<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
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
J2 Communications
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PRELIMINARY PROXY MATERIALS
J2 COMMUNICATIONS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 1998
To the Shareholders of
J2 Communications, Inc.:
Notice is hereby given that a special meeting of shareholders of J2
Communications, a California corporation (the "Company"), will be held at the
Company's office at 10850 Wilshire Boulevard, Suite 1000 Los Angeles, California
on October 21, 1998, at 10:00 A.M. Pacific Daylight Savings Time, for the
following purposes:
1. To elect four (4) directors to serve on the Board of Directors
until the next annual meeting or until their successors are
elected and qualified;
2. To approve an amendment to the Company's Articles of
Incorporation to effect a 1 for 3 reverse stock split of the
Company's outstanding Common Stock; and
3. To transact such other business as may properly come before the
meeting.
Shareholders of record as of the close of business on September 16, 1998
will be entitled to vote at the special meeting. Shares should be represented as
fully as possible, since a majority is required to constitute a quorum.
Please mark, sign, date and mail the accompanying proxy in the enclosed
self-addressed, postage paid envelope, whether or not you expect to attend the
meeting in person. You may revoke your proxy at the meeting should you be
present and desire to vote your shares in person, and you may revoke your proxy
for any reason at any time prior to the voting thereof, either by written
revocation prior to the meeting or by appearing at the meeting and voting in
person. Your cooperation is respectfully solicited.
By Order of the Board of Directors,
-----------------------------------------
President and Chief Executive Officer
Los Angeles, California
September __, 1998
<PAGE> 3
J2 COMMUNICATIONS
10850 WILSHIRE BOULEVARD
SUITE 1000
LOS ANGELES, CALIFORNIA 90024
(310) 474-5252
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 1998
INTRODUCTION
The enclosed proxy is solicited on behalf of the Board of Directors of
J2 Communications (the "Company") in connection with its special meeting of
shareholders to be held on October 21, 1998 at 10:00 A.M., Pacific Daylight
Savings Time, and any adjournment thereof (the "Special Meeting"), at the
Company's office at 10850 Wilshire Blvd. Suite 1000, Los Angeles, California
90024.
The cost of proxy solicitation will be borne by the Company. In addition
to the solicitation of proxies by the use of the mails, certain officers and
other regular employees of the Company may devote part of their time (but will
not be specifically compensated therefor) to solicitation by telegraph,
telephone or in person. Proxies may be revoked at any time prior to voting.
Revocation may be done prior to the meeting by written revocation sent to the
Secretary of the Company, J2 Communications, 10850 Wilshire Boulevard, Suite
1000, Los Angeles, California 90024; or it may be done personally upon oral or
written request at the Special Meeting.
This proxy statement was first mailed or delivered to shareholders on or
about September 23, 1998.
RECORD DATE; VOTING SECURITIES OUTSTANDING
The close of business on September 16, 1998 is the record date for
determining the holders of the Company's common stock, no par value ("Common
Stock"), entitled to notice of and to vote at the Special Meeting.
As of August 15, 1998, the Company had outstanding voting securities
consisting of 3,599,990 shares of Common Stock. Each holder of record of
outstanding Common Stock at the close of business on September 16, 1998 will be
entitled to vote at the Special Meeting. Presence in person or by proxy of
holders of a majority of the outstanding shares of Common Stock will constitute
a quorum at the Special Meeting. A broker non-vote is not counted in determining
voting results. If a shareholder, present in person or by proxy, abstains on any
matter, the shareholder's shares will not be voted on such matter. Thus, an
abstention from voting on a matter has the same legal effect as a vote "AGAINST"
the matter.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth certain information as of August 15, 1998
with respect to the beneficial ownership of Common Stock by (i) each person
known to be the beneficial owner of more than five percent of the outstanding
shares of Common Stock; (ii) each director and nominee; (iii) the Chief
Executive Officer; and (iv) all executive officers and directors as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
No. of
Name and Address of Shares and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
- ------------------- ----------------------- ----------
<S> <C> <C>
James P. Jimirro(2)(3) 1,126,000 26.5%
James Fellows (2)(4) 39,000 *
Bruce P. Vann (2)(5) 34,000 *
All directors and executive officers 1,232,500 29.0%
as a group (5 persons)
</TABLE>
- -----------
* Less than 1 percent.
(1) Nature of beneficial ownership is direct unless otherwise indicated by
footnote. Beneficial ownership as shown on the table arises from sole voting and
investment power unless otherwise indicated by footnote.
(2) The address for each shareholder listed is 10850 Wilshire Boulevard, Suite
1000, Los Angeles, California 90024.
(3) Includes 500,000 stock options granted under the Company's Stock Option Plan
pursuant to Mr. Jimirro's Executive Employment Agreement.
(4) Includes 39,000 shares of Common Stock purchasable under the Company's Stock
Option Plan.
(5) Includes 34,000 shares of Common Stock purchasable under the Company's Stock
Option Plan.
2
<PAGE> 5
ITEM 1
ELECTION OF DIRECTORS
It is intended that the shares represented by the enclosed proxy will be
voted, unless votes are withheld in accordance with the instructions contained
in the proxy, for the election of the four (4) nominees for Director named
below. Each Director elected will hold office until the next annual election of
Directors or until a successor is elected and qualified. In the event that any
nominee for Director should become unavailable, which is not anticipated, the
Board of Directors in its discretion may designate substitute nominees, in which
event such shares will be voted for such substitute nominees.
Every shareholder voting for the election of directors may cumulate his
or her votes and give any candidate whose name has been placed in nomination
prior to the voting a number of votes equal to the number of directors to be
elected (four) multiplied by the number of his or her shares, or may distribute
his or her votes among as many candidates so nominated as he or she chooses; no
shareholder, however, may cumulate votes for any candidate unless the candidate
has been nominated prior to the voting and at least one shareholder has given
notice at the meeting prior to the voting of his or her intention to cumulate
his or her votes. If any shareholder present at the Special Meeting gives such
notice, all shareholders may cumulate their votes. The persons named in the
accompanying proxy may also cumulate votes in favor of one or more of the
nominees as they in their discretion determine. The nominees receiving the
highest number of votes, up to the number of directors to be elected, will be
elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES NAMED BELOW.
INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
Director
Name Age Since
---- --- --------
<S> <C> <C>
James P. Jimirro 61 1986
James Fellows 62 1986
Bruce P. Vann 42 1987
John De Simio 46 1998
</TABLE>
3
<PAGE> 6
JAMES P. JIMIRRO has been employed by the Company as President and Chief
Executive Officer since its inception. From 1980 to 1985 he was the president of
Walt Disney Telecommunications Company, which included serving as president of
Walt Disney Home Video, a producer and distributor of family home video
programming. While in this position, he also served as Corporate Executive Vice
President of Walt Disney Productions. In addition, from 1983 to 1985, Mr.
Jimirro served as the first president of The Disney Channel, a national cable
pay-television channel, which Mr. Jimirro conceived and implemented. Mr. Jimirro
continued in a consulting capacity for the Walt Disney Companies through July of
1986. From 1973 to 1980 he served as Director of International Sales and then as
Executive Vice President of the Walt Disney Educational Media Company, a
subsidiary of the Walt Disney Companies. Prior to 1973, Mr. Jimirro directed
international sales for CBS, Inc., and later, for Viacom International. Mr.
Jimirro has also served, since January 1990, as a member of the Board of
Directors of Rentrak.
JAMES FELLOWS has been a member of the Board of Directors and the
President of the Central Education Network, Inc., a Chicago, Illinois
association of public television and educational associations, since 1983. From
1962 through 1982, Mr. Fellows worked in a variety of positions for the National
Association of Educational Broadcasters ("NAEB") in Washington, D.C., and became
its President and Chief Executive Officer in 1978. Mr. Fellows is a director of
numerous nonprofit corporations including the Educational Development Center in
Boston, Massachusetts, a producer of written and filmed educational materials;
the Maryland Public Broadcasting Foundation, a corporate fundraiser for public
television; and American Children's Television Festival.
BRUCE P. VANN has been a principal of the law firm of Kelly Lytton Mintz
& Vann LLP since December 1995. From 1988 through December 1995 he was a partner
in the law firm of Keck Mahin & Cate and Meyer & Vann. Mr. Vann specializes in
corporate and securities matters. Mr. Vann also serves, on a non-exclusive
basis, as Senior Vice President of Largo Entertainment, Inc., a subsidiary of
The Victor Company of Japan.
JOHN DE SIMIO has been in the entertainment side of the public relations
business since 1976. From 1988 to 1996, Mr. De Simio was a Senior Vice
President, Publicity/Promotion for Castle Rock Entertainment, where he oversaw
publicity and national promotional campaigns for their theatrical and television
productions. Before moving to Castle Rock, Mr. De Simio was National Publicity
Director of Twentieth Century Fox Film Corporation from 1985-1988. Mr. De Simio
is presently on a disability leave due to a visual impairment. Mr. De Simio
currently serves on the Boards of Theatre LA and The Broadcast Film Critics
Association.
The Board of Directors held one formal meeting during the fiscal year
ending July 31, 1998, although the board met informally on numerous occasions.
All Directors attended the formal meeting. The Board of Directors of the Company
has standing Audit and Independent Committees.
The Audit Committee did not meet during the fiscal year ending July 31,
1998. This Committee is responsible for reviewing with the Company's financial
management and its independent auditors, the proposed audit program for each
fiscal year, the results of the audits and the adequacy of the Company's systems
of internal accounting control. The Committee recommends
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<PAGE> 7
to the Board of Directors the appointment of the independent auditors for each
fiscal year. Directors De Simio and Fellows are members of this Committee.
The Independent Committee did not meet during the fiscal year ending
July 31, 1998. This Committee is responsible for implementing procedures to
comply with the Foreign Corrupt Practices Act and for review and approval of any
transactions between the Company and affiliates. Directors Vann and Fellows are
members of this Committee.
The Company does not have a nominating or compensation committee, or
committees performing similar functions.
INFORMATION REGARDING EXECUTIVE OFFICERS
All of the Company's executive officers are elected by, and serve at the
pleasure of, the Board of Directors and/or the President. Set forth below are
the names and offices held by each of the Company's executive officers, their
ages, and the date when each was first elected as an executive officer of the
Company. A brief account of the business experience of Rudy P. Patino and Duncan
Murray are set forth below; the information regarding James P. Jimirro has been
set forth above.
<TABLE>
<CAPTION>
First
Name and Office Age Elected
--------------- --- -------
<S> <C> <C>
James P. Jimirro 61 1986
Chairman of the Board of Directors
President and Chief Executive Officer
Rudy P. Patino
Chief Financial Officer 50 1997
Duncan Murray 52 1986
Vice President--Marketing
</TABLE>
- -----------
RUDY R. PATINO joined the Company on August 8, 1997 as Chief Financial
Officer. He is a Certified Public Accountant, licensed in the State of
California, and has worked as Chief Financial Officer and Controller for various
entertainment companies over the last 15 years. From 1995 to 1997 he was Chief
Financial Officer for Prism Entertainment Corporation, a producer and
distributor of feature motion pictures. Prior to that, from 1986 to 1995, he was
Vice President/Controller for Avalon Attractions, Inc. one of the largest live
concert promoters in Southern California.
DUNCAN MURRAY has been with the Company since July, 1986 as Vice
President of Marketing. Before that he worked with the Walt Disney Companies for
fourteen years in a variety of capacities including Vice President, Sales
Administration for The Disney Channel, and Director of Sales for Walt Disney
Telecommunications Company.
5
<PAGE> 8
COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT
SUMMARY COMPENSATION TABLE
EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal
years ended July 31, 1998, 1997, and 1996 individual compensation for services
to the Company and its subsidiaries of the Chief Executive Officer (the "Named
Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
----------------------- -------------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($)(4) ($)(1) ($) SARs(#) ($) ($)
- -------- ---- --------- ----------- ------- ----------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James P. Jimirro(2)
1998 190,750 (2) (3) 100,000 (3)
1997 190,750 (2) (3) 100,000 (3)
1996 190,750 (2) (3) 100,000 (3)
</TABLE>
- ----------
(1) Does not include amounts of $12,000 in 1998, $12,500 in 1997 and $9,700
paid in 1996 to Jim Jimirro who are entitled to be reimbursed for
expenses relating to entertainment, travel and living expenses when away
from home.
(2) Does not include $6,000 in 1998, $7,000 in 1997 and $8,900 in 1996 which
the Company paid for Mr. Jimirro's health plan. The Company also
provides Mr. Jimirro with a Company-owned vehicle for his use.
(3) Does not include SAR's granted to Mr. Jimirro pursuant to his employment
agreement. See the description of Mr. Jimirro's employment agreement
under "Employment Agreements and Stock Option Plans" below.
(4) Effective June 1, 1992, Mr. Jimirro reduced the amount of salary he
receives to $190,750. Mr. Jimirro does not expect to receive the unpaid
portion unless there is a change in the control of the Company as
defined by his employment agreement. The Company has not accrued any
salary or bonus for Mr. Jimirro in regards to the above for the fiscal
years ended July 31, 1996, 1997 and 1998.
6
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options pursuant to the
1994 Stock Option Plan during the fiscal year ended July 31, 1998, to the Named
Officer.
<TABLE>
<CAPTION>
Potential Realized Value at Assigned
Annual Rates of Stock Price
Individual Grants in 1998 Appreciation for 7 year Option Term
------------------------- ------------------------------------
Percentage
of Total
Options/SARs Exercise 5% 10%
Options/ granted to or Base --------------------------------- --------
SARs Employees in Price Per Expiration Stock Dollar Stock Dollar
Name Granted(#) Fiscal Year Share($) Date Price($) Gains($) Price($) Gains($)
- ---- ---------- ------------ --------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Jimirro 100,000(1) 52.6 $0.734(2) 12-28-2004 $1.03 $29,600 $1.44 $70,600
</TABLE>
- ----------
(1) Options/SARs granted are immediately exercisable.
(2) Options/SARs granted with an exercise price (or initial valuation in the
case of SARs) equal to the closing sale price of the Common Stock as quoted on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on December 28, 1997, the date of grant for Mr. Jimirro.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to (i) options exercised by the
Named Officer pursuant to the 1994 Plan during fiscal 1998 (of which there were
none); and (ii) unexercised options granted in fiscal 1998 and prior years under
the 1994 Plan to the Named Officer and held by him at July 31, 1998.
<TABLE>
<CAPTION>
Value of
Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
7/31/98 7/31/98(1)
Shares Acquired Value Exercisable/ Exercisable;
Name on Exercise (#) Realized($) Unexercisable(#) Unexercisable($)
- ---- --------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
James Jimirro -0- -0- 900,000/0 $34,262
</TABLE>
(1) Based on the closing sale price as quoted on NASDAQ on that date.
DIRECTOR COMPENSATION
Directors, with the exception of Mr. Jimirro, receive 4,000 stock
options per year exercisable at the then market price as compensation for their
services as a director.
7
<PAGE> 10
EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
In 1994, the Company entered into a new employment agreement with James
P. Jimirro, effective July 1, 1994 (the "1994 Agreement"). Under the 1994
Agreement, which has a term of seven years, Mr. Jimirro will receive a base
salary plus an incentive bonus following the end of each fiscal year during
which Mr. Jimirro is employed by the Company. Mr. Jimirro's base salary for the
first year will be $475,000 and will be adjusted annually by the greater of (i)
9% or (ii) 5% plus the percentage increase in the CPI Index. Effective June 1,
1992, the Mr. Jimirro reduced the amount of salary he receives to $190,750. Mr.
Jimirro does not expect to receive the unpaid portion unless there is a change
in the control of the Company as defined by the agreement.
Mr. Jimirro's bonus is to be an amount equal to 5% of the Company's
earnings in excess of $500,000 and up to $1 million; plus 6% of the next $1
million of earnings; plus 7% of the next $1 million of earnings; plus 8% of the
next $2 million of earnings; and plus 9% of the next $2 million of earnings. If
earnings exceed $7 million, then Mr. Jimirro shall, in addition to foregoing
compensation, be entitled to such additional incentive compensation as may be
determined by the Board based upon Mr. Jimirro's services and performance on
behalf of the Company and the profitability of the Company.
The 1994 Agreement also provides that, on the date of each annual
meeting of shareholders during its term, Mr. Jimirro will be granted stock
options with respect to 50,000 shares of Common Stock and stock appreciation
rights ("SARs") with respect to 50,000 shares of Common Stock. The exercise
price of each option and the initial valuation of each SAR will be equal to the
fair market value of the Common Stock of the Company at the date of the grant.
The options and SARs will be immediately exercisable non-statutory stock
options, will have a term of seven years, and will be subject to all other terms
identical to those contained in the Company's 1991 Employee Stock Option
Incentive Plan (the "1991 Plan"). The 1991 Plan specifically provides for the
grant of stock options and SARs to Mr. Jimirro in accordance with his employment
agreement. The 1994 Agreement provides that if Mr. Jimirro's employment is
terminated without cause, or is terminated by Mr. Jimirro for cause or under
certain other circumstances, including a change in control of the Company (as
defined below), then Mr. Jimirro generally is entitled to receive all payments
and other benefits which would be due under the 1994 Agreement during its entire
term; provided, that such payments would be reduced to the extent that such
payments would constitute an "excess parachute payment" under the Internal
Revenue Code of 1986, or any successor law applicable to payments of severance
compensation to Mr. Jimirro. A "change in control" would be deemed to occur if
(a) any person or group becomes the direct or indirect owner of securities with
25% or more of the combined voting power of the Company's then outstanding
securities, (b) if there is a significant change in the composition of the Board
of Directors of the Company, (c) upon the sale of all or substantially all of
the assets of the Company, (d) upon the merger of the Company with any other
corporations if the shareholders of the Company prior to the merger owned less
than 75% of the voting stock of the corporation surviving the merger or (e) in
certain other events. In addition to the foregoing benefits, Mr. Jimirro has the
right, if he terminates his employment under certain circumstances (including
following a change in control or a breach of the 1994 Agreement by the Company)
to serve as a consultant to the Company for a period of five years (the
"Consulting Period"). During the Consulting Period, Mr. Jimirro would be
required to devote no more than 600 hours per year to the
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<PAGE> 11
affairs of the Company, and would receive 50% of his salary as in effect on the
date of termination of his employment. As a result of the foregoing, the Company
would incur substantial expenses if Mr. Jimirro terminates his employment with
the Company following a change in control of the Company, which may make the
Company a less attractive acquisition candidate. The 1994 Agreement also
provides Mr. Jimirro with certain registration rights pursuant to which,
beginning in 1992, the Company will be required upon the request of Mr. Jimirro
to register the sale of shares of the Company's Common Stock owned by Mr.
Jimirro under the Securities Act of 1933. The 1994 Agreement is terminable by
the Company only "for cause" as defined therein.
COMPENSATION COMMITTEE, INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company does not have a Compensation Committee or similar Board
committee. The Board of Directors did not deliberate on executive officer
compensation during the last fiscal year. See "Board Compensation Committee
Report on Executive Compensation" below.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company's Board of Directors does not have a Compensation Committee
or Board committee performing a similar function. The compensation of Mr.
Jimirro as Chief Executive Officer ("CEO") is determined under the provisions of
Mr. Jimirro's employment agreement with the Company. See "Employment Agreements"
on page 11 above. Thus, the Board of Directors had no discretion in establishing
Mr. Jimirro's compensation in fiscal 1998.
Generally, Mr. Jimirro's employment agreement is structured to correlate
his compensation with Company performance over its seven year term. Mr. Jimirro
receives a base salary adjusted annually to offset inflation, as well as a
bonus. The bonus is based on a formula directly linking the amount paid to
Company's net income. Mr Jimirro is also eligible for any discretionary bonus
which the board may grant in its discretion.
COMPENSATION OF OTHER NAMED EXECUTIVE OFFICERS
The Board of Directors delegated to the CEO the authority to set the
compensation of the other executive officers. The current officers effected by
such policy are Rudy P. Patino and Duncan Murray.
Rudy P. Patino
Duncan Murray
9
<PAGE> 12
PERFORMANCE GRAPH
The following graph depicts the cumulative total return on the
Company's Common Stock compared to the cumulative total return for the Nasdaq
Composite Index and the Nasdaq Non-Financial Index. The graph assumes an
investment of $100.00 on July 31, 1993. Reinvestment of dividends is assumed in
all cases.
<TABLE>
<CAPTION>
J2 COMMUNICATIONS, NASDAQ STOCK MARKET NASDAQ STOCK MARKET
INC' (US COMPANIES) (NON-FINANCIAL) INDEX
<S> <C> <C> <C>
7/31/93 100.000 100.000 100.000
7/31/94 100.000 125.137 120.947
7/31/95 112.500 175.713 174.289
7/31/96 112.500 191.438 184.752
7/31/97 100.000 282.494 268.300
7/31/98 78.100 333.424 314.016
</TABLE>
CERTAIN TRANSACTIONS
Bruce P. Vann and the law firm of Kelly Lytton Mintz & Vann LLP, of
which he is a partner, performed services as attorneys for the Company. For the
fiscal year ended July 31, 1998, Kelly Lytton Mintz & Vann LLP earned
approximately $7,000. Mr. Vann is a director of the Company and, as such, he (or
his law firm) may receive additional compensation for services rendered to the
Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
its 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 subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose in this Proxy Statement
any failure to file by these dates during fiscal 1997. All of these filing
requirements were satisfied during fiscal 1997, other than filings relating to
automatic stock option grants which have not been formally issued or documented.
In making these disclosures, the Company has relied solely on the
representations of its directors and executive officers and copies of the
reports that they have filed with the Commission. With respect to any forms
which are necessary as a result of stock option grants, the Company and its
officers and directors will file these reports as soon as practicable.
ITEM 2
APPROVAL OF THE REVERSE STOCK SPLIT
On August 13, 1998, the Company received a letter from The NASDAQ Stock
Market, Inc. ("NASDAQ") regarding the Company's Common Stock having traded at
less than $1.00 per share for 30 consecutive trade dates. NASDAQ has given the
Company until November 13, 1998 to rectify the situation or, as of such date,
NASDAQ will delist the Company's Common Stock. In order to demonstrate
compliance with the listing requirement, the Company's Common Stock must close
at $1.00 or greater for ten (10) consecutive trading days on or before November
13, 1998.
The Company's Board of Directors, after considering the options
available to it, has determined that the best way to achieve the minimum $1.00
trading price for the Company's Common Stock is to amend the Company's Articles
of Incorporation to effect a 1 for 3 reverse stock split (the "Reverse Stock
Split"). The Board of Directors has unanimously approved and recommends that the
shareholders approve the Reverse Stock Split. The Reverse Stock Split will be
effected by the filing of a Certificate of Amendment of the Company's Articles
of Incorporation with the Secretary of State of California, the proposed form of
Amendment to effect the Reverse Stock Split is set forth as Appendix A to this
Proxy Statement.
10
<PAGE> 13
The Reverse Stock Split will result in the combination of each three
issued and outstanding shares of Company Common Stock into one share of Common
Stock. The Reverse Stock Split will not reduce the 15,000,000 authorized shares
of Common Stock, change the par value of the Common Stock or affect the number
of authorized shares of Preferred Stock. Based upon the 3,599,990 shares of
Common Stock outstanding on July 31, 1998, the Reverse Stock Split would
decrease the number of outstanding shares of Common Stock by sixty-six and
two-thirds percent (66 2/3%), resulting in approximately 1,199,997 shares of
Common Stock being outstanding after the split. The Reverse Stock Split will not
effect any shareholder's proportionate equity interest in the Company, or the
relative rights, preferences or priorities of any shareholder.
PURPOSES OF THE REVERSE SPLIT
The primary purposes underlying the unanimous determination by the Board
to effect the Reverse Stock Split include the following:
(1) A reduction in the number of issued and outstanding
shares of Common Stock will increase proportionately the Company's future
earnings per share, in the event such earnings are realized. Such an increase in
earnings per share, if any, may render its shares of Common Stock more
attractive to a broader group of investors or for issuance in connection with
future potential acquisitions by the Company's of other businesses or
properties. However, shareholders should be aware that a reduction in the number
of issued and outstanding shares of Common Stock resulting from the Reverse
Stock Split could increase proportionately the Company's losses per share if it
continues to sustain net losses in the future, with potentially adverse
consequences to the future market value of the shares of Common Stock.
(2) By reason of the Reverse Stock Split, the market value
of a share of Common Stock may increase to a level above the current market
value. Failure to maintain a bid price in excess of $1.00 per share could result
in the future delisting of the Company's Common Stock on The NASDAQ Small Cap
Market, which might adversely affect the trading in and liquidity of such
shares.
While the Board believes that the shares of Common Stock will, as a
result of the Reverse Stock Split, trade at higher prices than those which have
prevailed in recent fiscal quarters, there can be no assurance that such
increase in the market value will occur or, if such an increase occurs, that it
will equal or exceed the direct arithmetical result of the Reverse Stock Split
since there are numerous factors and contingencies which would effect such
value, including the status of the
market for the shares of Common Stock at the time, the Company's reported
results of operations in future fiscal periods and general stock market
conditions. THEREFORE, THERE CAN BE NO ASSURANCE THAT THE SHARES OF COMMON STOCK
WILL NOT, DESPITE THE REVERSE STOCK SPLIT, TRADE AT PRICES WHICH ARE LESS THAN
THE ARITHMETICAL EQUIVALENT SHARE PRICE RESULTING FROM THE REVERSE STOCK SPLIT.
11
<PAGE> 14
EXCHANGE OF STOCK CERTIFICATES
The exchange of shares of Common Stock will occur on the filing date of
the Amendment (the "Filing Date") without any action on the part of the
Company's shareholders and with out regard to the date or dates certificates
formerly representing shares of Common Stock are physically surrendered for
certificates representing the number of shares of Common Stock such shareholders
are entitled to receive as a result of the Reverse Stock Split. U. S. Stock
Transfer Corporation (the "Exchange Agent") will effectuate the exchange of
certificates.
As soon as practicable after the Filing Date, transmittal forms will be
mailed to each holder of record of certificates representing shares of Common
Stock to be used in forwarding their certificates for surrender and exchange for
certificates representing the number of shares of Common Stock such shareholders
are entitled to receive as a result of the Reverse Stock Split. After receipt of
such transmittal form, each such holder shall surrender the certificates
formerly representing shares of Common Stock of the Company and such holder will
receive in exchange therefor certificates representing the number of shares of
Common Stock to which such holder is entitled. These transmittal forms will be
accompanied by instructions specifying other details of the exchange.
Shareholders should not send in their certificates until they receive a
transmittal form.
No fractional shares of Common Stock will be issued as a result of the
Reverse Stock Split. In lieu of receiving fractional shares, shareholders who
hold a number of shares not evenly divisible immediately prior to the Reverse
Stock Split will be entitled to receive a whole share of Common Stock for any
fractional share at no additional cost. The number of shares of Common Stock to
be issued in connection with rounding up such fractional interests is not
expected by management of the Company to be material
FEDERAL INCOME TAX CONSEQUENCES
The following description of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practices as in effect on the date of this
Proxy Statement. This discussion is for general information only and does not
discuss consequences which may apply to special classes of taxpayers (e.g.,
nonresident aliens, broker-dealers, or insurance companies). Shareholders are
urged to consult their own tax advisors to determine the particular tax
consequences to them.
The Company has not sought and will not seek a ruling from the Internal
Revenue Service or an opinion of counsel regarding the federal tax consequences
of the Reverse Stock Split. However, the Company believes that because the
Reverse Stock Split is not part of a plan to periodically increase a
shareholders proportionate interest in the assets or earnings and profits of the
Company, the Reverse Stock Split should not result in recognition of gain or
loss, the holding period for the shares as well as the adjusted basis of the
shares will be the same.
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<PAGE> 15
VOTE REQUIRED; BOARD RECOMMENDATION
Assuming a quorum is present, the affirmative vote of a majority of the
shares of Common Stock represented in person or by proxy at the Special Meeting
and entitled to vote thereon is required to approve the Reverse Stock Split. THE
BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE AMENDMENT TO
THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Anderson LLP, independent certified public accountants, are the
auditors of the Corporation. It is not expected that representatives of Arthur
Andersen LLP will be present at the Special Meeting.
OTHER MATTERS
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be included in the Company's proxy
statement and form of proxy relating to, and to be presented at, the Annual
Meeting of Shareholders of the Company to be held in 1999 must be received by
the Company on or before January 29, 1999.
VOTING PROXIES
The enclosed proxy card confers authority to vote, in accordance with
the instructions contained in the proxy, with respect to the election of the
nominees for director specified in this Proxy Statement and the approval of the
Reverse Stock Split. The proxy will be voted in accordance with the choices
indicated thereon. If no specifications are made, proxies will be voted "FOR ALL
NOMINEES" for director, and "FOR" the approval of the Reverse Stock Split.
OTHER BUSINESS
The Board of Directors knows of no other business that will be
represented at the meeting. Should any other business come before the meeting,
it is the intention of the persons named in the enclosed proxy form to vote in
accordance with their best judgment.
By Order of the Board of Directors,
-----------------------------------------
Secretary
Los Angeles, California
____________, 1998
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<PAGE> 16
APPENDIX A
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
J2 COMMUNICATIONS
The undersigned, James Jimirro, the Chairman of the Board, President and
Chief Executive Officer, and Rudy Patino, the Secretary, of J2 Communication, a
corporation duly organized and existing under the laws of the State of
California (the "Company"), do hereby certify:
1. That they are the Chairman of the Board, President and Chief
Executive Officer and Secretary, respectively, of the Company.
2. The Board of Directors of the Company duly adopted a resolution
to amend the Restated Articles of Incorporation of the Company to effect a
one-for-three reverse stock split on the Common Stock and declaring the
advisability thereof.
3. At a Special Meeting of the Shareholders of the Company held on
October 21, 1998, a majority of the shares of the outstanding stock entitled to
vote thereon as a class, were voted in favor of such amendment in accordance
with Section 903 of the California Corporations Code.
4. Article IV of the Company's Restated Articles of Incorporation
is hereby amended to read in its entirety as follows:
"IV. Capital.
(a) The corporation is authorized to issue two (2) classes
of shares designated as "Preferred Stock" and "Common
Stock" respectively. The number of shares of Preferred
Stock authorized to be issued is 2 million (2,000,000)
and the number of shares of Common Stock authorized to
be issued is 15 million (15,000,000).
Upon a Certificate of Amendment to this Restated
Articles of Incorporation, as amended, becoming effective
pursuant to California General Corporations Law, and without any
further action on the part of the Company or its shareholders,
each three (3) shares of issued and outstanding shares of Common
Stock shall be combined into one (1) outstanding share of Common
Stock. Each shareholder who would otherwise be entitled to
receive a fractional share shall receive a whole share of Common
Stock at no additional cost.
A-1
<PAGE> 17
IN WITNESS WHEREOF, J2 Communications has caused this Certificate to be
executed by its President and Chief Executive Office and attested to by its
Secretary this ____ day of October 1998.
J2 COMMUNICATIONS
By:_______________________
James Jimirro, President
and Chief Executive Officer
ATTEST:
- ----------------------
Rudy Patino, Secretary
A-2
<PAGE> 18
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 21, 1998
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Rudy Patino and Duncan Murray, and each of
them, with full power of substitution, as proxies to represent the undersigned
and to vote all of the shares of Common Stock the undersigned is entitled to
vote at the Special Meeting of Shareholders of J2 Communications (the "Company")
to be held at the Company's offices at 10850 Wilshire Boulevard, Suite 1000, Los
Angeles, California, on Wednesday, October 21, 1998 at 10:00 A.M. (local time),
and at any adjournment, postponement or continuation thereof, as follows:
1. Election of four Directors.
[ ] FOR all nominees listed below (EXCEPT as marked to the contrary
below)
INSTRUCTIONS:To withhold authority to vote for any individual nominee,
strike a line through such nominee's name in the following
list:
James P. Jimirro, James Fellows, Bruce P. Vann and John De Simio.
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to approve the 1 for 3 Reverse Stock Split.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, or any other matters properly coming before the
meeting and any adjournment, postponement or continuation thereof.
<PAGE> 19
This proxy will be voted as directed. If this proxy card is properly signed
and returned but no directions are specified, this proxy will be voted FOR the
election of directors so as to elect the maximum number of the Board of
Directors' nominees that may be elected by cumulative voting and FOR Proposal 2.
This proxy card, if properly executed and delivered in a timely manner, will
revoke all prior proxies.
Dated , 1998
------------------------
Signature
------------------------
Signature
Please sign EXACTLY as
name or names appear
hereon. When signing as
attorney, executor,
trustee, administrator
or guardian, please give
your full title. If a
corporation, please sign
in full corporate name
by president or other
authorized officer. If a
partnership, please sign
in partnership name by
authorized person.
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
