FIRST ENTERTAINMENT HOLDING CORP.
5495 Marion Street
Denver, Colorado 80216
(303) 382-1500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held December 4, 2000
A Special Meeting of the shareholders of First Entertainment
Holding Corp. (the "Company") will be held on December 4, 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 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 8, 2000
PROXY STATEMENT
FIRST ENTERTAINMENT HOLDING CORP.
5495 Marion Street
Denver, Colorado 80216
(303) 382-1500
SPECIAL MEETING OF SHAREHOLDERS
to be held
December 4 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 4, 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 8,
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 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.
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>
<S> <C> <C> <C> <C>
Name Age Position with the Company Expiration of Initial
Term as Director Date as
Director
-------------------------------------------------------------------------------
Douglas R. Olson 51 President; Next Shareholder February
and Director Meeting 1999
Howard Stern 44 Chief Executive Officer; Next Shareholder February
Secretary; Treasurer, Meeting 1999
Director
William Rubin 38 Director Next Shareholder November
Meeting 1998
Michael Marsowicz 36 Chief Technology Officer; Next Shareholder August
and Director Meeting 1999
</TABLE>
Douglas Olson has served as our President since August 1999, as a
director since February 1999 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.
Howard Stern has served as a Director since February 1999, as
Chairman of the Board since August 1999, and 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.
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 recommendations 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.
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
Summary Compensation Table
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, President, 1999 $12,000 - -
and a director 1998 - - -
1997 - - -
</TABLE>
<TABLE>
Long Term Compensation
Awards Payouts
Name Restricted Securities LTIP All Other
Principal Position Stock Underlying Payouts Compensation
Awards(s) Options/SARs ($)(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
-----------------------------------------------------------------------------
Howard Stern, Chief -0- -0- -0- $75,000
Executive Officer, -0- -0- -0- -0-
And a director -0- -0- -0- -0-
-----------------------------------------------------------------------------
Douglas Olson, President -0- -0- -0- $84,000(9)
And a 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 $5,500 for 1997. See below, "-
Certain Relationships And Related Transactions".
(9) Consists of salary received from Creative Business Services, Inc.
See below, "-Certain Relationships And Related Transactions".
As of December 31, 1999, we had no group life, health,
hospitalization, medical reimbursement or relocation plans in effect
which discriminate, in scope, terms, or operation, in favor of our
officers or directors and that are not generally available to all
salaried employees. Further, we have no pension plans or plans or
agreements which provide compensation in the event of termination of
employment or change in control.
Option Grants Table
The following table sets forth information concerning individual
grants of stock options made during the fiscal year ended December 31,
1999 to each Named Executive Officer. For further information regarding
these options, please refer to the section entitled "-Option Grants And
Cancellations", below.
<TABLE>
Name Shares Underlying % of Total Options Exercise Closing Expiration
Options Granted (#) Granted to Employees or Base Market Date
in Fiscal Year Price Price one
($/Share) Date of
Grant
<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 Market
Shares Price On
Date of Grant Underlaying Exercise Date of Grant Expiration
Options Price 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 Market
Shares Price On
Date of Grant Underlaying Exercise Date of Grant Expiration
Options Price 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 Market
Shares Price On
Date of Grant Underlaying Exercise Date of Grant Expiration
Options Price 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 $1.34 1/1/05
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table
The following table indicates exercises of stock options during the
fiscal year ended December 31, 1999 by the Named Executive Officers, and
also sets forth information concerning the fiscal year-end value of
unexercised options held by each Named Executive Officer.
Aggregated Option Exercises
For Fiscal Year Ended December 31, 1999
And Year-End Option Values
<TABLE>
Number Value of
Unexercised Unexercised
Shares Options In-The Money
Acquired on Value at Fiscal Options at
Name Exercise(#)(1) Realized($)(2)Year-End Fiscal
Year-End($)(3)
<S> <C> <C> <C> <C>
Abraham B.
Goldberg 100,000 $275,875 900,000(4) $384,750
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:
<TABLE>
<S> <C>
* A.B. Goldberg 1,000,000
* Douglas Olson 250,000
* Howard Stern 250,000
* William Rubin 250,000
</TABLE>
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:
<TABLE>
Shares Becoming Exercisable Triggering Event
<S> <C>
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.
</TABLE>
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:
<TABLE>
Shares Becoming Exercisable Triggering Event
<S> <C>
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.
</TABLE>
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:
<TABLE>
<S> <C>
Howard Stern 750,000
Douglas Olson 750,000
Michael Marsowicz 750,000
Daniel Stansky 562,500
Robert Fuchs 562,500
</TABLE>
On January 25, 2000, we approved grants of options as follows:
<TABLE>
<S> <C>
Howard Stern 75,000
Douglas Olson 75,000
Michael Marsowicz 75,000
Daniel Stansky 56,250
Robert Fuchs 56,250
</TABLE>
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 and additional options to
purchase 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
5495 Marion St.
Denver, CO 80216 4,509,369 12.2%
(2)
Howard Stern
500 Corporate Drive
Suite 200
Ft. Lauderdale, FL
33334-3603 4,732,447 12.8%
(2)
William Rubin
313 East Fort Ave.
Baltimore, MD 21230 400,000 1.1%
(3)
Michael Marsowicz
2500 E. Hallandale
Beach Blvd.
Hallandale, FL 33009 4,427,299 11.8%
(2)(4)
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 options
to purchase up to 1,250,000 shares of common stock until
September 15, 2005, which number of options represents the
currently exercisable portion of options that have been granted
to the named security holder pursuant to the Management
Compensation Plan as well as that portion of options which, if
required to be issued to the named security holder within the
next 60 days pursuant to the exchange provisions of the
Management Compensation Plan, will be exercisable on the date of
grant. Each 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, our President and 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, we would be able to issue
7,662,765 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 207,662,765 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. Although there is no assurance the Company will be able to
complete a sale of the Notes, the final terms and conditions of the Notes
Offering will be negotiated between the Company and the purchasers of the
Notes and set forth in final documentation, the Company anticipates that
the material terms and conditions of the Notes Offering will be as
follows:
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 March 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
Network Inc.
The Board of Directors believes that the name F2 Network Inc.
will more accurately reflect our current emphasis on marketing and
development efforts rather than its 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.
Although we currently intend to continue the operation of the comedy
club, we recently have focused on generating an additional line of
business based on advertising, referral and commission revenues that
may be derived from operation of our internet portal located at
http://www.firstentertainment.com and from additional web sites we
jointly own and/or operate and from fees for web site development and
hosting.
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.
A copy of this report is being mailed to each shareholder with
this proxy statement.
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: _____________, 2000 Howard Stern
Chairman Of The Board and
Chief Executive Officer
