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
(Amendment No. ___)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by 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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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials:
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/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 23, 2004
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 10:00 a.m. local time, on April 23, 2004, for the following
purposes, as more fully described in the attached Proxy Statement:
1. To elect three directors to hold office until the 2007 annual
meeting of stockholders and until their respective successors are duly
elected and qualified;
2. To vote upon a proposal to adopt the NTN Communications, Inc. 2004
Performance Incentive Plan;
3. To ratify the appointment of KPMG LLP as our independent
accountants for the fiscal year ending December 31, 2004; and
4. 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 March 8, 2004 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. 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. If
you own your shares of Common Stock directly, rather than through a broker, bank
or nominee, you may vote by telephone by calling (800) 776-9437 Use any
touch-tone telephone to transmit your voting instructions up until 11:59 p.m.
Eastern Time the day before the meeting date. Have your proxy card in hand when
you call. You will be prompted to enter your control number and then follow the
simple instructions the Vote Voice provides you. 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
April 2, 2004
NTN COMMUNICATIONS, INC.
5966 La Place Court
Carlsbad, California 92008
PROXY STATEMENT
Annual Meeting to be held April 23, 2004
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 10:00 a.m. local time, on April 23, 2004,
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 April 2, 2004.
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 March 8, 2004 are entitled to notice of and to vote at the Annual
Meeting. There were 52,611,430 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"
Proposal 1, the election as directors of the nominees named in this Proxy
Statement, "FOR" Proposal 2, approval of the NTN Communications, Inc. 2004
Performance Incentive Plan and "FOR" Proposal 3, ratification of the appointment
of KPMG LLP as our independent accountants for the fiscal year ending December
31, 2004. Broker non-votes will not affect the outcome of Proposals 1, 2 and 3.
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.
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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 2005 Annual Meeting
Stockholder proposals intended to be included in our proxy materials for
the 2005 annual meeting of stockholders must be received by December 29, 2004.
Such proposals should be addressed to our Secretary.
With respect to any stockholder proposals to be presented at the 2005
annual meeting which are not included in the 2005 proxy materials, such proposal
shall be considered untimely, unless the proponent notifies us of such proposal
by not later than February 16, 2005. Any proposal must comply with the federal
securities laws.
Selection of Director Nominees
The Board as a whole 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 Board of Directors, c/o NTN
Communications, Inc., 5966 La Place Court, Carlsbad, California 92008.
Recommendations must be received by February 16, 2005 to be considered for the
2005 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 Board of Directors 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 enhanced our 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 new
corporate governance listing standards of the American Stock Exchange and
recently adopted regulations of the Securities and Exchange Commission (the
"SEC"). In particular, we have:
o determined that seven out of the nine members of our Board of
Directors meet the independence requirements of the American Stock
Exchange;
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 that Robert M. Bennett is
the "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;
o adopted pre-approval policies and procedures for audit and non-audit
services; and
o adopted a Code of Values, which applies to all officers, directors
and employees; and adopted a Code of Ethics for Chief Executive and Senior
Financial Officers, which applies to certain senior officers, as defined
therein.
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We intend to post the committee charters, the Code of Values, Code of
Ethics for Senior Financial Officers and other corporate governance materials 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 2007
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 nine 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.
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
2007 and until their respective successors are duly elected and qualified.
Robert M. Bennett, 74, has been a Director since August 1996 and his
current term expires in 2004. 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, 59, has been a Director since November 2001 and his
current term expires in 2004. Currently he is President of Sales and Marketing
for Starz Encore 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 July 2003. 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.
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Esther L. Rodriguez, 62, has been a Director since September 1997 and her
current term expires in 2004. 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.
The following biographical information is furnished with respect to our other
current directors:
Directors Whose Term Expires in 2005
Barry Bergsman, 64, has been a Director since August 1998 and his current
term expires in 2005. 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. His current term expires in 2005. 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.
Stanley B. Kinsey, 50, has served as Chairman and Chief Executive Officer
of NTN since October 1998. Mr. Kinsey was appointed as a Director in November
1997 and his current term expires in 2005. 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.
Directors Whose Term Expires in 2006
Gary H. Arlen, 59, 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.
Vincent A. Carrino, 48, was appointed as a Director in September 1999 and
his current term expires in 2006. Mr. Carrino is founder and president of
Brookhaven Capital Management, LLC, a private investment firm focusing on
technology companies, established by him in 1985. He also currently serves as
executive vice president and director of investments for Fidelity National
Financial, a title insurance and real estate services company. 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.
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
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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.
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, 2003, the Board of
Directors met on seven occasions. During 2003, 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
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 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. Fondren and Ms.
Rodriquez. Mr. Bergsman served on the Audit Committee until March 2004 when he
resigned upon determination that he does not meet the requirements for
independence under the Sarbanes-Oxley Act of 2002. Upon Mr. Bergsman's
resignation, Mr. Fondren was appointed to serve on the Audit Committee. 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 five occasions in 2003.
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 2003.
Director Compensation
During 2003, 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. In 2003, Messrs. Bennett and Carrino have
elected to receive shares of Common Stock in lieu of a portion of the cash
component of director compensation. 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 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 upon the occurrence
of a change of control event.
Nominating Committee
The Board, comprised of seven out of nine independent directors who are
independent as defined by the standards of the American Stock Exchange, acts as
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a whole in considering candidates for Board membership suggested by Board
members, as well as by management and stockholders. We believe that our
nominating process and practices do not require separate committee action given
the size and independent majority composition of our Board. All director
nominees have been approved by a majority of the independent directors.
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 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 THE NTN COMMUNICATIONS, INC.
2004 PERFORMANCE INCENTIVE PLAN
At the Annual Meeting, stockholders will be asked to approve the NTN
Communications, Inc. 2004 Performance Incentive Plan (the "2004 Plan") and to
authorize up to 5,000,000 shares for grant awards under the 2004 Plan, which was
adopted, subject to stockholder approval, by the Board of Directors on February
25, 2004.
We believe that incentives and stock-based awards focus employees on the
objective of creating stockholder value and promoting the success of NTN, and
that incentive compensation plans like the proposed 2004 Plan are an important
attraction, retention and motivation tool for participants in the plan.
We currently maintain the NTN Communications, Inc. 1995 Employee Stock
Option Plan (the "1995 Plan"). As of February 29, 2004, a total of 9,173,033
shares of Common Stock were then subject to outstanding awards granted under the
1995 Plan, and an additional 566,552 shares of Common Stock were then available
for new award grants under the 1995 Plan.
The Board of Directors approved the 2004 Plan based, in part, on a belief
that the number of our shares currently available under the 1995 Plan does not
give us sufficient authority and flexibility to adequately provide for future
incentives. If stockholders approve the 2004 Plan, we will grant no new awards
under the 1995 Plan after the Annual Meeting. In that case, the number of shares
of Common Stock that remain available for award grants under the 1995 Plan
immediately prior to the Annual Meeting will become available for award grants
under the 2004 Plan. An additional 5,000,000 shares of Common Stock will also be
made available for award grants under the 2004 Plan, so that if stockholders
approve the 2004 Plan, a total of 5,566,552 shares will initially be available
for award grants under that plan. In addition, if stockholders approve the 2004
Plan, any shares of Common Stock subject to stock option grants under the 1995
Plan that expire, are cancelled or otherwise terminate after the Annual Meeting
will also be available for award grant purposes under the 2004 Plan.
We will continue to have the authority to grant awards under the 1995 Plan
if stockholders do not approve the 2004 Plan. If stockholders approve the 2004
Plan, the termination of our grant authority under the 1995 Plan will not affect
awards then outstanding under that plan.
Summary Description of the 2004 Performance Incentive Plan
The principal terms of the 2004 Plan are summarized below. The following
summary is qualified in its entirety by the full text of the 2004 Plan, which
appears as Exhibit "A" to this Proxy Statement.
Purpose. The purpose of the 2004 Plan is to promote the success of NTN and
the interests of our stockholders by providing an additional means for us to
attract, motivate, retain and reward directors, officers, employees and other
6
eligible persons through the grant of awards and incentives for high levels of
individual performance and improved financial performance of the company.
Equity-based awards are also intended to further align the interests of award
recipients and our stockholders.
Administration. Our Board of Directors or one or more committees appointed
by our Board of Directors will administer the 2004 Plan. Our Board of Directors
has delegated general administrative authority for the 2004 Plan to the
Compensation Committee. A committee may delegate some or all of its authority
with respect to the 2004 Plan to another committee of directors and certain
limited award grant authority to grant awards to employees may be delegated to
one or more officers of NTN. (The appropriate acting body, be it the Board of
Directors, a committee within its delegated authority, or an officer within his
or her delegated authority, is referred to in this proposal as the
"Administrator").
The Administrator has broad authority under the 2004 Plan with respect to
award grants including, without limitation, the authority:
o to select participants and determine the type(s) of award(s) they
are to receive;
o to determine the number of shares that are to be subject to awards
and the terms and conditions of awards, including the price (if any) to be
paid for the shares or the award;
o to cancel, modify, or waive NTN's rights with respect to, or modify,
discontinue, suspend, or terminate any or all outstanding awards, subject
to any required consents;
o to accelerate or extend the vesting or exercisability or extend the
term of any or all outstanding awards;
o subject to the other provisions of the 2004 Plan, to make certain
adjustments to an outstanding award and to authorize the conversion,
succession or substitution of an award; and
o to allow the purchase price of an award or shares of Common Stock to
be paid in the form of cash, check, or electronic funds transfer, by the
delivery of already-owned shares of our Common Stock or by a reduction of
the number of shares deliverable pursuant to the award, by services
rendered by the recipient of the award, by notice in third party payment or
cashless exercise on such terms as the Administrator may authorize, or any
other form permitted by law.
No Repricing. In no case (except due to an adjustment to reflect a stock
split or similar event or any repricing that may be approved by stockholders)
will any adjustment be made to a stock option or stock appreciation right award
under the 2004 Plan (by amendment, cancellation and regrant, exchange or other
means) that would constitute a repricing of the per share exercise or base price
of the award.
Eligibility. Persons eligible to receive awards under the 2004 Plan include
officers or employees of NTN or any of our subsidiaries, directors of NTN, and
certain consultants and advisors to NTN or any of our subsidiaries. Currently,
approximately 235 officers and employees of NTN and our subsidiaries (including
all of our named executive officers), and each of our eight non-employee
directors, are considered eligible under the 2004 Plan at the present time.
Authorized Shares; Limits on Awards. The maximum number of shares of Common
Stock that may be issued or transferred pursuant to awards under the 2004 Plan
equals the sum of: (1) 5,000,000 shares, plus (2) the number of shares available
for additional award grant purposes under the 1995 Plan as of the date of the
Annual Meeting and determined immediately prior to the termination of the
authority to grant new awards under the 1995 Plan as of the date of the Annual
Meeting, plus (3) the number of any shares subject to stock options granted
under the 1995 Plan and outstanding as of the date of the Annual Meeting which
expire, or for any reason are cancelled or terminated, after the date of the
Annual Meeting without being exercised. As of February 29, 2004, approximately
566,552 shares were available for additional award grant purposes under the 1995
Plan, and approximately 9,173,033 shares were subject to awards then outstanding
under the 1995 Plan. As noted above, no additional awards will be granted under
the 1995 Plan if stockholders approve the 2004 Plan.
7
The following other limits are also contained in the 2004 Plan:
o The maximum number of shares that may be delivered pursuant to
options qualified as incentive stock options granted under the plan is
2,500,000 shares.
o The maximum number of shares subject to those options and stock
appreciation rights that are granted during any calendar year to any
individual under the plan is 2,000,000 shares.
o The maximum number of shares that may be delivered pursuant to
awards granted under the plan, other than in the circumstances described in
the next sentence, is 2,500,000 shares. This limit on so-called "full-value
awards" does not apply, however, to the following: (1) shares delivered in
respect of compensation earned but deferred, and (2) shares delivered
pursuant to option or stock appreciation right grants the per share
exercise or base price, as applicable, of which is at least equal to the
fair market value of a share of Common Stock at the time of grant of the
award.
To the extent that an award is settled in cash or a form other than shares,
the shares that would have been delivered had there been no such cash or other
settlement will not be counted against the shares available for issuance under
the 2004 Plan. In the event that shares are delivered in respect of a dividend
equivalent, stock appreciation right, or other award, only the actual number of
shares delivered with respect to the award will be counted against the share
limits of the 2004 Plan. Shares that are subject to or underlie awards which
expire or for any reason are cancelled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under the 2004 Plan will
again be available for subsequent awards under the 2004 Plan. Shares that are
exchanged by a participant or withheld by us as full or partial payment in
connection with any award under the 2004 Plan or the 1995 Plan, as well as any
shares exchanged by a participant or withheld by us to satisfy the tax
withholding obligations related to any award under the 2004 Plan or the 1995
Plan, will be available for subsequent awards under the 2004 Plan. In addition,
the 2004 Plan generally provides that shares issued in connection with awards
that are granted by or become obligations of the company through the assumption
of awards (or in substitution for awards) in connection with an acquisition of
another company will not count against the shares available for issuance under
the 2004 Plan.
Types of Awards. The 2004 Plan authorizes stock options, stock appreciation
rights, restricted stock, stock bonuses and other forms of awards granted or
denominated in Common Stock or units of Common Stock, as well as cash bonus
awards pursuant to Section 5.2 of the 2004 Plan. The 2004 Plan retains
flexibility to offer competitive incentives and to tailor benefits to specific
needs and circumstances. Any award may be paid or settled in cash.
A stock option is the right to purchase shares of Common Stock at a future
date at a specified price per share (the "exercise price"). The per share
exercise price of an option generally may not be less than the fair market value
of a share of Common Stock on the date of grant. The maximum term of an option
is ten years from the date of grant. An option may either be an incentive stock
option or a nonqualified stock option. Incentive stock option benefits are taxed
differently from nonqualified stock options, as described under "Federal Income
Tax Consequences of Awards Under the 2004 Plan" below. Incentive stock options
are also subject to more restrictive terms and are limited in amount by the U.S.
Internal Revenue Code and the 2004 Plan. Incentive stock options may only be
granted to employees of NTN or a subsidiary.
A stock appreciation right is the right to receive payment of an amount
equal to the excess of the fair market value of share of Common Stock on the
date of exercise of the stock appreciation right over the base price of the
stock appreciation right. The base price will be established by the
Administrator at the time of grant of the stock appreciation right and generally
cannot be less than the fair market value of a share of Common Stock on the date
of grant. Stock appreciation rights may be granted in connection with other
awards or independently. The maximum term of a stock appreciation right is ten
years from the date of grant.
The per share exercise price of an option or the per share base price of a
stock appreciation right may, however, be less than the fair market value of a
share of Common Stock on the date of grant in the case of (1) awards granted
retroactively in tandem with or as a substitution for another award, or (2) if
the option or stock appreciation right will be counted against the plan's limit
on full-value awards (that is, the limit on the number of shares that can be
issued under the 2004 Plan in respect of awards other than options and stock
appreciation rights).
The other types of awards that may be granted under the 2004 Plan include,
without limitation, stock bonuses, restricted stock, performance stock, stock
units, dividend equivalents, or similar rights to purchase or acquire shares,
and cash awards granted consistent with Section 5.2 of the 2004 Plan as
described below.
8
Performance-Based Awards. The Administrator may grant awards that are
intended to be performance-based awards within the meaning of Section 162(m) of
the U.S. Internal Revenue Code ("Performance-Based Awards"). Performance-Based
Awards are in addition to any of the other types of awards that may be granted
under the 2004 Plan (including options and stock appreciation rights which may
also qualify as performance-based awards for Section 162(m) purposes).
Performance-Based Awards may be in the form of restricted stock, performance
stock, stock units, other rights, or cash bonus opportunities.
The vesting or payment of Performance-Based Awards (other than options or
stock appreciation rights) will depend on the absolute or relative performance
of NTN on a consolidated, subsidiary, segment, division, or business unit basis.
The Administrator will establish the criterion or criteria and target(s) on
which performance will be measured. The Administrator must establish criteria
and targets in advance of applicable deadlines under the U.S. Internal Revenue
Code and while the attainment of the performance targets remains substantially
uncertain. The criteria that the Administrator may use for this purpose will
include one or more of the following: earnings per share, cash flow (which means
cash and cash equivalents derived from either net cash flow from operations or
net cash flow from operations, financing and investing activities), total
stockholder return, gross revenue, revenue growth, operating income (before or
after taxes), net earnings (before or after interest, taxes, depreciation and/or
amortization), return on equity or on assets or on net investment, cost
containment or reduction, or any combination thereof. The performance
measurement period with respect to an award may range from three months to ten
years. Performance targets will be adjusted to mitigate the unbudgeted impact of
material, unusual or nonrecurring gains and losses, accounting changes or other
extraordinary events not foreseen at the time the targets were set unless the
Administrator provides otherwise at the time of establishing the targets. The
maximum number of shares which may be delivered pursuant to Performance-Based
Awards (other than options or stock appreciation rights, and other than cash
awards covered by the following sentence) that are granted to any one
participant in any one calendar year will not exceed 1,000,000 shares. The
aggregate amount of compensation to be paid to any one participant in respect of
all Performance-Based Awards payable only in cash and not related to shares and
granted to that participant in any one calendar year will not exceed $1,000,000.
Performance-Based Awards may be paid in stock or in cash (in either case,
subject to the limits described under the heading "Authorized Shares; Limits on
Awards" above). Before any Performance-Based Award (other than an option or
stock appreciation right) is paid, the Administrator must certify that the
performance target or targets have been satisfied. The Administrator has
discretion to determine the performance target or targets and any other
restrictions or other limitations of Performance-Based Awards and may reserve
discretion to reduce payments below maximum award limits.
Deferrals. The Administrator may provide for the deferred payment of
awards, and may determine the other terms applicable to deferrals. The
Administrator may provide that deferred settlements include the payment or
crediting of interest or other earnings on the deferred amounts, or the payment
or crediting of dividend equivalents where the deferred amounts are denominated
in shares.
Acceleration of Awards; Possible Early Termination of Awards. Generally,
and subject to limited exceptions set forth in the 2004 Plan, if any person
acquires more than 33% of the outstanding common stock or combined voting power
of NTN, if certain changes in a majority of our Board of Directors occur over a
period of not longer than two years, if stockholders prior to a transaction do
not continue to own more than 50% of the voting securities of NTN (or a
successor or a parent) following a reorganization, merger, statutory share
exchange or consolidation or similar corporate transaction involving NTN or any
of our subsidiaries, a sale or other disposition of all or substantially all of
NTN's assets or the acquisition of assets or stock of another entity by us or
any of our subsidiaries, or if NTN is dissolved or liquidated, then awards
then-outstanding under the 2004 Plan may become fully vested or paid, as
applicable, and may terminate or be terminated in such circumstances. The
Administrator also has the discretion to establish other change in control
provisions with respect to awards granted under the 2004 Plan. For example, the
Administrator could provide for the acceleration of vesting or payment of an
award in connection with a change in control event that is not described above
and provide that any such acceleration shall be automatic upon the occurrence of
any such event.
Transfer Restrictions. Subject to certain exceptions contained in Section
5.7 of the 2004 Plan, awards under the 2004 Plan generally are not transferable
by the recipient other than by will or the laws of descent and distribution and
are generally exercisable, during the recipient's lifetime, only by the
recipient. Any amounts payable or shares issuable pursuant to an award generally
will be paid only to the recipient or the recipient's beneficiary or
representative. The Administrator has discretion, however, to establish written
conditions and procedures for the transfer of awards to other persons or
entities, provided that such transfers comply with applicable federal and state
securities laws.
9
Adjustments. As is customary in incentive plans of this nature, each share
limit and the number and kind of shares available under the 2004 Plan and any
outstanding awards, as well as the exercise or purchase prices of awards, and
performance targets under certain types of performance-based awards, are subject
to adjustment in the event of certain reorganizations, mergers, combinations,
recapitalizations, stock splits, stock dividends, or other similar events that
change the number or kind of shares outstanding, and extraordinary dividends or
distributions of property to the stockholders.
No Limit on Other Authority. Except as expressly provided with respect to
the termination of the authority to grant new awards under the 1995 Plan if
stockholders approve the 2004 Plan, the 2004 Plan does not limit the authority
of the Board of Directors or any committee to grant awards or authorize any
other compensation, with or without reference to our common stock, under any
other plan or authority.
Termination of or Changes to the 2004 Plan. The Board of Directors may
amend or terminate the 2004 Plan at any time and in any manner. Stockholder
approval for an amendment will be required only to the extent then required by
applicable law or any applicable listing agency or required under Sections 162,
422 or 424 of the U.S. Internal Revenue Code to preserve the intended tax
consequences of the plan. For example, stockholder approval will be required for
any amendment that proposes to increase the maximum number of shares that may be
delivered with respect to awards granted under the 2004 Plan. (Adjustments as a
result of stock splits or similar events will not, however, be considered an
amendment requiring stockholder approval.) Unless terminated earlier by the
Board of Directors, the authority to grant new awards under the 2004 Plan will
terminate on April 22, 2014. Outstanding awards, as well as the Administrator's
authority with respect thereto, generally will continue following the expiration
or termination of the plan. Generally speaking, outstanding awards may be
amended by the Administrator (except for a repricing), but the consent of the
award holder is required if the amendment (or any plan amendment) materially and
adversely affects the holder.
Federal Income Tax Consequences of Awards under the 2004 Plan
The U.S. federal income tax consequences of the 2004 Plan under current
federal law, which is subject to change, are summarized in the following
discussion of the general tax principles applicable to the 2004 Plan. This
summary is not intended to be exhaustive and, among other considerations, does
not describe state, local, or international tax consequences.
With respect to nonqualified stock options, we are generally entitled to
deduct and the participant recognizes taxable income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares at the time of exercise. With respect to incentive stock options, we are
generally not entitled to a deduction nor does the participant recognize income
at the time of exercise, although the participant may be subject to the U.S.
federal alternative minimum tax.
10
The current federal income tax consequences of other awards authorized
under the 2004 Plan generally follow certain basic patterns: stock appreciation
rights are taxed and deductible in substantially the same manner as nonqualified
stock options; nontransferable restricted stock subject to a substantial risk of
forfeiture results in income recognition equal to the excess of the fair market
value over the price paid (if any) only at the time the restrictions lapse
(unless the recipient elects to accelerate recognition as of the date of grant);
bonuses, cash and stock-based performance awards, dividend equivalents, stock
units, and other types of awards are generally subject to tax at the time of
payment; and compensation otherwise effectively deferred is taxed when paid. In
each of the foregoing cases, the company will generally have a corresponding
deduction at the time the participant recognizes income.
If an award is accelerated under the 2004 Plan in connection with a "change
in control" (as this term is used under the U.S. Internal Revenue Code), we may
not be permitted to deduct the portion of the compensation attributable to the
acceleration ("parachute payments") if it exceeds certain threshold limits under
the U.S. Internal Revenue Code (and certain related excise taxes may be
triggered). Furthermore, the aggregate compensation in excess of $1,000,000
attributable to awards that are not "performance-based" within the meaning of
Section 162(m) of the U.S. Internal Revenue Code may not be permitted to be
deducted by the company in certain circumstances.
Specific Benefits under the 2004 Performance Incentive Plan
We have approved certain award grants under the 2004 Plan that are
conditioned upon stockholder approval of the 2004 Plan. Each of these
conditional grants is set forth in the following table.
2004 Performance Incentive Plan
Awards Subject to Stockholder Approval of 2004 Plan Proposal
Number of Shares Underlying
Name and Position Stock Units(1)
----------------- --------------
Executive Group
Stanley B. Kinsey 350,000
Chief Executive Officer and Chairman of the Board
V. Tyrone Lam 20,000
President and Chief Operating Officer, Buzztime Entertainment, Inc.
Mark deGorter 20,000
President and Chief Operating Officer
James B. Frakes 20,000
Chief Financial Officer ------
Total for Executive Group 410,000
=======
Non-Executive Director Group (8 persons) 0
=
Non-Executive Officer Employee Group 0
=
(1) Each stock unit award will be paid in an equal number of shares of
Common Stock on the vesting date of the award, subject to any deferred
payment date that the holder may elect. A stock unit award will be paid
only to the extent vested. Vesting generally requires the continued
employment by the award recipient through the respective vesting date,
subject to accelerated vesting in certain circumstances. Mr. Kinsey's award
is composed of two separate vesting schedules. Mr. Kinsey's award is
scheduled to vest as to 100,000 stock units monthly in increments of 1/12
of the total shares commencing March 1, 2004 and continuing through
February 2005. Mr. Kinsey's award is scheduled to vest as to the balance of
250,000 stock units monthly in increments of 1/12 of the total shares
commencing March 1, 2005 and continuing through February 2006. The awards
to Messrs. Lam, deGorter and Frakes are each scheduled to vest monthly in
increments of 1/12 of the total shares commencing March 1, 2005 and
continuing through February 2006. These stock unit grants will not be
effective if stockholders do not approve the proposed 2004 Plan.
Except for the grants described in the table above, we have not approved
any other awards that are conditioned upon stockholder approval of the 2004
Plan. We are not currently considering any other specific award grants under the
2004 Plan. If the 2004 Plan had been in existence in fiscal 2003, we expect that
our award grants for fiscal 2003 would not have been substantially different
from those actually made in that year under the 1995 Plan. For information
regarding stock-based awards granted to our named executive officers during
fiscal 2003, see the material under the heading "Executive Compensation" below.
The closing market price for a share of Common Stock as of March 8, 2004
was $3.71 per share.
11
EQUITY COMPENSATION PLAN INFORMATION
We currently maintain two equity compensation plans: the 1995 Plan and the
NTN Communications, Inc. 1996 Special Stock Option Plan (the "1996 Plan"). The
1995 Plan and the 1996 Plan have each been approved by NTN's stockholders.
Stockholders are also being asked to approve a new equity compensation plan, the
2004 Plan, as described above.
The following table sets forth, for each of our equity compensation plans,
the number of shares of Common Stock subject to outstanding options, the
weighted-average exercise price of outstanding options, and the number of shares
remaining available for future award grants as of February 29, 2004.
Number of shares of Common
Stock remaining available for
Number of shares of Weighted-average future issuance under
Common Stock to be exercise price of equity compensation plans
issued upon exercise outstanding (excluding shares reflected
Plan category outstanding options options in the first column)
-------------------------------------- ------------------------- ------------------ -----------------------------
Equity compensation plans
approved by stockholders 9,673,033(1) $1.32 566,552(2)
Equity compensation plans
not approved by stockholders(3) 1,632,833(3) $1.61 0
Total 11,305,866 $1.43 566,552
(1) Of the aggregate number of shares that remained available for
future issuance, 566,552 were available under the 1995 Plan and 0 were
available under the 1996 Plan. The shares available under the 1995 Plan
are, subject to certain other limits under that plan, generally available
for awards of stock options only. No new awards will be granted under the
1995 Plan if stockholders approve the 2004 Plan. This table does not
reflect the 5,000,000 additional shares that will be available under the
2004 Plan if stockholders approve the 2004 Plan proposal.
(2) 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 this plan.
(3) The 1,632,833 shares issuable that are not pursuant to equity
compensation plans approved by stockholders 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 were granted in 2001. The remainder of outstanding warrants
were issued on or before 2000. As of February 29, 2004, the range of
exercise prices and the weighted average remaining contractual life of
outstanding warrants were $0.50 to $3.75 and 4 years, respectively.
Required Vote
A majority of the shares present at the meeting, either in person or by
proxy, must be voted in favor of adoption of the 2004 Plan. The Board of
Directors believes that the adoption of the 2004 Plan will promote the interests
of NTN and our stockholders and will help us and our subsidiaries continue to be
able to attract, retain and reward persons important to our success.
All members of our Board of Directors are eligible for awards under the
2004 Plan and thus have a personal interest in the approval of the 2004 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE 2004
PERFORMANCE INCENTIVE PLAN AS DESCRIBED ABOVE AND SET FORTH IN APPENDIX A
HERETO. PROXIES WILL BE VOTED "FOR" APPROVAL OF THE NTN COMMUNICATIONS, INC.
2004 PERFORMANCE INCENTIVE PLAN IF NO DIRECTION IS GIVEN IN THE PROXIES.
12
PROPOSAL 3
RATIFICATION OF APPOINTMENT
OF KPMG LLP AS
INDEPENDENT ACCOUNTANTS
Our independent accounting firm for the fiscal year ended December 31, 2003
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, 2003. 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, 2004. 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 ratifying the independent accountants.
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.... 50 Chief Executive Officer and Chairman of the Board
V. Tyrone Lam........ 42 President and Chief Operating Officer, Buzztime Entertainment, Inc.
Mark deGorter........ 46 President and Chief Operating Officer, NTN Hospitality Technologies
James B. Frakes...... 47 Chief Financial Officer
----------
(1) As of March 8, 2004.
See "Board 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 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
13
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.
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 2003 and the three other most highly
compensated executive officers who were serving as executive officers at the end
of 2003 whose salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers"):
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- Securities
Other Annual Underlying
Name and Principal Position Year Salary(1) Bonus Compensation Options
---------------------------- ---- ------------ ------------ ------------ ------------
Stanley B. Kinsey(2)........ 2003 $339,834 -- -- 400,000
Chief Executive Officer 2002 313,542 $24,000(3) -- 100,000
and Chairman of the Board 2001 305,386 -- -- 350,000
V. Tyrone Lam............... 2003 $250,288 $50,000(6) -- 100,000
President and Chief Operating Officer 2002 222,156 15,000(3) -- 100,000
Buzztime Entertainment, Inc. 2001 223,077 -- -- --
Mark deGorter............... 2003 $249,615 $50,000(6) -- 100,000
President and Chief Operating 2002 222,538 60,000(3) -- 250,000
Officer, NTN Hospitality Technologies 2001 199,038 25,382(4) -- 150,000
James B. Frakes(5).......... 2003 $189,103 -- -- 100,000
Chief Financial Officer 2002 159,000 $20,000(3) -- --
2001 111,539 10,000 -- 250,000
----------
(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 bonus paid out pursuant to the 2002 performance-based
bonus program.
(4) Represents a bonus paid to Mr. deGorter in March 2002 based upon
exceeding established targets for the NTN Network for the fiscal year ended
2001.
(5) Mr. Frakes joined NTN in April 2001.
(6) Represents bonus to be paid out pursuant to the 2003
performance-based bonus program.
14
Option Grants in Last Fiscal Year
The following table contains information concerning grants of stock options
during 2003 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. 400,000(2) %1.7 $1.10 02/17/13 $331,604
V. Tyrone Lam..... 100,000(3) * 1.10 01/30/13 87,631
Mark deGorter..... 100,000(3) * 1.10 01/30/13 87,631
James B. Frakes... 100,000(3) * 1.10 01/30/03 87,631
----------
(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 2858%,
expected volatility of 113.17%, and expected option life of 4.58 years.
(2) Represents options granted under the 1995 Stock Option Plan, which
became fully vested and exercisable as of January 31, 2004. The options
were granted to Mr. Kinsey in consideration of Mr. Kinsey's agreement to
extend the term of his employment agreement to January 1, 2004. The options
were priced at $1.10 per share in accordance with the terms of the
Company's broad-based employee stock option grant effective January 31,
2003. Such options vested in twelve (12) equal installments on the last day
of each month commencing February 18, 2003.
(3) Represents options granted under the 1995 Stock Option Plan in
accordance with the Company's broad-based stock option grant effective
January 31, 2003. Such options vest and 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.
Fiscal Year-End Option Values
The following table contains information concerning stock options which
were unexercised at the end of 2003 with respect to the Named Executive
Officers. No stock options were exercised in 2003 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. 2,716,667 33,333 $7,533,334 $ 86,666
V. Tyrone Lam..... 546,667 153,333 1,491,426 415,199
Mark deGorter..... 228,334 271,666 696,836 770,665
James B. Frakes... 166,667 183,333 59,375 90,625
----------
(1) Represents the amount by which the aggregate market price on
December 31, 2003 of the shares of our Common Stock subject to such options
exceeded the respective exercise prices of such options.
15
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 8, 2004 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 March 8, 2004. 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)...................................... 161,000 *
Robert M. Bennett(3)............................... 1,808,017 3%
Barry Bergsman(4).................................. 291,000 *
Vincent A. Carrino(5).............................. 5,904,831 11%
Robert B. Clasen(6)................................ 70,000 *
Michael Fleming(7)................................. 60,000 *
Neal Fondren(8) ................................... 1,320 *
Esther L. Rodriguez(9)............................. 222,766 *
Stanley B. Kinsey(10).............................. 2,874,333 5%
V. Tyrone Lam(11).................................. 585,417 1%
Mark deGorter(12).................................. 288,542 *
James B. Frakes(13) ............................... 182,292 *
Media General, Inc.(14) ........................... 3,250,667 6%
----------------- -----------------
All executive officers and directors of NTN as a
Group (12 persons) (15)............................ 12,449,518 21%
================= =================
----------
(1) Included as outstanding for purposes of this calculation are
52,611,430 shares of Common Stock (the amount outstanding as of March 8,
2004) 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 March 8, 2004)
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 160,000 shares subject to currently exercisable options
held by Mr. Arlen.
(3) Includes 160,000 shares subject to currently exercisable options
and 500,000 shares subject to currently exercisable warrants held by Mr.
Bennett.
(4) Includes 160,000 shares subject to currently exercisable options
and 20,000 shares subject to currently exercisable warrants held by Mr.
Bergsman.
(5) 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.
(6) Includes 60,000 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 60,000 shares subject to currently exercisable options
held by Mr. Fleming.
(8) 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.
(9) Includes 160,000 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.
(10) Includes 2,750,000 shares subject to currently exercisable
options held by Mr. Kinsey.
(11) Represents shares subject to currently exercisable options held
by Mr. Lam.
(12) Represents shares subject to currently exercisable options held
by Mr. deGorter.
16
(13) Represents shares subject to currently exercisable options held
by Mr. Frakes.
(14) 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 20,000 shares subject to
currently exercisable options issued for Mr. Fondren's service as director.
(15) Includes 5,346,251 shares subject to currently exercisable
options and warrants held by executive officers and directors, including
those described in notes (2) through (13) above.
Compensation Committee Report on Executive Compensation
During 2003, 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 2003 consisted primarily of
salaries, subject to any written employment agreement between us and any
executive. In 2003, the Board approved a bonus program based upon established
quantitative Company performance criteria. Accordingly, based upon our 2003
performance, the Board approved a cash bonus in the amount of $50,000 for each
of Messrs. deGorter and Lam.
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 2003, the Board of
Directors granted 400,000 options to Mr. Kinsey and 100,000 options to each of
Messrs. Frakes, deGorter and Lam. 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 2003.
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 2003, 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
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
17
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. All
options granted to Mr. Kinsey have been made at the fair market value as of the
date of each grant. Mr. Kinsey was also paid a cash bonus in accordance with our
2002 bonus plan. Mr. Kinsey and the Compensation Committee are currently
negotiating terms for an extension of Mr. Kinsey's employment.
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 have entered into change of control employment agreements with certain
of our executive officers. The agreements 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 2003 for our executive officers were
made by the Board of Directors as a whole upon the recommendation of the
Compensation Committee. During 2003, 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.
On May 8, 2001, we entered into an advertising sales representative
agreement with Baron Enterprises, Inc., a corporation wholly-owned and operated
by Barry Bergsman, a member of our board of directors, pursuant to which Baron
provided advertising sales representation services to us under the direction of
the NTN iTV Network's president and chief operating officer. For Baron's
services under the advertising sales representative agreement, we granted Baron
a three-year warrant to purchase 20,000 shares of Common Stock at an exercise
price of $0.50 per share. The warrant vested and became exercisable as to 1/12
of the total shares on the last business day of each of the twelve months
commencing April 2001, subject to Baron continuing to provide services to us. In
addition, Baron received a commission in the amount of 35% of net advertising
revenues received by the NTN iTV Network from any advertising contract solicited
by Baron. We paid to Baron a monthly recoverable cash advance against
commissions to be earned in the amount of $5,000 per month, not to exceed an
aggregate of $60,000 per year for the initial term of the agreement. The
advertising sales representative agreement expired on April 1, 2002. An
amendment to the agreement was entered into in October 2002, to extend the
contract to October 31, 2003, to reduce the rate of commission to 25% of net
advertising revenues received by us and to include bartered advertising. In
September 2003, we entered into a three year agreement with Baron to negotiate
on our behalf with a third party advertising representative. Baron was to
receive commissions of 3% to 10% based upon the period of time over which the
negotiated advertising would run and upon the related advertising revenue. No
commissions have been paid to Baron to date for this third party work.
In May 2002, Michael Fleming was appointed Chairman of the Board of our
Buzztime subsidiary after having served, since January 8, 2002, as an
independent consultant. Pursuant to the consulting arrangement, Mr. Fleming
provided general consulting services to us in connection with Buzztime's cable
television initiatives. We paid Mr. Fleming approximately $2,000 per month for
these consulting services. This arrangement was discontinued in September 2003.
In January 2002, we entered into a consulting agreement with Robert Clasen,
on of our directors, whereby Mr. Clasen provided consulting services to us with
respect to Buzztime's cable television initiatives. We paid Mr. Clasen $2,000
per month for the services provided under the consulting agreement. The initial
consulting term of this agreement expired on December 31, 2002. We then
continued the consulting relationship on a month to month basis through June
2003 when we mutually agreed to discontinue the arrangement.
18
On January 15, 2003, we issued and sold 1,000,000 shares of restricted
Common Stock along with fully vested warrants to purchase 500,000 shares of
Common Stock at $1.15 per share, exercisable through January 15, 2008 through a
private offering to Robert M. Bennett, one of our directors, at a price per
share of $1.00 for an aggregate amount of $1.0 million. No commissions or
placement agent fees were paid in connection with the offering.
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.
19
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").
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
1998 1999 2000 2001 2002 2003
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
NTN Communications, Inc. 100.00 655.64 111.11 160.00 213.33 657.78
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
AMEX Market Value (US & Foreign) 100.00 169.96 141.55 122.47 103.02 144.90
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
Peer Group 100.00 172.66 134.28 120.64 96.68 118.25
------------------------------------------ ------------ ---------- ---------- --------- ---------- ----------
The Peer Group is comprised of companies sharing SIC Code 4841 - Cable, Other
Pay TV Services, as follows:
CABLEVISION SYS CORP MEDIACOM COMMUNICAITONS CORP CL A
CIRTRAN CORP METROMEDIA INTL GROUP INC COM
COMCAST HOLDINGS CORP NTN COMMUNICATIONS INC
COX COMMUNICATIONS INC. NEW NUCENTRIX BROADBAND NETWORKS COM
CROWN MEDIA HLDGS INC PEGASUS COMMUNICATIONS CORP
ECHOSTAR COMMUNICATIONS NEW PLAYERS NETWORK
GENORAY ADVNACED TECHNOLOGY L ROGERS COMMUNICATIONS INC
GIC GLOBAL ENTERTAINMENT CP SHAW COMMUNICATIONS INC
GLOBAL TECHNOLOGIES LTD SYNTHETIC TURF CORP AMER
HEALTH DISCOVERY CORP TELVUE CORP
HEALTHTRAC INC TIVO INC
HISPANIC TV NETWORK INC UNITED GLOBAL.COM
INSIGHT COMMUNICATIONS INC USURF AMERICA INC
LODGENET ENTMT CORP VIACOM INC
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 Performance Graph shall not be incorporated by
reference into any such filings or documents.
20
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 2003. 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 2003 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 2003 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, 2003 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. Mr. Bergsman served on the Audit
Committee during the entire year 2003, resigning in March, 2004 at which time
Mr. Fondren was appointed. 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 KPMG 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 KPMG LLP before the firm is retained. The Audit
Committee pre-approved the estimated audit fees for the fiscal year 2003 and
related quarterly reviews prior to commencement of the audit services.
Audit Fees
Fees for the fiscal year 2003 audit and quarterly reviews aggregate an amount of
$276,000, of which $48,000 was paid to KPMG, LLP as of December 31, 2003. Fees
for the fiscal year 2002 audit and quarterly reviews aggregated $129,000, of
which all has been paid. Fees included above related to audits of financial
statements of acquired Companies in accordance with Rule 3-05 totaled $78,000
for 2003 and $0 for 2002.
Audit-Related Fees
Aggregate fees billed for all other services for fiscal year 2003 and 2002 were
$0.
Tax Fees
Aggregated fees billed and paid for tax services for fiscal year 2003 were $0.
Aggregated fees billed and paid for tax services for fiscal year 2002 were $0.
Other Fees
No fees were billed or paid for fiscal year 2003 or 2002 relating to other
services.
21
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 2003, our directors, officers and holders of more than 10% of
our Common Stock complied with the requirements of Section 16(a).
COMMUNICATIONS WITH DIRECTORS
Shareholders 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, 2003.
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 2003. We will furnish any exhibit to our Form 10-K upon the payment
of a fee to cover our reasonable expenses in furnishing such exhibit. Written
requests for the Form 10-K 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: April 2, 2004
22
Appendix "A"
Form of
NTN COMMUNICATIONS, INC.
2004 PERFORMANCE INCENTIVE PLAN
1. PURPOSE OF PLAN
The purpose of this NTN Communications, Inc. 2004 Performance Incentive
Plan (this "Plan") of NTN Communications, Inc., a Delaware corporation (the
"Corporation"), is to promote the success of the Corporation and to
increase stockholder value by providing an additional means through the
grant of awards to attract, motivate, retain and reward selected employees
and other eligible persons.
2. ELIGIBILITY
The Administrator (as such term is defined in Section 3.1) may grant awards
under this Plan only to those persons that the Administrator determines to
be Eligible Persons. An "Eligible Person" is any person who is either: (a)
an officer (whether or not a director) or employee of the Corporation or
one of its Subsidiaries; (b) a director of the Corporation or one of its
Subsidiaries; or (c) an individual consultant or advisor who renders or has
rendered bona fide services (other than services in connection with the
offering or sale of securities of the Corporation or one of its
Subsidiaries in a capital-raising transaction or as a market maker or
promoter of securities of the Corporation or one of its Subsidiaries) to
the Corporation or one of its Subsidiaries and who is selected to
participate in this Plan by the Administrator; provided, however, that a
person who is otherwise an Eligible Person under clause (c) above may
participate in this Plan only if such participation would not adversely
affect either the Corporation's eligibility to use Form S-8 to register
under the Securities Act of 1933, as amended (the "Securities Act"), the
offering and sale of shares issuable under this Plan by the Corporation or
the Corporation's compliance with any other applicable laws. An Eligible
Person who has been granted an award (a "participant") may, if otherwise
eligible, be granted additional awards if the Administrator shall so
determine. As used herein, "Subsidiary" means any corporation or other
entity a majority of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation; and "Board"
means the Board of Directors of the Corporation.
3. PLAN ADMINISTRATION
3.1 The Administrator. This Plan shall be administered by and all awards
under this Plan shall be authorized by the Administrator. The
"Administrator" means the Board or one or more committees appointed by the
Board or another committee (within its delegated authority) to administer
all or certain aspects of this Plan. Any such committee shall be comprised
solely of one or more directors or such number of directors as may be
required under applicable law. A committee may delegate some or all of its
authority to another committee so constituted. The Board or a committee
comprised solely of directors may also delegate, to the extent permitted by
Section 157(c) of the Delaware General Corporation Law and any other
applicable law, to one or more officers of the Corporation, its powers
under this Plan (a) to designate the officers and employees of the
Corporation and its Subsidiaries who will receive grants of awards under
this Plan, and (b) to determine the number of shares subject to, and the
other terms and conditions of, such awards. The Board may delegate
different levels of authority to different committees with administrative
and grant authority under this Plan. Unless otherwise provided in the
Bylaws of the Corporation or the applicable charter of any Administrator:
(a) a majority of the members of the acting Administrator shall constitute
a quorum, and (b) the vote of a majority of the members present assuming
the presence of a quorum or the unanimous written consent of the members of
the Administrator shall constitute action by the acting Administrator.
A1
With respect to awards intended to satisfy the requirements for
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), this Plan shall be administered by a
committee consisting solely of two or more outside directors (as this
requirement is applied under Section 162(m) of the Code); provided,
however, that the failure to satisfy such requirement shall not affect the
validity of the action of any committee otherwise duly authorized and
acting in the matter. Award grants, and transactions in or involving
awards, intended to be exempt under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), must be duly and
timely authorized by the Board or a committee consisting solely of two or
more non-employee directors (as this requirement is applied under Rule
16b-3 promulgated under the Exchange Act). To the extent required by any
applicable listing agency, this Plan shall be administered by a committee
composed entirely of independent directors (within the meaning of the
applicable listing agency).
3.2 Powers of the Administrator. Subject to the express provisions of this
Plan, the Administrator is authorized and empowered to do all things
necessary or desirable in connection with the authorization of awards and
the administration of this Plan (in the case of a committee or delegation
to one or more officers, within the authority delegated to that committee
or person(s)), including, without limitation, the authority to:
(a) determine eligibility and, from among those persons determined to
be eligible, the particular Eligible Persons who will receive an award
under this Plan;
(b) grant awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the number of securities to
be offered or awarded to any of such persons, determine the other
specific terms and conditions of such awards consistent with the
express limits of this Plan, establish the installments (if any) in
which such awards shall become exercisable or shall vest (which may
include, without limitation, performance and/or time-based schedules),
or determine that no delayed exercisability or vesting is required,
establish any applicable performance targets, and establish the events
of termination or reversion of such awards;
(c) approve the forms of award agreements (which need not be identical
either as to type of award or among participants);
(d) construe and interpret this Plan and any agreements defining the
rights and obligations of the Corporation, its Subsidiaries, and
participants under this Plan, further define the terms used in this
Plan, and prescribe, amend and rescind rules and regulations relating
to the administration of this Plan or the awards granted under this
Plan;
(e) cancel, modify, or waive the Corporation's rights with respect to,
or modify, discontinue, suspend, or terminate any or all outstanding
awards, subject to any required consent under Section 8.6.5;
(f) accelerate or extend the vesting or exercisability or extend the
term of any or all such outstanding awards (in the case of options or
stock appreciation rights, within the maximum ten-year term of such
awards) in such circumstances as the Administrator may deem
appropriate (including, without limitation, in connection with a
termination of employment or services or other events of a personal
nature) subject to any required consent under Section 8.6.5;
A2
(g) adjust the number of shares of Common Stock subject to any award,
adjust the price of any or all outstanding awards or otherwise change
previously imposed terms and conditions, in such circumstances as the
Administrator may deem appropriate, in each case subject to Sections 4
and 8.6, and provided that in no case (except due to an adjustment
contemplated by Section 7 or any repricing that may be approved by
stockholders) shall such an adjustment constitute a repricing (by
amendment, cancellation and regrant, exchange or other means) of the
per share exercise or base price of any option or stock appreciation
right;
(h) determine the date of grant of an award, which may be a designated
date after but not before the date of the Administrator's action
(unless otherwise designated by the Administrator, the date of grant
of an award shall be the date upon which the Administrator took the
action granting an award);
(i) determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof and authorize the termination,
conversion, substitution or succession of awards upon the occurrence
of an event of the type described in Section 7;
(j) acquire or settle (subject to Sections 7 and 8.6) rights under
awards in cash, stock of equivalent value, or other consideration; and
(k) determine the fair market value of the Common Stock or awards
under this Plan from time to time and/or the manner in which such
value will be determined.
3.3 Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, or the Administrator relating or pursuant to
this Plan and within its authority hereunder or under applicable law shall
be within the absolute discretion of that entity or body and shall be
conclusive and binding upon all persons. Neither the Board nor any Board
committee, nor any member thereof or person acting at the direction
thereof, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with this
Plan (or any award made under this Plan), and all such persons shall be
entitled to indemnification and reimbursement by the Corporation in respect
of any claim, loss, damage or expense (including, without limitation,
attorneys' fees) arising or resulting therefrom to the fullest extent
permitted by law and/or under any directors and officers liability
insurance coverage that may be in effect from time to time.
3.4 Reliance on Experts. In making any determination or in taking or
not taking any action under this Plan, the Board or a committee, as the
case may be, may obtain and may rely upon the advice of experts, including
employees and professional advisors to the Corporation. No director,
officer or agent of the Corporation or any of its Subsidiaries shall be
liable for any such action or determination taken or made or omitted in
good faith.
3.5 Delegation. The Administrator may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of
the Corporation or any of its Subsidiaries or to third parties.
4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS
4.1 Shares Available. Subject to the provisions of Section 7.1, the
capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock and any shares of its
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Common Stock held as treasury shares. For purposes of this Plan, "Common
Stock" shall mean the common stock of the Corporation and such other
securities or property as may become the subject of awards under this Plan,
or may become subject to such awards, pursuant to an adjustment made under
Section 7.1.
4.2 Share Limits. The maximum number of shares of Common Stock that
may be delivered pursuant to awards granted to Eligible Persons under this
Plan (the "Share Limit") is equal to the sum of (a) 5,000,000 shares of
Common Stock, plus (b) the number of shares of Common Stock available for
additional award grant purposes under the Corporation's 1995 Employee Stock
Option Plan, as amended (the "1995 Plan"), as of the date of stockholder
approval of this Plan (the "Stockholder Approval Date") and determined
immediately prior to the termination of the authority to grant new awards
under the 1995 Plan as of the Stockholder Approval Date, plus (c) the
number of any shares subject to stock options granted under the 1995 Plan
and outstanding on the Stockholder Approval Date which expire, or for any
reason are cancelled or terminated, after the Stockholder Approval Date
without being exercised; provided that in no event shall the Share Limit
exceed 14,739,585 shares (which is the sum of the 5,000,000 shares set
forth above, plus the number of shares available under the 1995 Plan for
additional award grant purposes as of the Effective Date (as such term is
defined in Section 8.6.1), plus the number of shares subject to options
previously granted and outstanding under the 1995 Plan as of the Effective
Date). The following limits also apply with respect to awards granted under
this Plan:
(a) The maximum number of shares of Common Stock that may be
delivered pursuant to options qualified as incentive stock options
granted under this Plan is 2,500,000 shares.
(b) The maximum number of shares of Common Stock subject to those
options and stock appreciation rights that are granted during any
calendar year to any individual under this Plan is 2,000,000 shares.
(c) The maximum number of shares of Common Stock that may be
delivered pursuant to awards granted under this Plan, other than those
described in the next sentence, is 2,500,000 shares. This limit on
so-called "full-value awards" does not apply, however, to (1) shares
delivered in respect of compensation earned but deferred, (2) except
as expressly provided in Section 5.1.1 (which generally requires that
shares delivered in respect of "discounted" stock options be charged
against this limit), shares delivered in respect of stock option
grants, and (3) except as expressly provided in Section 5.1.2 (which
generally requires that shares delivered in respect of "discounted"
stock appreciation right grants be charged against this limit), shares
delivered in respect of stock appreciation right grants.
(d) Additional limits with respect to Performance-Based Awards
are set forth in Section 5.2.3.
Each of the foregoing numerical limits is subject to adjustment as
contemplated by Section 4.3, Section 7.1, and Section 8.10.
4.3 Awards Settled in Cash, Reissue of Awards and Shares. To the
extent that an award is settled in cash or a form other than shares of
Common Stock, the shares that would have been delivered had there been no
such cash or other settlement shall not be counted against the shares
available for issuance under this Plan. In the event that shares are
delivered in respect of a dividend equivalent, stock appreciation right, or
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other award, only the actual number of shares delivered with respect to the
award shall be counted against the share limits of this Plan. Shares that
are subject to or underlie awards which expire or for any reason are
cancelled or terminated, are forfeited, fail to vest, or for any other
reason are not paid or delivered under this Plan shall again be available
for subsequent awards under this Plan. Shares that are exchanged by a
participant or withheld by the Corporation as full or partial payment in
connection with any award under this Plan, as well as any shares exchanged
by a participant or withheld by the Corporation or one of its Subsidiaries
to satisfy the tax withholding obligations related to any award under this
Plan, shall be available for subsequent awards under this Plan. Refer to
Section 8.10 for application of the foregoing share limits with respect to
assumed awards. The foregoing adjustments to the share limits of this Plan
are subject to any applicable limitations under Section 162(m) of the Code
with respect to awards intended as performance-based compensation
thereunder.
4.4 Reservation of Shares; No Fractional Shares; Minimum Issue. The
Corporation shall at all times reserve a number of shares of Common Stock
sufficient to cover the Corporation's obligations and contingent
obligations to deliver shares with respect to awards then outstanding under
this Plan (exclusive of any dividend equivalent obligations to the extent
the Corporation has the right to settle such rights in cash). No fractional
shares shall be delivered under this Plan. The Administrator may pay cash
in lieu of any fractional shares in settlements of awards under this Plan.
No fewer than 100 shares may be purchased on exercise of any award (or, in
the case of stock appreciation or purchase rights, no fewer than 100 rights
may be exercised at any one time) unless the total number purchased or
exercised is the total number at the time available for purchase or
exercise under the award.
5. AWARDS
5.1 Type and Form of Awards. The Administrator shall determine the
type or types of award(s) to be made to each selected Eligible Person.
Awards may be granted singly, in combination or in tandem. Awards also may
be made in combination or in tandem with, in replacement of, as
alternatives to, or as the payment form for grants or rights under any
other employee or compensation plan of the Corporation or one of its
Subsidiaries. The types of awards that may be granted under this Plan are:
5.1.1 Stock Options. A stock option is the grant of a right to
purchase a specified number of shares of Common Stock during a
specified period as determined by the Administrator. An option may be
intended as an incentive stock option within the meaning of Section
422 of the Code (an "ISO") or a nonqualified stock option (an option
not intended to be an ISO). The award agreement for an option will
indicate if the option is intended as an ISO; otherwise it will be
deemed to be a nonqualified stock option. The maximum term of each
option (ISO or nonqualified) shall be ten (10) years. The per share
exercise price for each option shall be not less than 100% of the fair
market value of a share of Common Stock on the date of grant of the
option, except as follows: (a) in the case of a stock option granted
retroactively in tandem with or as a substitution for another award,
the per share exercise price may be no lower than the fair market
value of a share of Common Stock on the date such other award was
granted (to the extent consistent with Sections 422 and 424 of the
Code in the case of options intended as incentive stock options); and
(b) in any other circumstances, a nonqualified stock option may be
granted with a per share exercise price that is less than the fair
market value of a share of Common Stock on the date of grant, provided
that any shares delivered in respect of such option shall be charged
against the limit of Section 4.2(c) (the limit on full-value awards)
as well as any other applicable limit under Section 4.2. When an
option is exercised, the exercise price for the shares to be purchased
shall be paid in full in cash or such other method permitted by the
Administrator consistent with Section 5.5.
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5.1.2 Additional Rules Applicable to ISOs. To the extent that the
aggregate fair market value (determined at the time of grant of the
applicable option) of stock with respect to which ISOs first become
exercisable by a participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to ISOs under this Plan
and stock subject to ISOs under all other plans of the Corporation or
one of its Subsidiaries (or any parent or predecessor corporation to
the extent required by and within the meaning of Section 422 of the
Code and the regulations promulgated thereunder), such options shall
be treated as nonqualified stock options. In reducing the number of
options treated as ISOs to meet the $100,000 limit, the most recently
granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000
limit, the Administrator may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be
treated as shares acquired pursuant to the exercise of an ISO. ISOs
may only be granted to employees of the Corporation or one of its
subsidiaries (for this purpose, the term "subsidiary" is used as
defined in Section 424(f) of the Code, which generally requires an
unbroken chain of ownership of at least 50% of the total combined
voting power of all classes of stock of each subsidiary in the chain
beginning with the Corporation and ending with the subsidiary in
question). There shall be imposed in any award agreement relating to
ISOs such other terms and conditions as from time to time are required
in order that the option be an "incentive stock option" as that term
is defined in Section 422 of the Code. No ISO may be granted to any
person who, at the time the option is granted, owns (or is deemed to
own under Section 424(d) of the Code) shares of outstanding Common
Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Corporation, unless the exercise price of
such option is at least 110% of the fair market value of the stock
subject to the option and such option by its terms is not exercisable
after the expiration of five years from the date such option is
granted.
5.1.3 Stock Appreciation Rights. A stock appreciation right or
"SAR" is a right to receive a payment, in cash and/or Common Stock,
equal to the excess of the fair market value of a specified number of
shares of Common Stock on the date the SAR is exercised over the fair
market value of a share of Common Stock on the date the SAR was
granted (the "base price") as set forth in the applicable award
agreement, except as follows: (a) in the case of a SAR granted
retroactively in tandem with or as a substitution for another award,
the base price may be no lower than the fair market value of a share
of Common Stock on the date such other award was granted; and (b) in
any other circumstances, a SAR may be granted with a base price that
is less than the fair market value of a share of Common Stock on the
date of grant, provided that any shares actually delivered in respect
of such award shall be charged against the limit of Section 4.2(c)
(the limit on full-value awards) as well as any other applicable limit
under Section 4.2. The maximum term of an SAR shall be ten (10) years.
5.1.4 Other Awards. The other types of awards that may be granted
under this Plan include: (a) stock bonuses, restricted stock,
performance stock, stock units, phantom stock, dividend equivalents,
or similar rights to purchase or acquire shares, whether at a fixed or
variable price or ratio related to the Common Stock, upon the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or any combination thereof;
(b) any similar securities with a value derived from the value of or
related to the Common Stock and/or returns thereon; or (c) cash awards
granted consistent with Section 5.2 below.
5.2 Section 162(m) Performance-Based Awards. Without limiting the
generality of the foregoing, any of the types of awards listed in Section
5.1.4 above may be, and options and SARs granted with an exercise or base
price not less than the fair market value of a share of Common Stock at the
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date of grant ("Qualifying Options" and "Qualifying SARS," respectively)
typically will be, granted as awards intended to satisfy the requirements
for "performance-based compensation" within the meaning of Section 162(m)
of the Code ("Performance-Based Awards"). The grant, vesting,
exercisability or payment of Performance-Based Awards may depend (or, in
the case of Qualifying Options or Qualifying SARs, may also depend) on the
degree of achievement of one or more performance goals relative to a
pre-established targeted level or level using one or more of the Business
Criteria set forth below (on an absolute or relative basis) for the
Corporation on a consolidated basis or for one or more of the Corporation's
subsidiaries, segments, divisions or business units, or any combination of
the foregoing. Any Qualifying Option or Qualifying SAR shall be subject
only to the requirements of Section 5.2.1 and 5.2.3 in order for such award
to satisfy the requirements for "performance-based compensation" under
Section 162(m) of the Award. Any other Performance-Based Award shall be
subject to all of the following provisions of this Section 5.2.
5.2.1 Class; Administrator. The eligible class of persons for
Performance-Based Awards under this Section 5.2 shall be officers and
employees of the Corporation or one of its Subsidiaries. The
Administrator approving Performance-Based Awards or making any
certification required pursuant to Section 5.2.4 must be constituted
as provided in Section 3.1 for awards that are intended as
performance-based compensation under Section 162(m) of the Code.
5.2.2 Performance Goals. The specific performance goals for
Performance-Based Awards (other than Qualifying Options and Qualifying
SARs) shall be, on an absolute or relative basis, established based on
one or more of the following business criteria ("Business Criteria")
as selected by the Administrator in its sole discretion: earnings per
share, cash flow (which means cash and cash equivalents derived from
either net cash flow from operations or net cash flow from operations,
financing and investing activities), total stockholder return, gross
revenue, revenue growth, operating income (before or after taxes), net
earnings (before or after interest, taxes, depreciation and/or
amortization), return on equity or on assets or on net investment,
cost containment or reduction, or any combination thereof. These terms
are used as applied under generally accepted accounting principles or
in the financial reporting of the Corporation or of its Subsidiaries.
To qualify awards as performance-based under Section 162(m), the
applicable Business Criterion (or Business Criteria, as the case may
be) and specific performance goal or goals ("targets") must be
established and approved by the Administrator during the first 90 days
of the performance period (and, in the case of performance periods of
less than one year, in no event after 25% or more of the performance
period has elapsed) and while performance relating to such target(s)
remains substantially uncertain within the meaning of Section 162(m)
of the Code. Performance targets shall be adjusted to mitigate the
unbudgeted impact of material, unusual or nonrecurring gains and
losses, accounting changes or other extraordinary events not foreseen
at the time the targets were set unless the Administrator provides
otherwise at the time of establishing the targets. The applicable
performance measurement period may not be less than three months nor
more than 10 years.
5.2.3 Form of Payment; Maximum Performance-Based Award. Grants or
awards under this Section 5.2 may be paid in cash or shares of Common
Stock or any combination thereof. Grants of Qualifying Options and
Qualifying SARs to any one participant in any one calendar year shall
be subject to the limit set forth in Section 4.2(b). The maximum
number of shares of Common Stock which may be delivered pursuant to
Performance-Based Awards (other than Qualifying Options and Qualifying
SARs, and other than cash awards covered by the following sentence)
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that are granted to any one participant in any one calendar year shall
not exceed 1,000,000 shares, either individually or in the aggregate,
subject to adjustment as provided in Section 7.1. In addition, the
aggregate amount of compensation to be paid to any one participant in
respect of all Performance-Based Awards payable only in cash and not
related to shares of Common Stock and granted to that participant in
any one calendar year shall not exceed $1,000,000.00. Awards that are
cancelled during the year shall be counted against these limits to the
extent permitted by Section 162(m) of the Code.
5.2.4 Certification of Payment. Before any Performance-Based
Award under this Section 5.2 (other than Qualifying Options and
Qualifying SARs) is paid and to the extent required to qualify the
award as performance-based compensation within the meaning of Section
162(m) of the Code, the Administrator must certify in writing that the
performance target(s) and any other material terms of the
Performance-Based Award were in fact timely satisfied.
5.2.5 Reservation of Discretion. The Administrator will have the
discretion to determine the restrictions or other limitations of the
individual awards granted under this Section 5.2 including the
authority to reduce awards, payouts or vesting or to pay no awards, in
its sole discretion, if the Administrator preserves such authority at
the time of grant by language to this effect in its authorizing
resolutions or otherwise.
5.2.6 Expiration of Grant Authority. As required pursuant to
Section 162(m) of the Code and the regulations promulgated thereunder,
the Administrator's authority to grant new awards that are intended to
qualify as performance-based compensation within the meaning of
Section 162(m) of the Code (other than Qualifying Options and
Qualifying SARs) shall terminate upon the first meeting of the
Corporation's stockholders that occurs in the fifth year following the
year in which the Corporation's stockholders first approve this Plan.
5.3 Award Agreements. Each award shall be evidenced by a written award
agreement in the form approved by the Administrator and executed on behalf
of the Corporation and, if required by the Administrator, executed by the
recipient of the award. The Administrator may authorize any officer of the
Corporation (other than the particular award recipient) to execute any or
all award agreements on behalf of the Corporation. The award agreement
shall set forth the material terms and conditions of the award as
established by the Administrator consistent with the express limitations of
this Plan.
5.4 Deferrals and Settlements. Payment of awards may be in the form of
cash, Common Stock, other awards or combinations thereof as the
Administrator shall determine, and with such restrictions as it may impose.
The Administrator may also require or permit participants to elect to defer
the issuance of shares or the settlement of awards in cash under such rules
and procedures as it may establish under this Plan. The Administrator may
also provide that deferred settlements include the payment or crediting of
interest or other earnings on the deferral amounts, or the payment or
crediting of dividend equivalents where the deferred amounts are
denominated in shares.
5.5 Consideration for Common Stock or Awards. The purchase price for
any award granted under this Plan or the Common Stock to be delivered
pursuant to an award, as applicable, may be paid by means of any lawful
consideration as determined by the Administrator, including, without
limitation, one or a combination of the following methods:
o services rendered by the recipient of such award;
o cash, check payable to the order of the Corporation, or electronic funds
transfer;
o notice and third party payment in such manner as may be authorized by the
Administrator;
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o the delivery of previously owned shares of Common Stock;
o by a reduction in the number of shares otherwise deliverable pursuant to
the award; or
o subject to such procedures as the Administrator may adopt, pursuant
to a "cashless exercise" with a third party who provides financing for
the purposes of (or who otherwise facilitates) the purchase or
exercise of awards.
In no event shall any shares newly-issued by the Corporation be issued for
less than the minimum lawful consideration for such shares or for
consideration other than consideration permitted by applicable state law.
In the event that the Administrator allows a participant to exercise an
award by delivering shares of Common Stock previously owned by such
participant and unless otherwise expressly provided by the Administrator,
any shares delivered which were initially acquired by the participant from
the Corporation (upon exercise of a stock option or otherwise) must have
been owned by the participant at least six months as of the date of
delivery. Shares of Common Stock used to satisfy the exercise price of an
option shall be valued at their fair market value on the date of exercise.
The Corporation will not be obligated to deliver any shares unless and
until it receives full payment of the exercise or purchase price therefor
and any related withholding obligations under Section 8.5 and any other
conditions to exercise or purchase have been satisfied. Unless otherwise
expressly provided in the applicable award agreement, the Administrator may
at any time eliminate or limit a participant's ability to pay the purchase
or exercise price of any award or shares by any method other than cash
payment to the Corporation.
5.6 Definition of Fair Market Value. For purposes of this Plan, "fair
market value" shall mean, unless otherwise determined or provided by the
Administrator in the circumstances, the closing price of a share of Common
Stock as reported on the composite tape for securities listed on the
American Stock Exchange (the "Exchange") for the date in question or, if no
sales of Common Stock were made on the Exchange on that date, the closing
price of a share of Common Stock as reported on said composite tape for the
next preceding day on which sales of Common Stock were made on the
Exchange. The Administrator may, however, provide with respect to one or
more awards that the fair market value shall equal the last closing price
of a share of Common Stock as reported on the composite tape for securities
listed on the Exchange available on the date in question or the average of
the high and low trading prices of a share of Common Stock as reported on
the composite tape for securities listed on the Exchange for the date in
question or the most recent trading day. If the Common Stock is no longer
listed or is no longer actively traded on the Exchange as of the applicable
date, the fair market value of the Common Stock shall be the value as
reasonably determined by the Administrator for purposes of the award in the
circumstances. The Administrator also may adopt a different methodology for
determining fair market value with respect to one or more awards if a
different methodology is necessary or advisable to secure any intended
favorable tax, legal or other treatment for the particular award(s) (for
example, and without limitation, the Administrator may provide that fair
market value for purposes of one or more awards will be based on an average
of closing prices (or the average of high and low daily trading prices) for
a specified period preceding the relevant date).
5.7 Transfer Restrictions.
5.7.1 Limitations on Exercise and Transfer. Unless otherwise
expressly provided in (or pursuant to) this Section 5.7, by applicable
law and by the award agreement, as the same may be amended, (a) all
awards are non-transferable and shall not be subject in any manner to
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sale, transfer, anticipation, alienation, assignment, pledge,
encumbrance or charge; (b) awards shall be exercised only by the
participant; and (c) amounts payable or shares issuable pursuant to
any award shall be delivered only to (or for the account of) the
participant.
5.7.2 Exceptions. The Administrator may permit awards to be
exercised by and paid to, or otherwise transferred to, other persons
or entities pursuant to such conditions and procedures, including
limitations on subsequent transfers, as the Administrator may, in its
sole discretion, establish in writing. Any permitted transfer shall be
subject to compliance with applicable federal and state securities
laws.
5.7.3 Further Exceptions to Limits on Transfer. The exercise and
transfer restrictions in Section 5.7.1 shall not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits in
the event of the participant's death or, if the participant has
died, transfers to or exercise by the participant's beneficiary,
or, in the absence of a validly designated beneficiary, transfers
by will or the laws of descent and distribution,
(c) subject to any applicable limitations on ISOs, transfers
to a family member (or former family member) pursuant to a
domestic relations order if approved or ratified by the
Administrator,
(d) if the participant has suffered a disability, permitted
transfers or exercises on behalf of the participant by his or her
legal representative, or
(e) the authorization by the Administrator of "cashless
exercise" procedures with third parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise of
awards consistent with applicable laws and the express
authorization of the Administrator.
5.8 International Awards. One or more awards may be granted to
Eligible Persons who provide services to the Corporation or one of its
Subsidiaries outside of the United States. Any awards granted to such
persons may be granted pursuant to the terms and conditions of any
applicable sub-plans, if any, appended to this Plan and approved by the
Administrator.
6. EFFECT OF TERMINATION OF SERVICE ON AWARDS
6.1 General. The Administrator shall establish the effect of a
termination of employment or service on the rights and benefits under each
award under this Plan and in so doing may make distinctions based upon,
inter alia, the cause of termination and type of award. If the participant
is not an employee of the Corporation or one of its Subsidiaries and
provides other services to the Corporation or one of its Subsidiaries, the
Administrator shall be the sole judge for purposes of this Plan (unless a
contract or the award otherwise provides) of whether the participant
continues to render services to the Corporation or one of its Subsidiaries
and the date, if any, upon which such services shall be deemed to have
terminated.
6.2 Events Not Deemed Terminations of Service. Unless the express
policy of the Corporation or one of its Subsidiaries, or the Administrator,
otherwise provides, the employment relationship shall not be considered
A10
terminated in the case of (a) sick leave, (b) military leave, or (c) any
other leave of absence authorized by the Corporation or one of its
Subsidiaries, or the Administrator; provided that unless reemployment upon
the expiration of such leave is guaranteed by contract or law, such leave
is for a period of not more than 90 days. In the case of any employee of
the Corporation or one of its Subsidiaries on an approved leave of absence,
continued vesting of the award while on leave from the employ of the
Corporation or one of its Subsidiaries may be suspended until the employee
returns to service, unless the Administrator otherwise provides or
applicable law otherwise requires. In no event shall an award be exercised
after the expiration of the term set forth in the award agreement.
6.3 Effect of Change of Subsidiary Status. For purposes of this Plan
and any award, if an entity ceases to be a Subsidiary of the Corporation a
termination of employment or service shall be deemed to have occurred with
respect to each Eligible Person in respect of such Subsidiary who does not
continue as an Eligible Person in respect of another entity within the
Corporation or another Subsidiary that continues as such after giving
effect to the transaction or other event giving rise to the change in
status.
7. ADJUSTMENTS; ACCELERATION
7.1 Adjustments. Upon or in contemplation of: any reclassification,
recapitalization, stock split (including a stock split in the form of a
stock dividend) or reverse stock split ("stock split"); any merger,
combination, consolidation, or other reorganization; any spin-off,
split-up, or similar extraordinary dividend distribution in respect of the
Common Stock (whether in the form of securities or property); any exchange
of Common Stock or other securities of the Corporation, or any similar,
unusual or extraordinary corporate transaction in respect of the Common
Stock; or a sale of all or substantially all the business or assets of the
Corporation as an entirety; then the Administrator shall, in such manner,
to such extent (if any) and at such time as it deems appropriate and
equitable in the circumstances:
(a) proportionately adjust any or all of (1) the number and type
of shares of Common Stock (or other securities) that thereafter may be
made the subject of awards (including the specific share limits,
maximums and numbers of shares set forth elsewhere in this Plan), (2)
the number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding awards, (3)
the grant, purchase, or exercise price (which term includes the base
price of any SAR or similar right) of any or all outstanding awards,
(4) the securities, cash or other property deliverable upon exercise
or payment of any outstanding awards, or (5) (subject to Sections 7.8
and 8.8.3(a)) the performance standards applicable to any outstanding
awards, or
(b) make provision for a cash payment or for the assumption,
substitution or exchange of any or all outstanding share-based awards
or the cash, securities or property deliverable to the holder of any
or all outstanding share-based awards, based upon the distribution or
consideration payable to holders of the Common Stock upon or in
respect of such event.
The Administrator may adopt such valuation methodologies for outstanding
awards as it deems reasonable in the event of a cash or property settlement
and, in the case of options, SARs or similar rights, but without limitation
on other methodologies, may base such settlement solely upon the excess if
any of the per share amount payable upon or in respect of such event over
the exercise or base price of the award. With respect to any award of an
ISO, the Administrator may make such an adjustment that causes the option
to cease to qualify as an ISO without the consent of the affected
participant. A11
In any of such events, the Administrator may take such action prior to
such event to the extent that the Administrator deems the action
necessary to permit the participant to realize the benefits intended
to be conveyed with respect to the underlying shares in the same
manner as is or will be available to stockholders generally. In the
case of any stock split or reverse stock split, if no action is taken
by the Administrator, the proportionate adjustments contemplated by
clause (a) above shall nevertheless be made.
7.2 Automatic Acceleration of Awards. Upon a dissolution of the
Corporation or other event described in Section 7.1 that the Corporation
does not survive (or does not survive as a public Corporation or one of its
Subsidiaries in respect of its Common Stock), then each then-outstanding
option and SAR shall become fully vested, all shares of restricted stock
then outstanding shall fully vest free of restrictions, and each other
award granted under this Plan that is then outstanding shall become payable
to the holder of such award; provided that such acceleration provision
shall not apply, unless otherwise expressly provided by the Administrator,
with respect to any award to the extent that the Administrator has made a
provision for the substitution, assumption, exchange or other continuation
or settlement of the award, or the award would otherwise continue in
accordance with its terms, in the circumstances.
7.3 Possible Acceleration of Awards. Without limiting Section 7.2, in
the event of a Change in Control Event (as defined below), the
Administrator may, in its discretion, provide that any outstanding option
or SAR shall become fully vested, that any share of restricted stock then
outstanding shall fully vest free of restrictions, and that any other award
granted under this Plan that is then outstanding shall be payable to the
holder of such award. The Administrator may take such action with respect
to all awards then outstanding or only with respect to certain specific
awards identified by the Administrator in the circumstances. For purposes
of this Plan, "Change in Control Event" means any of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 33% or more of either (1) the
then-outstanding shares of common stock of the Corporation (the
"Outstanding Company Common Stock") or (2) the combined voting power
of the then-outstanding voting securities of the Corporation entitled
to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that, for purposes of
this definition, the following acquisitions shall not constitute a
Change in Control Event; (A) any acquisition directly from the
Corporation, (B) any acquisition by the Corporation, (C) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or any affiliate of the Corporation
or a successor, or (D) any acquisition by any entity pursuant to a
transaction that complies with Sections (c)(1), (2) and (3) below;
(b) Individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election,
or nomination for election by the Corporation's stockholders, was
approved by a vote of at least two-thirds of the directors then
comprising the Incumbent Board (including for these purposes, the new
members whose election or nomination was so approved, without counting
the member and his predecessor twice) shall be considered as though
such individual were a member of the Incumbent Board, but excluding,
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for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board;
(c) Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar corporate transaction involving
the Corporation or any of its Subsidiaries, a sale or other
disposition of all or substantially all of the assets of the
Corporation, or the acquisition of assets or stock of another entity
by the Corporation or any of its Subsidiaries (each, a "Business
Combination"), in each case unless, following such Business
Combination, (1) all or substantially all of the individuals and
entities that were the beneficial owners of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity that, as a
result of such transaction, owns the Corporation or all or
substantially all of the Corporation's assets directly or through one
or more subsidiaries (a "Parent")) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (2) no
Person (excluding any entity resulting from such Business Combination
or a Parent or any employee benefit plan (or related trust) of the
Corporation or such entity resulting from such Business Combination or
Parent) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then-outstanding shares of common stock of the
entity resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such entity, except
to the extent that the ownership in excess of 33% existed prior to the
Business Combination, and (3) at least a majority of the members of
the board of directors or trustees of the entity resulting from such
Business Combination or a Parent were members of the Incumbent Board
at the time of the execution of the initial agreement or of the action
of the Board providing for such Business Combination; or
(d) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation other than in the
context of a transaction that does not constitute a Change in Control
Event under clause (c) above.
7.4 Early Termination of Awards. Any award that has been accelerated
as required or contemplated by Section 7.2 or 7.3 (or would have been so
accelerated but for Section 7.5, 7.6 or 7.7) shall terminate upon the
related event referred to in Section 7.2 or 7.3, as applicable, subject to
any provision that has been expressly made by the Administrator, through a
plan of reorganization or otherwise, for the survival, substitution,
assumption, exchange or other continuation or settlement of such award and
provided that, in the case of options and SARs that will not survive, be
substituted for, assumed, exchanged, or otherwise continued or settled in
the transaction, the holder of such award shall be given reasonable advance
notice of the impending termination and a reasonable opportunity to
exercise his or her outstanding options and SARs in accordance with their
terms before the termination of such awards (except that in no case shall
more than ten days' notice of accelerated vesting and the impending
termination be required and any acceleration may be made contingent upon
the actual occurrence of the event).
7.5 Other Acceleration Rules. Any acceleration of awards pursuant to
this Section 7 shall comply with applicable legal requirements and, if
necessary to accomplish the purposes of the acceleration or if the
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circumstances require, may be deemed by the Administrator to occur a
limited period of time not greater than 30 days before the event. Without
limiting the generality of the foregoing, the Administrator may deem an
acceleration to occur immediately prior to the applicable event and/or
reinstate the original terms of an award if an event giving rise to an
acceleration does not occur. The Administrator may override the provisions
of Section 7.2, 7.3, 7.4 and/or 7.6 by express provision in the award
agreement and may accord any Eligible Person a right to refuse any
acceleration, whether pursuant to the award agreement or otherwise, in such
circumstances as the Administrator may approve. The portion of any ISO
accelerated in connection with a Change in Control Event or any other
action permitted hereunder shall remain exercisable as an ISO only to the
extent the applicable $100,000 limitation on ISOs is not exceeded. To the
extent exceeded, the accelerated portion of the option shall be exercisable
as a nonqualified stock option under the Code.
7.6 Possible Rescission of Acceleration. If the vesting of an award
has been accelerated expressly in anticipation of an event or upon
stockholder approval of an event and the Administrator later determines
that the event will not occur, the Administrator may rescind the effect of
the acceleration as to any then outstanding and unexercised or otherwise
unvested awards.
7.7 Golden Parachute Limitation. Notwithstanding anything else
contained in this Section 7 to the contrary, in no event shall an award be
accelerated under this Plan to an extent or in a manner which would not be
fully deductible by the Corporation or one of its Subsidiaries for federal
income tax purposes because of Section 280G of the Code, nor shall any
payment hereunder be accelerated to the extent any portion of such
accelerated payment would not be deductible by the Corporation or one of
its Subsidiaries because of Section 280G of the Code. If a participant
would be entitled to benefits or payments hereunder and under any other
plan or program that would constitute "parachute payments" as defined in
Section 280G of the Code, then the participant may by written notice to the
Corporation designate the order in which such parachute payments will be
reduced or modified so that the Corporation or one of its Subsidiaries is
not denied federal income tax deductions for any "parachute payments"
because of Section 280G of the Code. Notwithstanding the foregoing, if a
participant is a party to an employment or other agreement with the
Corporation or one of its Subsidiaries, or is a participant in a severance
program sponsored by the Corporation or one of its Subsidiaries, that
contains express provisions regarding Section 280G and/or Section 4999 of
the Code (or any similar successor provision), the Section 280G and/or
Section 4999 provisions of such employment or other agreement or plan, as
applicable, shall control as to any awards held by that participant (for
example, and without limitation, a participant may be a party to an
employment agreement with the Corporation or one of its Subsidiaries that
provides for a "gross-up" as opposed to a "cut-back" in the event that the
Section 280G thresholds are reached or exceeded in connection with a change
in control and, in such event, the Section 280G and/or Section 4999
provisions of such employment agreement shall control as to any awards held
by that participant).
8. OTHER PROVISIONS
8.1 Compliance with Laws. This Plan, the granting and vesting of
awards under this Plan, the offer, issuance and delivery of shares of
Common Stock, the acceptance of promissory notes and/or the payment of
money under this Plan or under awards are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law, federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority
as may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. The person acquiring any securities
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under this Plan will, if requested by the Corporation or one of its
Subsidiaries, provide such assurances and representations to the
Corporation or one of its Subsidiaries as the Administrator may deem
necessary or desirable to assure compliance with all applicable legal and
accounting requirements.
8.2 Employment Status. No person shall have any claim or rights to be
granted an award (or additional awards, as the case may be) under this
Plan, subject to any express contractual rights (set forth in a document
other than this Plan) to the contrary.
8.3 No Employment/Service Contract. Nothing contained in this Plan (or
in any other documents under this Plan or in any award) shall confer upon
any Eligible Person or other participant any right to continue in the
employ or other service of the Corporation or one of its Subsidiaries,
constitute any contract or agreement of employment or other service or
affect an employee's status as an employee at will, nor shall interfere in
any way with the right of the Corporation or one of its Subsidiaries to
change a person's compensation or other benefits, or to terminate his or
her employment or other service, with or without cause. Nothing in this
Section 8.3, however, is intended to adversely affect any express
independent right of such person under a separate employment or service
contract other than an award agreement.
8.4 Plan Not Funded. Awards payable under this Plan shall be payable
in shares or from the general assets of the Corporation, and no special or
separate reserve, fund or deposit shall be made to assure payment of such
awards. No participant, beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock, except as expressly otherwise provided) of the Corporation or
one of its Subsidiaries by reason of any award hereunder. Neither the
provisions of this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of
this Plan shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Corporation or one of its Subsidiaries
and any participant, beneficiary or other person. To the extent that a
participant, beneficiary or other person acquires a right to receive
payment pursuant to any award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Corporation.
8.5 Tax Withholding. Upon any exercise, vesting, or payment of any
award or upon the disposition of shares of Common Stock acquired pursuant
to the exercise of an ISO prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Corporation or one of its
Subsidiaries shall have the right at its option to:
(a) require the participant (or the participant's personal
representative or beneficiary, as the case may be) to pay or provide
for payment of at least the minimum amount of any taxes which the
Corporation or one of its Subsidiaries may be required to withhold
with respect to such award event or payment; or
(b) deduct from any amount otherwise payable in cash to the
participant (or the participant's personal representative or
beneficiary, as the case may be) the minimum amount of any taxes which
the Corporation or one of its Subsidiaries may be required to withhold
with respect to such cash payment.
In any case where a tax is required to be withheld in connection with the
delivery of shares of Common Stock under this Plan, the Administrator may
in its sole discretion (subject to Section 8.1) grant (either at the time
of the award or thereafter) to the participant the right to elect, pursuant
to such rules and subject to such conditions as the Administrator may
establish, to have the Corporation reduce the number of shares to be
delivered by (or otherwise reacquire) the appropriate number of shares,
valued in a consistent manner at their fair market value or at the sales
price in accordance with authorized
A15
procedures for cashless exercises, necessary to satisfy the minimum applicable
withholding obligation on exercise, vesting or payment. In no event shall the
shares withheld exceed the minimum whole number of shares required for tax
withholding under applicable law. The Corporation may, with the Administrator's
approval, accept one or more promissory notes from any Eligible Person in
connection with taxes required to be withheld upon the exercise, vesting or
payment of any award under this Plan; provided that any such note shall be
subject to terms and conditions established by the Administrator and the
requirements of applicable law.
8.6 Effective Date, Termination and Suspension, Amendments.
8.6.1 Effective Date. This Plan is effective as of February 25,
2004, the date of its approval by the Board (the "Effective Date").
This Plan shall be submitted for and subject to stockholder approval
no later than twelve months after the Effective Date. Unless earlier
terminated by the Board, this Plan shall terminate at the close of
business on the day before the tenth anniversary of the Effective
Date. After the termination of this Plan either upon such stated
expiration date or its earlier termination by the Board, no additional
awards may be granted under this Plan, but previously granted awards
(and the authority of the Administrator with respect thereto,
including the authority to amend such awards) shall remain outstanding
in accordance with their applicable terms and conditions and the terms
and conditions of this Plan.
8.6.2 Board Authorization. The Board may, at any time, terminate
or, from time to time, amend, modify or suspend this Plan, in whole or
in part. No awards may be granted during any period that the Board
suspends this Plan.
8.6.3 Stockholder Approval. To the extent then required by
applicable law or any applicable listing agency or required under
Sections 162, 422 or 424 of the Code to preserve the intended tax
consequences of this Plan, or deemed necessary or advisable by the
Board, any amendment to this Plan shall be subject to stockholder
approval.
8.6.4 Amendments to Awards. Without limiting any other express
authority of the Administrator under (but subject to) the express
limits of this Plan, the Administrator by agreement or resolution may
waive conditions of or limitations on awards to participants that the
Administrator in the prior exercise of its discretion has imposed,
without the consent of a participant, and (subject to the requirements
of Sections 3.2 and 8.6.5) may make other changes to the terms and
conditions of awards. Any amendment or other action that would
constitute a repricing of an award is subject to the limitations set
forth in Section 3.2(g).
8.6.5 Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of this Plan or change of or affecting any
outstanding award shall, without written consent of the participant,
affect in any manner materially adverse to the participant any rights
or benefits of the participant or obligations of the Corporation under
any award granted under this Plan prior to the effective date of such
change. Changes, settlements and other actions contemplated by Section
7 shall not be deemed to constitute changes or amendments for purposes
of this Section 8.6.
8.7 Privileges of Stock Ownership. Except as otherwise expressly
authorized by the Administrator or this Plan, a participant shall not be
entitled to any privilege of stock ownership as to any shares of Common
Stock not actually delivered to and held of record by the participant. No
adjustment will be made for dividends or other rights as a stockholder for
which a record date occurs prior to such date of delivery.
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8.8 Governing Law; Construction; Severability.
8.8.1 Choice of Law. This Plan, the awards, all documents
evidencing awards and all other related documents shall be governed
by, and construed in accordance with the laws of the State of
Delaware.
8.8.2 Severability. If a court of competent jurisdiction holds
any provision invalid and unenforceable, the remaining provisions of
this Plan shall continue in effect.
8.8.3 Plan Construction.
(a) Rule 16b-3. It is the intent of the Corporation that the
awards and transactions permitted by awards be interpreted in a
manner that, in the case of participants who are or may be
subject to Section 16 of the Exchange Act, qualify, to the
maximum extent compatible with the express terms of the award,
for exemption from matching liability under Rule 16b-3
promulgated under the Exchange Act. Notwithstanding the
foregoing, the Corporation shall have no liability to any
participant for Section 16 consequences of awards or events under
awards if an award or event does not so qualify.
(b) Section 162(m). Awards under Section 5.1.4 to persons
described in Section 5.2 that are either granted or become
vested, exercisable or payable based on attainment of one or more
performance goals related to the Business Criteria, as well as
Qualifying Options and Qualifying SARs granted to persons
described in Section 5.2, that are approved by a committee
composed solely of two or more outside directors (as this
requirement is applied under Section 162(m) of the Code) shall be
deemed to be intended as performance-based compensation within
the meaning of Section 162(m) of the Code unless such committee
provides otherwise at the time of grant of the award. It is the
further intent of the Corporation that (to the extent the
Corporation or one of its Subsidiaries or awards under this Plan
may be or become subject to limitations on deductibility under
Section 162(m) of the Code) any such awards and any other
Performance-Based Awards under Section 5.2 that are granted to or
held by a person subject to Section 162(m) will qualify as
performance-based compensation or otherwise be exempt from
deductibility limitations under Section 162(m).
8.9 Captions. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
8.10 Stock-Based Awards in Substitution for Stock Options or Awards
Granted by Other Corporation. Awards may be granted to Eligible Persons in
substitution for or in connection with an assumption of employee stock
options, SARs, restricted stock or other stock-based awards granted by
other entities to persons who are or who will become Eligible Persons in
respect of the Corporation or one of its Subsidiaries, in connection with a
distribution, merger or other reorganization by or with the granting entity
or an affiliated entity, or the acquisition by the Corporation or one of
its Subsidiaries, directly or indirectly, of all or a substantial part of
the stock or assets of the employing entity. The awards so granted need not
comply with other specific terms of this Plan, provided the awards reflect
only adjustments giving effect to the assumption or substitution consistent
A17
with the conversion applicable to the Common Stock in the transaction and
any change in the issuer of the security. Any shares that are delivered and
any awards that are granted by, or become obligations of, the Corporation,
as a result of the assumption by the Corporation of, or in substitution
for, outstanding awards previously granted by an acquired company (or
previously granted by a predecessor employer (or direct or indirect parent
thereof) in the case of persons that become employed by the Corporation or
one of its Subsidiaries in connection with a business or asset acquisition
or similar transaction) shall not be counted against the Share Limit or
other limits on the number of shares available for issuance under this
Plan.
8.11 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Administrator to grant
awards or authorize any other compensation, with or without reference to
the Common Stock, under any other plan or authority.
8.12 No Corporate Action Restriction. The existence of this Plan, the
award agreements and the awards granted hereunder shall not limit, affect
or restrict in any way the right or power of the Board or the stockholders
of the Corporation to make or authorize: (a) any adjustment,
recapitalization, reorganization or other change in the capital structure
or business of the Corporation or any Subsidiary, (b) any merger,
amalgamation, consolidation or change in the ownership of the Corporation
or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred
or prior preference stock ahead of or affecting the capital stock (or the
rights thereof) of the Corporation or any Subsidiary, (d) any dissolution
or liquidation of the Corporation or any Subsidiary, (e) any sale or
transfer of all or any part of the assets or business of the Corporation or
any Subsidiary, or (f) any other corporate act or proceeding by the
Corporation or any Subsidiary. No participant, beneficiary or any other
person shall have any claim under any award or award agreement against any
member of the Board or the Administrator, or the Corporation or any
employees, officers or agents of the Corporation or any Subsidiary, as a
result of any such action.
8.13 Other Company Benefit and Compensation Programs. Payments and
other benefits received by a participant under an award made pursuant to
this Plan shall not be deemed a part of a participant's compensation for
purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or
any Subsidiary, except where the Administrator expressly otherwise provides
or authorizes in writing. Awards under this Plan may be made in addition
to, in combination with, as alternatives to or in payment of grants, awards
or commitments under any other plans or arrangements of the Corporation or
its Subsidiaries.
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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 March 8, 2004, at the Annual Meeting of stockholders to be held
on April 23, 2004 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.
April 23, 2004
[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
Except as marked to nominees listed
the contrary
1. Election of directors:
01 Robert M. Bennett |_| |_|
02 Robert B. Clasen |_| |_|
03 Esther L. Rodriguez |_| |_|
(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 adopt the NTN Communications, Inc. 2004 Performance |_| |_| |_|
Incentive Plan
3. Ratification of appointment of KPMG LLP as independent accountants for |_| |_| |_|
fiscal year ending December 31, 2004
4. 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____,2004
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.