<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SPELLING ENTERTAINMENT GROUP, 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
SPELLING ENTERTAINMENT GROUP INC.
5700 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90036
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
You are cordially invited to attend the Annual Meeting of Shareholders of
Spelling Entertainment Group Inc. (the "Company") which will be held at the
Beverly Hilton, 9876 Wilshire Boulevard, Versailles Room, Beverly Hills,
California, at 11:30 a.m., Pacific Time, on May 21, 1998, for the purpose of
electing directors and to transact such other business as may properly come
before the Annual Meeting.
Only shareholders of record at the close of business on April 1, 1998 are
entitled to vote at the Annual Meeting or any postponements or adjournments
thereof. A list of such shareholders will be available for examination by any
shareholder for any purpose germane to the meeting, during normal business
hours, at the principal office of the Company, 5700 Wilshire Boulevard, Los
Angeles, California, for a period of ten days prior to the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of the size of your holdings. Whether or not you intend to be present
at the meeting in person, we urge you to please mark, date and sign the enclosed
proxy and return it in the envelope provided for that purpose, which does not
require postage if mailed in the United States.
SALLY SUCHIL
Secretary
Los Angeles, California
April 9, 1998
YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY.
<PAGE>
SPELLING ENTERTAINMENT GROUP INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Spelling Entertainment Group Inc. (the "Company") of
proxies for use at the Annual Meeting of Shareholders of the Company to be held
at the Beverly Hilton, 9876 Wilshire Boulevard, Versailles Room, Beverly Hills,
California, at 11:30 a.m., Pacific Time, on May 21, 1998, and at any
postponements or adjournments thereof. Proxies properly executed and returned
in a timely manner will be voted at the Annual Meeting in accordance with the
directions noted thereon. If no direction is indicated, they will be voted for
the election of the nominees named herein as directors and on other matters
properly presented for a vote, in accordance with the judgment of the persons
acting under the proxies. If for any reason (which the Board of Directors does
not expect) a nominee is unable to serve, the proxies may use their discretion
to vote for a substitute proposed by the Board of Directors. Any shareholder
giving a proxy has the power to revoke it any time before it is voted, by giving
written notice to the Secretary of the Company at the address below so that it
is received no later than the closing of the polls at the Annual Meeting, or by
attending the Annual Meeting in person and voting, or by executing a later-dated
proxy delivered prior to the closing of the polls at the Annual Meeting.
The Company's executive offices are located at 5700 Wilshire Boulevard, Los
Angeles, California 90036 (telephone 213-965-5700). Proxy materials are being
mailed to shareholders beginning on or about April 9, 1998.
SHARES OUTSTANDING AND VOTING RIGHTS
Only shareholders of record at the close of business on April 1, 1998 (the
"Record Date"), are entitled to vote at the Annual Meeting. The only voting
stock of the Company outstanding is its common stock, $.001 par value per share
(the "Common Stock"), of which 92,399,999 shares were outstanding of record as
of the close of business on April 1, 1998. Each share of Common Stock issued
and outstanding is entitled to one vote on each matter to be presented at the
Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
total issued and outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum for the transaction of
business at the Annual Meeting. Votes cast by proxy or in person at the Annual
Meeting will be tabulated by the election inspectors appointed for the Annual
Meeting, who will also determine whether or not a quorum is present. A proxy
submitted by a shareholder may indicate that all or a portion of the shares
represented by such proxy are not being voted by such shareholder with respect
to a particular matter. The shares subject to any such proxy which are not
being voted with respect to a particular matter will be considered shares not
present and entitled to vote on such matter, although such shares may be
considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum. Shares voted to abstain as to
a particular matter, and directions to "withhold authority" to vote for
directors, will be considered voted shares, and will count for purposes of
determining the presence of a quorum. Directors will be elected by a plurality
of the votes of the shares present or represented by proxy at the meeting and
entitled to vote on the election of directors. If a quorum is present, broker
non-votes and abstentions will not be considered present at the Annual Meeting
and will have no effect on the voting for the election of directors.
1
<PAGE>
As of the Record Date, Viacom Inc. ("Viacom") was the beneficial owner of
approximately 74,518,922 shares of Common Stock representing approximately 80%
of the outstanding shares. Viacom has advised the Company of its intention to
vote such shares in favor of the below listed nominees for directors. Such
action by Viacom is sufficient to elect such directors without any action on the
part of any other holder of Common Stock.
ELECTION OF DIRECTORS
By resolution of the Board of Directors of the Company, the number of
directors constituting the Board is set at six directors. Proxies may not be
voted for more than six persons. In the election of directors, shareholders do
not have cumulative voting rights.
The persons named below have been designated by the Board as nominees for
election as directors for terms expiring at the Company's Annual Meeting of
Shareholders in 1999. All nominees are currently serving as directors.
SUMNER M. REDSTONE, age 74, has been Chairman of the Board since January
1996 and has been a Director of the Company since November 1994. Mr. Redstone
has served as Chairman of the Board of Viacom since 1987 and as Chief Executive
Officer of Viacom since January 1996. He has served as President, Chief
Executive Officer of National Amusements, Inc. ("NAI") since 1967 and as
Chairman of the Board of NAI since 1986. He served as the first Chairman of
the Board of the National Association of Theater Owners, and is currently a
member of the Executive Committee of that organization. In October 1996, Mr.
Redstone was appointed by President Clinton to the position of Chairman of the
Corporate Commission on Education Technology whose mission is to advance the
quality of education in the United States through the use of technology. The
Commission comprises chief executive officers from leading media and
telecommunications companies. Since 1982, Mr. Redstone has been a member of the
faculty of Boston University Law School, where he has lectured in entertainment
law, and since 1994, he has been a Visiting Professor at Brandeis University.
AARON SPELLING, age 74, has been Vice Chairman of the Board of the Company
since April 1993 and a Director since October 1992. Mr. Spelling also serves as
the Chairman of the Board and Chief Executive Officer of Spelling Television
Inc. Mr. Spelling's career includes involvement as a writer, creator and
producer of more than 100 movies-for-television and more than 30 television
series including "The Danny Thomas Hour," "The Guns of Will Sonnett," "The Mod
Squad," "Charlie's Angels," "The Rookies," "Starsky & Hutch," "Hart to Hart,"
"Fantasy Island," "Family," "The Love Boat," "Vegas," "Matt Houston," "Hotel,"
"Dynasty," "The Colbys," "Beverly Hills, 90210," "Melrose Place," and Heaven,"
encompassing more than 3,800 hours of television programming over 30 years.
PHILIPPE P. DAUMAN, age 44, has been a Director of the Company since
November 1994. Mr. Dauman has served as Executive Vice President, General
Counsel, Chief Administrative Officer and Secretary of Viacom since March 1994
and as Deputy Chairman of the Board of Viacom since January 1996. From February
1993 to March 1994, Mr. Dauman served as Senior Vice President, General Counsel
and Secretary of Viacom. Prior thereto, Mr. Dauman was a partner in the law
firm of Shearman & Sterling in New York, which he joined in 1978. Mr. Dauman
also serves on the Board of Directors of Lafarge Corporation, NAI and Viacom.
THOMAS E. DOOLEY, age 41, was elected a Director of the Company in April
1996. Mr. Dooley has served as Executive Vice President - Finance, Corporate
Development and Communications of Viacom since March 1994 and as Deputy Chairman
of the Board of Viacom since January 1996. From July 1992 to March 1994, Mr.
Dooley served as Senior Vice President, Corporate Development of Viacom. From
August 1993 to March 1994, he also served as President, Interactive Television
of Viacom. Prior thereto, he held various positions in Viacom's corporate and
divisional finance areas. Mr. Dooley also serves on the Board of Directors of
Viacom.
2
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WILLIAM M. HABER, age 55, was elected a Director of the Company in August
1997. Mr. Haber has served as Advisor to the President of Save The Children
Federation, Inc. since November 1995. In 1975, Mr. Haber co-founded Creative
Artists Agency ("CAA"). From January 1975 to November 1995 he was responsible
for managing and executing CAA's innovative corporate advisory services. From
1964 to 1975 he was head of the talent department at the William Morris Agency.
Mr. Haber is a past President of the Hollywood Radio & Television Society and a
member of the Board of Directors of several organizations, including the Museum
of Television & Radio, the Ad Council, Jim Henson Productions, The Foundation
for the Junior Blind and Save the Children Federation, Inc.
JOHN L. MUETHING, age 76, has been a Director of the Company since October
1992. He has been Of Counsel to the Cincinnati, Ohio law firm of Keating,
Muething & Klekamp for more than eight years.
EXECUTIVE OFFICERS
Set forth below is information regarding those persons who serve as
executive officers of the Company, but who do not serve as directors of the
Company.
PETER H. BACHMANN, age 40, was elected President of the Company in May
1997. Mr. Bachmann served as Executive Vice President, Office of the President
of the Company from September 1994 to May 1997. From August 1993 to September
1994, he served as Senior Vice President-Business and Legal Affairs of the
Company and of Spelling Television Inc. From June 1987 to August 1993, Mr.
Bachmann served in various executive positions at Imagine Films Entertainment,
Inc., most recently as Executive Vice President, Business Affairs.
ROSS G. LANDSBAUM, age 35, has been the Vice President - Finance and
Business Development and Treasurer of the Company since August 1997. Mr.
Landsbaum served as Vice President, Finance and Tax from July 1994 to August
1997. Prior to joining the Company, Mr. Landsbaum held various positions with
Arthur Andersen LLP from January 1986 to June 1994, most recently as Manager.
JAMES MILLER, age 38, has been Vice President and Controller of the Company
since January 1997. Mr. Miller served as Vice President and Controller/Acting
Chief Financial Officer of Silver King Communications, Inc. from July 1996 to
December 1996. Prior thereto, he served in a Vice President, Controller of
Savoy Pictures, Inc. from November 1993 to July 1996. From July 1989 to October
1993, he served as Manager, Financial Reporting and then as Manager, Studio
Finance and Planning with Walt Disney Pictures. He also served in various
accounting positions with KPMG Peat Marwick and Rhino Records, Inc. from
November 1984 to July 1989.
SALLY SUCHIL, age 47, has been Senior Vice President, General Counsel and
Secretary of the Company since January 1995. In January 1998, Ms. Suchil's
administrative responsibilities for the Company were expanded and her title was
changed to Senior Vice President - General Counsel, Secretary and
Administration. Ms. Suchil served as Senior Vice President and Assistant
General Counsel of Metro-Goldwyn-Mayer Inc. ("MGM") from June 1992 to December
1994. Prior thereto, she served as Senior Vice President-Corporate Legal
Affairs of MGM from July 1991 to June 1992, and Vice President-Corporate Legal
Affairs of MGM from 1986 to July 1991.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any persons holding more than ten percent of the Common Stock are
required to report their initial ownership of Common Stock and any changes in
that ownership to the Securities and Exchange Commission (the "Commission"), the
New York Stock Exchange and the Pacific Exchange. Specific due dates have been
established and the Company is required to disclose in this Proxy Statement any
failure to file by these dates. Based solely on a review of the copies of the
forms furnished to the Company, or written representations that no Form 5's were
required, the Company believes that in 1997 and through the date of this Proxy
Statement, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent shareholders were complied with.
3
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the Common Stock of the Company beneficially owned
by each director, each Named Officer in the Summary Compensation Table below,
each person (or group) known to the Company to beneficially own more than five
percent of the outstanding Common Stock, and the directors and executive
officers as a group on April 1, 1998, is shown in the following table:
<TABLE>
<CAPTION>
Number of Shares
Name of Director, Executive of Common Stock Percent
Officer or Shareholder Beneficially Owned(l) of Class
--------------------------- -------------------- --------
<S> <C> <C>
Sumner M. Redstone.................. 74,518,922/(2)/ 80%
Aaron Spelling...................... 861,000/(3)(4)/ *
Philippe P. Dauman.................. --/(5)/ *
Thomas E. Dooley.................... --/(5)/ *
William M. Haber.................... -- *
John L. Muething.................... 2,000/(6)/ *
Peter H. Bachmann................... 348,750/(7)/ *
Ross G. Landsbaum................... 35,625/(7)/ *
James Miller........................ 5,000/(7)/ *
Sally Suchil........................ 45,000/(7)/ *
Viacom Inc.......................... 74,518,922/(8)/ 80%
All directors and executive officers
as a group (10 persons)............ 75,816,297/(4)(7)/ 82%
</TABLE>
_______________________
* Less than one percent of the class of securities
(1) Unless otherwise indicated, each holder named has sole voting and
investment power with respect to the shares of Common Stock owned by such
holder.
(2) Consists of shares of Common Stock indirectly owned by Viacom and
attributed to Mr. Redstone. NAI owns approximately 67.2% of Viacom's Class
A Common Stock and approximately 18.3% of Viacom's Class B Common Stock.
Mr. Redstone is the controlling shareholder of NAI and is its Chairman of
the Board, President and Chief Executive Officer.
(3) Of this amount, 48,500 shares are held jointly with his wife.
(4) Includes 812,500 shares of Common Stock which may be acquired within 60
days of April 1, 1998 by Mr. Spelling upon exercise of stock options.
(5) Does not include any shares of Common Stock beneficially owned by Viacom.
(See "Election of Directors.")
(6) Held jointly with his wife.
(7) Consists of shares of Common Stock which may be acquired within 60 days of
April 1, 1998 upon exercise of stock options.
(8) Consists of shares of Common Stock indirectly owned by Viacom and
attributed to Mr. Redstone.
4
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors has, pursuant to its powers, designated several
committees of the Board, including an Audit Committee, Compensation Committee
and Nominating Committee, the functions and membership of which are described
below.
The Audit Committee is responsible for certain financial affairs of the
Company and its subsidiaries, including the selection of the Company's auditors,
the review of the adequacy of internal controls and reporting, and the
performance of any other duties or functions deemed appropriate by the Board.
The Compensation Committee is responsible for the matters discussed under the
heading "Report of the Compensation Committee" set forth below. The Nominating
Committee's function is to identify and propose to the full Board nominees to
fill vacancies as they occur. The Nominating Committee will consider persons
brought to its attention by officers, directors and shareholders. Proposals may
be addressed to the Nominating Committee at the address shown on the cover of
this Proxy Statement, to the attention of the Secretary of the Company. Messrs.
Haber and Muething are currently members of the Audit Committee and the
Nominating Committee. Messrs. Dauman, Haber and Muething are currently members
of the Compensation Committee. During 1997, the Compensation Committee met four
times; the Audit Committee met one time; and the Nominating Committee did not
hold a meeting, however, members of the Nominating Committee considered Mr.
Haber's appointment to the Board of Directors and in August 1997 the Board of
Directors appointed Mr. Haber to serve as a member of the Board.
During 1997, the Board of Directors took action by unanimous written
consent on three occasions and held five Board meetings. Each director
attended all of the meetings, other than Mr. Dooley who attended 60% of the
meetings, held by the Board of Directors and the committee(s) thereof on which
each such director served.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for services rendered in
all capacities to the Company for the years ended December 1997, 1996 and 1995,
of those persons who were (i) the Company's Principal Executive Officer during
1997 and (ii) certain executive officers of the Company during 1997. (Such
persons in (i) and (ii) being referred to herein collectively as the "Named
Officers").
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ---------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Positions Year Salary Bonus Compensation/(a)/ Options Compensation
- ------------------------------- ---- ------- ------------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Bachmann 1997 697,624 303,750/(b)/ -- 125,000 7,200/(c)/
President 1996 492,308 175,000 -- 250,000 6,750/(c)/
1995 398,077 166,250 3,000 -- 6,750/(c)/
William P. Clark/(d)/ 1997 213,925 -- -- -- --
Senior Vice President 1996 40,385 35,000 -- 50,000 --
and Chief Financial Officer
Ross G. Landsbaum 1997 160,923 75,000/(b)/ -- 30,000 7,200/(c)/
Vice President - Finance 1996 144,870 30,000 -- 20,000 3,805/(c)/
and Business Development 1995 134,731 30,000 2,695 -- 3,465/(c)/
and Treasurer
James Miller 1997 160,000 40,000/(b)/ -- 35,000 2,215/(c)/
Vice President and
Controller
Sally Suchil 1997 259,615 63,750/(b)/ -- 25,000 7,200/(c)/
Senior Vice President - 1996 249,039 55,000 -- 40,000 6,750/(c)/
General Counsel, Secretary 1995 196,154 70,000 3,000 40,000 4,505/(c)/
and Administration
</TABLE>
_______________
(a) Amount accrued under a Company profit sharing plan.
(b) Bonuses were paid in February 1998 in respect of services performed in
1997.
(c) Company contribution under the 401(k) Savings Plan.
(d) Mr. Clark resigned from the Company in August 1997.
6
<PAGE>
STOCK OPTION GRANT TABLE
Set forth below is information with respect to grants of stock options
during the fiscal year ended December 31, 1997, to the Named Officers. All such
options were granted with an exercise price equal to the market value of the
underlying Common Stock on the date of the grant. Stock appreciation rights are
not available under the Company's stock option plans.
OPTION GRANTS IN 1997
---------------------
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of Stock
Number of % of Total Price Appreciation for
Securities Options Granted Option Term
Underlying to Employees Exercise Expiration -----------------------
Options Granted(1) in Fiscal Year Price Date 5% 10%
------------------ ----------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Bachmann...... 125,000 10.50% $6.875 12/22/07 $540,456 $1,369,622
William P. Clark....... -- -- -- -- -- --
Ross G. Landsbaum...... 15,000 1.26% $7.625 02/04/07 71,930 182,284
15,000 1.26% $6.875 12/22/07 64,855 164,355
James Miller........... 20,000 1.68% $7.875 01/06/07 99,051 251,014
15,000 1.26% $6.875 12/22/07 64,855 164,355
Sally Suchil........... 25,000 2.10% $6.875 12/22/07 108,091 273,924
- -----------
</TABLE>
(1) Grant vests 25% each year over a period of four years.
As required by the Commission, the dollar amounts in the last two columns
represent the hypothetical gain or "option spread" that would exist for the
options based on assumed 5% and 10% annual compounded rates of stock price
appreciation over the full option term. These prescribed rates are not intended
to forecast possible future appreciation, if any, of the Common Stock. The
closing price of the Common Stock on April 1, 1998 was $9.0625.
STOCK OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth certain information pertaining to stock
options (i) exercised during the fiscal year ended December 31, 1997 and (ii)
held as of December 31, 1997 by the Named Officers. The Company has no long-term
incentive compensation plans pursuant to which stock appreciation rights may be
awarded.
AGGREGATED OPTION EXERCISES IN 1997 AND FISCAL YEAR END OPTION VALUES
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<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Shares December 31, 1997 December 31, 1997/(1)/
Acquired Value -------------------------------- ----------------------------------
Named Officers On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ----------- ------------- ----------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Bachmann............ -- -- 286,250 368,750 $ -- $15,625
Ross G. Landsbaum............ -- -- 30,625 56,875 $ -- 1,875
James Miller -- -- -- 35,000 $ -- 1,875
Sally Suchil -- -- 25,000 80,000 $ -- 3,125
- -----------
</TABLE>
(1) The closing price of the Company's Common Stock on December 31, 1997 was
$7.00.
7
<PAGE>
DIRECTOR COMPENSATION
Each member of the Board (excluding Messrs. Dauman, Dooley and Redstone) is
currently paid an annual fee of $15,000 plus $750 for each Board and Committee
meeting attended.
EMPLOYMENT CONTRACTS
Pursuant to an Employment Agreement dated as of March 1, 1998 (the
"Employment Agreement"), Aaron Spelling is employed as Vice Chairman of the
Board of the Company and as Chairman of the Board and Chief Executive Officer of
Spelling Television Inc. and is entitled to serve as Executive Producer or
Producer of substantially all television programs and films (as he may elect)
produced by the Company or its production subsidiaries. Mr. Spelling's
Employment Agreement extends through April 30, 2000. As compensation for the
performance of his obligations under the agreement, Mr. Spelling receives a
salary of $129,167 per month for the first two months of the agreement, and an
annual base salary of $1,700,000 for the period May 1, 1998 to April 30, 1999
("first term year") and $1,850,000 for the period May 1, 1999 to April 30, 2000
("second term year"). Mr. Spelling is also entitled to receive a year-end bonus
of $175,000 for the first term year and $200,000 for the second term year. As
compensation for serving as an Executive Producer or Producer, Mr. Spelling
receives certain producer fees and other compensation. (See "Certain
Transactions").
Mr. Spelling has the right to terminate the Employment Agreement effective
upon seven (7) days' written notice in the event that the Company materially
breaches its obligations under the Employment Agreement or upon certain
circumstances involving a change of control of the Company. If the agreement is
terminated for any reason, Mr. Spelling may elect to continue to provide
Executive Producer services on the Company's product as set forth in the
agreement and the Company will pay him producer fees and other compensation as
set forth therein. If Mr. Spelling terminates the Employment Agreement based on
a material breach by the Company, Mr. Spelling has the right to cease providing
services and receive a lump sum payment equal to the present value of his base
salary for the remainder of the term, as well as Executive Producer fees and
other compensation payable in accordance with a formula provided in his
Employment Agreement, and the year-end bonuses. In addition, Mr. Spelling was
also granted 75,000 stock options. In the event the Company is sold or taken
private (as defined in his agreement), any outstanding and unvested stock
options he holds will become immediately exercisable.
The Company has a three-year employment agreement with Peter H. Bachmann,
dated as of January 1, 1997, wherein he is employed as President of the Company
and received an annual salary of $675,000 during the first year of the term.
Pursuant thereto, his salary increased to $725,000 on January 1, 1998 and will
be increased to $795,000 on January 1, 1999. Further, he is entitled to receive
target incentive compensation of 50% of his salary based on the Company's
performance and his individual performance. Mr. Bachmann is also entitled to
receive an annual grant of not less than 125,000 stock options. Under certain
circumstances, including a change of control or sale or liquidation of the
Company or if the Company engages in a "going private" transaction (as defined
in his agreement), Mr. Bachmann's outstanding stock options will become fully
exercisable and vested. In the event Mr. Bachmann is terminated without cause
or he terminates the agreement for good reason, he is entitled to receive his
base salary, bonus and certain other compensation for the balance of the
employment term, subject to mitigation after the first 18 months, and all
outstanding and vested stock options as of the end of the employment term shall
remain exercisable for six months following the date of termination (but not
beyond the expiration date of such stock options.)
The Company has an agreement with Ross G. Landsbaum which terminates on
August 3, 1999. Pursuant to such agreement, Mr. Landsbaum is employed as the
Vice President - Finance and Business Development and Treasurer of the Company
at an annual salary of $190,000 and his annual salary will be increased to
$210,000 on August 4, 1998. Mr. Landsbaum is also entitled to receive target
incentive compensation of 30% of his annual salary at the Company's discretion.
The Company has an agreement with James Miller, dated as of January 6,
1997, which terminates on January 5, 1999. Pursuant to such agreement, Mr.
Miller is employed as Vice President and Controller at an annual salary of
$160,000 during the first year of the agreement and $185,000 during the second
year of the agreement. The Company
8
<PAGE>
also has an option to renew the agreement for one additional year at an annual
salary of $190,000. Mr. Miller is also entitled to receive a bonus at the
Company's discretion. Pursuant to Mr. Miller's employment agreement, he was
granted 20,000 stock options vesting 25% each year.
The Company has an agreement with Sally Suchil which terminates on January
4, 2000. Pursuant to such agreement, Ms. Suchil is employed as Senior Vice
President - General Counsel, Secretary and Administration of the Company at an
annual salary of $305,000 and her annual salary will be increased to $325,000 on
January 1, 1999. Ms. Suchil is also entitled to receive target incentive
compensation of 30% of her base annual salary.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors at April 1, 1998
consisted of Philippe P. Dauman, William M. Haber (Chairman) and John L.
Muething. The Compensation Committee's functions include reviewing and
recommending compensation arrangements for executive officers of the Company and
administering the Company's stock option plans, including determining
eligibility, the number of shares to be granted and the terms of such grants.
Mr. Dauman recuses himself from all matters relating to stock option grants to
directors and executive officers of the Company who are subject to the
provisions of Section 16 of the Exchange Act. Such matters are administered
solely by the non-employee directors who are members of the Compensation
Committee.
General
The Company's executive compensation policies relating to executive
officers have been designed to provide a total compensation program that will
attract, retain and motivate superior executive personnel while integrating such
compensation with Company performance and shareholder interests. The Company's
compensation program for executive officers has three principal components:
annual base salary, annual incentive bonuses and stock option grants. Under this
program, a portion of an executive's compensation, in both the short term and
the long term, is linked to the Company's performance. In addition, each of the
Company's employees including its executive officers is permitted, when
eligible, to participate in the Company's 401(k) Savings Plan by making
voluntary contributions to his or her account. The Company contributes to
individual employee accounts based upon the amount of the employee's
contributions. In addition, at the Company's discretion, the Company may
annually make a discretionary contribution based on a profit-sharing component
of the plan in such amount as may be determined, from time to time, by the Board
of Directors, of the total compensation (subject to a maximum of $160,000 of
such compensation) paid to participants in such plan, which amount is
distributed ratably to participants' individual accounts based on the
participants' base salaries.
Base Salary
Annual salaries are established after a review of industry, peer group and
national surveys of total compensation packages, as well as evaluation of the
individual executive's past and expected future performance. Annual salary
levels are generally targeted to, and in 1997 corresponded to, the range of
salaries paid to executives with comparable qualifications, experience and
responsibilities at other similarly situated companies in the entertainment
industry. In establishing salary levels against such range, the competitiveness
of the executive's entire compensation package is considered. Certain executive
officers are employed pursuant to employment agreements which fix their base
salary.
Annual Incentive Bonuses
The Company's executive officers are eligible to receive annual incentive
bonuses. In approving such bonuses, consideration is given to the operating
results of the Company as a whole, the performance of the individual executive's
division and the contributions made by the individual during the course of the
year. The evaluation is conducted from
9
<PAGE>
a more generalized consideration of each of the three factors with a view
towards rewarding outstanding performance and encouraging executives to
contribute to the overall success of their operating division and the Company as
a whole. Incentive bonuses were paid to executive officers in February 1998 in
respect of services performed in 1997.
Stock Options
Stock options represent an important part of the Company's compensation
program. The Committee believes that the Company's shareholders' interests are
well served by aligning the Company's senior executives interests with those of
the shareholders through the grant of stock options. Options under the Company's
1994 Stock Option Plan have been granted at exercise prices equal to the fair
market value of the Common Stock on the date of the grant, and will only have
value if the Company's stock price increases. Options granted subsequent to
July 1993 generally become exercisable at the rate of 25% per year and
executives generally must be employed for the options to vest. In this manner,
the options provide an incentive for the growth of shareholder value over the
long term since the full benefit of the options can only be realized if the
price of the Company's stock appreciates over time. The Compensation Committee
believes that these features provide the optionee with substantial incentives to
maximize the Company's long term success. Grants of stock options generally are
based upon the executive's position with the Company and an evaluation of the
executive's past and expected future performance, without regard to the
executive's stock ownership or grants made to the executive in prior years. The
number of shares subject to a stock option grant is generally determined by
dividing a multiple of the executive's base salary by the market price of the
Common Stock on the date of the grant.
Compensation of the President
From September 1994 through May 1997, Peter H. Bachmann was the Executive
Vice President, Office of the President of the Company. Mr. Bachmann was
elected President of the Company in May 1997.
Mr. Bachmann received an annual salary of $675,000 during 1997 pursuant to
the terms of his employment agreement with the Company. The salary level was
increased in May 1997 pursuant to Mr. Bachmann's employment agreement dated as
of January 1, 1997 and reflects the Board of Directors' assessment of the base
compensation level which would be necessary to attract and retain experienced
executives in the entertainment industry who had the requisite qualifications to
manage a business enterprise of the Company's size and complexity. (See
"Employment Contracts.")
The employment contract provides that Mr. Bachmann is entitled to receive
target bonus compensation of 50% of his annual base salary based upon his
performance and the performance of the Company. Mr. Bachmann received a bonus
of $303,750 in respect of services performed in 1997.
In November 1997, the Compensation Committee granted Mr. Bachmann options
to acquire 125,000 shares (the "1997 Options") under the Company's 1994 Stock
Option Plan. Pursuant to his employment agreement, the Company shall make an
annual grant of stock options to Mr. Bachmann of no less than 125,000 shares.
The 1997 Options are exercisable at $6.875 per share. The 1997 Options vest in
annual increments of 31,250 shares commencing January 1, 1999. The Compensation
Committee approved the option grant to Mr. Bachmann in light of the additional
responsibilities he has assumed as the Company's President. Moreover, during
1997 the Company restructured its home video rental operations and licensed its
remaining 1997 titles to Paramount Home Video, restructured Virgin Interactive
Entertainment, Inc. (a subsidiary of the Company), negotiated the renewal of Mr.
Spelling's employment agreement and launched several new successful television
shows. In light of the foregoing and the importance which the Compensation
Committee attaches to retaining Mr. Bachmann's services, it believes a
significant grant of stock options is an appropriate form of compensation to
incentivize Mr. Bachmann and align his interests with those of the Company's
shareholders.
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Deductibility of Executive Compensation
The Omnibus Budget Reconciliation Act of 1993 added a provision to the
Internal Revenue Code limiting to $1,000,000 the deductibility of compensation
(including stock-based compensation, such as stock options) other than
"performance-based" compensation paid to certain executives by public companies.
The tax law change includes an exclusion for "performance-based" compensation,
provided such compensation meets certain requirements, including outside
director and shareholder approval of the performance goals. The Company will
continue to consider the deductibility of compensation payments when
establishing its compensation practices and programs.
The Compensation Committee continually evaluates the Company's compensation
policies and procedures with respect to executives. Although the Compensation
Committee believes that current compensation policies have been successful in
aligning the financial interests of executive officers with those of the
Company's shareholders and with Company performance, it continues to examine
what modifications, if any, should be implemented to further link executive
compensation with both individual and Company performance.
The Compensation Committee
Philippe P. Dauman
William M. Haber (Chairman)
John L. Muething
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Dauman and Muething were elected members of the Company's
Compensation Committee in November 1994 and Mr. Haber (Chairman) was elected in
August 1997. Since November 1994, Mr. Dauman, an executive officer and Director
of Viacom, has served as a member of the Company's Compensation Committee. For
further information regarding certain relationships of Mr. Dauman see "Election
of Directors" and "Report of the Compensation Committee on Executive
Compensation."
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STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return on investment (based
on change in year-end stock price and assuming reinvestment of all dividends)
assuming a $100 investment in the Common Stock of the Company, the Standard &
Poor's 500 Stock Index and an index of peer companies selected by the Company
(the "Peer Group Index") for the five year period commencing January 1, 1993 and
ending December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SPELLING ENTERTAINMENT GROUP, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
Measurement Period SPELLING
(Fiscal Year Covered) ENTERTAINMENT PEER GROUP BROAD MARKET
- --------------------- ------------- ---------- ------------
<S> <C> <C> <C>
Measurement Pt- 1992 $100 $100 $100
FYE 1993 $161.86 $130.07 $110.08
FYE 1994 $175.02 $107.95 $111.54
FYE 1995 $203.51 $113.07 $153.45
FYE 1996 $120.07 $ 91.17 $188.69
FYE 1997 $113.96 $138.36 $251.64
</TABLE>
The Peer Group Index consists of the common stock of Acclaim Entertainment,
Inc., Dick Clark Productions, King World Productions, Kushner-Locke Company and
Trimark Holding, Inc. The Peer Group Index used in the Company's 1997 Proxy
Statement (the "1997 Index") consisted of the above companies and Cinergi
Pictures, Electronics Arts, Inc., LIVE Entertainment and Marvel Entertainment.
Companies from the 1997 Index which continue to be publicly traded are
Acclaim Entertainment, Inc., Dick Clark Productions, Electronic Arts, Inc., King
World Productions, Kushner-Locke Company and Trimark Holding, Inc. If those
companies comprised the current peer group index, then the levels for that
index, instead of those reflected in the chart above, would have been as
follows: 1992, $100; 1993, $130; 1994, $108; 1995, $113; 1996 $91 and 1997,
$138.
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CERTAIN TRANSACTIONS
In this section, references to Blockbuster are to Blockbuster Entertainment
Corporation ("BEC") and its subsidiaries for the period ending September 29,
1994 and to Blockbuster Entertainment Group ("BEG") and its subsidiaries
thereafter. References in this section to Viacom are to Viacom Inc. and its
subsidiaries.
On April 26, 1994, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") by and among the Company, Republic Pictures Corporation (now known
as Republic Entertainment Inc.) ("Republic") and DE Acquisition Corporation, a
wholly-owned subsidiary of the Company ("Merger Sub"), Republic Pictures was
merged with and into Merger Sub (the "Merger"), and Republic Pictures became a
wholly-owned subsidiary of the Company. At the time the Merger became effective
(the "Effective Time") each share of Republic's common stock outstanding
immediately prior to the Effective Time was converted into the right to receive
$13.000 in cash without interest (the "Cash Merger Consideration"). Options and
warrants to acquire Republic common stock outstanding immediately prior to the
Effective Time were converted into the right to receive, upon payment of the
exercise price (as adjusted as set forth below), 1.6508 shares of Common Stock
for each share of Republic common stock into which such option or warrant was
exercisable immediately prior to the Effective Time. The exercise price of such
options and warrants was adjusted by multiplying such exercise price by 0.6058.
Immediately prior to the Effective Time, Blockbuster owned 2,550,000 shares
of Republic common stock and warrants to acquire an aggregate of 810,000 shares
of Republic common stock at an exercise price of $11.50 per share, which shares
and warrants, as a result of the Merger, were converted into the right to
receive an aggregate of $33,150,000 and a warrant to acquire 1,337,148 shares of
Common Stock, respectively. The exercise price for such warrant is $6.9667 per
share. Subsequently, Blockbuster assigned the warrants to SEGI Holding Company,
a subsidiary of Viacom. On February 11, 1998, Viacom exercised its right and
acquired 1,337,148 shares of the Company.
On July 30, 1994, the Company and Blockbuster entered into an exchange
agreement (the "Exchange Agreement") and consummated the transactions
contemplated thereby (the "Acquisition"). Pursuant to the Exchange Agreement,
Blockbuster delivered to the Company 8,686,984 ordinary shares (the "Ordinary
Shares") of Virgin Interactive Entertainment Limited ("VIEL") and an option to
acquire 550,000 Ordinary Shares of VIEL (collectively, the "VIE Interests") in
exchange for 22,015,062 shares of the Company's Common Stock. Blockbuster had
acquired a majority of the VIE Interests from third parties on July 29, 1994.
As a result of the Acquisition, the Company acquired approximately 91% of VIEL's
Ordinary Shares.
In connection with the Acquisition, the Company also entered into put- and
call-option agreements with Blockbuster with respect to the Ordinary Shares of
VIEL not owned by the Company. Under these agreements, the Company may acquire,
or be required by Blockbuster to purchase, these shares from Blockbuster at an
agreed-upon price. At the option of the Company, such purchase price may be paid
to Blockbuster in cash or shares of the Company's Common Stock. On June 8,
1995, Blockbuster acquired the remaining Ordinary Shares of VIEL not owned by
the Company for approximately $22,973,000 plus other costs associated with the
transaction. Viacom and the Company have executed amendments to extend the put-
and call-option agreements through June 30, 1998.
In January 1994, the Company entered into a three-year credit agreement
with Blockbuster. As a result of the merger of Blockbuster with and into Viacom,
Viacom succeeded to Blockbuster's position under the credit agreement (the
"Viacom Facility"). This agreement was amended and restated in January 1995 to
reflect certain amendments to the facility which were effective as of December
7, 1994, including a $25,000,000 increase in the amount available under the
facility. In November 1995, the Viacom Facility was again amended to provide a
$40,000,000 increase in the amount available. The Viacom Facility, as amended,
provides for (i) a term loan of $100,000,000 which funded the Company's merger
with Republic, a wholly-owned subsidiary of the Company and (ii) a revolving
credit facility of $140,000,000 to fund the Company's working capital and other
requirements. On September 30, 1996, the Company and Viacom executed a credit
agreement (the "Viacom Credit Agreement"), which replaced the Viacom Facility.
The Viacom Credit Agreement provides for (i) a term loan of $200,000,000 and
(ii) a revolving credit facility of $155,000,000 to fund the Company's working
capital and other requirements. All outstanding borrowings under the
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<PAGE>
Viacom Credit Agreement mature on December 31, 1998. In March 1998, the Company
and Viacom executed an agreement to extend the maturity date to December 31,
1999. Under the Viacom Credit Agreement, the Company pays an annual fee
(currently 0.375%) based on the unused portion of the facility, as well as
certain facility and administration fees. Effective October 1, 1996, interest on
all outstanding borrowings is payable, at the Company's option, at LIBOR plus a
spread (currently 2.5%) or at Citibank N.A.'s base rate. The spread is based on
a sliding scale with regard to the Company's leverage ratio, as defined.
Borrowings under the Viacom Credit Agreement are secured by all of the assets of
the Company and its domestic subsidiaries, and the entire amount outstanding
under the Viacom Credit Agreement may be accelerated if Viacom's borrowings
under its separate credit facilities were to be accelerated. Borrowings under
the Viacom Credit Agreement may be accelerated in the event of a change in
control of the Company, as defined in the Viacom Credit Agreement.
On December 23, 1993, a wholly-owned subsidiary of VIEL established a
multi-currency credit agreement with a bank in the U.S. (the "Credit
Agreement"). The Credit Agreement initially provided for maximum borrowings of
$15,000,000, subject to a borrowing base test. Following the Acquisition, the
amount of borrowings allowable under the Credit Agreement was increased to
$75,000,000, and the borrowing base test and other ratio tests were eliminated,
based on the guarantee of all borrowings under the Credit Agreement by Viacom.
During 1995, the borrowings allowable under the Credit Agreement were increased
to $100,000,000 and in 1996, the term was extended to March 31, 1998. On
February 23, 1998, the term was extended to September 30, 1998. Interest is
payable monthly at the bank's reference rate or, at the Company's option,
certain alternative rates. Additionally, the Company must pay a commitment fee
of 0.125% on the unused portion of the available credit.
A wholly-owned subsidiary of VIEL maintains a credit facility in the amount
of 10,000,000 pounds sterling with a bank in the United Kingdom (the "UK
Facility"). The UK Facility, initially expired on April 30, 1997, but was
renegotiated on terms more favorable to the subsidiary. The renegotiated UK
Facility, which expired on December 31, 1997, was extended to June 30, 1998 and
is guaranteed by Viacom and the Company. Advances under the renegotiated UK
Facility will bear interest at the bank's prime rate plus 1% or alternatively,
at selected Eurocurrency rates. The Company also provides a rent guarantee for
this subsidiary which expires in 2005.
During the fiscal year ended December 31, 1997, Blockbuster was charged by
the Company approximately $6,147,000 for the purchase of prerecorded
videocassettes in connection with Blockbuster's retailing business. At December
31, 1997, the Company had a net receivable from BEG of approximately $98,000
related to these sales. The Company believes that the terms of the sale of this
product to Blockbuster were as favorable to the Company as could have been
obtained from an unaffiliated party. The Company expects to continue to sell
videocassettes to Blockbuster upon similar terms in the future.
The Company participates in the Viacom insurance programs with respect to
general business and workers' compensation coverage including coverage with
respect to the Company's productions. The Company was charged approximately
$979,000 during 1997 under these insurance programs. The Company believes that
such amount is at least as favorable as the Company could have obtained from an
outside third party for such insurance coverage. As of December 31, 1997, the
Company has a net payable to Viacom of $823,000, with respect to these and other
expenses.
Spelling Television Inc. ("Spelling Television") has an agreement with Tori
Spelling, Aaron Spelling's daughter, wherein Spelling Television is granted the
exclusive right and property in and to Ms. Spelling's television series services
as an actress in regard to the production of "Beverly Hills, 90210" for a period
dating from September 26, 1990. Spelling Television has a right of first
negotiation/first refusal to enter into a new contract beyond the initial term,
and recently extended the term of the agreement for Ms. Spelling's services for
a ninth season of the series. Ms. Spelling is compensated: per program; for
television re-runs, theatrical re-runs, foreign telecasting and supplemental
markets; for a portion of the net profits derived from certain merchandising
activities; and if Ms. Spelling renders services for commercial announcements.
Spelling Television guarantees to employ and compensate or compensate Ms.
Spelling for all episodes produced in a season, but in no event for less than 32
episodes for the 1997/1998 season and no less than 26 episodes for the 1998/1999
season. In fiscal year 1997, Ms. Spelling received $2,369,124 pursuant to such
agreement.
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<PAGE>
Spelling Television has an agreement dated as of September 24, 1996 with
Randy Spelling, Aaron Spelling's son, wherein Spelling Television is granted the
exclusive right to Randy Spelling's services as an actor in regard to the
production of Sunset Beach during the second season (1998), with an option to
extend the agreement for one additional year. Pursuant to such agreement, Randy
Spelling is compensated per episode, as well as for certain other required
payments. In addition, Spelling Television had a separate agreement with Randy
Spelling wherein he agreed to appear in three episodes of "Beverly Hills, 90210"
during the 1996/1997 season. In fiscal year 1997, Randy Spelling received
$401,902 pursuant to such agreements.
Spelling Television has an agreement with Aaron Spelling whereby he is
entitled to receive producer fees and other compensation on a per episode or per
hour basis on the product produced by Spelling Television, including series,
mini-series and movies for television, and for certain theatrical films.
Pursuant to such agreement, in fiscal year 1997, Mr. Spelling was paid
$5,342,000 in producers fees and other compensation by Spelling Television. The
Company believes that the amount of fees paid to Mr. Spelling are equal to or
less than fees paid to unaffiliated producers of comparable stature.
The Company licensed certain entertainment product to MTV Networks , a
subsidiary of Viacom, and to certain television stations owned by Viacom.
Revenue from sales to MTV Networks were $125,000 for the year ended December 31,
1997. Receivables related to such sales were $306,000 at December 31, 1997.
Sales to the television stations consist of both cash and barter contracts.
Revenue from cash contracts was $8,000 and the Company has a receivable due from
Viacom of $1,017,000 at December 31, 1997. The Company realized approximately
$577,000 in revenue from third-party advertisers with respect to the sale of
advertising time received under the barter contracts. The Company also licensed
certain entertainment product to United Paramount Network, Comedy Central and
Nickelodeon U.K., in which Viacom has equity interests. Revenue from such sales
were $13,895,000 for the year ended December 31, 1997 and receivables with
respect to such sales were $86,000 at December 31, 1997. Additionally, the
Company licensed certain product to USA Networks and Sci-Fi Channel in which
Viacom had equity interests until October 1997. Revenue from such sales were
$950,000 for the year ended December 31, 1997 and the Company had receivables at
December 31, 1997 from Sci-Fi Channel of approximately $412,000 related to such
sales. In 1997, the Company engaged Showtime to explore business development
opportunities for the Company's various cable/programming channels through
December 31, 1997, at which time the Company terminated this arrangement.
Pursuant to such arrangement, the Company was charged approximately $147,000.
The Company has entered into an agreement with Comedy Partners, in which
Viacom has an equity interest, to perform certain licensing and merchandising
activities on their behalf in exchange for a fee. During 1997, revenues
resulting from this agreement were approximately $1,847,000. Pursuant to such
arrangement, the Company has a net payable to Comedy Partners of $1,254,000 as
of December 31, 1997.
In November 1997, the Company entered into an agreement with Famous Music
Corporation and Ensign Music Corporation (collectively referred to as "Famous
Music"), subsidiaries of Paramount Pictures Corporation ("Paramount"), with
respect to administration on behalf of the Company of all musical compositions,
musical cues, music scores and other musical works owned in whole or in part by
the Company or acquired by the Company between January 1, 1998 and December 31,
2001 (the "License Term"). This agreement provides for the Company to receive a
non-returnable, recoupable advance. If Famous Music does not recoup its advance
prior to the expiration of the License Term, the term of the agreement can be
automatically extended for two one-year terms. At December 31, 1997, the
Company had received $5,000,000 with respect to such arrangement.
Republic entered into an agreement with a subsidiary of BEG for the
acquisition and distribution of the film "Open Season." As of December 31,
1997, a net payable of $725,000 is due to BEG in connection with this agreement.
The Company entered into agreements with Paramount with respect to the
domestic distribution of two of the Company's feature film releases "Night Falls
on Manhattan" and "Stephen King's Thinner," in the theatrical, non-theatrical
and pay television markets. Additionally, in 1997 the Company licensed its
domestic home video rights to seven 1997 rental titles, including "Night Falls
on Manhattan" to Paramount. Pursuant to such arrangement, the
15
<PAGE>
Company recognized revenue in the amount of $6,187,000 from "Stephen King's
Thinner" and $10,977,000 from "Night Falls on Manhattan" in 1997 and incurred
distribution fees in the amount of $1,237,000 for the release of "Stephen King's
Thinner" and $737,000 for "Night Falls on Manhattan" in 1997. At December 31,
1997, the Company had a receivable of $3,992,000 due from Paramount for "Stephen
King's Thinner" and a payable of $186,000 due to Paramount for "Night Falls on
Manhattan" related to prints and advertising expenses for its release which were
advanced by Paramount. Additionally, the Company engaged Paramount to perform
the theatrical distribution in selected territories for two additional feature
films, "Breakdown" and "In & Out," in which the Company owns the international
distribution rights.
In August 1997, the Company licensed the distribution rights to its 1997
home video rental titles to Paramount Home Video. Under the terms of the
agreement, Paramount Home Video has acquired the distribution rights to seven
video rental titles from the Company including "Night Falls on Manhattan." In
addition, during 1997 the Company engaged Paramount Home Video to distribute "In
& Out" and "Breakdown" in certain foreign territories.
Viacom has acquired approximately 80% of the outstanding shares of the
Company and, therefore, the Company is required to be included in the
consolidated federal income tax return of Viacom. The Directors of the Company
approved an agreement dated November 12, 1997 between the Company and Viacom
that provides for the administration of federal, state and foreign tax matters
(the "Tax Agreement"). Under the Tax Agreement, the Company will remain in the
same tax position as it would have if it were continuing to file its tax returns
separate and apart from Viacom; as a result, the Company does not anticipate any
material impact to its financial condition or results of operations.
In the ordinary course of business, the Company has and expects to continue
to do business with Viacom and its affiliates, including Blockbuster, Showtime,
Nickelodeon and Paramount. In each case the transaction is negotiated on an
arms-length basis and the Company believes that the transaction is at least
equal to the value that the Company could obtain from an outside third party.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has engaged the accounting firm of Price Waterhouse LLP as its
independent accountants for the fiscal year ending December 31, 1998. This
engagement was authorized by the Company's Board of Directors upon the
recommendation of the Board's Audit Committee. The determination of the Company
to select Price Waterhouse was made in order to enable the Company to better
coordinate financial reporting matters with Viacom, its majority shareholder;
Price Waterhouse LLP serves as independent accountants to Viacom.
Representatives of Price Waterhouse LLP are expected to be present at the
1998 Annual Meeting of Shareholders. They will have the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
FINANCIAL STATEMENTS
The Company is enclosing its financial report on Form 10-K for the year
ended December 31, 1997. Shareholders are referred to the report on Form 10-K
for financial and other information about the Company, but such report is not
incorporated into this Proxy Statement and is not a part of the proxy soliciting
material.
PROPOSALS BY SHAREHOLDERS
Any proposals by shareholders intended to be presented at the 1999 Annual
Meeting must be received by the Company no later than December 8, 1998.
16
<PAGE>
OTHER MATTERS
You are again urged to attend the Annual Meeting at which time management
of the Company will present a review of the Company's operations. Proxies will
be solicited by the Board of Directors through use of the mails. Proxies may
also be solicited by directors, officers and a small number of other employees
of the Company personally or by mail, telephone, telegraph, or otherwise, but
such persons will not be compensated for such services. Brokerage firms, banks,
fiduciaries, voting trustees or other nominees will be requested to forward the
soliciting material to each beneficial owner of stock held of record by them.
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company.
The Board of Directors does not intend to present, and does not have any
reason to believe that others will present, any item of business at the Annual
Meeting other than those specifically set forth in the notice of the meeting.
However, if other matters are presented for a vote, the proxies will be voted
for such matters in accordance with the judgment of the persons acting under the
proxies.
By Order of the Board of Directors
/s/ Sally Suchil
SALLY SUCHIL
Secretary
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<PAGE>
SPELLING ENTERTAINMENT GROUP INC.
5700 Wilshire Boulevard, Los Angeles, California 90036
PROXY
This Proxy is Solicited on Behalf of The Board of Directors.
The undersigned hereby appoints Peter H. Bachmann and Ross G. Landsbaum and each
of them, proxies with the powers the undersigned would possess if personally
present, and with full power of substitution, to vote all common shares of the
undersigned in Spelling Entertainment Group Inc. at the Annual Meeting of
Shareholders to be held at the Beverly Hilton, 9876 Wilshire Boulevard,
Versailles Room, Beverly Hills, California, on May 21, 1998 at 11:30 a.m.,
Pacific Time, and at any adjournment thereof, upon all subjects that may
properly come before the meeting, including the matters described in the Proxy
Statement furnished herewith, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR THE
ELECTION OF ALL LISTED NOMINEES, IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE MEETING.
Your vote of the Election of Directors may be indicated on the reserve side of
this card. Nominees are Sumner M. Redstone, Aaron Spelling, Philippe P. Dauman,
Thomas E. Dooley, William M. Haber and John L. Muething.
IF YOU DO NOT SIGN AND RETURN A PROXY, OR ATTEND THE MEETING AND VOTE BY BALLOT,
YOUR SHARES CANNOT BE VOTED.
(Continued and to be signed on the other side)
<PAGE>
Please mark your votes as
indicated in this example.
X
---------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES.
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to the to vote for all nominees
contrary) listed to the right
[_] [_]
Instructions: To withhold authority for an individual nominee draw a line
through his name.
Nominees: Sumner M. Redstone, Aaron Spelling, Philippe P. Dauman,
Thomas E. Dooley, William M. Haber and John L. Muething.
A vote FOR all nominees is recommended by the Board of Directors.
2. In their discretion, on such other business as may properly come before
the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
I Will Attend the Meeting ______
Please sign this proxy exactly as your name appears appears below. When shares
are held jointly, each holder should sign. When signing as attorney, executor,
administrator, trustee or in another representative capacity, please give full
title as such. If a corporation, please sign in full corporate name by the
president or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
DATE __________________________, 1998
_____________________________________
(Signature)
_____________________________________
(Signature, if held jointly)
Please mark, sign, date and return this card promptly using the enclosed
envelope.
