<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
------------------------
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
------------------------
BIG FLOWER HOLDINGS, 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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction 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:
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<PAGE>
BIG FLOWER HOLDINGS, INC.
NOTICE OF ANNUAL
MEETING OF
STOCKHOLDERS AND
PROXY STATEMENT
PLEASE COMPLETE, SIGN, DATE AND RETURN
WITH YOUR PROXY PROMPTLY
[LOGO]
TUESDAY, JUNE 29, 1999
AT 9:00 A.M.
THE PENINSULA NEW YORK
700 FIFTH AVENUE (AT 55(TH) STREET)
NEW YORK, NEW YORK
<PAGE>
[LOGO]
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
May 27, 1999
Dear Stockholder:
It is our pleasure to invite you to join us at the 1999 Annual Meeting of
Stockholders of Big Flower Holdings, Inc. which will be held at 9:00 a.m., on
Tuesday, June 29, 1999, in La Grande Salle located on the third floor of The
Peninsula New York, 700 Fifth Avenue (at 55(th) Street), New York, New York.
We will report to you at the meeting on the Company's current operations and
outlook. The meeting will also include a question and discussion period. The
Board of Directors and management hope that you will be able to attend in
person.
At the meeting, you will be asked to consider and vote on the election of
two (2) directors and the ratification of the appointment of Deloitte & Touche
LLP as the Company's independent certified public accountants. The Board of
Directors has unanimously approved the proposals and recommends that you vote
FOR each of them. Please give this proxy material your careful attention, as the
discussion is important to your decisions on the matters being presented.
The formal Notice of Annual Meeting and the Proxy Statement follow. It is
important that your shares be represented and voted, regardless of the size of
your holdings. Accordingly, whether or not you plan to attend the meeting in
person, please mark, sign, date and return the enclosed proxy. Our Annual Report
(including our Annual Report on Form 10-K for the fiscal year ended December 31,
1998) also accompanies these proxy materials.
<TABLE>
<S> <C>
Sincerely,
/s/ R. Theodore Ammon /s/ Edward T. Reilly
R. Theodore Ammon Edward T. Reilly
Chairman of the Board President and
Chief Executive Officer
</TABLE>
<PAGE>
[LOGO]
BIG FLOWER HOLDINGS, INC.
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, JUNE 29, 1999
------------------------
The 1999 Annual Meeting of Stockholders of Big Flower Holdings, Inc. (the
"Company") will be held on Tuesday, June 29, 1999, at 9:00 a.m., local time, in
La Grande Salle located on the third floor of The Peninsula New York, 700 Fifth
Avenue (at 55(th) Street), New York, New York, for the following purposes:
(1) To elect two (2) directors to hold office as specified in the
accompanying Proxy Statement;
(2) To ratify the appointment of Deloitte & Touche LLP as the Company's
independent certified accountants; and
(3) To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.
Stockholders entitled to vote at the meeting or any adjournment or
postponement thereof are holders of record of the Company's Common Stock at the
close of business on May 14, 1999.
By order of the Board of Directors
/s/ Mark A. Angelson
Mark A. Angelson
EXECUTIVE VICE PRESIDENT--OFFICE OF
THE CHAIRMAN,
GENERAL COUNSEL AND
SECRETARY OF THE BOARD OF DIRECTORS
May 27, 1999
YOUR VOTE IS IMPORTANT! STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY
NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
GENERAL
The accompanying proxy is solicited by the Board of Directors (the "Board of
Directors" or the "Board") of Big Flower Holdings, Inc. (the "Company" or "Big
Flower") in connection with the 1999 Annual Meeting of Stockholders of the
Company (the "Meeting") to be held on Tuesday, June 29, 1999, at 9:00 a.m.,
local time, in La Grande Salle located on the third floor of The Peninsula New
York, 700 Fifth Avenue (at 55(th) Street), New York, New York, and at any
adjournment(s) or postponement(s) of the Meeting. This Proxy Statement and a
proxy are first being mailed to the stockholders of the Company on or about May
27, 1999. The mailing address of the Company's principal executive office is 3
East 54th Street, New York, New York 10022.
When a proxy is returned properly dated and signed, the shares represented
thereby will be voted by the persons named therein as proxies in accordance with
directions specified on the proxy. Stockholders may specify their choices by
marking the appropriate boxes on the enclosed proxy. If a proxy is dated, signed
and returned without specifying choices, the shares will be voted as recommended
by the Board of Directors FOR the election of each of the two nominees for
directors named below, and FOR the ratification of the appointment of Deloitte &
Touche LLP as the Company's independent certified accountants for the year ended
December 31, 1998 ("Proposal (2)"). The Company does not have cumulative voting
in the election of directors. Under the Company's Amended and Restated By-Laws
(the "By-Laws"), business transacted at the Meeting is confined to the purposes
stated in the Notice of the Meeting. The proxy being solicited does, however,
convey authority to the persons named therein as proxies to vote in their
discretion on other business which may properly be brought before the Meeting.
The proxy may be revoked by the stockholder at any time before it is voted by
giving notice of such revocation either personally or in writing to the
Secretary of the Board of Directors of the Company.
VOTING SECURITIES
All holders of record of the Company's common stock, par value $0.01 per
share (the "Common Stock"), at the close of business on May 14, 1999 are
entitled to vote on all business to be conducted at the Meeting. At the close of
business on that day, the Company had 19,697,128 shares of Common Stock
outstanding and entitled to vote at the Meeting. Each share of Common Stock
entitles the holder to one vote. The presence, in person or by proxy, of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast shall constitute a quorum.
Under the General Corporation Law of the State of Delaware, the state in
which the Company is incorporated, and the Company's By-Laws, if a quorum is
present at the Meeting, the affirmative vote of a plurality of the votes cast is
required for the election of directors. The affirmative vote of a majority of
the voting power present (in person or by proxy) and entitled to vote at the
Meeting is required for approval of Proposal (2). In accordance with Delaware
law, broker "non-votes" and the shares as to which a stockholder abstains are
included as being present at the Meeting.
1
<PAGE>
PROPOSAL 1.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The directors of the Company are divided into three classes, designated
Class I, Class II and Class III. Each class consists, as nearly as possible, of
one-third of the total number of directors constituting the entire Board of
Directors. Currently, the Class I directors are Messrs. Kimmitt and Minow; the
Class II directors are Ms. Manley and Mr. Diamandis; and the Class III directors
are Messrs. Ammon and Reilly. For certain information regarding the Class II and
Class III directors of the Company, see "Directors and Executive Officers"
below. The Class I directors were reelected at the 1996 Annual Meeting of
Stockholders to hold office until the date of the Meeting; the Class II
directors were reelected at the 1997 Annual Meeting of Stockholders to hold
office until the date of the 2000 Annual Meeting of Stockholders; and the Class
III directors were reelected at the 1998 Annual Meeting of Stockholders to hold
office until the date of the 2001 Annual Meeting of Stockholders and, in each
case, until a successor is elected and qualified and subject to a director's
prior death, resignation, retirement, disqualification or removal.
It is recommended that Messrs. Kimmitt and Minow be elected as Class I
directors of the Company, to hold office until the 2002 Annual Meeting of
Stockholders, and in each case until a successor is elected and qualified or
until such director's prior death, resignation, retirement, disqualification or
removal. Both nominees are presently serving as directors of the Company. Class
I directors were classified as such at a meeting of the Board of Directors held
on November 10, 1995. The Company is unaware of any reason why either nominee
would be unwilling or unable to serve as a director. However, should either
nominee be unwilling or unable to serve as a director at the time of the Meeting
or any adjournment or postponement thereof, the persons named in the proxy will
vote for the election of such other person for such directorship as the Board of
Directors may recommend.
Certain information regarding each person nominated by the Board of
Directors, including such nominee's principal occupation during the past five
years and current directorships, is set forth below. Unless otherwise indicated,
the nominees have had the indicated principal occupations for the past five
years.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS AND OTHER INFORMATION
- -------------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Robert M. Kimmitt 51 Robert M. Kimmitt has been a Director of the Company since its inception. He was
also a director of Big Flower Press Holdings, Inc., a wholly-owned subsidiary of
the Company ("Big Flower Press") from November 1996 until December 1997. Since
May 1997, he has been a partner in the law firm of Wilmer, Cutler & Pickering.
From 1993 to April 1997, Mr. Kimmitt was a managing director of Lehman Brothers
and head of its Washington corporate finance office. Prior to joining Lehman
Brothers, Mr. Kimmitt served from 1991 to 1993 as American Ambassador to
Germany, and from 1989 to 1991 as Under Secretary of State for Political
Affairs. He was a partner in the Washington office of Sidley & Austin from 1987
to 1989. Mr. Kimmitt served as a member of the National Security Council staff
at the White House from 1978 to 1985 and General Counsel of the Department of
the Treasury from 1985 to 1987. Mr. Kimmitt serves on the boards of Allianz Life
Insurance Company of North America and United Defense Industries, Inc., as well
as on the supervisory boards of Mannesmann AG of Duesseldorf, Germany, and
Siemens AG of Munich, Germany, and on the U.S. Group Council of BMW AG of
Munich, Germany. He is also on the Boards of Georgetown University, the German
Marshall Fund, and several other non-profit organizations whose focus is
international affairs.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS AND OTHER INFORMATION
- -------------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Newton N. Minow 73 Newton N. Minow has been a Director of the Company since its inception. He was
also a director of Big Flower Press from September 1996 until December 1997.
Since 1991, Mr. Minow has been counsel to the law firm of Sidley & Austin, where
he served as Partner from 1965 to 1991. He also served as Chairman of the
Federal Communications Commission from 1961 to 1963. He is a director of Aon
Corporation and Manpower, Inc. Mr. Minow is former Chairman of the Carnegie
Corporation of New York, an Advisory Trustee and former Chairman of the Board of
Trustees of The RAND Corporation and former Chairman of the Board of Governors
of the Public Broadcasting Service. Mr. Minow is also a Life Trustee of the
University of Notre Dame and a Life Trustee of Northwestern University.
</TABLE>
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Class II
and Class III directors of the Company and the executive officers of the
Company, all of whom are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
R. Theodore Ammon.................................... 49 Class III Director; Chairman of the Board
Peter G. Diamandis................................... 67 Class II Director
Joan D. Manley....................................... 66 Class II Director
Edward T. Reilly..................................... 52 Class III Director; President and Chief Executive
Officer
Mark A. Angelson..................................... 48 Executive Vice President--Office of the Chairman,
General Counsel and Secretary of the Board of
Directors
Richard L. Ritchie................................... 52 Executive Vice President and Chief Financial Officer
</TABLE>
Set forth below is certain additional information concerning the persons
listed above.
R. THEODORE AMMON has been the Chairman of the Board of the Company since
its inception and was Chief Executive Officer of Big Flower Press from its
inception until April 1997. Mr. Ammon is also the Chairman of XL Ventures, Inc.,
the Company's Internet and new media venture capital subsidiary ("XL Ventures").
Mr. Ammon is also a director of Big Flower Press and Big Flower Digital
Services, Inc., a wholly-owned subsidiary of the Company ("Digital Services").
Mr. Ammon was a General Partner of Kohlberg Kravis Roberts & Co. (a New York and
San Francisco-based investment firm) from 1990 to 1992, and an executive of such
firm prior to 1990. Mr. Ammon is also the Chairman of the Board of 24/7 Media,
Inc. and a member of the Board of Directors of Host Marriott Corporation and of
CAIS Internet, Inc., and serves on the boards of directors of numerous privately
held corporations. Mr. Ammon is involved in a number of not-for-profit
organizations and serves as a member of the Board of Directors of The Municipal
Art Society of New York, The New York YMCA, and Jazz @ Lincoln Center. He is
also a member of the Board of Trustees of Bucknell University.
PETER G. DIAMANDIS has been a Director of the Company since its inception.
He was also a director of Big Flower Press from September 1994 until December
1997. Mr. Diamandis is also a director of XL Ventures. Mr. Diamandis was Vice
Chairman of Donnelley Marketing, Inc., a marketing company, from 1991 through
1996. Since 1996, he has been the Vice Chairman of DM LLC, the successor entity
to Donnelley Marketing, Inc. He is the former Chairman of TVSM, Inc., a magazine
publishing company. From 1988 to 1991, Mr. Diamandis served as President and
Chief Executive Officer of Hachette Publications, which purchased Diamandis
Communications Inc. in 1988. From 1987 to 1988, Mr. Diamandis served as
Chairman, President and Chief Executive Officer of Diamandis Communications
Inc., a publisher of special interest magazines. In 1982, Mr. Diamandis joined
CBS Magazines ("CBS") as Vice President, Group Publisher, Women's Day, and
served as President of CBS from September 1983 to 1987. Mr. Diamandis is a
former Chairman of Magazine Publishers of America. Mr. Diamandis serves on the
Board of Trustees of Bucknell University.
JOAN D. MANLEY has been a Director of the Company since September 1994. Ms.
Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Sara Lee Corporation and Founders Fund and is a Trustee of the
Rocky Mountain Resource Center.
4
<PAGE>
EDWARD T. REILLY has been the President and the Chief Executive Officer and
the director of the Company since its inception. He has also been a director of
Big Flower Press since June 1996, and its Chief Executive Officer since April
1997, having also served as its Chief Operating Officer from March 1996 until
April 1997. Additionally, he is a director the Company's subsidiaries, Treasure
Chest Advertising Company, Inc. ("TC Advertising"), Digital Services and
Webcraft, Inc. ("Webcraft"). Prior to joining Big Flower, Mr. Reilly held a
variety of executive positions with McGraw-Hill, Inc., a publishing and
communications company, in their Broadcast and Publication groups from 1968 to
1996, and served as President of McGraw-Hill Broadcasting from 1987 to 1996. He
is Vice Chairman and a member of the executive committee of the Ad Council and
serves on the Board of Trustees of Lynchburg College in Virginia. Recently, Mr.
Reilly was elected to the Board of Directors of The National Council of La Raza.
In addition, Mr. Reilly has been active in television industry affairs, having
served as the Chairman of the Television Bureau of Advertising and as a member
of the Board of Directors of the National Association of Broadcasters. He is the
former Chairman of the Association for Maximum Service Television (MSTV), a
trade association of over 300 television stations which has been in the
forefront of the effort to facilitate the industry's transition to high
definition television.
MARK A. ANGELSON has been Executive Vice President and General Counsel and
Secretary of the Board of Directors of the Company since March 1996 and
Executive Vice President--Office of the Chairman since March, 1999. Mr. Angelson
also serves as Deputy Chairman of XL Ventures. He is a director of Big Flower
Press, TC Advertising, Digital Services and Webcraft. Prior to joining Big
Flower, Mr. Angelson practiced law with Sidley & Austin from 1982 to 1996. Mr.
Angelson was Co-Chair of Sidley's international operations, founder of the
firm's English law practice and manager of the firm's offices in Singapore, New
York and London. Mr. Angelson is admitted to practice law in the State of New
York, and as a solicitor in England and Wales. He is also a Trustee of the
American School in London Foundation, Inc., a Fellow of the Royal Society of
Arts, a member of the Advisory Board of Jobs for the Future, Inc., a member of
the Pilgrims of Great Britain and an officer and director of 78(th) and Park
Corporation.
RICHARD L. RITCHIE has been Executive Vice President and Chief Financial
Officer of the Company since January 1997. Prior to joining Big Flower, Mr.
Ritchie served as Senior Vice President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from 1986 to 1996.
The term of office of each executive officer is until the organizational
meeting of the Company's Board of Directors following the next annual meeting of
Big Flower stockholders and until a successor is elected and qualified or until
such officer's prior death, resignation, retirement, disqualification or
removal.
BOARD MEETINGS AND CERTAIN COMMITTEES OF THE BOARD
Six meetings of the full Board of Directors were held during the fiscal year
ended December 31, 1998 ("Fiscal 1998"). Each incumbent director attended more
than 75% of the aggregate of all meetings of the Board of Directors that were
held after such director's election to the Board and of all committees of the
Board of Directors that such director was eligible to attend in Fiscal 1998.
The Company has standing audit, compensation and nominating committees
(each, a "Standing Committee") whose current functions and members are described
below. It is anticipated that at its first meeting following the Meeting, the
Board will designate directors to serve on each of these Standing Committees
until the next annual meeting of stockholders.
AUDIT COMMITTEE. The Audit Committee is composed of Joan D. Manley
(Chairman), Robert M. Kimmitt and Newton N. Minow. The Audit Committee meets
periodically with the Company's management, internal accounting staff, and
representatives of the Company's independent certified public accountants to
assure that appropriate audits of the Company's financial statements are being
conducted. Additionally, this Committee reviews corporate compliance policies
and activities, the scope of internal
5
<PAGE>
and external audit activities, and the results of the annual audit. Both the
independent certified public accountants and the internal accounting staff
communicate directly with the Committee regarding the results of their
examinations, the adequacy of internal accounting controls, and the integrity of
financial reporting. In the course of performing its functions, the Audit
Committee also (i) recommends the action to be taken with respect to the
appointment of the Company's independent certified public accountants, (ii)
reviews with the Company's independent certified public accountants the scope of
their audit, their report and their recommendations, and (iii) considers the
possible effect on the independence of such accountants in approving non-audit
services requested of them. The Audit Committee met three times during Fiscal
1998.
COMPENSATION COMMITTEE. The Compensation Committee is composed of Peter G.
Diamandis (Chairman), Robert M. Kimmitt and Newton N. Minow. This Committee is
charged with the responsibility of (i) reviewing, advising and making
recommendations with respect to employee salary and compensation plans, benefits
and standards applicable to the executive officers of the Company, (ii) taking
such actions with respect thereto as are not specifically reserved to the Board
of Directors, and (iii) administering the Big Flower Holdings, Inc. Restated
1993 Stock Award and Incentive Plan (the "Plan"), the Company's Executive
Incentive Plan ("EIP"), and such other salary or compensation plans as this
Committee is designated to administer. The Compensation Committee met four times
during Fiscal 1998.
NOMINATING COMMITTEE. The Nominating Committee is composed of R. Theodore
Ammon (Chairman), Peter G. Diamandis and Joan D. Manley. This Committee is
charged with the responsibility of considering and recommending individuals to
be considered by the Board of Directors for membership on the Board of
Directors. The Nominating Committee was established in March 1997 and met once
in Fiscal 1998.
The Nominating Committee will also consider nominations for Board membership
by stockholders. The Nominating Committee has adopted the following rules with
respect to considering such nominations: (i) the nominating stockholder must
have owned shares of common stock of the Company for at least six months prior
to the date the nomination is submitted; (ii) the nomination must be received by
the Nominating Committee 120 days before the mailing date for proxy material
applicable to the annual meeting for which such nomination is proposed for
submission; and (iii) a detailed statement setting forth the qualifications, as
well as the written consent, of each party nominated must accompany each
nomination submitted.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees of the Company or its
subsidiaries do not receive any additional compensation for service as a member
of the Board of Directors of the Company or any of its committees. For
information relating to compensation of the Company's management directors, see
"Employment Arrangements with Executive Officers" below.
All other directors of the Company (each, a "non-employee director") are
paid an annual fee of $25,000 for serving on the Board. In addition, (a) the
Chairman of each of the Standing Committees who is a non-employee director is
paid an annual retainer of $2,500 and (b) each member of such Standing
Committees (including any Chairman who is a non-employee director) is paid a fee
of $1,000 for each Standing Committee meeting attended by such member. In
addition, each non-employee director is given the option of electing to receive
all or any portion of their annual retainer and meeting fees in the form of (a)
shares of Common Stock, (b) options to purchase shares of Common Stock, or (c)
cash. Furthermore, each member of the Board of Directors of Big Flower who is
not an employee of Big Flower, any of its subsidiaries or any of its affiliates
(a "non-management director") receives (i) an option to purchase 13,400 shares
of Common Stock (the "Initial Election Option") on the date that such director
is first elected to the Board of Directors and (ii) an option to purchase 1,000
shares of Common Stock (the "Reelection Option") on the date that such director
is reelected to the Board of Directors. Each Initial Election Option has a term
of ten years, and each Reelection Option has a term of five years. Each such
option vests
6
<PAGE>
immediately upon the date of grant. Each such option has an exercise price equal
to the closing price (the "Closing Price") of a share of Common Stock on the New
York Stock Exchange on the date of grant, which exercise price may be paid in
cash, by check or in previously-acquired unrestricted shares of Common Stock,
valued at the Closing Price on the date of such exercise.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Big Flower's directors, executive officers, and
persons who own more than ten percent of Big Flower's Common Stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Directors, executive officers and greater than ten percent stockholders are
required by the SEC regulations to furnish Big Flower with copies of all Forms
3, 4 and 5 they file.
Based solely on Big Flower's review of the copies of such forms it has
received, or written representations from certain reporting persons that no
Forms 5 were required for these persons, Big Flower believes that all its
directors, executive officers and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to Fiscal
1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the beneficial ownership as of May 14, 1999
by each person known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock (constituting the only class of voting
capital stock of the Company), each director of the Company and nominee for
director of the Company, each executive officer whose name appears in the
Summary Compensation Table below who was an executive officer of the Company as
of May 14, 1999 and all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- -------------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
R. Theodore Ammon (b)..................................................... 2,517,144 12.6%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
EnTrust Capital Inc....................................................... 4,049,354 20.6%
650 Madison Avenue
New York, New York 10022
The Prudential Insurance Company of America............................... 1,287,700 6.5%
751 Broad Street
Newark, New Jersey 07102-3777
Peter G. Diamandis (c).................................................... 24,816 *
700 Canal Street
Stamford, Connecticut 06902
Robert M. Kimmitt (d)..................................................... 23,651 *
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
</TABLE>
- ------------------------
* Less than one percent
(TABLE CONTINUED ON NEXT PAGE)
7
<PAGE>
<TABLE>
<CAPTION>
(TABLE CONTINUED FROM PRECEDING PAGE)
SHARES BENEFICIALLY OWNED
------------------------------------
AMOUNT AND
NATURE
NAME AND ADDRESS OF OF OWNERSHIP
BENEFICIAL OWNER (A) PERCENTAGE OF CLASS
- ----------------------------------------------------------- --------------- -------------------
<S> <C> <C>
Joan D. Manley (e)......................................... 17,004 *
P.O. Box 1353
Dillon, Colorado 80435
Newton N. Minow (f)........................................ 33,651 *
c/o Sidley & Austin
One First National Plaza
Suite 4800
Chicago, Illinois 60603
Edward T. Reilly (g)....................................... 294,467 1.5%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Mark A. Angelson (h)....................................... 201,000 1.0%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Richard L. Ritchie (i)..................................... 50,000 *
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
All directors and current executive officers as a group (8
persons) (j)............................................. 3,161,733 15.3%
</TABLE>
- ------------------------
* Less than one percent
(a) This column includes shares which directors and executive officers have the
right to acquire within 60 days. Except as otherwise indicated, each person
and entity has sole voting and dispositive power with respect to the shares
set forth in the table.
(b) Includes (x) 6,000 shares held by Mr. Ammon as general partner of a
partnership in which certain family members are the limited partners and
have 99% of the economic interests, (y) options to purchase 300,000 shares
of Common Stock which are presently exercisable and (z) 200 shares owned by
Mr. Ammon's minor children, as to which Mr. Ammon disclaims beneficial
ownership.
(c) Represents options to purchase 24,816 shares of Common Stock which are
presently exercisable.
(d) Represents options to purchase 23,651 shares of Common Stock which are
presently exercisable.
(e) Includes options to purchase 14,400 shares of Common Stock which are
presently exercisable.
(f) Includes options to purchase 23,651 shares of Common Stock which are
presently exercisable.
(g) Includes options to purchase 286,667 shares of Common Stock which are
presently exercisable.
(h) Includes options to purchase 195,800 shares of Common Stock which are
presently exercisable.
(i) Represents options to purchase 50,000 shares of Common Stock which are
presently exercisable.
(j) Includes options to purchase 918,985 shares of Common Stock which are
presently exercisable.
8
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
INTRODUCTION. This report to stockholders presents an overview of both the
charter of the Compensation Committee of the Board of Directors (the
"Compensation Committee") and of the Company's compensation philosophy. The
Compensation Committee is composed entirely of non-employee directors.
THE COMPENSATION COMMITTEE'S ROLE. The Compensation Committee's principal
function is to review and approve the compensation program for the executive
officers and other senior executives of the Company (the "Executive Compensation
Program") and to administer grants under the Plan.
The Company's Executive Compensation Program is designed to motivate the
executives to achieve the Company's business objectives, with a special emphasis
on increasing stockholder value, earnings per share ("EPS"), operating income
plus depreciation, amortization and merger costs ("EBITDA") and after tax return
on invested capital. Certain of the Company's executive officers are currently
employed pursuant to multi-year employment agreements, the purpose of which is
to retain the services of such officers for extended periods. The minimum salary
to which each such executive officer is entitled is specified in the employment
agreement, but the annual bonus for such executive officers, which is a major
part of an executive officer's cash compensation, and awards of stock options
for executive officers, are subject to approval by the Compensation Committee
from time to time. The principal terms of the employment agreements of executive
officers of the Company are described under "Employment Arrangements with
Executive Officers" below.
OVERALL OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM. The Executive
Compensation Program is designed to help the Company retain, motivate and
recruit the executives needed to maximize the Company's return to stockholders.
The Company's explicit objective is to pay at levels required to secure the
services of exceptionally talented executive officers, in particular, and
employees, in general, necessary to achieve its long-term financial, strategic
and stock price growth goals. Since one of the Company's objectives is rapid
revenue growth, by internal expansion and through acquisitions, the Company has
recruited the executive talent required to run a company that is larger than the
Company in its present form. Toward that end, the Executive Compensation Program
is designed to provide:
- Levels of compensation that are highly competitive with those provided in
the various markets in which the Company competes for its executive
resources.
- Incentive compensation that:
- varies with the financial performance of the Company and/or its
various business units;
- varies with the performance of the Company's stock price; and
- effectively rewards individual performance.
- Equity-based compensation that ties executives' long-term financial
interests to growth in the Company's market value per share.
PROVIDING HIGHLY COMPETITIVE LEVELS OF COMPENSATION. The Company provides
its executive officers with a total compensation package that--at expected
levels of performance--is generally intended to compare favorably with
compensation packages provided to executives in the advertising, marketing and
information services industries (as adjusted to reflect the Company's current
size and intended growth) who hold comparable positions or have similar
qualifications. In addition, such compensation takes into account the highly
demanding roles and combinations of responsibilities undertaken by Big Flower's
executive officers.
Given the Company's aggressive stockholder return objectives, the Company
has designed salary and incentive programs intended to attract exceptionally
high-caliber executives and is committed to paying these executives a
substantial portion of their compensation based directly on the performance of
the Company and, in appropriate cases, on the performance of a particular
business unit.
9
<PAGE>
To establish appropriate competitive frames of reference, the Company looks
toward pay levels offered by leading-performance companies in the relevant
markets for executive talent. The Company periodically assesses an executive's
competitive level of compensation based on information drawn from a variety of
sources, including proxy statements, compensation surveys and external
compensation consultants. The Company's review of competitive compensation
levels incorporates a case-by-case approach that considers each position's
relative content, accountabilities and scope of responsibility. The Company also
takes into account its businesses, current size and expected growth, expected
contributions from specific executives and other similar factors. For senior
executives, this review includes an examination of pay data for comparable
positions within the advertising and marketing services industries, as well as
data for other diversified holding companies and pay data for individuals with
backgrounds comparable to those of such officers.
While the expected value of an executive's compensation package is set at a
highly competitive level, each executive officer's pay package places a
significant portion of pay at risk, and the actual value of the package will
exceed or fall below this level depending on actual Company results. The Company
is committed to the pay-for-performance philosophy and believes that the
Executive Compensation Program should provide stockholders with
performance-for-pay.
ENSURING THAT INCENTIVE COMPENSATION VARIES WITH PERFORMANCE. The Executive
Compensation Program is designed to ensure that incentive compensation varies
with the performance of the Company and its business units. Awards paid under
the Company's Executive Incentive Plan ("EIP") and the grants under the Plan
will be directly tied to the short- and long-term financial performance
(especially EPS, EBITDA and after tax return on invested capital) of the Company
and its business units, as well as the performance of the Company's stock price.
The Company's various incentive plans each serve different purposes and, as
such, employ different measures of performance and cover different periods of
time. Accordingly, an executive officer's total compensation will not typically
vary based on any single measure of Company or business unit performance.
However, in combination, these plans provide a powerful incentive--focusing
management attention on those measures important to stockholders (such as
growth, EPS, EBITDA and after tax return on invested capital), holding
executives accountable for poor results and rewarding them for superior
accomplishments.
The Company also believes that effectively rewarding performance helps
motivate executives to contribute in ways that enhance the financial and stock
performance of the Company and its various business units. Although the
Executive Compensation Program provides compensation that varies with financial
and stock price performance, an executive's incentive awards may also be
influenced by qualitative assessment of Company, business unit and individual
performance, as appropriate. For all executive officers, these assessments are
made by the Compensation Committee.
OVERVIEW OF THE EXECUTIVE COMPENSATION PROGRAM. The Executive Compensation
Program is comprised of three principal elements: the base salary program,
annual incentives under the EIP and grants of stock and option awards under the
Plan. Each of these is designed and administered with the explicit purpose of
furthering the stockholders' interests by facilitating the employment of
highly-talented executives and motivating them to achieve exceptional levels of
performance and growth. An overview of each of these elements and of how each is
intended to support stockholder interests is provided below.
BASE SALARY COMPENSATION. The Company's base salary
program is intended to provide base salary levels that are
competitive in the external market for executive talent,
reflect an individual's on-going performance, and are
periodically adjusted based on the executive's
performance, the Company's overall financial performance
and growth and expected salary increases in the market for
executive talent, taking into account the growth which the
Company hopes to achieve.
ANNUAL INCENTIVE COMPENSATION. The EIP provides
competitive annual pay opportunities linked to the
Company's annual financial performance. The EIP
10
<PAGE>
sets annual incentive target awards at levels that are
competitive in the context of the Company's total
Executive Compensation Program, and the appropriate mix of
variable and fixed compensation. Financial performance is
assessed annually against pre-set financial and strategic
objectives.
LONG-TERM INCENTIVE COMPENSATION. The Company provides
the executives of the Company with stock-based incentives
intended to provide competitive long-term incentive
opportunities, enable participants to build significant
wealth when meaningful stockholder wealth has been
created, and directly link a significant portion of total
pay to the Company's long-term stock performance. Although
the Plan is generally designed to provide periodic grants
of options to purchase Common Stock, it also provides for
the use of restricted stock awards.
OTHER EXECUTIVE COMPENSATION. The Company has entered into an arrangement
with certain managers responsible for the XL Ventures unit which will provide
those managers with an effective carried interest in the results of XL Ventures
and Big Flower Digital LLC above specified minimum levels. The Company believes
that the nature and scope of this arrangement is similar to arrangements found
in other comparable venture capital investment organizations.
In addition, the Company provides all its executives with benefits and
perquisites such as a 401(k) plan and health and life insurance benefits.
Overall, the Compensation Committee believes the provided levels of benefits and
perquisites are necessary and, in combination with the previously mentioned
compensation elements, facilitate the Company's ability to secure the most
appropriate executive talents.
CEO COMPENSATION. Mr. Reilly has been the Company's Chief Executive Officer
from its inception. In determining Mr. Reilly's compensation, the Committee took
a number of factors into account, including considering to what extent Mr.
Reilly met his personal goals established at the beginning of the fiscal year,
rewarding Mr. Reilly for the Company's financial performance during Fiscal 1998
and for increasing long-term shareholder value of the Company, and seeking
adequately and fairly to compensate Mr. Reilly in relation to his
responsibilities and contributions to the Company and in a manner that is
commensurate with compensation paid by comparable companies within the Company's
industry. For a discussion of the Company's Employment Agreement with Mr.
Reilly, see "Employment Arrangements with Executive Officers" below.
The Committee took no action during Fiscal 1998 to establish a policy with
respect to the payment of compensation to the Company's executive officers in
amounts that exceed the $1 million limit on deductible compensation under The
Omnibus Budget Reconciliation Act of 1993 (the "Tax Act"). During Fiscal 1998
the Company exceeded targeted goals under the EIP, which resulted in certain
executives' overall compensation being greater than $1 million. Given these
results, the Committee intends to formulate a policy regarding the Tax Act to be
based upon the overall needs of the Company, taking into account the underlying
principles of the Executive Compensation Program and the particular
circumstances at issue.
SUMMARY. The Compensation Committee believes the Executive Compensation
Program will ensure the Company's ability to retain, motivate and attract the
executive resources required to maximize long-term stockholder returns. The
Company's competitive pay philosophy facilitates the employment of talented
executives. The emphasis on variable pay and the direct link to both financial
and stock performance ties this competitive pay to critical measures of Company
performance. In combination, all these elements act in the best interests of the
Company's stockholders and are worthy of your support.
The Compensation Committee
Peter G. Diamandis, Chairman
Robert M. Kimmitt
Newton N. Minow
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid in respect of the
fiscal year ended December 31, 1998, 1997 and 1996 to R. Theodore Ammon,
Chairman of Big Flower, Edward T. Reilly, Chief Executive Officer of Big Flower,
and to each of the other most highly paid executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION PERIOD SALARY($) BONUS($) COMPENSATION ($) OPTIONS/SARS (#)(1)
- ------------------------------------- ----------- ----------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
R. Theodore Ammon.................... 1998 750,000 675,000 (3) --
Chairman of Big Flower 1997 750,000 799,875 (3) --
1996 750,000 339,844 (3) --
Edward T. Reilly..................... 1998 550,000 495,000 (3) --
President and Chief Executive 1997 533,333 586,575 (3) 200,000
Officer of Big Flower 1996 375,000 287,000(4) (3) 200,000
Mark A. Angelson..................... 1998 505,000 463,500 (3) 25,000
Executive Vice President--Office of 1997 468,750 506,588 (3) 58,300
the Chairman, General Counsel and 1996 315,000 225,000 343,982(5) 150,000
Secretary of the Board of Big
Flower
Richard L. Ritchie(6)................ 1998 425,000 382,500 (3) 45,000
Executive Vice President and Chief 1997 395,641 451,600(7) (3) 100,000
Financial Officer of Big Flower 1996 -- -- -- --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)(2)
- ------------------------------------- ---------------
<S> <C>
R. Theodore Ammon.................... 2,400
Chairman of Big Flower 2,400
2,178
Edward T. Reilly..................... 2,400
President and Chief Executive 2,400
Officer of Big Flower 1,593
Mark A. Angelson..................... 2,400
Executive Vice President--Office of 2,400
the Chairman, General Counsel and --
Secretary of the Board of Big
Flower
Richard L. Ritchie(6)................ 2,400
Executive Vice President and Chief 2,400
Financial Officer of Big Flower --
</TABLE>
- ------------------------
(1) All stock option grants were made pursuant to the Big Flower Holdings, Inc.
Restated 1993 Stock Award and Incentive Plan (the "Plan") and are described
below under "Options Granted in Fiscal 1998" and "Employment Arrangements
with Executive Officers."
(2) Represents amounts contributed to 401(k) plan by the Company on behalf of
the Named Executive Officer.
(3) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported under the headings of
"Salary" and "Bonus."
(4) Includes a one-time signing bonus of $37,000 to reimburse Mr. Reilly for
certain costs incurred in connection with his leaving his previous position.
(5) Includes relocation costs of $335,862 (including tax gross up).
(6) The Named Executive Officer began his employment with Big Flower in 1997;
therefore the Named Executive Officer did not receive any compensation from
Big Flower prior to that time.
(7) Includes a lump sum payment of $25,000 for incidental moving expenses.
12
<PAGE>
OPTIONS GRANTED IN FISCAL 1998
The following table sets forth certain information with respect to options
to purchase shares of Common Stock granted to the Named Executive Officers
during Fiscal 1998. The Company did not grant any stock appreciation rights to
any of the Named Executive Officers and no stock options were exercised by any
Named Executive Officer during Fiscal 1998.
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF % OF TOTAL GRANT DATE VALUE
SECURITIES OPTIONS ------------------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL 1998 ($/SHARE) DATE VALUE($)(1)
- ----------------------------------------- ----------- ------------ ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Mark A. Angelson (2)..................... 25,000 7.76% $ 28.4375 3/11/08 449,600
Richard L. Ritchie (3)................... 45,000 13.98% $ 26.75 2/17/08 799,700
</TABLE>
- ------------------------
(1) These values were calculated using a Black-Scholes option pricing model. The
actual value, if any, that an executive may realize will depend on the
excess, if any, of the stock price over the exercise price on the date the
options are exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
The following assumptions were used in the calculations:
(a) assumed option term of 10 years;
(b) stock price volatility factor of 0.4427;
(c) 5.77% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These options were granted on March 11, 1998 and vested in full on the first
anniversary of the date of grant. The exercise price was equal to the
Closing Price on the date of the grant. The options are exercisable at any
time between the date of vesting and the tenth anniversary of the date of
grant.
(3) These options were granted on February 17, 1998 and vest in full on the
second anniversary of the date of grant. The exercise price was equal to the
Closing Price on the date of the grant. The options will be exercisable at
any time between the date of vesting and the tenth anniversary of the date
of grant.
13
<PAGE>
OPTION VALUES AT END OF FISCAL 1998
The following table sets forth certain information concerning the number and
the value at the end of Fiscal 1998 of unexercised in-the-money options to
purchase Common Stock granted to the Named Executive Officers as of the end of
Fiscal 1998. No stock appreciation rights have been granted to any of the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FISCAL 1998 END AT FISCAL 1998 END
(#) ($)
SHARES --------------------- ---------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
- ---------------------------------------- ----------------- --------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
R. Theodore Ammon....................... -0- -0- 300,000/0 1,818,750/0
Edward T. Reilly........................ -0- -0- 253,334/146,666 1,517,334/807,166
Mark A. Angelson........................ -0- -0- 133,300/100,000 937,369/707,813
Richard L. Ritchie...................... -0- -0- 25,000/120,000 101,563/304,688
</TABLE>
- ------------------------
(1) Based on the Closing Price of $22.0625 of Big Flower's Common Stock on
December 31, 1998, the last trading day of Fiscal 1998, less the exercise
price payable for such shares.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table sets forth annual amounts payable to the Named Executive
Officers' upon their retirement under TC Advertising's supplemental executive
retirement plan (the "SERP").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
----------------------------------------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 150,000.................................. $ 7,500 $ 15,000 $ 22,000 $ 30,000 $ 37,500 $ 45,000
175,000.................................. 8,750 17,500 26,250 35,000 43,750 52,500
200,000.................................. 10,000 20,000 30,000 40,000 50,000 60,000
225,000.................................. 11,250 22,500 33,750 45,000 56,250 67,500
250,000.................................. 12,500 25,000 37,500 50,000 62,500 75,000
275,000.................................. 13,750 27,500 41,250 55,000 68,750 82,500
300,000.................................. 15,000 30,000 45,000 60,000 75,000 90,000
500,000.................................. 25,000 50,000 75,000 100,000 125,000 150,000
600,000.................................. 30,000 60,000 90,000 120,000 150,000 180,000
700,000.................................. 35,000 70,000 105,000 140,000 175,000 210,000
800,000.................................. 40,000 80,000 120,000 160,000 200,000 240,000
900,000.................................. 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
The compensation covered by the SERP includes the executive's entire annual
base salary. Messrs. Ammon, Reilly, Angelson and Ritchie currently have 5, 3, 3
and 2 years of service, respectively. See "Employment Arrangements with
Executive Officers" below. Benefits under the SERP are computed by multiplying
the participant's average salary for the last five years prior to retirement by
a percentage equal to one percent for each year of service up to a maximum of 30
years. Benefits under the SERP are not subject to a deduction for Social
Security or other offset amounts.
14
<PAGE>
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
AMMON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Ammon, effective November 20, 1995 (as amended to date, the
"Ammon Agreement"), pursuant to which Mr. Ammon currently serves as Chairman of
the Board. The initial term of the Ammon Agreement is three years, subject to
automatic one-year extensions, the first of which commenced on the second
anniversary of the Ammon Agreement, unless either the Company or Mr. Ammon
provides specified notice to the contrary. Mr. Ammon is required to devote to
the Company the time necessary for the effective conduct of his duties under the
Ammon Agreement and is permitted to engage in outside business interests that do
not conflict with such duties or otherwise compete with the Company. Under the
Ammon Agreement, Mr. Ammon currently receives a base salary of $750,000 per
year; an annual bonus targeted at not less than 75% of base salary (assuming
bonus targets under the EIP are met); an annual payment of $108,000 with respect
to life insurance premiums; and certain fringe benefits, including participation
in the SERP. In connection with his entering into the Ammon Agreement, Mr. Ammon
was granted an option to purchase 300,000 shares of Common Stock (a) with a
ten-year term, (b) at an exercise price equal to $16.00 per share and (c)
vesting ratably over a three-year period.
If Mr. Ammon's employment with the Company is terminated other than for
"cause" (as defined in the Ammon Agreement), Mr. Ammon will be entitled to
receive a supplemental retirement benefit, subject to certain vesting and
benefit accrual requirements and subject to being offset by amounts payable
under the SERP, of up to 50% of his final average compensation (including salary
and EIP bonus), which benefit would commence at age 60. Mr. Ammon will have the
right to terminate the Ammon Agreement in the event of the material breach
thereof by the Company or for other "good reason" (as defined in the Ammon
Agreement). In that event, or if the Company terminates Mr. Ammon's employment
without cause, (i) Mr. Ammon will be entitled generally to receive the salary
and bonus otherwise payable to him over the greater of (x) the remaining term of
the Ammon Agreement and (y) a period of six months; (ii) all outstanding equity
incentive awards (including stock options) would immediately vest; (iii) Mr.
Ammon would receive additional service credit for purposes of the supplemental
retirement benefit; and (iv) the life insurance and certain fringe benefits
would continue during the severance period. Upon the termination of his
employment following a "change in control" of the Company (as defined in the
Ammon Agreement), Mr. Ammon would (i) be entitled to receive a lump sum amount
equal to three times his base salary and bonus, (ii) become vested in all
outstanding equity incentive awards, (iii) have the right to receive a cash
payment equal to the spread on all outstanding stock options, (iv) receive a
lump sum payment with respect to foregone fringe benefits, (v) receive
additional service credit for purposes of the supplemental retirement benefit
and (vi) be entitled to a payment sufficient to offset the effects of any excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"). During the term of the Ammon Agreement (and if Mr. Ammon
terminates his employment other than for good reason or the Company terminates
Mr. Ammon's employment for cause, for a period of one year beyond the expiration
of the employment term), Mr. Ammon will be subject to certain non-competition
and non-solicitation requirements.
REILLY EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Reilly, effective March 29, 1996 (as amended to date, the
"Reilly Agreement"), pursuant to which Mr. Reilly currently serves as President
and Chief Executive Officer of the Company. The initial term of the Reilly
Agreement is three years, subject to automatic one-year extensions, the first of
which commenced on the second anniversary of the Reilly Agreement, unless either
the Company or Mr. Reilly provides specified notice to the contrary. Mr. Reilly
is required to devote to the Company all of his working time, attention and
efforts. Under the Reilly Agreement, Mr. Reilly currently receives a base salary
of $575,000 per year; an annual bonus targeted at not less than 75% of base
salary (assuming bonus targets under the EIP are met); and certain fringe
benefits, including participation in the SERP. In connection with his entering
into the Reilly Agreement, Mr. Reilly was granted an option to purchase 200,000
shares of Common Stock (a) with a ten-year term, (b) at an exercise price of
$12.75 per share (the Closing Price
15
<PAGE>
on the date of grant), and (c) vesting in installments of 20% each on December
31, 1996, 1997, 1998, and 1999 and the remaining 20% on the fourth anniversary
of the Reilly Agreement. On April 29, 1997, Mr. Reilly was granted an option to
purchase 100,000 shares of Common Stock (a) with a ten-year term and (b) at an
exercise price of $18.375 (the Closing Price on the date of grant). These
options vested in full on the first anniversary of the date of grant. In
addition, on April 29, 1997, Mr. Reilly was granted an option to purchase
100,000 shares of Common Stock (a) with a ten-year term and (b) at an exercise
price of $21.13 (which was equal to 115% of the Closing Price on the date of
grant). One-third of these options vested on each of April 29, 1998 and April
29, 1999, with the remaining one-third to vest on the third annivery of the date
of grant. All of the foregoing options will immediately vest upon the occurrence
of a "change of control" of the Company (as defined in the Reilly Agreement).
Mr. Reilly will have the right to terminate the Reilly Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Reilly Agreement). In that event, or if the Company
terminates Mr. Reilly's employment without "cause" (as defined in the Reilly
Agreement), (i) Mr. Reilly will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Reilly received in the three years
preceding such termination of employment, plus (B) the present value of all
fringe benefits payable under the remaining term of the Reilly Agreement, (ii)
all outstanding equity incentive awards (including stock options) will
immediately vest and remain exercisable for a period of one year following the
date of such termination (or, if earlier, until the end of the option term), and
(iii) Mr. Reilly would be entitled to receive a payment sufficient to offset the
effects of any excise tax imposed under Section 4999 of the Code. During the
term of the Reilly Agreement (and if Mr. Reilly terminates his employment other
than for good reason or the Company terminates Mr. Reilly's employment for
cause, for a period of one year beyond the expiration of the employment term),
Mr. Reilly will be subject to certain non-competition and non-solicitation
requirements.
ANGELSON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Angelson, effective March 21, 1996 (as amended to date, the
"Angelson Agreement"), pursuant to which Mr. Angelson currently serves as
Executive Vice President--Office of the Chairman, General Counsel and Secretary
of the Board of Directors of the Company and as Deputy Chairman of XL Ventures.
The initial term of the Angelson Agreement is three years, subject to automatic
one-year extensions, the first of which commenced on the second anniversary of
the Angelson Agreement, unless either the Company or Mr. Angelson provides
specified notice to the contrary. Mr. Angelson is required to devote to the
Company and its affiliates all of his working time, attention and efforts. Under
the Angelson Agreement, Mr. Angelson currently receives a base salary of
$540,000 per year; an annual bonus targeted at not less than 75% of base salary
(assuming bonus targets under the EIP are met); annual premium payments during
the term of employment with respect to a $2 million split-dollar life insurance
policy owned by Mr. Angelson; and certain fringe benefits, including
participation in the SERP. In connection with his entering into the Angelson
Agreement, Mr. Angelson was granted an option to purchase 150,000 shares of
Common Stock (a) with a ten-year term, (b) at an exercise price of $12.625 per
share (the Closing Price on the date of grant), and (c) vesting in installments
of 10% on December 31, 1996, 15% on the first anniversary of the Angelson
Agreement and 25% on each of the next three anniversaries of the Angelson
Agreement. On March 25, 1997, Mr. Angelson was granted an option to purchase
58,300 shares of Common Stock (a) with a ten-year term and (b) at an exercise
price of $18.125 (the Closing Price on the date of grant). These options vested
in full on the first anniversary of the date of grant. For information regarding
options granted to Mr. Angelson in 1998, see "Options Granted in Fiscal 1998"
above. All of the foregoing options will immediately vest upon the occurrence of
a "change of control" of the Company (as defined in the Angelson Agreement).
Mr. Angelson will have the right to terminate the Angelson Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Angelson Agreement). In that event, or if the Company
terminates Mr. Angelson's employment without "cause" (as defined in the
16
<PAGE>
Angelson Agreement), (i) Mr. Angelson will be entitled to receive a lump sum
amount equal to the sum of (A) two times the sum of (x) his then base salary
plus (y) the highest annual performance bonus Mr. Angelson received in the three
years preceding such termination of employment, plus (B) the present value of
all insurance premium payments and other fringe benefits payable under the
remaining term of the Angelson Agreement, (ii) all outstanding equity incentive
awards (including stock options) will immediately vest and remain exercisable
for a period of one year following the date of such termination (or, if earlier,
until the end of the option term), and (iii) Mr. Angelson would be entitled to
receive a payment sufficient to offset the effects of any excise tax imposed
under Section 4999 of the Code. During the term of the Angelson Agreement (and
if Mr. Angelson terminates his employment other than for good reason or the
Company terminates Mr. Angelson's employment for cause, for a period of one year
beyond the expiration of the employment term), Mr. Angelson will be subject to
certain non-competition and non-solicitation requirements.
RITCHIE EMPLOYMENT ARRANGEMENTS. The Company entered into a letter
agreement with Mr. Ritchie on December 13, 1996 (the "Ritchie Agreement"),
pursuant to which Mr. Ritchie serves as Executive Vice President and Chief
Financial Officer of the Company. Mr. Ritchie is required to devote to the
Company all of his working time, attention and efforts. In the event that Mr.
Ritchie's employment should be terminated by the Company other than for "cause"
(as defined in the Executive Severance Agreement discussed below) prior to a
"change in control" of the Company (as defined in the Executive Severance
Agreement discussed below), Mr. Ritchie will be entitled to a payment equal to
one year's base salary. Under the Ritchie Agreement, Mr. Ritchie currently
receives a base salary of $450,000 per year; an annual bonus targeted at not
less than 75% of base salary (assuming bonus targets under the EIP are met); and
certain fringe benefits, including participation in the SERP. In connection with
his entering into the Ritchie Agreement, Mr. Ritchie was granted an option to
purchase 100,000 shares of Common Stock (a) with a ten-year term, (b) at an
exercise price of $18.00 per share (the Closing Price on the date of grant), and
(c) vesting in installments of 25% on January 6 of each of 1998, 1999, 2000 and
2001. For information regarding options granted to Mr. Ritchie in 1998, see
"Options Granted in Fiscal 1998" above. All of the foregoing options will
immediately vest upon the occurrence of a "change in control" of the Company (as
defined in the Executive Severance Agreement discussed below).
In addition, the Company has entered into a severance agreement with Mr.
Ritchie, effective January 6, 1997 (the "Executive Severance Agreement"), which
provides that if Mr. Ritchie's employment is terminated by the Company without
"cause" or by Mr. Ritchie for "good reason" following a "change in control" of
the Company (each as defined in the Executive Severance Agreement), Mr. Ritchie
will receive a lump sum amount equal to two times the sum of (x) the greater of
his annual base salary in effect immediately prior to the termination of
employment and his annual base salary in effect immediately prior to the "change
in control" and (y) the greater of the target bonus for Mr. Ritchie under the
EIP in the year immediately preceding that in which the termination occurs and
the average such bonus for the three years immediately preceding the "change in
control." In addition, (i) all outstanding stock incentive awards (including
stock options) will immediately vest and remain exercisable until at least 90
days following the "change in control," and (ii) Mr. Ritchie would be entitled
to two years of continued medical and other insurance benefits. The total amount
of benefits payable to Mr. Ritchie would be limited to the extent necessary to
preserve the Company's deduction pursuant to Section 280G of the Code.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
STOCK PRICE PERFORMANCE GRAPH
The following graphs compare the cumulative total stockholder returns (assuming
reinvestment of dividends) of the Company's Common Stock, the Russell
2000-Registered Trademark- Index (the "Russell 2000 Index"), the Russell
Consumer Discretionary Index (the "Russell Consumer Discretionary Index"), the
Standard & Poor's 500 Index (the "S&P 500 Index"), and the Standard & Poor's
Advertising and Marketing Services Index (the "S&P 500 Advertising and Marketing
Index"). The comparisons reflected in the graph are not intended to forecast the
future performance of the Company's common stock and may not be indicative of
such future performance. The graph assumes $100 invested on November 22, 1995
(the date of the Company's initial public offering) in the Company's common
stock and each of the indices.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN*:
BIG FLOWER VS. RUSSELL 2000, RUSSELL CONSUMER DISCRETIONARY INDEX,
S&P 500 AND S&P ADVERTISING AND MARKETING INDEX
TOTAL RETURN TO STOCKHOLDERS
REINVESTED DIVIDENDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BGF RUSSELL 2000 RUSSELL CONSUMER SP ADVERTISING MARKETING 500 INDEX S&P 500 INDEX
<S> <C> <C> <C> <C> <C>
11/22/95 $100.00 $100.00 $100.00 $100.00 $100.00
1995 $100.81 $105.14 $99.89 $113.46 $103.11
1996 $121.95 $122.49 $116.91 $129.61 $126.78
1997 $156.91 $149.87 $141.96 $190.04 $169.08
1998 $143.50 $146.06 $147.40 $301.72 $217.40
</TABLE>
* Assumes that the value of the investment in Big Flower common stock and in
each index was $100 on November 22, 1995 and that all dividends were
reinvested.
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<PAGE>
The Company selected the Russell 2000 Index for comparison for 1998 because
the Company is listed as a member of such index, and the entities included in
such index more closely resemble the capitalization of the Company then the much
larger companies included generally in the S&P 500 Index. Moreover, the Company
believes that overall securities' market conditions affecting the Company are
better represented when compared with other members of the Russell 2000 Index
then the much larger companies included in the S&P 500 Index. Similarly, the
Company selected the Russell Consumer Discretionary Index for comparison for
1998, rather that the S&P Advertising and Marketing Index, as more
representative of companies with comparable market capitalization. As a result
of the addition of these indeces, the above graph compares the total cumulative
returns of the Company's common stock with the Russell 2000 Index, the Russell
Consumer Discretionary Index, the S&P 500 Index and the S&P Advertising and
Marketing Index.
The total percentage return for the Big Flower common stock for Fiscal 1998
was approximately
- --8.5%. This compares with the total percentage return for such period of--2.5%
for the Russell 2000 Index, 3.8% for the Russell Consumer Discretionary Index,
28.6% for the S&P 500 Index, and 58.8% for the S&P Advertising and Marketing
Index. These percentages assume that all dividends were reinvested.
PROPOSAL 2.
RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
INTRODUCTION
The Board of Directors has selected Deloitte & Touche LLP ("Deloitte") to be
the Company's independent certified public accountants for its fiscal year ended
December 31, 1999. Deloitte has acted as Big Flower's independent certified
public accountants since its inception and as Big Flower Press' independent
certified public accountants since July, 1993.
Representatives of Deloitte will be present at the Meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
REQUIRED VOTE
Ratification of the appointment of the independent certified public
accountant requires the affirmative vote of a majority in voting power present
(in person or by proxy) and entitled to vote at the Meeting. In the event that
the Company's stockholders fail to ratify the appointment of Deloitte, the
selection of the Company's independent certified public accountants will be
submitted to the Company's Board of Directors for reconsideration.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS.
19
<PAGE>
OTHER MATTERS
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation of proxies by use of the mails, some of the officers, directors
and employees of the Company and its subsidiaries, none of whom will receive
additional compensation therefor, may solicit proxies in person or by telephone,
facsimile or other means. Solicitation will also be made by employees of
Georgeson & Company, which firm will be paid a fee of $6,500, plus expenses. As
is customary, the Company will, upon request, reimburse brokerage firms, banks,
trustees, nominees and other persons for their out-of-pocket expenses in
forwarding proxy materials to their principals.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
From time to time, stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at the
Meeting. To be considered, proposals must be submitted on a timely basis.
Proposals for the 2000 Annual Meeting of Stockholders of the Company must be
received by the Company no later than January 15, 2000, and must otherwise
comply with Rule 14a-8 under the Securities Exchange Act of 1934, as amended.
Big Flower's By-Laws currently impose certain additional procedural
requirements for submitting stockholder proposals to Annual Meetings of
Stockholders. Any questions relating to stockholder proposals should be
submitted in writing to the Secretary of the Board of Directors of the Company,
at 3 East 54th Street, New York, New York 10022.
INFORMATION INCORPORATED BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1998, a copy of which is being provided to stockholders along
with this Proxy Statement.
By Order of the Board of Directors
/s/ Mark A. Angelson
Mark A. Angelson
EXECUTIVE VICE PRESIDENT--OFFICE OF
THE CHAIRMAN,
GENERAL COUNSEL AND
SECRETARY OF THE BOARD OF DIRECTORS
New York, New York
May 27, 1999
20
