SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
[Amendment No. ___]
Filed by the Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__ Preliminary Proxy Statement
__ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
X Definitive Proxy Statement
__ Definitive Additional Materials
__ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-
12
First Entertainment Holding Corp.
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(Name of Registrant as Specified in Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1. Title of each class of securities to which transaction
applies:
Not applicable
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2. Aggregate number of securities to which transaction
applies:
Not applicable
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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):
Not applicable
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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__ Fee paid previously with preliminary materials.
__ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1. Amount Previously Paid: Not applicable
2. Form, Schedule or Registration Statement No.: Not
applicable
3. Filing Party: Not applicable
4. Date Filed: Not applicable
FIRST ENTERTAINMENT HOLDING CORP.
5495 Marion Street
Denver, Colorado 80216
(303) 382-1500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held December 27, 2000
A Special Meeting of the shareholders of First Entertainment
Holding Corp. (the "Company") will be held on December 27, 2000 at
10:00 a.m. (Denver, Colorado time) at The Comedy Works, 1226 15th
Street, Denver, CO 80202, for the following purposes:
1. To elect four members of our Board of Directors;
2. To consider and vote upon a proposal recommended by the
Board of Directors to approve our 2000 Stock Option
Plan;
3. To consider and vote upon a proposal recommended by the
Board of Directors to amend our Articles Of
Incorporation to increase authorized common stock.
4. To consider and vote upon a proposal recommended by the
Board of Directors to amend our Articles Of
Incorporation to change our name to F2 Broadcast Network
Inc.;
5. To consider and vote upon a proposal recommended by the
Board of Directors to authorize the Board of Directors
to determine to effect a reverse stock split of our
outstanding common stock;
6. To ratify the selection of Gordon, Hughes & Banks, LLP
to serve as our independent certified accountants for
the fiscal year ending December 31, 2000; and
7. To transact any other business that properly may come
before the meeting.
Only the shareholders of record as shown on our transfer books
at the close of business on October 31, 2000 (the "Record Date") are
entitled to notice of, and to vote at, the shareholder meeting.
All shareholders, regardless of whether they expect to attend
the meeting in person, are requested to complete, date, sign and
return promptly the enclosed form of proxy in the accompanying
envelope (which requires no postage if mailed in the United States).
The person executing the proxy may revoke it by filing with our
Secretary an instrument of revocation or a duly executed proxy
bearing a later date, or by electing to vote in person at the
shareholder meeting.
ALL SHAREHOLDERS ARE EXTENDED A CORDIAL INVITATION TO ATTEND
THE SHAREHOLDER MEETING.
By order of the Board of Directors
HOWARD STERN
Chairman Of The Board and
Chief Executive Officer
Denver, Colorado
November 29, 2000
PROXY STATEMENT
FIRST ENTERTAINMENT HOLDING CORP.
5495 Marion Street
Denver, Colorado 80216
(303) 382-1500
SPECIAL MEETING OF SHAREHOLDERS
to be held December 27, 2000
This proxy statement is provided in connection with the
solicitation of proxies by the Board of Directors of First
Entertainment Holding Corp., a Nevada corporation (the "Company"), to
be voted at our special meeting of shareholders to be held at 10:00
a.m. (Denver, Colorado time) on December 27, 2000 at The Comedy
Works, 1226 15th Street, Denver, CO 80202, or at any adjournment or
postponement of the meeting. We anticipate that this proxy statement
and the accompanying form of proxy will be first mailed or given to
shareholders on or about November 29, 2000.
The shares represented by all proxies that are properly executed
and submitted will be voted at the meeting in accordance with the
instructions indicated on the proxies. Unless otherwise directed, the
shares represented by proxies will be voted "FOR" each of the
following proposals:
* the election of the four nominees for director whose names
are set forth on the proxy card;
* the approval of our 2000 Stock Option Plan;
* the amendment of our Articles Of Incorporation to increase
our authorized common stock;
* the amendment of our Articles Of Incorporation to change
our name to F2 Broadcast Network Inc.;
* the authorization of the Board of Directors to determine
to effect a reverse stock split at the time and at the
ratio that the Board deems appropriate; and
* the ratification of the selection of Gordon, Hughes &
Banks, LLP as our independent auditors, as described in
this proxy statement.
A majority of the issued and outstanding shares of the common
stock entitled to vote, represented either in person or by proxy,
constitutes a quorum at any meeting of the shareholders.
A shareholder giving a proxy may revoke it at any time before it
is exercised by delivering written notice of revocation to our
Secretary, by substituting a new proxy executed at a later date, or by
requesting, in person at the special meeting, that the proxy be
returned.
The solicitation of proxies is to be made principally by mail;
however, following the original solicitation, further solicitations
may be made by telephone or oral communication with shareholders. Our
officers, directors and employees may solicit proxies, but without
compensation for that solicitation other than their regular
compensation as employees. Arrangements also will be made with
brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to beneficial owners of the shares held
of record by those persons. We may reimburse those persons for
reasonable out-of-pocket expenses incurred by them in so doing. All
expenses involved in preparing, assembling and mailing this proxy
statement and the enclosed material will be paid by us.
RECENT DEVELOPMENTS
On November 13, 2000, the Company entered into a letter of
intent with BusyBox.com, Inc. ("BusyBox"). The letter of intent
contemplates that the Company and BusyBox will enter into a definitive
agreement providing for BusyBox to acquire all the outstanding shares
of the Company through a tax-free merger transaction. If the total
indebtedness of the Company exceeds the current assets of the Company
by less than $2 million, and the total indebtedness is not more than
$2.5 million, BusyBox shall exchange $3,500,000 of BusyBox stock for
all the outstanding shares of the Company. The number of shares of
BusyBox stock to be issued shall be based on the average of the
closing bid price of the Nasdaq Stock Market for the 10 trading days
prior to the closing, provided however that the number of BusyBox
shares shall not be less than 700,000 shares. An additional $4
million of BusyBox stock may be issued over the five years following
the acquisition if certain net operating profit amounts are realized
or achieved. The proposed acquisition is subject to a number of
factors, including entering into a definitive agreement, completion of
both parties' due diligence review, obtaining all government and
material third-party consents and approvals, and obtaining the
approval of the stockholders of both parties. The Company will seek
the approval of its stockholders pursuant to a proxy statement after a
definitive agreement is reached, if at all, with BusyBox.
On October 30, 2000, the Company filed with the Securities And
Exchange Commission (the "SEC") a preliminary proxy statement
regarding the shareholders meeting. On November 15, 2000, the Company
filed a Quarterly Report on Form 10-QSB regarding the period ended
September 30, 2000 which reported, among other things, the following:
gross revenues for the three and nine months ended September 30, 2000
of $742,468 and $2,131,403, respectively; net losses for each period
of $(1,501,489) and $(5,178,605), respectively; and an accumulated
deficit in stockholders' equity of $(24,188,018) at September 30,
2000.
A copy of the September 30, 2000 Form 10-QSB and other reports
filed by the Company with the SEC can be found at the SEC's website
located at http://www.sec.gov. See also the section entitled
"Incorporation By Reference", below.
1. ELECTION OF DIRECTORS
At the special meeting, the shareholders will elect four members
of the Board of Directors. Each director will be elected to hold
office until the next meeting of shareholders and thereafter until his
successor is elected and has qualified. The affirmative vote of a
majority of the shares represented at the meeting is required to elect
each director. Cumulative voting is not permitted in the election of
directors. Consequently, each shareholder is entitled to one vote for
each share of common stock held in his or her name. In the absence of
instructions to the contrary, the persons named in the accompanying
proxy shall vote the shares represented by that proxy for the persons
named below as management's nominees for directors. Each of the
nominees currently is a director.
Each of the nominees has consented to be named in this proxy
statement and to serve on the Board if elected. It is not anticipated
that any nominee will become unable or unwilling to accept nomination
or election, but, if that should occur, the persons named in the proxy
intend to vote for the election of such other person as the Board of
Directors may recommend.
The following table sets forth, with respect to each nominee for
director, the nominee's age, his positions and offices with the
Company, the expiration of his term as a director, and the year in
which he first became a director of the Company. Individual
background information concerning each of the nominees follows the
table. For additional information concerning the nominees for
director, including stock ownership and compensation, see "Executive
Compensation" and "Stock Ownership Of Directors And Principal
Shareholders".
<TABLE>
Position Expiration
with the of Term as Initial Date
Name Age Company Director as Director
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Howard Stern 44 Chief Next February 1999
Executive Shareholder
Officer; Meeting
Secretary;
Treasurer;
And Director
Douglas R. Olson 51 Director Next February 1999
Shareholder
Meeting
William Rubin 38 Director Next November 1998
Shareholder
Meeting
Michael Marsowicz 36 Chief Next August 1999
Technology Shareholder
Officer; Meeting
and Director
</TABLE>
Howard Stern has served as a Director since February 1999, as
Chairman of the Board since August 1999, as our Chief Executive
Officer since November 1999, and as our Secretary and Treasurer
since October 2000. He has been in the life insurance business
since his junior year in college at the University of Pittsburgh in
1975.
From July 1993 until October 1998, Mr. Stern was employed in
various capacities by The New York Life Insurance Company. He was a
registered representative, Council Vice President in 1996 and
Council President in 1998. While at New York Life, Mr. Stern was
responsible for a variety of sales, training and administrative
duties and was active in product development.
In October 1998, Mr. Stern started and was employed by H.
Stern Consulting as a consultant providing consulting, training and
seminars for the insurance industry. He also signed a Career Agent's
contract with MassMutual Life Insurance Company and was involved in
selling registered and non-registered products.
Mr. Stern has served as a consultant to several life insurance
companies, both domestically and abroad, on the development of
Variable Products marketing and training, and has been a featured
speaker at industry functions. He is a member of the Advanced
Association of Life Underwriters, National Association of Life
Underwriters, Broward County Life Underwriters, and a member of the
American Society of Chartered Life Underwriters.
Mr. Stern has been a panel member of the National Association
of Securities Dealers Arbitration Board. He has been licensed in 20
states for the sale of Life Insurance and Variable Products and also
has been approved insurance continuing education instructor in 48
states and in 1998 taught 8 classes nationally for the American
College.
Douglas Olson has served as a director since February 1999, as
President from August 1999 to October 2000, and as Chief Operating
Officer from November 1999 to October 2000. Mr. Olson previously
served as our President and a director from March 1993 to February
1995 and as Chief Executive Officer from August 1999 until November
1999. From February 1995 through July 1, 2000, Mr. Olson was the
President and owner of Creative Business Services, Inc., which
provides accounting and management information services. We
outsource our accounting function to Creative Business Services,
Inc.
William "Bill" Rubin has served as a director since November
1998. He has been a commercial loan officer for Enterprise Social
Investment Corporation since 1992, and has served as a vice
president with various financial institutions. Mr. Rubin's
responsibilities included underwriting and originating construction
and real estate current employment loans, workout and restructuring
of real estate loans, and management of loan portfolios in excess of
$150 million. Mr. Rubin earned a BBA in Finance and Accounting from
Southern Methodist University in 1983. Mr. Rubin serves as a
director for Assets Management.
Michael Marsowicz has served as our Chief Technology Officer
since July 1999 and as a director since August 1999. During 1998
and 1999, Mr. Marsowicz served as Chief Technology Officer for
Maxnet, Inc., Virtual Financial Holdings, and the Presentation
Network, all of which were involved in the technology industry.
From 1995 until 1998, Mr. Marsowicz was the Chief Technology Officer
of Net Health Care. Mr. Marsowicz previously served in technical
support positions at New York Life from 1993 until 1995.
No family relationship exists between or among any of the
persons named above. None of our directors are directors of any
other company that has a class of equity securities registered
under, or required to file reports pursuant to, Section 15(d) of the
Securities Act of 1933 or Section 12 of the Securities Exchange Act
of 1934, or any company registered as an investment company under
the Investment Company Act of 1940. There are no arrangements or
understandings between any of the named directors or officers and
any other persons pursuant to which any director or officer was
selected or nominated as a director or officer.
Certain Committees
The Board of Directors has delegated certain of its functions to
committees, including an Audit Committee, a Compensation Committee and
a Nominating Committee.
The Audit Committee performs the following functions:
recommending to the Board of Directors the independent auditors to be
employed; discussing the scope of the independent auditors'
examination; reviewing the financial statements and the independent
auditors' report; soliciting recommendations from the independent
auditors regarding internal controls and other matters; establishing
guidelines for the Board of Directors to review related party
transactions for potential conflicts of interest; making recommenda
tions to the Board of Directors; and performing other related tasks as
requested by the Board. During 1999, the Audit Committee, consisting
of Messrs. Stern and Rubin, did not meet.
The Compensation Committee has the authority to establish
policies concerning compensation and employee benefits. The
Compensation Committee reviews and makes recommendations concerning
the compensation policies and the implementation of those policies
and determines compensation and benefits for executive officers.
During 1999, the Compensation Committee, consisting of Messrs. Stern,
Olson and Rubin, met one time and took action by written consent 19
times.
The Nominating Committee considers and recommends candidates for
election to the Board. The Nominating Committee will consider
suggestions from shareholders regarding possible director candidates.
These suggestions, together with appropriate biographical information,
should be submitted to the Secretary of the Company. During 1999, the
Nominating Committee, consisting of Messrs. Stern and Rubin, met one
time.
During 1999, the Board of Directors met 13 times and took action
by written consent eight times. Each director participated in at
least 75 percent of the total number meetings and actions by written
consent of the Board of Directors and of all committees of the Board
of Directors on which that director served during 1999.
Audit Committee Report
In connection with the preparation of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999, the
members of the Audit Committee reviewed and discussed the audited
financial statements included in that report with management. In
addition, the members of the committee discussed with the
independent auditors the matters required to be discussed by SAS 61.
The members of the audit committee also received the written
disclosures and the letter from the Company's independent auditors
required by ISB Standard No. 1 and discussed with the auditors the
auditors' independence.
The Audit Committee
Howard Stern
William Rubin
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our
common stock to file with the SEC initial reports of ownership and
reports of changes of ownership of common stock and other of our
equity securities. We believe that during the year ended December
31, 1999, our officers, directors, and holders of more than 10% of
our common stock complied with all Section 16(a) filing
requirements. In making these statements, we have relied upon our
review of the monthly statements of changes filed with us by our
officers and directors.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the
compensation received during each of the last three completed years
by our current and former Chief Executive Officers (the "Named
Executive Officers"). No executive officer's compensation exceeded
$100,000 during the year ended December 31, 1999. The figures in
the following table are for fiscal years ended December 31, 1999,
1998, and 1997:
Summary Compensation Table
<TABLE>
Name and Fiscal Salary Bonus Other Annual
Principal Position Year ($) ($)(1) Compensation
($)(2)
<S> <C> <C> <C> <C>
Abraham B. Goldberg(6) 1999 - -0- $97,500
Former Chairman of the 1998 $14,500 -0- $47,500
Board, former President, 1997 $24,000 -0- $47,500(8)
former Chief Executive
Officer, and a director
--------------------------------------------------------------------------------
Howard Stern, Chief 1999 $12,500 - -
Executive Officer, 1998 - - -
Secretary, Treasurer, 1997 - - -
and a director
--------------------------------------------------------------------------------
Douglas Olson, 1999 $12,000 - -
Director 1998 - - -
1997 - - -
</TABLE>
<TABLE>
Long Term Compensation
Awards Payouts
Name Restricted Securities LTIP All Other
Principal Position Stock Underlying Payouts Compensation
Awards(s) Options/SARs ($)(4) ($)(5)
($) (#)(3)
<S> <C> <C> <C> <C>
Abraham B. Goldberg(6) -0- -0- -0- -0-
Former Chairman of the $76,500 -0- -0- $47,550
Board, former President, -0- -0- -0- $84,000
Former Chief Executive
Officer, and a director
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Howard Stern, Chief -0- -0- -0- $75,000
Executive Officer, -0- -0- -0- -0-
Secretary, Treasurer, -0- -0- -0- -0
and a director
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Douglas Olson, -0- -0- -0- $84,000(9)
Director -0- -0- -0- $85,250(9)
-0- -0- -0- $90,323(9)
</TABLE>
(1) The dollar value of bonus (cash and non-cash) paid during the
year indicated.
(2) Consists of compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits,
securities or property.
(3) The sum of the number of shares of common stock to be received
upon the exercise of all stock options granted.
(4) We do not have in effect any plan that is intended to serve as
incentive for performance to occur over a period longer than
one fiscal year.
(5) The amounts shown in this column represent amounts that are
alleged by the SEC to be compensation for Mr. Goldberg in a
lawsuit filed against Mr. Goldberg and the Company in August
1999. This lawsuit is described in the "Legal Proceedings"
section of our Form 10-KSB for the year ended December 31,
1999. The amounts alleged by the SEC to constitute
compensation include the following: (a) a total of $148,300
alleged to have been paid by Creative Business to Munchkintown,
a company owned by Mr. Goldberg's wife, including approximately
$30,000 alleged to have been paid in 1995, approximately
$72,000 alleged to have been paid in 1996, and approximately
$46,300 alleged to have been paid in 1997, and (b) payments
alleged to have been made by Michael Payne to Mr. Goldberg
through Munchkintown of $42,300 in May 1995 and $21,671 made in
July 1995. Other amounts alleged to have been paid to Mr.
Goldberg in the SEC complaint are included under the headings
"Other Annual Compensation" and "Restricted Stock Awards" and
are described in footnotes (7) and (8), respectively, below.
In addition to the amounts shown in the above table, the SEC
alleged in its complaint that the Company failed to disclose as
compensation total payments of $73,971.25 from Michael Payne to
Mr. Goldberg through Munchkintown in 1995 and a payment of
$1,500 to Mr. Goldberg through Munchkintown by Foremont, Inc.
in 1995.
(6) Mr. Goldberg resigned from his positions as President, Chief
Executive Officer and Chairman Of The Board on August 9, 1999.
At that time, Douglas Olson was elected President and Chief
Executive Officer and Howard Stern was elected as Chairman Of
The Board. Mr. Stern was elected as Chief Executive Officer in
November 1999.
(7) Consists of the value of common stock transferred to NMG, LLC,
which is owned by Mr. Goldberg's wife. See below "-Certain
Relationships And Related Transactions".
(8) Includes payments to Mr. Goldberg's wife and an entity owned by
Mr. Goldberg's wife in the amount of $5,500 for 1997. See
below, "-Certain Relationships And Related Transactions".
(9) Consists of salary received from Creative Business Services,
Inc. See below, "-Certain Relationships And Related
Transactions".
As of December 31, 1999, we had no group life, health,
hospitalization, medical reimbursement or relocation plans in effect
which discriminate, in scope, terms, or operation, in favor of our
officers or directors and that are not generally available to all
salaried employees. Further, we have no pension plans or plans or
agreements which provide compensation in the event of termination of
employment or change in control.
Option Grants Table
The following table sets forth information concerning
individual grants of stock options made during the fiscal year ended
December 31, 1999 to each Named Executive Officer. For further
information regarding these options, please refer to the section
entitled "-Option Grants And Cancellations", below
<TABLE>
% of Total
Shares Options Closing
Underlying Granted to Exercise Market
Options Employees or Base Price on Expiration
Name Granted (#) in Fiscal Year Price ($/Share) Date of Grant Date
<S> <C> <C> <C> <C> <C>
Abraham B. 2,250,000 31.7% (1) (1) (1)
Goldberg
Howard 1,200,000 16.9% (2) (2) (2)
Stern
Douglas 1,200,000 16.9% (3) (3) (3)
Olson
</TABLE>
(1) The options issued to Mr. Goldberg during 1999, which options
the Company attempted to cancel as described below in "-Option
Grants And Cancellations", consist of the following:
<TABLE>
Closing
Shares Market
Underlying Exercise Price on Expiration
Date of Grant Options Price Date of Grant Date
<S> <C> <C> <C> <C>
3/11/99 1,000,000 $ .21 $ .37 3/11/02
3/18/99 500,000 $ .53 $ .56 3/18/02
5/12/99 750,000 $1.34 $1.34 1/1/05
</TABLE>
(2) The options issued to Mr. Stern during 1999, which options
were cancelled as described below in "-Option Grants And
Cancellations", consist of the following:
<TABLE>
Closing
Shares Market
Underlying Exercise Price on Expiration
Date of Grant Options Price Date of Grant Date
<S> <C> <C> <C> <C>
3/11/99 250,000 $ .21 $ .37 3/11/02
3/18/99 200,000 $ .53 $ .56 3/18/02
5/12/99 750,000 $1.34 $1.34 1/1/05
</TABLE>
(3) The options issued to Mr. Olson during 1999, which options
were cancelled as described below in "-Option Grants and
Cancellations", consist of the following:
<TABLE>
Closing
Shares Market
Underlying Exercise Price on Expiration
Date of Grant Options Price Date of Grant Date
<S> <C> <C> <C> <C>
3/11/99 250,000 $ .21 $ .37 3/11/02
3/18/99 200,000 $ .53 $ .56 3/18/02
5/12/99 750,000 $1.34 $1.34 1/1/05
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table
The following table indicates exercises of stock options during
the fiscal year ended December 31, 1999 by the Named Executive
Officers, and also sets forth information concerning the fiscal year-
end value of unexercised options held by each Named Executive
Officer.
Aggregated Option Exercises
For Fiscal Year Ended December 31, 1999
And Year-End Option Values
<TABLE>
Number of Value of
Shares Unexercised Unexercised
Acquired Value Options In-The-Money
On Exercise Realized at Fiscal Options at Fiscal
Name (#)(1) ($)(2) Year-End (#) Year-End ($) (3)
<S> <C> <C> <C> <C>
Abraham B. 100,000 $275,875 900,000 (4) $384,750
Goldberg
Howard Stern 100,000 $148,553 775,000 (5) $10,688 (5)
Douglas Olson 100,000 $152,435 775,000 (5) $10,688 (5)
</TABLE>
---------------
(1) The number of shares received upon exercise of options during
the fiscal year ended December 31, 1999.
(2) With respect to options exercised during the Company's fiscal
year ended December 31, 1999, the dollar value of the
difference between (A) the exercise price of the option, and
(B) the market value of the option shares purchased on the date
of the exercise of the options as determined by averaging the
high and low prices for the Common Stock on that date as
reported on the OTC Bulletin Board.
(3) For all unexercised options held as of December 31, 1999, the
aggregate dollar value of the excess is the market value of the
stock underlying those options over the exercise price of those
unexercised options. For purposes of this table, the market
value used for the Common Stock is the average of the high and
low prices for the Common Stock on that date as reported on the
OTC Bulletin Board.
(4) Consists of options to purchase 900,000 shares for $.21 per
share as claimed by Mr. Goldberg as of December 31, 1999 as
reported on a Form 5 Annual Statement Of Beneficial Ownership
Of Securities filed by Mr. Goldberg with the SEC on February
14, 2000. As described below under "-Option Grants And
Cancellations", the Company has attempted to cancel all but
250,000 of the nonexercised options previously granted to Mr.
Goldberg.
(5) Includes options to purchase 750,000 shares for $1.34 per share
until January 1, 2005, with 250,000 of the options vesting on
each of January 1, 2000, 2001 and 2002 if the Named Executive
Officer is a director on those dates. These options
subsequently were cancelled as described below in "-Option
Grants And Cancellations". On December 31, 1999, these options
had no value because they were not yet vested and because their
exercise price was in excess of the average of the high and low
prices for the Common Stock on that date. Also includes options
to purchase 25,000 shares for $.21 per share until March 11,
2002. These options also were subsequently cancelled as
described in "-Option Grants And Cancellations".
Employee Retirement Plans, Long-Term Incentive Plans, and Pension
Plans
Other than our stock option plans, we have no employee
retirement plan, pension plan, or long-term incentive plan to serve
as incentive for performance to occur over a period longer than one
fiscal year.
Compensation of Directors
During the year ended December 31, 1999, no compensation was
paid to our directors except for option grants described below under
"-Option Grants And Cancellations". We reimburse directors for out-
of-pocket expenses incurred by them in connection with our business.
Employment Contracts And Termination Of Employment And Change-In-
Control Arrangements
We do not have any written employment contracts with any of
our officers or other employees. We have no compensatory plan or
arrangement that results or will result from the resignation,
retirement, or any other termination of an executive officer's
employment or from a change-in-control or a change in an executive
officer's responsibilities following a change-in-control. However,
prior to their termination on September 15, 2000, certain options
would have become exercisable immediately upon the occurrence of a
change-in-control of the Company. See below, "-Option Grants And
Cancellations".
Option Grants And Cancellations
On March 11, 1999, we issued options to our directors and some
consultants to purchase an aggregate of 1,000,000 shares of common
stock at $.21 per share until March 11, 2002, all of which vested
immediately. In addition, contingent options for a total of 950,000
shares at an exercise price of $.21 per share were issued on March
11, 1999 to directors subject to an internet gaming licensing
agreement being executed with Starnet Communications and a
definitive software licensing agreement being executed with Global
Games Holdings. These agreements subsequently were executed and the
options vested. Total options earned from the March 11, 1999
issuances are as follows:
* A.B. Goldberg - 1,000,000
* Douglas Olson - 250,000
* Howard Stern - 250,000
* William Rubin - 250,000
On September 14, 1999, the Board of Directors determined to
reduce the number of shares that may be purchased pursuant to these
options granted to our directors by 875,000. Mr. Goldberg opposed
this resolution of the Board. Mr. Goldberg's counsel has stated
that it is Mr. Goldberg's position that we do not have the right to
cancel options previously issued to Mr. Goldberg without Mr.
Goldberg's concurrence and that Mr. Goldberg does not intend to
agree to relinquish those options. On November 17, 1999, the Board
clarified its option cancellation of September 14, 1999 based on the
fact that both of the agreements for which the cancelled options had
been granted either had been or would be cancelled without having
resulted in any business for the Company. The cancellation of the
agreements resulted from the Board's learning that the purported
products being acquired were not completed or otherwise in the form
represented by Mr. Goldberg to the Board. Mr. Goldberg's counsel
also objected to and denied the effectiveness of this action. In
October 1999, a committee of the Board, based on information
contained in the SEC's complaint described above in footnote (5) to
the Summary Compensation Table that was not available to the Board
in March 1999, cancelled the remainder of the options that had been
granted to Mr. Goldberg in March 1999. The information contained in
the complaint that was not known to the Board prior to its having
received the SEC complaint included allegations of payments to Mr.
Goldberg, his wife and others. See below, "-Certain Relationships
And Related Transactions".
At the meeting of the Board of Directors held on March 18,
1999, the Board approved the issuance of options to purchase common
stock for each of our directors, as well as a consultant to the
Company. Options to purchase an aggregate of 1,200,000 shares were
issued and were originally exercisable at a price of $.53 per share
until March 18, 2002. The options were contingent upon our common
stock trading at a price of at least $1 per share on December 31,
1999. In September 1999, the Board determined to cancel all these
options. Mr. Goldberg opposed this resolution of the Board. Mr.
Goldberg's counsel has stated that it is Mr. Goldberg's position
that the Company did not have the right to cancel options previously
issued to Mr. Goldberg without Mr. Goldberg's concurrence and that
Mr. Goldberg did not intend to agree to relinquish those options.
Our common stock did not trade at a price of at least $1 per share
on December 31, 1999 and all these options thus terminated by their
terms even if the Board's cancellation was not effective.
On May 12, 1999, we granted options to purchase 750,000 shares
to each of our directors. 250,000 of these options become
exercisable on each of January 1, 2000, 2001 and 2002 if the
recipient continues to be a director on those respective dates.
These options are exercisable at a price of $1.34 per share until
January 1, 2005. In July 1999, the Board agreed that the 250,000
options issued to Mr. Goldberg that were to become exercisable on
January 1, 2000 would become exercisable immediately. In October
1999, a committee of the Board, based on information contained in
the SEC's complaint described above in footnote (5) to the Summary
Compensation Table that was not available to the Board in July 1999,
determined that the options to purchase 250,000 shares that were
allowed to vest in July 1999 should not have been allowed to vest.
Because Mr. Goldberg was a director on January 1, 2000, these
options currently are treated by the Company as having vested on
January 1, 2000. See below, "-Certain Relationships And Related
Transactions". On January 4, 2000, we cancelled the options granted
to non-employee directors in May 1999 in exchange for options to
purchase 50,000 shares until January 4, 2003. The new options are
exercisable at $.61 per share, which was the closing bid price on
the date of grant. Mr. Rubin and Mr. Puccio agreed to this
exchange. Mr. Goldberg has not agreed.
Also on January 4, 2000, we approved grants of options to
purchase 250,000 shares for $.61 per share to each officer who also
is a director in exchange for the cancellation of the options
granted in May 1999. The recipients of these options were Howard
Stern, Douglas Olson and Michael Marsowicz, all of whom agreed to
this exchange. These options expire on January 4, 2005. These
options become exercisable as follows:
Shares Becoming Exercisable Triggering Event
50,000 When the average closing price of the
common stock is at least $2.25 for 10
consecutive business days.
75,000 When the Company achieves annual
revenues of $4.25 million.
125,000 When the Company achieves earnings per
share of $.05.
Also on January 4, 2000, we approved grants of options to
purchase 187,500 shares for $.61 per share to each of Daniel
Stansky, our former Chief Financial Officer, and Robert Fuchs, our
marketing director. With the exception of Mr. Stansky's options,
which expired upon the termination of his employment on April 3,
2000, these options expire on January 4, 2005. These options are
exercisable as follows:
Shares Becoming Exercisable Triggering Event
37,500 When the average closing price of the
common stock is at least $2.25 for 10
consecutive business days.
56,250 When the Company achieves annual
revenues of $4.25 million.
93,750 When the Company achieves earnings per
share of $.05.
On January 4, 2000, we also rescinded option grants previously
made in July 1999 to Wende Curtis, our Secretary at that time, and
another employee. The rescinded options were each for 25,000 shares
at $1.59 per share until July 1, 2004. These options were replaced
with new options to purchase 50,000 shares for $.61 per share for
three years.
All the Board actions concerning the options that we
terminated and replaced in January 2000 were made with the
acceptance of the option holders, except that Mr. Goldberg objects
to termination of any options issued to him.
On January 4, 2000, we approved options for our officers that
become exercisable only in the event of a change-in-control of the
Company. These options are exercisable for $.61 per share, which
was the closing bid price for our common stock on January 4, 2000.
These options were granted as follows:
* Howard Stern - 750,000
* Douglas Olson - 750,000
* Michael Marsowicz - 750,000
* Daniel Stansky - 562,500
* Robert Fuchs - 562,500
On January 25, 2000, we approved grants of options as follows:
* Howard Stern - 75,000
* Douglas Olson - 75,000
* Michael Marsowicz - 75,000
* Daniel Stansky - 56,250
* Robert Fuchs - 56,250
These options are exercisable until January 25, 2005. The
exercise price for these options is $1.33 per share, which was the
closing bid price for the common stock on January 25, 2000. These
options become exercisable only if our common stock trades at a
price of $4.50 or higher for 10 consecutive business days between
January 25, 2000 and July 1, 2001. The options granted to Mr.
Stansky expired upon the termination of his employment in April
2000.
Also on January 25, 2000, we approved the grant of options to
purchase 25,000 shares to William Rubin, an outside director. These
options become exercisable at the rate of 6,250 shares per quarter
during 2000. The exercise price is $1.33 per share.
The Board's decision to cancel options and issue other options
as described above was based on a determination, for the reasons
described above, that the Company did not receive sufficient value
to justify the original grant of the options that were cancelled or
that the options no longer provided incentive to the option holders
due to the high exercise price of the options relative to the
trading price of the common stock at that time. The new options
were granted subject to vesting terms that the Board believed
provided more incentive for the performance of the recipients of
those options and more closely aligned the interests of the
recipients with our shareholders.
All the options described in the foregoing section entitled "-
Option Grants And Cancellations" which were held by each of Messrs.
Stern, Olson, Marsowicz and Fuchs on September 15, 2000 have been
relinquished by those persons so that each may participate in the
Company's 2000 Management Compensation Plan described below in "-
Cancellation And Reissuance Of Options In September 2000".
Cancellation And Reissuance Of Options In September 2000
On September 15, 2000, the Board of Directors determined that
the outstanding options held by officers and directors no longer
provided incentive due to the high exercise price of the options
relative to the trading price of the common stock at that time. The
Board then enacted the 2000 Management Compensation Plan to
compensate directors, officers and consultants and to provide
incentives for those persons in acting on behalf of the Company. In
order to participate in the Management Compensation Plan, officers
and consultants were required to relinquish any options previously
granted to them except that Mr. Marsowicz was not required to
relinquish options he received as consideration for the sale to the
Company of his interest in All That Media, Inc. See below "-Certain
Relationships And Related Party Transactions". Options to purchase
common stock have been issued pursuant to the Management
Compensation Plan, and shares of common stock were authorized to be
issued, to the following persons in the respective amounts
indicated:
<TABLE>
Recipient Shares To Be Issued Initial Options Granted
<S> <C> <C>
Howard Stern 2,500,000 1,250,000
Douglas Olson 2,500,000 1,250,000
Michael Marsowicz 2,500,000 1,250,000
Duane Knight 1,000,000 500,000
Ronald Ratner 1,000,000 500,000
Robert Fuchs 500,000 250,000
-----------------------------------------------------
10,000,000 5,000,000
</TABLE>
All recipients of shares and options under the Management
Compensation Plan were officers and employees at the time of grant
except for Mr. Knight, a consultant providing accounting and
administrative services. The options are exercisable at a price of
$.08 per share until September 15, 2005. The closing sales price
for the common stock on September 15, 2000 was $.08. The options
are exercisable 25% immediately and 25% on each of the first three
anniversaries of the date of grant provided that the recipient
continues to be a director, officer, employee or consultant at that
respective time. In addition, the options provide that when the
last sales price for the common stock is at least $.16 per share for
three consecutive trading days, the option holder may elect to
exchange each option exercisable at $.08 per share for two options
exercisable at $.16 per share. Similarly, the option holder may
exchange each of his options for two options to purchase one share
of common stock each at $.32 per share at such time as the last
sales price for the common stock is at least $.32 per share for
three consecutive trading days. If these price levels are attained
and if all the recipients of the initial options to purchase
5,000,000 shares of common stock elect to exchange them for options
exercisable at each of the higher prices, options to purchase a
total of 20,000,000 shares would be outstanding at an exercise price
of $.32 per share.
Participants will not be issued the shares authorized by the
Management Compensation Plan, and the Participants may not exercise
the options granted pursuant to the Management Compensation Plan,
unless either our authorized capital is increased to at least
75,000,000 shares of common stock or the Board otherwise determines
that the Company's authorized capital, assuming issuance of the
shares and exercise of options granted pursuant to the Management
Compensation Plan, is sufficient to satisfy the Company's needs.
Stockholder approval of an increase in authorized capital to
250,000,000 shares is being sought at the special meeting for which
this proxy statement is being distributed. See, "3. Proposal To
Amend The Company's Articles Of Incorporation To Increase Authorized
Common Stock."
Stock Ownership of Directors and Principal Shareholders
As of September 30, 2000, a total of 35,796,327 shares of our
common stock were issued and outstanding. Each share of common
stock is entitled to one vote at the meeting. The following table
sets forth information regarding ownership of the common stock as of
September 30, 2000 by: (1) each person known by us to be the
beneficial owner of more than 5 percent of the outstanding common
stock; (2) each director; and (3) all executive officers and
directors as a group.
<TABLE>
Name and Address Beneficial Ownership (1) Percent of Class
<S> <C> <C>
Doug Olson 4,509,369 12.2%
5495 Marion Street (2)
Denver, CO 80216
Howard Stern 4,732,447 12.8%
500 Corporate Drive, (2)
Suite 200
Ft. Lauderdale,
FL 33334-3603
William Rubin 400,000 1.1%
313 East Fort Ave. (3)
Baltimore, MD 21230
Michael Marsowicz 4,427,299 11.8%
2500 E. Hallandale (2) (4)
Beach Blvd.
Hallandale, FL 33009
Officers and Directors
as a Group
(five persons) 14,069,115 35.0%
(2)(3)(4)
</TABLE>
--------------------
(1) "Beneficial Ownership" is defined in the regulations
promulgated by the U.S. Securities and Exchange Commission as
having or sharing, directly or indirectly (i) voting power,
which includes the power to vote or to direct the voting, or
(ii) investment power, which includes the power to dispose or
to direct the disposition, of shares of the common stock of an
issuer. The definition of beneficial ownership includes
shares underlying options or warrants to purchase common
stock, or other securities convertible into common stock, that
currently are exercisable or convertible or that will become
exercisable or convertible within 60 days. Unless otherwise
indicated, the beneficial owner has sole voting and investment
power.
(2) Assumes: (a) all contingencies described above in "-
Cancellation And Reissuance Of Options In September 2000" are
satisfied and the 2,500,000 shares authorized to be issued to
the named security holder are issued, and (b) the named
security holder exchanges all options held by him on the date
each threshold regarding the last sales price of the common
stock is reached for twice as many options exercisable at the
higher price. As described above in "-Cancellation And
Reissuance Of Options In September 2000", only 25 percent of
options granted pursuant to the Management Compensation plan
are exercisable on the date of grant. Therefore, the figure
in the table above includes 1,250,000 shares issuable upon the
exercise of options to purchase up to 1,250,000 shares of
common stock until September 15, 2005, which number of options
represents 25 percent of the total number of options which may
be required to be issued to the named security holder pursuant
to the Management Compensation Plan and which will be
exercisable on the date of grant. Each potential holder of
these options has agreed to refrain from exercising any of
these options until the Company has increased its authorized
number of shares of common stock to at least 75 million or the
Board otherwise determines that the Company's authorized
capital, assuming exercise of these options, is sufficient to
satisfy the Company's needs. See above, "-Cancellation And
Reissuance Of Options In September 2000".
(3) Includes options to purchase 125,000 shares for $.21 per share
until March 11, 2002; options to purchase 50,000 shares for
$.61 per share until January 4, 2003; and options to purchase
an additional 25,000 shares for $1.33 per share until January
25, 2005.
(4) Includes options to purchase 500,000 shares for $.75 per share
until October 10, 2001. Mr. Marsowicz has agreed to refrain
from exercising any of his options until the Company has
increased its authorized number of shares of common stock to
at least 75 million or the Board otherwise determines that the
Company's authorized capital, assuming exercise of these
options described above in footnote (2), is sufficient to
satisfy the Company's needs.
Certain Relationships And Related Transactions
Commencing April 1995, we contracted out substantially all our
administrative, management and accounting functions to Creative
Business Services, Inc. Through May 25, 2000, Creative Business was
wholly-owned by Douglas R. Olson, a director. Effective May 25,
2000, he sold the business to his sister. Monthly fees for those
services were $21,000 for the period January 1, 1997 through August
31, 1998, and thereafter the fees were reduced to $14,000 per month
through July 1999. Commencing August 1999, the fees were increased
to $21,000 per month due to our increased activities. These are
paid in cash or shares of common stock based on market prices.
Total annual fees paid by cash and by the issuance of common stock
for 1999 and 1998 were $225,000 and $252,000, respectively, with the
1999 figure consisting of 250,500 shares of common stock (of which
33,500 were unsold as of December 31, 1999) and $41,386 cash and the
1998 figure consisting of 339,766 shares and $37,526 in cash.
In July 1997, we acquired 100,000 shares of common stock of
The Best Of As Seen On TV from NMG, LLC, an entity owned by the wife
of A.B. Goldberg, a former director and former president of the
Company, in exchange for 100,000 shares of common stock. The
100,000 shares of the common stock were used by Mr. Goldberg and his
wife to settle a lawsuit against them and other defendants,
including Mr. Goldberg's mother. The value of the common stock
issued to NMG, LLC of $50,000 has been classified as officer
compensation in our consolidated statements of operations.
Consulting fees were paid to the wife of A.B. Goldberg for the
year ended December 31, 1997 in the amount of $5,500. The amounts
paid to the wife of A.B. Goldberg have been classified under officer
compensation in the consolidated statements of operations included
in the "Financial Statements" section of this prospectus and in the
Summary Compensation Table included in the "Executive Compensation"
section of this prospectus.
Our internet related businesses are conducted through our
First 2 Market, Inc. subsidiary. All That Media, Inc., which was
acquired by us in June 1999, was merged into First 2 Market, Inc. in
June 1999. At the time it was acquired by us, All That Media was a
newly-formed company that specialized in intellectual property
development, internet portal development and internet advertising.
We issued an option to purchase a total of 500,000 shares of common
stock for $.75 per share until October 10, 2001 to Michael
Marsowicz, the President and 50 percent owner of All That Media, in
exchange for all the outstanding stock of All That Media. Mr.
Marsowicz subsequently was elected as our Chief Technology Officer
in July 1999 and as a director in August 1999.
On July 7, 1999, we entered into an agreement with Coleman And
Company Securities, Inc. pursuant to which Coleman agreed to act as
our exclusive investment advisor, exclusive private placement agent
and exclusive investment banker. This agreement has a term of 12
months. As compensation, we agreed to pay Coleman a total of
$40,000 and to issue Coleman options to purchase 500,000 shares of
common stock at a purchase price of $.875 per share at any time
during the five-year period commencing on July 7, 1999. We granted
Coleman registration rights concerning the transfer of the shares of
common stock that may be issued upon the exercise of these warrants.
We also agreed to pay Coleman an amount equal to 10% of the funds
raised by Coleman, a three percent non-accountable expense allowance
with respect to those funds, and placement agent warrants with an
exercise price no more favorable than that given to investors in any
private placement transaction in which Coleman participates equal to
10 percent of the amount of equity raised by Coleman. In addition,
if we enter into a merger acquisition or sale transaction with the
party introduced by Coleman, we agree to pay Coleman five percent of
the first $2,000,000 of value of that transaction, four percent of
the following $2,000,000 of value, three percent of the following
$2,000,000 of value, two percent of the following $2,000,000 of
value, and one percent of the balance of the value of the
transaction. We also agreed to pay Coleman an amount equal to 10
percent of the amount raised by us from financing sources introduced
by Coleman to us if those amounts are raised within 24 months after
the introduction. We granted Coleman a right of first refusal to
undertake any financing on behalf of the Company within the term of
the agreement. In September 1999, subsequent to entering into the
agreement with Coleman, we elected Philip C. Puccio as a director.
Mr. Puccio resigned as a director in August 2000. Mr. Puccio is the
President and Chief Executive Officer of Coleman.
The Board believes that the terms of the related party
transactions described above were at least as favorable as those
that we could have obtained from unrelated third parties in arms-
length transactions.
In July 1999, Howard Stern, one of our directors who had a
personal relationship with A.B. Goldberg prior to Mr. Stern's having
joined the Board in February 1999, made a personal loan to Mr.
Goldberg of approximately $20,000. No specific maturity date or
other terms were discussed at the time. Mr. Goldberg was the Chief
Executive Officer as well as a director of the Company at the time
of the loan.
On October 7, 1999, the Board of Directors established a
Related Parties Transactions Committee primarily for the purpose of
dealing with issues between the Company and Mr. A.B. Goldberg
concerning prior grants of options as described above under
"Executive Compensation - Option Grants" and related to
reimbursement of Mr. Goldberg's expenses to defend against the SEC's
complaint described under "The Company--Legal Proceedings." From
February 1995 until August 9, 1999, Mr. Goldberg was our Chief
Executive Officer and from April 1998 until June 2000, Mr. Goldberg
was a director. The Related Parties Transactions Committee consists
of four directors.
The Related Parties Transactions Committee held a meeting on
October 7, 1999 and determined, among other matters, that all
outstanding stock options previously granted to Mr. Goldberg are
null and void and/or cancelled. As indicated under "Executive
Compensation-Option Grants", we previously cancelled, on a pro rata
basis, certain stock options previously granted to Mr. Goldberg and
the other directors of the Company (the "Prior Cancellations"). At
that time, Mr. Goldberg's counsel informed us that Mr. Goldberg does
not intend to relinquish those stock options even though the other
directors all indicated their intent to do so. We anticipate that
Mr. Goldberg may elect to litigate with us concerning the Prior
Cancellations as well as the stock options cancelled by the Related
Parties Transactions Committee. On March 27, 2000, we filed a
complaint in the District Court for Arapahoe County, Colorado
against Mr. Goldberg, the Securities Investor Protection
Corporation, and the U.S. Internal Revenue Service. In the
Complaint, we alleged that, during Mr. Goldberg's tenure as an
officer and director, Mr. Goldberg engaged in fraudulent activities,
breached his fiduciary duties, and acted negligently, all of which
resulted in our suffering damages. In the Complaint, we are seeking
compensatory and punitive damages from Mr. Goldberg, the return of
Company property, and a declaration that stock options granted to
Mr. Goldberg were fraudulently obtained, were void, and that Mr.
Goldberg must repay us for the options that he exercised before we
became aware of the true facts after granting the options in March
1999. The SIPC and IRS were included as Defendants in this matter
because the SIPC holds a judgment against Mr. Goldberg that it is
attempting to collect and has claimed an interest in the stock
options that we are seeking to void, and the IRS has assessed a tax
lien against Mr. Goldberg that it is seeking to collect. A third
party, Sterling Consulting Corp., has indicated that it will seek to
intervene in this matter because it is attempting to collect on a
debt owed by Mr. Goldberg. Mr. Goldberg has filed an Answer denying
our claims. Mr. Goldberg has not asserted any counterclaims against
us in this matter. The IRS has sought to remove this matter to the
U.S. District Court for the District of Colorado, but the IRS has
not determined whether it will participate in this matter or seek to
be dismissed. SIPC has moved to be dismissed from this matter
because it believes that its interests are adequately protected in a
separate matter pending in the Denver District Court. We have not
opposed SIPC's motion to be dismissed.
2. PROPOSAL TO ADOPT 2000 STOCK OPTION PLAN
The Board of Directors has adopted, subject to shareholder
approval, our 2000 Stock Option Plan (the "2000 Plan"). The 2000
Plan will terminate, and all options granted under the 2000 Plan
will be void, if the 2000 Plan is not approved by the shareholders
on or before June 1, 2001.
Options to purchase 1,000,000 shares of common stock may be
granted pursuant to the 2000 Plan. The options granted pursuant to
the 2000 Plan may be either incentive options or non-qualified
options. The 2000 Plan is intended to provide incentives to key
employees, directors and other persons who have or are contributing
to our success by offering them options to purchase shares of common
stock. The effect of the adoption of the 2000 Plan will be to
increase the number of shares issuable upon the exercise of options
that may be granted under all our stock option plans, which will
allow us to grant more options from time to time and thereby augment
our program of providing incentives to employees and other persons.
The terms of the 2000 Plan concerning incentive options and non-
qualified options are substantially the same except that only
employees are eligible for incentive options and employees and other
persons who have contributed or are contributing to our success are
eligible for non-qualified options. The number of options
authorized is a maximum aggregate so that the number of incentive
options granted reduces the remaining number of options that can be
granted as non-qualified options; similarly, the number of non-
qualified options granted reduces the remaining number of option
that can be granted as incentive options. There currently are 27
employees eligible to receive incentive options and an unspecified
number of persons eligible to receive non-qualified options.
The portion of the 2000 Plan concerning incentive options and
non-qualified will be administered by the option committee, which
may consist of either (a) the entire Board of Directors, or (b) a
committee, appointed by the Board of Directors, of two or more non-
employee directors. If the option committee consists of less than
the entire Board, each member of the committee is required to be a
"non-employee director" as defined in SEC regulations. To the
extent necessary for any option granted under the 2000 Plan to be
considered as performance based compensation that is not subject to
limitations on deductibility under the Internal Revenue Code, shall
be an "outside director" as defined in the Code and related
regulations. A "non-employee director" is a director who (1) is not
currently one of our officers or employees; (2) does not receive
compensation from us in excess of $60,000 for services rendered
other than as a director; and (3) is not involved in any transaction
that is required to be disclosed in our Form 10-KSB and proxy
reports as a related party transaction. An "outside director" means,
generally, a director who (1) is not one of our current employees, (2)
is not one of our former employees who receives compensation for prior
services during the taxable year in question, (3) has not been one of
our officers, and (4) does not receive compensation from us, either
directly or indirectly, in any capacity other than as a director. The
option committee has discretion to select the persons to whom
incentive options and non-qualified options will be granted, the
number of shares to be granted, the term of these options and the
exercise price of these options. However, no option may be
exercisable more than 10 years after the granting of the option, and
no option may be granted under the 2000 Plan after June 2, 2010.
The 2000 Plan provides that the exercise price of incentive
options granted cannot be less than the fair market value of the
underlying common stock on the date the incentive options are
granted. No incentive option may be granted to an employee who, at
the time the incentive option would be granted, owns more than ten
percent of our outstanding stock unless the exercise price of the
incentive option granted to the employee is at least 110 percent of
the fair market value of the stock subject to the incentive option,
and the incentive option is not exercisable more than five years
from the date of grant. In addition, the aggregate fair market
value (determined as of the date an option is granted) of the common
stock underlying incentive options granted to a single employee
which become exercisable in any single calendar year may not exceed
the maximum permitted by the Internal Revenue Code for incentive
stock options. This amount currently is $100,000.
All options granted under the 2000 Plan may become fully
exercisable upon the occurrence of a change in control of the
Company or certain mergers or other reorganizations or asset sales
described in the 2000 Plan.
Options granted pursuant to the 2000 Plan will not be
transferable during the optionee's lifetime except in limited
circumstances set forth in the 2000 Plan. Subject to the other
terms of the 2000 Plan, the option committee has discretion to
provide vesting requirements and specific expiration provisions with
respect to the incentive options and non-qualified options granted.
Although we may in the future file a registration statement
covering the issuance of the options and underlying shares of common
stock issuable pursuant to the 2000 Plan, we currently plan to use
the exemption from registration set forth in Section 4(2) of the
Securities Act and related rules and regulations due to the limited
number, and of the relationship to the Company, of the persons
currently anticipated to participate in the 2000 Plan. The common
stock acquired through the exercise of the options may be reoffered
or resold only pursuant to an effective registration statement or
pursuant to Rule 144 under the Securities Act or another exemption
from the registration requirements of the Securities Act.
If a change, such as a stock split, is made in our
capitalization which results in an exchange or other adjustment of
each share of common stock for or into a greater or lesser number of
shares, appropriate adjustment shall be made in the exercise price
and in the number of shares subject to each outstanding option. In
the event of a stock dividend, each optionee shall be entitled to
receive, upon exercise of the option, the equivalent of any stock
dividend that the optionee would have received had he or she been
the holder of record of the shares purchased upon exercise. The
option committee also may make provisions for adjusting the number
of shares subject to outstanding options if we have one or more
reorganizations, recapitalizations, rights offerings, or other
increases or reductions of shares of outstanding common stock.
The Board of Directors may at any time terminate the 2000 Plan
or make such amendments or modifications to the 2000 Plan that the
Board of Directors deems advisable, except that no amendments may
impair previously outstanding options and amendments that materially
modify eligibility requirements for receiving options, that
materially increase the benefits accruing to persons eligible to
receive options, or that materially increase the number of shares
under the 2000 Plan must be approved by our shareholders.
The incentive options issuable under the 2000 Plan are
structured to qualify for favorable tax treatment provided for
"incentive stock options" by Section 422 of the Internal Revenue
Code. All references to the tax treatment of the incentive options
are under the Code as currently in effect. Pursuant to Section 422
of the Code, optionees will not be subject to federal income tax at
the time of the grant or at the time of exercise of an incentive
option. In addition, provided that the stock underlying the
incentive option is not sold less than two years after the grant of
the incentive option and is not sold less than one year after the
exercise of the incentive option, then the difference between the
exercise price and the sales price will be treated as long-term
capital gain or loss. An optionee also may be subject to the
alternative minimum tax upon exercise of his incentive options. We
will not be entitled to receive any income tax deductions with
respect to the granting or exercise of incentive options or the sale
of the common stock underlying the incentive options.
Non-qualified options will not qualify for the special tax
benefits given to incentive options under Section 422 of the Code.
An optionee does not recognize any taxable income at the time the
optionee is granted a non-qualified option. However, upon exercise
of these options, the optionee recognizes ordinary income for
federal income tax purposes measured by the excess, if any, of the
then fair market value of the shares over the exercise price. The
ordinary income recognized by the optionee will be treated as wages
and will be subject to income tax withholding by the Company. Upon
an optionee's sale of shares acquired pursuant to the exercise of a
non-qualified option, any difference between the sale price and the
fair market value of the shares on the date when the option was
exercised will be treated as long-term or short-term capital gain or
loss. Upon an optionee's exercise of a non-qualified option, we
will be entitled to a tax deduction in the amount recognized as
ordinary income to the optionee provided that the compensation
amount is reasonable and we satisfy the applicable reporting
requirements required under U.S. Treasury regulations.
No options are outstanding under the 2000 Plan.
Required Vote; Board Recommendation
The approval of holders of shares representing a majority of
the votes represented at the special meeting will be necessary to
adopt the 2000 Plan.
The Board of Directors unanimously recommends a vote "FOR" the
proposal to adopt the 2000 Plan.
3. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved, and recommends
to the shareholders the approval of, amending our Articles Of
Incorporation to authorize the issuance of up to 250,000,000 shares of
common stock. Our Articles Of Incorporation currently authorize the
issuance of up to 50,000,000 shares of common stock.
If no action is taken to increase the authorized common stock,
based on the number of shares currently outstanding, as of November
20, 2000, we would be able to issue 91,928 additional shares of common
stock after excluding shares reserved for the issuance of options and
warrants to purchase common stock and upon conversion of our
convertible Class A Preferred Stock. If the proposal to increase
authorized capital is approved by shareholders, we will have
200,091,928 unissued and unreserved shares of common stock available
for issuance in the future.
The Board believes that the additional shares of common stock
resulting from the increase in authorized capital should be available
for issuance from time to time as may be required for various
purposes, including the issuance of common stock in connection with
financing or acquisition transactions, including the reservation of
common stock to be issued in connection with the proposed private
placement of convertible notes described below, the issuance of common
stock to employees and consultants in lieu of compensation and the
issuance or reservation of common stock for employee stock options.
We anticipate that in the future we will consider a number of
possible financing and acquisition transactions that may involve the
issuance of additional equity, debt or convertible securities. If the
proposed increase in authorized capital is approved, the Board would
be able to authorize the issuance of shares for these purposes without
the necessity, and related costs and delays, of either calling a
special shareholders' meeting or of waiting for the regularly
scheduled annual meeting of shareholders in order to increase the
authorized capital. If in a particular instance stockholder approval
were required by law or otherwise deemed advisable by the Board, then
the matter would be referred to the shareholders for their approval
regardless of whether a sufficient number of shares previously had
been authorized. The shareholders are not entitled to preemptive
rights with respect to the issuance of any authorized but unissued
shares.
In September 2000, we received a proposed term sheet to sell
convertible promissory notes (the "Notes") in the aggregate amount of
$750,000 in a private placement transaction pursuant to exemptions
from federal and state registration requirements (the "Notes
Offering"). The proposed increase in the number of shares of
authorized common stock will need to be approved in order to complete
the transactions contemplated by the proposal. The Company currently
is not in active discussions concerning the Notes Offering. If the
Notes Offering occurs, the Company anticipates that the material terms
and conditions of the Notes Offering will be as follows, subject to
negotiation of final documents:
* A total of $750,000, payable in two tranches, will be
received by the Company in exchange for issuance of the
Notes. The first tranche, in the aggregate amount of
$400,000, will be payable upon the completion of the sale of
the Notes (the "First Tranche"). The second tranche, in the
aggregate amount of $350,000, will be payable upon
effectiveness of the Registration Statement (defined below).
* The Notes will be immediately convertible into shares of
common stock at a rate equal to the lesser of (i) $.075, or
(ii) the average of the three lowest inter-day trading prices
during the 10 trading days immediately preceding the date of
conversion, discounted by 35% (the "Conversion Rate"). The
full principal amount of the Notes shall be due one year
after issuance. Accrued interest on the full principal
amount at the rate of 12 percent per year shall be due and
payable quarterly. Holders of the Notes shall have the right
in their discretion to receive the interest portion of the
Notes in cash or common stock at the Conversion Rate.
* Holders of the Notes also will receive warrants (the
"Warrants") to purchase one share of common stock for each
$1.00 of Notes purchased in the Notes Offering. The Warrants
shall be exercisable for a period of three years from the
date of issuance at an exercise price equal to (i) the
Registration Price (defined below) or (ii) the average of the
three lowest inter-trading day prices during the 10 trading
days immediately preceding the date of exercise. The
Warrants shall be exercisable by using the equity value of a
portion of the Warrants to pay the exercise price for other
Warrants without the payment of cash and shall entitle the
Warrant holders to participate in certain underwritten public
offerings by the Company of its common stock.
* Within 30 days of the closing date of the Notes Offering (the
"Registration Period"), the Company will be required to
register on Form SB-2 (the "Registration Statement") the
transfer of a number of shares equal to 200% of the number of
shares of common stock issuable upon conversion of the Notes
and exercise of the Warrants. This registration is to be
effected at a price equal to the lesser of (i) $.075 or (ii)
the average of the three lowest inter-day trading prices
during the 10 trading days immediately preceding the closing
date of the Notes Offering, discounted by 35% (the
"Registration Price"). If the Registration Statement does
not become effective during the Registration Period, the
Company will be required to pay to the holders of the Notes
each month until the effective date of the Registration
Statement an amount equal to 2% of the full principal amount
and accrued interest on the Notes. Holders of the Notes
shall have the right in their discretion to receive such
payments in cash or common stock at a rate equal to the
average of the three lowest inter-trading day prices during
the 10 trading days immediately preceding the date such
payments were due.
The proceeds, if any, from the sale of the Notes will be used
for working capital needs.
The increase in authorized common stock also is necessary in
order to have sufficient shares available for issuance pursuant to the
2000 Stock Option Plan described above under "2. Proposal To Adopt
2000 Stock Option Plan".
The proposed change in capital is not intended to have any anti-
takeover effect and is not part of any series of anti-takeover
measures contained in any debt instruments, the Articles Of
Incorporation or Bylaws in effect on the date of this proxy statement.
However, shareholders should note that the availability of additional
authorized and unissued shares of common stock could make any attempt
to gain control of the Company or the Board more difficult or time
consuming and that the availability of additional authorized and
unissued shares might make it more difficult to remove current
management. Although the Board currently has no intention of doing
so, shares of common stock could be issued by the Board to dilute the
percentage of common stock owned by a significant stockholder and
increase the cost of, or the number of, voting shares necessary to
acquire control of the Board or to meet the voting requirements
imposed by Nevada law with respect to a merger or other business
combination involving the Company. We are not aware of any proposed
attempt to take over the Company or of any attempt to acquire a large
block of common stock. We have no present intention to use the
increased authorized common stock for anti-takeover purposes.
If the proposal to increase authorized common stock is
approved by the shareholders, we will file amended Articles Of
Incorporation with the Nevada Secretary Of State in order to effect
the increase in authorized common stock.
Required Vote; Board Recommendation
The affirmative vote of a majority of the outstanding shares
of common stock, whether represented in person or by proxy, is
required at the special meeting in order to approve amendment of the
Articles Of Incorporation to increase authorized common stock. The
Board of Directors unanimously recommends that the shareholders vote
in favor of the proposal to increase authorized common stock.
4. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY
At a meeting held in November 2000, the Board of Directors
approved, and recommended to the Company's shareholders the approval
of, changing the name of the Company from First Entertainment
Holding Corp. to F2 Broadcast Network Inc.
The Board of Directors believes that the name F2 Broadcast
Network Inc. will more accurately reflect our current emphasis on
internet broadcasts of video and audio using streaming technology
rather than our historical lines of business. Historically, our
revenues have been derived primarily from the operation, through
subsidiaries, of a radio station located in Gillette, Wyoming and of
a comedy club located in Denver, Colorado. We recently have
refocused on generating an additional line of business based on
internet video production (on a fee-for-service basis primarily to
pgatour.com, pga.com and quokka.com) as well as on advertising,
referral and commission revenues that may be derived from operation
of our internet destination located at http://www.f2network.com.
The Board of Directors has determined that the proposed name
change is in the best interests of the Company and its shareholders.
If approved by the shareholders at the special meeting, this name
change will be effected by filing Amended Articles Of Incorporation
of the Company with the Nevada Secretary Of State.
An affirmative vote of the majority of the outstanding shares
is required to approve the name change.
The Board of Directors unanimously recommends a vote "FOR" the
proposal to amend our Articles Of Incorporation to change our name.
5. THE REVERSE STOCK SPLIT
Recommendation of the Board of Directors.
Reverse Stock Split. The Board of Directors has unanimously
approved and proposed for shareholder approval a reverse stock split
in a range from 1-for-10 to 2-for-3. We believe that the reverse
stock split may be beneficial to us due to the large number of shares
that are outstanding. We believe that the low trading prices of the
common stock may impair efficiency of the market for the common stock
and that brokerage commissions on the purchase or sale of a relatively
lower priced stock generally tend to represent a higher percentage of
the sales price that the commission on a relatively higher priced
stock. We believe that the reverse stock split will improve these
factors and may inure to the benefit of our shareholders, the Company
and the market for the common stock.
If the reverse stock split were effected, we would have fewer
shares outstanding. A reduction in the number of shares would
increase the book value per share as well as the earnings (or loss)
per share. These increases could make the common stock more
attractive to larger brokerage houses, thereby possibly expanding the
group of brokers interested in making a market for the common stock.
Nevertheless, we cannot predict what effect the reverse stock split
would have on the market price of the common stock.
If the reverse stock split is approved by the shareholders, the
ratio and effective time for the reverse stock split will be as
determined by our Board of Directors. Between each 10 shares and 1.5
shares of common stock at the effective time shall be deemed to be one
share of common stock without further action by our shareholders. It
will not be necessary for a shareholder to exchange certificates
representing stock issued prior to the reverse stock split for
certificates representing shares resulting after the reverse stock
split.
If the reverse stock split is effected, we will not issue
certificates for fractional shares. Instead, persons who are
shareholders at the effective time of the reverse stock split and who
otherwise would be entitled to a fractional share would be issued one
whole share. All shares of common stock held by a record holder will
be aggregated for purposes of computing the number of shares of common
stock subject to the reverse stock split.
We have not sought and do not intend to seek an opinion of
counsel or a ruling from the Internal Revenue Service regarding the
federal income tax consequences of the reverse stock split. Based on
consultation with counsel, we believe that a shareholder who does not
receive cash in connection with the reverse stock split would not
recognize any gain or loss on the exchange and we would not recognize
any gain or loss as a result of the reverse stock split.
An affirmative vote of the majority of the outstanding shares
is required to approve the reverse stock split.
The Board of Directors unanimously recommends that the holders
of common stock vote "FOR" approval of the reverse stock split.
6. PROPOSAL TO RATIFY THE SELECTION OF
GORDON, HUGHES & BANKS, LLP AS AUDITORS
The Board of Directors recommends that our shareholders vote in
favor of ratifying the selection of the certified public accounting
firm of Gordon, Hughes & Banks, LLP of Denver, Colorado as the
auditors who will continue to audit our financial statements, review
tax returns, and perform other accounting and consulting services for
the year ending December 31, 1999 or until the Board of Directors, in
its discretion, replaces them. Gordon, Hughes & Banks, LLP has
audited the Company's financial statements since the fiscal year ended
December 31, 1997.
An affirmative vote of the majority of shares represented at the
meeting is necessary to ratify the selection of auditors. There is no
legal requirement for submitting this proposal to the shareholders;
however, the Board of Directors believes that it is of sufficient
importance to seek ratification. Whether the proposal is approved or
defeated, the Board may reconsider its selection of Gordon, Hughes &
Banks, LLP. It is expected that one or more representatives of
Gordon, Hughes & Banks, LLP will be present at the Special Meeting and
will be given an opportunity to make a statement if they desire to do
so and to respond to appropriate questions from shareholders.
The Board of Directors recommends a vote "FOR" the proposal to
ratify the selection of Gordon, Hughes & Banks, LLP as auditors.
OTHER BUSINESS
We are not aware of any other matters that are to be presented
at the special meeting, and we have not been advised that any other
person will present any other matters for consideration at the
meeting. Nevertheless, if other matters should properly come before
the special meeting, the shareholders present, or the persons, if any,
authorized by a valid proxy to vote on their behalf, shall vote on
such matters in accordance with their judgment. See below,
"Resolutions Proposed By Individual Shareholders; Discretionary
Authority To Vote Proxies".
VOTING PROCEDURES
Votes at the special meeting of shareholders are counted by an
inspector of election appointed by the chairman of the meeting. If a
quorum is present, an affirmative vote of a majority of the votes
entitled to be cast by those present in person or by proxy is required
for the approval of items submitted to shareholders for their
consideration, including the election of directors, unless a different
number of votes is required by statute or our Articles Of
Incorporation. Under Nevada law, the proposal to amend our Articles
Of Incorporation to increase the number of shares of authorized common
stock requires the approval of a majority of all the outstanding
shares. Abstentions by those present at the meeting are tabulated
separately from affirmative and negative votes and do not constitute
affirmative votes. If a shareholder returns his proxy card and
withholds authority to vote for any or all of the nominees, the votes
represented by the proxy card will be deemed to be present at the
meeting for purposes of determining the presence of a quorum but will
not be counted as affirmative votes. Shares in the name of brokers
that are not voted are treated as not present.
RESOLUTIONS PROPOSED BY INDIVIDUAL SHAREHOLDERS;
DISCRETIONARY AUTHORITY TO VOTE PROXIES
In order to be considered for inclusion in the proxy statement
and form of proxy relating to our annual meeting of shareholders
following the end of our 2000 fiscal year, proposals by individual
shareholders must be received by us no later than January 2, 2001.
In addition, the proxy solicited by the Board of Directors for
the next annual meeting of shareholders will confer discretionary
authority on any shareholder proposal presented at that meeting
unless we are provided with notice of that proposal no later than
March 16, 2001.
AVAILABILITY OF REPORTS ON FORM 10-KSB
UPON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT
CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999 TO ANY OF THE COMPANY'S SHAREHOLDERS OF
RECORD OR TO ANY SHAREHOLDER WHO OWNS THE COMPANY'S COMMON STOCK
LISTED IN THE NAME OF A BANK OR BROKER AS NOMINEE AT THE CLOSE OF
BUSINESS ON OCTOBER 31, 2000. ANY REQUEST FOR A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB SHOULD BE MAILED TO THE
SECRETARY, FIRST ENTERTAINMENT HOLDING CORP., 5495 MARION STREET,
DENVER, COLORADO 80216, (303) 382-1500.
INCORPORATION BY REFERENCE
We are incorporating by reference into this proxy statement
the following information included in a report filed by us with the
SEC:
* Items 6 (Management's Discussion And Analysis Of
Financial Condition And Results Of Operations) and 7
(Financial Statements) included in the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1999.
* Item 1 (Financial Statements) and Item 2 (Management's
Discussion And Analysis Of Financial Condition And
Results of Operations) included in the Company's
Quarterly Report on Form 10-QSB for the six months ended
June 30, 2000.
* Item 1 (Financial Statements) and Item 2 (Management's
Discussion And Analysis Of Financial Condition And
Results of Operations) included in the Company's
Quarterly Report on Form 10-QSB for the nine months
ended September 30, 2000.
A copy of the Company's Annual Report on Form 10-KSB is being
mailed to each shareholder with this proxy statement. A copy of the
September 30, 2000 and June 30, 2000 Forms 10-QSB and other reports
filed by the Company with the SEC can be found at the SEC's website
located at http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This proxy statement includes "forward-looking" statements.
All statements other than statements of historical facts included in
this proxy statement regarding our financial position, business
strategy, and plans and objectives of management of the Company for
future operations and capital expenditures, are forward-looking
statements. Although we believe that the expectations reflected in
the forward-looking statements and the assumptions upon which the
forward-looking statements are based are reasonable, we can give no
assurance that such expectations and assumptions will prove to have
been correct. Additional statements concerning important factors
that could cause actual results to differ materially from our
expectations ("Cautionary Statements") are disclosed in the
"Forward-Looking Statement-Cautionary Statements" section of our
Annual Report on Form 10-KSB for the year ended December 31, 1999
and other documents filed by us with the SEC. All written and oral
forward-looking statements attributable to the Company or persons
acting on its behalf subsequent to the date of this proxy statement
are expressly qualified in their entirety by the Cautionary
Statements.
This notice and proxy statement are sent by order of the Board
of Directors.
Dated: November 29, 2000 Howard Stern
Chairman Of The Board and
Chief Executive Officer
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the
Special Meeting of Shareholders, you can
ensure your shares are represented at the
Meeting by promptly completing and returning
your proxy (attached below) in the enclosed
envelope. Thank you for your attention
to this important matter.
PROXY PROXY
For the Special Meeting Of Shareholders of
FIRST ENTERTAINMENT HOLDING CORP.
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Howard Stern and Douglas R.
Olson, or either of them, as proxies with full power of substitution
to vote all the shares of the undersigned with all of the powers
which the undersigned would possess if personally present at the
Special Meeting of Shareholders of First Entertainment Holding Corp.
(the "Company"), to be held at 10:00 A.M. on December 27, 2000, at
The Comedy Works, 1226 15th Street, Denver, CO 80202, or any
adjournments thereof, on the following matters set forth on the
reverse side:
X Please mark
votes as in
this example.
Unless contrary instructions are given, the shares represented by
this proxy will be voted in favor of Items 1, 2, 3, 4, 5 and 6.
This proxy is solicited on behalf of the Board of Directors of the
Company.
1. ELECTION OF DIRECTORS
Nominees: Douglas R. Olson, William Rubin, Howard Stern and
Michael Marsowicz.
FOR ALL NOMINEES -- WITHHELD FROM ALL NOMINEES --
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE ---
2. Proposal to approve the Company's 2000 Stock Option Plan.
---FOR ---AGAINST ---ABSTAIN
3. Proposal to amend the Company's Articles Of Incorporation to
increase authorized common stock.
---FOR ---AGAINST ---ABSTAIN
4. Proposal to amend the Company's Articles Of Incorporation to
change the name of the Company to "F2 Broadcast Network Inc."
---FOR ---AGAINST ---ABSTAIN
5. Proposal to authorize the Company's Board Of Directors to
determine, in the Board's discretion, to effect a reverse
stock split of the Company's outstanding common stock.
---FOR ---AGAINST ---ABSTAIN
6. Proposal to ratify the selection by the Board of Directors of
Gordon, Hughes & Banks, LLP as the independent certified
accountants for the Company for the fiscal year ending
December 31, 2000.
---FOR ---AGAINST ---ABSTAIN
7. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW --
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE, DATE,
SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
(Please sign exactly as shown on your stock certificate and on the
envelope in which this proxy was mailed. When signing as partner,
corporate officer, attorney, executor, administrator, trustee,
guardian, etc., give full title as such and sign your own name as
well. If stock is held jointly, each joint owner should sign.)
Signature: -------------------------------- Date:-----------------
Signature: -------------------------------- Date:-----------------
