<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ]Confidential, for Use
[X] Definitive Proxy Statement of the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BLOWOUT ENTERTAINMENT, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
BLOWOUT ENTERTAINMENT, INC.
7700 NE AMBASSADOR PLACE
ONE AIRPORT CENTER, 2ND FLOOR
PORTLAND, OREGON 97220
April 3, 1998
DEAR STOCKHOLDER:
You are cordially invited to attend the annual meeting of stockholders of
BlowOut Entertainment, Inc. (the "Company") to be held at 7700 NE Ambassador
Place, Portland, Oregon, on Tuesday, May 5, 1998 at 8:00 a.m., Portland time
(the "Annual Meeting").
The Annual Meeting will be held for the following purposes: (i) to elect two
directors; and (ii) to ratify the appointment of Price Waterhouse, LLP as the
independent auditors of the Company for the current year.
Whether or not you plan to attend the Annual Meeting, please complete, sign and
date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the
accompanying Proxy Statement at any time before it has been voted at the Annual
Meeting. If you attend the Annual Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
The 1997 Annual Report to stockholders of the Company, including financial
statements, is furnished herewith.
Sincerely,
/s/ Steve Berns
STEVE BERNS
PRESIDENT
<PAGE>
BLOWOUT ENTERTAINMENT, INC.
7700 NE AMBASSADOR PLACE
ONE AIRPORT CENTER, 2ND FLOOR
PORTLAND, OREGON 97220
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1998
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of BlowOut
Entertainment, Inc. (the "Company") will be held at 7700 NE Ambassador Place,
Portland, Oregon, on Tuesday, May 5, 1998, at 8:00 a.m., Portland time (the
"Annual Meeting"), for the following purposes:
1. to elect two directors;
2. to ratify the appointment of Price Waterhouse, LLP as the independent
auditors for the Company for the current year; and
3. to transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 13, 1998 will be
entitled to notice of and to vote at the Annual Meeting.
By order of the Board of Directors,
THOMAS D. BERKOMPAS
SECRETARY
Portland, Oregon
April 3, 1998
PLEASE DATE, SIGN AND RETURN THE PROXY FOR THE COMPANY'S ANNUAL MEETING
PROMPTLY IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE>
BLOWOUT ENTERTAINMENT, INC.
7700 NE AMBASSADOR PLACE
ONE AIRPORT CENTER, 2ND FLOOR
PORTLAND, OREGON 97220
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 5, 1998
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of BlowOut Entertainment, Inc. (the
"Company") for use at the annual meeting of stockholders to be held on May 5,
1998 (the "Annual Meeting") and at any adjournment thereof. Only stockholders
of record at the close of business on March 13, 1998 will be entitled to notice
of and to vote at the Annual Meeting. The Company had outstanding 2,433,330
shares of common stock ("Common Stock") as of the close of business on
March 13, 1998. There are no other voting securities. Each stockholder is
entitled to one vote per share for the election of directors, as well as on
other matters. If the accompanying proxy form is signed and returned, the
shares represented by it will be voted; such shares will be voted in accordance
with the directions on the proxy form or, in the absence of direction as to any
proposal, they will be voted FOR such proposal; and it is intended that they
will be voted for the nominees named herein, except to the extent authority to
vote is withheld. The stockholder may revoke the proxy at any time prior to it
being voted by giving written notice of revocation to the Company, by executing
and duly delivering a subsequent proxy, or by attending the Annual Meeting and
voting in person.
In case any nominee named herein for election as a director is not available
when the election occurs, proxies in the accompanying form may be voted for a
substitute. The Company expects the nominees to be available and knows of no
matters to be brought before the meeting other than those referred to in the
accompanying Notice of Annual Meeting. If, however, any other matters properly
come before the meeting, it is intended that the proxies will be voted thereon
in accordance with the judgment of the persons voting such proxies.
The presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum. Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the
stockholders for a vote from which such stockholder abstained. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, although counted for purposes of
determining the presence of a quorum, such shares will not be considered as
present and entitled to vote with respect to that matter. The favorable vote
of the holders of a majority of the shares of Common Stock represented at the
meeting will be required to elect the directors to be elected, and to ratify
the appointment of the independent auditors.
In addition to the use of the mails, proxies may be solicited by directors,
officers, or regular employees of the Company in person, by telegraph, by
telephone or by other means. The cost of the proxy solicitation will be paid
by the Company.
This Proxy Statement and the form of proxy for use at the Annual Meeting are
first being mailed to stockholders of the Company on or about April 3, 1998.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 28, 1998 regarding
the beneficial ownership of Common Stock by each director, each executive
officer named in the Summary Compensation Table below, by all directors and
executive officers of the Company as a group, and by each person known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock.
<TABLE>
<CAPTION>
Name{(1)} NUMBER OF PERCENTAGE OWNERSHIP OF
SHARES OUTSTANDING
Beneficially Owned{(2)} Common Stock{(2)}
<S> <C> <C>
Steve Berns{(3)} 11,250 *
Thomas D. Berkompas{(4)} 5,000 *
Eugene F. Giaquinto{(4)} 3,750 *
Bill LeVine{(5)} 213,897 8.79%
Muneaki Masuda{(6)} 606,352 24.91%
Yoshinori Ogida{(7)} 605,102 24.9%
Seth A. Reames{(8)} 1,509 *
Rentrak Corporation 241,599 9.9%
All directors and
executive officers as a group
(8 persons){(9)} 847,577 34.5%
</TABLE>
________________________
* Less than 1%
(1) The business address of Bill LeVine is 10850 Wilshire Boulevard, Suite
800, Los Angeles, California 90024. The business address of Muneaki
Masuda and Yoshinori Ogida is Ebisu Garden Place, 21st Floor, Tokyo, 150
Japan. The business address of Rentrak Corporation is 7700 NE Ambassador
Place, Portland, Oregon 97220.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants exercisable within 60 days are deemed
outstanding for computing the percentage of the person or group holding
such options or warrants, but are not outstanding for computing the
percentage of any other person. Except as indicated in the footnotes to
this table and subject to the applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(3) This number includes 6,250 shares available under currently exercisable
options.
(4) This number represents shares available under currently exercisable
options.
(5) This number includes 212,647 shares owned by Mr. LeVine as well as 1,250
shares available under currently exercisable options.
(6) This number includes 605,102 shares which are held of record by Culture
Convenience Club Co., Ltd. ("CCC"), as well as 1,250 shares available to
Mr. Masuda under currently exercisable options. Mr. Masuda, as Chairman
and principal stockholder of CCC, is deemed to be the beneficial owner of
the shares of Common Stock owned by CCC.
(7) These shares are held of record by CCC. Mr. Ogida, as a Managing Director
of CCC, is deemed to be a beneficial owner of the shares of Common Stock
owned by CCC.
(8) This number includes 1,250 shares available under currently exercisable
options.
(9) This number includes currently exercisable options to purchase an
aggregate of 21,250 shares of Common Stock.
<PAGE>
BOARD OF DIRECTORS
MEMBERS AND NOMINEES FOR ELECTION
The Board of Directors of the Company consists of six members divided into
three equal classes serving staggered three-year terms. The term of office of
one class of directors expires each year in rotation so that one class is
elected at each annual meeting for a full three-year term. The term of two of
the present directors, Bill LeVine and Muneaki Masuda, will expire at this
Annual Meeting. Messrs. LeVine and Masuda have each been nominated for
election for a three-year term expiring at the annual meeting in 2001 or until
his respective successor has been elected and qualified. The terms of the
other four directors will continue as indicated below. Yoshinori Ogida was
elected as a director of the Company by the Board of Directors on February 23,
1998 to fill the newly created directorship position resulting from an increase
in the authorized number of directors pursuant to a resolution of the Board of
Directors passed at the meeting on February 23, 1998. The Company has allowed
its largest stockholder, Culture Convenience Club Co., Ltd. ("CCC"), to
designate two of the six members of the Company's Board of Directors. The
following table sets forth certain information regarding the directors of the
Company:
<TABLE> PRINCIPAL OCCUPATION;
<CAPTION> NAME OF ORGANIZATION IN
FIRST BECAME A WHICH OCCUPATION IS
DIRECTOR OF TERM AS CARRIED ON; OFFICES AND
NAME THE COMPANY DIRECTOR EXPIRES POSITION IF ANY, WITH THE
COMPANY; AND AGE
<S> <C> <C> <C>
Steve Berns 1996 1999 President of the Company;
Age 39
Eugene F. Giaquinto 1996 1999 Chairman of the Board of
Directors of the Company;
Chairman of the Board of
Directors of R&G
Communications; Age 56
Bill LeVine 1996 1998 President of LeVine
Enterprises, Inc.;
Age 77
Muneaki Masuda 1992 1998 President of DIRECTV Japan
and Chairman of Culture
Convenience Club Co.,
Ltd.; Age 47
Yoshinori Ogida 1998 2000 International Division
Manager of
Culture Convenience Club
Co., Ltd.;
Age 47
Seth A. Reames 1996 2000 President of SARJAM
Communications,
Ltd.; Age 32
</TABLE>
STEVE BERNS. Steve Berns has been president of the Company since its inception
in July 1992, and has been a director of the Company since March 21, 1996. Mr.
Berns was President of RKO Warner from 1986 to 1992, during which period RKO
Warner grew into the largest video retailer in the New York/New Jersey market
and one of the largest video retailers in the United States. From 1979 until
1986, Mr. Berns held various positions with Video Shack, becoming its executive
vice president of operations prior to its acquisition by RKO Warner. From 1990
to 1992, Mr. Berns also served as a member of the Board of Directors of the
Video Software Dealers Association.
<PAGE>
EUGENE F. GIAQUINTO. Eugene F. Giaquinto has served as a director of the
Company since March 1996 and as Chairman of the Board of Directors since
November 1996. Mr. Giaquinto is a founder, and has been Chairman of the Board,
of R&G Communications, a producer of independent films, since April 1989. From
1960 to 1989, Mr. Giaquinto served in various positions in finance, sales and
administration with MCA/Universal, including President of MCA Home
Entertainment. Mr. Giaquinto is a member of the Academy of Motion Picture Arts
& Sciences and a Commissioner for the Motion Picture Council.
BILL LEVINE. Bill LeVine has served as a director of the Company since March
1996. Mr. LeVine is the founder, and has been President, of LeVine
Enterprises, Inc., an investment firm, since its inception in January 1988.
Mr. LeVine is a past member of the Board of Directors of the International
Franchise Association. He is a director of Rentrak Corporation, Portland,
Oregon; First Business Bank, Los Angeles, California; B.C.T. Inc., Fort
Lauderdale, Florida; Fast Frame, Los Angeles, California; and California
Closet, Los Angeles, California.
MUNEAKI MASUDA. Muneaki Masuda has served as a director of the Company since
July 1992. Since November 1996, Mr. Masuda has been the President of DIRECTV
Japan. Mr. Masuda was the President of Culture Convenience Club Co., Ltd.
("CCC"), a Japanese corporation principally engaged in the video, music and
book retail business, from December 1988 to November 1996. He has been the
Chairman of CCC since November 1996. In 1990, Mr. Masuda founded Rentrak
Japan, a joint venture of CCC and Rentrak Corporation, of which he is the
Chairman of the Board. He is a director of Rentrak Corporation and GAGA
Communications (Japan).
YOSHINORI OGIDA. Yoshinori Ogida has served as a director of the Company since
February 1998. Mr. Ogida joined Culture Convenience Club Co., Ltd. in 1987 and
currently serves as International Division Manager for CCC. He is a Managing
Director on the board of directors of CCC.
SETH A. REAMES. Seth A. Reames has served as a director of the Company since
December 1996. Mr. Reames has been President of SARJAM Communications, Ltd., a
consulting company for the home entertainment industry and until recently a
translation agency, since 1989. SARJAM Communications, Ltd.'s primary clients
are DIRECTV Japan and CCC. From 1993 to 1995, Mr. Reames also served as the
Treasurer and a Board Member of the American Translators Association.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held meetings or acted by consent four
times during 1997. The Board has standing audit and compensation committees.
The Board does not have a nominating committee. Each of the directors
participated in at least 75% of the meetings of the Board and of the committees
of which he is a member.
AUDIT COMMITTEE. The Audit Committee, which consists of Bill LeVine and Eugene
F. Giaquinto, makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
for, and results of, the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees, reviews any recommendations made by the Company's auditors regarding the
Company's accounting methods and the adequacy of its system of internal control
and reviews any related party transactions. The Audit Committee did not hold
formal meetings independent of full Board meetings during 1997, but instead
conferred as a separate committee when necessary during the four full Board
meetings held in 1997.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of Bill
LeVine and Eugene F. Giaquinto, establishes general guidelines regarding the
compensation of the officers and executives of the
<PAGE>
Company, determines the compensation of the President and the other executive
officers of the Company, administers the Company's Amended and Restated 1996
Equity Participation Plan, the Employee Stock Purchase Plan and the Company's
bonus plans, and makes recommendations to the directors with respect to
the Company's compensation policies. The Compensation Committee did not hold
formal meetings independent of full Board meetings during 1997, but instead
conferred as a separate committee when necessary during the four full Board
meetings held in 1997.
COMPENSATION OF DIRECTORS
The Company has determined to pay its directors who are not officers of the
Company annual fees equal to $10,000 per annum of which $5,000 per year is to
be paid currently and $5,000 is to be deferred and not paid until the Company
has achieved profitability, as well as $500 per meeting (including telephonic
board meetings). In addition, pursuant to the Company's 1996 Amended and
Restated Equity Participation Plan, each director who is not an employee of the
Company will automatically receive an option to purchase 1,000 shares of the
Company's Common Stock on the date of each annual meeting of stockholders at
which he is elected. Each new non-employee member of the Board will receive an
option to purchase 5,000 shares of Common Stock upon his or her initial
election to the Board. No additional compensation is intended to be, or has
been, paid to such individuals in their capacity as directors. An aggregate of
$19,333 was paid to all non-employee directors in 1997. Non-employee directors
are also reimbursed for their out-of-pocket expenses associated with attending
Board and Committee meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information with respect to the
compensation of the President and Chief Executive Officer and the other most
highly compensated executive officer of the Company ("Named Executives") whose
individual total annual salary and bonus exceeded $100,000 during 1997, for
services in all capacities during 1995, 1996 and 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION{1} Long Term Compensation
<S> <C> <C> <C> <C> <C> <C>
SECURITIES ALL
NAME AND OTHER UNDERLYING OTHER
Principal Position Year Salary Bonus Compensation Stock Compensation
Options
Steve Berns 1997 $157,668 -- -- --
President 1996 150,000 100,000{3} -- 25,000 --
1995 131,625 5,000 -- -- --
Thomas D. Berkompas{2} 1997 $103,000{4} -- -- 20,000 --
Chief Financial
Officer
</TABLE>
(1) Annual compensation does not include the cost to the Company of certain
benefits. The aggregate amount of such benefits, as to any executive
officer, did not exceed $9,227 in fiscal 1997.
(2) Mr. Berkompas became an executive officer of the Company effective April
23, 1997.
(3) This bonus was paid to Mr. Berns under the terms of his Employment
Agreement in consideration for helping to effect the spin-off of the
Company from Rentrak Corporation.
(4) This amount represents Mr. Berkompas's annual base salary for 1997 had
he been employed by the Company for all twelve months of fiscal 1997.
Because Mr. Berkompas became an executive officer of the Company on
April 23, 1997, his actual salary for fiscal year 1997 was prorated from
such date.
<PAGE>
OPTION GRANTS IN FISCAL 1997
The following table sets forth certain summary information with respect to
options granted to the Named Executives during fiscal 1997, including the
number of shares of Common Stock underlying the options, the exercise price and
the estimated potential realizable values of the options. It should be noted
that the potential realizable values are not necessarily representative of the
future values of the options, but are included for illustration purposes.
OPTION/SAR GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
Individual Grants POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
Appreciation For
Option Term
<S> <C> <C> <C> <C> <C> <C>
Name PERCENT OF
TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS/SARS In Fiscal PRICE EXPIRATION
Granted(#) Year ($/Sh) Date 5% ($) 10% ($)
Thomas D. Berkompas 20,000 100% $1.6875 04/21/07 $12,585.23 $31,893.48
</TABLE>
EMPLOYMENT CONTRACTS
The Company has an employment agreement with Steve Berns (the "Berns
Agreement"), pursuant to which Mr. Berns serves as President of the Company
until October 31, 1999, or until otherwise terminated pursuant to the terms
thereof. During the term of the Berns Agreement, Mr. Berns is to receive a
base annual salary of $150,000 (the "Berns Base Salary"). The Berns Base
Salary adjusts automatically each October 1 to give effect to changes in the
Consumer Price Index. The Berns Agreement provides that the Company may pay
Mr. Berns a bonus or other additional compensation above the Berns Base Salary
at its discretion. A mandatory bonus of $100,000 was paid to Mr. Berns in
fiscal 1996 in connection with the spin-off of the Company from Rentrak
Corporation. Under the Berns Agreement, the Company provides Mr. Berns with
vacation and holiday pay, medical and life insurance under the Company's then-
current terms and a car allowance of $500 per month.
The Berns Agreement also requires the Company to pay Mr. Berns a severance
payment of an amount equal to the Berns Base Salary accrued through and
including the date of termination if Mr. Berns' employment is terminated due to
his death or disability. If, within two years after a Change of Control (as
defined in the Berns Agreement), termination is by the Company without cause or
by Mr. Berns for Good Reason (as defined in the Berns Agreement), the Company
shall pay Mr. Berns a lump sum payment in an amount equal to the greater of (i)
the Berns Base Salary through October 31, 1999 or (ii) twelve (12) months of
the annual Berns Base Salary. If termination is by the Company other than for
cause or death or disability of Mr. Berns, the Company will pay him an amount
equal to the Berns Base Salary through and including October 31, 1999 plus
severance payments in an amount equal to six months of the annual Berns Base
Salary, subject to demonstration by Mr. Berns that he is using his best efforts
to find other employment. The Agreement also contains a nonsolicitation
covenant and agreement not to disclose confidential information. On October
26, 1995, Mr. Berns and the Company entered into a non-competition agreement,
which was subsequently amended on December 12, 1995. Under such agreement,
during the period of his employment with the Company, and for 24 months
thereafter, Mr. Berns will not engage in any business involving video store
departments which are inside either mass market or grocery retailers anywhere
in the United States or other geographical area where the Company conducts its
business or sells or distributes its products or services.
The Company has an employment agreement, effective April 23, 1997, with Thomas
D. Berkompas, pursuant to which Mr. Berkompas serves as Chief Financial Officer
of the Company until April 30, 1999
<PAGE>
or until otherwise terminated pursuant to the terms thereof
(the "Berkompas Agreement"). During the term of the Berkompas Agreement,
Mr. Berkompas is to receive a base annual salary of $103,000
(the "Berkompas Base Salary"). The Berkompas Base Salary adjusts
automatically each May 1 to give effect to changes in the Consumer Price Index.
The Berkompas Agreement further provides that Mr. Berkompas will participate in
any bonus plan adopted by the Company, including any cash bonus pools
established by the Company from time to time for its corporate executives. The
Berkompas Agreement also requires the Company to pay Mr. Berkompas a severance
payment of an amount equal to the Berkompas Base Salary accrued through and
including the date of termination if Mr. Berkompas's employment is terminated
due to his death or disability. If, within two years after a Change of Control
(as defined in the Berkompas Agreement), termination is by the Company without
cause or by Mr. Berkompas for Good Reason (as defined in the Berkompas
Agreement), the Company shall pay Mr. Berkompas a lump sum payment in an amount
equal to the greater of (i) the Berkompas Base Salary through April 30, 1999 or
(ii) six months of the annual Berkompas Base Salary. If termination is by the
Company other than for cause or Mr. Berkompas's death or disability, the
Company will pay him severance payments in an amount equal to six months of the
annual Berkompas Base Salary, subject to the demonstration by Mr. Berkompas
that he is using his best efforts to find other employment. Mr. Berkompas and
the Company have also entered into a non-competition agreement pursuant to
which during the period of his employment with the Company, and for 24 months
thereafter, Mr. Berkompas will not engage in any business involving video store
departments which are inside either mass market or grocery retailers anywhere
in the United States or other geographical area where the Company conducts its
business or sells or distributes its products or services.
INDEMNITY AGREEMENTS
The Company and each present director and officer of the Company have executed
an indemnity agreement (collectively, the "Indemnity Agreements"). The Board
of Directors of the Company and Rentrak, as the sole stockholder of the Company
at the time the Indemnity Agreements were executed and delivered, approved the
form of such Indemnity Agreements. In general, the Indemnity Agreements seek
to afford such directors and officers the maximum indemnification protection
allowed under Delaware law. The Company intends to enter into similar
Indemnity Agreements with all of its future directors and officers.
The Indemnity Agreements cover acts or omissions that occurred prior to the
Company's execution and delivery of the Indemnity Agreements. There is no
recent, pending or, to the best knowledge of the Company, threatened litigation
involving any director or officer of the Company, where indemnification under
the Indemnity Agreement would be required or permitted.
1996 EQUITY PARTICIPATION PLAN
Under the Company's Amended and Restated 1996 Equity Participation Plan (the
"1996 Equity Participation Plan"), the Company may grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and nonstatutory stock options to key employees, officers and
consultants to allow them to participate in the ownership and growth of the
Company. The Compensation Committee of the Company's Board has discretion,
within the limits of the 1996 Equity Participation Plan, to designate
recipients, amounts, exercise prices and other terms and conditions of the
stock options to key employees (including employees who may also be officers
and directors of the Company), officers and consultants of the Company. The
1996 Equity Participation Plan also provides for automatic grants of options
for predetermined numbers of shares of Common Stock to non-employee directors
of the Company. Upon the occurrence of a change of control or certain
corporate transactions, any option granted under the 1996 Equity Participation
Plan to non-employee directors shall become fully exercisable and vested,
subject to certain conditions, including compliance with Section 16(b) of the
Exchange Act, if applicable, while the Compensation Committee will have the
discretion to accelerate
<PAGE>
vesting or take other action with respect to all other options
granted under the 1996 Equity Participation Plan. A total of up to
500,000 shares of the Company's Common Stock are reserved for issuance under
the 1996 Equity Participation Plan. Furthermore, the maximum number of shares
which may be subject to options granted under the 1996 Equity Participation
Plan to any individual in any fiscal year cannot exceed 150,000.
On April 22, 1997, an option to purchase 20,000 shares of the Company's Common
Stock was granted to the Chief Financial Officer of the Company at an exercise
price of $1.6875 per share. This option, which is to vest in four equal annual
installments, was granted by the Compensation Committee to align the interest
of senior management with the interest of the Company's stockholders. The
option is a nonstatutory stock option, and the optionholder will recognize
income on the difference between the fair market value of the shares subject to
the options and the exercise price of the options.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan")
which authorizes up to 200,000 shares of Common Stock to be issued to its full-
time employees and directors. Under the terms of the Stock Purchase Plan,
employees can choose each year to have up to 10% of their annual total
compensation withheld to purchase the Company's Common Stock. The purchase
price of the stock is 85% of the prevailing market price. The Company
purchases stock on the open market to contribute to the Stock Purchase Plan.
During 1997, the Company purchased 10,650 shares and recorded related expenses
of $2,200.
REPORT OF COMPENSATION COMMITTEE OF BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
is comprised of Bill LeVine and Eugene F. Giaquinto, both of whom are non-
employee directors of the Company. The Compensation Committee establishes
policies relating to the compensation of executive officers, acts upon the
President's recommendations on compensation to other executive officers, and
oversees, in part, the administration of the 1996 Equity Participation Plan and
the Stock Purchase Plan.
The goal of the Company's compensation policy is to ensure that executive
compensation is related to and supports the Company's overall objectives of
achieving profitability and enhancing stockholder's value. To achieve these
goals, the following objectives have been adopted by the Compensation Committee
as guidelines for compensation decisions:
- Provide a competitive compensation package that enables the Company
to attract and retain experienced and qualified talent;
- Relate compensation to past and anticipated individual and Company
performance; and
- Align the interests of executives with the long-term interests of
stockholders by encouraging executive stock ownership.
The Company believes that the above objectives are obtained by combining cash
and equity based compensation and by providing that a significant portion of
management's compensation be tied to the performance of the Company. For
fiscal 1997, the Company's compensation program consisted of the following
components: (i) base salary and (ii) stock option grants under the Company's
1996 Equity Participation Plan.
<PAGE>
BASE SALARY
The 1997 base salaries of the Company's executive officers were established by
the terms of negotiated employments agreements executed (and amended) by the
Company. Employment Agreements with Steve Berns, President and Chief Executive
Officer, and Harold Heyer, Vice President of Operations, were substantially
negotiated in 1996 by Rentrak Corporation ("Rentrak"), the Company's former
parent, on behalf of the Company. The 1997 base salary of Steve Berns, as set
forth in his employment agreement, was determined through negotiation and gave
consideration to base salaries at comparable companies in 1996, as well as Mr.
Berns' performance as President in fiscal 1996. During the term of his
employment agreement, Mr. Berns' base salary adjusts automatically each October
to give effect to changes in the Consumer Price Index. Thomas D. Berkompas'
employment agreement was entered into as a condition to Mr. Berkompas'
employment with the Company as its Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary. The 1997 base salary of Mr. Berkompas, as
set forth in his employment agreement, was determined through negotiation and
gave consideration to base salaries at comparable companies. The 1997 base
salary of Harold Heyer, as set forth in his employment agreement, was
determined through negotiation and gave consideration to base salaries at
comparable companies, including Mr. Heyer's salary at SuperCenter Entertainment
Corporation ("SCE"), a company which Rentrak purchased in 1995 and consolidated
with the Company in 1996, as well as Mr. Heyer's past performance at SCE.
ANNUAL BONUS
The employment agreements for Messrs. Berns, Berkompas and Heyer all provide
for discretionary annual bonuses to be determined by the Compensation Committee
based on individual and Company performance. While the Compensation Committee
noted the significant improvements made by the Company in terms of financial
results and operations in 1997, because of the Company's tight cash and
liquidity position, the Compensation Committee determined not to award bonuses
to senior management.
STOCK OPTIONS
Pursuant to the terms of the 1996 Equity Participation Plan, the Compensation
Committee has discretion to grant the executive officers, as well as other key
employees and consultants, stock options which would allow such persons to
participate in the ownership and growth of the Company. In fiscal 1997, the
Compensation Committee determined not to grant options to senior management
other than to Thomas Berkompas in connection with his employment as Vice
President of Finance, Chief Financial Officer, Treasurer and Secretary. The
stock options were granted as equity-based compensation to further align the
interests of the executive officer with the interests of the Company's
stockholders.
Respectfully submitted,
Eugene F. Giaquinto
Bill LeVine
MEMBERS OF THE COMPENSATION COMMITTEE
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph compares the percentage change from November
19, 1996, the date the Company's Common Stock first traded on a when-issued
basis, to December 31, 1997 and the Company's cumulative total stockholder
return on its Common Stock with the cumulative total returns of the Nasdaq
Stock Market Index (the "Nasdaq Index") and a selected peer group of companies
<PAGE>
consisting of Hollywood Entertainment, MOOVIES, Inc. Movie Galley Inc., Video
Update Inc. and West Coast Entertainment, Inc. (the "New Peer Group Index").
The New Peer Group Index includes the addition of West Coast Entertainment,
Inc. ("West Coast") to the peer group index used in 1997 (the "Old Peer Group
Index"). West Coast was added to the New Peer Group Index to make the peer
group index more representative of the industry. The comparison assumes $100
investments on November 19, 1996 in the Common Stock, the Nasdaq Index, the New
Peer Group Index and the Old Peer Group Index, and further assumes reinvestment
of dividends.
[GRAPH APPEARS HERE WITH PLOT POINTS]
COMPANY NOVEMBER 19, 1996 DECEMBER 31, 1996 DECEMBER 31, 1997
BlowOut 100.00 40.63 16.25
New Peer Group Index 100.00 94.80 42.62
Nasdaq Index 100.00 99.77 122.04
Old Peer Group Index 100.00 96.98 46.65
On December 31, 1997 and March 13, 1998, the last sale prices of the Common
Stock, as quoted by the Nasdaq Stock Market, were $0.81 and $1.34 per share,
respectively.
RELATED PARTY TRANSACTIONS
Prior to November 25, 1996, Rentrak owned approximately 1,698,942 shares
(approximately 70%) of the issued and outstanding Common Stock of the Company.
On November 25, 1996, pursuant to the terms of a Distribution Agreement between
Rentrak and the Company, Rentrak effected the distribution of 1,457,343 shares
<PAGE>
of the Company's Common Stock to the holders of Rentrak common stock in the
form of a special dividend (the "Distribution"). Since the Distribution,
Rentrak has continued to own approximately 9.9% of the Common Stock. Mr. Bill
LeVine, a director of each of Rentrak and the Company, owns approximately 8.7%
of the Common Stock. Culture Convenience Club Co., Ltd. ("CCC"), a corporation
controlled by Mr. Muneaki Masuda, a director of each of Rentrak and the
Company, currently owns approximately 24.9% of the Common Stock. As discussed
below, CCC has the right to convert $484,167 of a recently issued $1.5 million
convertible note to 484,167 shares (19.9%) of the Common Stock of the Company.
The following are summaries of the material terms of agreements and
transactions between the Company and certain of its directors and principal
stockholders. Due to the former relationship between Rentrak and the Company,
the terms on which certain services have been provided to the Company by
Rentrak or its affiliates have not been necessarily determined by arm's-length
negotiations; however, the Company believes that each of the agreements and
transactions set forth below are substantially similar to those that could be
negotiated with unaffiliated third parties.
PPT AGREEMENT
The Company currently is participating in the "pay per transaction" system (the
"PPT System") under an agreement with Rentrak dated March 15, 1996 (the "PPT
Agreement"). The Company has been a participant in Rentrak's PPT System since
January 1993. Under the PPT System, participating video retailers
("Retailers") lease to consumers videocassettes which, in turn, are leased to
the Retailer by Rentrak for a one-time fee plus a percentage of the revenues
generated by the Retailer from rental or sales of the videocassettes to
consumers. The Company, as a Retailer, incurred fees and costs of
approximately $2.6 million to Rentrak in connection with the PPT System for the
year ended December 31, 1997.
The PPT Agreement provides that Rentrak is the exclusive supplier to the
Company of product that the Company obtains on a revenue-sharing basis.
Rentrak has a right of first refusal on any non-videocassette merchandise that
the Company proposes to obtain from another supplier. Moreover, the Company is
obligated to purchase enough merchandise from Rentrak that the fees payable by
the Company under the PPT Agreement are at least 11% of the Company's annual
gross retail rental revenues. The Company must pay any deficiency plus a
percentage of such deficiency as a penalty. Rentrak may terminate the PPT
Agreement at any time upon notice to the Company. The Company may terminate
the PPT Agreement upon a breach by Rentrak and failure to cure within 30 days
after receipt of written notice. The PPT Agreement has a term of 20 years
beginning in March 1996. Under the PPT Agreement, the Company's stores install
and/or maintain Rentrak software to be able to participate in the PPT System.
The Company believes the terms of the PPT Agreement are substantially similar
to Rentrak's PPT arrangements with other retail video stores in which Rentrak
has made sizable investments.
LICENSE AGREEMENT
The Company currently operates most of its stores under the name "BlowOut
Video" pursuant to a license arrangement with Rentrak. The Company and Rentrak
entered into a new license agreement ("License") for the name "BlowOut Video"
on March 15, 1996, which was subsequently amended on June 25, 1996. Rentrak
granted the Company a 20-year nonexclusive, nontransferable license to use the
name "BlowOut Video" for a royalty of 1.667% of aggregate net revenues from all
of the Company's stores, but not to exceed 20% of the Company's pre-tax net
income through March 31, 2001; thereafter, the royalty would be an amount equal
to the greater of (i) 1.667% of such aggregate net revenues, but not to exceed
20% of the Company's pre-tax net income, or (ii) one percent of the aggregate
net revenues from all of the Company's stores without regard to such pre-tax
net income. If such royalties fail to meet specified levels during the first
five years of the term of the License, Rentrak, at its sole option, could
terminate
<PAGE>
the License. Rentrak currently uses and intends to continue using
the name "BlowOut Video" in connection with a separate videocassette resale
business that it operates through wholly owned subsidiaries. Rentrak currently
operates three videocassette retail outlets solely to dispose of used
videocassettes returned to Rentrak by its customers. These outlets are located
in New York, New York; Pittsburgh, Pennsylvania; and Orlando, Florida. None of
such outlets is located within a department, grocery or other chain store and
the Company does not operate a store in any of these locations. No royalty has
accrued or is payable through December 31, 1997 under this License Agreement.
SUBLEASES
The Company subleases from Rentrak office space in Rentrak's headquarters. The
office lease has a 10-year term at a rent of approximately $7,100 per month for
the first five years, and approximately $7,650 per month for the last five
years. The Board of Directors believes the rental terms are competitive with
those in the Portland, Oregon rental market.
The Company during 1997 sublet, and currently sublets, approximately 12,800
square feet of warehouse space at Rentrak's Wilmington, Ohio warehouse for
approximately $4,000 per month on a month-to-month basis. Total rent payments
made by the Company to Rentrak for office and warehouse space in 1997 were
approximately $133,000.
RENTRAK INDEBTEDNESS
At January 1, 1997, the Company was indebted to Rentrak for transactions that
pre-dated the spin-off (November 19, 1996) in the amount of approximately $3.01
million, with accrued interest thereon (at 9% per annum) of approximately
$253,575. An additional $270,900 of interest accrued on this indebtedness
during 1997.
During the first quarter of 1997, the Company and Rentrak agreed that payables
due Rentrak arising from the Company's use of the PPT System during the first
six months of 1997 would be deferred until January 1998 and repayable, without
interest, in 12 equal monthly installments. A total of approximately $2.1
million of deferred PPT System fees accumulated over this period of time and
were evidenced by a note payable to Rentrak. As discussed below, the maturity
dates of the notes payable to Rentrak were extended to December 2004.
REGISTRATION RIGHTS
Rentrak, CCC and Mr. LeVine have been granted rights to demand registration of
the shares of Common Stock owned by them. Mr. LeVine and CCC have advised the
Company that they will be exercising their rights to register their shares of
Common Stock.
RENTRAK GUARANTEE
On June 26, 1996, the Company entered into an agreement with Rentrak pursuant
to which Rentrak, on the terms and subject to the conditions contained in such
agreement, will guarantee up to $12.0 million in indebtedness of the Company
("Rentrak Guarantee"). The Rentrak Board authorized Rentrak to guarantee $7.0
million under the Rentrak Guarantee. The obligation of Rentrak to issue such
guarantee is subject to a number of conditions such as being current on all
monetary obligations owed to Rentrak and being in compliance with all
agreements between Rentrak and the Company. Rentrak terminated the Rentrak
Guarantee on October 31, 1997, two months before its scheduled expiration date.
The Company has also agreed that, (i) as long as any Rentrak Guarantee is
outstanding and for 24 months thereafter, the Company will not convey any of
its stores to a third party unless such third party agrees to assume and be
bound by the PPT Agreement and the License Agreement, and (ii) as long as any
Rentrak
<PAGE>
Guarantee is outstanding, the Company will pay all amounts received
from a sale or closure of a store either to: (a) finance new Company stores or
(b) to pay down indebtedness subject to the Rentrak Guarantee. As long as any
Rentrak Guarantee is outstanding, the Company shall pay Rentrak a weekly fee at
a rate equal to .02% per week of then-currently outstanding indebtedness
subject to a Rentrak Guarantee. A total of $50,684 was paid by the Company to
Rentrak during 1997 for the Rentrak Guarantee.
Rentrak has agreed to guarantee amounts outstanding under a credit facility
(the "Phoenix Facility") from Phoenix Leasing Incorporated and a line of credit
from Coast Business Credit ("CBC") up to an aggregate of $7.0 million. Rentrak
has agreed, under certain circumstances in the event of a default under the
credit facility with CBC, to repurchase BlowOut's videocassette inventory in an
amount not to exceed the lesser of the amount owed under the CBC facility or
$5.0 million. During 1997, Rentrak also guaranteed certain trade payables of
the Company and amounts owed under promissory notes to certain of the Company's
suppliers. At December 31, 1997, the total amount of obligations of the
Company subject to the Rentrak Guarantee was approximately $4.8 million. Under
the Tri-Party Agreement (as defined below), the Company agreed to limit its
borrowings under the CBC facility to $4.0 million.
TRI-PARTY AGREEMENT; CCC LOAN
On February 22, 1998, the Company, CCC and Rentrak signed an agreement (the
"Tri-Party Agreement") under which CCC agreed to provide the Company with $1.5
million to fund projected 1998 expansion plans and additional working capital.
The new financing accrues interest at 7% per annum and the principal plus
accrued interest is payable over a 60 month term beginning in January 2000. Up
to $484,167 of the loan may be converted into shares of Common Stock at $1.00
per share, the bid price on the Nasdaq Stock Market at the time of the signing
of the Tri-Party Agreement. Under the terms of the Tri-Party Agreement,
Rentrak agreed to defer the principal and interest payments on its $3.01
million and $2.1 million notes until December 31, 2004 during which deferment
period no interest accrues. Rentrak also agreed to the forgiveness of all or a
portion of the Rentrak notes as the Company lowers Rentrak's contingent
obligations under its guarantee of the Phoenix Facility and CBC facility. The
Company has agreed not to draw down in excess of $4.0 million under the CBC
facility, which limitation, when combined with the reduction in Rentrak's
contingent liability under the Phoenix Facility due to principal payments made
to date by the Company, under the terms of the Tri-Party Agreement, triggered
the immediate forgiveness of $1,044,487 in Rentrak debt.
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE, LLP
On December 18, 1996, the Company dismissed its independent accountants, Arthur
Andersen LLP ("Arthur Andersen") upon the recommendation of the Company's Audit
Committee. The decision to change accountants was made to ensure independence,
both in appearance and in fact, from Rentrak, whose independent accountants are
Arthur Andersen.
Arthur Andersen's reports on the financial statements of the Company or Rentrak
for the last two years did not contain adverse opinions or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Arthur Andersen on any
matters of accounting principles or practices, financial statement disclosure
or auditing scope or procedure during Rentrak's and the Company's two most
recent fiscal years and any subsequent interim period preceding the dismissal.
The Audit Committee of the Board of Directors recommended, the Board approved,
and the stockholders ratified at the 1997 annual meeting, the appointment of
Price Waterhouse, LLP as the Company's new accountants and independent auditors
effective December 18, 1996.
<PAGE>
The Audit Committee of the Board of Directors has recommended, and the Board
has approved, the appointment of Price Waterhouse, LLP as the Company's
accountants and independent auditors for fiscal year 1998, subject to
stockholder ratification at the Annual Meeting. If such appointment is not
ratified, the Board of Directors will appoint another firm as the Company's
accountants and independent auditors for the year ending December 31, 1998.
Representatives of Price Waterhouse, LLP are expected to be present at the
Annual Meeting and will be available to respond to questions and may make a
statement if they so desire.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the annual meeting of
stockholders in 1999 must be received by the Company by December 4, 1998 in
order to be eligible for inclusion in the proxy statement and proxy form
relating to such meeting. In addition, pursuant to the Company's By-Laws, for
nominations or other business to be properly brought before the 1999 annual
meeting of stockholders by a stockholder, the stockholder must give the notice
required by the By-Laws no earlier than February 4, 1999 and no later than
March 6, 1999.
IMPORTANT
All stockholders are cordially invited to attend the Annual Meeting in person.
If you cannot be present at the Annual Meeting, please sign and date the
enclosed Proxy and mail it PROMPTLY in the enclosed self-addressed envelope.
No postage need be affixed if mailed in the United States.
<PAGE>
APPENDIX A
PROXY
BLOWOUT ENTERTAINMENT, INC.
7700 NE Ambassador Place, One Airport Center, 2nd Floor
Portland, Oregon 97220
The undersigned hereby appoints Steve Berns and Thomas D. Berkompas, and
each of them, proxies, with power of substitution and revocation, acting by
unanimous consent of those present and voting, or if only one is present and
voting then that one, to vote the shares of stock of BLOWOUT ENTERTAINMENT,
INC., which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held at 7700 NE Ambassador Place, Portland, Oregon, on May
5, 1998 at 8:00 a.m., Portland time, and at any adjournment thereof, with all
the powers the undersigned would possess if present.
1. The election of two (2) directors.
Nominees: Bill LeVine and Muneaki Masuda
TO WITHHOLD AUTHORITY TO VOTE FOR A NOMINEE, PLACE A LINE THROUGH OR
OTHERWISE STRIKE OUT THE NAME OF THE NOMINEE.
2. To ratify the appointment of Price Waterhouse, LLP as the independent
auditors for the Company for the current year.
[] For [] Against [] Abstain
3. To transact such other business as may properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON THE
REVERSE SIDE)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BLOWOUT
ENTERTAINMENT, INC.
PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
SEE REVERSE SIDE
<PAGE>
BLOWOUT ENTERTAINMENT, INC.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS INSTRUCTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL
BE VOTED FOR THE NOMINEES LISTED UNDER ITEM 1 AND FOR ITEM 2, AND AT THE
DISCRETION OF THE HOLDERS WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY
PROPERLY COME BEFORE THE MEETING.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such shares at said meeting or at any adjournment thereof.
Signature
Date:
Signature
Date:
Please sign exactly as name appears on this Proxy. 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 an authorized officer.
If a partnership, please sign in partnership name by an authorized person.
