UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 14a-12
NTN COMMUNICATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
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NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held June 10, 2005
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 corporate headquarters located at 5966 La Place Court, Carlsbad,
California 92008, at 8:30 a.m. local time, on June 10, 2005, for the following
purposes, as more fully described in the attached Proxy Statement:
1. To elect three directors to hold office until the 2008 annual meeting of
stockholders and until their respective successors are duly elected and
qualified;
2. To vote upon a proposal to amend the Restated Articles of Incorporation
of NTN Communications, Inc. to eliminate the classified structure of the
board of directors;
3. To vote upon a proposal to amend the Restated Articles of Incorporation
of NTN Communications, Inc. to change the Company's corporate name from NTN
Communications, Inc. to NTN Buzztime, Inc.;
4. To ratify the appointment of Haskell & White LLP as the Company's
independent registered public accounting firm for the fiscal year ending
December 31, 2005; and
5. 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 11, 2005 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, if you hold your shares through a broker or bank,
you may vote by telephone or via the internet. You may vote via the internet at
www.proxyvote.com Use the internet to transmit your voting instructions and for
electronic delivery of information up until 11:59 p.m. Eastern Time the day
before the meeting date. Have your proxy card in hand when you access the web
site. You will be prompted to enter your control number to obtain your records
and to create an electronic voting instruction form. You do not need to 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,
James B. Frakes
Chief Financial Officer
and Secretary
Carlsbad, California
May 5, 2005
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
PROXY STATEMENT
Annual Meeting to be held June 10, 2005
SOLICITATION AND VOTING
General
The enclosed proxy is being solicited on behalf of the Board of Directors
of NTN Communications, Inc. ("NTN") for use at the annual meeting of
stockholders to be held at NTN's corporate headquarters located at 5966 La Place
Court, Carlsbad, California 92008, at 8:30 a.m. local time, on June 10, 2005,
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, and posting on our
corporate website at www.ntn.com, on or about May 3, 2005.
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 11, 2005 are entitled to notice of and to vote at the Annual
Meeting. There were 53,341,464 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 inspector 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"
Proposal 1, the election as directors of the nominees named in this Proxy
Statement, "FOR" Proposal 2, approval of the amendment to the Restated Articles
of Incorporation of NTN Communications, Inc. to eliminate the classified
structure of the board of directors, "FOR" Proposal 3, approval of the amendment
to the Restated Articles of Incorporation of NTN Communications, Inc. to change
the name of the Company from NTN Communications, Inc. to NTN Buzztime, Inc.; and
"FOR" Proposal 4, ratification of the appointment of Haskell & White LLP as our
registered public accounting firm for the fiscal year ending December 31,
2005. Broker non-votes will not affect the outcome of any proposal. 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.
1
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 2006 Annual Meeting
Stockholder proposals intended to be included in our proxy materials for
the 2006 annual meeting of stockholders must be received by January 5, 2006.
Such proposals should be addressed to our Secretary.
With respect to any stockholder proposals to be presented at the 2006
annual meeting which are not included in the 2006 proxy materials, such proposal
shall be considered untimely, unless the proponent notifies us of such proposal
by not later than March 21, 2006. Pursuant to Rule 14a-4(c)(1) of the Securities
Exchange Act, the Company will have discretionary authority to vote upon such
untimely proposals. Any proposal must comply with the federal securities laws.
Selection of Director Nominees
The Nominating Committee will consider candidates for Board membership
suggested by other Board members, as well as by management and stockholders. As
a stockholder, you may recommend any qualified person for consideration as a
nominee for director by writing to the Nominating Committee of the Board of
Directors, c/o NTN Communications, Inc., 5966 La Place Court, Carlsbad,
California 92008. Recommendations must be received by January 5, 2006 to be
considered for the 2006 annual meeting of stockholders, and must comply with the
requirements in our bylaws. Recommendations must include the name and address of
the stockholder making the recommendation, a representation that the stockholder
is a holder of record of Common Stock, biographical information about the
individual recommended and any other information the stockholder believes would
be helpful to the Nominating Committee in evaluating the individual recommended.
The procedures for considering candidates recommended by a stockholder for Board
membership will be no different than the procedures for candidates recommended
by members of the Board or by management.
Corporate Governance
We are committed to integrity, reliability and transparency in our
disclosures to the public. We have established corporate governance practices to
ensure that our business is operated in the best interests of our stockholders
and in full compliance with our legal obligations including the corporate
governance listing standards of the American Stock Exchange and regulations of
the Securities and Exchange Commission (the "SEC").
In particular, we have:
o determined that seven out of the eight members of our Board of Directors
meet the independence requirements of the American Stock Exchange;
o appointed an independent lead director;
o adopted a policy regarding director attendance at annual meetings of
stockholders;
o adopted a policy regarding stockholder communications with the Board of
Directors;
o determined that all of the members of the Audit Committee of the Board of
Directors meet the independence requirements of the American Stock Exchange
and SEC rules;
o determined that all of the members of the Audit Committee of the Board of
Directors are financially literate and designated an "audit committee
financial expert" within the meaning of the American Stock Exchange and SEC
rules;
o instituted procedures for receiving, retaining and treating complaints
from any source regarding accounting, internal accounting controls and
auditing matters, and procedures for the confidential, anonymous submission
by employees of concerns regarding accounting or auditing matters;
2
o adopted pre-approval policies and procedures for audit and non-audit
services;
o adopted a Code of Values, which applies to all officers, directors and
employees; and
o adopted a Code of Ethics for Senior Financial Officers, which applies to
our Chief Executive Officer, Chief Financial Officer and Vice President,
Controller.
Our committee charters, the Code of Values, the Code of Ethics for Senior
Financial Officers and other corporate governance materials and related
information are posted in the Corporate Governance section of our website at
www.ntn.com, or you may receive copies without charge by writing to us at: NTN
Communications, Inc., 5966 La Place Court, Carlsbad, California 92008,
Attention: Investor Relations.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees for Election for Term Expiring in 2008
Our bylaws provide that the Board of Directors is to consist of not less
than five or 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 articles currently 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. The terms are staggered ("classified") so that
the term of one class expires at each annual meeting of our stockholders. Three
director nominees have been nominated for election at this meeting to serve for
a three-year term expiring at our Annual Meeting in 2008. However, if Proposal 2
to amend the Company's Restated Articles of Incorporation to elect the directors
annually is approved by our stockholders, then the terms of all directors,
including those elected at the 2005 Annual Meeting, will end at the 2006 Annual
Meeting of Stockholders. Thereafter, all directors will be elected for one-year
terms. See Proposal 2 on page 7.
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.
We are presenting to stockholders a proposal to amend the Company's
Restated Articles of Incorporation to eliminate the classified structure of the
Board of Directors. Should stockholders approve this proposal, all directors
would be subject to election at the 2006 Annual Meeting of Stockholders for a
one year term.
Three 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
2008 and until their respective successors are duly elected and qualified,
subject to stockholder approval of Proposal 2.
Barry Bergsman, 64, has been a Director since August 1998 and was appointed
lead director in August, 2004. He is president of Baron Enterprises, Inc., a
privately owned consulting company established in 1965. As president of Intertel
Communications, Inc., from 1985 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.
Neal Fondren, 44, was appointed as a Director in May 2003 upon consummation
of the investment in NTN by Media General. Mr. Fondren has served as Vice
President of Media General and President of Media General's Interactive Media
Division since January 2001. Prior to joining Media General, Mr. Fondren was a
20-year veteran of E.W. Scripps Co., where he was vice president of new media
from 1997 to 2000. Before that, he held a succession of executive-level
positions in Scripps' cable television division from 1982 to 1997.
3
Stanley B. Kinsey, 51, has served as Chairman and Chief Executive Officer
of NTN since October 1998. Mr. Kinsey was appointed as a Director in November
1997. From 1976 to 1978, Mr. Kinsey was an analyst in the consulting division of
Arthur Anderson & Co. (now Accenture). From 1980 to 1985, he 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
Studios 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 2006
Gary H. Arlen, 60, was appointed as a Director in August 1999 and his
current term expires in 2006. 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 industries. Mr. Arlen was a founder and board member of several
interactive media trade associations. He is a member of the Academy of Digital
TV Pioneers and the Cable TV Pioneers.
Michael Fleming, 52, was appointed a Director in November 2001 and his
current term expires in 2006. Since May 2002, he has also served as Chairman of
the Board of our Buzztime Entertainment, Inc. subsidiary. 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.
Directors Whose Term Expires in 2007
Robert M. Bennett, 74, has been a Director since August 1996 and his
current term expires in 2007. 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 extreme 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. In 1972, Mr. Bennett joined Boston
Broadcasters, Inc. (BBI), serving as president and director from 1979 until
1982. 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. Mr. Bennett serves
as President of the Muscular Dystrophy Association and as director on the board
of the American Film Institute.
Robert B. Clasen, 60, has been a Director since November 2001 and his
current term expires in 2007. Currently he is President and CEO for Starz
Entertainment Media Group, the largest provider of premium movie services in the
United States providing thirteen channels of movies to multichannel television
homes. He was appointed to this position in December 2004, previously serving as
President of Sales and Marketing since September 2003 and President and COO
since May 2004. For most of the past ten years, Mr. Clasen has been President
and CEO of Clasen Associates, an advisor to a broad range of technology and
service companies who operate in the broadband, wireless and satellite sectors.
In this capacity he often has served as an interim executive. In January 2002,
he was appointed Acting Chairman and Chief Executive Officer of Inetcam, Inc., a
privately held international streaming media management software company, where
he served for five months. From September, 2002 through July, 2003, Mr. Clasen
served as Interim Chief Strategy Officer and director for Path 1 Network
Technologies (PNWK), a publicly traded provider of broadcast quality video over
packet-based networks and he remains on the Board. During this period he also
served as Chairman for Broadband Innovations and Lightwave Solutions, two San
Diego companies providing components to the cable television industry. 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,
continued to serve as a director for ICTV until July 2003. During 1997, 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 during the sale of the Company. 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.
4
Esther L. Rodriguez, 63, has been a Director since September 1997 and her
current term expires in 2007. She served in various executive capacities since
joining General Instrument (now Motorola's Broadband Communications Division)
from 1987 until her retirement in November 1996. As vice president of worldwide
business development for General Instrument, Ms. Rodriguez was instrumental in
developing the first nationwide home satellite pay-per-view business in the
United States. 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, she founded and continues to serve as chief executive
officer of Rodriguez Consulting Group, a business development consulting firm.
Ms. Rodriguez has over 30 years of experience in the development and management
of consumer and commercial multi-national businesses, as well as 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, 2004, the Board of
Directors met on six occasions. During 2004, 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. The schedule for regular meetings of the
Board for each year is submitted and approved by the Board in advance.
Each committee of the Board of Directors meets as frequently and for such
length of time as may be required to carry out its assigned duties and
responsibilities. In addition, the chairman of a committee may call a special
meeting at any time if deemed advisable. We have three standing committees: the
Audit, Compensation and Nominating Committees. The committees' respective duties
are outlined in their charters. The Board reviews the committees' duties from
time to time and may form new committees, revise a committee's structure, or
disband committees, depending on the circumstances.
Independent Lead Director and Executive Sessions of the Board
In August 2004, the Board of Directors appointed Mr. Bergsman to serve as
lead director to act as a liaison between the non-management directors and the
Company's management; to organize the Board's evaluation of our chairman and
chief executive officer, providing continuous ongoing feedback; to consult with
the chairman and chief executive officer on agendas for Board meetings; and
other matters pertinent to the Company and the Board. Our independent
non-management directors meet at regularly scheduled intervals without the
Company's management and chief executive officer. Mr. Bergsman presides over
each of these executive sessions. Our Board members have complete access to
management and to information regarding the Company's operations. In addition,
our Board supports our chief executive officer's practice of inviting managers
into Board meetings to provide additional insight regarding issues in their
respective areas of expertise.
Selection of Chairman and Chief Executive Officer
The chairman of our Board is elected by our Board of Directors. Our Board
is free to choose its chairman in any way it deems best for the Company and its
stockholders. Our chief executive officer is also designated by our Board of
Directors. The chief executive officer has general authority over the Company's
business and affairs, subject to oversight by the Board of Directors, and
ensures the Board's directives are carried out. Our chief executive officer,
Stanley B. Kinsey, also serves as chairman of the Board.
Audit Committee Financial Expert
NTN has determined that Robert M. Bennett is an "audit committee financial
expert" within the meaning of the final rules implementing Section 406 and 407
of the Sarbanes-Oxley Act and independent as defined in Item 7(d)(3)iv of
Schedule 14A of the Securities Exchange Act.
Audit Committee
We have a separately designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended. 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 internal control policies and procedures, to recommend
to the Board of Directors the firm of certified public accountants to be
retained as our independent auditors, to review our policies and procedures
relating to business conduct and conflicts of interest and to review
management's specific disclosures contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our periodic
financial reports to the SEC, in addition to review of our annual audited and
quarterly financial statements. The Audit Committee is currently comprised of
three non-employee directors: Mr. Bennett, Mr. Fondren and Ms. Rodriquez. Mr.
Bennett, Mr. Fondren and Ms. Rodriguez are independent under the rules of the
American Stock Exchange and the Sarbanes-Oxley Act of 2002. The Audit Committee
met on four occasions in 2004.
5
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 Board has delegated to the Compensation Committee
board authority to approve compensation for executive officers, as well as
incentive compensation and equity-based plans. The Compensation Committee
consists of two non-employee directors: Mr. Arlen and Mr. Bergsman. The
Compensation Committee met on four occasions in 2004.
Nominating Committee
We established a Nominating Committee in August, 2004. The primary
functions of the Nominating Committee, which consists of non-employee
independent directors, are to identify individuals qualified to become members
of the Board; and to select, or to recommend that the Board select, the director
nominees for the next annual meeting of stockholders; and to develop and
implement policies and procedures that are intended to ensure that the Board
will be appropriately constituted and organized to meet its fiduciary
obligations to the Company and its stockholders. The Nominating Committee
operates in accordance with an adopted charter as posted on the Corporate
Governance section of our website. The Nominating Committee consists of two
non-employee directors: Ms. Rodriguez and Mr. Bergsman. The Nominating Committee
met on one occasion in 2004. Our Nominating Committee acts in considering new
candidates for Board membership suggested by Board members, management and
stockholders. All director nominees shall have been approved by a majority of
the independent directors.
The Nominating Committee has established qualifications for directors,
including the ability to apply fair and independent judgment in a business
situation and the ability to represent the interests of all our stockholders and
constituencies. A director also must be free from any conflicts of interest that
would interfere with his or her loyalty to the company or our stockholders. In
evaluating Board candidates, the Nominating Committee considers these
qualifications as well as several other factors. Our Nominating Committee
believes candidates meeting these criteria can contribute diverse, useful
perspectives:
o demonstrated maturity and experience;
o expertise in business areas directly relevant to NTN and its
subsidiaries; and
o background in broadcasting, media or interactive television.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer and controller that was filed on March 31,
2003 as an exhibit to our annual report for the year ended December 31, 2002.
The text of our code of ethics can be found on the Internet at
http://www.ntn.com. We will voluntarily provide electronic or paper copies of
our code of ethics free of charge. You may request copies by sending a written
request to 5966 La Place Court, Carlsbad, California 92008.
Director Compensation
During 2004, directors were entitled to receive cash compensation of $2,400
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 for each such service. Those directors serving on our Nominating
Committee receive an additional $1,000 annually for their service. Our
independent lead director is entitled to receive an additional $2,000 per
quarter for his service. Directors are also eligible for the grant of options to
purchase Common Stock from time to time for services 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 stockholders. 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 stockholders 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 stockholders, 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 upon the occurrence
of a change of control event.
6
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 any 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 EACH 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
APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
TO ELIMINATE THE CLASSIFIED STRUCTURE
OF THE BOARD OF DIRECTORS
On March 8, 2005, the Board of Directors of the Company approved for
submission to the stockholders a proposed amendment of the Company's Restated
Articles of Incorporation to eliminate the classified structure of the Board of
Directors. If stockholders approve this Proposal No. 2, Sections A and B of
Article IX of the Company's Restated Articles of Incorporation will be amended
to read in their entirety as follows:
"ARTICLE IX
A. Number, Election and Term of Directors. The number of Directors of
the Corporation shall be fixed from time to time by or pursuant to the
By-laws. Each director who is serving as a director on the date of this
Amendment shall hold office until the next annual meeting of stockholders
after such date and until his or her successor has been duly elected adn
qualified, notwithstanding that such director may have been elected for a
term that extended beyond the date of such next annual meeting of
stockholders. At each annual meeting of stockholders after the date of this
Amendment, the Directors elected at such annual meeting shall hold office
for a term expiring at the next annual meeting of stockholders to be held
in the year following the year of their election, with the members to hold
office until their successors are elected and qualified.
B. Newly Created Directorship and Vacancies. Newly created
directorships resulting from any increase in the number of Directors and
any vacancies on the Board of Directors resulting from the death,
resignation, disqualification, or removal of a director shall be filled
solely by the affirmative vote of the majority of the remaining Directors
then in office, even though less than a quorum of the Board of Directors.
Any Director elected (a) to fill any vacancy resulting from the death,
resignation, disqualification or removal of a Director shall hold office
for the remainder of the full term of the Director whose death,
resignation, disqualification or removal created such vacancy or (b) to
fill any vacancy resulting from a newly created directorship shall hold
office until the next annual meeting of stockholders and, in each case,
until such Director's successors shall have become elected and qualified.
No decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
7
The Board of Directors has unanimously adopted a resolution approving the
submission to stockholders of the amendment to Sections A and B of Article IX of
the Restated Articles of Incorporation to declassify the Board of Directors and
provide for the annual election of all directors. The Board of Directors
unanimously recommends that stockholders vote to approve Proposal 2.
Sections A and B of Article IX of the Company's Restated Articles of
Incorporation currently provides that:
o the Board of Directors shall be divided into three classes of an equal
number of directors each;
o one of the three classes shall stand for re-election each year; and
o each class of directors shall hold office for a three-year term.
The affirmative vote of stockholders holding a majority of all the
outstanding shares of the Company is required for the approval of Proposal 2. If
Proposal 2 is approved by the Company's stockholders, the amendment will be
adopted and the terms of all directors will end at the 2006 Annual Meeting of
stockholders. Beginning with that annual meeting, all directors will be elected
for one-year terms at each annual meeting. In addition, any director appointed
by the Board of Directors to fill a newly created directorship or to fill a
vacancy on the Board will hold office for a term ending at the next annual
meeting after the director's appointment.
Classified or staggered boards have been widely adopted and have a long
history in corporate law. Classified boards have been viewed as a means of
promoting stability and continuity of experience on a board of directors
primarily because the majority of directors at any given time will have had at
least one year of experience on the board, thus assisting a company in its
long-term strategic planning efforts. Also, because it would take at least two
elections for a potential acquiror to gain control of a classified board without
the cooperation of the board, the existence of a classified structure may
enhance stockholder value by making it more likely that a party seeking to gain
control of a target company will engage in arm's-length discussions with the
target's existing board instead of launching a proxy fight in an attempt to gain
control of the board and take over the company. However, many investors and
others have come to view a classified board structure as having the effect of
reducing the accountability of directors because classified boards limit the
ability of stockholders to evaluate and elect all directors on an annual basis.
The election of directors is the primary means for stockholders to influence
corporate governance policies and to hold management accountable for the
implementation of these policies. Opponents of classified boards also believe
that they discourage takeover proposals and proxy contests that could have the
effect of increasing stockholder value.
In light of these views, many public corporations have recently determined
that principles of good corporate governance dictate that all directors of a
corporation should be elected annually. Our Board of Directors has considered
the advantages and disadvantages of the classified board structure, and has
unanimously voted to propose to the stockholders that the Company's directors be
elected annually. In reaching this determination, the Board of Directors
concluded that the benefits of a classified board structure were outweighed by
the following considerations:
o The Board's belief that providing the Company's stockholders with the
opportunity annually to register their views on the collective performance
of the Board and on each director individually will further the Company's
goal of ensuring that its corporate governance policies conform to current
best practices and maximize accountability to the stockholders;
o The Board's belief that, because there is no limit to the number of terms
an individual may serve, the continuity and stability of the Board's
membership should not be materially affected by declassification of the
Board of Directors; and
o The Board's belief that, even though annual election of directors may
enhance the ability of a third party to acquire control of the Company
without engaging in arm's-length discussions with the Board, there are
other factors, such as the regulatory requirements applicable to an
acquisition of control of the Company, that reduce the likelihood that a
third-party would be successful in taking over the Company without engaging
in arm's-length discussions with the Board.
8
If stockholders approve Proposal No. 2, we will file Articles of Amendment
to the Company's Restated Articles of Incorporation formalizing elimination of
the classified structure of the Board of Directors. Each director elected at
this Annual Meeting will then hold office for a one-year term expiring on the
date of the 2006 Annual Meeting, subject to his or her earlier resignation,
removal or death. In addition, the remaining directors will also stand for
election at the 2006 Annual Meeting. In addition, any director appointed by the
Board of Directors to fill any newly created directorship or to fill a vacancy
on the Board will hold office for a term ending at the next annual meeting.
If Proposal 2 is not approved by stockholders, the Board of Directors will
remain classified, and the three directors elected at the 2005 Annual Meeting
will be elected for a three-year term expiring in 2008. All other directors will
continue in office for their full three-year term, subject to their earlier
resignation, removal or death. The affirmative vote of a majority of the
Company's outstanding shares will be required for approval of Proposal 2. An
abstention will have the same effect as a vote against the proposal. The Board
of Directors recommends a vote "FOR" Proposal 2.
Required Vote
The affirmative vote of a majority of the Company's outstanding shares will
be required for approval of Proposal 2. An abstention will have the same effect
as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
On April 18, 2005, the Board of Directors of the Company approved for
submission to the stockholders a proposed amendment to the Company's Restated
Articles of Incorporation to change the name of the Company from NTN
Communications, Inc. to NTN Buzztime, Inc., to be effective January 1, 2006. If
stockholders approve this Proposal No. 3, Article I of the Company's Restated
Articles of Incorporation will be amended to read in its entirety as follows:
"The name of the corporation ("Corporation") is NTN Buzztime, Inc."
The Board of Directors of the Company is recommending the approval of the
name change because it believes the name NTN Communications, Inc., established
20 years ago, no longer represents the Company as it operates today.
Approximately five years ago, we established the Buzztime name as our
business-to-consumer brand and began using the existing NTN brand more
frequently as our business-to-business brand. Since that time, several of the
Company's products and services utilizing the Buzztime brand have begun to gain
traction with consumer markets. Some of these products and services include the
Buzztime trivia channel currently running on several distribution platforms,
including digital cable television, Verizon mobile phones and on Dish Network.
Additionally, the Company has branded a Buzztime home electronics game and
playing cards, and has commenced a trial of the Buzztime iTV Network in eleven
pubs in the United Kingdom.
9
Along with the successful deployments of Buzztime-branded products,
management has found consumers and investors sometimes unaware of a connection
between the NTN brand and the Buzztime brand. We believe that the new name "NTN
Buzztime, Inc." better reflects the Company's current business and growth
strategies of expanding distribution of the Buzztime brand via our broader
product lines. This change is proposed as part of our enhanced corporate
identity strategy and it provides us with a cohesive, instantly-recognizable
identity associated with both our successful new products in the multi-player
game sector of the interactive television industry and our hospitality products
sold in business-to-business markets.
We plan to continue emphasizing the Buzztime brand in our consumer-oriented
products and services as well as using the NTN brand for our
business-to-business product lines.
If stockholders approve Proposal No. 3, we will file Articles of Amendment
to the Company's Restated Articles of Incorporation formalizing a corporate name
change to be effective as of January 1, 2006. Once the name change is effected,
the Company will legally be known as "NTN Buzztime, Inc." and will continue to
trade on the American Stock Exchange under the symbol "NTN." Accordingly, it
will be necessary for the Company to reflect its name change on our stationary,
bank accounts, domain name, stock certificates and various other administrative
and communications materials. We do not expect these costs to be material.
Required Vote
A majority of the Company's outstanding shares must be voted in favor of
amending the Company's Restated Articles of Incorporation to change the
Company's corporate name from "NTN Communications, Inc." to "NTN Buzztime, Inc."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 3 TO APPROVE AN
AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO CHANGE THE NAME
OF THE COMPANY TO "NTN BUZZTIME, INC."
PROPOSAL 4
RATIFICATION OF APPOINTMENT
OF HASKELL & WHITE LLP AS
INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTING FIRM
Our independent registered public accounting firm for the fiscal year ended
December 31, 2004 was Haskell & White LLP. Prior to that time, KPMG LLP audited
our financial statements for the fiscal years ended December 31, 1989 through
December 31, 2003. The Audit Committee of our Board of Directors has reappointed
Haskell & White LLP to continue as our independent registered public accounting
firm for the year ending December 31, 2005. Our bylaws do not require that the
stockholders ratify the selection of Haskell & White LLP as our independent
registered public accounting firm. However, we are submitting the selection of
Haskell & White LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders do not ratify the selection, the Audit
Committee will reconsider whether or not to retain Haskell & White LLP. Even if
the selection is ratified, 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.
10
Representatives of Haskell & White 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 Proposal 4 to ratify the appointment of Haskell
& White LLP as our independent registered public accounting firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF HASKELL & WHITE LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM. PROXIES WILL BE VOTED "FOR" THE RATIFICATION OF THE APPOINTMENT
OF HASKELL & WHITE 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.... 51 Chief Executive Officer and Chairman of the Board
V. Tyrone Lam........ 43 President and Chief Operating Officer, Buzztime Entertainment,Inc.
Mark deGorter........ 47 President and Chief Operating Officer, NTN Hospitality Technologies
James B. Frakes...... 48 Chief Financial Officer
----------
(1) As of April 11, 2005.
See "Election of Directors" for Mr. Kinsey's biography. The following
biographical information is furnished with respect to our other executive
officers:
V. Tyrone Lam was appointed President and Chief Operating Officer of
Buzztime Entertainment, Inc. in December 1999, upon incorporation of the
subsidiary. Prior to his current appointment, Mr. Lam served as executive vice
president of NTN, responsible for sales, marketing and operations of the NTN
Network. Before joining NTN in 1994, he managed the development of iTV game and
sports applications for EON Corporation, formerly known as TV Answer, a pioneer
in the interactive television industry, from April 1992 until December 1994.
Additionally, Mr. Lam has served in sales and marketing management positions
within the PC software industry, is past chairman of the Interactive Services
Association's Interactive Television Council and is an author of articles on
interactive television and sales and marketing strategies.
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 our Buzztime subsidiary. Further, 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 consumer
packaged goods 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.
11
James B. Frakes was appointed Chief Financial Officer and Secretary of NTN
in April 2001. Prior to joining us, 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 Youth Tennis San Diego, a nonprofit organization.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation 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 2004 and the three other most highly
compensated executive officers who were serving as executive officers at the end
of 2004 whose salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers"):
Securities Underlying
Annual Compensation Long-Term Compensation Awards
Deferred Stock
Name and Principal Position Year Salary(1) Bonus(2) Options Units(3)
--------------------------- ---- --------- -------- -------- --------------
Stanley B. Kinsey(4)........ 2004 $367,000 $50,000 300,000 50,000
Chief Executive Officer 2003 339,834 15,000 400,000 --
and Chairman of the Board 2002 313,542 24,000 100,000 --
V. Tyrone Lam............... 2004 $270,673 $15,000 40,000 20,000
President & Chief Operating Officer 2003 250,288 50,000 100,000 --
Buzztime Entertainment, Inc. 2002 222,156 15,000 100,000 --
Mark deGorter............... 2004 $270,673 $15,000 40,000 20,000
President & Chief Operating Officer 2003 249,615 50,000 100,000 --
NTN Hospitality Technologies 2002 222,538 60,000 250,000 --
James B. Frakes............. 2004 $205,673 $50,000 40,000 20,000
Chief Financial Officer 2003 189,103 15,000 100,000 --
2002 159,000 20,000 -- --
----------
(1) Includes amounts, if any, deferred under NTN's 401(k) Plan.
(2) Represents cash bonus paid out in accordance with the performance-based
bonus program as established by the Compensation Committee of the Board of
Directors.
(3) Granted pursuant to the NTN Communications, Inc. 2004 Performance Incentive
Plan, effective September 30, 2004, subject to monthly vesting during
employment.
(4) 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.
12
Option Grants in Last Fiscal Year
The following table contains information concerning grants of stock options
during 2004 with respect to the Named Executive Officers:
Individual Grants
Number of % of Total
Shares Options/DSUs
Underlying Granted to Grant Date
Options/DSUs Employees in Exercise/Base Expiration Present
Name Granted Fiscal Year Price Date Value
----------------- ------- ------------ ---------- ---------- -----------
Stanley B. Kinsey 300,000(3) 2.5% $1.86 08/15/14 $435,963(1)
Stanley B. Kinsey 50,000(4) * 2.60 02/28/15 130,000(2)
V. Tyrone Lam.... 40,000(5) * 2.73 03/21/14 113,686(1)
V. Tyrone Lam 20,000(6) * 2.60 02/28/15 78,305(2)
Mark deGorter.... 40,000(5) * 2.73 03/21/14 113,686(1)
Mark deGorter 20,000(6) * 2.60 02/28/15 78,305(2)
James B. Frakes.. 40,000(5) * 2.73 03/21/14 113,686(1)
James B. Frakes 20,000(6) * 2.60 02/28/15 78,305(2)
_______
*less than 1%
(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 3.327%,
expected volatility of 101.45%, and expected option life of 5 years.
(2) The per-share base price on the grant date was $2.60 per share, the
market value of the underlying security on the date of grant.
(3) Represents options granted under the 1995 Stock Option Plan, which become
fully vested and exercisable as of July 31, 2005. The options were granted
to Mr. Kinsey in consideration of Mr. Kinsey's agreement to extend the term
of his employment agreement to February 28, 2005. The options were priced
at $1.86 per share in accordance with the terms of the Amendment to Mr.
Kinsey's employment agreement effective August, 2004. Such options vested
in six (6) equal installments on the last day of each month commencing
August, 2004.
(4) Represents deferred stock units granted in accordance with the NTN
Communications, Inc. 2004 Performance Incentive Plan. The deferred stock
units vest monthly through March, 2005.
(5) Represents options granted under the 1995 Stock Option Plan. Such
options vest and become exercisable as to 1/12 of the total shares on the
last day of each of the twelve (12) calendar months immediately following
the first anniversary of the grant date.
(6) Represents deferred stock units granted in accordance with the NTN
Communications, Inc. 2004 Performance Incentive Plan. The deferred stock
units vest monthly as to 1/12 of the total shares granted commencing March
1, 2005.
Fiscal Year-End Option Values
The following table contains information concerning stock options which
were unexercised at the end of 2004 with respect to the Named Executive
Officers. No stock options were exercised in 2004 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 2,950,000 100,000 $6,483,500 $133,000
V. Tyrone Lam.... 648,750 91,250 1,378,896 204,479
Mark deGorter.... 405,000 135,000 942,446 306,853
James B. Frakes.. 301,875 88,125 693,998 199,302
----------
(1) Represents the amount by which the aggregate market price on December 31,
2004 of the shares of our Common Stock subject to such options exceeded the
respective exercise prices of such options.
13
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 11, 2005 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 Named Executive Officers and directors as a group. Beneficial
ownership includes any shares which a person has the right to acquire within 60
days of April 11, 2005. 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)...................................... 181,000 *
Robert M. Bennett(3)............................... 1,848,017 3%
Barry Bergsman(4).................................. 291,000 *
Robert B. Clasen(5)................................ 90,000 *
Michael Fleming(6)................................. 80,000 *
Neal Fondren(7) ................................... 1,320 *
Esther L. Rodriguez(8)............................. 242,766 *
Stanley B. Kinsey(9)............................... 3,200,333 6%
V. Tyrone Lam(10).................................. 664,667 1%
Mark deGorter(11).................................. 426,259 *
James B. Frakes(12) ............................... 323,334 *
Media General, Inc.(13) ........................... 3,287,810 6%
Vincent A. Carrino(14)............................. 5,114,831 10%
----------------- -----------------
All executive officers and directors of NTN as a
Group (11 persons) (15)............................. 7,348,696 14%
================= =================
----------
(1) Included as outstanding for purposes of this calculation are 53,341,464
shares of Common Stock (the amount outstanding as of April 11, 2005) 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 11, 2005) 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 180,000 shares subject to currently exercisable options held
by Mr. Arlen.
(3) Includes 180,000 shares subject to currently exercisable options and
500,000 shares subject to currently exercisable warrants held by Mr.
Bennett.
(4) Includes 180,000 shares subject to currently exercisable options and
20,000 shares subject to currently exercisable warrants held by Mr.
Bergsman.
(5) Includes 80,000 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.
(6) Includes 80,000 shares subject to currently exercisable options held by
Mr. Fleming.
14
(7) Includes 500 shares owned by Mr. Fondren as custodian for his son.
Excludes shares subject to options issued to Media General for Mr.
Fondren's service as director.
(8) Includes 180,000 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 3,050,000 shares subject to currently exercisable options and
50,000 deferred stock units held by Mr. Kinsey.
(10) Represents shares subject to currently exercisable options and
deferred stock units held by Mr. Lam.
(11) Represents shares subject to currently exercisable options and
deferred stock units held by Mr. deGorter.
(12) Represents shares subject to currently exercisable options and
deferred stock units held by Mr. Frakes.
(13) Includes 564,000 shares acquired January 20, 2004 in a registered
public offering; 2,000,000 shares acquired pursuant to the Purchase
Agreement dated May 5, 2003; 666,667 shares acquired pursuant to the
Licensing Agreement dated May 7, 2003; and 40,000 shares subject to
currently exercisable options issued for Mr. Fondren's service as director.
(14) Includes 260,000 shares subject to currently exercisable options held
by Mr. Carrino. Also includes 332,386 shares 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.
(15) Includes 7,348,696 shares subject to currently exercisable
options,warrants and deferred stock units held by executive officers and
directors, including those described in notes (2) through (12) above.
15
Equity Compensation Plans
The following table sets forth as of December 31, 2004 our compensation
plans authorizing us to issue equity securities and the number of securities
issuable thereunder.
Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding options, under equity compensation plans
Plan Category warrants and rights warrants and rights (excluding securities reflected
(a) (b) in column (a))
Equity compensation
plans approved by 9,673,914(1) $1.31 728,069(2)
security holders
Equity compensation
plans not approved by 1,632,833(4) $1.61 0
security holders
------------------------- --------------------- ----------------------------------
------------------------- --------------------- ----------------------------------
Total 11,306,747 728,069(3)
========================= ===================== ==================================
----------
(1) Includes 9,173,914 shares issuable upon exercise of options granted
pursuant to the NTN Communications, Inc. 1995 Employee Stock Option Plan
and 500,000 shares issuable upon exercise of options granted pursuant to
the NTN Communications, Inc. 1996 Special Stock Option Plan.
(2) Remaining available for grant under the NTN Communications, Inc. 1995
Employee Stock Option Plan.
(3) Does not include 300,000 shares of Buzztime Entertainment, Inc. common
stock available for grant under the Buzztime Entertainment, Inc. 2001
Incentive Stock Option Plan. To date, no options have been granted under
the plan.
(4) The 1,632,833 shares issuable that are not pursuant to equity
compensation plans approved by security holders are all pursuant to
warrants granted in connection with consulting agreements with
non-employees or to warrants associated with equity offerings. Warrants to
purchase 514,000 shares were granted in 2003, 685,000 shares were granted
in 2002 and 190,000 shares in 2001. The remainder of outstanding warrants
were issued on or before 2000. As of December 31, 2003, the range of
exercise prices and the weighted-average remaining contractual life of
outstanding warrants was $0.50 to $3.75 and 4 years, respectively.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors administers our
executive compensation program and establishes the salaries of our executive
officers. The Compensation Committee consists of only independent, non-employee
Directors, who are appointed by the Board.
The Compensation Committee's executive compensation policy is intended to
enhance stockholder value, including annual compensation consisting of salary
and bonus awards, and long-term compensation consisting of stock options and
other equity based compensation. Therefore, the Compensation Committee designs
compensation plans and incentives to link financial interests of our executive
officers to the interests of our stockholders, to encourage support of our
long-term goals, to tie executive compensation to the Company's performance and
to attract and retain talented leadership.
In making decisions affecting executive compensation, the Compensation
Committee reviews the nature and scope of the executive officer's
responsibilities as well as his or her effectiveness in supporting the Company's
long term goals. The Compensation Committee also considers the compensation
practices of comparable corporations in the San Diego area. Based upon these and
other factors which it considers relevant, the Compensation Committee has
considered it appropriate, and in the best interest of the stockholders, to set
overall executive compensation on par with the average of companies in the
comparison group to enable us to attract, retain and motivate the highest level
of executive personnel. Our policies apply equally to all of our executive
officers.
16
A summary of our executive compensation policy is described below:
Short-term cash compensation to executives for 2004 consisted primarily of
salaries, subject to any written employment agreement between us and any
executive, and performance bonuses intended to link officers' compensation to
the Company's performance. Our executive incentive bonus program provides for
the payment of cash bonuses based on the Company's performance in relation to
predetermined objectives and individual executive performance for the year then
ended. Prior to the beginning of the fiscal year, the Compensation Committee
established objectives related to the Company's earnings, revenue and
shareholder value. Based on the Company's performance during 2004 against these
objectives, each of Messrs Kinsey, Frakes, Lam and deGorter was paid, in 2005, a
cash bonus in the amount of $15,000.
We have established a 401(k) plan. We may, at the Board of Director's
discretion, make annual contributions to the 401(k) plan on behalf of our
employees including the executive officers, subject to applicable limitations,
but, to date, we have never made any such contributions.
Long-term compensation to executives for 2004 consisted of equity
compensation, in the form of stock options and deferred stock units, granted in
accordance with our equity performance incentive compensation plans.
stockholders approved our 2004 Performance Incentive Plan in September 2004. The
Compensation Committee believes that employees should be rewarded with a
proprietary interest in the Company for continued long-term performance and to
attract, motivate and retain qualified and capable executives. The grant of
stock options and deferred stock units increases the executives' potential
equity ownership in NTN with the goal of ensuring that the interests of senior
management remain closely aligned with those of our stockholders. Accordingly,
during 2004, the Board of Directors granted 300,000 options and 50,000 deferred
stock units to Mr. Kinsey and 40,000 options and 20,000 deferred stock units to
each of Messrs. Frakes, deGorter and Lam. Attaching vesting requirements to
stock options and deferred stock units also creates an incentive for executive
officers to remain with us for the long term.
Chief Executive Officer Compensation
In October 1998, we entered into a written employment agreement pursuant to
which Mr. Kinsey was to receive a bonus under a bonus program that was agreed
upon by and between Mr. Kinsey and the Compensation Committee of our board of
directors. On October 7, 1999, we entered into an addendum to the employment
agreement with Mr. Kinsey setting forth the terms of the bonus program. Under
the bonus program, the options granted to Mr. Kinsey in October 1999 were
granted at a preferred, below market, price of $0.98 per share, the average
closing price of our Common Stock during the three calendar quarters immediately
prior to the grant date. The options were granted to Mr. Kinsey pursuant to our
1995 Employee Stock Option Plan and are subject to immediate vesting upon the
occurrence of a change of control event In January 2001, we amended the
employment agreement with Mr. Kinsey to extend the duration of the agreement by
one year until October 6, 2002 and to award options for an additional 350,000
shares of our Common Stock at an exercise price of $0.875 per share. On October
7, 2002, Mr. Kinsey was granted options to purchase 100,000 shares of Common
Stock in exchange for his agreement to reset the commencement of the renewal
term of the employment agreement to January 1, 2003. In February 2003, Mr.
Kinsey accepted an additional term of employment through January 31, 2004. In
connection with the extension, Mr. Kinsey was granted options to purchase
400,000 shares of common stock at $1.10 per share in accordance with the terms
of our broad-based employee stock option grant effective January 31, 2003. In
August 2004, the term of Mr. Kinsey's employment agreement was extended through
February 28, 2005, his salary was increased to $380,000 and he was granted
300,000 stock options and 50,000 deferred stock units. All options granted to
Mr. Kinsey have been made at the fair market value as of the date of each grant.
Mr. Kinsey and the Compensation Committee are currently negotiating terms for an
extension of Mr. Kinsey's employment.
17
Internal Revenue Code Section 162(m)
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 2004, no executive officer received aggregate compensation
of $1,000,000 or more. However, the Board is aware that the grant of stock
options and deferred stock units 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 and deferred stock units, the Board of Directors is aware
that any deduction that we may have at the time of exercise or election 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.
The foregoing report on executive compensation is provided by the
Compensation Committee: Gary Arlen and Barry Bergsman. Notwithstanding anything
to the contrary set forth in any of our filings and other documents that might
incorporate by reference this proxy statement, in whole or in part, the
foregoing report of the Compensation Committee shall not be incorporated by
reference into any such filings or documents.
Change in Control Agreements
We are negotiating change of control employment agreements with certain of
our executive officers. The agreements shall provide that, if the executive is
terminated other than for cause within one year after a change of control of the
Company, then the executive is entitled to receive a lump sum severance payment
equal to up to one year's base salary.
We have entered into an employment agreement with Stanley B. Kinsey, our
Chief Executive Officer and Chairman of the Board. In the event Mr. Kinsey is
terminated upon a change of control of NTN, in addition to one year's base
salary, he shall receive a pro rata portion of his bonus and continuation of
employment benefits for one year.
Compensation Committee Interlocks and Insider Participation
All compensation determinations for 2004 for our executive officers were
made by the Board of Directors as a whole upon the recommendation of the
Compensation Committee or by the Compensation Committee under authority granted
to them by the Board. During 2004, Mr. Arlen and Mr. Bergsman served on the
Compensation Committee. 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 our Board of Directors or on our
Compensation Committee.
In connection with the investment by Media General, Inc., we agreed to
increase the size of our Board of Directors and appoint Neal F. Fondren, Vice
President of Media General and President of Media General's Interactive Media
Division to fill the board seat. Media General's ability to maintain that seat
on our Board of Directors is subject to Media General retaining ownership of
certain percentages of the shares they purchased. Media General also received
preemptive rights to purchase on a pro rata basis any new securities that NTN or
Buzztime may subsequently offer. The preemptive rights also are dependent upon
Media General maintaining ownership of certain percentages of the shares they
purchased.
On January 30, 2004, Media General, Inc. purchased $2 million of our Common
Stock as part of a group of institutional investors that invested $14 million
into our company. Media General invested on the same terms as the other
investors.
18
Performance Graph
The following graph sets forth a comparison of cumulative total returns for
NTN, the American Stock Exchange Index, an index consisting of companies sharing
the Standard Industrial Classification Code ("SIC Code") 7389 - Business
Services (the "New Peer Group") and an index consisting of companies sharing the
SIC Code 4841 - Cable, Other Pay TV Services (the "Old Peer Group"). We selected
the New Peer Group to replace the Old Peer Group which we used in our 2004 and
prior proxy statements. The New Peer Group was selected because it is a
comprehensive peer group comprised of all of the public comparable companies in
a more comparable business sector.
[GRAPHIC OMITTED]
Cumulative Total Return
-----------------------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
NTN COMMUNICATIONS 100.00 16.95 24.40 32.54 100.33 86.50
AMEX MARKET VALUE (U.S. & FOREIGN) 100.00 78.53 69.32 59.10 84.31 102.39
NEW PEER GROUP 100.00 31.07 27.12 19.24 26.23 28.82
OLD PEER GROUP 100.00 83.19 62.99 44.59 64.21 70.00
19
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 annually, including in 2004. 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 2004 the Audit
Committee reviewed and discussed the audited financial statements with
management and Haskell & White LLP. Discussions between the Audit Committee and
Haskell & White LLP included the matters required by Statement on Auditing
Standards No. 61, as currently in effect. The Audit Committee received from
Haskell & White LLP written disclosures and the letter regarding its
independence as required by Independence Standards Board Standard No. 1 and has
discussed with Haskell & White LLP its independence. The Audit Committee also
considered whether the provision of audit-related services during 2004 was
compatible with maintaining the independence of Haskell & White 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, 2004 as filed with the Securities and Exchange
Commission.
The foregoing report is provided by the Audit Committee: Robert M. Bennett,
Neal Fondren and Esther L. Rodriquez. Notwithstanding anything to the contrary
set forth in any our filings and other documents that might incorporate by
reference this proxy statement, in whole or in part, the foregoing report of the
Audit Committee shall not be incorporated by reference into any such filings or
documents.
Principal Accounting Firm Fees
The Audit Committee has reviewed the advisability and acceptability of
utilizing our external auditor Haskell & White LLP for non-audit services. In
reviewing this area, the Committee focused on the ability of the external
auditor to maintain independence. Based on input from management and a review of
procedures established within the external audit firm, the Committee finds that
it is both advisable and acceptable to employ the external auditor for certain
limited non-audit services, from time-to-time. The Audit Committee reviews and
approves all services to be provided by Haskell & White LLP before the firm is
retained. The Audit Committee pre-approved the estimated audit fees for the
fiscal year 2004 and related quarterly reviews prior to commencement of the
audit services.
Audit Fees
We paid fees for the fiscal year 2004 audit and quarterly reviews in an
aggregate amount of $264,000 to Haskell & White LLP, of which $162,000 was paid
to Haskell & White LLP as of December 31, 2004. Of the $264,000 amount, $135,000
related to the Sarbanes-Oxley 404 portion of the audit. In addition, we paid
expense reimbursements of $14,000 to Haskell & White LLP.
We paid to KPMG LLP fees for the fiscal year 2003, and partial year 2004, audit
and quarterly reviews conducted by KPMG LLP, our former external auditor, in
aggregate amounts of $276,000 and $100,750 respectively. Fees included above
related to audits of financial statements of acquired companies in accordance
with Rule 3-05 totaled $78,000 for 2003.
20
Audit-Related Fees
Aggregate fees billed for all other services for fiscal year 2004 and 2003 were
$0.
Tax Fees
Aggregated fees billed and paid for tax services for fiscal year 2004 were $0 to
Haskell & White LLP and $970 to KPMG LLP. Aggregated fees billed and paid for
tax services for fiscal year 2003 were $0.
All Other Fees
No fees were billed or paid for fiscal year 2004 or 2003 relating to other
services.
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 federal securities laws, our directors and officers and any persons
holding more than 10% of our Common Stock are required to report their
beneficial ownership of our Common Stock and any changes in that ownership to
the Securities and Exchange Commission. We believe that, based on the written
representations of our directors and officers and copies of reports filed with
the Commission in 2004, our directors, officers and holders of more than 10% of
our Common Stock complied with the requirements of Section 16(a).
21
COMMUNICATIONS WITH DIRECTORS
Stockholders may communicate directly with the Board of Directions or
individual members of the Board of Directors in writing by sending a letter to
the Board at: NTN Communications, Inc. Board of Directors, 5966 La Place Court,
Carlsbad, California 92008. All communications directed to the Board of
Directors will be transmitted to the Chairman of the Board of Directors or other
director identified in the communication without any editing or screening.
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, 2004.
We will furnish, without charge, to each person to whom this Proxy
Statement is being sent a complete copy of our Form 10-K/A (other than exhibits)
for fiscal 2004. We will furnish any exhibit to our Form 10-K/A upon the payment
of a fee to cover our reasonable expenses in furnishing such exhibit. Written
requests for the Form 10-K/A should be directed to Mr. James B. Frakes,
Corporate Secretary, at our 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: May 5, 2005
22
Appendix "A"
Form of Proxy
NTN COMMUNICATIONS, INC.
5966 La Place Court
Suite 100
Carlsbad, California 92008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Darlene French-Porter and James B. Frakes, and
each or either of them, with full power of substitution, as 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 April 11, 2005, at the Annual Meeting of stockholders to be held
on June 10, 2005 and at any adjournments thereof.
(Continued and to be signed on the reverse side)
[GRAPHIC OMITTED]
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
NTN COMMUNICATIONS, INC.
June 10, 2005
[GRAPHIC OMITTED]
/~ PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED /~
|X| Please mark your
votes as in this
example.
FOR election of all WITHHOLD vote
nominees from all nominees
Except as marked to nominees listed
the contrary
_ _
1. Election of directors: |_| |_|
01 Barry Bergsman
02 Neal Fondren
03 Stanley B. Kinsey
(Instructions: To withhold authority to vote for any individual nominee, draw a
line through such nominee's name in the list at left.)
FOR AGAINST ABSTAIN
_ _ _
2. Approval to amend the Company's Restated |_| |_| |_|
Articles of Incorporation to eliminate the
classified structure of the board of directors;
_ _ _
3. Approval to amend the Company's Restated |_| |_| |_|
Articles of Incorporation to change the
Company's corporate name from NTN
Communications, Inc. to NTN Buzztime, Inc.
_ _ _
4. Ratification of appointment of Haskell |_| |_| |_|
& White LLP as independent
registered public accountanting firm for
fiscal year ending December 31, 2005
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting
Signature Signature if held jointly Dated:
------------ ---------------- -------,2005
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 President or other authorized officer. If a
partnership, please sign in partnership name by an authorized partner.