SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K/A
AMENDMENT NO. 1
TO
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
Commission file number 1-11464
NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1103425
(State of or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5966 La Place Court, Carlsbad, California 92008
(Address of Principal Executive Offices) (Zip Code)
(619) 438-7400
(Registrant's Telephone Number, Including Area Code)
Securities Registered pursuant to Section 12(b) of the Act:
Common Stock, $.005 par value
Securities Registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO
---------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of
Registrant as of April 11, 1996, computed by reference to the closing sale price
of such stock on the American Stock Exchange, was approximately $89,000,000.
(All directors and executive officers are considered affiliates for the
purpose.)
At April 11, 1996, Registrant had 23,304,645 shares of Common Stock, $.005
par value, issued and outstanding.
Documents incorporated by reference into this report: None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors and
executive officers of NTN Communications, Inc. (the "Company"):
Name Age Position(s) Held
- ----------------------- --- --------------------------------------------------------------
Patrick J. Downs(1) 59 Chairman of the Board of Directors and Chief Executive Officer
Daniel C. Downs(1) 56 President, Chief Operating Officer and Director
Donald C. Klosterman 66 Director
Alan P. Magerman 61 Director and Vice Chairman
Alvin R. Rozelle(2) 70 Director
Ronald E. Hogan 57 Senior Vice President - Finance, Chief Financial Officer and
Secretary
Gerald P. McLaughlin 56 Executive Vice President - Systems
Jerry V. Petrie 53 Executive Vice President - Marketing
Jon Van Caneghem(5) 34 President, New World Computing, Inc.
Michael J. Downs(1) 61 President, LearnStar, Inc.
Colleen Anderson 45 President, IWN, Inc.
- --------------
(1) Patrick J. Downs, Daniel C. Downs and Michael J. Downs are brothers.
(2) Member of Compensation Committee.
The following biographical information is furnished with respect to the
directors and executive officers:
PATRICK J. DOWNS has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1, 1994, prior to which time Mr.
Downs served as President and Chief Executive Officer of the Company (or its
predecessor) since 1983 and a director since April 1985. Mr. Downs was an
independent marketing consultant from 1981 to 1983, during which time he also
worked on the development of QB1. From 1975 to 1977, he served as Vice President
and National Marketing Director for the Select-A-Seat Corporation; and he was
President of Datatix Systems, Inc. from 1978 through 1981. From 1973 to 1975, he
served as General Manager, Western Region (11 western states) for Ticketron,
Inc. From 1970 to 1973, he was a Director of Special Projects for Time/Life
Broadcast Properties in San Diego. From 1964 to 1969, Mr. Downs served as Vice
President and Business Manager of the San Diego Padres baseball team.
DANIEL C. DOWNS has been President and Chief Operating Officer of the Company
since April 1994, prior to which time Mr. Downs served as Executive Vice
President and Chief Operating Officer of the Company (or its predecessor) since
1983 and a director since April 1985. Mr. Downs also serves as a director and
as Chairman of the Board of IWN, Inc., a subsidiary of the Company. Mr. Downs
was an independent marketing consultant from 1981 to 1983, during which time he
also worked on the development of QB1. From 1979 to 1981, Mr. Downs served as
Executive Vice President and General Manager of Hollywood Park Race Course.
2.
From 1974 to 1979, Mr. Downs served as Executive Vice President and General
Manager for the Southern California Racing Association at Los Alamitos Race
Course. In 1965, Mr. Downs became Tickets Manager and later, Stadium Manager
and Director of Sales for the Houston Oilers football team of the National
Football League. During his ten-year affiliation with that franchise, Mr. Downs
became the Assistant General Manager.
DONALD C. KLOSTERMAN currently serves as the President of Pacific Casino
Management, Inglewood, California, and has been a director of the Company (or
its predecessor) since 1983 and served as Chairman of the Board from 1985 to
April 1, 1994. From 1982 to the present, Mr. Klosterman also has acted as a
consultant to the Company. Mr. Klosterman served as Vice President and General
Manager of the Los Angeles Express football team of the U.S.F.L. until the
summer of 1985; since then, he has been an independent business consultant. In
1971, Mr. Klosterman became Vice President/General Manager of the Los Angeles
Rams and served in that capacity for eleven years, until 1982. In 1970, Mr.
Klosterman was the General Manager of the Baltimore Colts. In 1966, Mr.
Klosterman was the General Manager of the Houston Oilers. Mr. Klosterman played
professional football for Cleveland, Dallas, Los Angeles and Calgary. Mr.
Klosterman is also a director of Aldila Shaft Manufacturer.
ALAN P. MAGERMAN was appointed a director of the Company in November 1991, and
in January 1995 Mr. Magerman was appointed Vice Chairman of the Company. From
1991 to 1995, Mr. Magerman was the founder and Chairman of the Board of Odyssey
Sports Inc., a privately held company engaged in the development and
distribution of golf clubs. Mr. Magerman is a director of The Oracle Group, a
private financial and business consulting firm, and a director of Vision
Development Centers, a Company which provides vision care services. Prior to
co-founding Oracle and since 1986, Mr. Magerman acted as an independent
financial consultant. From 1981 to 1986, Mr. Magerman was President and Chief
Executive Officer of Omnimax Inc., a venture capital firm. From 1968 until
1980, Mr. Magerman was Chairman of the Board of Data Dynamics Inc., a software
management firm specializing in hospital related software and military-related
software. Prior to 1968, Mr. Magerman was a financial and business consultant
and President of his family's manufacturing business. Mr. Magerman also serves
as a director of several national charity organizations.
ALVIN R. ROZELLE has been a director of the Company since April 1994. Since
1989, Mr. Rozelle has served on the Board of Directors of Chris Craft
Industries, a public company. From 1960 to 1989, Mr. Rozelle served as
Commissioner of the National Football League. As Commissioner of the National
Football League, Mr. Rozelle served as President of NFL Charities for seventeen
years. In 1985, Mr. Rozelle was inducted into the Pro Football Hall of Fame in
Canton, Ohio. In 1983, Mr. Rozelle and his wife Carrie received the United Way
of America's distinguished Alexis de Tocqueville Society Award which recognizes
persons who have rendered outstanding service as volunteers in their own
community or nationally. From 1957 to 1960, Mr. Rozelle served as general
manager of the Los Angeles Rams. From 1955 to 1957, Mr. Rozelle was a partner
in the international public relations firm of P.K. Macker and Company.
RONALD E. HOGAN has served as Secretary of the Board of Directors for the
Company since 1983 and currently serves as Senior Vice President and Chief
Financial Officer responsible for finance, accounting and administration. Mr.
Hogan had over 20 years corporate finance and data processing experience prior
to joining NTN, including being regional manager for Western Savings and Loan
Association; Vice President of Master Craft Homes; Co-founder and President of
PDPS, a computer consulting and service firm; and Vice-President of Finance for
Datatix Systems Inc.
GERALD P. MCLAUGHLIN serves as Executive Vice President and Director of
Operations/Systems, responsible for interactive programming and broadcasting as
well as PC on-line services, cable and telco. Prior to joining NTN, he served
as Vice-President of Information Systems for Atari, where he developed a network
of 2,000 terminals and personal computers linked to computer systems in other
foreign countries. He than became Director of Systems Development for Warner
Communications, in New York, where his projects included interactive cable
television and all major development projects for six Warner Communications'
subsidiaries. In addition, he has spearheaded
3.
systems development projects for American Airlines, the New York and Midwest
Stock Exchanges and several Fortune 500 companies.
JERRY V. PETRIE serves as Executive Vice President and Director of Marketing
and is responsible for the creation of advertiser-themed programs and marketing
strategies for Network advertisers. He joined NTN in 1986, handling all
Canadian marketing and sales for NTN Canada while serving as President of the
Petrie Group, a marketing consultant firm. He also served as President of NTN
Sports, Inc., the exclusive license holder of NTN Communications, Inc. in Canada
and was President of Sports Administration, Inc., a full service sports
management company representing numerous Canadian professional athletes and
sports personalities.
JON VAN CANEGHEM has served as President of New World Computing, Inc. ("New
World") since January 3, 1994, following the Company's merger with New World
effected on December 31, 1993. Prior to the merger, Mr. Van Caneghem had served
as President and Chief Executive Officer of New World since its inception in
1984.
MICHAEL J. DOWNS served as director from 1987 until 1994 at which time he was
elected President and C.E.O. of LearnStar. Prior to NTN, he was Vice President
and General Manager of Opryland, USA and was responsible for designing and
building the Nashville, Tennessee Entertainment Center. He also served as
President of a division of Twentieth Century Fox and as President of Health
Industries. He was President and C.E.O. of Coupon Systems, Inc., a computer-
based point-of-sale marketing company.
COLLEEN ANDERSON has served as President and Chief Executive Officer of IWN
since 1994. From 1987 to 1993, she was President and Services Division of
Comdata Corporation, a public company, responsible for providing electronic
funds transfer (EFT) and on-line transaction processing services to the gaming
industry, including racetracks, casinos, riverboats, cardrooms, Indian
reservations and cruise ships. During her seven-year tenure, division revenues
grew from $17 million to over $100 million annually. In 1984, Ms. Anderson
founded Cashchek International, Inc., a competitor to Comdata in the EFT gaming
business. Cashchek was acquired by American Express in 1986, where she continued
to run the business until joining Comdata in 1987.
ITEM 11. 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 the Chief Executive Officer
of the Company and to the four most highly compensated executive officers of the
Company who were serving as executive officers at the end of fiscal 1995
(collectively, the "Named Executive Officers").
4.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation All Other
Annual Compensation Awards Compensation
-------------------------- --------------- --------------
Number of Stock Number of
Option Shares Warrant
Name and Principal Position Year Salary(1) Bonus Granted Shares Granted
- ------------------------------------- ---- ----------- ----- --------------- --------------
Patrick J. Downs..................... 1995 $192,044 $-0- 200,000 -0-
Chief Executive Officer 1994 169,950 -0- 200,000 -0-
1993 150,000(2) -0- 434,000 150,000
Jon Van Caneghem..................... 1995 $220,000 $-0- -0- -0-
President, New World 1994 200,000 -0- -0- -0-
Computing, Inc. 1993 160,000 -0- -0- -0-
Daniel C. Downs...................... 1995 $192,044 $-0- 200,000 -0-
President and Chief 1994 169,950 -0- 200,000 -0-
Operating Officer 1993 150,000(2) -0- 484,000 150,000
Gerald P. McLaughlin................. 1995 $184,333 $-0- 75,000 -0-
Senior Vice President - Systems 1994 163,126 -0- 75,000 -0-
1993 144,360(2) -0- 125,000 -0-
Ronald E. Hogan...................... 1995 $150,177 $-0- 50,000 -0-
Senior Vice President - 1994 132,900 -0- 75,000 -0-
Finance, Chief Financial Officer 1993 117,277(2) -0- 313,000 -0-
and Secretary
_________________
(1) Includes amounts, if any, deferred under the Company's 401(k) Plan and
Deferred Compensation Plan.
(2) These Named Executive Officers waived their rights to receive the additional
compensation that they were to receive under their respective employment
agreements for the 1993 fiscal year and, accordingly, the amounts indicated
reflect only compensation actually paid to such executives.
5.
STOCK OPTION GRANTS
The following table contains information concerning grants of stock options
during fiscal 1995 with respect to the Named Executive Officers.
OPTIONS GRANTED IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price Appreciation
Number of Shares Options Granted For Option Term(1)
Underlying to Employees Exercise Expiration -------------------------------
Name Options Granted(2) In Fiscal Year Price Date 5% 10%
- ----------------------- ------------------ --------------- -------- ---------- -------------- --------------
Patrick J. Downs....... 200,000 10.2% $4.50 8/4/02 $366,390 $853,845
Jon Van Caneghem....... -0- - - - - -
Daniel C. Downs........ 200,000 10.2% $4.50 8/4/02 $366,390 $853,845
Gerald P. McLaughlin... 75,000 3.8% $4.50 8/4/02 $137,396 $320,193
Ronald E. Hogan........ 50,000 2.5% $4.50 8/4/02 $ 91,598 $213,461
________________________
(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the Securities and Exchange Commission and do not represent
management's estimate or projection of future value of the Common Stock.
(2) Represents options granted in under the Company's 1995 Option Plan which, in
each case, become exercisable in equal increments on the first, second and
third anniversaries of the date of grant.
6.
STOCK OPTION EXERCISES AND OPTION VALUES
The following table contains information concerning stock options unexercised
at the end of fiscal 1995 with respect to the Named Executive Officers. No
stock options were exercised by any of the Named Executive Officers during
fiscal 1995.
FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised,
Option Shares At In-the-Money Options
Fiscal Year-End at Fiscal Year-End (1)
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Patrick J. Downs....... 967,500 216,500 * *
Daniel C. Downs........ 1,017,500 216,500 * *
Gerald P. McLaughlin... 140,920 135,150 * *
Jon Van Caneghem....... 0 0 - -
Ronald E. Hogan........ 576,927 76,650 $17,425 *
________________
(1) Represents the amount by which the aggregate market price on December 31,
1995 of the shares of the Company's Common Stock subject to such options
exceeded the respective exercise prices of such options. An asterisk
denotes that the respective exercise prices of the options shown exceeded
the market price of the underlying shares of Common Stock at December 31,
1995.
PERFORMANCE ASSOCIATED SENIOR EXECUTIVE RETIREMENT PLAN
Effective January 1, 1994, the Company adopted a Performance Associated Senior
Executive Retirement Plan (the "Retirement Plan"). The Board of Directors, in
its sole and absolute discretion, selects who may participate in the Retirement
Plan.
Under the Retirement Plan, when a participant has attained the age of 65 and
has provided the Company with at least ten years of service, such participant
shall be entitled to a normal retirement benefit. Such normal retirement
benefit entitles the participant to 240 monthly payments with each such payment
being equal to: ((A x F x C/2/ / N/2/) - S) x V where
A = an average of the percentage qualified each year (which varies from
zero to 60% based on the Company's net profit before taxes as
interpolated between $5,000,000 and $8,000,000)
F = final average earnings (based on the highest 60 consecutive months
during the ten years prior to termination of employment)
C = years of service from the date of enrollment in the Retirement Plan
N = age at earliest date when a participant is entitled to a normal
retirement benefit minus age at date of enrollment as a participant
in the Retirement Plan (but, in no event, less than ten)
S = monthly amount that the participant would be eligible for under
social security based on the regulations in effect on January 1, 1994
(once calculated, such amount does not change even if the actual
benefits are reduced)
V = vested percentage of 10% per year up to 100% (subject to certain
adjustments for a change in control of the Company, the participant
meeting certain eligibility requirements, the participant not having
been terminated for willful misconduct or gross negligence and the
participant not becoming, within three
7.
years of termination of employment, an employee or consultant to a
company in a line of business that competes with the Company above a
certain threshold level)
If participants retire prior to qualifying for normal retirement benefits,
then certain lesser benefits are also paid to participants when they attain the
age of 65. Certain other benefits are paid upon the death of a participant
prior to age 65, including a $8,333 per month payment to the beneficiary of such
a participant until the age at which such participant would reach the age of 65.
The annual benefits payable to the Named Executive Officers cannot be
estimated because they depend on, among other things, the Company's future
earnings.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for their services as
directors, with the exception of non-employee directors, who each receive
$15,000 per annum. Directors also may be granted options or warrants to
purchase common stock from time for services in their capacity as directors.
No such grants were made during fiscal 1995.
CONSULTING ARRANGEMENTS
In April 1990, the Company entered into a five-year consulting agreement
with Donald C. Klosterman, which was amended November 1990 and was terminated
effective March 31, 1995. The agreement provided that the Company would retain
Mr. Klosterman as its consultant on certain projects in connection with the
Company's relationship with the National Football League, the World League of
American Football and certain rules committees. Mr. Klosterman was compensated
at the rate of $11,300 per month for the first three months of fiscal 1995.
In March 1995, the Company entered into a new consulting agreement with
Mr. Klosterman. Under the agreement, Mr. Klosterman will continue to provide
consulting services to the Company on a project-by-project basis, in return for
which the Company has agreed to compensate him for successful completion of a
project in an amount equal to the sum of 5% of the first $1,000,000, 4% of the
second $1,000,000, 3% of the third $1,000,000, 2% of the fourth $1,000,000, and
1% of all amounts above $4,000,000.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
8.
In January 1990, the Company entered into written employment agreements
with each of Patrick J. Downs, Daniel C. Downs, Ronald E. Hogan and Gerald P.
McLaughlin that, as amended, expire on December 31, 1997. The principal terms
and conditions of each of the employment agreements are identical except for the
initial base-level annual compensation they provide for, which, in 1990, was
$150,000, $150,000, $117,277 and $144,360, respectively, for Patrick J. Downs,
Daniel C. Downs, Ronald E. Hogan and Gerald P. McLaughlin. The employment
agreements provide that the executives shall receive a salary increase each year
of 10% in addition to upward adjustments for increases in the Consumer Price
Index. In the event that the Company terminates the employment of any of the
foregoing officers for any reason or for no reason, including in the event of or
following a change of control of the Company, the Company is obligated to pay
the terminated officer an amount equal to three years' base level compensation
as provided in the officer's employment agreement.
The foregoing employment agreements also provide for a profit-sharing
program to be established annually. The pool established under any profit-
sharing program is to be distributed 5% to each of Patrick J. Downs, Daniel C.
Downs, Ronald E. Hogan and Gerald P. McLaughlin. The remaining 80% is to be
distributed among all of the employees of the Company as a group, including any
or all of the executive officers of the Company, in a manner determined by the
Board of Directors. The amount of the profit-sharing pool for the annual period
ended December 31, 1995 was to be 25% of the Company's pre-tax income for the
12-month period then ended in excess of $10,000,000, and for the annual period
ending December 31, 1996 is to be the greater of (i) 25% of the Company's pre-
tax income in excess of $10,000,000 or (ii) 10% of the Company's pre-tax income
for such period. No amounts were paid or set aside for the profit-sharing
program in fiscal 1995.
In January 1994, the Company entered into a five-year employment
agreement with Jon Van Caneghem, the President of New World in connection with
the New World Acquisition. The employment agreement provides for an annual base
salary of $200,000 for 1994, increasing by 10% in each successive year of the
agreement, and an annual bonus based on the amount, if any, New World's pre-tax
income exceeds certain levels specified in the employment agreement. No bonus
amounts were paid or set aside for fiscal 1995. The employment agreement
further provides that Mr. Van Caneghem shall promptly disclose, grant and assign
to the Company any developed properties (as that term is defined under the
employment agreement). New World may not terminate the employment agreement
voluntarily except for cause (as defined). Mr. Van Caneghem has the right to
terminate his employment for good reason (as defined).
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION
All compensation determinations for fiscal 1995 for the Company's
executives were made by the directors of the Company on the advice of the
Compensation Committee, which consisted during fiscal 1995 of Mr. Rozelle and
Kenneth B. Hamlet. Mr. Hamlet has since resigned as a director. Ronald E. Hogan,
the Company's Senior Vice President - Finance and Chief Financial Officer, also
participated during 1995 in deliberations of the Board of Directors concerning
executive compensation. None of the directors or executive officers of the
Company has served on the board of directors or the compensation committee of
any other entity, any of whose officers served either on the Company's Board of
Directors or Compensation Committee.
9.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 11, 1996 the number and
percentage ownership of Common Stock by (i) all persons known to the Company to
own beneficially more than 5% of the outstanding shares of Common Stock based
upon reports filed by each such person with the Securities and Exchange
Commission ("Commission"), (ii) each director of the Company, (iii) each of the
Named Executive Officers, and (iv) all of the officers and directors of the
Company as a group. Except as otherwise indicated, and subject to applicable
community property and similar laws, each of the persons named has sole voting
and investment power with respect to the shares of Common Stock shown. An
asterisk denotes beneficial ownership of less than 1%.
Number of Shares Percent of
Name (and Address of 5% Holder) Beneficially Owned Common Stock(1)
- -------------------------------------------- --------------------- ---------------
Daniel C. Downs............................. 1,195,794(2) 4.9%
Patrick J. Downs............................ 1,177,319(3) 4.8%
Donald C. Klosterman........................ 757,749(4) 3.2%
Alan P. Magerman............................ 605,000(5) 2.5%
Alvin R. Rozelle............................ 118,000(6) *
Jon Van Caneghem............................ 578,100 2.4%
Ronald E. Hogan............................. 755,974(7) 3.1%
Gerald P. McLaughlin........................ 188,382(8) *
All officers and directors of the Company
as a group (ten persons)................... 5,674,518(9) 19.6%
- ---------------
(1) Included as outstanding for purposes of this calculation are 23,304,645
shares of Common Stock (the amount outstanding as of April 11, 1996) plus,
in the case of each particular holder, the shares of Common Stock subject to
currently exercisable options, warrants, or other instruments exercisable
for or convertible into shares of Common Stock (including such instruments
exercisable within 60 days after April 11, 1996) held by that person, which
instruments are specified by footnote. Shares issuable as part or upon
exercise of outstanding options, warrants, or other instruments other than
as described in the preceding sentence are not deemed to be outstanding for
purposes of this calculation.
(2) Includes 350,000 shares subject to currently exercisable warrants and
667,500 shares subject to currently exercisable options held by Mr. Downs.
(3) Includes 350,000 shares subject to currently exercisable warrants and
617,500 shares subject to currently exercisable options held by Mr. Downs.
(4) Includes 200,000 shares subject to currently exercisable warrants and
150,000 shares subject to currently exercisable options held by Mr.
Klosterman.
(5) Includes 445,000 shares subject to currently exercisable warrants granted to
The Oracle Group, a corporation wholly-owned by members of Mr. Magerman's
family, which were subsequently assigned to Phyllis Magerman, Mr. Magerman's
wife, and 125,000 shares subject to currently exercisable options held by
Mr. Magerman. Also includes 35,000 outstanding shares owned of record by
Mrs. Magerman. Mr. Magerman disclaims beneficial ownership of all
securities owned by Mrs. Magerman.
10.
(6) Includes 100,000 shares subject to currently exercisable warrants held by
Mr. Rozelle and 8,000 shares purchased by the NFL deferred compensation
account for Mr. Rozelle's benefit.
(7) Includes 200,000 shares subject to currently exercisable warrants and
376,927 shares subject to currently exercisable options held by Mr. Hogan.
(8) Includes 140,920 shares subject to currently exercisable options owned by
Mr. McLaughlin.
(9) Includes 1,870,000 shares subject to currently exercisable warrants and
2,551,047 shares subject to currently exercisable options held by executive
officers and directors, including those described in notes (2) through (8)
above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEARNSTAR INC.
In December 1995, the Company exercised its right to reacquire from Act
III Communications ("Act III"), an affiliate of Normal Lear, who served as a
director of the Company during fiscal 1995, the 50% of LearnStar, Inc. owned by
Act III. LearnStar, Inc. was originally formed by the Company and Act III in
1994. The Company and Act III are discussing the future relationship between the
parties.
Following its reacquisition of all of the common stock of LearnStar, Inc.
as described above, in December 1995 the Company sold 45% of the common stock of
LearnStar, Inc. to Associated Ventures Management, Inc. a Delaware corporation
("Associated Ventures"), for $2,500,000. Joel Magerman, the son of Alan P.
Magerman, a director and Vice Chairman of the Company, is the President of
Associated Ventures. The $2,500,000 sale price was paid by means of a
non-interest bearing non-recourse promissory note of Associated Ventures, which
is payable in installments of $100,000 each on or before January 30, April 30,
July and October 1996 and a final installment of $2,100,000 on or before January
30, 1997. The promissory note is secured by the shares of LearnStar, Inc.
purchased by Associated Ventures, but is otherwise non-recourse to Associated
Ventures. The information regarding the gain to the Company on the sale of
LearnStar, Inc. common stock set forth in note 3 to the Company's consolidated
financial statements included in this report is incorporated herein by
reference.
LOANS TO OFFICERS AND DIRECTORS
As of the end of fiscal 1995, the Company had outstanding loans to a
director and certain of its officers, including an aggregate of $174,927
principal amount of loans made during fiscal 1995. The loans represent
withholding amounts paid by the Company on behalf of the director and officers
to taxing authorities in order to obtain a tax deduction for federal and state
income tax purposes relating to compensation to these officers and directors for
prior years. The loans were evidenced by individual promissory notes in favor
of the Company which bore interest at annual rates of between 6% and 8%, were
unsecured and were due on demand. The outstanding balances as of December 31,
1995 of the promissory notes from the director and officers were as follows:
Donald C. Klosterman - $966,419; Patrick J. Downs - $552,790; Daniel C. Downs -
$517,163; Gerald P. McLaughlin - $405,009; Ronald E. Hogan - $365,179; and
Robert Klosterman - $195,236. No payments were made on the notes during fiscal
1995.
In December 1995, the Company agreed to restructure the foregoing loans.
Pursuant to the restructuring, each director and officer is expected to execute
a three-year promissory note in favor of the Company in a principal amount equal
to the aggregate outstanding principal balance and accrued interest as of March
31, 1996 on the prior loans as follows: Donald C. Klosterman - $1,179,043;
Patrick J. Downs - $680,429; Daniel C. Downs - $629,141; Gerald P. McLaughlin -
$492,691; Ronald E. Hogan - $445,384; and Robert Klosterman - $237,383.
Of the principal amount of each note, 10% will be due and payable at the
end of 12 months from the date of the note; an additional 30% will be due and
payable at the end of 24 months; and the balance of 60% will be due and payable
at the end of 36 months. The notes will be prepayable at any time without
penalty and will bear interest at the rate of 6% per annum, which will be
payable annually in arrears.
The maker of each note will have the option to satisfy amounts
outstanding under his note by surrendering to the Company for cancellation
either (i) shares of the Company's Common Stock (valued for the
11.
purpose at the closing market price on the date of transfer), or (ii) warrants
to purchase the Company's Common Stock (valued for this purpose at the fair
market value on the date of transfer as determined in good faith by the Board of
Directors of the Company). To the extent the maker of a note surrenders to the
Company shares of Common Stock in satisfaction of all or part of his note or
interest thereon, the executive will be granted a 10-year nontransferable option
(an incentive stock option to the extent permissible) to purchase the same
number of shares of Common Stock as are being surrendered, which would be
immediately exercisable at an exercise price equal to the value at which
Common Stock was surrendered to the Company in satisfaction of the note
obligation, subject to shareholder approval if required by law or stock exchange
rules.
If an executive is terminated by the Company for any reason other than for
"cause" at any time within the three-year term of his note (or in the case of
Donald C. Klosterman, if the stockholders fail to reelect him to the Board of
Directors), the balance of the note and any interest accrued thereon would be
canceled. "Cause" for this purpose is to be defined as personal dishonesty or
willful misconduct which materially and adversely affects the Company.
In December 1995 and again in January and March 1996, the Company loaned
certain directors and executive offices amounts necessary to enable them to
satisfy margin calls on their individual margin accounts in which they hold
Common Stock of the Company. The loans were made to Donald C. Klosterman, Alan.
P. Magerman, Patrick J. Downs and Ronald E. Hogan in the amounts of $187,400,
$82,000, $201,000 and $137,700, respectively. The loans are to be evidenced by
individual promissory notes of the directors and executive officers, which are
to be secured by a pledge of shares of Common Stock owned by the maker of the
note, and bear interest at the rate of 10% per annum. The principal amount of
and all accrued interest of the note are to be due and payable on December 31,
1996.
INDEMNITY AGREEMENTS
In order to initially retain Mr. Rozelle and Messrs. Hamlet and Lear (who
have resigned as directors) as directors, the Company entered into an indemnity
agreement with each of them. The indemnity agreement provides that the Company
will indemnify the director under certain circumstances in which such director
or the Company is named as a party to a legal proceeding. The Company believes
that the indemnity agreement is reasonable and fair, and in its best interests
to retain experienced outside directors.
REPURCHASE OF COMMON STOCK
Pursuant to its previously announced stock buy-back program, in January
1996, the Company purchased from Jon Van Caneghem in a privately negotiated
transaction 25,000 shares of the Company's Common Stock at a price of $4.3125
per share, which was the market price of the Common Stock at the time of the
transaction.
12.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedule, and Reports on
Form 8-K.
(a) The following documents are filed as a part of this report:
1,2. Consolidated Financial Statements and Schedule.
The consolidated financial statements and schedule of the Company and its
consolidated subsidiaries are set forth in the "Index to Consolidated Financial
Statements" on page F-0.
3. Exhibits. The following exhibits included herewith or incorporated herein
by reference are filed as a part of this report:
10.1 Certificate of Incorporation of the Company (1)
10.2 By-laws of the Company (2)
10.3 1985 Incentive Stock Option Plan, as amended (2)
10.4 VTV Entertainment UK Licensing Agreement (3)
10.5 Agreement with TWIN (4)
10.6* Form of Employment Agreements dated as of January 1, 1990 between the
Company and Patrick Downs, Daniel Downs, Gerald McLaughlin and Ronald
Hogan (4)
10.7* 1985 Nonqualified Stock Option Plan, as amended (4)
10.8 Lease of Executive Offices (4)
10.9 License Agreement with NTN Canada (4)
10.10 National Football League License Agreement (4)
10.11* Promissory Notes issued June 15, 1993 between the Company and
Patrick Downs, Daniel Downs, Donald Klosterman, Ronald Hogan and
Gerald McLaughlin Agreement and the Tax Indemnity and Loan dated June 6,
1993 (6)
10.12* Warrants dated January 15, 1993 issued by the Company in favor of
Patrick Downs, Daniel Downs, Mike Downs and the Oracle Group (6)
10.13 Registration Rights Agreement dated December 30, 1993 between the
Company and Jon Van Caneghem (5)
13.
10.14* Employment Agreement dated as of January 3, 1994 among the Company, New
World Computing, Inc. and Jon Van Caneghem (5)
10.15 Revolving Line of Credit Agreement between New World Computing, Inc.
and Merrill Lynch Business Financial Services, Inc. (7)
10.16 The Campus Limited Liability Company Agreement (7)
10.17 Lease of Office with The Campus L.L.C. (7)
10.18 Investment Agreement, dated as of December 31, 1995, among NTN
Communications, Inc., IWN, Inc. and Symphony Management Associates,
Inc., without exhibits
10.19 Third Amended and Restated Agreement of Limited Partnership of IWN,
L.P., dated as of Decmber 31, 1995.
10.20 First Amendment to the Third Amended and Restated Agreement of Limited
Partnership of IWN, L.P., dated as of March 11, 1996.
10.21 Stock Purchase Agreement, dated as of December 31, 1995, between NTN
Communications Inc., IWN, Inc. and Symphony Management Associates, Inc.
10.22 Stockholders Agreement, dated as of December 31, 1995, between NTN
Communications Inc., and Symphony Management Associates, Inc.
10.23 Registration Rights Agreement, dated as of December 31, 1995, between
NTN Communications Inc., and Symphony Management Associates, Inc.
10.24 Guaranty, dated as of December 31, 1995, from Symphony Management
Associates, Inc. in favor of IWN, Inc. and IWN, L.P.
10.25 Amended and Restated Technology and Trademark License Agreement, dated
as of December 31, 1995, between NTN Communication, Inc. and IWN, Inc.
10.26 Amended and Restated Technology and Trademark Sub-license Agreement,
dated as of December 31, 1995, between IWN, Inc. and IWN, L.P.
10.27 Worldwide Technology and Trademark Agreement, dated as of December 31,
1995, between IWN, Inc. and IWN, L.P.
10.28 Non-competition Agreement, dated as of December 31, 1995, between IWN,
Inc. and IWN, L.P.
14.
10.29 Non-competition Agreement, dated as of December 31, 1995, between IWN,
L.P. in favor of NTN Communications, Inc. and IWN, Inc.
10.30 Composite copy of Investment Agreements, dated as of April 24, 1995,
between NTN Communications, Inc. and the investors named therein
10.31 Composite copy of Investment Agreements, dated as of September 29,
1995, between NTN Communications, Inc. and the investors named therein
10.32 Composite copy of Investment Agreements, dated as of October 4, 1995
between NTN Communications, Inc. and the investors named therin.
10.33 Stock Purchase Agreement by and between NTN Communications, Inc. and
Associated Ventures Management, Inc., dated as of December 22, 1995
10.34 Non Recourse Secured Promissory Note issued by the Company to
Associated Ventures Management, Inc., dated December 22, 1995
10.35 Management Agreement between NTN Communications, Inc. and Associated
Ventures Management, Inc., dated December 22, 1995
10.36* Consulting Agreement dated March 31, 1995 between NTN Communications,
Inc. and Donald C. Klosterman.
23.00 Consent of KPMG Peat Marwick LLP, incorporated by reference.
27 Financial Data Schedule.
- ----------------------------
* Management Contract or Compensatory Plan.
(1) Previously filed as an exhibit to the Company's report on Form 10-Q for the
quarter ended June 30, 1991, and incorporated by reference.
(2) Previously filed as an exhibit to the Company's registration statement on
Form S-8, File No. 33-75732, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1989, and incorporated by reference.
(4) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1990, and incorporated by reference.
(5) Previously filed as an exhibit to the Company's report on Form 8-K dated
December 31, 1993, and incorporated by reference.
(6) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference.
15.
(7) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(b) Reports on Form 8-K.
None.
16.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to be signed on its behalf by
the undersigned, thereunto duly authorized.
NTN COMMUNICATIONS, INC.
April 29, 1996 By: /s/ RONALD E. HOGAN
____________________________________________
Ronald E. Hogan, Chief Financial Officer
17.