<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Blockbuster 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 transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 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:
Notes:
<PAGE>
[BLOCKBUSTER LOGO]
March 31, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Blockbuster Inc. (the "Company") to be held at Hotel Adolphus, 1321 Commerce
Street, Dallas, Texas, on Tuesday, May 23, 2000, at 10:00 a.m., Dallas time.
The attached Notice of Annual Meeting and Proxy Statement fully describe the
formal business to be transacted at the meeting, which includes (i) the
election of two Class I directors of the Company; (ii) the approval of the
Blockbuster Inc. 1999 Long-Term Management Incentive Plan; (iii) the approval
of the Blockbuster Inc. Senior Executive Short-Term Incentive Plan; and (iv)
ratification of the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for fiscal 2000. In addition, we will review with you
the affairs and progress of the Company during the past fiscal year.
Directors and officers of the Company will be present to help host the
meeting and to respond to any questions that our stockholders may have. I hope
you will be able to attend.
The Company's Board of Directors believes that a favorable vote on each of
the matters to be considered at the meeting is in the best interests of the
Company and its stockholders and unanimously recommends a vote "FOR" each such
matter. Accordingly, we urge you to review the accompanying material carefully
and to return the enclosed proxy promptly.
Please sign, date and return the enclosed proxy without delay. If you attend
the meeting, you may vote in person even if you have previously mailed a proxy.
I look forward to seeing you at the meeting.
Sincerely,
/s/ JOHN ANTIOCO
John F. Antioco
Chairman of the Board, President and
Chief Executive Officer
Blockbuster Inc. . Renaissance Tower . 1201 Elm Street . Dallas, TX 75270-
2102 . Phone: (214) 854-3000
<PAGE>
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 23, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Blockbuster Inc., a Delaware corporation (the "Company"), will be held at Hotel
Adolphus, 1321 Commerce Street, Dallas, Texas, on Tuesday, May 23, 2000, at
10:00 a.m., Dallas time, for the following purposes:
(1) The election of two Class I directors of the Company for terms
expiring in 2003;
(2) The approval of the Blockbuster Inc. 1999 Long-Term Management
Incentive Plan;
(3) The approval of the Blockbuster Inc. Senior Executive Short-Term
Incentive Plan;
(4) Ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent accountants for fiscal 2000; and
(5) The transaction of such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The close of business on March 24, 2000, has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the meeting
or any adjournment or adjournments thereof. For a period of at least ten days
prior to the meeting, a complete list of stockholders entitled to vote at the
meeting will be open to the examination of any stockholder during ordinary
business hours at the Company's offices located at 1201 Elm Street, Dallas,
Texas 75270.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM.
By Order of the Board of Directors,
/s/ Edward B. Stead
Edward B. Stead
Executive Vice President,
General Counsel and Secretary
Dallas, Texas
March 31, 2000
<PAGE>
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 23, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Blockbuster Inc. (the
"Company" or "Blockbuster") for use at the Annual Meeting of Stockholders (the
"Meeting") of the Company to be held at Hotel Adolphus, 1321 Commerce Street,
Dallas, Texas, on Tuesday, May 23, 2000, at 10:00 a.m., Dallas time, or at such
other time and place to which the Meeting may be adjourned. The approximate
date on which this Proxy Statement and accompanying proxy are first being sent
or given to stockholders is March 31, 2000.
All shares represented by valid proxies, unless the stockholder specifies
otherwise, will be voted (i) FOR the election of the two persons named under
"Proposal I--Election of Directors" as nominees for election as Class I
directors; (ii) FOR the proposal to approve the Blockbuster Inc. 1999 Long-Term
Management Incentive Plan (the "1999 LTMIP"); (iii) FOR the proposal to approve
the Blockbuster Inc. Senior Executive Short-Term Incentive Plan (the "Senior
Executive STIP"); and (iv) FOR the proposal to ratify the appointment of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as the Company's
independent accountants for fiscal 2000. The Board knows of no other business
to be presented at the Meeting. If any other business is properly presented,
the persons named in the enclosed proxy have authority to vote on such matters
in accordance with such persons' discretion. Where a stockholder has
appropriately specified how a proxy is to be voted, it will be voted
accordingly.
A stockholder executing a proxy retains the right to revoke it at any time
prior to exercise at the Meeting. A proxy may be revoked by delivery of written
notice of revocation to the Secretary of the Company, by execution and delivery
of a later proxy, or by voting the shares in person at the Meeting.
VOTING SECURITIES AND RECORD DATE
The Company has two classes of common stock outstanding: Class A Common
Stock, which is entitled to one vote per share, and Class B Common Stock, which
is entitled to five votes per share. The holders of Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock") vote together as a
single class on the matters to be considered at the Meeting, and their votes
are counted and totaled together.
The Company completed the initial public offering of 31,000,000 shares of
its Class A Common Stock in August 1999 (the "IPO"). Prior to the IPO, the
Company was wholly-owned by Viacom International Inc. ("Viacom International"),
a subsidiary of Viacom Inc. ("Viacom"). Subsequent to the IPO, Viacom
International retained approximately 96% of the combined voting power of the
Company, due to its ownership of all of the outstanding shares of the Company's
Class B Common Stock. As a result, Viacom International is able, acting alone,
to approve all of the proposals submitted for approval at the Meeting.
The record date for determining the stockholders entitled to notice of and
to vote at the Meeting and any adjournments thereof was the close of business
on March 24, 2000 (the "Record Date"), at which time the Company had issued and
outstanding 31,004,160 shares of Class A Common Stock and 144,000,000 shares of
Class B Common Stock.
<PAGE>
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the stockholders of
record entitled to cast at least a majority of the votes that all stockholders
are entitled to cast is necessary to constitute a quorum. Each vote represented
at the Meeting in person or by proxy will be counted toward a quorum. If a
quorum should not be present, the Meeting may be adjourned from time to time
until a quorum is obtained.
Brokers holding shares of record for customers are not entitled to vote on
certain matters unless they receive voting instructions from their customers.
"Broker non-votes" are votes with respect to which brokers have received no
instructions ("Uninstructed Shares") from the persons entitled to vote them.
Broker non-votes, if any, will be counted as present for purposes of
determining the presence of a quorum. However, for purposes of determining the
outcome of any matter as to which the broker has physically indicated on the
proxy that it does not have discretionary authority to vote, those shares will
be treated as not entitled to vote with respect to that matter (even though
those shares may be entitled to vote on other matters).
To be elected, each nominee for election as a Class I Director must receive
the affirmative vote of a plurality of the votes of the shares of Common Stock
present or represented at the Meeting and entitled to vote on such proposal.
Votes may be cast in favor or withheld with respect to each nominee. Votes that
are withheld will be counted toward a quorum, but will be excluded entirely
from the tabulation of votes for such proposal and, therefore, will not affect
the outcome of the vote on such proposal. Broker non-votes will not be taken
into account in determining the outcome of the election and therefore also will
have no effect on such proposal.
Approval of the 1999 LTMIP and the Senior Executive STIP each requires the
affirmative vote of the holders of a majority of the votes of the Common Stock
present or represented at the Meeting and entitled to vote on such proposals.
Abstentions may be specified on such proposals and will have the same effect as
a vote against such proposals. Based on New York Stock Exchange guidelines, it
is the Company's understanding that Uninstructed Shares will not be entitled to
vote with respect to these proposals. Therefore, Broker non-votes will be
excluded from the tabulations and will have no effect on such proposals.
Approval of the ratification of PricewaterhouseCoopers as independent
accountants also requires the affirmative vote of the holders of a majority of
the votes of the Common Stock present or represented at the Meeting and
entitled to vote on such proposal. Abstentions may be specified on this
proposal and will have the same effect as a vote against such proposal.
Uninstructed Shares will be entitled to vote on this proposal. Therefore,
Broker Non-Votes will have the effect of negative votes.
2
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides for
a Board divided into three classes, as nearly equal in number as possible, with
the term of office of one class expiring each year at the Company's Annual
Meeting of Stockholders. Each class of directors is elected for a term of three
years, except in the case of elections to fill vacancies or newly created
directorships.
There are two Class I directors to be elected for terms expiring at the
Company's Annual Meeting of Stockholders in 2003 or until their successors have
been elected and qualified. It is intended that the names of the nominees
indicated below will be placed in nomination and that the persons named in the
proxy will vote for their election. Each of the nominees has indicated his
willingness to serve as a member of the Board if elected; however, in case any
nominee shall become unavailable for election to the Board for any reason not
presently known or contemplated, the proxy holders will have discretionary
authority in that instance to vote the proxy for a substitute. Proxies cannot
be voted for more than two nominees.
Information concerning the two nominees proposed by the Board for election
as Class I directors, along with information concerning the present Class II
and Class III directors whose terms of office will continue after the Meeting,
is set forth below.
The nominees for election as Class I directors are as follows:
Class I Nominees--Terms Expiring in 2003
<TABLE>
<CAPTION>
Name Age Current Position
---- --- ----------------
<S> <C> <C>
Philippe P. Dauman.................... 46 Director
Thomas E. Dooley...................... 43 Director
The present directors whose terms will expire after 2000 are as follows:
Class II Directors--Terms Expiring in 2001
<CAPTION>
Name Age Current Position
---- --- ----------------
<S> <C> <C>
John L. Muething...................... 78 Director
Sumner M. Redstone.................... 76 Director
Class III Directors--Terms Expiring in 2002
<CAPTION>
Name Age Current Position
---- --- ----------------
<S> <C> <C>
John F. Antioco....................... 50 Chairman of the Board, President and
Chief Executive Officer
Linda Griego.......................... 52 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the directors
of the Company.
John F. Antioco has served as Chairman of the Board, President and Chief
Executive Officer of the Company since 1997. From 1996 until 1997, Mr. Antioco
served as President and Chief Executive Officer for Taco Bell Corporation. Mr.
Antioco served as Chairman of the Board of Directors of The Circle K
Corporation, an operator of convenience stores, from 1995 until 1996, and as
its President and Chief Executive Officer from 1993 until 1996. Mr. Antioco
joined Circle K as Chief Operating Officer in 1991. Mr. Antioco serves as
Chairman of the Board of Directors of Main Street & Main Incorporated and as a
director for CSK Auto Corporation.
3
<PAGE>
Philippe P. Dauman was elected as a director of the Company in January
1995. Mr. Dauman has been a director of Viacom since 1987 and was appointed
Deputy Chairman of Viacom in January 1996. Mr. Dauman was elected Executive
Vice President of Viacom in 1994. From 1993 until 1998, Mr. Dauman also served
as General Counsel and Secretary of Viacom. Mr. Dauman is a director of
National Amusements, Inc. ("NAI") and Lafarge Corporation.
Thomas E. Dooley was elected as a director of the Company in May 1999. Mr.
Dooley has been a director and Deputy Chairman of Viacom since 1996 and its
Executive Vice President since 1994. From 1992 until 1994, Mr. Dooley served
as Senior Vice President, Corporate Development, of Viacom.
Linda Griego was elected as a director of the Company in July 1999. Ms.
Griego has served as President of Zapgo Entertainment Group, LLC, a television
programming production company, since 1997 and is the Managing General Partner
of Engine Co. No. 28, a restaurant that she founded in 1988. From July 1999
until January 2000, Ms. Griego served as the interim President and Chief
Executive Officer of the Los Angeles Community Development Bank, a $430
million federally funded community bank. From 1994 until 1997, Ms. Griego
served as President and Chief Executive Officer of Rebuild LA, Inc., an
economic development corporation. Ms. Griego also served as Deputy Mayor of
the City of Los Angeles, California, from 1991 until 1993. Ms. Griego is a
director of Granite Construction Incorporated.
John L. Muething was elected as a director of the Company in July 1999. Mr.
Muething has been Of Counsel to the Cincinnati, Ohio law firm of Keating,
Muething & Klekamp since 1986. He also served as a director of Spelling
Entertainment Group Inc. from 1992 until June 1999.
Sumner M. Redstone was elected as a director of the Company in May 1999.
Mr. Redstone has been a director of Viacom since 1986 and Chairman of the
Board of Viacom since 1987 and acquired the title of Chief Executive Officer
of Viacom in 1996. Mr. Redstone has served as Chairman of the Board of NAI
since 1986 and as its Chief Executive Officer since 1967.
The Board recommends a vote FOR the election of the nominees for Class I
Director named above.
4
<PAGE>
MEETINGS OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board.
The Board meets on a regularly scheduled basis during its fiscal year to
review significant developments affecting the Company and to act on matters
requiring Board approval. It also holds special meetings when an important
matter requires Board action between scheduled meetings. The Board met three
times and acted by unanimous written consent 28 times during the 1999 fiscal
year (including action taken prior to the IPO). During the 1999 fiscal year,
each member of the Board participated in at least 75% of all Board and
applicable committee meetings held during the period for which he was a
director.
The Board has established audit, senior executive compensation and
compensation committees to devote attention to specific subjects and to assist
it in the discharge of its responsibilities. The functions of these
committees, their current members and the number of meetings held during the
1999 fiscal year are described below.
Audit Committee. The functions of the Audit Committee include: (i)
reviewing the scope and results of the Company's internal auditing procedures;
(ii) reviewing the adequacy and effectiveness of the Company's system of
internal accounting controls; (iii) determining the duties and
responsibilities of the Company's internal audit staff; (iv) reviewing the
scope of the independent accountants' annual audit, the audit procedures to be
employed and the results thereof; (v) reviewing the audit reports submitted by
both the independent accountants and the internal audit staff; and (vi)
annually recommending independent accountants. Ms. Griego (Chairman) and Mr.
Muething are members of the Audit Committee. The Audit Committee met three
times during the 1999 fiscal year.
Senior Executive Compensation Committee. The functions of the Senior
Executive Compensation Committee include: (i) reviewing and approving the
Company's policies and practices relating to the compensation of senior
executive officers of the Company, including the forms of their employment
agreements and individual compensation recommendations for such officers; (ii)
approving the Company's incentive compensation, including annual bonus and
stock option plans, for such senior executive officers, subject to stockholder
approval where appropriate; and (iii) where designated by the Board, approving
any other benefit programs for such senior executive officers, subject to
stockholder approval where appropriate. Mr. Muething (Chairman) and Ms. Griego
are members of the Senior Executive Compensation Committee. The Senior
Executive Compensation Committee met two times and acted by unanimous written
consent four times during the 1999 fiscal year.
Compensation Committee. Except with respect to matters entrusted to the
Company's Senior Executive Compensation Committee, the functions of the
Compensation Committee include: (i) assisting management in defining and
overseeing the Company's general compensation practices; (ii) reviewing and
approving the forms of employment agreements for employees at the level of
vice president and above; (iii) approving the Company's incentive compensation
plans, subject to stockholder approval where appropriate; and (iv) overseeing
certain of the Company's other employee benefit programs. Messrs. Dauman
(Chairman), Dooley, Muething and Redstone and Ms. Griego are members of the
Compensation Committee. The Compensation Committee met two times and acted by
unanimous written consent one time during the 1999 fiscal year.
The Board does not have a nominating committee because the Board as a whole
functions in this capacity.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number of
shares of Viacom and Blockbuster Common Stock beneficially owned as of February
29, 2000, by (i) the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers who were
serving as such on December 31, 1999 (based on salary and bonus earned during
fiscal 1999) (collectively, the "Named Executive Officers"); (ii) each director
and nominee for director of the Company; and (iii) all directors and executive
officers of the Company as a group. The following table also sets forth
information with respect to the number of shares of Blockbuster Common Stock
beneficially owned by each person known by the Company to beneficially own more
than five percent (5%) of the outstanding shares of its Common Stock. Unless
otherwise noted, the persons named in the table have sole voting and investment
power with respect to all shares beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership of Equity Securities
----------------------------------------------------------------------
Number of
Title of Equity Number of Percent
Name Equity Security Shares Option Shares(1) of Class
- ---- -------------------------- ----------- --------------- --------
<S> <C> <C> <C> <C>
John F. Antioco......... Viacom Class A Common -- -- *
Viacom Class B Common 5,066(2)(3) 181,466 *
Blockbuster Class A Common 66,766 -- *
Blockbuster Class B Common -- -- *
Philippe P. Dauman...... Viacom Class A Common 2,121(4) -- *
Viacom Class B Common 17,485(4) 1,490,000 *
Blockbuster Class A Common 5,000 -- *
Blockbuster Class B Common -- -- *
Thomas E. Dooley........ Viacom Class A Common 7,666(4) -- *
Viacom Class B Common 8,530(4) 1,464,000 *
Blockbuster Class A Common 5,000 -- *
Blockbuster Class B Common -- -- *
Mark T. Gilman.......... Viacom Class A Common -- -- *
Viacom Class B Common 450(3) -- *
Blockbuster Class A Common 2,750(5) -- *
Blockbuster Class B Common -- -- *
Linda Griego............ Viacom Class A Common -- -- *
Viacom Class B Common -- -- *
Blockbuster Class A Common 4,080(6) -- *
Blockbuster Class B Common -- -- *
John L. Muething........ Viacom Class A Common -- -- *
Viacom Class B Common -- -- *
Blockbuster Class A Common 4,580 -- *
Blockbuster Class B Common -- -- *
Alva J. Phillips........ Viacom Class A Common -- -- *
Viacom Class B Common 1,142(3) -- *
Blockbuster Class A Common 3,000 -- *
Blockbuster Class B Common -- -- *
Sumner M. Redstone(7)... Viacom Class A Common 93,658,988(8) -- 67.7%
Viacom Class B Common 104,334,988(8) 2,583,333 18.7%
Blockbuster Class A Common 144,000,000(9) -- 82.3%
Blockbuster Class B Common 144,000,000(9) -- 100%
Nigel Travis............ Viacom Class A Common 40 -- *
Viacom Class B Common 374 6,000 *
Blockbuster Class A Common 10,666 -- *
Blockbuster Class B Common -- -- *
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership of Equity Securities
-----------------------------------------------------------------------
Number of
Title of Equity Number of Percent
Name Equity Security Shares Option Shares(1) of Class
- ---- -------------------------- ----------- --------------- --------
<S> <C> <C> <C> <C>
Larry J. Zine............ Viacom Class A Common -- -- *
Viacom Class B Common -- -- *
Blockbuster Class A Common 33,333 -- *
Blockbuster Class B Common -- -- *
Viacom International
Inc(10)................. Blockbuster Class A Common 144,000,000(9) -- 82.3%
Viacom Inc.(10) Blockbuster Class B Common 144,000,000(9) 100%
NAIRI, Inc.(11)
National Amusements,
Inc.(11)
Capital Group
International,
Inc.(12)................ Blockbuster Class A Common 3,040,300(13) -- 9.8%(13)
Capital Guardian Trust
Company(12)
FMR Corp(14)............. Blockbuster Class A Common 2,366,000(15) -- 7.6%
Edward C. Johnson 3d(14)
Abigail P. Johnson(14)
Husic Capital
Management(16).......... Blockbuster Class A Common 1,900,000(17) -- 6.1%
Frank J. Husic & Co.(16)
Frank J. Husic(16)
Pequot Capital
Management, Inc.(18).... Blockbuster Class A Common 2,451,300(19) -- 7.9%
Current directors and
executive officers as a
group other than Messrs.
Dauman, Dooley and
Redstone (eleven
persons)................ Viacom Class A Common 40 -- *
Viacom Class B Common 9,166(3)(20) 187,466 *
Blockbuster Class A Common 163,508(21) -- *
Blockbuster Class B Common -- -- *
</TABLE>
- --------
* Less than 1%.
(1) This includes shares subject to options to purchase such shares that, on
February 29, 2000, were unexercised but were exercisable within a period
of 60 days from that date. All figures in this column regarding Viacom
common stock reflect an adjustment for Viacom's two-for-one common stock
split effected in March 1999. These shares are excluded from the column
headed "Number of Equity Shares."
(2) This includes 5,000 shares that are held jointly with Mr. Antioco's
spouse.
(3) This includes shares held through Blockbuster's 401(k) and/or excess
401(k) plans as of December 31, 1999.
(4) This includes shares held through Viacom's 401(k) and/or excess 401(k)
plans as of December 31, 1999.
(5) All of such shares are held jointly with Mr. Gilman's spouse.
(6) This includes 2,000 shares that are held jointly with Ms. Griego's spouse.
(7) The address for Mr. Redstone is 200 Elm Street, Dedham, Massachusetts
02026.
(8) Except for 160 shares of each class of Viacom common stock owned directly
by Mr. Redstone, all of these shares are owned of record by NAI. Mr.
Redstone is the Chairman of the Board and the beneficial owner of the
controlling interest in NAI and, accordingly, beneficially owns all of
such shares.
(9) This is based on a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2000, which was jointly filed by Viacom
International, Viacom, NAIRI Inc. ("NAIRI"), NAI and Sumner M. Redstone
(collectively, the "Viacom Reporting Persons"). The shares of Class B
Common Stock are indirectly held by Viacom through its ownership of Viacom
International. Approximately 67.7% of Viacom's voting stock is owned by
NAIRI, which in turn is a wholly-owned subsidiary of NAI. Beneficial
ownership is attributed to Mr. Redstone due to his beneficial ownership
and control of NAI, as disclosed in footnote (8) above. Pursuant to the
Company's Amended and Restated Certificate of Incorporation, each share of
the Company's Class B Common Stock is convertible at the option of the
holder thereof into one share of the Company's Class A Common Stock. As a
result, the Viacom Reporting Persons are also deemed to beneficially own
144,000,000 shares of the Company's Class A Common Stock.
7
<PAGE>
(10) The address for Viacom and Viacom International is 1515 Broadway, New
York, New York 10036.
(11) The address for NAIRI and NAI is 200 Elm Street, Dedham, Massachusetts
02026.
(12) The address for Capital Group International, Inc. and Capital Guardian
Trust Company is 11100 Santa Monica Boulevard, Los Angeles, California
90025.
(13) This is based on an amendment to Schedule 13G filed with the Securities
and Exchange Commission on February 11, 2000, which was jointly filed by
Capital Group International, Inc. ("CGII") and Capital Guardian Trust
Company ("CGTC"). According to the Schedule 13G, CGII disclaims beneficial
ownership of the 3,040,300 shares reported because it does not have
investment power or voting power over any of the securities. CGII may be
deemed to beneficially own such shares by virtue of it being the parent
holding company of a group of investment management companies that hold
investment power and voting power over the securities. Of such shares,
CGII has reported deemed sole voting power with respect to 2,155,600 of
such shares and deemed sole dispositive power with respect to all of such
shares. CGTC has reported beneficial ownership of 3,014,000 shares, or
9.7%, of the Class A Common Stock. CGTC has reported sole voting power
with respect to 2,129,300 of such shares and sole dispositive power with
respect to all of such shares. According to the Schedule 13G, CGTC also
disclaims beneficial ownership of such securities.
(14) The address for FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson is
82 Devonshire Street, Boston, Massachussettes 02109.
(15) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 11, 2000, which was jointly filed by FMR Corp., Edward C.
Johnson 3d and Abigail P. Johnson. FMR Corp. beneficially owns all of such
shares through its subsidiary Fidelity Management & Research Company
("FMRC"), as a result of FMRC's acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. FMR Corp., Mr. Johnson and Abigail P. Johnson have reported
no voting power with respect to any of the shares of Class A Common Stock
reported and sole dispositive power with respect to all of such shares.
Mr. Johnson and Abigail P. Johnson are reporting persons due to their
controlling positions with FMR Corp.
(16) The address for Husic Capital Management ("Husic Management"), Frank J.
Husic &Co. ("Husic Co.") and Frank J. Husic ("Husic") is 555 California
Street, Suite 2900, San Francisco, California.
(17) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 14, 2000, which was jointly filed by Husic Management, Husic
Co. and Husic. The shares are indirectly held by Husic Co. as the sole
general partner of Husic Management and by Husic as sole stockholder of
Husic Co.
(18) The address for Pequot Capital Management, Inc. is 500 Nyala Farm Road,
Westport, Connecticut 06880.
(19) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 11, 2000.
(20) In addition to the 5,000 shares disclosed in footnote (2) above, this
includes 1,000 shares that are held by another executive officer jointly
with his spouse.
(21) In addition to the 4,750 shares disclosed in footnotes (5) and (6) above,
this includes 8,000 shares that are held by another executive officer
jointly with his spouse.
8
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid to the Named Executive Officers for each of the Company's last two fiscal
years.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------------- --------------
Other Securities All
Annual Underlying Other
Name and Principal Position Year Salary($) Bonus ($)(1) Compensation ($)(2) Options (#)(3) Compensation ($)
- --------------------------- ---- --------- ------------ ------------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John F. Antioco......... 1999 1,257,692 5,000,000(4) -- 1,133,332 2,400(5)
Chairman of the Board 1998 1,200,000 4,750,000(6) -- 196,320(7) 323(5)
of Directors, President
and Chief Executive
Officer
Mark T. Gilman.......... 1999 362,550 281,290(8) -- 425,500 6,664(9)
Executive Vice 1998 340,962 214,000 2,525(10) -- 7,109(9)
President and Chief
Worldwide Development
Officer, Store
Operations
Alva J. Phillips........ 1999 385,002 249,001 -- 391,000 4,621(9)
Executive Vice 1998 375,783 268,000 -- 5,000(7) 8,501(9)
President and Chief
Information Officer
Nigel Travis............ 1999 450,058 226,000 67,912(11) 391,332 17,028(12)
Executive Vice 1998 361,483(13) 386,618 159,109(13)(14) 10,000(7) 45,234(12)
President and
President, Worldwide
Store Operations
Larry J. Zine........... 1999 326,250 855,000(15) 215,899(16) 421,666 --
Executive Vice 40,000(7)
President
and Chief Financial 1998(17) -- -- -- -- --
Officer
</TABLE>
- --------
(1) This reflects bonus earned during fiscal 1999. In some instances, all or a
portion of the bonus was paid during the next fiscal year.
(2) In accordance with the rules of the Securities Exchange Commission,
perquisites totaling less than $50,000 have been omitted.
(3) Except where noted otherwise, this reflects options to acquire shares of
Blockbuster Class A Common Stock.
(4) Of this amount, $3.0 million represents installments on Mr. Antioco's
sign-on bonus.
(5) This consists of Company contributions to the Company's 401(k) plan.
(6) Of this amount, $1.0 million represents the 1998 installment of Mr.
Antioco's sign-on bonus.
(7) This reflects options to acquire shares of Viacom Class B Common Stock.
(8) A portion of Mr. Gilman's bonus earned for fiscal 1999 is not determinable
at this time.
(9) This consists of Blockbuster's contributions to Viacom's 401(k) and excess
401(k) plans.
(10) This consists of reimbursement for taxes.
(11) This consists of reimbursement for taxes. A portion of the payments were
made in British pounds. Such payments have been converted to U.S. dollars
using an average conversion rate for 1999 of 1.61880 U.S. dollars to 1.00
British pound. This number does not reflect an estimated $59,614 in
reimbursement for
9
<PAGE>
taxes that had accrued as of December 31, 1999 for Mr. Travis' benefit in
connection with employer contributions owed, but not yet paid, under
Blockbuster's U.K. defined contribution and supplemental plans, as
discussed in footnote 12 below.
(12) This consists of employer contributions to Blockbuster's U.K. defined
contribution and supplemental plans, but does not include amounts accrued
but not contributed to Mr. Travis' account during 1998 and 1999, as
applicable. The amount disclosed for 1999 reflects a conversion from
British pounds to U.S. dollars at an average conversion rate for 1999 of
1.61880. The amount disclosed for 1998 reflects a conversion from British
pounds to U.S. dollars at an average conversion rate for 1998 of 1.65655.
As of December 31, 1999, based on the 1999 conversion rate, employer
contributions of approximately $90,926 had accrued for Mr. Travis'
benefit, but had not yet been paid in.
(13) Mr. Travis was transferred from the Company's U.K. payroll to its U.S.
payroll in August 1998. Payments made in British pounds have been
converted to U.S. dollars using an average conversion rate from January
1998 through July 1998 of 1.64897 U.S. dollars to 1.00 British pound.
(14) This includes $96,219 relating to relocation expenses, $47,285 of
reimbursement for taxes, and other executive perquisites, none of which
exceeds 25% of the total perquisites reported as other annual
compensation.
(15) Of this amount, $600,000 represents Mr. Zine's sign-on bonus.
(16) This includes $143,814 relating to relocation expenses, $60,035 of
reimbursement for taxes, and other executive perquisites, none of which
exceeds 25% of the total perquisites reported as other annual
compensation.
(17) Mr. Zine joined the Company in 1999.
Option Grants During 1999 Fiscal Year
The following table provides information related to options granted to the
Named Executive Officers during fiscal 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term
------------------------------------------------------ ---------------------
% of Total
Number of Options Exercise
Securities Granted to or Base
Underlying Employees in Price
Options(1)(2) Fiscal 1999(3) ($/Sh) Expiration Date 5%($) 10%($)
------------- -------------- -------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John F. Antioco......... 1,133,332(4) 9.80 15.00 August 11, 2009 10,691,196 27,093,590
Mark T. Gilman.......... 425,500(4) 3.68 15.00 August 11, 2009 4,013,920 10,172,061
Alva J. Phillips........ 391,000(4) 3.38 15.00 August 11, 2009 3,688,467 9,347,300
Nigel Travis............ 391,332(4) 3.39 15.00 August 11, 2009 3,691,599 9,355,236
Larry J. Zine........... 421,666(4) 3.65 15.00 August 11, 2009 3,977,752 10,080,405
40,000(5) .2804(6) 42.6875 April 1, 2009 1,037,187 2,662,956
</TABLE>
- --------
(1) Unless otherwise noted, reflects options to acquire shares of Blockbuster
Class A Common Stock.
(2) These numbers include options granted in connection with a program whereby
executive officers received a grant of two options for each share of
Blockbuster Class A Common Stock that they purchased pursuant to
Blockbuster's directed share program effected in connection with its
initial public offering.
(3) Unless otherwise noted, this reflects the percentage of total grants to
all Blockbuster employees.
(4) The options become exercisable with respect to one-fifth of the shares
covered thereby on each of August 11, 2000, 2001, 2002, 2003 and 2004.
(5) This reflects options to acquire shares of Viacom Class B Common Stock.
The options become exercisable with respect to one-quarter of the shares
covered thereby on each of April 1, 2001, 2002, 2003 and 2004.
(6) This reflects the percentage of total grants to all Viacom employees.
10
<PAGE>
Option Exercises During 1999 Fiscal Year and Fiscal Year End Option Values
The following table provides information related to options exercised by the
Named Executive Officers during the 1999 fiscal year and the number and value
of options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options as of Options as of
December 31, 1999 December 31, 1999($)
-------------------------- ---------------------------
Shares
Acquired on Value
Name Exercise(#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Antioco......... 110,200 2,842,972 181,466(2) 904,654(2) 8,199,995(2) 37,872,903(2)
-- -- -- 1,133,332(3) -- --
Mark T. Gilman.......... 31,667 822,208 -- 81,667(2) -- 3,675,327(2)
-- -- -- 425,500(3) -- --
Alva J. Phillips........ 32,000 1,136,062 -- 71,000(2) -- 3,118,250(2)
-- -- -- 391,000(3) -- --
Nigel Travis............ 26,000 816,000 6,000(2) 76,000(2) 271,125(2) 3,272,313(2)
-- -- -- 391,332(3) -- --
Larry J. Zine........... -- -- -- 40,000(2) -- 710,000(2)
-- -- -- 421,666(3) -- --
</TABLE>
- --------
(1) All such shares acquired on exercise represent shares of Viacom Class B
Common Stock.
(2) Represents securities underlying options to purchase Viacom Class B Common
Stock.
(3) Represents securities underlying options to purchase Blockbuster Class A
Common Stock.
Compensation of Directors
Directors who do not serve as officers or employees of Viacom or Blockbuster
("Outside Directors") are entitled to receive directors' fees and are eligible
to participate in the 1999 LTMIP.
Directors' Fees. Outside directors are entitled to receive an annual
retainer of $40,000 for membership on Blockbuster's Board, $20,000 of which is
paid in cash and $20,000 of which is paid in the Company's Class A Common Stock
that is non-transferable for one year after it is paid. For fiscal 1999, which
included the period from July 15, 1999 until the end of the fiscal year, the
Company's outside director retainer fees were paid solely in Class A Common
Stock. Outside Directors are also entitled to a per meeting attendance fee of
$1,000 for each Board meeting attended and $1,000 for each meeting of the Audit
Committee, Compensation Committee and Senior Executive Compensation Committee
attended if such meeting is held on a day different from the day of a Board
meeting and the committee member has to travel to participate in the committee
meeting. Only one fee will be paid for attendance at more than one committee
meeting held on the same day.
Equity-Based Compensation. At the time of the Company's IPO, each of the
Outside Directors received a one-time grant of stock options to purchase 10,000
shares of the Company's Class A Common Stock pursuant to the 1999 LTMIP at a
per share exercise price equal to $15.00, the initial public offering price of
a share of the Company's Class A Common Stock in the IPO. The options will vest
in four equal installments, beginning on the first anniversary of the date of
the grant. In addition, Ms. Griego and Mr. Muething received a grant of two
options for each share of the Company's Class A Common Stock that they
purchased pursuant to the Company's directed share program effected in
connection with its IPO. As a result, Ms. Griego and Mr. Muething received
grants of options to purchase an additional 4,000 and 5,000 shares,
respectively. These options will vest in five equal installments, beginning on
the first anniversary of the date of grant.
Directors who are also employees of the Company receive no additional
compensation for serving as directors. All directors of the Company are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to, and attendance at, meetings of the Board or
committees thereof.
11
<PAGE>
Pension Plans
Defined Benefit Pension Plan. During fiscal 1999, the Company participated
in a non-contributory qualified defined benefit pension plan and an excess
pension plan for some of the Company's highly compensated employees, both
sponsored by Viacom. The Company's employees became eligible to participate in
these plans effective January 1, 1996, with credit for past service on and
after September 29, 1994 for eligibility and vesting purposes. An eligible
employee will receive a benefit at retirement that is based upon the employee's
number of years of benefit service and average annual compensation, including
salary and bonus, for the highest 60 consecutive months out of the final 120
months immediately preceding retirement. Under the terms of the excess pension
plan, such compensation is limited to the greater of base salary as of December
31, 1995 or $750,000. The benefits under Viacom's excess pension plan are not
subject to the Internal Revenue Code of 1986, as amended (the "Code")
provisions that limit the compensation used to determine benefits and the
amount of annual benefits payable under Viacom's qualified pension plans. The
Company's employees ceased to participate in Viacom's pension plans at December
31, 1999. Viacom retained the accrued liability for benefits under these plans
for the Company's employees. All of the Company's employees who were actively
employed by the Company and participating in the defined benefit pension plan
or the excess benefit pension plan on December 31, 1999 were fully vested in
their accrued benefits in these plans on that date.
The following table illustrates, for representative average annual
pensionable compensation and years of benefit service classifications, the
annual retirement benefit that would be payable to employees under both the
non-contributory defined benefit pension plan and the excess pension plan if
they retired in 1999 at age 65, based on the straight-life annuity form of
benefit payment and not subject to deduction or offset.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
-----------------------------------
Remuneration 15 20 25 30
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$150,000.................................... $ 36,896 $ 49,194 $ 61,493 $ 73,791
300,000.................................... 76,271 101,694 127,118 152,541
450,000.................................... 115,646 154,194 192,743 231,291
600,000.................................... 155,021 206,694 258,368 310,041
750,000.................................... 194,396 259,194 323,993 388,791
900,000.................................... 233,771 311,694 389,618 467,541
</TABLE>
The number of years of benefit service that have been credited, as of
December 31, 1999, for Messrs. Antioco, Gilman and Phillips are 1 1/2 years,
2 2/3 years and 3 3/4 years, respectively. Mr. Travis and Mr. Zine are
not participants in the Viacom pension plan or excess pension plan.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Mr. Antioco's employment agreement provides that he will be employed as
Chairman and Chief Executive Officer of Blockbuster until June 15, 2002 at an
annualized salary of $1.3 million for the period from July 15, 1999 until
December 31, 1999, and thereafter at an annual salary of $1.0 million. Mr.
Antioco will also receive deferred compensation, payable the year after he
ceases to be an executive officer of Blockbuster, in an amount equal to
$355,000 for calendar year 2000, $455,000 for calendar year 2001 and $230,000
for the portion of calendar year 2002 during the employment term. Mr. Antioco
is eligible to receive an annual bonus pursuant to the Senior Executive STIP.
His target bonus is set at 125% of his base salary and deferred compensation
and is payable upon satisfaction of performance objectives determined each year
in accordance with the Senior Executive STIP. In accordance with his employment
agreement, upon the completion of the Company's IPO, Mr. Antioco received
options to purchase one million shares of the Company's Class A Common Stock at
a price per share of $15.00. These options will vest over a five-year period,
beginning on the first anniversary of the date of grant. In addition, on each
of the first and second anniversaries of the Company's IPO, Mr. Antioco will
receive a grant of options to purchase the Company's Class A Common Stock,
issued at fair market value at the time of grant, with an aggregate exercise
price equal to $6.0 million for each annual grant. These options
12
<PAGE>
will vest over a four-year period, beginning on the first anniversary of the
date of grant. In the event of the termination of Mr. Antioco's employment
without cause or his voluntary termination for good reason (as defined in the
agreement) during the employment term, he will be entitled to receive salary,
target bonus, deferred compensation and agreed-upon benefits for the balance of
the employment term, subject to mitigation after the first eighteen months. In
addition, his stock options, including options that would have been granted or
that have not vested by the date of termination, will be exercisable for at
least six months after the date of termination, but not beyond the expiration
date of such stock options.
Mr. Zine's employment agreement, as amended, provides that he will be
employed as Executive Vice President and Chief Financial Officer until April 1,
2002 at an annual salary of $450,000, subject to an annual increase during the
first quarter of each year, assuming satisfactory performance, based on the
Company's then applicable compensation policies for the Company's executives at
comparable positions and performance levels. Mr. Zine is eligible to receive an
annual bonus pursuant to the Senior Executive STIP. His target bonus is set at
50% of base salary and is payable upon satisfaction of performance objectives
determined each year in accordance with the Senior Executive STIP. In addition,
in accordance with the terms of his employment agreement, Mr. Zine received a
$600,000 sign-on bonus during fiscal 1999 and options to purchase 40,000 shares
of Viacom Class B Common Stock at a price per share of $42.6875. These options
will vest over a four-year period, beginning on the second anniversary of the
date of grant. Also in accordance with his employment agreement, upon the
completion of the Company's IPO, Mr. Zine received options to purchase 355,000
shares of the Company's Class A Common Stock at a price per share of $15.00.
These options will vest over a five-year period, beginning on the first
anniversary of the date of grant. In the event of the termination of Mr. Zine's
employment without cause or his voluntary termination for good reason (as
defined in the agreement) during the employment term, he will be entitled to
receive his salary for the greater of 12 months or the balance of the
employment term, subject to mitigation after the first twelve months. In
addition, he will be entitled to receive bonus compensation and certain
benefits for the balance of the employment term, subject to mitigation after
the first twelve months, and his stock options, including options that would
have vested during the employment term, will be exercisable for six months
after the date of termination, but not beyond the expiration of such stock
options. The Company also agreed to make a loan to Mr. Zine with respect to
income taxes payable in connection with his sign-on bonus. See "Certain
Relationships and Related Transactions--Other Related Party Transactions."
The employment agreements of each of Messrs. Gilman, Phillips and Travis are
substantially similar. Mr. Gilman's agreement, as amended, provides that he
will be employed as Executive Vice President, Real Estate Development and
Strategic Database Utilization, until April 30, 2001 at an annual salary of
$280,000, subject to an annual increase during the first quarter of each year
based on the range of increases of other comparable executives. Mr. Phillips'
agreement, as amended, provides that he will be employed as Executive Vice
President, Chief Information Officer, until June 30, 2002 at an annual salary
of $365,000, subject to an annual increase during the first quarter of each
year based on the range of increases of other comparable executives. In
addition, pursuant to a retention agreement with Mr. Phillips, the Company
agreed to pay Mr. Phillips a retention bonus of up to $50,000 per year in the
years 1999 through 2001, with 40% of each year's retention bonus to be payable
based on accomplishment of key objectives. Mr. Travis' agreement, as amended,
provides that he will be employed as President, Retail Operations, until May
31, 2002 at a salary of $465,000 for the twelve-month period ending May 31,
2000 and $505,000 for the twelve-month period ending May 31, 2001, and at a
salary to be determined for the twelve-month period ending May 31, 2002. Each
of these agreements provides that the executive will be eligible to receive an
annual bonus pursuant to the Senior Executive STIP at a target amount of 50% of
base salary. Bonuses are payable upon satisfaction of performance objectives
determined each year in accordance with the Senior Executive STIP. Each of
these agreements also provides that, in the event of the executive's
termination of employment without cause or the executive's voluntary
termination for good reason during the employment term, he will be entitled to
receive his salary, bonus compensation and certain benefits for the balance of
the employment term, subject to mitigation after the first twelve months (18
months in the case of Mr. Gilman), and his stock options, including options
that would have vested during the employment term, will be exercisable for six
months after the date of termination, but not beyond the expiration of such
stock options.
13
<PAGE>
Report of the Senior Executive Compensation Committee on Executive Compensation
General
The Senior Executive Compensation Committee of the Board was appointed in
July 1999 in connection with the IPO. Prior to such time, Viacom's compensation
committee determined the compensation for the Company's executive officers.
Subject to existing contractual obligations, since the date of its appointment,
the Senior Executive Compensation Committee has reviewed and approved the
compensation for the Company's executive officers. All members of the Senior
Executive Compensation Committee are non-employee directors.
Compensation Philosophy
The Company's compensation programs and compensation philosophy are
generally consistent with those of Viacom. The objectives of the executive
compensation package for the Company's executive officers include:
. setting levels of annual salary and bonus compensation that will attract
and retain superior executives in the highly competitive environment of
the Company's business;
. providing annual bonus compensation for executive officers that varies
with the Company's financial performance and reflects the executive
officer's individual contribution to that performance;
. providing long-term compensation that is tied to the Company's stock
price so as to focus the attention of the Company's executive officers on
managing the Company from the perspective of an owner with an equity
stake; and
. emphasizing performance-based compensation through annual bonus
compensation and long-term compensation.
The Senior Executive Compensation Committee evaluates the competitiveness of
its executive compensation packages based on information from a variety of
sources, including information obtained by management from consultants and
information obtained from the Company's own experience.
Internal Revenue Code Section 162(m)
Section 162(m) of the Code generally limits to $1,000,000 the federal tax
deductibility of compensation (including stock options) paid to a Named
Executive Officer. Section 162(m) of the Code provides an exception (the
"Performance-Based Compensation Exception") to such limitation for certain
performance-based compensation, and it is the intent of the Senior Executive
Compensation Committee to qualify executive compensation for such exception to
the extent necessary, feasible and in the best interests of the Company.
Proposals II and III ("Approval of the 1999 LTMIP" and "Approval of the Senior
Executive STIP," respectively) are being submitted to the Company's
stockholders for approval so that certain compensation under the 1999 LTMIP and
the Senior Executive STIP will be able to continue to qualify for the
Performance-Based Compensation Exception. Section 162(m) of the Code also
includes an exception to the deduction limitation for deferred compensation
paid to an executive officer when such executive officer is no longer subject
to Section 162(m).
Chief Executive Officer's Fiscal 1999 Compensation
Pursuant to negotiations between Viacom and Mr. Antioco, Mr. Antioco entered
into an employment agreement with Blockbuster Entertainment Group, a business
unit of Viacom, effective upon commencement of his employment with the Company
in 1997 (the "Initial Employment Agreement"). In part in order to address
Section 162(m) of the Code, the Company entered into a new employment agreement
with Mr. Antioco prior to the Company's IPO (the "1999 Employment Agreement"),
which agreement was approved by the Senior Executive Compensation Committee.
Mr. Antioco's fiscal 1999 compensation therefore reflects compensation paid
under both agreements and was comprised of base salary, annual bonus
compensation and long-term compensation in the form of stock options. For
fiscal years after 1999, Mr. Antioco's compensation package
14
<PAGE>
will also include deferred compensation. Pursuant to the Initial Employment
Agreement, Mr. Antioco was initially paid a base salary of $1,200,000 in 1999
and was owed an aggregate of $3,000,000 in sign-on bonus installments, which
were paid in 1999. Mr. Antioco's base salary was increased to $1,300,000 in
June 1999; however, Mr. Antioco's 1999 Employment Agreement provides for a
salary of $1,000,000 beginning January 1, 2000. Mr. Antioco received a
$2,000,000 bonus for fiscal 1999 pursuant to the Senior Executive STIP. In
accordance with the Senior Executive STIP and Mr. Antioco's 1999 Employment
Agreement, and as permitted by Section 162(m) of the Code, the Senior Executive
Compensation Committee established performance criteria and a target award for
the period from the Company's IPO until fiscal year-end. The performance
criteria related to the attainment of a specified level of operating income (as
defined in the Senior Executive STIP) for the Company as a whole. For this
purpose, the Senior Executive STIP uses the EBITDA definition of revenues less
operating expenses (other than depreciation, amortization and non-recurring
charges) to define "operating income." The level of Mr. Antioco's bonus was
based on the determination of the Senior Executive Compensation Committee that
the performance criteria established for 1999 had been achieved. Pursuant to
the 1999 Employment Agreement, Mr. Antioco also received a grant of options to
purchase 1,000,000 shares of the Company's Class A Common Stock in connection
with the IPO.
Compensation of Other Executive Officers.
Fiscal 1999 compensation for the Company's other executive officers was
comprised of base salary, annual bonus compensation and long-term compensation
in the form of stock options.
Salary. Fiscal 1999 salary levels for executive officers were established by
Viacom pursuant to the executives' employment agreements. Such levels were
designed to be consistent with competitive practice and level of
responsibility. The employment agreements for the Named Executive Officers
other than Mr. Antioco were entered into prior to the establishment of the
Senior Executive Compensation Committee and are described above under "--
Employment Contracts and Termination of Employment and Change in Control
Arrangements."
Bonus. Fiscal 1999 bonuses for the Company's executive officers were
provided under the Senior Executive STIP based on the same performance criteria
as was the bonus for the Chief Executive Officer.
Long-Term Compensation. The Senior Executive Compensation Committee believes
that the use of equity-based long-term compensation plans appropriately links
executive interests to enhancing stockholder value. The Senior Executive
Compensation Committee granted options to all of the Company's executive
officers in connection the Company's IPO in August 1999. The size of the grant
to each executive was within the range assigned to the executive's relative
level of responsibility. In determining the amounts awarded, the Senior
Executive Compensation Committee considered recommendations from management
based on market assessments provided by outside consulting firms and relative
responsibilities of each executive.
The Senior Executive Compensation
Committee
Linda Griego
John L. Muething
15
<PAGE>
Comparative Performance Graph
The following chart compares the cumulative total stockholder return on the
Company's Class A Common Stock over the period from August 11, 1999 to December
31, 1999, with the cumulative total return during such period of the Standard &
Poor's 500 Stock Index ("S&P 500 Index") and the Media General Financial
Services Industry Group Index 743--Music & Video Stores ("MG Index"). The
comparison assumes $100 was invested on August 11, 1999 in the Company's Class
A Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
Comparison of Cumulative Total Return
of Blockbuster Inc., the S&P 500 Index and MG Index
[GRAPH]
<TABLE>
<CAPTION>
8/11/99 8/31/99 9/30/99 10/29/99 11/30/99 12/31/99
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -.- -BLOCKBUSTER INC. 100.00 99.17 85.00 80.97 102.67 89.32
- -----------------------------------------------------------------------------
--.--S&P 500 INDEX 100.00 99.51 96.78 102.90 104.99 111.18
- -----------------------------------------------------------------------------
--.--MG INDEX 100.00 86.05 80.09 74.22 86.85 78.92
</TABLE>
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships Between the Company and Viacom
Initial Public Offering and Split-off Agreement
General. The Company has entered into an Initial Public Offering and Split-
Off Agreement with Viacom (the "IPO and Split-Off Agreement"), which governs
the respective rights and duties of the Company and Viacom with respect to
certain offerings of the Company's Common Stock and other securities, including
a possible split-off of the Company from Viacom or similar transaction (the
"Proposed Split-Off"). In addition, the IPO and Split-Off Agreement sets forth
certain covenants to which the Company has agreed for various periods following
the IPO and the Proposed Split-Off.
Offerings of the Company's Securities and the Proposed Split-Off. The
Company has agreed to cooperate with Viacom in all respects to accomplish the
following: (i) any primary offerings of the Company's Common Stock and other
securities prior to the Proposed Split-Off; and (ii) the Proposed Split-Off.
The Company has also agreed that, at Viacom's direction, it will promptly take
all actions necessary or desirable to effect the foregoing transactions,
including the registration under the Securities Act of 1933, as amended, of
shares of the Company's capital stock that Viacom owns. Viacom has the sole
discretion to determine whether or not to proceed with all or part of the
Proposed Split-Off and all terms and conditions thereof.
Expenses. In general, unless otherwise provided for in the IPO and Split-Off
Agreement or any other agreement, the Company and Viacom will pay their
respective costs and expenses incurred in connection with any offering of the
Company's securities prior to the Proposed Split-Off, including in connection
with the IPO and the Proposed Split-Off.
. Expenses Relating to Primary Offerings of Securities of the Company. The
Company has generally agreed to pay all costs and expenses relating to
any primary offerings of the Company's Common Stock and other securities
of the Company prior to the Proposed Split-Off, including costs and
expenses related to the IPO.
. Expenses Relating to the Proposed Split-Off. Viacom has generally agreed
to pay all costs and expenses relating to the Proposed Split-Off.
Access to Information. Generally, the Company and Viacom have agreed to
provide each other with, upon written request and subject to specified
conditions, and for a specified period of time, access to information relating
to the assets, business and operations of the requesting party. The Company and
Viacom have agreed to keep their books and records for a specified period of
time. In addition, the Company and Viacom have agreed to cooperate with each
other to allow access to each other's employees, to the extent they are
necessary, to discuss and explain all requested information mentioned above and
with respect to any claims brought against the other relating to the conduct of
the Company's business prior to completion of the Proposed Split-Off.
Covenants. The Company has agreed that, for so long as Viacom is required to
consolidate its results of operations and financial position, the Company will:
(i) provide Viacom with financial information regarding the Company and
its subsidiaries;
(ii) provide Viacom with copies of all quarterly and annual financial
information and other reports and documents the Company intends to file
with the Securities and Exchange Commission prior to such filings, as well
as final copies upon filing, and to actively consult with Viacom with
respect to any changes made to these reports;
(iii) provide Viacom with copies of the Company's budgets and financial
projections, as well as the opportunity to meet with the Company's
management to discuss such budgets and projections;
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(iv) consult with Viacom regarding the timing and content of earnings
releases and cooperate fully and cause the Company's accountants to
cooperate fully with Viacom in connection with any of the Company's public
filings;
(v) not change its auditors without Viacom's prior written consent, and
use its reasonable best efforts to enable its auditors to complete their
audit of the Company's financial statements such that they will date their
opinion the same date that they date their opinion on Viacom's financial
statements;
(vi) provide to Viacom and its auditors all information required for
Viacom to meet its schedule for the filing and distribution of Viacom's
financial statements;
(vii) make the Company's books and records available to Viacom and
Viacom's auditors, so that they may conduct reasonable audits relating to
the Company's financial statements;
(viii) adhere to specified accounting standards;
(ix) agree with Viacom on any changes to the Company's accounting
policies; and
(x) agree with Viacom regarding the Company's accounting estimates and
principles.
Other Covenants. The IPO and Split-Off Agreement also provides that for so
long as Viacom beneficially owns 50% or more of the outstanding shares of the
Company's Common Stock, the Company may not take any action or enter into any
commitment or agreement that may reasonably be anticipated to result, with or
without notice and with or without lapse of time, or otherwise, in a
contravention, or an event of default, by Viacom of:
(i) any provision of applicable law or regulation, including but not
limited to provisions pertaining to the Code, or the Employee Retirement
Income Security Act of 1974, as amended;
(ii) any provision of Viacom's certificate of incorporation or by-laws;
(iv) any credit agreement or other material instrument binding upon
Viacom; or
(v) any judgment, order or decree of any governmental body, agency or
court having jurisdiction over Viacom or any of its assets.
Assignment and Assumption. In October 1998, about 380 BLOCKBUSTER MUSIC(R)
stores were sold to Wherehouse Entertainment Inc. ("Wherehouse"). Some of the
leases transferred in connection with this sale had previously been guaranteed
either by Viacom or its affiliates. Under the IPO and Split-Off Agreement,
Viacom International has assigned to the Company its rights and obligations
under the agreement related to the sale of the BLOCKBUSTER MUSIC stores to
Wherehouse. The Company has agreed to accept this assignment. The Company
estimates that, as of the time of the sale, the Company was contingently liable
for approximately $84 million, on an undiscounted basis, with respect to base
rent for the remaining term of these leases if Wherehouse were to default on
all of these leases. The Company's contingent liability will vary over time
depending on the lease terms remaining.
Assignment of Employment Agreements. The IPO and Split-Off Agreement
provides that Viacom will assign to the Company immediately before the
completion of the Proposed Split-Off any and all employment agreements between
Blockbuster Entertainment Group, a Viacom business unit, and the employees who
are parties to those agreements.
Options. The Company granted to Viacom International a continuing option,
assignable to Viacom and any of its subsidiaries, to purchase, under specified
circumstances, additional shares of the Company's Class B Common Stock or any
shares of the Company's nonvoting capital stock. These options may be exercised
immediately prior to the issuance of any of the Company's equity securities (i)
with respect to shares of the Company's Class B Common Stock, only to the
extent necessary to maintain Viacom's then-existing percentage of equity value
and combined voting power of the Company's two outstanding classes of Common
Stock; and (ii) with respect to shares of nonvoting capital stock, to the
extent necessary to own 80% of each outstanding class of such stock. The
purchase price of the shares of the Company's Class B Common Stock
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purchased upon any exercise of the options, subject to specified exceptions, is
based on the market price of the Company's Class A Common Stock. The purchase
price of nonvoting capital stock is the price at which such stock may be
purchased by third parties. This option terminates when Viacom or its
affiliates own less than 45% of the equity of the Company.
Indemnification Procedures. The IPO and Split-Off Agreement sets forth the
procedures that the Company and Viacom are to undertake if either of them
demand to be indemnified by the other under any indemnification right given in
any of the agreements between the Company and Viacom relating to the IPO or the
Proposed Split-Off, other than the Tax Matters Agreement referred to below.
Release and Indemnification Agreement
The Company has entered into a Release and Indemnification Agreement with
Viacom (the "Indemnification Agreement") under which the Company and Viacom
have agreed to indemnify each other and to release each other with respect to
certain matters.
Indemnification Relating to the Company's Assets, Businesses and
Operations. The Company agreed to indemnify and hold harmless Viacom and
certain of its affiliates and their respective officers, directors, employees,
agents, heirs, executors, successors and assigns against any payments, losses,
liabilities, damages, claims and expenses and costs arising out of or relating
to:
(i) the Company' past, present and future assets, businesses and
operations and other assets, businesses and operations managed by the
Company or persons previously associated with the Company, except for
assets, businesses and operations of Paramount Parks Inc., Spelling
Entertainment Group Inc. and its subsidiaries, including Republic
Entertainment Inc. and Worldvision Inc., Showtime Networks Inc., Virgin
Interactive Entertainment Limited and Virgin Interactive Entertainment
Inc.; and
(ii) payments, expenses and costs that Viacom paid to a third party
associated with the transfer of the Company's assets, businesses and
operations from certain Viacom entities to the Company and its
subsidiaries.
Viacom similarly agreed to indemnify the Company and certain of its
affiliates, and the Company's and such affiliates' respective officers,
directors, employees, agents, heirs, executors, successors and assigns for
Viacom's past, present and future assets, businesses and operations, except for
assets, businesses and operations for which the Company agreed to indemnify
Viacom. In addition, the Transition Services Agreement, the Registration Rights
Agreement and the Tax Matters Agreement referred to below provide for
indemnification between Viacom and the Company relating to the substance of
such agreements.
Indemnification Relating to the IPO and Other Offerings. The Company
generally agreed to indemnify Viacom and certain of Viacom's affiliates against
all liabilities arising out of any material untrue statements and omissions in
any prospectus and any related registration statement filed with the Securities
and Exchange Commission relating to the IPO or any other primary offering of
the Company's securities prior to the completion of the Proposed Split-Off.
However, the Company's indemnification of Viacom does not apply to information
relating to Viacom, excluding information relating to the Company. Viacom
agreed to indemnify the Company for this information.
Indemnification Relating to the Proposed Split-Off. The Company generally
agreed to indemnify Viacom and certain of Viacom's affiliates against all
liabilities arising out of any material untrue statements and omissions in any
and all registration statements and/or other documents filed with the
Securities and Exchange Commission in connection with the Proposed Split-Off.
However, the Company's indemnification of Viacom does not apply to information
relating to Viacom, excluding information relating to the Company. Viacom
agreed to indemnify the Company for this information.
Release Relating to Actions by Viacom Related to Viacom's and the Company's
Assets, Businesses and Operations. Except for the rights and obligations of the
Company and Viacom, which relate to the agreements between the Company and
Viacom relating to the IPO or the Proposed Split-Off, the Company released
Viacom and certain of its subsidiaries and affiliates and their respective
officers, directors, employees, agents, heirs, executors, successors and
assigns for all losses for any and all past actions and failures to take
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action relating to the Company's and Viacom's assets, businesses and
operations. Viacom similarly released the Company.
Transition Services Agreement
The Company and Viacom have entered into a Transition Services Agreement
(the "Services Agreement") under which Viacom provides the Company with agreed-
upon cash management, accounting, legal, management information systems,
financial and tax services and employee benefit plan and insurance
administration. These services may be changed upon agreement between the
Company and Viacom. The fee for these services approximates Viacom's cost and
could be subject to adjustment. The Company believes that the fee for these
services is no less favorable than could be obtained by the Company internally
or from someone who had not controlled the Company. Charges under the Services
Agreement were about $600,000 during fiscal 1999. The Company also agreed to
pay or reimburse Viacom for any out-of-pocket payments, costs and expenses
associated with these services. The Services Agreement expires upon the
completion of the Proposed Split-Off. The Company can make no assurances that
it will be able to provide these services internally or find a third party
provider on acceptable terms, if at all, after the expiration of the Services
Agreement.
Registration Rights Agreement
The Company and Viacom have entered into a Registration Rights Agreement
(the "Registration Rights Agreement"), which requires the Company, upon
Viacom's request, to use the Company's reasonable best efforts to register
under the applicable federal and state securities laws any of the shares of the
Company's equity securities held by Viacom for disposition in accordance with
Viacom's intended method of disposition, and will take such other actions as
may be necessary to permit the sale in other jurisdictions, subject to
specified limitations. Viacom also has the right to include the shares of the
Company's equity securities Viacom beneficially owns in other registrations of
these equity securities that the Company initiates. Except for the Company's
legal and accounting fees and expenses, the Registration Rights Agreement
provides that Viacom generally pays all or its pro rata portion of out-of-
pocket costs and expenses relating to each such registration that Viacom
requests or in which it participates. Subject to specified limitations, the
registration rights will be assignable by Viacom and its assigns. The
Registration Rights Agreement contains indemnification and contribution
provisions that are customary in transactions similar to those contemplated by
this document.
Tax Matters Agreement
After the completion of the IPO, the Company and certain of its subsidiaries
continued to be included in Viacom's consolidated group for U.S. federal income
tax purposes and Viacom's combined, consolidated or unitary group for various
state and local income tax purposes (the "consolidated group"). The Company and
Viacom entered into a Tax Matters Agreement (the "Tax Agreement") whereby for
the taxable years and portions thereof prior to August 16, 1999, Viacom has and
will pay all taxes for the consolidated group, including any liability
resulting from adjustments to tax returns relating to such taxable years or
portions thereof. The Company and its subsidiaries will continue to be liable
for all taxes that are imposed on a separate return basis or on a combined,
consolidated or unitary basis on a group of companies that includes only the
Company and its subsidiaries.
The Tax Agreement requires the Company and Viacom to make payments to each
other equal to the amount of income taxes which would be paid by the Company,
subject to certain adjustments, as if the Company and each of its subsidiaries
included in the consolidated group were to file its own combined, consolidated
or unitary, or, where only one of the Company's entities is included in the
consolidated group, separate, federal, state and local income tax returns for
any taxable year or portion thereof beginning after August 16, 1999 in which
the Company is included in the consolidated group. This would include any
amounts determined to be due as a result of a redetermination of the tax
liability of the consolidated group arising from
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an audit or otherwise. With respect to some tax items attributable to periods
following August 16, 1999 during which the Company is included in the
consolidated group, such as foreign tax credits, alternative minimum tax
credits, net operating losses and net capital losses, the Company has a right
of reimbursement or offset, which is determined based on the extent to which,
and the time at which, such credits or losses could have been used by the
Company or its subsidiaries if it had not been included in the consolidated
group. This right to reimbursement or offset continues regardless of whether
the Company is a member of the consolidated group at the time the attributes
could have been used. The Company is only entitled to reimbursement for
carryback items that it could use on a stand alone basis to the extent that
such items result in an actual tax savings for the consolidated group. The Tax
Agreement also requires the Company, if so requested by Viacom, to surrender
some tax losses of the Company's subsidiaries that are resident in the United
Kingdom for 1998 and earlier years to Viacom's U. K. subsidiaries without any
right to compensation. The Company also agreed to pay Viacom an amount equal to
any tax benefit the Company receives from the exercise of Viacom's stock
options by the Company's employees, including in years that the Company is no
longer included in Viacom's consolidated group. The Company will also pay
Viacom the amount of any income taxes with respect to income tax returns that
include only the Company, which returns, as described below, will be filed by
Viacom.
Viacom continues to have all the rights of a parent of a consolidated group
filing consolidated federal income tax returns. Viacom has similar rights
provided for by applicable state and local law with respect to a parent of a
combined, consolidated or unitary group. Viacom is the sole and exclusive agent
for the Company in any and all matters relating to income taxes of the
consolidated group. Viacom has sole and exclusive responsibility for the
preparation and filing of all income tax returns or amended returns with
respect to the consolidated group. Viacom has the sole right to contest or
compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on behalf of the consolidated group, except
that Viacom is not entitled to compromise any such matter in a manner that
would affect the Company's liability under the Tax Agreement without the
Company's consent, which may not be withheld unreasonably. Under the Tax
Agreement, Viacom has similar authority with regard to income tax returns that
the Company files on a separate basis and related tax proceedings. Viacom's
authority with respect to periods during which the Company is included in the
consolidated group will continue to apply even with respect to tax returns that
are filed and for proceedings that are conducted after the proposed Split-Off,
which relate to such periods. This agreement may result in conflicts of
interest between the Company and Viacom.
Provided that Viacom continues to beneficially own, directly or indirectly,
at least 80% of the combined voting power and the value of the Company's
outstanding capital stock, the Company will be included for federal income tax
purposes in the consolidated group of which Viacom is the common parent. Viacom
has stated that it is the current intention of Viacom and its subsidiaries to
continue to file a single consolidated federal income tax return. In certain
circumstances, some of the Company's subsidiaries also will be included with
some of Viacom's subsidiaries, other than the Company's subsidiaries, in
combined, consolidated or unitary income tax groups for state and local tax
purposes. Each member of the consolidated group for federal income tax purposes
will be liable for the federal income tax liability of each other member of the
consolidated group. Similar principles will apply with respect to members of a
combined group for state and local tax purposes. Accordingly, although the Tax
Agreement will allocate tax liabilities between the Company and Viacom during
the period in which the Company is included in the consolidated group, the
Company could be liable for the federal income tax liability of any other
member of the consolidated group in the event any such liability is incurred,
and not discharged, by such other member. The Tax Agreement provides, however,
that Viacom will indemnify the Company to the extent that, as a result of being
a member of the consolidated group, the Company will become liable for the
federal income tax liability of any other member of the consolidated group,
other than the Company's subsidiaries.
On August 3, 1999, Viacom received a private letter ruling from the Internal
Revenue Service to the effect that the Proposed Split-Off would be a tax-free
transaction to Viacom and its shareholders for U.S. federal income tax
purposes. However, the proposed merger between Viacom and CBS Corporation was
not contemplated at the time that this private letter ruling was issued. As a
result, Viacom submitted a request for a
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supplemental private letter ruling to confirm that the proposed merger would
not adversely affect the tax-free status of the Proposed Split-Off. In
connection with seeking such rulings, certain representations have been made to
the Internal Revenue Service regarding the Company's business. In the Tax
Agreement, the Company agrees that during the two-year period following the
completion of the Proposed Split-Off, the Company and its subsidiaries will not
enter into certain types of transactions, including sales of assets, mergers,
liquidations, stock issuances, and stock redemptions, without Viacom's consent
unless Viacom receives a ruling from the Internal Revenue Service or an opinion
of counsel to the effect that such transaction will not adversely affect the
tax-free status of the Proposed Split-Off. The Company is generally responsible
for, among other things, any taxes imposed on Viacom or its subsidiaries as a
result of the Proposed Split-Off failing to qualify as a tax-free transaction
on account of any breach of Viacom's representations or agreements caused by
any action or failure to act by the Company or its subsidiaries or any
transaction involving the Company, or the Company's subsidiaries', assets,
stock or business following the Proposed Split-Off, regardless of whether such
transaction is within the Company's control.
Other Agreements
Revenue-Sharing
The Company has a revenue-sharing agreement with an affiliate of Paramount
Pictures, a Viacom subsidiary ("Paramount"). Under this agreement, which
expires in August 2003, the Company has agreed to pay, for a limited period of
time, an agreed-upon percentage of the Company's rental revenue for Paramount
videocassettes priced for rental and to make a minimum payment for these tapes.
This percentage declines after a period of weeks following the initial release
of the movie. The Company has agreed to take a minimum number of copies of each
qualifying movie released by Paramount. The agreement allows the Company to
sell the previously viewed tapes to its customers, although Paramount has the
right to prevent the Company from selling a portion of such tapes in exchange
for a fee. The Company's total purchases from Paramount, including purchases
under this agreement, were $77.5 million, $110.1 million and $112.0 million for
the years ended December 31, 1997, 1998 and 1999, respectively.
Promotional Services and Customer Database Services and License Agreement
The Company has entered into a U.S. promotional services and customer
database services and license agreement with MTV Networks ("MTVN"), a business
unit of Viacom. Under this agreement, for one year, the Company will provide
certain promotional and database services to MTVN and grant a U.S. license to
MTVN to use the Company's U.S. customer database internally and/or to
sublicense the database for internal use to affiliates of MTVN that are direct
or indirect wholly-owned subsidiaries of Viacom and to MTVN Online and its
direct and indirect affiliates for internal use so long as Viacom is in control
of MTVN Online and such affiliates. In return, MTVN will pay the Company a
total of $18 million plus costs, of which $4.5 million was received in 1999. In
addition, during this one year period, MTVN will have an option to pay the
Company an additional $5 million to extend in perpetuity the license to use the
customer database. If MTVN exercises this option, it will provide the Company,
for internal use, with access to MTVN's Leisure Time Study, a proprietary study
of how consumers choose among the increasing number of media, entertainment and
other leisure time activities available to them. At any time, the Company has
the right to terminate this option or MTVN's perpetual license for a fee of $25
million. In such event, the Company's access to MTVN's Leisure Time Study also
terminates.
Other Agreements
There are various other agreements between the Company and Viacom and its
affiliates, which the Company believes are not material to the Company. The
Company believes the terms of these agreements approximate those which would be
available from third parties.
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Other Related Party Transactions
Midway Games
Sumner M. Redstone and NAI own an aggregate of about 25.2% of the common
stock of Midway Games Inc. ("Midway"). During the 1997, 1998 and 1999 fiscal
years, the Company paid about $12.5 million, $19.1 million and $15.7 million,
respectively, for purchases of home video games from Midway. The Company
believes that the terms of these purchases were no less favorable to the
Company than would have been obtainable from parties in which there was no such
ownership interest. The Company expects to purchase video games from Midway in
the future.
Notes and Dividends
On December 31, 1998, the Company declared a dividend in the form of a
promissory note in the principal amount of $1.4 billion to Viacom
International. In the first quarter of 1999, the Company also issued promissory
notes in the aggregate principal amount of about $77 million to Viacom
International in order to obtain funds for an acquisition of video stores.
These notes bore interest at LIBOR plus 1%. The Company paid these promissory
notes, together with any accrued and unpaid interest, with the proceeds of the
borrowings under its credit agreement. In addition, on each of October 20,
1999, and February 15, 2000, the Company's Board declared a cash dividend of
$0.02 per share of its Class A and Class B Common Stock, payable November 22,
1999, and March 20, 2000, respectively. The total dividend payments were
approximately $3.5 million each, of which Viacom International was paid about
$2.9 million in each instance.
Loan to Executive
In connection with the Company's employment of Larry Zine, Executive Vice
President and Chief Financial Officer of the Company, the Company agreed to
loan Mr. Zine an amount equal to all federal, state and local income taxes
payable in connection with his sign-on bonus. The Company has loaned Mr. Zine
$246,300, which loan bears interest at 5.25% compounded semi-annually. As of
February 29, 2000, $252,187 was outstanding under such loan. The Company has
agreed to forgive the aggregate principal amount of the loan, together with any
accrued interest thereon, on an income tax free basis in three equal
installments on the first, second and third anniversaries of commencement of
Mr. Zine's employment with the Company; provided that, if Mr. Zine terminates
his employment without good reason (as defined in his employment agreement) or
the Company terminates Mr. Zine's employment for cause, any outstanding
aggregate principal amount of the loan, together with any accrued interest
thereon, will accelerate and become immediately due and payable.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission. Such persons are required by Securities and
Exchange Commission regulation to furnish the Company with copies of all
Section 16(a) reports that they file.
To the Company's knowledge, based solely on its review of the copies of such
reports received by it with respect to fiscal 1999, or written representations
from certain reporting persons, the Company believes that all filing
requirements applicable to its directors, officers and persons who own more
than 10% of a registered class of the Company's equity securities have been
complied with.
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PROPOSAL II
APPROVAL OF THE 1999 LTMIP
The 1999 LTMIP was originally adopted by the Company's Board and by the sole
stockholder of the Company on July 15, 1999. The 1999 LTMIP is being
resubmitted to the Company's stockholders for approval at this time in order to
continue to satisfy the requirements of the Performance-Based Compensation
Exception to the deduction limitation set forth in Section 162(m) of the Code.
See "Report of the Senior Executive Compensation Committee on Executive
Compensation--Internal Revenue Code Section 162(m)." A copy of the 1999 LTMIP
is attached to this Proxy Statement as Appendix A. The following is a brief
summary of certain provisions of the 1999 LTMIP, which summary is qualified in
its entirety by reference to the full text of the 1999 LTMIP.
General
The 1999 LTMIP provides for grants of stock options to purchase shares of
Class A Common Stock, stock appreciation rights, restricted shares of Class A
Common Stock, restricted share units and phantom shares, the terms and
conditions of which are described in more detail below. Where necessary,
compensation relating to awards under the 1999 LTMIP is generally intended to
qualify as "qualified performance-based compensation," which is excluded from
the $1.0 million limit on deductible compensation set forth in Section 162(m)
of the Code.
Any employee, non-employee director or advisor of the Company or its
subsidiaries is eligible to participate in the 1999 LTMIP; however, only
employees of the Company or its subsidiaries are eligible to receive incentive
stock options. As of February 29, 2000, approximately 6,000 employees and two
non-employee directors were designated as currently eligible to participate in
this plan.
The maximum aggregate number of shares of Class A Common Stock that may be
distributed under the 1999 LTMIP, whether reserved for issuance upon grants of
stock options or stock appreciation rights or granted as restricted shares or
restricted share units, is 25,000,000, subject to adjustment, as discussed
below. Shares of Class A Common Stock covered by expired or terminated stock
options, stock appreciation rights, restricted shares and restricted share
units that are forfeited under the terms of this plan or stock appreciation
rights or restricted share units that are exercised for cash will not be
counted in applying such limit. The maximum aggregate number of shares of Class
A Common Stock that may be granted pursuant to awards granted to any
participant during the five-year term of this plan is 5,000,000. As of the date
of this Proxy Statement only stock options have been granted under the 1999
LTMIP. As of February 29, 2000, options to purchase approximately 10,400,000
shares of Class A Common Stock were outstanding. Unless earlier terminated by
action of the Board, the 1999 LTMIP will terminate on July 15, 2004.
Administration
The 1999 LTMIP provides that it must be administered by the Board or by a
committee appointed by the Board. Pursuant to the terms of the 1999 LTMIP, such
committee must consist of at least two members of the Board. With respect to
any grant that is intended to satisfy the requirements of Rule 16b-3 under the
Exchange Act, the committee must consist of at least such number of directors
as is required from time to time by such rule, and each committee member must
satisfy the requirements of such rule. With respect to any grant that is also
intended to satisfy the Performance-Based Compensation Exception set forth in
Section 162(m) of the Code, the committee must consist of at least such number
of directors as is required from time to time to satisfy this exception, and
each committee member must satisfy the qualification requirements of such
exception.
Grants under the 1999 LTMIP are currently authorized by the Senior Executive
Compensation Committee or, in the case of grants to the Company's non-employee
directors, by the Board, excluding such non-employee directors. References to
the "Committee" in this discussion shall mean the Senior Executive Compensation
Committee, the Board, and/or any other committee to be appointed by the Board
in accordance with the terms
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of the 1999 LTMIP, as applicable. With respect to grants in jurisdictions
outside of the United States, the Committee has the authority to require that
any related agreements contain any terms required by local law in order to
constitute valid grants under the laws of such jurisdictions, even if the terms
are more restrictive than the terms set forth in the 1999 LTMIP.
Stock Options
Stock options can be either "incentive stock options," within the meaning of
Section 422 of the Code or non-qualified stock options, as determined by the
Committee.
Subject to certain limits described below, the Committee has the power to
determine the number and kind of stock options granted, the exercise price of
the stock options, the vesting schedule applicable to such stock options, the
period during which they can be exercised and any applicable performance goal
requirements. The Committee may, in its discretion, accelerate the vesting date
of any stock option. With respect to incentive stock options and any options
intended to qualify for the Performance-Based Compensation Exception to the
deduction limitation set forth in Section 162(m) of the Code, the exercise
price cannot be less than 100% of the fair market value of a share of Class A
Common Stock on the date of grant. In addition, with respect to any ten percent
stockholder, as calculated under the Code, the exercise price of an incentive
stock option cannot be less than 110% of the fair market value of a share of
Class A Common Stock on the date of grant. The closing price of the Company's
Class A Common Stock on March 15, 2000, was $11.00. No stock option can be
exercised more than ten years after the date of grant, or five years in the
case of incentive stock options granted to a ten percent stockholder. The
exercise price of a stock option must be paid in full at the time of exercise
as follows: (i) in cash; (ii) in the discretion of the Committee, in shares of
Class A Common Stock or other securities of the Company designated by the
Committee; (iii) in a combination of cash, shares or such other securities; or
(iv) with any other form of valid consideration that is acceptable to the
Committee.
Currently outstanding options are generally exercisable in cumulative annual
installments of one-fifth of the shares covered thereby commencing one year
after the date of grant and expire ten years from the date of grant, except in
the event of the termination of service, disability or death of the
participant. If the service of a participant other than a non-employee
director, ends by reason of a voluntary termination by such participant or a
termination by the Company other than a termination for cause, the
participant's outstanding stock options may be exercised, to the extent then
exercisable, for a period of six months following the date of termination. In
the event of a participant's death, the participant's stock options may be
exercised to the extent exercisable at the date of death by the person who
acquired the right to exercise such stock options by will or the laws of
descent and distribution for a period of twelve months following the date of
death. In the event of the permanent disability of a participant who is an
employee, the participant's stock options may be exercised to the extent
exercisable upon the date of the onset of such permanent disability for a
period of twelve months following such date. If a non-employee director ceases
to be a member of the Company's Board for any reason, other than due to a
termination for cause, the director's stock options may be exercised, to the
extent then exercisable, for a period of twelve months following the date of
termination. If any participant's service is terminated for cause, then, unless
the Committee determines otherwise, all stock options, whether or not then
vested, will be forfeited by the participant effective as of the date of such
termination. In certain instances, the Committee has the discretion to set
post-termination exercise periods in excess of those described above. However,
in no event may a stock option be exercised following the earlier to occur of
the expiration of the option and the tenth anniversary of the date of grant.
Stock Appreciation Rights
The Committee may grant stock appreciation rights under the 1999 LTMIP only
in tandem with stock options, either at the time of grant of the stock option
or by amendment at any time prior to the exercise, expiration or termination of
the stock option. Each stock appreciation right entitles the holder to
surrender the related stock option in lieu of exercise and to receive an amount
equal to the excess of the fair market value of a share of Class A Common Stock
on the date the holder exercises the stock appreciation right over the exercise
price of the related stock option. This amount will be paid in cash or, in the
discretion of the
26
<PAGE>
Committee, in shares of Class A Common Stock or other of the Company's
securities designated by the Committee or in a combination of cash, shares or
such other securities. No stock appreciation right can be exercised unless the
related stock option is then exercisable.
Restricted Shares and Restricted Share Units
The Committee may grant restricted shares and restricted share units under
the 1999 LTMIP. A "restricted share" is a share of Class A Common Stock granted
to the participant subject to restrictions as determined by the Committee. A
"restricted share unit" is a contractual right to receive either a share of
Class A Common Stock, a cash payment equal to the fair market value of a share
of Class A Common Stock or a combination of cash and Class A Common Stock,
subject to terms and conditions as determined by the Committee. Any restricted
shares and restricted share units granted under the 1999 LTMIP plan will be
subject to a vesting schedule, including any applicable performance goal
requirements, established by the Committee. The Committee may, in its
discretion, accelerate the dates on which restricted shares and restricted
share units vest. For restricted share grants, stock certificates representing
the number of restricted shares granted to a participant will be registered in
the participant's name as of the date of grant but remain held by the Company.
The participant who receives a restricted share grant will have all rights as a
holder of shares of Class A Common Stock except that the participant will not
be entitled to delivery of certificates until the shares represented thereby
have vested, and the restricted shares cannot be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of until such shares have vested.
For restricted share units that are paid in Class A Common Stock, stock
certificates for the appropriate number of shares of stock, free of
restrictions, will be delivered to the participant when the restricted share
units vest.
If a participant's service terminates for any reason or, in the event of a
participant's death or, for participants who are employees, permanent
disability, the unvested restricted shares and restricted share units will be
forfeited as of the date of such event, unless the Committee determines
otherwise with respect to some or all of the unvested restricted shares and
restricted share units.
Phantom Shares
The value of any phantom shares granted under the 1999 LTMIP will be
determined by reference to the fair market value of a share of Class A Common
Stock. Cash payments made with respect to these phantom shares are based,
subject to any applicable limit on the maximum amount payable, on any increase
in value of shares of Class A Common Stock on specified valuation dates over
the initial value of these shares. The 1999 LTMIP further empowers the
Committee to determine the initial values of the phantom shares. The plan
further empowers the Committee to determine the valuation dates applicable to a
grant of phantom shares, the period during which the phantom shares vest and to
set a limit on the maximum amount of appreciation value payable for the phantom
shares.
If a participant's service terminates for any reason other than for cause
or, in the event of a participant's death or, for participants who are
employees, permanent disability, then, unless the Committee determines
otherwise, the cash payments for such participant's phantom shares will be the
lesser of the appreciation in value determined as of the date of the
termination or event or as of the originally scheduled valuation dates, and
these payments will be made after the originally scheduled valuation dates. All
rights with respect to phantom shares that are not vested as of the date of
this termination or event, as the case may be, will be relinquished by the
participant. If a participant's employment is terminated for cause, all phantom
shares, whether or not vested, will be forfeited by the participant, unless the
Committee determines otherwise.
Adjustments
In the event of a merger, consolidation, stock split, dividend,
distribution, combination, reclassification or recapitalization that changes
the character or amount of the Class A Common Stock, the Committee will make
any adjustments as it deems appropriate to the following: (i) the number and
kind of shares of Class A Common Stock subject to any stock options or stock
appreciation rights or the number and kind of restricted
27
<PAGE>
shares, restricted share units or phantom shares granted to each participant;
(ii) the exercise price of any outstanding stock options or stock appreciation
rights or the initial value of any outstanding phantom shares; and (iii) the
maximum number of shares of Class A Common Stock that may be granted under the
plan or the aggregate number of shares that may be granted to any participant.
Transfer Restrictions, Etc.
The rights of a participant with respect to the stock options, stock
appreciation rights, restricted shares, restricted share units or phantom
shares granted under the 1999 LTMIP are not transferable by the participant
other than by will or the laws of descent and distribution. Except as described
above, no grant under the 1999 LTMIP entitles a participant to any rights of a
holder of shares of Class A Common Stock, nor will any grant be construed as
giving any employee or advisor a right to continue service with the Company nor
any non-employee director a right to be nominated, reelected or retained as a
member of the Company's Board.
Amendment and Termination
The 1999 LTMIP may be terminated and may be altered, amended, suspended or
terminated at any time, in whole or in part, by the Company's Board, provided
that (i) no alteration or amendment will be effective without stockholder
approval if approval is required by law or under the rules of the New York
Stock Exchange, the Nasdaq Stock Market or any stock exchange on which the
Company's Common Stock is listed; and (ii) no such termination, suspension,
alteration or amendment may adversely alter or affect the terms of any then
outstanding awards without the consent of the affected participant.
Summary of Certain Federal Income Tax Consequences Relating to Options Granted
Under the 1999 LTMIP
The following discussion is intended as a general summary of the federal
income tax consequences associated with the grant and exercise of stock
options. This summary does not purport to be complete and does not address any
applicable state or local tax law.
Non-qualified Stock Options. In general, no taxable income is realized by
the participant upon the grant of a non-qualified stock option, and no
deduction generally is then available to the Company. Upon exercise of a non-
qualified stock option, the excess of the fair market value of the shares on
the date of exercise over the exercise price will be taxable to the participant
as ordinary income. The amount included in the gross income of the participant
will also be deductible by the Company. The tax basis of shares acquired by the
participant will be equal to the exercise price plus the amount includable in
the gross income of the participant as ordinary income. When a participant
disposes of shares acquired upon exercise of a non-qualified stock option, any
amount realized in excess of the fair market value of the shares on the date of
exercise generally will be treated as a capital gain and will be long-term or
short-term, depending on the holding period of the shares. The holding period
commences upon exercise of the non-qualified stock option. If the amount
received is less than such fair market value, the loss will be treated as a
long-term or short-term capital loss, depending on the holding period of the
shares. Certain additional rules may apply if the exercise price of a non-
qualified stock option is paid in shares or other securities previously owned
by the participant.
Incentive Stock Options. In general, no taxable income is realized by a
participant and no tax deduction is available to the Company upon either the
grant or exercise of an incentive stock option. If a participant holds the
shares acquired upon the exercise of an incentive stock option for more than
one year after the transfer of the shares upon exercise of the incentive stock
option and more than two years from the date of the grant of the incentive
stock option (the "ISO Holding Period"), the difference between the exercise
price and the amount realized upon the sale of the shares will be treated as a
long-term capital gain or loss and no deduction will be available to the
Company. If the shares acquired upon exercise of the incentive stock option are
disposed of before the expiration of the ISO Holding Period, the participant
will realize ordinary income and the Company will be entitled to a deduction on
the portion of the gain, if any, equal to the difference between the incentive
28
<PAGE>
stock option exercise price and the fair market value of the shares on the date
of exercise or, if less, the difference between the amount realized on the
disposition and the adjusted basis of the stock. Any further gain or loss from
an arm's-length sale or exchange will be taxable as a long-term or short-term
capital gain or loss, depending upon the holding period of the shares before
disposition. Certain additional rules may apply if the exercise price of an
incentive stock option is paid in shares or other securities previously owned
by the participant.
The excess of the fair market value (at the time of exercise) of the shares
acquired upon the exercise of an incentive stock option over the exercise price
of such stock option may constitute an adjustment to taxable income for
purposes of the alternative minimum tax. Special rules for computing
alternative minimum taxable income also may apply in certain cases where there
are subsequent sales of shares in disqualifying dispositions and to determine
the basis of the stock for purposes of computing alternative minimum taxable
income on subsequent sale of the shares.
Prior Issuances of Options under the 1999 LTMIP
The following table sets forth certain information regarding options
received under the 1999 LTMIP from its inception through February 29, 2000, by
(i) the Named Executive Officers, (ii) all current executive officers as a
group, (iii) all current directors who are not executive officers as a group,
(iv) each nominee for election as a director, (v) each person who has received
5% or more of such options and (vi) all employees, including current officers
who are not executive officers, as a group. The Company is not aware of any
associates of any of the persons listed in (i)-(iv) above who have received
options.
<TABLE>
<CAPTION>
Aggregate Amount of Class A Common Stock
Subject to Options Granted Under the 1999 LTMIP
Name of Individual or Group from Inception through February 29, 2000(1)
- --------------------------- -----------------------------------------------
<S> <C>
John F. Antioco................ 1,133,332
Chairman of the Board,
President and Chief Executive
Officer
Mark T. Gilman................. 425,500
Executive Vice President and
Chief Worldwide Development
Officer, Store Operations
Alva J. Phillips............... 391,000
Executive Vice President and
Chief Information Officer
Nigel Travis................... 391,332
Executive Vice President and
President, Worldwide Store
Operations
Larry J. Zine.................. 421,666
Executive Vice President and
Chief Financial Officer
Philippe P. Dauman............. --
Director
Thomas E. Dooley............... --
Director
All current executive officers
as a group.................... 4,124,496
All current directors who are
not executive officers as a
group......................... 29,000
All employees, including
current officers who are not
executive officers, as a group
.............................. 11,584,358
</TABLE>
- --------
(1) This number includes options that have been cancelled prior to their
exercise and are eligible to be re-granted under the 1999 LTMIP. This
number also includes the options granted to current executive officers
disclosed above, but not the options granted to non-employee directors.
The amounts that would be receivable by the individuals or groups named in
the table above under the 1999 LTMIP in the future are not determinable at this
time.
The Board recommends a vote FOR the proposal to approve the 1999 LTMIP.
29
<PAGE>
PROPOSAL III
APPROVAL OF THE SENIOR EXECUTIVE STIP
The Senior Executive STIP was originally adopted by the Company's Board and
the sole stockholder of the Company in July 1999. The Senior Executive STIP is
being resubmitted to the Company's stockholders for approval at this time in
order to continue to satisfy the requirements of the Performance-Based
Compensation Exception to the deduction limitation set forth in Section 162(m)
of the Code. See "Report of the Senior Executive Compensation Committee on
Executive Compensation--Internal Revenue Code Section 162(m)." A copy of the
Senior Executive STIP is attached to this Proxy Statement as Appendix B. The
following is a brief summary of certain provisions of the Senior Executive
STIP, which summary is qualified in its entirety by reference to the full text
of the Senior Executive STIP.
General
The Senior Executive STIP provides for objective performance-based annual
bonuses for selected senior executives, subject to a maximum limit, as
described in more detail below. Amounts paid under this plan are intended to
qualify as "qualified performance-based compensation," which is excluded from
the $1.0 million limit on deductible compensation set forth in Section 162(m)
of the Code. Awards under the Senior Executive STIP are determined by the
Company's Senior Executive Compensation Committee.
Administration
The Senior Executive STIP is administered by the Senior Executive
Compensation Committee, which is authorized to approve awards to selected
senior management at the level of senior vice president or above. This
committee must be comprised of at least two directors, each of whom must be an
"outside director" within the meaning of Section 162(m) of the Code.
Awards
Under the Senior Executive STIP, the Senior Executive Compensation Committee
may establish performance criteria and target awards for each participant not
later than 90 days after the beginning of the year. The performance criteria
relate to the Company's operating income, net earnings and/or cash flow.
Operating income is defined as revenues less operating expenses, other than
depreciation, amortization and non-recurring charges. Net earnings is defined
as net earnings from continuing operations. Cash flow is defined as operating
income less cash capital expenditures and rental library purchases and
increases or decreases in working capital and in other balance sheet
investments.
Shortly after the end of each performance period, the Senior Executive
Compensation Committee must certify whether or not the performance criteria
have been achieved. This is subject to such committee's right, in its sole
discretion, to reduce the amount of the award to any participant to reflect
such committee's assessment of the participant's individual performance or for
any other reason. These awards are payable in cash as soon as practicable
thereafter.
To receive payment of an award, the participant must have remained in the
Company's continuous employ through the end of the applicable performance
period. However, if a participant becomes permanently disabled or dies during a
performance period, the participant or the participant's estate shall be
awarded, unless the participant's employment agreement provides otherwise, a
pro rata portion of the award earned for the performance period. This is
subject to the Senior Executive Compensation Committee's right, in its sole
discretion, to reduce the amount of the award to reflect such committee's
assessment of the participant's individual performance prior to the participant
becoming permanently disabled or the participant's death, as the case may be,
or for any other reason.
30
<PAGE>
Maximum Annual Award
The Senior Executive STIP provides that the maximum annual award to any
participant for any performance period is determined by multiplying a
participant's salary in effect on the date of the adoption of the plan by
eight. Salary is defined as the sum of (i) the participant's annual base
salary, not including any impermissible discretionary increases, for the year
and (ii) an amount equal to the annual rate of any deferred compensation for
such year, in each case as set forth in the participant's employment agreement
in effect on July 15, 1999. However, if the employment agreement expires prior
to the end of any performance period, the amount of base salary and deferred
compensation will relate to the highest annual amounts that were provided for
in the employment agreement. The Senior Executive STIP provides that, in the
case of any participant hired after July 15, 1999, the participant's salary for
this purpose would be the sum of (x) the participant's annual base salary on
the date of hire and (y) an amount equal to the annual rate of any deferred
compensation for the year of hire, in each case as set forth in the
participant's employment agreement in effect on the date of hire. However, the
salary for any participant hired after July 15, 1999 shall not exceed 1.5 times
the highest salary on July 15, 1999 of any participant in the Senior Executive
STIP.
Adjustments
In the event that, during a performance period, any recapitalization,
reorganization, merger, acquisition, divestiture, consolidation, spin-off,
combination, liquidation, dissolution, sale of assets or other similar
corporate transaction or event, or any other extraordinary item or event not
foreseen at the time of the grant of an award under the Senior Executive STIP,
or any other event that distorts the applicable performance criteria occurs
involving the Company or one of its subsidiaries, the Senior Executive
Compensation Committee will, to the extent consistent with Section 162(m) of
the Code, adjust or modify, in its sole discretion, the calculation of
operating income, net earnings and/or cash flow, or the applicable performance
goals, to the extent necessary to prevent reduction or enlargement of
participants' awards for the performance period attributable to the transaction
or event.
Transfer Restrictions, Etc.
The right of a participant with respect to awards under the Senior Executive
STIP are not transferable by the participant other than by will or the laws of
descent and distribution. No award under this plan will be construed as giving
any employee a right to continued employment with the Company.
Amendment
The Company's Board may at any time alter, amend, suspend or terminate the
Senior Executive STIP in whole or in part. However, no alteration or amendment
will be effective without the approval of the Company's stockholders if their
approval is required by law.
The Board recommends a vote FOR the proposal to approve the Senior Executive
STIP.
31
<PAGE>
PROPOSAL IV
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the Company's stockholders, in accordance with
the recommendation of the Audit Committee, the Board has selected
PricewaterhouseCoopers as the Company's independent accountants to audit the
Company's consolidated financial statements for fiscal 2000 and to render other
services required of them. Representatives of PricewaterhouseCoopers are
expected to be present at the Meeting with the opportunity to make a statement
if they so desire and to be available to respond to appropriate questions.
The Board recommends a vote FOR ratification of PricewaterhouseCoopers as
the Company's independent accountants for fiscal 2000.
32
<PAGE>
STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals on matters appropriate for
stockholder action at subsequent annual meetings of the Company consistent with
Rule 14a-8 promulgated under the Exchange Act and the Company's Bylaws. For
such proposals to be considered for inclusion in the Proxy Statement and proxy
relating to the Company's 2001 Annual Meeting of Stockholders, all applicable
requirements of Rule 14a-8 must be satisfied and such proposals must be
received by the office of the Secretary of the Company no later than December
1, 2000. Such proposals should be directed to Blockbuster Inc., 1201 Elm
Street, Dallas, Texas 75270, Attention: Secretary.
In addition to the requirements set forth above regarding stockholder
proposals generally, the Company's Bylaws provide that a stockholder may
nominate a person for election to the Board only if written notice of such
nomination(s) (a "Stockholder's Notice") is received by the Secretary within
the time period set forth above and the Stockholder's Notice includes certain
specified information such as (i) the name and address of the nominating
stockholder, (ii) the name, age, business address and principal occupation of
the nominee and (iii) any other information relating to such nominee that is
required to be disclosed in solicitations of proxies for elections of directors
or is otherwise required by the rules and regulations promulgated under the
Exchange Act.
In order for a proposal made outside of the requirements of Rule 14a-8 to be
considered timely in connection with the Company's 2001 Annual Meeting of
Stockholders, such proposal must be received by the office of the Secretary of
the Company at the address stated above no later than February 14, 2001. The
persons named in the proxies solicited by the Company in connection with the
2001 Annual Meeting of Stockholders will vote their proxies in their discretion
with respect to any proposal with respect to which the Company has not received
notification by such time.
OTHER BUSINESS
The Board knows of no matters other than those described herein that will be
presented for consideration at the Meeting. However, should any other matter(s)
properly come before the Meeting or any adjournment thereof, it is the
intention of the persons named in the accompanying proxy to vote in accordance
with their best judgment in the interest of the Company.
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by the
Company. In addition to solicitation by mail, directors, officers and employees
of the Company may solicit proxies personally or by telephone or telegram,
without additional compensation. The Company may also make arrangements with
brokerage houses and other custodians, nominees and fiduciaries for forwarding
of solicitation materials to the beneficial owners of shares of Common Stock
held by such persons, and the Company may reimburse such brokerage houses and
other custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
Accompanying this Proxy Statement is a copy of the Company's Annual Report
for the fiscal year ended December 31, 1999 (the "Annual Report"). The Annual
Report is not to be deemed a part of this Proxy Statement.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, including the financial statements and the financial
statement schedules, if any, but not including exhibits, will be furnished at
no charge to each person to whom a Proxy Statement is delivered upon the
written request of such person addressed to Blockbuster Inc., Attn.: Investor
Relations, 1201 Elm Street, Dallas, Texas 75270.
By Order of the Board of Directors,
/s/ Edward B. Stead
Edward B. Stead
Executive Vice President, General
Counsel and Secretary
March 31, 2000
33
<PAGE>
Appendix A
BLOCKBUSTER INC.
1999 LONG-TERM MANAGEMENT INCENTIVE PLAN
ARTICLE I
GENERAL
Section 1.1 Purpose.
The purpose of the Blockbuster Inc. 1999 Long-Term Management Incentive Plan
(the "Plan") is to benefit and advance the interests of Blockbuster Inc., a
Delaware corporation (the "Company"), and its subsidiaries by attracting and
retaining employees, Non-Employee Directors and Advisors (as defined below) of
the Company and its subsidiaries, rewarding them for their contributions to the
financial success of the Company and thereby motivating them to continue to
make such contributions in the future.
Section 1.2 Definitions.
As used in the Plan, the following terms shall have the following meanings:
(a) "Advisor" shall mean any person performing advisory or consulting
services for the Company or any subsidiary, with or without compensation,
to whom the Company chooses to make a Grant in accordance with the Plan;
provided that (i) bona fide services must be rendered by such person; and
(ii) such services shall not be rendered in connection with the offer or
sale of securities in a capital-raising transaction and do not directly or
indirectly promote or maintain a market for the Company's securities.
(b) "Agreement" shall mean the written agreement governing a Grant under
the Plan, in a form approved by the Committee, which shall contain terms
and conditions not inconsistent with the Plan and which shall incorporate
the Plan by reference.
(c) "Appreciation Value" shall mean the excess, if any, of the Value of
a Phantom Share on the applicable Valuation Date or date of termination of
service or of the Participant's death or Permanent Disability (as described
in Section 5.5(a) hereof), as the case may be, over the Initial Value of
such Phantom Share.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended,
including any successor law thereto.
(f) "Committee" shall mean the committee(s) appointed or designated by
the Board to administer the Plan in accordance with Section 1.3 of the
Plan.
(g) "Common Stock" shall mean shares of Class A Common Stock, par value
$0.01 per share, of the Company.
(h) "Date of Grant" shall mean the effective date of the Grant of the
Stock Options, Stock Appreciation Rights, Restricted Shares, Restricted
Share Units and/or Phantom Shares as set forth in the applicable Agreement.
(i) "Effective Date" shall have the meaning set forth in Article X.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, including any successor law thereto.
(k) "Fair Market Value" of a share of Common Stock on a given date shall
be the closing price of a share of Common Stock on the New York Stock
Exchange or such other national securities exchange as may be designated by
the Committee, or, in the event that the Common Stock is not listed for
trading on a
A-1
<PAGE>
national securities exchange but is quoted on an automated quotation
system, the average closing bid per share of the Common Stock on such
automated quotation system or, in the event that the Common Stock is not
quoted on any such system, the average of the closing bid prices per share
of the Common Stock as furnished by a professional marketmaker making a
market in the Common Stock designated by the Committee. Notwithstanding the
foregoing, with respect to any option granted in connection with the
Company's initial public offering, the Fair Market Value of a share of
Class A Common Stock shall mean the initial public offering price.
(l) "Grant" shall mean a grant under the Plan which may consist of a
grant of Stock Options, Stock Appreciation Rights, Restricted Shares,
Restricted Share Units or Phantom Shares or a combination of any of the
above.
(m) "Initial Value" shall mean the value of a Phantom Share as specified
by the Committee as of the Date of Grant or the Value of a Phantom Share
calculated as of the Date of Grant or such earlier date as the Committee
may determine.
(n) "Non-Employee Director" shall mean a member of the Board of
Directors of the Company or any subsidiary who is not an employee of the
Company, the parent thereof or any subsidiary.
(o) "Outstanding Phantom Share" shall mean a Phantom Share granted to a
Participant for which the Valuation Date has not yet occurred.
(p) "Outstanding Stock Option" shall mean a Stock Option granted to a
Participant which has not yet been exercised and which has not yet expired
or been terminated in accordance with its terms.
(q) "Participant" shall mean any employee, Non-Employee Director or
Advisor who has met the eligibility requirements set forth in Section 1.4
hereof and to whom an outstanding Grant has been made under the Plan.
(r) "Permanent Disability" shall have the same meaning as such term or a
similar term has in the long-term disability policy maintained by the
Company, the parent thereof or a subsidiary thereof for the Participant and
that is in effect on the date of the onset of the Participant's Permanent
Disability, unless the Committee determines otherwise, in its discretion,
and sets forth an alternative definition in the applicable Agreement;
provided, however, with respect to grants of Incentive Stock Options,
permanent disability shall have the meaning given it under the rules
governing Incentive Stock Options under the Code. With respect to any Grant
other than an Incentive Stock Option, to the extent that a Participant's
employment agreement differs from the Plan with respect to the meaning of
disability, if such employment agreement has been approved by the Committee
which granted the Stock Options, the definition included in such employment
agreement shall govern. Anything in the Plan to the contrary
notwithstanding, "Permanent Disability" is a term that shall apply only to
Participants who are employees of the Company.
(s) "Phantom Share" shall mean a contractual right granted to a
Participant pursuant to Article V to receive an amount equal to the
Appreciation Value at such time, and subject to such terms and conditions,
as are set forth in the Plan and the applicable Agreement.
(t) "Restricted Share" shall mean a share of Common Stock granted to a
Participant pursuant to Article III, which is subject to the restrictions
set forth in Section 3.3 hereof and to such other terms, conditions and
restrictions as are set forth in the Plan and the applicable Agreement.
(u) "Restricted Share Unit" shall mean a contractual right granted to a
Participant pursuant to Article IV to receive either Common Stock, a cash
payment equal to the Fair Market Value of such Common Stock or a
combination of Common Stock and cash, subject to the terms and conditions
as are set forth in the Plan and in the applicable Agreement.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as amended from time to time, or any successor provision.
A-2
<PAGE>
(w) "Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder from time to time.
(x) "Section 162(m) Exception" shall mean the exception under Section
162(m) for "qualified performance-based compensation."
(y) "Stock Appreciation Right" shall mean a contractual right granted to
a Participant pursuant to Article II to receive an amount determined in
accordance with Section 2.5 of the Plan.
(z) "Stock Option" shall mean a contractual right granted to a
Participant pursuant to Article II to purchase shares of Common Stock at
such time and price, and subject to such other terms and conditions, as are
set forth in the Plan and the applicable Agreement. Stock Options may be
"Incentive Stock Options" within the meaning of Section 422 of the Code or
"Non-Qualified Stock Options" which do not meet the requirements of such
Code section.
(aa) "Termination for Cause" for Participants who are employees of the
Company and for Advisors, shall mean a termination of service with the
Company or any of its subsidiaries which, as determined by the Committee,
is by reason of (i) "cause" as such term or a similar term is defined in
any employment or consulting agreement applicable to the Participant, or
(ii) if there is no such employment or consulting agreement or if such
employment or consulting agreement contains no such term, (x) dishonesty,
conviction of a felony, or willful unauthorized disclosure of confidential
information, (y) failure, neglect of or refusal by a Participant to
substantially perform the duties of such Participant's service, or (z) any
other act or omission which is materially injurious to the financial
condition or business reputation of the Company or any subsidiary thereof.
"Termination for Cause" for Participants who are Non-Employee Directors
shall mean removal from the Board for "cause" in accordance with the
certificate of incorporation or by-laws of the Company, as amended from
time to time.
(bb) "Valuation Date" shall mean the date on which the Appreciation
Value of a Phantom Share shall be measured and fixed in accordance with
Section 5.2(a) hereof.
(cc) The "Value" of a Phantom Share shall be determined by reference to
the "average Fair Market Value" of a share of Common Stock. The "average
Fair Market Value" on a given date of a share of Common Stock shall be
determined over the 30-day period ending on such date or such other period
as the Committee may decide shall be applicable to a Grant of Phantom
Shares, determined by dividing (i) by (ii), where (i) shall equal the sum
of the Fair Market Values on each day that the Common Stock was traded and
a closing price was reported on such national securities exchange or on
such automated quotation system or by such marketmaker, as the case may be,
during such period, and (ii) shall equal the number of days, as determined
by the Committee for the purposes of determining the average Fair Market
Value for such Phantom Shares, on which the Common Stock was traded and a
closing price was reported on such national securities exchange or on such
automated quotation system or by such marketmaker, as the case may be,
during such period.
(dd) To "vest" a Stock Option, Stock Appreciation Right, Restricted
Share, Restricted Share Unit or Phantom Share held by a Participant shall
mean, with respect to a Stock Option or Stock Appreciation Right, to render
such Stock Option or Stock Appreciation Right exercisable, subject to the
terms of the Plan or the Agreement, and, in the case of a Restricted Share,
Restricted Share Unit or Phantom Share, to render such Restricted Share,
Restricted Share Unit or Phantom Share nonforfeitable.
Section 1.3 Administration of the Plan.
The Plan shall be administered by the Board or by a Committee appointed by
the Board, consisting of at least two members of the Board; provided that (i)
with respect to any Grant that is intended to satisfy the requirements of Rule
16b-3, such Committee shall consist of at least such number of directors as is
required from time to time by Rule 16b-3, and each such Committee member shall
satisfy the qualification requirements
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of such rule; and (ii) with respect to any Grant that is also intended to
satisfy the requirements of the Section 162(m) Exception, such Committee shall
consist of at least such number of directors as is required from time to time
to satisfy the Section 162(m) Exception, and each such Committee member shall
satisfy the qualification requirements of such exception. The Committee shall
adopt such rules as it may deem appropriate in order to carry out the purpose
of the Plan. All questions of interpretation, administration and application of
the Plan shall be determined by a majority of the members of the Committee then
in office, except that the Committee may authorize any one or more of its
members, or any officer of the Company, to execute and deliver documents on
behalf of the Committee. The determination of such majority shall be final and
binding as to all matters relating to the Plan. The Committee shall have
authority to select Participants from among the class of eligible persons
specified in Section 1.4 below and to determine the number of Stock Options,
Stock Appreciation Rights, Restricted Shares, Restricted Share Units or Phantom
Shares (or combination thereof) to be granted to each Participant; provided,
however, no member of the Committee shall participate in such decisions
contemplated by this Section 1.3 if it relates to a Grant made on his or her
behalf. The Committee shall also have the authority to amend the terms of any
outstanding Grant or waive any conditions or restrictions applicable to any
Grant; provided, however, that no amendment shall impair the rights of the
holder thereof. With respect to any restrictions in the Plan or in any
Agreement that are based on the requirements of Rule 16b-3, Section 422 of the
Code, the Section 162(m) Exception, the rules of any exchange upon which the
Company's securities are listed, or any other applicable law, rule or
restriction to the extent that any such restrictions are no longer required,
the Committee shall have the sole discretion and authority to make Grants that
are not subject to such restrictions and/or to waive any such restrictions with
respect to outstanding Grants.
Section 1.4 Eligible Persons.
Grants may be awarded to any employee, Non-Employee Director or Advisor of
the Company or any of its subsidiaries selected by the Committee, provided that
only employees shall be eligible to receive Incentive Stock Options.
Section 1.5 Common Stock Subject to the Plan.
The total aggregate number of shares of Common Stock that may be distributed
under the Plan (whether reserved for issuance upon grant of Stock Options or
Stock Appreciation Rights or granted as Restricted Shares or Restricted Share
Units) shall be 25,000,000, subject to adjustment pursuant to Article VI
hereof. The shares of Common Stock shall be made available from authorized but
unissued Common Stock or from Common Stock issued and held in the treasury of
the Company. The delivery of shares of Common Stock upon exercise of a Stock
Option or Stock Appreciation Right in any manner and the vesting of Restricted
Shares or Restricted Share Units shall result in a decrease in the number of
shares which thereafter may be issued for purposes of this Section 1.5, by the
number of shares as to which the Stock Option or Stock Appreciation Right is
exercised or by the number of Restricted Shares or Restricted Share Units which
vest. To the extent permitted by law or the rules and regulations of any stock
exchange on which the Common Stock is listed, shares of Common Stock with
respect to which Stock Options and Stock Appreciation Rights expire, are
canceled without being exercised or are otherwise terminated or, in the case of
Stock Appreciation Rights or Restricted Share Units, are exercised for cash,
may be regranted under the Plan. Restricted Shares or Restricted Share Units
that are forfeited for any reason shall not be deemed granted for purposes of
this Section 1.5 and may thereafter be regranted under the Plan.
Section 1.6 Limit on Grants to Participants.
The maximum aggregate number of (i) shares of Common Stock that may be
granted under the Plan (whether reserved for issuance upon grant of Stock
Options or Stock Appreciation Rights or granted as Restricted Shares or
Restricted Share Units) and (ii) Phantom Shares or Restricted Share Units that
may be granted under the Plan to any Participant during the five-year period
starting on the Effective Date of the Plan is 5,000,000.
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Section 1.7 Agreements.
Each Agreement (i) shall state the Date of Grant and the name of the
Participant, (ii) shall specify the terms of the Grant, (iii) shall be signed
by the Participant and a person designated by the Committee, (iv) shall
incorporate the Plan by reference and (v) shall be delivered to the
Participant. The Agreement shall contain such other terms and conditions as are
required by the Plan and, in addition, such other terms not inconsistent with
the Plan as the Committee may deem advisable. The Committee shall have the
authority to require that any Agreement relating to a Grant in a jurisdiction
outside of the United States contain such terms as are required by local law in
order to constitute a valid grant under the laws of such jurisdiction. Such
authority shall be notwithstanding the fact that the requirements of the local
jurisdiction may be more restrictive than the terms set forth in the Plan.
ARTICLE II
PROVISIONS APPLICABLE TO STOCK OPTIONS
Section 2.1 Grants of Stock Options.
The Committee may from time to time grant Stock Options on the terms and
conditions set forth in the Plan and on such other terms and conditions as are
not inconsistent with the purposes and provisions of the Plan, as the
Committee, in its discretion, may from time to time determine, and subject to
satisfaction of any performance goal requirements established by the Committee.
Each Agreement covering a Grant of Stock Options shall specify the number of
Stock Options granted, the Date of Grant, the exercise price of such Stock
Options, whether such Stock Options are Incentive Stock Options or Non-
Qualified Stock Options, the period during which such Stock Options may be
exercised and any vesting schedule, including any applicable performance goal
requirements. Any Stock Option intended to qualify as an Incentive Stock Option
that fails to so qualify will be deemed a Non-Qualified Stock Option.
Section 2.2 Exercise Price.
The Committee shall establish the per share exercise price at the time any
Stock Option is granted at such amount as the Committee shall determine;
provided that, with respect to any Incentive Stock Option or any Stock Option
intended to qualify for the Section 162(m) Exception, such exercise price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on
the Date of Grant; and provided further that, with respect to any Incentive
Stock Option that is granted to a person holding more than 10% of the combined
voting power of all the classes of common stock of the Company (or its parent
or any subsidiaries within the meaning of the Code), such exercise price shall
not be less than 110% of the Fair Market Value of a share of Common Stock on
the Date of Grant. The exercise price will be subject to adjustment in
accordance with the provisions of Article VI of the Plan.
Section 2.3 Exercise of Stock Options.
(a) Exercisability. Stock Options shall be exercisable only to the extent
the Participant is vested therein, subject to any restrictions that the
Committee shall determine and specify in the applicable Agreement (or any
employment or consulting agreement applicable to the Participant). A
Participant shall vest in Stock Options over such time and in such increments
as the Committee shall determine and specify in a vesting schedule set forth in
the applicable Agreement (or any employment or consulting agreement applicable
to the Participant). The Committee may, however, in its sole discretion,
accelerate the time at which a Participant vests in his Stock Options.
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(b) Option Period. For each Stock Option granted, the Committee shall
specify the period during which the Stock Option may be exercised; provided,
however, that anything in the Plan or in the applicable Agreement to the
contrary notwithstanding:
(i) Latest Exercise Date. No Stock Option granted under the Plan shall
be exercisable after the tenth anniversary of the Date of Grant thereof.
(ii) Registration Restrictions. A Stock Option shall not be exercisable,
no transfer of shares of Common Stock shall be made to any Participant, and
any attempt to exercise a Stock Option or to transfer any such shares shall
be void and of no effect, unless and until (A) a registration statement
under the Securities Act of 1933, as amended, has been duly filed and
declared effective pertaining to the shares of Common Stock subject to such
Stock Option, and the shares of Common Stock subject to such Stock Option
have been duly qualified under applicable Federal or state securities or
blue sky laws or (B) the Committee, in its sole discretion, determines, or
the Participant, upon the request of the Committee, provides an opinion of
counsel satisfactory to the Committee, that such registration or
qualification is not required as a result of the availability of an
exemption from registration or qualification under such laws. Without
limiting the foregoing, if at any time the Committee shall determine, in
its sole discretion, that the listing, registration or qualification of the
shares of Common Stock subject to such Stock Option is required under any
federal or state law or on any securities exchange or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, delivery or purchase of such shares
pursuant to the exercise of a Stock Option, such Stock Option shall not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
(c) Exercise in the Event of Termination of Service for Participants other
than Non-Employee Directors.
(i) Termination of Service other than a Termination for Cause or due to
Death or Permanent Disability. In the event that (A) such Participant's
service with the Company or any of its subsidiaries ends by reason of a
voluntary termination by the Participant or due to termination by the
Company or any of its subsidiaries other than due to a Termination for
Cause, the Participant's Outstanding Stock Options may be exercised, to the
extent then exercisable, for a period of six months after the date of
termination or such longer period, not in excess of twelve months following
the date of termination, as determined by the Committee, (B) such
Participant dies during a period during which his Stock Options could have
been exercised by him, his Outstanding Stock Options may be exercised, to
the extent exercisable at the date of death, by the person who acquired the
right to exercise such Stock Options by will or the laws of descent and
distribution or permitted transfer for a period of twelve months following
the date of death or such longer period as may be determined by the
Committee, in its discretion, prior to the expiration of such twelve-month
period, or (C) the Permanent Disability of such Participant occurs, his
Outstanding Stock Options may be exercised, to the extent exercisable upon
the date of the onset of such Permanent Disability, for a period of twelve
months following such date or such longer period, not in excess of twenty-
four months following the date of the Permanent Disability, as may be
determined by the Committee, in its discretion. Upon the occurrence of an
event described in clause (A), (B) or (C) of this Section 2.3(c)(i), all
rights with respect to Stock Options that are not vested as of such event
will be relinquished.
(ii) Termination for Cause. If a Participant's service with the Company
or any of its subsidiaries ends due to a Termination for Cause then, unless
the Committee in its discretion determines otherwise, all Outstanding Stock
Options, whether or not then vested, shall terminate effective as of the
date of such termination.
(iii) Maximum Exercise Period. Anything in this Section 2.3(c) to the
contrary notwithstanding, no Stock Option shall be exercisable after the
earlier to occur of (A) the expiration of the option period set forth in
the applicable Agreement or (B) the tenth anniversary of the Date of Grant
thereof.
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(iv) Minimum Exercise Period. With respect to a termination described in
Section 2.3(c)(i)(A) only, the Committee may establish a shorter exercise
period for Incentive Stock Options of not less than three months following
the date of termination.
(d) Exercise in the Event of Termination of Service for Non-Employee
Directors.
(i) Termination of Service for Any Reason Other than a Termination for
Cause. In the event that a Non-Employee Director ceases to be a member of
the Board for any reason other than due to a Termination for Cause, the
Non-Employee Director may exercise any Outstanding Stock Options for a
period of twelve months following the date of such termination, but only to
the extent such Outstanding Options were vested on the date of such
termination. The Non-Employee Director shall relinquish all rights with
respect to Stock Options that are not vested as of the date of such
termination of service.
(ii) Termination for Cause. In the event that a Non-Employee Director
ceases to be a member of the Board due to a Termination for Cause then,
unless the Committee, in its discretion, determines otherwise, all
Outstanding Stock Options, whether or not then vested, shall terminate
effective as of the date of such termination.
(iii) Maximum Exercise Period. Anything in this Section 2.3(d) to the
contrary notwithstanding, no Stock Option shall be exercisable after the
earlier to occur of (A) the expiration of the option period set forth in
the applicable Agreement or (B) the tenth anniversary of the Date of Grant
thereof.
Section 2.4 Payment of Purchase Price upon Exercise.
Every share purchased through the exercise of a Stock Option shall be paid
for in full at the time of exercise in cash or, in the discretion of the
Committee, in shares of Common Stock (provided that such shares of Common Stock
have been held for at least six months by the Participant) or other securities
of the Company designated by the Committee, in a combination of cash, shares or
such other securities or in any other form of valid consideration that is
acceptable to the Committee in its sole discretion.
Section 2.5 Stock Appreciation Rights.
The Committee may grant Stock Appreciation Rights only in tandem with a
Stock Option, either at the time of Grant or by amendment at any time prior to
the exercise, expiration or termination of such Stock Option. Each Stock
Appreciation Right shall be subject to the same terms and conditions as the
related Stock Option and shall be exercisable only at such times and to such
extent as the related Stock Option is exercisable. A Stock Appreciation Right
shall entitle the holder to surrender to the Company the related Stock Option
unexercised and receive from the Company in exchange therefor an amount equal
to the excess of the Fair Market Value of the shares of Common Stock subject to
such Stock Option, determined as of the day preceding the surrender of such
Stock Option, over the Stock Option aggregate exercise price. Such amount shall
be paid in cash or, in the discretion of the Committee, in shares of Common
Stock or other securities of the Company designated by the Committee or in a
combination of cash, shares or such other securities.
ARTICLE III
PROVISIONS APPLICABLE TO RESTRICTED SHARES
Section 3.1 Grants of Restricted Shares.
The Committee may from time to time grant Restricted Shares on the terms and
conditions set forth in the Plan and on such other terms and conditions as are
not inconsistent with the purposes and provisions of the Plan, as the
Committee, in its discretion, may from time to time determine. Each Agreement
covering a Grant of Restricted Shares shall specify the number of Restricted
Shares granted, the Date of Grant, the price, if any, to be paid by the
Participant for such Restricted Shares and the vesting schedule (as provided
for in Section 3.2 hereof) for such Restricted Shares, including any applicable
performance goal requirements.
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Section 3.2 Vesting.
The Committee shall establish the vesting schedule applicable to Restricted
Shares granted hereunder, which vesting schedule shall specify the period of
time, the increments in which a Participant shall vest in the Grant of
Restricted Shares and any applicable performance goal requirements, subject to
any restrictions that the Committee shall determine and specify in the
applicable Agreement.
Section 3.3 Rights and Restrictions Governing Restricted Shares.
As of the Date of Grant of Restricted Shares, one or more certificates
representing the appropriate number of shares of Common Stock granted to a
Participant shall be registered in his name but shall be held by the Company
for the account of the Participant. The Participant shall have all rights of a
holder as to such shares of Common Stock (including, to the extent applicable,
the right to receive dividends and to vote), subject to the following
restrictions: (a) the Participant shall not be entitled to delivery of
certificates representing such shares of Common Stock until such shares have
vested; (b) none of the Restricted Shares may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of until such shares have vested;
and (c) except as otherwise provided in Section 3.6 below, all unvested
Restricted Shares shall be immediately forfeited upon a Participant's
termination of service with the Company or any subsidiary for any reason.
Section 3.4 Adjustment with Respect to Restricted Shares.
Any other provision of the Plan to the contrary notwithstanding, the
Committee may, in its discretion, at any time accelerate the date or dates on
which Restricted Shares vest. The Committee may, in its sole discretion, remove
any and all restrictions on such Restricted Shares whenever it may determine
that, by reason of changes in applicable law, the rules of any stock exchange
on which the Common Stock is listed or other changes in circumstances arising
after the Date of Grant, such action is appropriate.
Section 3.5 Delivery of Restricted Shares.
On the date on which Restricted Shares vest, all restrictions contained in
the Agreement covering such Restricted Shares and in the Plan shall lapse as to
such Restricted Shares. One or more stock certificates for the appropriate
number of shares of Common Stock, free of the restrictions set forth in the
Plan and applicable Agreement, shall be delivered to the Participant or such
shares shall be credited to a brokerage account if the Participant so directs;
provided, however, that such certificates shall bear such legends as the
Committee, in its sole discretion, may determine to be necessary or advisable
in order to comply with applicable federal or state securities laws.
Section 3.6 Termination of Service.
In the event that the Participant's service with the Company or any of its
subsidiaries ends for any reason prior to the date or dates on which Restricted
Shares vest, the Participant shall forfeit all unvested Restricted Shares as of
the date of such event, unless, other than due to a Termination for Cause, the
Committee determines that the circumstances in the particular case so warrant
and provides that some or all of such Participant's unvested Restricted Shares
shall vest as of the date of such event, in which case certificates
representing such shares shall be delivered, in accordance with Section 3.5
above, to the Participant or in the case of the Participant's death, to the
person or persons who acquired the right to receive such certificates by will
or the laws of descent and distribution.
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ARTICLE IV
PROVISIONS APPLICABLE TO RESTRICTED SHARE UNITS
Section 4.1 Grants of Restricted Share Units.
The Committee may from time to time grant Restricted Share Units on the
terms and conditions set forth in the Plan and on such other terms and
conditions as are not inconsistent with the purposes and provisions of the Plan
as the Committee, in its discretion, may from time to time determine. Each
Restricted Share Unit awarded to a Participant shall correspond to one share of
Common Stock. Each Agreement covering a Grant of Restricted Share Units shall
specify the number of Restricted Share Units granted and the vesting schedule
(as provided for in Section 4.2 hereof) for such Restricted Share Units,
including any applicable performance goal requirements.
Section 4.2 Vesting.
The Committee shall establish the vesting schedule applicable to Restricted
Share Units granted hereunder, which vesting schedule shall specify the period
of time, the increments in which a Participant shall vest in the Grant of
Restricted Share Units and any applicable performance goal requirements,
subject to any restrictions that the Committee shall determine and specify in
the applicable Agreement.
Section 4.3 Adjustment with Respect to Restricted Share Units.
Any other provision of the Plan to the contrary notwithstanding, the
Committee may, in its discretion, at any time accelerate the date or dates on
which Restricted Share Units vest.
Section 4.4 Settlement of Restricted Share Units.
On the date on which Restricted Share Units vest, all restrictions contained
in the Agreement covering such Restricted Share Units and in the Plan shall
lapse as to such Restricted Share Units and the Restricted Stock Units will be
payable, at the discretion of the Committee, in Common Stock, in cash equal to
the Fair Market Value of the shares subject to such Restricted Share Units or
in a combination of Common Stock and cash. In the event the Restricted Share
Units are paid in Common Stock, one or more stock certificates for the
appropriate number of shares of Common Stock, free of the restrictions set
forth in the Plan and applicable Agreement, shall be delivered to the
Participant or such shares shall be credited to a brokerage account if the
Participant so directs; provided, however, that such certificates shall bear
such legends as the Committee, in its sole discretion, may determine to be
necessary or advisable in order to comply with applicable federal or state
securities laws.
Section 4.5 Termination of Service.
In the event that the Participant's service with the Company or any of its
subsidiaries ends for any reason prior to the date or dates on which Restricted
Share Units vest, the Participant shall forfeit all unvested Restricted Share
Units as of the date of such event, unless, other than due to a Termination for
Cause, the Committee determines that the circumstances in the particular case
so warrant and provides that some or all of such Participant's unvested
Restricted Share Units shall vest as of the date of such event, in which case,
in the discretion of the Committee, either certificates representing shares of
Common Stock or a cash payment equal to the Fair Market Value of the shares of
Common Stock, shall be delivered in accordance with Section 4.4 above, to the
Participant or in the case of the Participant's death, to the person or persons
who acquired the right to receive such certificates by will or the laws of
descent and distribution.
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ARTICLE V
PROVISIONS APPLICABLE TO PHANTOM SHARES
Section 5.1 Grants of Phantom Shares.
The Committee may from time to time grant Phantom Shares, the value of which
is determined by reference to a share of Common Stock, on the terms and
conditions set forth in the Plan and on such other terms and conditions as are
not inconsistent with the purposes and provisions of the Plan as the Committee,
in its discretion, may from time to time determine. Each Agreement covering a
Grant of Phantom Shares shall specify the number of Phantom Shares granted, the
Initial Value of such Phantom Shares, the Valuation Dates, the number of
Phantom Shares whose Appreciation Value shall be determined on each such
Valuation Date, any applicable vesting schedule (as provided for in Section 5.3
hereof) for such Phantom Shares, and any applicable limitation on payment (as
provided for in Section 5.4 hereof) for such Phantom Shares.
Section 5.2 Appreciation Value.
(a) Valuation Dates; Measurement of Appreciation Value. The Committee shall
provide in the Agreement for one or more Valuation Dates on which the
Appreciation Value of the Phantom Shares granted pursuant to the Agreement
shall be measured and fixed, and shall designate in the Agreement the number of
such Phantom Shares whose Appreciation Value is to be calculated on each such
Valuation Date.
(b) Payment of Appreciation Value. Except as otherwise provided in Section
5.5 hereof, and subject to the limitation contained in Section 5.4 hereof, the
Appreciation Value of a Phantom Share shall be paid to a Participant in cash in
a lump sum as soon as practicable following the Valuation Date applicable to
such Phantom Share.
Section 5.3 Vesting.
The Committee may, in its discretion, provide in the Agreement that Phantom
Shares granted thereunder shall vest (subject to such terms and conditions as
the Committee may provide in the Agreement) over such period of time, from the
Date of Grant, as may be specified in a vesting schedule contained therein.
Section 5.4 Limitation on Payment.
The Committee may, in its discretion, establish and set forth in the
Agreement a maximum dollar amount payable under the Plan for each Phantom Share
granted pursuant to such Agreement.
Section 5.5 Termination of Service, Death or Permanent Disability.
(a) Termination of Service other than a Termination for Cause, or due to
Death or Permanent Disability. If, before the occurrence of one or more
Valuation Dates applicable to the Participant's Outstanding Phantom Shares, the
Participant's service with the Company or any of its subsidiaries ends by
reason of (i) a voluntary termination by the Participant or a termination by
the Company or any of its subsidiaries other than due to a Termination for
Cause or (ii) the Participant's death or, in the case of a Participant who is
an employee, Permanent Disability, then, unless the Committee, in its
discretion, determines otherwise, the Appreciation Value of each Outstanding
Phantom Share as to which the Participant's rights are vested as of the date of
such event shall be the lesser of (x) the Appreciation Value of such Phantom
Share calculated as of the date of such event or (y) the Appreciation Value of
such Phantom Share calculated as of the originally scheduled Valuation Date
applicable thereto. Unless the Committee, in its discretion determines
otherwise, the Appreciation Value so determined for each such vested
Outstanding Phantom Share shall then be payable to the Participant or the
Participant's estate following the originally scheduled Valuation Date
applicable thereto in accordance with Section 5.2(b) hereof. Upon the
occurrence of an event described in this Section 5.5(a), all rights with
respect to Phantom Shares that are not vested as of such date will be
relinquished.
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(b) Termination for Cause. If a Participant's service with the Company or
any of its subsidiaries ends due to a Termination for Cause, then, unless the
Committee, in its discretion, determines otherwise, all Outstanding Phantom
Shares, whether or not vested, and any and all rights to the payment of
Appreciation Value with respect to such Outstanding Phantom Shares shall be
forfeited effective as of the date of such termination.
ARTICLE VI
EFFECT OF CERTAIN CORPORATE CHANGES
In the event of a merger, consolidation, stock-split, dividend,
distribution, combination, reclassification or recapitalization that changes
the character or amount of the Common Stock, the Committee shall make such
adjustments to (i) the number and kind of shares of Common Stock subject to any
Stock Options or Stock Appreciation Rights or the number and kind of Restricted
Shares, Restricted Share Units or Phantom Shares granted to each Participant,
(ii) the exercise price of any Outstanding Stock Options or Stock Appreciation
Rights or the Initial Value of any Outstanding Phantom Shares, and (iii) the
maximum number of shares of Common Stock referred to in Section 1.5 and Section
1.6 of the Plan, in each case, as it deems appropriate. Such determinations
shall be conclusive and binding for all purposes.
ARTICLE VII
MISCELLANEOUS
Section 7.1 No Rights to Grants or Continued Service.
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to a Grant or any other
rights except as may be evidenced by an Agreement, or any amendment thereto,
duly authorized by the Committee and executed on behalf of the Company, and
then only to the extent and upon the terms and conditions expressly set forth
therein. Neither the Plan nor any action taken hereunder shall be construed as
giving any employee, Non-Employee Director or Advisor, any right to be retained
by the Company or any of its subsidiaries nor the right to be nominated,
reelected or retained as a member of the Board for any period of time or at any
particular rate of compensation.
Section 7.2 Restriction on Transfer.
The rights of a Participant with respect to Stock Options, Stock
Appreciation Rights, Restricted Shares, Restricted Share Units or Phantom
Shares shall not be transferable by the Participant to whom such Stock Options,
Stock Appreciation Rights, Restricted Shares, Restricted Share Units or Phantom
Shares are granted, except by will or the laws of descent and distribution.
Section 7.3 Taxes.
The Company or a subsidiary thereof, as appropriate, shall have the right to
deduct from all payments made under the Plan to a Participant or to a
Participant's estate any federal, state, local or other taxes required by law
to be withheld with respect to such payments. The Committee, in its discretion,
may require, as a condition to the exercise of any Stock Option or Stock
Appreciation Right or delivery of any certificate(s) for shares of Common
Stock, that an additional amount be paid in cash equal to the amount of any
federal, state, local or other taxes owed as a result of such exercise. Any
Participant who makes an election under Section 83(b) of the Code to have his
or her receipt of shares of Restricted Stock taxed in accordance with such
election must give notice to the Company of such election immediately upon
making a valid election in accordance with the rules and regulations of the
Code. Any such election must be made in accordance with the rules and
regulations of the Code.
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Section 7.4 Stockholder Rights.
No Grant under the Plan shall entitle a Participant or a Participant's
estate or permitted transferee to any rights of a holder of shares of common
stock of the Company, except as provided in Article III with respect to
Restricted Shares or when and until share certificates are delivered upon
exercise of a Stock Option or when and until share certificates are delivered
in settlement of a Stock Appreciation Right or a Restricted Share Unit.
Section 7.5 No Restriction on Right of Company to Effect Corporate Changes.
The Plan shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalization,
reorganization or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stock whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
Section 7.6 Source of Payments.
The general funds of the Company shall be the sole source of cash
settlements of Stock Appreciation Rights or Restricted Share Units under the
Plan and payments of Appreciation Value and the Company shall not have any
obligation to establish any separate fund or trust or other segregation of
assets to provide for payments under the Plan. Nothing contained in this Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship, between the Company
and a Participant or any other person. To the extent a person acquires any
rights to receive payments hereunder from the Company, such rights shall be no
greater than those of an unsecured creditor.
ARTICLE VIII
AMENDMENT AND TERMINATION
The Plan may be terminated and may be altered, amended, suspended or
terminated at any time, in whole or in part, by the Board; provided, however,
that no alteration or amendment will be effective without stockholder approval
if such approval is required by law or under the rules of the New York Stock
Exchange, the NASDAQ Stock Market or any stock exchange on which the Common
Stock is listed. No termination or amendment of the Plan may, without the
consent of the Participant to whom a grant has been made, adversely affect the
rights of such Participant in the Stock Options, Stock Appreciation Rights,
Restricted Shares, Restricted Share Units or Phantom Shares covered by such
Grant. Unless previously terminated pursuant to this Article VIII, the Plan
shall terminate on the fifth anniversary of the Effective Date (as defined
below), and no further Grants may be awarded hereunder after such date.
ARTICLE IX
INTERPRETATION
Section 9.1 Governmental Regulations.
The Plan, and all Grants hereunder, shall be subject to all applicable rules
and regulations of governmental or other authorities.
Section 9.2 Headings.
The headings of articles and sections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan.
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<PAGE>
Section 9.3 Governing Law.
The Plan and all rights hereunder shall be construed in accordance with and
governed by the laws of the State of Delaware.
ARTICLE X
EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Plan became effective upon its adoption by the Board and its approval by
the stockholder of the Company on July 15, 1999.
A-13
<PAGE>
Appendix B
BLOCKBUSTER INC.
SENIOR EXECUTIVE
SHORT-TERM INCENTIVE PLAN
ARTICLE I
GENERAL
Section 1.1 Purpose.
The purpose of the Blockbuster Inc. Senior Executive Short-Term Incentive
Plan (the "Plan") is to benefit and advance the interests of Blockbuster Inc.,
a Delaware corporation (the "Company"), by rewarding selected senior executives
of the Company and its subsidiaries for their contributions to the Company's
financial success and thereby motivating them to continue to make such
contributions in the future by granting annual performance-based awards
("Awards").
Section 1.2 Administration of the Plan.
The Plan shall be administered by a committee (the "Committee") appointed by
the Board of Directors of the Company (the "Board"), consisting of at least
such number of directors as is required from time to time to satisfy the
requirements of the exception under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), for "qualified performance-based
compensation," and each such Committee member shall satisfy the qualification
requirements of Section 162(m) of the Code. The Committee shall adopt such
rules as it may deem appropriate in order to carry out the purpose of the Plan.
All questions of interpretation, administration and application of the Plan
shall be determined by a majority of the members of the Committee then in
office, except that the Committee may authorize any one or more of its members,
or any officer of the Company, to execute and deliver documents on behalf of
the Committee. The determination of such majority shall be final and binding in
all matters relating to the Plan. The Committee shall have authority to
determine the terms and conditions of the Awards granted to eligible persons
specified in Section 1.3 below ("Participants").
With respect to any restrictions in the Plan that are based on the
requirements of Section 162(m) of the Code or any other applicable law, rule or
restriction, to the extent that any such restrictions are no longer required,
the Committee shall have the sole discretion and authority to grant Awards that
are not subject to such restrictions and/or to waive any such restrictions with
respect to outstanding Awards.
Section 1.3 Eligible Persons.
Awards may be granted only to employees of the Company or one of its
subsidiaries who are at the level of Senior Vice President of the Company or
one of its subsidiaries or at a more senior level. An individual shall not be
deemed an employee for purposes of the Plan unless such individual receives
compensation from either the Company or one of its subsidiaries for services
performed as an employee of the Company or any of its subsidiaries.
ARTICLE II
AWARDS
Section 2.1 Awards.
The Committee may grant Awards to eligible employees with respect to each
fiscal year of the Company or the portion of the fiscal year remaining after
the initial public offering of Class A Common Stock of the Company (the "IPO"),
subject to the terms and conditions set forth in the Plan.
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Section 2.2 Terms of Awards.
Not later than ninety days after the start of each fiscal year of the
Company or, in the case of the fiscal period commencing with the IPO, before
twenty-five percent of such fiscal period has elapsed, the Committee shall
establish (i) performance goals and objectives ("Performance Targets") for the
Company and the subsidiaries and divisions thereof for such period
("Performance Period") and (ii) target awards ("Target Awards") for each
Participant which shall be a percentage of the Participant's Salary (as defined
in Section 2.3 below). Such Performance Targets shall relate to the achievement
of annual financial goals based on the attainment of specified levels of
Operating Income, Net Earnings and/or Cash Flow (as such terms are defined
below) for the Company and the subsidiaries and divisions thereof. For purposes
of the Plan, "Operating Income" shall mean revenues less operating expenses
(other than depreciation, amortization and non-recurring charges); "Net
Earnings" shall mean net earnings from continuing operations; and "Cash Flow"
shall mean Operating Income less cash capital expenditures and rental library
purchases and increases or decreases in working capital and in other balance
sheet investments.
Section 2.3 Limitation on Awards.
The aggregate amount of all Awards to any Participant for any Performance
Period shall not exceed the amount determined by multiplying such Participant's
Salary by a factor of eight. For purposes of the Plan, "Salary" shall mean (a)
for any Participant hired on or before July 15, 1999, the sum of (i) the annual
base salary of the Participant for such year, and (ii) an amount equal to the
annual rate of any deferred compensation for such year, in each case, as set
forth in the Participant's employment agreement as in effect on July 15, 1999;
provided that, if the employment agreement expires prior to the end of any
Performance Period, the amount of base salary and deferred compensation
determined hereunder shall relate to the highest annual amounts that were
provided for under such employment agreement; and (b) for any Participant hired
after July 15, 1999, the sum of (x) such Participant's annual base salary on
the date of hire, and (y) an amount equal to the annual rate of any deferred
compensation for the year of hire, in each case, as set forth in such
Participant's employment agreement as in effect on his date of hire; provided,
that the Salary for this purpose of a Participant hired after July 15, 1999,
shall not exceed 1.5 times the highest Salary on July 15, 1999 for any
Participant determined pursuant to clause (a) of this Section 2.3.
Notwithstanding the foregoing, "Salary" determined hereunder shall not include
any amounts that would cause the Committee to exercise discretion not otherwise
permitted by Section 162(m) of the Code.
Section 2.4 Determination of Award.
The Committee shall, promptly after the date on which the necessary
financial or other information for a particular Performance Period becomes
available, certify whether the Performance Targets have been achieved in the
manner required by Section 162(m) of the Code. If the Performance Targets have
been achieved, the Awards for such Performance Period shall have been earned
except that the Committee may, in its sole discretion, reduce the amount of any
Award to reflect the Committee's assessment of the Participant's individual
performance or for any other reason. Subject to Section 2.5, such Awards shall
become payable in cash as promptly as practicable thereafter.
Section 2.5 Employment Requirement.
To be eligible to receive payment of an Award, the Participant must have
remained in the continuous employ of the Company or its subsidiaries through
the end of the applicable Performance Period; provided that, if a Participant
becomes "permanently disabled" (in each case, as determined by the Committee in
its sole discretion) or a Participant dies during a Performance Period, such
Participant or his estate shall be awarded, unless his employment agreement
provides otherwise, a pro rata portion of the amount of the Award earned for
such Performance Period, except that the Committee may, in its sole discretion,
reduce the amount of such Award to reflect the Committee's assessment of such
Participant's individual performance prior to such Participant's becoming
permanently disabled or such Participant's death, as the case may be, or for
any other reason.
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<PAGE>
ARTICLE III
ADJUSTMENT OF AWARDS
In the event that, during a Performance Period, any recapitalization,
reorganization, merger, acquisition, divestiture, consolidation, spin-off,
combination, liquidation, dissolution, sale of assets, or other similar
corporate transaction or event, or any other extraordinary item or event not
foreseen at the time of the grant of the Award, or any other event which
distorts the applicable performance criteria occurs involving the Company or a
subsidiary or division thereof, the Committee shall, to the extent consistent
with Section 162(m) of the Code, adjust or modify, as determined by the
Committee in its sole and absolute discretion, the calculation of Operating
Income, Net Earnings and/or Cash Flow, or the applicable Performance Targets,
to the extent necessary to prevent reduction or enlargement of Participants'
Awards under the Plan for such Performance Period attributable to such
transaction or event. Such adjustments shall be conclusive and binding for all
purposes.
ARTICLE IV
MISCELLANEOUS
Section 4.1 No Rights to Awards or Continued Employment.
No employee shall have any claim or right to receive Awards under the Plan.
Neither the Plan nor any action taken hereunder shall be construed as giving
any employee any right to be retained by the Company or any of its
subsidiaries.
Section 4.2 Restriction on Transfer.
The rights of a Participant with respect to Awards under the Plan shall not
be transferable by the Participant to whom such Award is granted, otherwise
than by will or the laws of descent and distribution.
Section 4.3 Tax Withholding.
The Company or a subsidiary thereof, as appropriate, shall have the right to
deduct from all payments made under the Plan to a Participant or to a
Participant's beneficiary or beneficiaries any federal, state or local taxes
required by law to be withheld with respect to such payments.
Section 4.4 No Restriction on Right of Company to Effect Changes.
The Plan shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any recapitalization, reorganization,
merger, acquisition, divestiture, consolidation, spin-off, combination,
liquidation, dissolution, sale of assets, or other similar corporate
transaction or event involving the Company or a subsidiary thereof or any other
event or series of events, whether of a similar character or otherwise.
Section 4.5 Source of Payments.
The Company shall not have any obligation to establish any separate fund or
trust or other segregation of assets to provide for payments under the Plan. To
the extent any person acquires any rights to receive payments hereunder from
the Company, such rights shall be no greater than those of an unsecured
creditor.
Section 4.6 Amendment and Termination.
The Board may at any time and from time to time alter, amend, suspend or
terminate the Plan in whole or in part; provided, however, that no alteration
or amendment will be effective without stockholder approval if such approval is
required by law. No termination or amendment of the Plan may, without the
consent of the Participant to whom an Award has been made, adversely affect the
rights of such Participant in such Award.
B-3
<PAGE>
Section 4.7 Governmental Regulations.
The Plan, and all Awards hereunder, shall be subject to all applicable rules
and regulations of governmental or other authorities.
Section 4.8 Headings.
The headings of articles and sections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan.
Section 4.9 Governing Law.
The Plan and all rights and Awards hereunder shall be construed in
accordance with and governed by the laws of the State of Delaware without
regard to conflicts of law principles and applicable federal law.
Section 4.10 Effective Date.
The Plan became effective upon its adoption by the Board and its approval by
the stockholder of the Company on July 15, 1999.
B-4
<PAGE>
PROXY-ANNUAL MEETING OF STOCKHOLDERS
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R The undersigned hereby appoints John F. Antioco and Edward B. Stead as
Proxies, each with the power to act without the other and with full power
O of substitution and resubstitution, and hereby authorizes them to
represent and to vote, as designated on the reverse side, all shares of
X Blockbuster Inc. that the undersigned would be entitled to vote at the
Annual Meeting of Stockholders of Blockbuster Inc. to be held at Hotel
Y Adolphus, 1321 Commerce Street, Dallas, Texas, on May 23, 2000, at 10:00
a.m., Dallas time, upon such business as may properly come before the
meeting or any adjournments thereof, including the matters set forth on
the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AT THE DISCRETION OF THE PROXY
HOLDERS WITH REGARD TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS THEREOF.
(Continued and to be signed and dated on reverse side.)
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FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
X Please mark your |
votes as in this | 5132
example. |_________
The Board of Directors recommends that stockholders vote FOR each of the proposals. Please review
carefully the Proxy Statement delivered with this Proxy.
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FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Class I Nominees: 2. Approval of the Blockbuster Inc.
Directors. [ ] [ ] Philippe P. Dauman 1999 Long-Term Management [ ] [ ] [ ]
Thomas E. Dooley Incentive Plan.
FOR, except vote withheld from the following nominee(s): 3. Approval of the Blockbuster Inc. [ ] [ ] [ ]
Senior Executive Short-Term
Incentive Plan.
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- ----------------------------------------------------------------- 4. Ratification of the appointment [ ] [ ] [ ]
| of PricewaterhouseCoopers
| LLP as independent
| accountants.
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The Proxies are authorized to vote, in their discretion, upon
such other business as may properly come before the meeting.
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NOTE: Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by a duly authorized officer. If a partnership,
please sign in partnership name by an authorized person.
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SIGNATURE(S) DATE
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FOLD AND DETACH HERE
</TABLE>
YOUR VOTE IS IMPORTANT TO THE COMPANY. PLEASE SIGN, DATE AND RETURN YOUR PROXY
BY DETACHING THE TOP PORTION OF THIS SHEET AND RETURNING IT PROMPTLY USING THE
ENCLOSED REPLY ENVELOPE.
