manager. He left IBM to start his own company, MDC, engaged in the design and
development of interactive training and multimedia programs, listing clients
such as Xerox, Bank of America, Canon, PETsMART and Levi Strauss. Mr. Riccabona
sold MDC in 1999 and worked with NTN as a consultant for NTN's interactive
Internet Station development until joining the company in 2000.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid or accrued as of each of
the last three fiscal years to all individuals who served as our chief executive
officer during 2001 and the four other most highly compensated executive
officers who were serving as executive officers at the end of 2001 whose salary
and bonus exceeded $100,000 (collectively, the "Named Executive Officers"):
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) UNDERLYING OPTION(#)
--------------------------- ---- ------------ -------- --------------------
Stanley B. Kinsey(2)........ 2001 $305,386 -- 350,000
Chief Executive Officer 2000 295,057 -- --
And Chairman of the Board 1999 286,835 $32,500(3) 500,000
V. Tyrone Lam............... 2001 $223,077 -- --
President, Buzztime Entertainment, 2000 198,077 -- --
Inc. 1999 175,000 -- --
Mark deGorter(4)............ 2001 $199,038 $25,382(5) 150,000
President and Chief Operating 2000 127,212 -- 250,000
Officer, The NTN Network 1999 -- -- --
James B. Frakes(6).......... 2001 $111,539 $10,000(7) 250,000
Chief Financial Officer 2000 -- -- --
1999 -- -- --
Steve Riccabona(8).......... 2001 $180,000 -- 100,000
Senior Vice President, Sales and 2000 83,077 -- 200,000
Marketing The NTN Network 1999 -- -- --
----------
(1) Includes amounts, if any, deferred under NTN's 401(k) Plan.
(2) Mr. Kinsey waived compensation for serving as a director of NTN. Mr. Kinsey
received perquisites and personal benefits that did not exceed the lesser
of $50,000 or 10% of his annual salary and bonus.
(3) Represents vested value of options granted October 7, 1999 at below market
exercise price, pursuant to his employment agreement and related bonus
program.
(4) Mr. deGorter joined NTN in April 2000.
(5) Represents a bonus paid to Mr. deGorter in March 2002 based upon exceeding
established targets for the NTN Network for fiscal year 2001.
(6) Mr. Frakes joined NTN in April 2001.
(7) Represents a one-time signing bonus paid to Mr. Frakes on August 1, 2001.
(8) Mr. Riccabona joined NTN in July 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning grants of stock options
during fiscal 2001 with respect to the Named Executive Officers:
INDIVIDUAL GRANTS
NUMBER OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR PRICE DATE VALUE(1)
----------------- ---------- ------------ -------- ---------- -----------
Stanley B. Kinsey 350,000(2) 16% $0.875 01/25/11 $262,531
Mark deGorter.... 150,000(3) 7% 0.50 01/08/11 64,055
James B. Frakes.. 250,000(3) 12% 0.58 04/30/11 128,556
Steve Riccabona.. 100,000(4) 5% 0.45 04/03/11 38,477
----------
(1) The present value of grant on the grant date was estimated using the Black
Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0%, risk-free interest rate of 4.87%,
expected volatility of 124.91%, and expected option life of 5 years.
(2) Represents options granted pursuant to the First Amendment to Employment
Agreement, dated as of January 26, 2001, entered into by and between Mr.
Kinsey and us. The options vest and become exercisable as to 1/12 of the
total shares on the last business day of each calendar month immediately
following October 6, 2001, the date of commencement of Mr. Kinsey's
extended term of employment.
(3) Represents options granted under the 1995 Stock Option Plan which become
exercisable as to 25% of the total shares on the first anniversary of the
date of grant and will become exercisable as to an additional 1/36 of the
remaining shares on the last day of each of the thirty-six (36) calendar
months immediately following the first anniversary of the grant date.
(4) Represents options granted under the 1995 Stock Option Plan which vested
and became exercisable as to 50% of the total shares on December 31, 2001
and would have vested and become exercisable as to an additional 25% had
the NTN Network reached an aggregate 3,450 subscriber installations in 2001
and as to the final 25% had the NTN Network reached an aggregate 3,840
subscriber installations in 2001. The unvested options terminated at
December 31, 2001.
FISCAL YEAR-END OPTION VALUES
The following table contains information concerning stock options remaining
unexercised at the end of fiscal 2001 with respect to the named executive
officers. No stock options were exercised in 2001 by any named executive
officer.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
------------------------------ -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ----------- ------------- ----------- -------------
Stanley B. Kinsey 1,958,333 291,667 $180,209 $7,291
V. Tyrone Lam.... 446,875 53,125 32,656 8,594
Mark deGorter.... 114,583 285,417 * 60,000
James B. Frakes.. -- 250,000 -- 80,000
Steve Riccabona.. 118,333 131,667 22,500 *
----------
(1) Represents the amount by which the aggregate market price on December 31,
2001 of the shares of our 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, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 1, 2002 the number and
percentage ownership of common stock by (i) all persons known to us 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,
(ii) each of our directors, (iii) each of the named executive officers, and (iv)
all of the executive officers and directors 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. Except as otherwise indicated, the address for
each person is c/o NTN Communications, Inc., 5966 La Place Court, Carlsbad,
California 92008. An asterisk denotes beneficial ownership of less than 1%.
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED COMMON STOCK(1)
-------------------------------------- ---------------- ---------------
Gary Arlen(2)......................... 86,000 *
Robert M. Bennett(3).................. 230,070 1%
Barry Bergsman(4)..................... 213,333 1%
Vincent A. Carrino(5)................. 5,699,101 15%
Robert B. Clasen(6)................... 30,000 *
Michael Fleming(7).................... 20,000 *
Esther L. Rodriguez(8)................ 181,099 *
Stanley B. Kinsey(9).................. 2,228,500 5%
V. Tyrone Lam(10)..................... 500,000 1%
Mark deGorter(11)..................... 190,625 *
James B. Frakes(12)................... 62,500 *
Steve Riccabona(13)................... 139,167 *
All executive officers and directors of ---------------- ---------------
NTN as a Group (11 persons)(14)...... 9,580,395 25%
================ ===============
----------
(1) Included as outstanding for purposes of this calculation are 38,957,845
shares of common stock (the amount outstanding as of April 1, 2002) 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 April 1, 2002) 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.
(2) Includes 85,000 shares subject to currently exercisable options held by Mr.
Arlen.
(3) Includes 118,333 shares subject to currently exercisable options held by
Mr. Bennett.
(4) Includes 118,333 shares subject to currently exercisable options and 56,000
shares subject to currently exercisable warrants held by Mr. Bergsman.
(5) Includes 185,000 shares subject to currently exercisable options held by
Mr. Carrino. Also includes 201,656 owned directly by Mr. Carrino and
5,312,445 shares owned, directly or indirectly, by investment advisory
clients of Brookhaven Capital Management, LLC, which in some cases has sole
voting and investment discretion over such shares. Mr. Carrino is the sole
owner and the Manager of Brookhaven Capital Management, LLC and, as such,
in some cases he may be deemed to beneficially own such shares. Mr. Carrino
disclaims such beneficial ownership. Brookhaven Capital Management is
located at 3000 Sand Hill Road, Menlo Park, CA 94205.
(6) Includes 20,000 shares subject to currently exercisable options held by Mr.
Clasen. Includes 10,000 owned by the Clasen Family Trust, of which Mr.
Clasen is co-trustee with members of his immediate family. As co-trustee,
Mr. Clasen shares voting and investment power with respect to the shares.
(7) Includes 20,000 shares subject to currently exercisable options held by Mr.
Fleming.
(8) Includes 118,333 shares subject to currently exercisable options held by
Ms. Rodriguez. Also includes 1,000 shares owned by the Rodriguez Family
Trust, of which Ms. Rodriguez is a co-trustee with members of her immediate
family. As co-trustee, Ms. Rodriguez shares voting and investment power
with respect to the shares.
(9) Includes 2,104,167 shares subject to currently exercisable options held by
Mr. Kinsey.
(10) Represents shares subject to currently exercisable options held by Mr. Lam.
(11) Represents shares subject to currently exercisable options held by Mr.
deGorter.
(12) Represents shares subject to currently exercisable options held by Mr.
Frakes.
(13) Represents shares subject to currently exercisable options held by Mr.
Riccabona.
(14) Includes shares subject to currently exercisable options and warrants held
by executive officers and directors, including those described in notes (2)
through (13) above.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2001, the Compensation Committee established policies and practices
relating to matters of executive compensation for action by the Board of
Directors as a whole. Our executive compensation policy is intended to foster
job satisfaction and encourage continuous service by our executive officers by
providing reasonable short-term cash compensation and long-term stock-based
incentives. Our policies apply equally to all of our executive officers. A
summary of our executive compensation policy is described below:
We have established a 401(k) Plan. We may, at the Board of Director's
discretion, make annual contributions to the 401(k) Plan, subject to applicable
limitations, but, to date, we have never made any such contributions.
Short-term cash compensation to executives for 2001 consisted primarily of
salaries, subject to any written employment agreement between us and any
executive.
Equity compensation, in the form of stock options, constitutes the
principal element of long-term compensation for our executive officers. The
grant of stock options increases management's potential equity ownership in NTN
with the goal of ensuring that the interests of management remain closely
aligned with those of our stockholders. Accordingly, during 2001, the Board of
Directors granted Mr. deGorter options to purchase 150,000 shares of common
stock at an exercise price of $0.50 per share and granted Mr. Riccabona options
to purchase 100,000 shares of common stock at an exercise price of $0.45 per
share. Additionally, we granted 250,000 options at $0.58 per share to Mr. Frakes
upon commencement of his employment with us in April 2001. During 2001, we also
granted 350,000 options at $0.875 per share to Mr. Kinsey pursuant to the
January 26, 2001 First Amendment to Employment Agreement entered into by and
between Mr. Kinsey and us. Attaching vesting requirements to stock options also
creates an incentive for executive officers to remain with us for the long term.
In appropriate circumstances, the Board of Directors also will consider
repricing previously granted stock options if necessary so that the options
continue to afford realistic incentives to executives. No repricings occurred in
2001.
Compensation to our executive officers is subject to a $1,000,000
compensation deduction cap pursuant to Section 162(m) of the Internal Revenue
Code, as amended. In 2001, no executive officer received aggregate compensation
of $1,000,000 or more. However, the Board is aware that the grant of stock
options to the executive officers may subject us to the deduction cap in
subsequent years. With respect to incentive stock options, the Board of
Directors does not anticipate NTN taking a deduction in the absence of a
disqualifying disposition by an executive officer. With respect to nonqualified
options, the Board of Directors is aware that any deduction that we may have at
the time of exercise will be subject to the $1,000,000 cap. The Board of
Directors does not anticipate that the compensation deduction cap will
significantly affect our executive compensation policies.
Chief Executive Officer Compensation
As indicated above, subject to any written employment agreement, the
factors and criteria upon which the compensation of our chief executive officer
is based are identical to the criteria used in evaluating the compensation
packages of our other executive officers. On January 26, 2001, we reached
agreement with holders of our outstanding senior subordinated convertible notes
and certain selling securityholders to revise the terms of our senior
subordinated notes and to amend the certain terms of our November 2000 private
placement. In return for our noteholders and securityholders entering into this
restructuring agreement, our chief executive officer, Stanley B. Kinsey, agreed
to a one-year extension of his employment agreement with us.
The foregoing report on executive compensation is provided by the entire
Board of Directors: Gary Arlen, Robert M. Bennett, Barry Bergsman, Vincent A.
Carrino, Robert B. Clasen, Michael Fleming, Stanley B. Kinsey and Esther L.
Rodriguez.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All compensation determinations for 2001 for our executives were made by
the Board of Directors as a whole upon the recommendation of the Compensation
Committee of the Board. During the entire fiscal year 2001, Mr. Arlen served as
a member of the Compensation Committee. Ms. Rodriguez served as a member of the
Compensation Committee until May 31, 2001 at which time Mr. Bergsman was
appointed to serve. None of our directors or executive officers 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.
On May 8, 2001, we entered into an Advertising Sales Representative
Agreement with Baron Enterprises, Inc. ("Baron"), a corporation wholly-owned and
operated by Mr. Bergsman, a director of NTN, pursuant to which Baron will
provide advertising sales representation services to us under the direction of
the NTN Network's president and chief operating officer. For Baron's services
under the Advertising Sales Representative Agreement, we granted Baron a three
(3) year warrant to purchase 20,000 shares of Common Stock at an exercise price
of $0.50 per share. The warrant will vest and become exercisable as to 1/12 of
the total shares on the last business day of each of the twelve (12) consecutive
months commencing April, 2001, subject to Baron continuing to provide the
services to NTN. In addition, Baron will receive a commission in the amount of
35% of net advertising revenues received by the NTN Network from any advertising
contract solicited solely by Baron. We paid to Baron a monthly recoverable cash
advance against commissions to be earned in the amount of $5,000 per month, for
an aggregate of $60,000 for the term of the agreement. The Advertising Sales
Representative Agreement expired on April 1, 2002.
CHANGE IN CONTROL AGREEMENTS
We have entered into an employment agreement with Stanley B. Kinsey, our
Chief Executive Officer and Chairman of the Board. The agreement expires on
October 6, 2002 and will be automatically renewed for an additional year unless
either party provides notice of intent not to renew by June 30, 2002. We can
also terminate the agreement upon three (3) days' notice in the event of Mr.
Kinsey's personal dishonesty, willful misconduct or breach of fiduciary duty. If
Mr. Kinsey is in material breach of this agreement, we may terminate the
agreement with thirty (30) days' notice unless Mr. Kinsey cures such breach
within the thirty day period. In the event we terminated Mr. Kinsey other than
for cause, Mr. Kinsey will be entitled to the lesser of one year's base salary
or the remaining salary due to Mr. Kinsey under the term of his employment
agreement. In the event Mr. Kinsey is terminated upon a change of control of
NTN, he shall receive one year's base salary, a pro rata portion of his bonus
and continuation of employment benefits for one year.
We have agreed to pay 90 days' base salary to Mr. deGorter, our President
and Chief Operating Officer, upon a change of control of NTN. We have also
agreed to pay 90 days' base salary to Mr. Frakes, our Chief Financial Officer,
should he be terminated without cause.
PERFORMANCE GRAPH
The following graph sets forth a comparison of cumulative total returns for
NTN, the American Stock Exchange Index and an index consisting of companies
sharing the Standard Industrial Classification Code ("SIC Code").
-------------------------- ------ ------ ------ ------ ------ ------
1996 1997 1998 1999 2000 2001
-------------------------- ------ ------ ------ ------ ------ ------
NTN Communications, Inc. 100.00 26.23 14.75 96.72 16.39 23.61
-------------------------- ------ ------ ------ ------ ------ ------
AMEX Market Value 100.00 125.06 134.24 171.49 176.21 167.92
-------------------------- ------ ------ ------ ------ ------ ------
Peer Group 100.00 138.65 244.33 421.48 328.02 287.84
-------------------------- ------ ------ ------ ------ ------ ------
The Peer Group is comprised of companies sharing SIC Code 4841 - Cable,
Other Pay TV Services, as follows:
5TH AVE CHANNEL CORP COM LODGENET ENTMT CORP COM
ADELPHIA COMMUNICATIONS CORP CL A MEDIACOM COMMUNICAITONS CORP CL A
ADVANCED WIRELESS SYS INC COM METROMEDIA INTL GROUP INC COM
CABLEVISION SYS CORP CL A NY CABLVS MIH LTD CL A
CHELL GROUP COM NOSTALGIA NETWORK INC COM NEW
CITRAN CORP COM NOSTRAD TELECOMMUNICAITONS I COM
CLASSIC COMMUNICATIONS INC CL A NTN COMMUNICATIONS INC COM NEW
COMCAST CORP CL A NUCENTRIX BROADBAND NETWORKS COM
COMCAST CORP CL A SPL ON COMMAND CORP COM
COX COMMUNICATIONS INC NEW CL A PEGASUS COMMUNICATIONS CORP CL A
CROWN MEDIA HLDGS INC CL A RNETHEALTH INC COM NEW
E VIDEO TV INC COM ROGERS COMMUNICATIONS INC CL B
ECHOSTAR COMMUNICATIONS NEW CL A SHAW COMMUNICATIONS INC CL B CONV
GLOBAL TECHNOLOGIES LTD CL A TELVUE CORP COM
HISPANIC TV NETWORK INC COM TIVO INC COM
INSIGHT COMMUNICATIONS INC CL A UNITEDGLOBALCOM CL A
INTERACTIVE NETWORK INC COM USURF AMERICA INC COM
INTERNATIONAL FIBERCOM INC COM VIACOM INC CL A
JUST WEBIT COM INC COM NEW VIACOM INC CL B
LIBERTY SATELLITE & TECHNOLO CL A VIRTUAL SELLERS COM INC COM
Notwithstanding anything to the contrary set forth in any of our previous
filings under the Securities Act of 1933, as amended, or the Exchange Act that
might incorporate future filings, including this Proxy Statement in whole or in
part, the foregoing Board Compensation Report and Performance Graph and the
following Audit Committee Report shall not be incorporated by reference into any
such filings.
AUDIT COMMITTEE REPORT
The Audit Committee operates pursuant to a written Charter that was adopted
by the Board of Directors in June 2000 and subsequently reviewed by the Audit
Committee in 2001. As set forth in the Charter, management is responsible for
the preparation, presentation and integrity of our financial statements, our
accounting and financial reporting principles, and internal controls designed to
assure compliance with accounting standards and applicable laws and regulations.
Our independent auditors are responsible for auditing our financial statements
and expressing an opinion as to their conformity with generally accepted
accounting principles.
In the performance of its oversight function, during 2001 the Audit
Committee reviewed and discussed the audited financial statements with
management and KPMG LLP. Discussions between the Audit Committee and KPMG LLP
included the matters required by Statement on Auditing Standards No. 61, as
currently in effect. The Audit Committee received from KPMG LLP written
disclosures and the letter regarding its independence as required by
Independence Standards Board Standard No. 1 and has discussed with KPMG LLP its
independence. The Audit Committee also considered whether the provision of audit
related services during 2001 was compatible with maintaining the independence of
KPMG LLP. The Audit Committee believes that management maintains an effective
system of internal controls that results in fairly presented financial
statements. Based on these discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2001 as filed with
the Securities and Exchange Commission.
The foregoing report is provided by the Audit Committee: Barry Bergsman,
Robert M. Bennett and Esther L. Rodriquez.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to us for the
fiscal year ended December 31, 2001 by our principal independent accounting
firm, KPMG LLP.
FEE CATEGORY AMOUNT OF FEE
------------ -------------
Audit Fees $120,000
Financial Information Systems Design and Implementation Fees --
All Other Fees
Audit Related Fees $ 7,000
Other Non Audit Services --
-------------
Total Fees for Fiscal Year ended December 31, 2001 $127,000
=============
INDEMNITY AGREEMENTS
We have entered into indemnity agreements with each of our directors and
executive officers. The indemnity agreements provide that we will indemnify
these individuals under certain circumstances against certain liabilities and
expenses they may incur in their capacities as our directors or officers. We
believe that the use of such indemnity agreements is customary among
corporations and that the terms of the indemnity agreements are reasonable and
fair to us, and are in our best interests to retain experienced directors and
officers.
CERTAIN RELATIONSHIPS
See "Compensation Committee Interlocks and Insider Participation."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, our directors and officers and any
persons holding more than 10% of our Common Stock are required to report their
ownership of the our Common Stock and any changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established, and we are required to report any failure to file by these
dates. Based solely on our review of Forms 3, 4, and 5 and amendments thereto
furnished to us as well as certain written representations, during 2001, our
directors, officers and 10% stockholders timely satisfied all of these filing
requirements.
OTHER MATTERS
Accompanying this Proxy Statement is a letter to stockholders from Mr.
Kinsey, our Chairman and Chief Executive Officer, together with our Annual
Report for the fiscal year ended December 31, 2001.
WE WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS BEING SENT A COMPLETE COPY OF OUR FORM 10-K (OTHER THAN EXHIBITS)
FOR FISCAL 2001. WRITTEN REQUESTS FOR THE FORM 10-K SHOULD BE DIRECTED TO MR.
JAMES B. FRAKES, CORPORATE SECRETARY, AT NTN'S CORPORATE OFFICES LOCATED AT 5966
LA PLACE COURT, CARLSBAD, CALIFORNIA 92008. TELEPHONE REQUESTS MAY BE DIRECTED
TO MR. FRAKES AT (760) 438-7400.
We do 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.
THE BOARD OF DIRECTORS
Dated: April 17, 2002