<PAGE> 1
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:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
BLOCKBUSTER ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
BLOCKBUSTER ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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 Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO]
BLOCKBUSTER ENTERTAINMENT
CORPORATION
One Blockbuster Plaza, Fort Lauderdale, Florida 33301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 1994
You are cordially invited to attend the annual meeting of stockholders of
Blockbuster Entertainment Corporation (the "Company"), which will be held at the
Broward Center for the Performing Arts, 201 Southwest Fifth Avenue, Fort
Lauderdale, Florida 33312, on May 24, 1994 at 10:00 a.m., Eastern Time, for the
following purposes:
Proposal 1. To elect directors.
Proposal 2. To consider and vote upon an amendment to the Company's
Certificate of Incorporation, as amended, which would increase the authorized
shares of common stock of the Company from 300,000,000 shares to 800,000,000
shares.
Proposal 3. To consider and vote upon a proposal to adopt the Company's
1994 Stock Option Plan. A copy of the plan is included as Annex A to the proxy
statement.
Proposal 4. To transact such other business as may properly come before the
annual meeting.
Only stockholders of record at the close of business on April 5, 1994 are
entitled to vote at the annual meeting or any postponements or adjournments
thereof. A list of such stockholders will be available for examination by any
stockholder for any purpose germane to the meeting, during normal business
hours, at the principal office of the Company, One Blockbuster Plaza, Fort
Lauderdale, Florida, 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.
THOMAS W. HAWKINS
Senior Vice President,
General Counsel and Secretary
Fort Lauderdale, Florida
April , 1994
YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE> 3
BLOCKBUSTER ENTERTAINMENT
CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 1994
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Blockbuster Entertainment Corporation (the "Company")
of proxies for use at the annual meeting of stockholders of the Company to be
held at the Broward Center for the Performing Arts, 201 Southwest Fifth Avenue,
Fort Lauderdale, Florida 33312 at 10:00 a.m., Eastern Time, on May 24, 1994, and
at any postponement or adjournment 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 presented for a vote in accordance with the judgment of the persons
acting under the proxies. Any stockholder giving a proxy has the power to revoke
it any time before it is voted, either in person at the meeting, by written
notice to the Secretary of the Company or by delivery of a later-dated proxy.
ON JANUARY 7, 1994, THE COMPANY ENTERED INTO AN AGREEMENT AND PLAN OF
MERGER WITH VIACOM INC. ("VIACOM") RELATING TO A PROPOSED BUSINESS COMBINATION
(THE "MERGER") BETWEEN THE COMPANY AND VIACOM. THIS PROXY STATEMENT DOES NOT
RELATE TO THE PROPOSED MERGER. A SEPARATE JOINT PROXY STATEMENT/PROSPECTUS OF
VIACOM AND THE COMPANY RELATING TO THE MERGER WILL BE SENT TO THE COMPANY'S
STOCKHOLDERS.
The Company's executive offices are located at One Blockbuster Plaza, Fort
Lauderdale, Florida 33301 (telephone 305/832-3000). Proxy materials will be
mailed to stockholders beginning on or about April , 1994.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on April 5, 1994, are
entitled to vote at the annual meeting. The only voting stock of the Company
outstanding is its Common Stock, $.10 par value per share (the "Common Stock"),
of which shares were outstanding of record as of the close of business on
April 5, 1994. Each share of Common Stock issued and outstanding is entitled to
one vote.
Votes cast by proxy or in person at the annual meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. A proxy submitted by a stockholder may indicate that
all or a portion of the shares represented by such proxy are not being voted by
such stockholder with respect to a particular matter. This could occur, for
example, when a broker is not permitted to vote shares held in street name on
certain matters in the absence of instructions from the beneficial owner of the
shares. 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 not be considered non-voted shares.) 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. The affirmative vote
of the holders of a majority of the shares of Common Stock present in person or
represented by proxy and entitled to vote thereon is required to adopt the
Company's 1994 Stock Option Plan (the "Plan Proposal"). The affirmative vote of
the holders of a majority of the shares outstanding and entitled to vote thereon
is required to adopt the amendment to the Company's Certificate of Incorporation
(the "Certificate Amendment"). Abstentions will have the same effect as a vote
against the Plan Proposal or the Certificate Amendment, as the case may be, and
shares of Common Stock with respect to which no vote is cast, including broker
non-votes, will not be counted.
<PAGE> 4
INFORMATION WITH RESPECT TO CERTAIN STOCKHOLDERS
As of March 18, 1994, no one is known to own beneficially more than five
percent of the outstanding Common Stock, except:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF
BENEFICIAL OWNER COMMON STOCK PERCENT
- ------------------- ------------ -------
<S> <C> <C> <C>
Philips Electronics N.V...................................................... 18,895,211 7.1%(a)
Postbust 218
5600 MD
Eindhoven, The Netherlands
H. Wayne Huizenga............................................................ 16,254,938 6.4%(b)
One Blockbuster Plaza
Ft. Lauderdale, FL 33301
Viacom Inc................................................................... 55,889,938 22.4%(c)
200 Elm Street
Dedham, Massachusetts 02026
</TABLE>
- ---------------
(a) Includes 1,650,000 shares of Common Stock underlying warrants. The
information regarding Philips Electronics N.V.'s ("Phillips") ownership of
Common Stock is based upon information disclosed by Philips in its
Statement on Schedule 13D, as amended, relating to its ownership of Common
Stock.
(b) Includes 5,349,053 shares of Common Stock underlying options and warrants.
Also includes 300,000 shares of Common Stock owned by certain grantor
trusts of which Mr. Huizenga is the trustee and sole beneficiary.
(c) Represents shares of Common Stock currently subject to an Amended and
Restated Stockholders Stock Option Agreement dated as of January 7, 1994
and shares currently subject to an Amended and Restated Proxy Agreement
dated as of January 7, 1994, including 10,905,885 shares of Common Stock
owned by Mr. Huizenga and 17,245,211 shares of Common Stock owned by
Philips. Viacom has limited voting power only with respect to the shares of
Common Stock subject to the Amended and Restated Proxy Agreement, and does
not have dispositive power with respect to such shares. Shares of Common
Stock subject to the Amended and Restated Stockholders Stock Option
Agreement may be acquired by Viacom only under certain limited
circumstances.
ELECTION OF DIRECTORS
By resolution of the Board in February 1994, the number of directors
constituting the Board was set at seven directors. Proxies may not be voted for
a greater number of persons than the seven nominees named herein.
The persons named below have been designated by the Board as nominees for
election as directors, for a term expiring at the earlier to occur of the annual
meeting of stockholders in 1995 or the consummation of the proposed Merger of
the Company with Viacom. All nominees are currently serving as directors.
H. Wayne Huizenga, age 56, became a director of the Company in February
1987, was elected as Chairman of the Board, Chief Executive Officer and
President of the Company in April 1987 and is Chairman of the Executive
Committee. Mr. Huizenga served as President of the Company until June 1988. He
is a co-founder of Waste Management, Inc. (now known as WMX Technologies, Inc.
("WMX")), a waste disposal and collection company, where he served in various
capacities, including President, Chief Operating Officer and a director, until
May 1984. From May 1984 to present, Mr. Huizenga has been an investor in other
businesses and is the sole stockholder and Chairman of the Board of Huizenga
Holdings, Inc. ("Holdings"), a holding and management company with various
business interests. In connection with these business interests, Mr. Huizenga
has been actively involved in strategic planning for, and executive management
of, these businesses. He also has a majority ownership interest in Florida
Marlins Baseball, Ltd. (the "Florida Marlins"), a Major League Baseball sports
franchise, owns the Florida Panthers Hockey Club, Ltd. (the "Florida Panthers"),
a National Hockey League sports franchise, a limited partnership interest in
Miami
2
<PAGE> 5
Dolphins, Ltd. (the "Miami Dolphins"), a National Football League sports
franchise, and an ownership interest in Robbie Stadium Corporation and certain
affiliated entities (collectively, the "Stadium Companies"), which own and
operate Joe Robbie Stadium in South Florida. Mr. Huizenga has entered into an
agreement to purchase the remaining ownership interest in the Miami Dolphins.
Mr. Huizenga is Chairman of the Board of Directors of Spelling Entertainment
Group Inc. ("Spelling"). Mr. Huizenga is also a member of the Boards of
Directors of Republic Pictures Corporation ("Republic Pictures"), Discovery
Zone, Inc. ("Discovery Zone"), Viacom, Viacom International Inc. and Paramount
Communications, Inc.
Steven R. Berrard, age 39, joined the Company in June 1987 as Senior Vice
President, Treasurer and Chief Financial Officer and became a director of the
Company in May 1989. Mr. Berrard became Vice Chairman of the Board in November
1989 and President and Chief Operating Officer in January 1993. He served as
Treasurer of the Company from June 1987 until February 1989, as Senior Vice
President of the Company from June 1987 until November 1989 and as Chief
Financial Officer of the Company from June 1987 to June 1992. Mr. Berrard is
President, Chief Executive Officer and a director of Spelling. Mr. Berrard is
also a member of the Boards of Directors of Republic Pictures. He is also a
limited partner of the Florida Marlins. Prior to his tenure with the Company,
Mr. Berrard served as President of Holdings, which was known prior to June 1988
as Waco Services, Inc. From January 1983 to April 1985, Mr. Berrard served in
various positions with Waco Leasing Company and Port-O-Let International, Inc.,
including President, Chief Financial Officer, Treasurer and Secretary. Prior to
January 1983, Mr. Berrard was employed by Coopers & Lybrand, an international
public accounting firm, for over five years.
George D. Johnson, Jr., age 51, became a director and President -- Consumer
Division of Blockbuster in August 1993. From 1987 until August 1993, Mr. Johnson
was managing general partner of WJB Video Limited Partnership ("WJB"), which
prior to its consolidation with the Company in August 1993 was the Company's
largest franchise owner. From 1967 through 1987, Mr. Johnson served as counsel
to the law firm of Johnson, Smith, Hibbard & Wildman in Spartanburg, South
Carolina. Mr. Johnson is a member of the Board of Directors of Duke Power
Company.
A. Clinton Allen, III, age 50, became a director of the Company in July
1986 and is Chairman of the Compensation Committee. Since October 1988, Mr.
Allen has served as Chairman and Chief Executive Officer of A.C. Allen &
Company, a financial services consulting firm. He also is a director and Vice
Chairman of both Psychemedics Corporation ("Psychemedics") and the DeWolfe
Companies, Inc. He is also a director of the Forschner Group. Prior to October
1988, Mr. Allen was Executive Vice President of Advest Group, Inc., an
investment banking firm. Mr. Allen was Chairman and Chief Executive Officer of
Burgess and Leith, a New York Stock Exchange member firm from 1984 through 1986.
John W. Croghan, age 63, became a director of the Company in July 1987 and
is Chairman of the Audit and Finance Committee. He is also a director of Lindsay
Manufacturing Company, St. Paul Bancorp, Inc. and the Morgan Stanley Emerging
Markets Fund. Mr. Croghan is and has been for more than the past five years the
Chairman of Lincoln Capital Management Company, an investment advisory firm.
Donald F. Flynn, age 54, became a director of the Company in February 1987
and is Chairman of the Nominating Committee. He is Chairman and Chief Executive
Officer of Flynn Enterprises, Inc., a business consulting and venture capital
company, and since July 1992 has been Chairman and Chief Executive Officer of
Discovery Zone, a franchisor and operator of fun and fitness centers for
children. Mr. Flynn also currently serves as a director of WMX, Chemical Waste
Management, Inc., Waste Management International, plc, Wheelabrator
Technologies, Inc. and Psychemedics. From 1972 to 1990, Mr. Flynn served in
various positions with WMX, including Senior Vice President and Chief Financial
Officer.
John J. Melk, age 57, was re-elected a director of the Company in May 1993.
Since 1988, Mr. Melk has been Chairman and Chief Executive Officer of H2O Plus,
Inc. ("H2O Plus") which develops and manufactures health and beauty aid
products. Mr. Melk has been a private investor in various businesses since March
1984 and prior to March 1984, he held various positions with WMX and its
subsidiaries, including President of Waste Management International, plc. Mr.
Melk also currently serves as a director of Psychemedics and Discovery Zone.
From February 1987 until March 1989, Mr. Melk served as a director and Vice
Chairman of the Company.
3
<PAGE> 6
Under Section 16(a) of the Securities Exchange Act of 1934 (the "1934
Act"), the Company's directors, executive officers and any persons holding more
than ten percent of the Company's Common Stock are required to report their
initial ownership of the Company's Common Stock and any changes in that
ownership to the Securities and Exchange Commission and the New York Stock
Exchange. Specific due dates have been established and the Company is required
to disclose in this Proxy Statement any failure to file such reports by these
dates. Based solely on a review of the copies of forms furnished to the Company,
or written representations that no Form 5's were required, the Company believes
that in 1993, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent stockholders were complied with,
except that Steven R. Berrard, Vice Chairman, President and Chief Operating
Officer of the Company, filed a report on Form 4 on December 9, 1993, which
report reflected a correction to the number of shares of Common Stock
beneficially owned by Mr. Berrard at the time he became an executive officer of
the Company in June 1987, George D. Johnson, Jr., President -- Consumer Division
and a director of the Company filed an amended report on Form 3 on August 31,
1993, which report reflected corrections to the number of shares of Common Stock
indirectly beneficially owned and corrections to the exercise date, expiration
date and exercise price of stock options held by Mr. Johnson at the time he
became an executive officer and director of the Company in August 1993, and John
J. Melk, a director of the Company, filed amended reports on Form 3 on August 9,
1993, and February 9, 1994, which reports reflected corrections in the number of
shares of Common Stock held by, the number of stock options that had been
granted to, and the number of warrants held by, Mr. Melk as of the time he
became a director of the Company in May 1993.
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of March 18, 1994, as
to the beneficial ownership of Common Stock by the directors, certain executive
officers and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF DIRECTOR, NOMINEE COMMON STOCK
FOR DIRECTOR OR EXECUTIVE BENEFICIALLY PERCENT OF
OFFICER OWNED(1)(2) COMMON STOCK(2)
- ------------------------------ ------------------- ---------------
<S> <C> <C>
H. Wayne Huizenga................................................... 16,254,938 6.4%
A. Clinton Allen, III............................................... 143,400 *
Steven R. Berrard................................................... 678,685 *
John W. Croghan..................................................... 427,504 *
Gregory K. Fairbanks................................................ 63,571 *
Donald F. Flynn..................................................... 5,941,476 2.4
James L. Hilmer..................................................... 42,857 *
George D. Johnson, Jr............................................... 2,067,005 *
John J. Melk........................................................ 6,915,009 2.8
Gerald W.B. Weber................................................... 162,098 *
All directors and executive officers as a group, including persons
named above (16 persons).......................................... 32,983,166 12.9
</TABLE>
- ---------------
* Less than one percent.
(1) Ownership of shares for Mr. Huizenga and for all directors and executive
officers as a group includes 300,000 shares owned by certain grantor trusts
of which Mr. Huizenga is the trustee and sole beneficiary. Ownership of
shares for Mr. Melk and for all directors and executive officers as a group
includes 1,319,446 shares owned by certain partnerships and corporations of
which Mr. Melk holds majority interests and directs the voting of such
shares. Ownership of shares for Mr. Johnson, Mr. Flynn, Mr. Melk and Mr.
Weber and for all directors and executive officers as a group does not
include 35,400 shares, 2,320 shares, 163,128 shares and 540 shares not held
directly by Mr. Johnson, Mr. Flynn, Mr. Melk or Mr. Weber, respectively,
but held by or for the benefit of their respective spouses, as to which
they have neither investment power nor voting power. Mr. Johnson, Mr.
Flynn, Mr. Melk and Mr. Weber disclaim any beneficial ownership of such
shares. Ownership of shares shown from
4
<PAGE> 7
Mr. Johnson and for all directors and executive officers as a group
includes 78,881 shares held by a corporation of which Mr. Johnson owns a
majority interest and 53,326 shares held by a corporation of which Mr.
Johnson owns a one-third interest. Mr. Johnson disclaims any beneficial
ownership as to 35,196 of the shares held by such corporation of which he
owns a one-third interest.
(2) The named directors and executive officers and all directors and executive
officers as a group have sole voting and investment power over shares
listed except for 7,223,017 shares covered by certain warrants and stock
options exercisable within 60 days of January 31, 1994. The numbers and
percentages of shares owned by each director and executive officer and by
all directors and executive officers as a group assume that such
outstanding warrants and stock options had been exercised as follows: Mr.
Huizenga -- 5,349,053; Mr. Allen -- 90,000; Mr. Berrard -- 673,715; Mr.
Croghan -- 260,000; Mr. Fairbanks -- 63,571; Mr. Flynn -- 20,000; Mr.
Melk -- 313,460; Mr. Weber -- 162,098; and all directors and executive
officers as a group (including such individuals) -- 7,223,017. Such persons
and the members of such group disclaim any beneficial ownership of the
shares subject to such warrants and stock options.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors has, pursuant to its powers, designated several
committees of the Board, including an Executive Committee, Audit and Finance
Committee, Compensation Committee and Nominating Committee, the functions and
membership of which are described below. In 1993, the Board of Directors held an
aggregate of 13 regular and special meetings including one action by unanimous
written consent. Each member of the Board who is not an employee of the Company
is currently paid a quarterly fee of $6,250 plus $1,250 for each meeting
attended. In addition, each non-employee member of the Board who serves as the
Chairman of a Board Committee is paid $625 for each meeting of such committee
attended.
The Executive Committee possesses authority to exercise all of the powers
of the Board of Directors in the management and direction of the affairs of the
Company between meetings of the Board of Directors, subject to specific
limitations and directions of the Board of Directors and Delaware law. The Audit
and Finance 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 on Executive Compensation" set out
below. The Nominating Committee's function is to identify and propose to the
full Board nominees to fill vacancies on the Board as they occur. The Nominating
Committee will consider persons brought to its attention by officers, directors,
and stockholders. Proposals may be addressed to the Nominating Committee at the
address shown on the cover of this Proxy Statement, attention of the Secretary
of the Company. Messrs. Huizenga, Berrard and Johnson are currently members of
the Executive Committee; Messrs. Croghan, Allen, Flynn and Melk are currently
members of the Audit and Finance Committee; Messrs. Allen, Croghan and Flynn are
currently members of the Compensation Committee; and Messrs. Flynn, Allen,
Croghan and Melk are currently members of the Nominating Committee. During 1993,
the Compensation Committee met five times, the Nominating Committee met two
times, the Audit and Finance Committee met one time and the Executive Committee
met 21 times.
5
<PAGE> 8
COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1993, 1992 and 1991, of those persons who were, at December
31, 1993, (i) the Chief Executive Officer, and (ii) the other four most highly
compensated executive officers of the Company (collectively, the "Named
Officers"). The principal positions described with respect to the Named Officers
relate to the positions held by such persons as of December 31, 1993.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER SECURITIES
NAME & ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga 1993 $444,231 $112,500 $ -- 385,715 $ --
Chairman of the Board and 1992 416,154 105,000 -- 855,067 --
Chief Executive Officer 1991 400,000 100,000 -- 500,000 --
Steven R. Berrard 1993 444,231 112,500 -- 808,572 --
Vice Chairman of the Board, 1992 416,154 105,000 -- 605,067 --
President and Chief Operating 1991 380,769 100,000 -- 136,900 --
Officer
Gregory K. Fairbanks 1993 307,577 81,250 26,873(1) 111,429 41,924(2)
Senior Vice President, 1992 178,846 75,000 31,525(1) 71,429 94,383(2)
Treasurer and Chief 1991 -- -- -- -- --
Financial Officer
James L. Hilmer 1993 297,931 93,750 25,105(1) 171,429 57,360(2)
Senior Vice President 1992 -- -- -- -- --
and Chief Marketing Officer 1991 -- -- -- -- --
Gerald W. B. Weber 1993 287,500 75,000 -- 152,858 --
Senior Vice President, 1992 225,385 58,750 -- 77,552 --
Operations 1991 182,116 58,750 -- 47,488 --
</TABLE>
- ---------------
(1) Represents amounts reimbursed for the payment of taxes incurred in
connection with the payment by the Company of certain relocation-related
expenses.
(2) Represents payments by the Company of certain relocation-related expenses.
STOCK OPTION GRANT TABLE
Set forth below is information with respect to grants of stock options
during the fiscal year ended December 31, 1993, to the Named Officers. Stock
appreciation rights are not available under the Company's stock option plans.
6
<PAGE> 9
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES OPTION TERM
GRANTED IN IN FISCAL EXERCISE EXPIRATION ----------------------------
NAME FISCAL YEAR(1) YEAR PRICE DATE 5% 10%
- ----------------------------- -------------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga............ 385,715 7.7% $ 17.50 2/12/03 $ 10,995,095 $ 17,507,507
Steven R. Berrard............ 308,572 6.1 17.50 2/12/03 8,796,076 14,006,006
500,000 10.0 24.625 7/27/03 20,055,831 31,934,931
Gregory K. Fairbanks......... 111,429 2.2 17.50 2/12/03 3,176,367 5,057,735
James L. Hilmer.............. 171,429 3.4 17.50 2/12/03 4,886,712 7,781,120
Gerald W. B. Weber........... 102,858 2.0 17.50 2/12/03 2,932,044 4,668,699
50,000 1.0 24.625 7/27/03 2,005,583 3,193,493
</TABLE>
- ---------------
(1) Stock options granted to the Chairman of the Board and Chief Executive
Officer vested in full immediately upon grant as provided in or
contemplated by the Company's Employee Director Stock Option Plan. Stock
options granted to the other Named Officers vest in equal amounts over a
period of four years. All options granted under the Company's stock option
plans may become immediately exercisable upon the occurrence of certain
business combinations. The proposed Merger with Viacom would constitute a
business combination such that all options outstanding under the Company's
stock option plans would become immediately exercisable upon consummation
of the Merger. The Compensation Committee of the Board of Directors may
accelerate the exercisability of any option subject to such terms and
conditions as the Committee deems necessary and appropriate.
STOCK OPTION EXERCISES AND YEAR-END HOLDINGS
Set forth below is certain information pertaining to stock options held by
the Named Officers as of December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SHARES UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT FISCAL
ACQUIRED OPTIONS AT FISCAL YEAR-END YEAR-END
ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga............... 591,141 $15,000,001 4,569,641 -- $93,666,715 $ --
Steven R. Berrard............... 202,660 4,940,544 456,989 1,409,914 8,808,408 17,305,455
Gregory K. Fairbanks............ -- -- 17,857 165,001 296,873 2,353,140
James L. Hilmer................. -- -- -- 171,429 -- 2,250,006
Gerald W. B. Weber.............. 19,246 371,087 107,905 256,357 2,278,076 3,705,648
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of
the Board of Directors during the year ended December 31, 1993: A. Clinton
Allen, III (Chairman), Donald F. Flynn and John W. Croghan. None of the members
of the Compensation Committee were employees of the Company.
Effective in April 1993, the Company entered into a stock purchase
agreement with Discovery Zone and certain other parties pursuant to which the
Company acquired 6,200,000 newly issued shares of the common stock of Discovery
Zone and certain options to acquire additional shares of Discovery Zone's common
stock. Following Discovery Zone's initial public offering of its common stock in
June 1993, the Company exercised one such option and acquired an additional
953,750 shares of Discovery Zone's common stock. At December 31, 1993, the
Company owned 7,153,750 shares of common stock of Discovery Zone, representing
approximately 19.1% of its outstanding common stock. The Company currently
operates 35 Discovery Zone facilities and has franchise rights to develop an
additional 115 Discovery Zone facilities. In addition, the Company has entered
into a joint venture agreement with Discovery Zone pursuant to which the joint
venture has been granted the right to develop an additional 10 Discovery Zone
facilities in the United Kingdom. Donald F. Flynn, a director of the Company and
member of the Compensation Committee is Chairman of the Board and Chief
Executive Officer of Discovery Zone. H. Wayne Huizenga, Chairman of the Board
and Chief Executive
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Officer of the Company, and John J. Melk, a director of the Company, are each
directors of Discovery Zone. The following persons owned the following
percentages of common stock in Discovery Zone at March 23, 1994, as calculated
in accordance with Rule 13d-3 under the 1934 Act: John W. Croghan, a director of
the Company -- less than 1%; Donald F. Flynn, a director of the Company -- 38.4;
John J. Melk, a director of the Company -- 3.8%; and J. Ronald Castell, Senior
Vice President of the Company -- less than 1%. Because of their positions with
the Company, H. Wayne Huizenga, Chairman of the Board and Chief Executive
Officer, and Steven R. Berrard, Vice Chairman of the Board, President and Chief
Operating Officer of the Company, may each be deemed to be beneficial owners of
the shares of Discovery Zone's common stock owned by the Company. Mr. Huizenga
and Mr. Berrard each disclaim beneficial ownership of such shares, and such
shares are not reflected in the calculations presented above.
For the fiscal year ended December 31, 1993, the Company paid approximately
$1,100,000 to Psychemedics for testing services in connection with the company's
drug screening policy. At December 31, 1993, Messrs. Allen, Croghan and Flynn
beneficially owned 9.3%, less than 1%, and 9.5%, respectively, of the common
stock of Psychemedics. In addition, as of that date, Mr. Flynn's spouse
beneficially owned 3.1%, and Patricia A. Flynn, as trustee under trusts for the
benefit of Mr. Flynn's children, beneficially owned 6.3% of the common stock of
Psychemedics. Messrs. Allen and Flynn are directors of Psychemedics. See
"Compensation -- Transactions and Other Events".
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of three
non-employee members of the Board. The Compensation Committee is responsible
for: (i) setting the Company's compensation philosophy and policies; (ii)
setting the terms of and administering the compensation plans for officers of
the Company; (iii) administering the Company's 1987, 1989, 1990 and 1994 Stock
Option Plans and 1991 Employee Director Stock Option Plan; (iv) reviewing and
approving pay recommendations for both executive and non-executive officers of
the Company; and (v) initiating all compensation actions for the Chairman of the
Board and Chief Executive Officer.
The Company's compensation policies have been designed to align the
financial interests of the Company's management with those of its stockholders,
and reflect the nature of the Company by taking into account the Company's
operating environment and the expectations for continued growth and
profitability. Compensation for each of the Company's executive officers
consists of a base salary, an annual bonus and stock options. The Company does
not currently provide executive officers with other long-term incentive
compensation or with a defined benefit pension or defined benefit supplemental
executive retirement plan. Each of the Company's employees including its
executive officers is, however, permitted, when eligible, to participate in the
Company's Retirement and Savings Plan by making voluntary contributions to his
or her account. The Compensation Committee determines annually, based on a
percentage of the Company's net income, the amount that the Company will
contribute to such plan, which amount is distributed ratably to employees'
individual accounts based on the employees' base salaries.
The Compensation Committee's philosophy is that the predominant portion of
an executive's compensation should be based directly upon the value of long-term
incentive compensation in the form of stock option awards. The Compensation
Committee believes that providing executives with opportunities to acquire
significant stakes in the growth and prosperity of the Company (through grants
of stock options), while maintaining other elements of the Company's
compensation program at conservative levels, will enable the Company to attract
and retain executives with the outstanding managerial abilities and
entrepreneurial spirit which are essential to the Company's ongoing success.
Furthermore, the Compensation Committee believes that this approach to
compensation motivates executives to perform to their full potential.
At the beginning of each fiscal year, the Compensation Committee reviews
annual salary recommendations for the Company's executives (other than the Chief
Executive Officer) and then approves, with any modifications it has deemed
appropriate, such recommendations. The annual salary recommendations are made
under the ultimate direction of the Chief Executive Officer, with assistance
from the Company's human resources staff, based on industry, peer group and
national surveys of total compensation packages, as well as
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evaluations of the individual executive's past and expected future performance.
Similarly, the Compensation Committee fixes the base salary of the Chief
Executive Officer based on a review of competitive compensation data, the Chief
Executive Officer's overall compensation package, and the Compensation
Committee's assessment of his past performance and its expectation as to his
future performance in leading the Company. Generally, such salaries are targeted
to, and in 1993 corresponded to, the low end of the range of salaries paid to
executives with comparable qualifications, experience and responsibilities at
other similarly situated companies. In establishing such salary levels against
such range, the Compensation Committee considered the competitiveness of the
executives' entire compensation packages rather than limiting its determination
solely to salary levels. The other companies considered in establishing base
salary guidelines include the companies appearing in the Standard and Poor's
Entertainment and Specialty Retail Indices, which Indices are referenced in the
Stock Price Performance Graph below.
After the end of each fiscal year, the Compensation Committee determines,
based upon the recommendation of the Chief Executive Officer, the annual bonus
to be paid to executive officers (other than the Chief Executive Officer). The
amount of each individual bonus is determined based upon an evaluation of such
factors as individual performance, increases in the Company's revenue, net
income, net income per share and market penetration, as well as improvements in
operating efficiencies. Individual performance receives the greatest
consideration in determining the annual bonus to be paid while the remaining
factors receive equal, though lesser, weight. The assessment of performance
achievements is considered in relation to the maximum normal bonus opportunity,
which is paid for achieving outstanding levels of performance. The Compensation
Committee applies similar criteria in setting the amount of annual bonus earned
by the Chief Executive Officer. Generally, bonuses awarded to executives have
been below levels paid to executives with comparable qualifications, experience
and responsibilities at other similarly situated companies.
While the Company uses formal, goal-based annual bonus plans below the
executive officer level, the program used for executive officers is a
discretionary bonus plan which requires the Compensation Committee to make a
retrospective assessment of performance achievements during the fiscal year. The
Compensation Committee has adopted this approach because the Company is
organized in a manner which enables its executives not only to manage the
Company's existing businesses effectively but also respond quickly to and take
advantage of new opportunities. Given this organization and its resulting
operating environment, the Compensation Committee believes it is more effective
to assess performance achievements in the context at hand, than it would be to
measure performance in a rigid manner against preset goals (which could not
accurately anticipate all of the opportunities which the Company experiences in
a single fiscal year). Without specific goals, executive officers must be
focused on the ongoing maximization of performance achievements in all areas.
Stock options are the predominant portion of compensation for the Company's
executive officers, including the Chief Executive Officer. Stock options
generally are granted at the prevailing market price on the date of grant, and
will only have value if the Company's stock price increases. Generally, grants
vest in equal amounts over a period of four years (although certain special
types of grants may vest immediately) and, generally, executives must be
employed by the Company at the time of vesting in order to exercise the options.
Grants of stock options generally are based upon the level of 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 stock
option awards to the Company's executive officers is generally determined by
dividing a multiple of the executive officer's base salary by the market price
of the Common Stock on the date of the grant, although the Compensation
Committee does from time to time award special discretionary grants. The
Compensation Committee believes that dependence on stock options for a
significant portion of executives' compensation more closely aligns such
executives' interests with those of the Company's stockholders, since the
ultimate value of such compensation is linked directly to stock price.
The 1993 base salary of $450,000 for the Chief Executive Officer was set,
effective in March 1993, by the Compensation Committee based on a survey of
competitive compensation data, the Chief Executive Officer's overall
compensation package and the Compensation Committee's assessment of his past
performance and its expectation as to his future contributions in leading the
Company and its businesses. The salary received by
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the Chief Executive Officer for the first two months of 1993 was based upon his
1992 base salary, such that the total salary received by the Chief Executive
Officer in 1993 was $444,231. The salary received in 1993 represented an
increase of 6.7% over salary received in 1992. A bonus of $112,500 (25% of his
1993 base salary) was awarded in 1994 to the Chief Executive Officer based on an
evaluation of his performance and that of the Company during 1993, which
represents the maximum annual bonus opportunity currently provided to the Chief
Executive Officer. Individual performance criteria evaluated in determining the
bonus included managerial effectiveness, leadership, executive development and
expansion of the Company's businesses. Company performance criteria evaluated in
connection with the determination of the 1993 bonus included an increase in
Company revenue of 69%, an increase in net income of 64%, an increase in net
income per share of 44%, an increase in shareholders' equity of 129% and an
increase in cash provided by operating activities of 74% in 1993 over 1992. The
Compensation Committee believes that, historically, the Chief Executive
Officer's base compensation and bonus have been well below competitive market
rates considering the magnitude of his responsibilities and the levels of
performance achieved by the Company. In connection with each of his past
evaluations, the Chief Executive Officer has requested the Compensation
Committee to set his salary and bonus at the lower range of competitive
compensation.
In 1993, the Compensation Committee granted the Chief Executive Officer
options to purchase 385,715 shares of the Company's common stock. The 1993 stock
option award was based upon an evaluation of individual performance criteria
similar to those evaluated in connection with the annual bonus, and the
following Company performance results for 1992 over the prior year: an increase
in Company revenue of 37%, an increase in net income of 66%, an increase of net
income per share of 49%, an increase in shareholders' equity of 64% and an
increase in cash provided by operating activities of 29%. The number of shares
subject to the 1993 stock option award was determined by dividing a multiple of
the Chief Executive Officer's base salary by the market price of the Common
Stock on the date of the grant, the formula generally applied by the
Compensation Committee in making 1993 stock option awards to the Company's
executive officers.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended (the "Code") generally limiting to
$1,000,000 the deductibility of compensation (including stock-based
compensation, such as stock options) paid to certain executives by public
companies. The tax law change includes an exception for "performance-based"
compensation, provided such compensation meets certain requirements, including
outside director and stockholder approval. The proposed Company 1994 Stock
Option Plan has been designed to comply with such changes to the tax law,
assuming stockholder approval of such plan at the Annual Meeting. See "PROPOSAL
TO APPROVE THE COMPANY'S 1994 STOCK OPTION PLAN". The Company is not currently
contemplating any other actions with respect to the tax law change.
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 stockholders 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.
A. Clinton Allen, III, Chairman
Donald F. Flynn
John W. Croghan
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STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return on investment (based on
the change in year-end stock price from the prior year and assuming reinvestment
of all dividends) assuming a $100 investment in the Common Stock of the Company,
the Standard & Poor's 500 Stock Index, the Standard & Poor's Entertainment Index
and the Standard & Poor's Specialty Retail Index for the five year period
commencing December 31, 1988 and ended December 31, 1993.
Blockbuster S&P
Entertainment S&P Speciality S&P
Corporation 500 Retail Entertainment
- --------------------------------------------------------------------------------
1988 100 100 100 100
1989 171 132 126 166
1990 260 128 124 155
1991 242 167 189 168
1992 379 179 253 240
1993 621 197 252 278
TRANSACTIONS AND OTHER EVENTS
During the fiscal year ended December 31, 1993, the Company made payments
to Holdings in the aggregate amount of $122,703 for the business use of certain
airplanes owned by Holdings. Also during this period, the Company paid all
direct costs associated with the operation of such airplanes. Holdings
reimbursed the Company $635,654 for Holding's share of all costs associated with
its use of the airplanes. The Company believes that the terms of its use of the
airplanes were more favorable to the Company than it could have obtained from an
unaffiliated party and expects to continue to use the airplanes on such terms in
the future.
In May 1992, Holdings entered a lease agreement with an indirect wholly
owned subsidiary of the Company for the use of office space in One Blockbuster
Plaza, the Company's principal office building. For the fiscal year ended
December 31, 1993, the Company received $86,976 in payments under such lease.
Such lease is for an initial term of five years and is renewable for an
additional term of five years at the option of Holdings. The Company believes
that the terms of its lease agreement with Holdings are as favorable to the
Company as it could have obtained from an unaffiliated party.
During the fiscal year ended December 31, 1993, the Company made payments
to Suncoast Helicopters, Inc., a Florida corporation ("Suncoast"), and a
subsidiary of Holdings, in the aggregate amount of $25,762 for the business use
of certain helicopters owned by Suncoast. The Company believes that the terms of
its use of the helicopters were as favorable to the Company as could have been
obtained from an unaffiliated party and expects to continue to use the
helicopters on such terms in the future.
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During the fiscal year ended December 31, 1993, the Company paid BRWC,
Inc., a Florida corporation ("Blue Ribbon") an aggregate of [$19,699] for the
purchase of bottled water and the rental of water coolers for the Company's
offices in Fort Lauderdale, Florida. Blue Ribbon is owned by H. Wayne Huizenga.
The Company believes that the terms of its agreement with Blue Ribbon with
respect to the purchase of bottled water and rental of water coolers are as
favorable to the Company as could have been obtained from an unaffiliated party.
The Company expects to continue to conduct business with Blue Ribbon upon
similar terms in the future.
Since June 1990, Mr. Huizenga has owned an equity interest in the Stadium
Companies. During the fiscal year ended December 31, 1993, the Company made
payments in the aggregate amount of $110,602 to the Stadium Companies for
signage and other advertising and for tickets to sporting and other events, for
which the Company contracted with the Stadium Companies prior to Mr. Huizenga's
investment therein. The Company also made payments during the fiscal year ended
December 31, 1993 in the aggregate of $100,000 to the Stadium Companies for
scoreboard signage pursuant to a contract entered into by the Company and the
Stadium Companies after Mr. Huizenga's investment therein. The Company believes
that the terms of the contract for scoreboard signage are as favorable to the
Company as terms which could be obtained from an unaffiliated party. The Company
expects to continue to conduct business with the Stadium Companies in the
future.
In February 1993, the Company entered into an agreement with the Florida
Marlins to sponsor certain events at or in connection with Florida Marlins
baseball games in the 1993 through 1995 baseball seasons. The Company will pay
the Florida Marlins Baseball an aggregate of $340,000 per year for these
sponsorship rights. In March 1994, the sponsorship agreement was extended to
include the 1996 and 1997 baseball seasons, for which the Company will pay the
Florida Marlins an aggregate of $357,000 and $374,000, respectively, for
sponsorship rights in such seasons. H. Wayne Huizenga, Jr., G. Harry Huizenga,
Bonnie J. Hudson and Harris W. Hudson, who are Mr. Huizenga's son, father,
sister and brother-in-law, respectively, are all limited partners in the Florida
Marlins. Mr. Berrard also is a limited partner in the Florida Marlins. Mr.
Huizenga is the majority owner thereof and the Chairman and Chief Executive
Officer of Florida Marlins, Inc., its managing general partner. The Company
believes that the terms of its sponsorship agreement are as favorable to the
Company as terms which could be obtained from an unaffiliated party.
In June 1993, the Company and Mr. Huizenga formed a joint venture, Panthers
Investment Venture (the "Venture"), pursuant to which the Company received an
option (the "Panthers Option") to acquire a 50% limited partnership interest in
the Florida Panthers in exchange for the Company's guarantee of $20,000,000 bank
loan to the Venture. Mr. Huizenga also has guaranteed such bank loan and has
agreed to reimburse the Company for certain losses, if any, which may be
incurred under the Company's guarantee. The Florida Panthers owns and operates
the National Hockey League franchise in South Florida, and Mr. Huizenga is its
sole limited partner and the sole shareholder of its corporate general partner.
If the Company elects to exercise the Panthers Option, which is conditioned upon
the Company implementing a plan to develop a sports entertainment complex in
South Florida prior to June 1996, the Company would be required at the time of
exercise to make an additional capital contribution to the Venture equal to the
aggregate amount of costs incurred by Mr. Huizenga in capitalizing the Florida
Panthers through the date of exercise. The Company believes that the terms of
the transaction are more favorable to the Company than it could have obtained
from an unaffiliated party.
In August 1993, the Company entered into a contract with the Florida
Panthers whereby the Company will pay an aggregate of $487,790 for advertising
and sponsorship activities during the 1993-94 and 1994-95 hockey seasons. The
Company believes that the terms of the contract for advertising and sponsorship
activities are as favorable to the Company as terms which could be obtained from
an unaffiliated party.
During the fiscal year ended December 31, 1993, the Company received from
Donovan Entertainment, Inc. ("Donovan"), a franchise owner of the Company, an
aggregate of approximately $281,846 for the purchase of inventory and equipment
and in payment of royalty fees. During the same period, the Company received
from Dorn Video, Inc. ("Dorn"), a Florida corporation and a franchise owner of
the Company, an aggregate of approximately $110,002 for the purchase of
inventory and equipment and in payment of royalty
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fees. H. Wayne Huizenga, Jr., a son of Mr. Huizenga, is a creditor of Donovan
and Dorn. The Company believes that the terms of its development and franchise
agreements with Donovan and Dorn are as favorable to the Company as those with
its other franchise owners, and that the terms of such agreements are
substantially similar to the terms of the Company's other franchise and
development agreements.
During the fiscal year ended December 31, 1993, the Company received an
aggregate of approximately $556,360 from Brevard Entertainment Corp.
("Brevard"), a Florida corporation, in payment of franchise and royalty fees and
the purchase of inventory and equipment. In October 1993, Brevard acquired all
of the assets of a video store which the Company acquired along with other video
stores in a separate transaction, and paid certain franchise-related fees
pertaining to such store, for an aggregate of $324,897. The purchase price paid
by Brevard for such assets was based on an allocation of the purchase price paid
by the Company for all of the video stores acquired in the separate transaction.
The franchise and royalty fees paid to the Company and purchase of inventory and
equipment from the Company relating to such store are also reflected in the
aggregate amount of such fees and payments for the fiscal year ended December
31, 1993 presented above. Bonnie J. Hudson and Harris W. Hudson, the sister and
brother-in-law of Mr. Huizenga, are shareholders in Brevard. The Company
believes that the terms of its franchise and development agreement with Brevard
are as favorable to the Company as those with other franchise owners and that
the terms of such agreements are substantially similar to the terms of the
Company's other franchise and development agreements. The Company believes that
the terms of the sale of the store to Brevard were substantially similar to the
terms of sales of other similarly-situated stores to other franchise owners.
In December 1992, the Company entered into franchise and development
agreements with Royal Palm Video, Inc., a Florida corporation ("Royal Palm").
During the year ended December 31, 1993, the Company received an aggregate of
approximately $127,751 from Royal Palm in payment of franchise and development
fees and the purchase of inventory and equipment. In February 1994, the Company
entered into franchise and development agreements with Polo Video, Inc., a
Florida corporation ("Polo"). In connection with the agreements with Polo, the
Company received an aggregate of approximately $613,063 from Polo in payment of
franchise and development fees and for the purchase of inventory and equipment.
E. Charles Pike, a brother-in-law of Mr. Huizenga, is a principal shareholder of
Royal Palm and Polo. The Company believes that the terms of its franchise and
development agreements with Royal Palm and Polo are as favorable to the Company
as those with its other franchise owners, and that the terms of such agreements
are substantially similar to the terms of the Company's other franchise and
development agreements.
On September 17, 1993, the Company and Spelling entered into a Stock
Purchase Agreement pursuant to which, on October 5, 1993, Spelling sold to the
Company 13,362,215 shares of Spelling's common stock for the aggregate purchase
price of $100,216,612 which was paid in full by delivery of 3,652,542 shares of
Common Stock. This transaction increased the Company's beneficial ownership of
Spelling's common stock to 45,658,640 shares, or approximately 70.5% of
Spelling's common stock issued and outstanding on such date.
For the fiscal year ended December 31, 1993, Spelling reimbursed the
Company in the aggregate amount of $380,437 for the cost of various services
provided to Spelling by certain of the Company's employees. Such services
included accounting, legal and tax services, as well as the services of certain
officers of Spelling who were also officers of the Company. The amount
reimbursed to the Company with respect to such officers represents the allocable
portion of such officer's base salary and bonus paid by the Company attributable
to their services provided to Spelling. Such officers did not receive separate
salaries from Spelling for such services.
During the fiscal year ended December 31, 1993, the Company paid Spelling
approximately $3,100,000 for the purchase of prerecorded videocassettes in
connection with the Company's home video retailing business. The Company
believes that the terms of purchases of videocassettes from Spelling were as
favorable to the Company as could have been obtained from an unaffiliated party.
The Company expects to continue to purchase videocassettes from Spelling upon
similar terms in the future.
Effective January 1994, Spelling entered into a Credit Agreement (the
"Credit Agreement") with the Company and related agreements pursuant to which
the Company has agreed to advance Spelling and/or certain of its subsidiaries an
aggregate of $175,000,000, consisting of term loan in the amount of $100,000,000
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(the "Term Loan") and revolving loans in an aggregate principal amount of
$75,000,000 (the "Revolving Loans"). The Term Loan will bear interest at a fixed
rate of 6 5/8% and interest payments will be due semi-annually. Amounts borrowed
and repaid pursuant to the Term Loan may not be reborrowed. The Revolving Loans
will bear interest at the one, two and three month LIBOR rate (as selected by
Spelling) plus 1%. Amounts borrowed and repaid pursuant to the Revolving Loans
may be reborrowed from time to time up to the amount of the Revolving Loans
available under the Credit Agreement. Spelling is obligated to pay an annual fee
to the Company of 0.175% of the unused amount available for Revolving Loans and
certain facility and administration fees. The Company believes that the terms of
the Credit Agreement are comparable to the terms of similar agreements between
similarly situated companies.
In February and March, 1993, the Company purchased 2,550,000 shares, and
warrants to acquire an additional 810,000 shares, of Class A common stock of
Republic Pictures. Pursuant to a recapitalization undertaken in July 1993, all
of Republic Pictures' Class A common stock was automatically reclassified,
changed and converted into common stock of Republic Pictures. At March 1, 1994,
the Company's investment in Republic Pictures represented approximately 39% of
Republic Pictures' outstanding common stock, including shares subject to such
warrants. H. Wayne Huizenga and Steven R. Berrard, the Company's Chairman of the
Board and Chief Executive Officer and Vice Chairman of the Board, President and
Chief Operating Officer, respectively, serve on the Board of Directors of
Republic Pictures. Because of their positions with the company, Mr. Huizenga and
Mr. Berrard may each be deemed to be beneficial owners of the shares of Republic
Pictures' common stock owned by the Company. Mr. Huizenga and Mr. Berrard each
disclaim beneficial ownership of such shares.
In December 1993, Spelling entered into an Agreement and Plan of Merger
(the "Spelling/Republic Agreement") with Republic Pictures and DE Acquisition
Corporation, a wholly owned subsidiary of Spelling ("Merger Sub"), pursuant to
which Republic Pictures will be merged with and into Merger Sub (the
"Spelling/Republic Merger"), and Republic Pictures will become a wholly-owned
subsidiary of Spelling. The Spelling/Republic Agreement provides that at the
time the Spelling/Republic Merger becomes effective (the "Effective Time") each
share of Republic Pictures' common stock outstanding immediately prior to the
Effective Time will be converted into the right to receive $13.00 in cash,
without interest. Options and warrants to acquire Republic Pictures' common
stock outstanding immediately prior to the Effective Time will be converted into
the right to receive, upon payment of the exercise price (as adjusted as set
forth below), 1.6508 shares of Spelling's common stock for each share of
Republic Pictures' common stock into which such option or warrant was
exercisable immediately prior to the Effective Time. The exercise price of such
options and warrants will be adjusted by multiplying such exercise price by
0.6058.
The Company currently owns 2,550,000 shares of Republic Pictures' common
stock and warrants to acquire an aggregate of 810,000 shares of Republic
Pictures' common stock at an exercise price of $11.50 per share, which shares
and warrants, as a result of the Spelling/Republic Merger, will be converted
into the right to receive an aggregate of $33,150,000 and a warrant to acquire
1,377,148 shares of Spelling's common stock, respectively. The exercise price
for such warrant will be $6.9667 per share. It is currently anticipated that the
Spelling/Republic Merger will be consummated prior to April 30, 1994.
Effective in May, 1993, the Company acquired all of the assets relating to
six Blockbuster Video stores located in Illinois and Iowa from United
Consortium, Inc., an Illinois corporation ("United"). In exchange for the
purchased assets, the Company issued 229,876 shares of its Common Stock to
United. John J. Melk, currently a director and at the time of the transaction a
nominee for director of the Company, and his son Daniel J. Melk are the sole
shareholders of United. For the period January 1, 1993 until the acquisition
date, the Company received an aggregate of approximately $152,588 from United in
payment of franchise and royalty fees and the purchase of inventory and
equipment. The Company believes that the terms of the acquisition were
substantially similar to the terms of other acquisitions of similarly situated
businesses of franchise owners. The company also believes that the terms of its
franchise agreement with United were as favorable to the Company as those with
other franchise owners, and that the terms of such agreement were substantially
similar to the Company's other franchise agreements.
Effective August 12, 1993, the Company merged with WJB in a pooling of
interests business combination. In connection with such combination, the Company
issued 7,214,192 shares of Common Stock
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to the equity holders of WJB. As a result of such combination, the Company added
209 Blockbuster Video stores as Company-owned stores, and the Company now owns
the real estate on which 51 of such Blockbuster Video stores are located. In
addition, as a result of such combination, the Company now owns certain
additional franchise and development rights granted by Discovery Zone to WJB.
George D. Johnson, Jr., who became a director and President -- Consumer Division
of the Company upon consummation of the business combination, and certain trusts
for the benefit of Mr. Johnson's son and daughter were equity holders of WJB,
such that each received shares of Common Stock in connection with the
combination. The Company believes that the terms of the combination were
substantially similar to the terms of other transactions involving similarly
situated businesses of franchise owners.
As a result of the combination with WJB, the Company became successor in
interest to a property management agreement with Johnson Development Associates,
Inc., a South Carolina corporation ("Johnson Development"), pursuant to which
Johnson Development serves as the property manager of 51 Blockbuster Video store
locates owned by the Company. George D. Johnson, Jr. is an equity holder of
Johnson Development. Pursuant to the terms of the management agreement with
Johnson Development, the company is obligated to make monthly payments to
Johnson Development in the aggregate amount of approximately $17,000 for its
services. The management agreement remains in effect until terminated by either
party upon 180 days notice. The Company believes that the terms of the
management agreement with Johnson Development are as favorable to the Company as
it could have obtained from an unaffiliated party.
As a result of the combination with WJB, the Company became a successor in
interest to a lease agreement with Ben Hill Associates L.P. ("Ben Hill") for the
use of office space located in Spartanburg, South Carolina. George D. Johnson,
Jr. is general partner of Ben Hill, and a limited partnership, of which Mr.
Johnson, his wife and trusts for the benefit of his children are equity holders,
is its sole limited partner. Under such lease agreement, the Company is
obligated to make monthly lease payments in the amount of $38,106. Such lease
remains in effect until January 30, 2005. The Company believes that the terms of
the lease agreement with Ben Hill are as favorable to the Company as it could
have obtained from an unaffiliated party.
In November 1993, Steven R. Berrard, Vice Chairman, President and Chief
Operating Officer of the Company sold 300,000 shares of Common Stock in
connection with an underwritten public offering of Common Stock conducted by the
Company. Mr. Berrard sold such shares in connection with the public offering
rather than in an open market transaction, in deference to concerns of Mr.
Berrard and the Company that an open market sale might have adversely affected
the public offering. Because of the considerable benefit to the Company
resulting from Mr. Berrard's sale of shares through the public offering rather
than an open market transaction, the Company determined it appropriate to put
Mr. Berrard in the same financial position he would have been had he sold such
shares in the open market rather than as part of the underwritten public
offering. The Company therefore reimbursed Mr. Berrard $296,400, which amount
represented the underwriting fee paid by Mr. Berrard in connection with the
public offering minus estimated brokerage commissions and Securities and
Exchange Commission fees Mr. Berrard would otherwise have paid in an open market
transaction. The Company believes such payment was reasonable in light of the
benefit received by the Company.
In connection with the relocation to South Florida of Gregory K. Fairbanks,
Senior Vice President, Treasurer and Chief Financial Officer of the Company, in
June 1992, the Company made a secured non-interest bearing loan of $400,000 to
Mr. Fairbanks, $250,000 of which has been repaid and $150,000 of which is
payable on December 31, 1994.
For the fiscal year ended December 31, 1993, the Company paid approximately
$1,100,000 to Psychemedics for testing services in connection with the Company's
drug screening policy. The Company believes that Psychemedics provides a less
intrusive and more accurate testing service than other companies because such
testing is based on the analysis of hair follicles rather than body fluids. The
Company believes that Psychemedics is the only company that provides testing
services based on the analysis of hair follicles. The following persons own the
following percentages of Common Stock in Psychemedics at December 31, 1993, as
calculated in accordance with Rule 13d-3 under the Securities Exchange Act of
1934: A. Clinton Allen, III, a director of the Company, -- 9.3%; H. Wayne
Huizenga, Chairman of the Board and Chief
15
<PAGE> 18
Executive Officer of the Company, -- 12.8%; each of Mr. Huizenga's spouse,
father and children, -- less than 1 percent; Donald F. Flynn, a director of the
Company, -- 9.5%; Mr. Flynn's spouse, -- 3.1%; Patricia A. Flynn, trustee under
trusts for the benefit of Mr. Flynn's children, -- 6.3%; John J. Melk, a
director of the company, -- 12.4%; each of Mr. Melk's children, -- less than 1
percent; a trust for the benefit of Mr. Melk's children, -- 3%; John W. Croghan,
a director of the Company, -- less than 1 percent; Robert A. Guerin, Senior Vice
President of the Company, -- less than 1 percent; and Steven R. Berrard, Vice
Chairman, President and Chief Operating Officer of the Company, -- less than 1
percent. Messrs. Allen, Flynn and Melk are directors of Psychemedics. The
Company believes that the terms of its agreement with Psychemedics are as or
more favorable to the Company as could have been obtained from an unaffiliated
party using testing procedures substantially similar to those used by
Psychemedics. The Company expects to continue to conduct business with
Psychemedics in the future.
See "Compensation Committee Interlocks and Insider Participation."
PROPOSAL TO INCREASE THE COMPANY'S
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has declared advisable and has unanimously
recommended the adoption by the stockholders of the following amendment to the
Company's Certificate of Incorporation, which would increase the number of
authorized shares of Common Stock from 300,000,000 to 800,000,000:
"In order to increase the number of shares of common stock which the
Company is authorized to issue, Section 4 of the Certificate of Incorporation,
as amended, is hereby amended to read as follows:
The total number of shares of common stock, $.10 par value per share, which
the Corporation has the authority to issue is 800,000,000."
The Company at present has authorized capital stock consisting of
300,000,000 shares of Common Stock, and 500,000 shares of preferred stock, $1.00
par value per share. On March 31, 1991, the Company distributed a 100% stock
dividend to stockholders of record on March 8, 1991 thereby effecting a
two-for-one stock split in the form of a stock dividend. In addition,
approximately 8,303,000 shares were issued upon conversion of the Company's
Liquid Yield Option Notes ("LYONs") due 2004, which were called for redemption
by the Company in September 1993. In November 1993, the Company issued
14,650,000 shares of Common Stock in connection with a public offering. On April
, 1994, shares of Common Stock were outstanding and shares
were reserved for issuance upon exercise of certain options and warrants,
pursuant to the Company's stockholder investment plan and in connection with
possible future acquisitions. None of the preferred shares has been issued.
The issuance of shares of Common Stock in the stock split in 1991, the
issuance of shares of Common Stock in connection with conversion of
substantially all of the Company's LYONs into Common Stock prior to their
redemption date and the public offering by the Company of 14,650,000 shares in
November 1993 have significantly reduced the number of authorized shares
available for issuance by the Company in the future. As a result, much of the
flexibility gained by the 1990 amendment to the Company's Certificate of
Incorporation which also increased the authorized shares of Common Stock has
been lost. If the proposed amendment is adopted, 500,000,000 additional shares
of Common Stock will be available for issuances by the Board of Directors
without any requirement of further stockholder approval, although certain large
issuances of shares may require stockholder approval to maintain the listing of
the Common Stock under New York Stock Exchange listing provisions. The proposed
amendment does not affect the Company's preferred stock.
The additional shares of Common Stock might be issued to provide additional
funds for working capital and capital expenditures, for other purposes including
acquisitions of other businesses, in connection with various employee benefit
plans and for stock dividends or stock splits. The Board of Directors believes
it desirable that the Company have the flexibility of being able to issue the
additional shares without further stockholder approval. However, it does not
have any present plans with respect to the issuance of these additional shares
except to the extent such shares may be issued under the Company's 1994 Stock
Option Plan, if stockholder approval of the Company's 1994 Stock Option Plan is
received. Stockholders have no
16
<PAGE> 19
preemptive rights to purchase any stock of the Company. The additional shares
might be issued at such times and under such circumstances as to have a dilutive
effect on earnings per share and on the equity ownership of the present holders
of Common Stock.
The Board of Directors recognizes that an increase in the number of
authorized shares could also be used to preclude an attempt to effect a change
in control of the Company (other than the proposed Merger with Viacom). However,
the Board of Directors is not presently aware of any such attempt.
The Board of Directors recommends approval of the proposed amendment by the
stockholders. The affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock present or entitled to vote at
the meeting is necessary to adopt the proposed amendment. Unless otherwise
indicated, signed proxies which are returned in a timely manner will be voted in
favor of the amendment.
PROPOSAL TO APPROVE THE COMPANY'S 1994 STOCK OPTION PLAN
On February 7, 1994, the Board of Directors of the Company adopted, subject
to stockholder approval at the Company's Annual Meeting, the Company's 1994
Stock Option Plan. The purpose of the Company's 1994 Stock Option Plan is to
offer certain present and future key employees a favorable opportunity to become
holders of Common Stock, thereby giving them a permanent stake in the growth and
prosperity of the Company and encouraging the continuance of their involvement
with the Company. As of the date of adoption of the Company's 1994 Stock Option
Plan, there were approximately 3,817 employees who were eligible to participate
in the Company's 1994 Stock Option Plan. Adoption of the Company's 1994 Stock
Option Plan is an essential element of the Company's existing and ongoing
compensation policy and the Board of Directors recommends that the Company's
stockholders vote for the adoption of the Company's 1994 Stock Option Plan.
The total number of shares of the Common Stock issuable over the term of
the Company's 1994 Stock Option Plan may not exceed 15 million shares of the
Common Stock; provided that the Compensation Committee may not grant to any
individual options to purchase more than 4,000,000 shares of the Common Stock or
more than 27% of the total number of options to purchase shares of the Common
Stock granted under the Company's 1994 Stock Option Plan.
Under the terms of the Company's 1994 Stock Option Plan, on or after
February 7, 1994, the Compensation Committee of the Board of Directors of the
Company, consisting of two or more directors, may grant options to key employees
of the Company (including officers), subject to stockholder approval thereof.
Certain such options were granted on February 7, 1994. The price at which shares
of the Common Stock may be purchased pursuant to the options granted by the
Compensation Committee is determined by the Compensation Committee, but will in
no event be less than the fair market value of the shares at the time the option
is granted. Generally, each option will be for a term of not less than five nor
more than ten years from the date of grant, and will become exercisable with
respect to 25% of the total number of shares subject to the option twelve months
after the date of the grant and with respect to an additional 25% at the end of
each twelve-month period thereafter on a cumulative basis during the succeeding
three years.
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<PAGE> 20
The following table sets forth certain information with respect to stock
options granted under the Company's 1994 Stock Option Plan as of March 18, 1994:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME AND POSITION EXERCISE PRICE UNDERLYING OPTIONS GRANTED
-------------------------------------------- -------------- --------------------------
<S> <C> <C>
H. Wayne Huizenga, $25.50 779,412
Chairman of the Board and
Chief Executive Officer
Steven R. Berrard, 25.50 623,530
Vice Chairman of the Board,
President and Chief
Operating Officer
Gregory K. Fairbanks, 25.50 157,353
Senior Vice President,
Treasurer and Chief
Financial Officer
James L. Hilmer, 25.50 91,765
Senior Vice President and
Chief Marketing Officer
Gerald W. B. Weber, 25.50 82,353
Senior Vice President, Operations
All executive officers, as a group, 25.50 2,556,318
including persons named above
All other employees, as a group 25.50 5,135,900
</TABLE>
The Compensation Committee, in its discretion, may provide at the date of
grant for another time or times of exercise or accelerate the exercisability of
any such option subject to such terms and conditions as the Compensation
Committee deems necessary and appropriate, including a requirement that the
optionee grant the Company an option to repurchase all or a portion of the
number of shares acquired upon exercise of the accelerated option at the option
exercise price. In addition, the Compensation Committee may, at any time prior
to the expiration or termination of an option previously granted, extend the
term of such option for additional period as it shall, in its discretion,
determine (but only insofar as the aggregate option period with respect to an
option does not exceed ten years).
Upon exercise of an option under the Company's 1994 Stock Option Plan, the
exercise price for the purchased shares will be immediately payable in cash, by
check, by a promissory note in a form specified by the Company payable to the
Company no later than 15 business days after the date of exercise of the option,
if applicable, or, if approved by Compensation Committee, in shares of the
Company Common Stock valued at fair market value on the date of exercise, or by
a combination of these methods. An option may be exercised only if the closing
sale price per share of the Company Common Stock on the date of exercise on the
stock exchange upon which the Company Common Stock is listed is equal to or
greater than the option price.
Options are not assignable or transferable other than by will or the laws
of descent and distribution, or by a qualified domestic relations order, and,
during the optionee's lifetime, the option may be exercised only by such
optionee.
Options granted under the Company's 1994 Stock Option Plan terminate
immediately if the optionee's employment terminates for any reason other than
death, disability or retirement; provided that if the Company merges with and
into Viacom pursuant to the proposed Merger, then in the event an officer or
employee is terminated by Viacom on or prior to the second anniversary of the
effective time of the Merger (the "Effective Time"), such optionee's options
shall terminate on the earlier to occur of (i) the expiration date of the
options or (ii) the second anniversary of the Effective Time. Under appropriate
circumstances, the Company may permit outstanding options to be exercised for a
period after termination of employment but in no event after
18
<PAGE> 21
the expiration date of the option. In the event of the optionee's death or
disability or retirement, the optionee or, if he is not living, the personal
representative of the optionee or the optionee's estate or the person inheriting
the option will have three years (or such longer period as the Compensation
Committee may prescribe) after the date of the optionee's death, disability or
retirement to exercise the option in full, but under no circumstances may the
option be exercised after the specified expiration of the option term.
If any option granted under the Company's 1994 Stock Option Plan expires or
is terminated or cancelled unexercised as to any shares of the Common Stock,
such released shares may be again be optioned (including a grant in substitution
for a cancelled option).
In the event any change is made to the Common Stock issuable under the
Company's 1994 Stock Option Plan (by reason of any stock split, stock dividend,
combination of shares, merger, consolidation, reorganization or other change in
the capitalization of the Company), appropriate adjustments will be made as
necessary to (i) the aggregate number of shares of the Common Stock and/or the
kind of securities available for issuance under the Company's 1994 Stock Option
Plan, (ii) the number of shares of the Common Stock and/or the kind of
securities to be made the subject of each subsequent grant, (iii) the exercise
price and (iv) the number of shares of the Common Stock and/or the kind of
securities purchasable under each outstanding option and the exercise price
payable per share so that no dilution or enlargement of benefits will occur
under such option.
In the event that the Company participates in any "Business Combination"
with any "Substantial Stockholder" (as such terms are defined in the Company's
Certificate of Incorporation), provided that the Substantial Stockholder is not
a participant in any stock plan of the Company then in effect, an optionee under
the Company's 1994 Stock Option Plan who is an officer of the Company may,
during the thirty-day period following such Business Combination, require the
Company to purchase from him or her any option granted under such plan at a
purchase price equal to (i) the excess of the fair market value per share over
the exercise price multiplied by (ii) the number of option shares specified by
the optionee to be purchased by the Company. For this purpose, fair market value
is the average of the highest sale price per share of the Company Common Stock
as quoted on the stock exchange upon which the Company Common Stock is listed on
each of the five trading days immediately preceding the date on which the
optionee so notifies the Company.
The Board of Directors may amend or discontinue the Company's 1994 Stock
Option Plan at any time, provided that no such amendment may be made with the
requisite approval of the stockholders of the Company if stockholder approval is
required as a condition to the Company's 1994 Stock Option Plan continuing to
comply with the provisions of Rule 16b-3 under the Exchange Act (or, to the
extent that the Company's 1994 Stock Option Plan continues to be governed by
former Rule 16b-3 of the Exchange Act, by former Rule 16b-3) or Section 162(m)
of the Code.
The Company's 1994 Stock Option Plan is subject to approval by the
affirmative vote of the holders of a majority of the shares of the Company
Common Stock voting in person or by proxy and entitled to vote thereon. If the
Company's 1994 Stock Option Plan is so approved, it will become effective as of
the date of its adoption by the Company Board. Any options granted on or after
the effective date and prior to stockholder approval will be cancelled and void
if the Company's 1994 Stock Option Plan is not approved by the stockholders. The
Company's 1994 Stock Option Plan will terminate on the date that all shares
available for issuance under the plan are issued or cancelled pursuant to the
exercise or cancellation of options granted under such plan.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co. has been selected by the Board of Directors, upon the
recommendation of its Audit and Finance Committee, to continue to act as the
Company's auditors in 1994. Representatives of Arthur Andersen & Co. will be
present at the 1994 annual meeting of stockholders; they will have the
opportunity to make a statement, if they desire to do so, and will be available
to respond to appropriate questions.
19
<PAGE> 22
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Stockholders for the year
ended December 31, 1993 with this Proxy Statement. Stockholders are referred to
the report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders intended to be presented at the 1995 annual
meeting must be received by the Company no later than November 29, 1994.
OTHER MATTERS
You are again urged to attend the annual meeting at which 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,
and the Company has hired Corporate Investors Communications, Inc. to coordinate
the solicitation of proxies by and through such holders for a fee of
approximately $12,500 plus expenses. The entire cost of the solicitation 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
THOMAS W. HAWKINS
Senior Vice President,
General Counsel and
Secretary
20
<PAGE> 23
ANNEX A
BLOCKBUSTER ENTERTAINMENT CORPORATION
1994 STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this Stock Option Plan (the
"Plan") is to benefit Blockbuster Entertainment Corporation, a Delaware
corporation (the "Company"), and its subsidiaries through the maintenance and
development of their respective businesses by offering certain present and
future key employees a favorable opportunity to become holders of stock in the
Company over a period of years, thereby giving them a permanent stake in the
growth and prosperity of the Company and encouraging the continuance of their
involvement with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee"), consisting of two or more outside directors (as
defined under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code")) appointed by the Board of Directors, whose interpretation of the
terms and provisions of the Plan shall be final and conclusive. The selection of
employees for participation in the Plan and all decisions concerning the timing,
pricing and amount of any grant or award under the Plan shall be made solely by
the Committee.
3. ELIGIBILITY. Options shall be granted only to key employees of the
Company and its subsidiaries (including officers of the Company and its
subsidiaries but excluding non-employee directors of the Company) selected
initially and from time to time by the Committee on the basis of their
importance to the business of the Company or its subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under which a
total of not in excess of 15,000,000 shares of the $.10 par value common stock
of the Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 10; provided that the Committee may not grant
to any individual options to purchase more than 4,000,000 shares of Common Stock
or more than 26.67% of the total number of options to purchase shares of Common
Stock granted under the Plan. Options granted under the Plan are intended not to
be treated as incentive stock options as defined in Section 422 of the Code.
In the event that an option expires or is terminated or cancelled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a cancelled option). With respect to any
individual, however, in the case of an option that is terminated or cancelled
unexercised as to any shares, such released shares shall continue to count
against the maximum number of shares that may be offered such individual under
the Plan. Shares subject to options may be made available from unissued or
reacquired shares of Common Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company or any subsidiary of the Company, or interfere in any way with the
right of the Company or its subsidiaries to terminate his employment at any
time.
5. OPTION PRICE. The option price shall be determined by the Committee
and, subject to the provisions of Section 10 hereof, shall be not less than the
fair market value, at the time the option is granted, of the shares of Common
Stock subject to the option.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such term of not less
than five years nor more than ten years, as shall be determined by the
Committee. Each option shall become exercisable with respect to 25% of the total
number of shares subject to the option twelve months after the date of its grant
and with respect to each additional 25% at the end of each twelve-month period
thereafter during the succeeding three years. Notwithstanding the foregoing, the
Committee may in its discretion (i) specifically provide for another time or
times of exercise; (ii) accelerate the exercisability of any option subject to
such terms and conditions as the Committee deems necessary and appropriate; or
(iii) at any time prior to the expiration or termination of any option
previously granted, extend the term of any option (including such options held
by officers) for such additional period as the Committee in
A-1
<PAGE> 24
its discretion shall determine. In no event, however, shall the aggregate option
period with respect to any option, including the original term of the option and
any extensions thereof, exceed ten years. Subject to the foregoing, all or any
part of the shares to which the right to purchase has accrued may be purchased
at the time of such accrual or at any time or times thereafter during the option
period.
In the event that the Company participates in any Business Combination with
any Substantial Stockholder, all outstanding options shall become immediately
exercisable, provided that such Substantial Stockholder is not a participant in
the Plan or any other stock plan of the Company then in effect. For this
purpose, the terms "Business Combination" and "Substantial Stockholder" shall
have the meanings ascribed to them in the Company's Certificate of
Incorporation, as now in effect or as subsequently amended. Notwithstanding any
other provision in the Plan, during the period 30 days after any such Business
Combination, each optionee who is an officer or a director (and also an
employee) of the Company shall have the right to require the Company to purchase
from him any option granted under the Plan at a purchase price equal to (i) the
excess of the fair market value per share over the option price (ii) multiplied
by the number of option shares specified by such individual for purchase in a
written notice to the Company, attention of the Secretary. For purposes of this
paragraph, "fair market value per share" shall mean the average of the highest
sales price per share of the Company's Common Stock as quoted by the exchange
upon which the Company's Common Stock is listed on each of the five trading days
immediately preceding the date on which such individual so notifies the Company.
The amount payable to each such individual by the Company shall be in cash or by
certified check and shall be reduced by any taxes required to be withheld.
7. EXERCISE OF OPTION. As a condition to the exercise of any option, the
"Quoted Price" (as defined below) per share of Common Stock on the date of
exercise must equal or exceed the option price referred to in Section 5 hereof.
An option may be exercised by giving written notice to the Company, attention of
the Secretary, specifying the number of shares to be purchased, accompanied by
the full purchase price for the shares to be purchased either in cash, by check,
by a promissory note in a form specified by the Company and payable to the
Company no later than 15 business days after the date of exercise of the option
or, if so approved by the Committee, by shares of the Common Stock of the
Company or by a combination of these methods of payment. The "Quoted Price" and
the per share value of Common Stock for purposes of paying the option price in
accordance with the immediately preceding sentence shall equal the closing
selling price per share of Common Stock on the date in question on the stock
exchange upon which the Company's Common Stock is listed (the "Exchange"). The
right to pay the purchase price of shares by delivery of a promissory note shall
not be available to any optionee who is a person described in Section 16(a) of
the Securities Exchange Act of 1934 (the "1934 Act").
At any time of any exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
heirs, legatees, or legal representative, as the case may be) as a condition
upon the exercise thereof, to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
At the time of the exercise of any option the Committee may require, as a
condition of the exercise of such option, the optionee to (x) pay the Company an
amount equal to the amount of tax the Company may be required to withhold to
obtain a deduction for federal income tax purposes as a result of the exercise
of such option by the optionee or (y) make such other arrangements with the
Company which would enable the Company to pay such withholding tax, including,
without limitation, holding back a number of shares issuable upon exercise of
the option equal to the amount of such withholding tax, or permitting the
optionee to deliver a promissory note in a form specified by the Committee, or
(z) a combination of the foregoing.
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<PAGE> 25
8. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. In the event the
relationship between the Company and an optionholder is terminated for any
reason other than death, permanent disability or retirement such optionholder's
options shall expire and all rights to purchase shares pursuant thereto shall
terminate immediately; provided that if the Company merges with and into Viacom
Inc. ("Viacom") pursuant to the Merger Agreement dated January 7, 1994 (as such
agreement may be amended from time to time, the "Merger Agreement"), between the
Company and Viacom, then in the event an optionholder is terminated by Viacom on
or prior to the second anniversary of the Effective Time (as defined in the
Merger Agreement), such optionholder's options shall terminate on the earlier to
occur of (i) the expiration date of such options or (ii) the second anniversary
of the Effective Time. The Committee may, in its sole discretion, permit any
option to remain exercisable for such period after such termination as the
Committee may prescribe, but in no event after the expiration date of the
option. Temporary absence from employment because of illness, vacation, approved
leaves of absence, and transfers of employment among the Company and its
subsidiaries, shall not be considered to terminate employment or to interrupt
continuous employment.
In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement the option may be
exercised in full, without regard to any installments established under Section
6 hereof, by the optionee or, if he is not living, by his heirs, legatees or
legal representative (as the case may be) during its specified term prior to
three years after the date of death, permanent disability or retirement, or such
longer period as the Committee may prescribe, but in no event after the
expiration date of the option.
9. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by the Code, or Title I of the Employee Retirement Income Security
Act of 1974, as amended, or the rules thereunder.
10. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted hereunder shall be proportionately adjusted; (b)
in the event of any merger, consolidation or reorganization of the Company with
any other corporation or corporations, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Common Stock
then subject to the Plan, whether or not at the time subject to outstanding
options, the number and kind of shares of stock or other securities to which the
holders of shares of Common Stock of the Company will be entitled pursuant to
the transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment the purchase price per share shall be proportionately adjusted.
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any option
granted pursuant to the Plan shall confer upon any optionee any right to be
continued in the employment of the Company or any subsidiary of the Company or
interfere in any way with the right of the Company or its subsidiaries to
terminate such employment and/or to remove any optionee who is a director from
service on the Board of Directors of the Company at any time in accordance with
the provisions of applicable law.
12. AMENDMENT OF PLAN. The Board of Directors of the Company may amend or
discontinue the Plan at any time. However, no such amendments or discontinuance
shall be made without the requisite stockholder approval of the stockholders of
the Company if stockholder approval is required as a condition to the Plan
continuing to comply with the provisions of Rule 16b-3 (or former Rule 16b-3e to
the extent that the Plan is then governed by former Rule 16b3-e) or Section
162(m) of the Code.
13. GOVERNANCE BY RULE 16B-3. The Plan is intended to and shall be
governed by Rule 16b-3 (or former Rule 16b-3e to the extent that the Plan is
then governed by former Rule 16b3-e) promulgated under the 1934 Act.
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<PAGE> 26
14. EFFECTIVE DATE. On February 7, 1994, this Plan was adopted and
authorized by the Board of Directors of the Company for submission to the
stockholders of the Company. If this Plan is approved by the affirmative vote of
the holders of a majority of the shares of Common Stock voting in person or by
proxy at a duly held stockholders' meeting, this Plan shall be deemed to have
become effective on February 7, 1994. With respect to any options granted on or
after such effective date and prior to stockholder approval, all such options
shall be cancelled and void if this Plan is not approved by stockholders.
A-4
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<S> <C>
BLOCKBUSTER H. Wayne Huizenga and Steven R. Berrard, each with power of
ENTERTAINMENT substitution, are hereby authorized to vote all stock
CORPORATION which the undersigned would be entitled to vote if personally
PROXY present at the Annual Meeting of Stockholders of Blockbuster
Entertainment Corporation, to be held on Tuesday, May 24, 1994,
and at any postponements or adjournments thereof as follows:
1. Election of Directors. Nominees: H. Wayne Huizenga, Steven R.
Berrard, George D. Johnson, Jr., A. Clinton
ANNUAL Allen, III, John W. Croghan, Donald F. Flynn and John J. Melk.
MEETING
MAY 24, 1994 FOR all nominees listed above / / WITHHOLD AUTHORITY
to vote for all nominees listed above / /
THIS PROXY IS FOR, except the following nominee(s): / /
SOLICITED ON
BEHALF OF --------------------------------------------------------------------------------------
THE BOARD OF A vote FOR all nominees is recommended by the Board of Directors.
DIRECTORS
(Please mark this 2. Adopt the Amendment to the Company's Certificate of Incorporation.
proxy and sign and FOR / / AGAINST / / ABSTAIN / /
date it on the
reverse side hereof A vote FOR is recommended by the Board of Directors
and return it in the
enclosed envelope). 3. Adopt the Company's 1994 Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
A vote FOR is recommended by the Board of Directors
4. In their discretion, on such other business as may properly
come before the meeting.
BOTH (OR IF ONLY ONE, THEN THAT ONE) OF THE ABOVE PERSONS OR
THEIR SUBSTITUTES WHO SHALL BE PRESENT AND ACTING AT THE MEETING
SHALL HAVE THE POWERS CONFERRED HEREBY.
(Continued from other side)
BLOCKBUSTER THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
ENTERTAINMENT DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
CORPORATION PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES.
PROXY
Dated , 1994
--------------------------------------
-------------------------------------------------
Signature of Stockholder(s) -- please sign
name exactly as imprinted (do not print). Please
indicate any changes in address.
NOTE: Executors, administrators,
trustees and others signing in a
representative capacity should
indicate the capacity in which
they sign. If shares are held
jointly, EACH holder should sign.
I do / / do not / / plan to
attend the meeting.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY.
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