<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K/A
AMENDMENT NO. 1
----------------------
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-9553
----------------------
VIACOM INC.
(Exact Name Of Registrant As Specified In Its Charter)
----------------------
Delaware 04-2949533
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
1515 Broadway, New York, NY 10036
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 258-6000
----------------------
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
<S> <C>
Class A Common Stock, $0.01 par value New York Stock Exchange
Class B Common Stock, $0.01 par value New York Stock Exchange
6.75% Senior Notes due 2003 American Stock Exchange
7.75% Senior Notes due 2005 American Stock Exchange
7.625% Senior Debentures due 2016 American Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title Of Class)
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 14, 2000, 138,136,111 shares of Viacom Inc. Class A Common Stock,
$0.01 par value ("Class A Common Stock"), and 560,513,402 shares of Viacom Inc.
Class B Common Stock, $0.01 par value ("Class B Common Stock"), were
outstanding. The aggregate market value of the shares of Class A Common Stock
(based upon the closing price of $52 7/16 per share as reported by the New York
Stock Exchange on that date) held by non-affiliates was approximately
$2,328,844,392 and the aggregate market value of the shares of the Class B
Common Stock (based upon the closing price of $52 11/16 per share as reported
by the New York Stock Exchange on that date) held by non-affiliates was
approximately $24,027,308,762.
================================================================================
<PAGE>
VIACOM INC.
Viacom Inc. hereby amends the following items, exhibits or other portions
of its Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
as set forth in the pages attached hereto:
PART III
Item 10. Directors and Executive Officers.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Viacom Inc. has duly caused this amendment to be signed on
its behalf by the undersigned, thereto duly authorized.
Viacom Inc.
By /s/ Michael D. Fricklas
---------------------------------
Michael D. Fricklas
Senior Vice President,
General Counsel and Secretary
Date: April 28, 2000
<PAGE>
PART III
Item 10. Directors and Executive Officers.
This information is provided under the captions "Information Concerning
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance".
Information with respect to the Executive Officers of Viacom Inc. (the
"Company") is included in Part I hereof.
Item 11. Executive Compensation.
This information is provided under the captions "Directors' Compensation"
and "Executive Compensation".
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information is provided under the caption "Security Ownership of
Certain Beneficial Owners and Management".
Item 13. Certain Relationships and Related Transactions.
This information is provided under the captions "Compensation Committee
Interlocks and Insider Participation" and "Related Transaction".
<PAGE>
PART III
INFORMATION CONCERNING DIRECTORS
Set forth below is certain information concerning each director of the
Company.
<TABLE>
<CAPTION>
Company Offices and
Director* Principal Occupation**
- --------- ----------------------
<S> <C>
George S. Abrams Attorney associated with the law firm of Winer and Abrams in
Age 68 Boston, Massachusetts since 1969. Mr. Abrams served as the
Director since 1987 General Counsel and Staff Director of the United States Senate
Judiciary Subcommittee on Refugees from 1965 through 1968. He
is currently a member of the Boards of Trustees and Visiting
Committees of a number of art museums, arts-related
organizations and educational institutions, including The
European Fine Arts Foundation, the Museum of Fine Arts in
Boston, and the Harvard University Art Museums. Mr. Abrams is
a director of NAI and Sonesta International Hotels Corporation.
Philippe P. Dauman Deputy Chairman of the Company since 1996 and Executive Vice
Age 46 President since 1994. From 1993 to 1998, Mr. Dauman also
Director since 1987 served as General Counsel and Secretary of the Company. Prior
to that, he was a partner in the law firm of Shearman &
Sterling in New York, which he joined in 1978. Mr. Dauman is
a director of Blockbuster, NAI and Lafarge Corporation.
Thomas E. Dooley Deputy Chairman of the Company since 1996 and Executive Vice
Age 43 President since 1994. From 1992 to 1994, Mr. Dooley served as
Director since 1996 Senior Vice President, Corporate Development of the Company.
From 1993 to 1994, he also served as President, Interactive
Television. Prior to that, he held various positions in the
Company's corporate and divisional finance areas. Mr. Dooley
is a director of Blockbuster, LaBranche & Co. and Uproar Inc.
</TABLE>
III-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Ken Miller Vice Chairman of Credit Suisse First Boston Corporation since
Age 57 1994. Mr. Miller served as President, Chief Executive Officer
Director since 1987 of The Lodestar Group, an investment firm, from 1988 to 1994.
Prior to that, he was Vice Chairman of Merrill Lynch Capital
Markets. Mr. Miller is a director of New York City Investment
Partnership, Refugees International and United Nations
Association.
Brent D. Redstone Director of NAI. Mr. Redstone served as Special Counsel to
Age 49 the law firm of Davis, Graham and Stubbs, L.L.P. in Denver,
Director since 1991 Colorado from July 1998 to January 2000. He previously served
as a member of the Board of Directors of the American
Prosecutors Research Institute, located in Alexandria,
Virginia. He served as Assistant District Attorney for
Suffolk County, Massachusetts from 1977 to 1991.
Shari Redstone President of NAI since January 2000. Prior to that, Ms.
Age 46 Redstone served as Executive Vice President of NAI since 1994.
Director since 1994 She practiced law from 1978 to 1993; her practice included
corporate law, estate planning and criminal law. Ms. Redstone
participated on the Executive Committee at the Boston
University School of Law in the early 1980s. She is currently
a member of the Board of Directors at Combined Jewish
Philanthropies and Co-Chairman of the NO'AR Youth Committee at
Combined Jewish Philanthropies. Ms. Redstone is a member of
the Board of Directors and Executive Committee for the
National Association of Theatre Owners, Co-Chairman of
MovieTickets.com, Inc., Chairman and Chief Executive Officer
of CineBridge Ventures, Inc. and a member of the Board of
Trustees at Dana Farber Cancer Institute. She also is a
member of the Board of Trustees at Tufts University and a
member of the Advisory Committee for Tufts Hillel. Ms.
Redstone is a director of NAI.
</TABLE>
III-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Sumner M. Redstone Chairman of the Board of the Company since 1987 and Chief
Age 76 Executive Officer since 1996. Mr. Redstone has served as
Director since 1986 Chairman of the Board of NAI since 1986 and Chief Executive
Officer of NAI since 1967. He also served as President of NAI
from 1967 through 1999. He is a member of the Advisory
Council for the Academy of Television Arts and Sciences
Foundation and is on the Board of Trustees for The Museum of
Television and Radio. Mr. Redstone served as the first
Chairman of the Board of the National Association of Theatre
Owners and is currently a member of its Executive Committee.
Since 1982, Mr. Redstone has been a member of the faculty of
Boston University Law School, where he has lectured on
entertainment law, and since 1994, he has been a Visiting
Professor at Brandeis University. Mr. Redstone graduated from
Harvard University in 1944 and received an LL.B. from Harvard
University School of Law in 1947. Upon graduation, Mr.
Redstone served as Law Secretary with the United States Court
of Appeals, and then as a Special Assistant to the United
States Attorney General.
Frederic V. Salerno Senior Executive Vice President and Chief Financial
Age 56 Officer/Strategy and Business Development of Bell Atlantic
Director since 1994 Corporation ("Bell Atlantic") since August 1997. Prior to the
merger of Bell Atlantic and NYNEX Corporation ("NYNEX"), Mr.
Salerno served as Vice Chairman -- Finance and Business
Development of NYNEX from 1994 to 1997. Mr. Salerno was Vice
Chairman of the Board of NYNEX and President of the Worldwide
Services Group from 1991 to 1994. Mr. Salerno is a director
of Avnet Inc., The Bear Stearns Companies, Inc., Bell
Atlantic, KeySpan Energy Corp. and The Hartford Financial
Services Group, Inc.
</TABLE>
III-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
William Schwartz Counsel to Cadwalader, Wickersham & Taft since 1988. Mr.
Age 66 Schwartz also served as Vice President for Academic Affairs
Director since l987 (the chief academic officer) of Yeshiva University from 1993
to July 1998 and has been University Professor of Law at
Yeshiva University and the Cardozo School of Law since 1991.
He was Dean of the Boston University School of Law from 1980
to 1988 and a professor of law at Boston University from 1955
to 1991. Mr. Schwartz was Chairman of the Board of UST
Corporation and is a member of the Advisory Board of WCI
Steel, Inc. He is an honorary member of the National College
of Probate Judges. He served as Chairman of the Boston
Mayor's Special Commission on Police Procedures and was
formerly a member of the Legal Advisory Board of the New York
Stock Exchange.
Ivan G. Seidenberg Chairman of the Board of Bell Atlantic since December 31, 1998
Age 53 and Chief Executive Officer since June 1998. Mr. Seidenberg
Director since 1995 served as Vice Chairman, President and Chief Operating Officer
of Bell Atlantic from 1997 to 1998. Prior to the merger of
Bell Atlantic and NYNEX, he served as Chairman and Chief
Executive Officer of NYNEX since 1995 and before that as
President and Chief Executive Officer of NYNEX from January
1995 to March 1995. Previously, he served as President and
Chief Operating Officer of NYNEX during 1994 and as Vice
Chairman of NYNEX from 1991 to 1995. Mr. Seidenberg became a
director of NYNEX in 1991. He is also a director of American
Home Products Corporation, Boston Properties, Inc., CVS
Corporation and Honeywell International Inc.
</TABLE>
________________________
* Brent Redstone is the son of Sumner Redstone, and Shari Redstone is Sumner
Redstone's daughter. None of the other directors is related to any other
director or executive officer of the Company by blood, marriage or
adoption.
** NAI and Blockbuster are affiliates of the Company. None of the other
corporations or organizations indicated herein is a parent, subsidiary or
other affiliate of the Company.
III-4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below, as of April 1, 2000, is certain information concerning
beneficial ownership of each equity security of the Company and Blockbuster by
(i) each director of the Company, (ii) each of the executive officers whose
individual compensation is disclosed in the tables that appear on subsequent
pages, and (iii) current directors and executive officers of the Company as a
group. Also set forth below, as of April 1, 2000, is certain information
concerning beneficial ownership of each equity security of the Company by
holders of 5% or more of the Class A Common Stock.
Beneficial Ownership of Equity Securities
<TABLE>
<CAPTION>
Number of Option Percent
Name Title of Equity Security Equity Shares Shares(1) of Class
---- ------------------------ ------------- --------- --------
<S> <C> <C> <C> <C>
George S. Abrams Viacom Class A Common 14,980(2) -- (10)
Viacom Class B Common 15,715(2) 45,000 (10)
Blockbuster Class A Common -- -- --
Blockbuster Class B Common -- -- --
Philippe P. Dauman Viacom Class A Common 2,121(3) -- (10)
Viacom Class B Common 17,485(3) 1,490,000 (10)
Blockbuster Class A Common 5,000 -- (10)
Blockbuster Class B Common -- -- --
Thomas E. Dooley Viacom Class A Common 4,226(3) -- (10)
Viacom Class B Common 5,090(3) 1,464,000 (10)
Blockbuster Class A Common 5,000 -- (10)
Blockbuster Class B Common -- -- --
Michael D. Fricklas Viacom Class A Common 46(3) -- (10)
Viacom Class B Common 913(3) 85,333 (10)
Blockbuster Class A Common 1,000 -- (10)
Blockbuster Class B Common -- -- --
Ken Miller Viacom Class A Common 13,523(2) -- (10)
Viacom Class B Common 13,809(2) 45,000 (10)
Blockbuster Class A Common -- -- --
Blockbuster Class B Common -- -- --
National Amusements, Inc. Viacom Class A Common 93,658,828(4) -- 68.0%
200 Elm Street Viacom Class B Common 104,334,828(4) -- 19.1%
Dedham, MA 02026 Blockbuster Class A Common 144,000,000(5) -- 82.3%
Blockbuster Class B Common 144,000,000(5) -- 100.0%
Brent D. Redstone Viacom Class A Common --(6) -- --
Viacom Class B Common --(6) -- --
Blockbuster Class A Common --(6) -- --
Blockbuster Class B Common --(6) -- --
</TABLE>
III-5
<PAGE>
<TABLE>
<CAPTION>
Number of Option Percent
Name Title of Equity Security Equity Shares Shares(1) of Class
---- ------------------------ ------------- --------- --------
<S> <C> <C> <C> <C>
Shari Redstone Viacom Class A Common --(6) -- --
Viacom Class B Common --(6) -- --
Blockbuster Class A Common --(6) -- --
Blockbuster Class B Common --(6) -- --
Sumner M. Redstone Viacom Class A Common 93,658,988(4) -- 68.0%
Viacom Class B Common 104,334,988(4) 2,583,333 19.1%
Blockbuster Class A Common 144,000,000(5) -- 82.3%
Blockbuster Class B Common 144,000,000(5) -- 100.0%
Frederic V. Salerno Viacom Class A Common 1,143(2) -- (10)
Viacom Class B Common 1,147(2) 25,000(7) (10)
Blockbuster Class A Common 5,000 -- (10)
Blockbuster Class B Common -- -- --
William Schwartz Viacom Class A Common 14,296(2) -- (10)
Viacom Class B Common 14,571(2) 45,000 (10)
Blockbuster Class A Common -- -- --
Blockbuster Class B Common -- -- --
Ivan Seidenberg Viacom Class A Common 1,055(2) -- (10)
Viacom Class B Common 1,058(2) 22,000(7) (10)
Blockbuster Class A Common -- -- --
Blockbuster Class B Common -- -- --
George S. Smith, Jr. Viacom Class A Common 9,169(3) -- (10)
Viacom Class B Common 9,991(3) 146,666 (10)
Blockbuster Class A Common 1,000 -- (10)
Blockbuster Class B Common -- -- --
Capital Research and Viacom Class A Common 8,251,800(8) -- 6.0%
Management Company
333 South Hope Street
Los Angeles, CA 90071
Mario J. Gabelli Viacom Class A Common 11,898,000(9) -- 8.6%
Gabelli Funds, Inc.
One Corporate Center
Rye, NY 10580-1434
Current directors and Viacom Class A Common 62,189(2)(3) 0 (10)
executive officers as a Viacom Class B Common 99,049(2)(3) 3,730,531 (10)
group other than Mr. Blockbuster Class A Common 22,700 -- (10)
Sumner Redstone (17 persons) Blockbuster Class B Common -- -- --
</TABLE>
III-6
<PAGE>
__________
NOTES:
(1) Reflects shares subject to options to purchase such shares which on April
1, 2000 were unexercised but were exercisable within a period of 60 days
from that date. These shares are excluded from the column headed "Number of
Equity Shares".
(2) Includes Class A Common Stock units and Class B Common Stock units credited
as of January 1, 2000 to Messrs. Abrams, Miller, Salerno, Schwartz and
Seidenberg pursuant to the Deferred Compensation Plan described below under
which their directors' fees are converted into stock units.
(3) Includes shares held through the Company's 401(k) Plan as of December 31,
1999.
(4) Except for 160 shares of each class of Common Stock owned directly by Mr.
Redstone, all shares are owned beneficially by NAI. Mr. Redstone is the
beneficial owner of the controlling interest in NAI and, accordingly,
beneficially owns all such shares.
(5) All shares are owned beneficially by the Company. Mr. Redstone is the
beneficial owner of the controlling interest in the Company and,
accordingly, beneficially owns all such shares. Each share of Blockbuster
Class B Common Stock is convertible at the option of the holder thereof
into one share of Blockbuster Class A Common Stock. As a result, NAI and
Mr. Redstone are also deemed to beneficially own 144,000,000 shares of
Blockbuster Class A Common Stock.
(6) Brent Redstone and Shari Redstone are stockholders of NAI and, accordingly,
each has a significant indirect beneficial interest in the Company shares
owned by NAI and the Blockbuster shares owned by the Company.
(7) Held for the benefit of Bell Atlantic.
(8) Capital Research and Management Company, an investment advisor, filed with
the Securities and Exchange Commission (the "Commission") a Statement on
Schedule 13G (the "Capital Statement"), dated February 10, 2000, reporting
beneficial ownership as of December 31, 1999 of 8,251,800 shares of Class A
Common Stock, representing approximately 6.0% of the outstanding shares of
such class. The Capital Statement reported that the shares are generally
held for investment and that Capital Research and Management Company has
sole investment power but does not have voting power over such shares.
(9) Mario J. Gabelli and various entities, including investment companies,
which he directly or indirectly controls or for which he acts as chief
investment officer, filed with the Commission Amendment No. 4 to their
Statement on Schedule 13D (the "Gabelli Statement"), dated January 27, 2000
reporting an aggregate beneficial ownership of 11,898,000 shares of Class A
Common Stock, representing approximately 8.6% of the outstanding shares of
such class. The Gabelli Statement reported that the shares are generally
held for investment and that the entities reporting beneficial ownership
generally have sole investment and voting power over such shares.
(10) Less than 1%.
III-7
<PAGE>
DIRECTORS' COMPENSATION
Directors of the Company who are not officers or employees of the Company or
NAI or members of their immediate family ("Outside Directors") are entitled to
receive the directors' fees and are eligible to participate in the Company's
deferred compensation and stock option plans described below. Messrs. Abrams,
Miller, Salerno, Schwartz and Seidenberg were Outside Directors for the entire
1999 calendar year. In 1999, only Outside Directors received any compensation
for services as a director.
Directors' Fees. Outside Directors received the following fees for 1999:
---------------
(i) a quarterly retainer of $12,500 for 1999; (ii) a per meeting attendance fee
of $1,500 for each Board meeting; (iii) a per meeting attendance fee of $1,500
for each meeting of the Audit Committee and Compensation Committee; and (iv) a
$7,500 annual retainer fee for the Chairman of the Audit Committee (currently
Mr. Salerno), for the Chairman of the Compensation Committee (currently Mr.
Schwartz) and for the Chairman of the Governance and Nominations Committee
(currently Mr. Abrams). No additional fees or retainers are paid for attendance
at meetings of the Senior Executive Compensation Committee held on the same day
on which a meeting of the Compensation Committee is held or for the Chairman of
the Senior Executive Compensation Committee.
Deferred Compensation Plan. Since 1989, Messrs. Abrams, Miller and Schwartz
--------------------------
have deferred payment of their retainer and attendance fees, and since the
beginning of 1999, Messrs. Salerno and Seidenberg have deferred payment of their
retainer and attendance fees, pursuant to the Company's unfunded Deferred
Compensation Plan; these amounts are deemed invested in the number of stock
units equal to the number of shares of Common Stock such amounts would have
purchased when deferred. Payment will be made in a lump sum or in three or five
annual installments starting seven months after their retirement, with the value
of the stock units determined by reference to the fair market values of the
Class A Common Stock and Class B Common Stock at that time and, in the case of
installment payments, credited with interest. For 1999, the stock unit accounts
of Messrs. Abrams, Miller, Salerno, Schwartz and Seidenberg were credited with
970; 869; 1,143; 984 and 1,055 Class A Common Stock units and 975; 873; 1,147;
987 and 1,058 Class B Common Stock units, respectively.
1993 and 1994 Outside Directors' Stock Option Plans. Each Outside Director
---------------------------------------------------
has received an annual grant of stock options to purchase 3,000 shares of Class
B Common Stock since November 1994 when the Company's 1994 Outside Directors'
Stock Option Plan (the "1994 Plan") was adopted. Each Outside Director who had
served as an Outside Director since 1989 also received a one-time grant under
the 1994 Plan in November 1994 of stock options to purchase 20,000 shares of
Class B Common Stock. In addition, Messrs. Abrams, Miller, Salerno, Schwartz
and Seidenberg received a grant of non-qualified stock options to purchase
10,000 shares of Class B Common Stock when the Company's Outside Directors'
Stock Option Plan (the "1993 Plan") was adopted in May 1993 or when such person
was elected or appointed to the Board. The per share exercise price of each
grant under the 1993 and 1994 Plans has been
III-8
<PAGE>
the closing price of a share of Class B Common Stock on the American Stock
Exchange or the New York Stock Exchange ("NYSE") on the date of grant. On
August 1, 1999, Messrs. Abrams, Miller, Salerno, Schwartz and Seidenberg each
received an annual grant under the 1994 Plan to purchase 3,000 shares of Class B
Common Stock, with a per share exercise price of $41.938 (the closing price of a
share of Class B Common Stock on the NYSE on the date of grant).
Retirement Income Plan. The current Outside Directors are eligible to
----------------------
participate in the unfunded, non-qualified Retirement Income Plan established in
1989. Pursuant to this plan, such Outside Directors will receive annual
payments commencing on such director's retirement equal to 100% of the amount of
the annual Board retainer at the time of such retirement (not including meeting
attendance fees or the annual retainer for serving as Chairman of the Audit,
Compensation or Governance and Nominations Committee), provided he has served on
the Board for at least three years. The Plan provides that such director or his
estate will receive such annual payments for the number of years of such
director's service on the Board. Outside Directors appointed or elected after
January 1, 1999 are not eligible to participate in this plan.
III-9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Abrams, Miller, Brent Redstone, Salerno, Schwartz and Seidenberg and
Ms. Shari Redstone were members of the Compensation Committee for the entire
1999 calendar year.
Shari Redstone is an executive officer and director of NAI. Mr. Dauman, an
executive officer of the Company, is a director of the Company and NAI.
George S. Abrams, a director of the Company and NAI, entered into an
agreement with the Company in 1994 to provide legal and governmental consulting
services for the Company. During the fiscal year ended December 31, 1999, the
Company made payments to Mr. Abrams for such services in the aggregate amount of
$120,000.
Ken Miller, a director of the Company, is Vice Chairman of Credit Suisse
First Boston Corporation. Credit Suisse First Boston Corporation has performed,
and, in the future, is expected to perform from time to time, investment banking
services for the Company.
Brent Redstone, a director of the Company and NAI, was associated until
January, 2000 with the law firm of Davis, Graham and Stubbs, L.L.P. which has
performed, both prior to and after Mr. Redstone became associated with the firm,
and, in the future, is expected to perform from time to time, legal services for
the Company.
NAI, the Company's major stockholder, licenses films in the ordinary course
of its business for its motion picture theaters from all major studios including
Paramount Pictures, a division of the Company. During the fiscal year ended
December 31, 1999, NAI made payments to Paramount Pictures in the aggregate
amount of approximately $15,270,471 to license Paramount Pictures films. NAI
licenses films from a number of unaffiliated companies and the Company believes
that the terms of the licenses between NAI and Paramount Pictures were no less
favorable to Paramount Pictures than licenses between unaffiliated companies and
NAI were to such unaffiliated companies. The Company expects to continue to
license Paramount Pictures films to NAI upon similar terms in the future.
Mr. Redstone and NAI own an aggregate of approximately 25.3% of the common
stock of Midway Games Inc. ("Midway"). During the fiscal year ended December
31, 1999, Blockbuster purchased approximately $15,740,000 of home video games
from Midway. The Company believes that the terms of these purchases were no
less favorable to the Company than it would have obtained from parties in which
there was no such ownership interest. The Company expects to purchase video
games from Midway in the future.
III-10
<PAGE>
EXECUTIVE COMPENSATION
Report of the Compensation Committee and the Senior Executive Compensation
Committee on Executive Compensation
The Compensation Committee and the Senior Executive Compensation Committee
(collectively, the "Committee") of the Board of Directors has furnished the
following report on executive compensation for fiscal 1999.
All members of the Compensation Committee and the Senior Executive
Compensation Committee are non-employee directors. The Compensation Committee
reviews and approves the Company's executive compensation. The Senior Executive
Compensation Committee reviews and approves compensation for executive officers,
if their compensation is, or may become, subject to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Independent
compensation consultants have advised the Committee from time to time with
respect to the Company's long-term incentive compensation plans since 1987.
The objectives of the executive compensation package for the Company's
executive officers (other than the Chief Executive Officer) are to:
. Set levels of annual salary and bonus compensation that will attract
and retain superior executives in the highly competitive environment
of entertainment and media companies;
. Provide annual bonus compensation for executive officers that varies
with the Company's financial performance and reflects the executive
officer's individual contribution to that performance;
. Provide long-term compensation that is tied to the Company's stock
price so as to focus the attention of the executive officers on
managing the Company from the perspective of an owner with an equity
stake; and
. Emphasize performance-based compensation, through annual bonus
compensation and long-term compensation, over fixed compensation.
The Committee evaluates the competitiveness of its executive compensation
packages based on information from a variety of sources, including information
supplied by consultants and information obtained from the media or from the
Company's own experience. The Committee also focuses on executive compensation
offered by the members of the peer group included in the Performance Graphs set
forth on subsequent pages. At times, the Committee also evaluates compensation
relative to a broader range of companies, whether or not included in such peer
group, that have particular lines of business comparable to those of the
Company.
III-11
<PAGE>
Compliance with Internal Revenue Code Section 162(m)
- ----------------------------------------------------
Section 162(m) of the Code generally limits to $1 million the federal tax
deductibility of compensation (including stock options) paid to the Company's
Chief Executive Officer and the other four executive officers whose compensation
is individually disclosed in the tables that appear on subsequent pages (the
"named executive officers"). The tax law includes an exception to the deduction
limitation for deferred compensation paid to an executive officer when he is no
longer subject to Section 162(m). Performance based compensation (including
stock options) is also subject to an exception, provided such compensation meets
certain requirements, including stockholder approval.
Compensation for the Company's executive officers is comprised of base
salary, annual bonus compensation, long-term compensation in the form of stock
options and deferred compensation for any executive officer whose annual base
salary exceeds $1 million. The annual bonus plan for most of the Company's
executive officers (the "Senior Executive STIP") and the Company's stock option
plans (the "LTMIP") were designed to comply with the exception for performance-
based compensation. The Senior Executive STIP provides objective performance-
based annual bonuses, subject to a maximum limit of eight (8) times the
executive's annual salary compensation, consisting of base salary plus any
deferred compensation. Long-term compensation for the Company's executive
officers has been provided through grants of LTMIP stock options. It is
expected that long-term compensation for future years will continue to be
provided through grants of LTMIP stock options. The stockholders of the Company
have approved the Senior Executive STIP and the LTMIP.
Annual Salary Compensation
- --------------------------
Annual salary compensation levels for executive officers are designed to be
consistent with competitive practice and level of responsibility. Annual salary
compensation for 1999 consisted of base salary and, for the Deputy Chairmen,
deferred compensation.
Annual Bonus Compensation
- -------------------------
Annual bonus compensation for 1999 for the named executive officers was
provided under the Senior Executive STIP. In accordance with the Senior
Executive STIP and as permitted by Section 162(m) of the Code, the Senior
Executive Compensation Committee established performance criteria and target
awards for these executive officers. The performance criteria related to the
attainment of a specified level of operating income for the Company as a whole.
For this purpose, the Senior Executive STIP uses the EBITDA definition of
revenues less operating expenses (other than depreciation, amortization and non-
recurring charges) to define "operating income".
The level of the Senior Executive STIP annual bonuses for 1999 for most of
the Company's executive officers (other than the Chief Executive Officer and the
Deputy Chairmen) was based on the determination of the Senior Executive
Compensation Committee that the performance criteria established for 1999 had
been achieved. The Senior Executive
III-12
<PAGE>
Compensation Committee considered a number of factors, including the role played
by the executive officers in helping the Company achieve record operating
results, complete the initial public offering of the Blockbuster common stock
(the "Blockbuster IPO"), purchase the minority interest in Spelling held by the
public (the "Spelling Purchase") and take steps toward effectuating the merger
of CBS Corporation with the Company (the "CBS Merger"), and awarded the annual
bonuses set forth in the Summary Executive Compensation Table.
Pursuant to agreements entered into with the Company on September 6, 1999,
Messrs. Dauman and Dooley have agreed to resign from the Company shortly before
the CBS Merger. Messrs. Dauman and Dooley will each continue to serve as Deputy
Chairman and Executive Vice President of the Company through that time. The
terms of these agreements are described below under "Employment and Severance
Agreements". In accordance with the terms of these agreements and in
consideration of the crucial role played by these executives in helping the
Company achieve its record operating results for 1999, complete the Blockbuster
IPO and the Spelling Purchase, and effect the CBS Merger, the Senior Executive
Compensation Committee awarded the annual bonuses to these executives set forth
in the Summary Executive Compensation Table.
Annual bonus compensation for the Company's executive officers not
participating in the Senior Executive STIP was provided under the Company's
Short-Term Incentive Plan based on individual performance and the Company's
financial performance.
Long-Term Compensation
- -----------------------
The Committee believes that the use of equity-based long-term compensation
plans appropriately links executive interests to enhancing stockholder value.
Annual grants of LTMIP stock options for Class B Common Stock are generally
awarded to the Company's executive officers in August of each year. The grants
of LTMIP stock options for Class B Common Stock awarded to the Company's
executive officers (other than the Chief Executive Officer and the Deputy
Chairmen) in August 1999 represented such executives' grants for 1999 and 2000;
these stock options have an extended vesting period of five years. The $41.938
exercise price of the 1999/2000 stock options grants was set at the fair market
value of the Class B Common Stock on the date of grant. The stock options have
a ten-year term from the date of grant.
The size of the grant to each executive was within the range assigned to the
executive's relative level of responsibility. In determining the amounts
awarded, the Senior Executive Compensation Committee considered the amounts
awarded in prior years, as adjusted for changes in responsibility and the
provisions of executives' employment agreements.
Consistent with the terms of their employment agreements, Messrs. Dauman and
Dooley did not receive a stock option grant in 1999.
III-13
<PAGE>
Chief Executive Officer's Compensation
- --------------------------------------
Mr. Redstone, the Chairman of the Board, Chief Executive Officer and
controlling stockholder of the Company, has waived payment of any salary or
bonus compensation for his services as Chief Executive Officer of the Company
for the period prior to the CBS Merger. Mr. Redstone did not receive a stock
option grant in 1999.
The Company has entered into an employment agreement with Mr. Redstone to
serve as its Chairman and Chief Executive Officer following the effective time
of the CBS Merger. The terms of that agreement are described below under
"Employment and Severance Agreements". Effective upon the CBS Merger, Mr.
Redstone will receive a grant of options to purchase 2,000,000 shares of Class B
Common Stock, vesting in three equal annual installments.
Members of the Members of the Senior Executive
Compensation Committee: Compensation Committee:
George S. Abrams Frederic V. Salerno
Ken Miller William Schwartz, Chairman
Brent D. Redstone Ivan Seidenberg
Shari Redstone
Frederic V. Salerno
William Schwartz, Chairman
Ivan Seidenberg
III-14
<PAGE>
Summary Executive Compensation Table
The following table sets forth information concerning total compensation for the
Chief Executive Officer and the four most highly compensated executive officers
of the Company who served in such capacities during 1999 for services rendered
to the Company during each of the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
----------------------- ----------------------
Awards
------
Securities
Name and Principal Position Other Annual Underlying All Other
at End of Fiscal 1999 Year Salary Bonus Compensation(2) Options(3) Compensation(4)
--------------------- ---- ------ ----- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sumner M. Redstone 1999 $ 0 $ 0 $114,042 0 $ 0
Chairman, Chief Executive Officer 1998 0 0 -- 4,000,000 0
1997 0 0 -- 1,500,000 0
Philippe P. Dauman 1999 1,881,000 8,119,000 -- 0 107,563
Deputy Chairman, Executive Vice 1998 1,710,000 6,000,000 -- 2,000,000 103,288
President 1997 1,100,000 2,750,000 -- 600,000 73,530
Thomas E. Dooley 1999 1,881,000 8,119,000 -- 0 107,563
Deputy Chairman, Executive Vice 1998 1,710,000 6,000,000 -- 2,000,000 103,288
President 1997 1,100,000 2,750,000 -- 600,000 73,530
Michael D. Fricklas 1999 600,000 750,000 -- 110,000 18,750
Senior Vice President, 1998 529,711 550,000 -- 0 18,750
General Counsel and Secretary 1997 471,250 300,000 -- 120,000 17,976
George S. Smith, Jr. 1999 662,500 750,000 -- 120,000 22,000
Senior Vice President, Chief 1998 612,500 475,000 -- 0 22,000
Financial Officer 1997 562,500 300,000 -- 160,000 21,558
</TABLE>
III-15
<PAGE>
________________
NOTES:
(1) Mr. Redstone has waived payment of salary and bonus compensation for his
services as Chief Executive Officer during 1999, 1998 and 1997. Annual
compensation for the other named executives includes the following amounts
of compensation deferred under the Company's 401(k) and Excess 401(k) Plans
and for Messrs. Dauman and Dooley pursuant to their employment agreements:
for Mr. Dauman for 1999 in the amount of $1,231,000, for 1998 in the amount
of $897,500 and for 1997 in the amount of $219,500; for Mr. Dooley for 1999
in the amount of $1,619,571, for 1998 in the amount of $1,351,071 and for
1997 in the amount of $449,270; for Mr. Fricklas for 1999 in the amount of
$115,477, for 1998 in the amount of $82,365 and for 1997 in the amount of
$66,085; and for Mr. Smith for 1999 in the amount of $56,750, for 1998 in
the amount of $45,606 and for 1997 in the amount of $43,115.
(2) In accordance with the rules of the Securities and Exchange Commission,
amounts totaling less than $50,000 have been omitted. Amounts included in
Other Annual Compensation for Mr. Redstone for 1999 relate to non-business
use of Company aircraft.
(3) The 1999 grants for Messrs. Fricklas and Smith represented their entire
annual grant for calendar years 1999 and 2000. The 1998 special grants for
Messrs. Redstone, Dauman and Dooley were awarded in lieu of annual grants
for the next five (5) years (i.e., 1999 - 2003) in connection, in the case
----
of Messrs. Dauman and Dooley, with their entering into new five (5) year
employment agreements. The 1997 grants for Messrs. Redstone, Dauman,
Dooley, Fricklas and Smith represented their entire annual grant for
calendar years 1997 and 1998. Mr. Redstone received a grant in January 1997
which represented his annual grant for 1996.
(4) The Company maintains a program of life and disability insurance which is
generally available to all salaried employees on the same basis. In
addition, during 1999, the Company maintained for Messrs. Dauman and Dooley
certain supplemental life insurance benefits. All Other Compensation
includes premiums paid by the Company for this supplemental coverage for
1999 for each of Messrs. Dauman and Dooley of $25,788; the Company's
matching contributions under its 401(k) Plan for each of Messrs. Dauman,
Fricklas and Smith of $4,000 and for Mr. Dooley of $3,571; credits for the
Company's matching contributions under its Excess 401(k) Plan for 1999 for
Mr. Dauman of $55,750, for Mr. Dooley of $56,178, for Mr. Fricklas of
$14,750 and for Mr. Smith of $18,000; and credits for the Company's matching
contributions for compensation deferred pursuant to their employment
agreements for 1999 for each of Messrs. Dauman and Dooley of $22,025.
III-16
<PAGE>
Option Grants in Fiscal 1999
The following table sets forth certain information with respect to executive
stock options to purchase shares of Class B Common Stock awarded during 1999 to
the named executives. The table includes a column designated "Grant Date
Present Value". The calculation in that column is based on the Black-Scholes
option pricing model adapted for use in valuing executive stock options. There
is no way to anticipate what the actual growth rate of the Class B Common Stock
will be.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------
% of Total
Number of Shares of Options Granted to
Class B Common Stock Employees in Exercise Price Expiration Grant Date
Name Underlying Options(1) Fiscal 1999 ($/Share) Date Present Value(2)
- ---- --------------------- ----------- --------- ---- ----------------
<S> <C> <C> <C> <C> <C>
Sumner M. Redstone 0 0 - - -
Philippe P. Dauman 0 0 - - -
Thomas E. Dooley 0 0 - - -
Michael D. Fricklas 110,000 (3) $41.938 8/1/2009 $2,195,600
George S. Smith, Jr. 120,000 (3) 41.938 8/1/2009 2,395,200
</TABLE>
__________________
NOTES:
(1) These grants were awarded to Messrs. Fricklas and Smith on August 1, 1999
for calendar years 1999 and 2000 and will vest in one-quarter increments on
August 1, 2001, August 1, 2002, August 1, 2003 and August 1, 2004.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised. There is no assurance that the value realized
by an executive will be at or near the value estimated by the Black-Scholes
model. The grant date values presented in the table were determined in part
using the following assumptions. No adjustments were made for non-
transferability or risk of forfeiture.
III-17
<PAGE>
Expected volatility 29.70%
Risk-free rate of return 6.21%
Dividend yield 0.00%
Time of exercise 7.5 years
The approach used in developing the assumptions upon which the Black-Scholes
valuation was done is consistent with the requirements of the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation".
(3) Less than 1%.
III-18
<PAGE>
Aggregated Option Exercises in Fiscal 1999
and Value of Options at End of Fiscal 1999
The following table sets forth as to the Chief Executive Officer and the named
executive officers information with respect to option exercises during 1999 and
the status of their options on December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
as of December 31, 1999(1) as of December 31, 1999
------------------------------ ---------------------------
Number of
Securities Acquired
Name on Exercise Value Realized Exercisable Nonexercisable Exercisable Nonexercisable
- ------------------------ ------------------- -------------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sumner M. Redstone 0 $ 0 1,916,665 5,583,335 $79,525,973 $187,505,277
Philippe P. Dauman 0 0 1,323,332 2,716,668 54,664,738 91,117,762
Thomas E. Dooley(2) 8,000 A Shares 482,250 1,297,332 2,716,668 55,052,113 91,117,762
8,000 B Shares
Michael D. Fricklas 50,000 B Shares 1,405,000 85,333 216,667 3,486,736 6,817,514
George S. Smith, Jr. 108,000 B Shares 3,374,732 326,666 263,334 13,617,471 8,644,404
</TABLE>
__________________
NOTES:
(1) The options are for shares of Class B Common Stock.
(2) Mr. Dooley exercised options during 1999 that were due to expire on August
1, 1999.
III-19
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------------
Remuneration 15 20 25 30
------------ -- -- -- --
<S> <C> <C> <C> <C>
$150,000 $ 36,896 $ 49,194 $ 61,493 $ 73,791
300,000 76,271 101,694 127,118 152,541
450,000 115,646 154,194 192,743 231,291
600,000 155,021 206,694 258,368 310,041
750,000 194,396 259,194 323,993 388,791
900,000 233,771 311,694 389,618 467,541
</TABLE>
Under the terms of the Company's Pension Plan and the Company's Excess
Pension Plan (collectively, the "Pension Plans") for certain higher compensated
employees, an eligible employee will receive a benefit at retirement that is
based upon the employee's number of years of benefit service and average annual
compensation (salary and bonus) for the highest 60 consecutive months out of the
final 120 months. Such compensation is limited to $750,000 per year or, if
greater, the executive's base salary as of December 31, 1995. The benefits
under the Company's Excess Pension Plan are not subject to the Internal Revenue
Code provisions that limit the compensation used to determine benefits and the
amount of annual benefits payable under the Company's Pension Plan. The
foregoing table illustrates, for representative average annual pensionable
compensation and years of benefit service classifications, the annual retirement
benefit payable to employees under the Pension Plans upon retirement in 1999 at
age 65, based on the straight-life annuity form of benefit payment and not
subject to deduction or offset.
The number of years of benefit service that have been credited for Messrs.
Dooley, Fricklas and Smith are 20, 5.5 and 23, respectively. Mr. Dauman has
been credited with 6 years of service under the Company's Pension Plan;
however, the benefits payable under the Company's Excess Pension Plan will be
calculated as though he had 20 years of credited service.
III-20
<PAGE>
Performance Graphs
The following graphs compare the cumulative total stockholder return on the
Class A Common Stock and the Class B Common Stock with the cumulative total
return on the companies listed in the Standard & Poor's 500 Stock Index and a
peer group of companies identified below. The total return data was obtained
from Standard & Poor's Compustat Services, Inc.
The performance graph in Exhibit I assumes $100 invested on December 31,
1994 in each of the Class A Common Stock, the Class B Common Stock, the S&P 500
Index and the Peer Group, including reinvestment of dividends, through the
fiscal year ended December 31, 1999.
NAI acquired control of the Company in June 1987. The performance graph in
Exhibit II assumes $100 invested on December 31, 1987 in each of the Class A
Common Stock, the S&P 500 Index and the Peer Group, including reinvestment of
dividends, through the fiscal year ended December 31, 1999. The cumulative
total stockholder return on the Class B Common Stock assumes the investment in
Class B Common Stock as of June 18, 1990 (the first date on which the Class B
Common Stock was publicly traded) of an amount equal to the cumulative total
stockholder return on the Class A Common Stock as of that date ($302.78).
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings, the
following performance graphs and the Report of the Compensation Committee and
the Senior Executive Compensation Committee on Executive Compensation set forth
above shall not be incorporated by reference into any such filings.
III-21
<PAGE>
Exhibit I
Total Cumulative Stockholder Return for
Five-Year Period Ending December 31, 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
December 31, 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Common 100.00 111.11 82.88 98.20 176.73 290.39
- ----------------------------------------------------------------------------------------------------------------
Class B Common 100.00 116.26 85.58 101.69 181.60 296.63
- ----------------------------------------------------------------------------------------------------------------
S&P 500 100.00 137.44 168.92 225.34 289.74 350.70
- ----------------------------------------------------------------------------------------------------------------
Peer Group* 100.00 123.03 136.74 188.93 239.84 276.03
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* The Peer Group consists of the following companies: BHC Communications,
Inc.; The Walt Disney Company; Gaylord Entertainment Co.; The News Corp.
Ltd. (ADRs); The Seagram Company, Ltd.; Time Warner Inc. and Tribune
Company. King World Productions, Inc., which was previously included in the
Peer Group, has been deleted because it was acquired by CBS Corporation on
November 15, 1999 and, as a result, this security was no longer publicly
traded on December 31, 1999.
III-22
<PAGE>
Exhibit II
Total Cumulative Stockholder Return for
Twelve-Year Period Ending December 31, 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1987 1988 1989 6/18/90 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Common 100.00 171.72 317.24 286.41 373.70 480.08 533.27 454.17
- -----------------------------------------------------------------------------------------------------------------------------
Class B Common 302.78 273.61 379.17 465.28 498.61 452.78
- -----------------------------------------------------------------------------------------------------------------------------
S&P 500 100.00 116.50 153.30 148.52 193.58 208.31 229.21 232.32
- -----------------------------------------------------------------------------------------------------------------------------
Peer Group* 100.00 113.29 162.56 135.69 168.40 201.63 239.13 227.33
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------
December 31, 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Common 504.63 376.32 445.86 802.41 1,318.49
- ---------------------------------------------------------------------------
Class B Common 526.39 387.37 460.27 821.96 1,342.62
- ---------------------------------------------------------------------------
S&P 500 319.31 394.41 526.15 676.52 818.86
- ---------------------------------------------------------------------------
Peer Group* 279.69 310.86 429.50 545.24 627.07
- ---------------------------------------------------------------------------
</TABLE>
* The Peer Group consists of the following companies: BHC Communications,
Inc.; The Walt Disney Company; Gaylord Entertainment Co. The News Corp.
Ltd. (ADRs); The Seagram Company, Ltd.; Time Warner Inc. and Tribune
Company. King World Productions, Inc., which was previously included in the
Peer Group, has been deleted because it was acquired by CBS Corporation on
November 15, 1999 and, as a result, this security was no longer publicly
traded on December 31, 1999.
III-23
<PAGE>
Employment and Severance Agreements
Mr. Redstone, the Chairman of the Board, Chief Executive Officer and
controlling stockholder of the Company, has waived salary and bonus compensation
for his services as Chief Executive Officer for the period through the CBS
Merger. The Company has entered into an employment agreement with Mr. Redstone
to serve as its Chairman and Chief Executive Officer following the effective
time of the CBS Merger. Under that agreement, Mr. Redstone will receive an
annual base salary of $1 million and annual bonus compensation, with an
established target bonus of $5 million and a maximum bonus of $10 million for
calendar year 2000, prorated to reflect the actual number of days that the
agreement is in effect during the year 2000. The target and maximum bonus
amounts increase by 10% annually through 2003. Mr. Redstone will also receive
deferred compensation of $2 million during calendar year 2000, prorated to
reflect the number of days the agreement is in effect during the year 2000,
thereafter to be increased annually by 10% of his salary and deferred
compensation for the preceding year. He will also receive a grant of options to
purchase 2,000,000 shares of Class B Common Stock, vesting in three equal annual
installments.
Messrs. Dauman and Dooley entered into employment agreements during 1998
which provided that they would each be employed as Deputy Chairman and Executive
Vice President of the Company until December 31, 2003, at a salary of $1 million
per annum. The agreements provided that each executive would also receive
deferred compensation, payable the year after he ceases to be an executive
officer of the Company, in an amount equal to $881,000 for 1999, $1,069,000 for
2000 and no less than $1,069,000 per year for 2001-2003. The target bonus for
each executive for each calendar year during the employment term was set at 250%
of his salary and deferred compensation for such year. Each executive was
provided with $5 million of life insurance during the employment term.
Pursuant to agreements entered into with the Company on September 6, 1999,
Messrs. Dauman and Dooley have agreed to resign from the Company shortly before
the CBS Merger. Messrs. Dauman and Dooley will each continue to serve as Deputy
Chairman and Executive Vice President of the Company until such time. As soon as
practicable after their resignation, each will receive a one-time cash payment
equal to the amount that would have been payable under their current employment
agreements through their original terms, or December 31, 2003, payouts of all
deferred compensation accounts and the balance of their accounts under the
Company's Excess 401(k) Plan, and a transaction bonus in the amount of $5
million. It is estimated that each of Messrs. Dauman and Dooley will receive a
payment (excluding any payouts of deferred compensation accounts and Excess
401(k) Plan balances) of approximately $33.6 million.
The severance agreements provided that Messrs. Dauman and Dooley were
entitled to receive bonus compensation for 1999 equal to the greatest of (i)
110% of their respective bonuses received for 1998, (ii) amounts which, when
added to their salary and deferred compensation payable for 1999, would produce
the highest 1999 total cash compensation paid to any other executive officer of
the Company or any of its affiliates, and (iii) such higher amounts as the Board
of Directors determines is appropriate to compensate each executive for his
contribution to the Company in 1999.
III-24
<PAGE>
All equity-based compensation awards previously granted to Messrs. Dauman
and Dooley will vest on the effective date of their resignation and each stock
option will continue to be exercisable in accordance with its terms until
December 31, 2003, subject to their compliance with the provisions of their
agreements. In addition, the Company will provide each of Messrs. Dauman and
Dooley with an office that is comparable in quality and size to his current
office at a location of his choice in midtown Manhattan, subject to the
Company's approval, and a secretary until December 31, 2003, or until he obtains
full time employment, if earlier.
Messrs. Dauman and Dooley will continue to participate in all savings,
retirement, welfare and fringe benefit plans of the Company, or will receive the
cash equivalent of these benefits with an income tax gross up, through December
31, 2003, or, with respect to any welfare benefit, the date on which they become
entitled to comparable benefits through a subsequent employer, if earlier. Mr.
Dauman will also receive all additional service credit necessary to provide him
with 20 years of service under any Company plans for which that credit would
entitle him to additional benefits.
In the event that either executive is terminated by the Company without
"cause," or terminates his own employment for "good reason," as these terms are
defined in their respective agreements, prior to the CBS Merger, that executive
will be entitled to all of the payments described above promptly following his
termination, except for the $5 million transaction bonus, which will be paid as
of the time of the CBS Merger.
The agreements provide for a gross-up payment to be made to Messrs. Dauman
and Dooley to eliminate the effects of any possible imposition under the
Internal Revenue Code of the "golden parachute" excise tax on any payment or
benefit they receive under their agreements or otherwise. Messrs. Dauman and
Dooley will be bound by restrictive covenants, including a noncompetition
covenant that applies for one year following their termination of employment.
Mr. Fricklas' employment agreement provides that he will be employed as
Senior Vice President, General Counsel and Secretary of the Company until
December 31, 2001, at a salary of $600,000 for 1999, with $50,000 annual
increases. Mr. Fricklas' target bonus is set at 50% of his base salary. In the
event of the termination of Mr. Fricklas' employment without "cause" or
voluntary termination for "good reason", as these terms are defined in his
agreement, during the employment term, he will be entitled to receive salary and
target bonus for the balance of the employment term, subject to mitigation after
the first twelve months, and his stock options (including options that would
have vested during the employment term) shall remain exercisable for six months
following the date of termination (but not beyond the expiration of such stock
options).
Mr. Smith's employment agreement provides that he will be employed as Senior
Vice President, Chief Financial Officer of the Company until March 31, 2001.
His salary of $675,000 for the twelve month period ended March 31, 2000 was
increased to $725,000 for the succeeding twelve month period. Mr. Smith's
target bonus is set at 50% of his base salary. In the event of the termination
of Mr. Smith's employment without "cause" or voluntary termination for "good
reason", as these terms are defined in his agreement, during the employment
term, he will be entitled to receive salary and target bonus for the balance of
the
III-25
<PAGE>
employment term, subject to mitigation after the first twelve months, and
his stock options (including options that would have vested during the
employment term) shall remain exercisable for six months following the date
of termination (but not beyond the expiration date of such stock options).
The Company has adopted an executive severance plan covering ten Senior Vice
Presidents, including Messrs. Fricklas and Smith, and two Vice Presidents, that
became effective on September 6, 1999 and will continue in effect for one year
from the date of the CBS Merger. The benefits provided under this plan are
conditioned on the participant's execution of a release in favor of the Company
and replace the severance benefits provided to participants under their
employment agreements with the Company and any other severance plan, program,
policy or arrangement of the Company.
Upon a termination of a participant's employment by the Company without
"cause" or by the participant for "good reason", as those terms are defined in
the executive severance plan, the Company will pay each participant a one-time
cash payment equal to the sum of any earned, unpaid base salary, automobile
allowance, vacation pay and pro-rated bonus through the date of termination and
the base salary, target bonus, prorated for partial years, and automobile
allowance the participant would have earned for three years. These payments
will be made assuming increases in base salary and bonus compensation consistent
with the participant's existing employment agreement and, after the expiration
of such agreement, at an annualized rate consistent with the last regular
increase under the agreement.
All equity-based compensation awards previously granted to a participant
will vest on the date of the participant's involuntary termination, and each
stock option will continue to be exercisable in accordance with its terms, for
three years or through the option's original expiration date, if earlier.
Additionally, for three years following termination, each participant will
be entitled to participate in the Company's medical, dental and life insurance
plans until the participant secures full-time employment that provides the
participant with comparable coverage, and will either be provided with car
insurance or be reimbursed for car insurance. On the date of termination, the
participant will be credited with three years of additional age and service for
all purposes under all of the Company's qualified and non-qualified retirement
plans. For a period of one year following termination, or, if earlier, until
the participant secures full-time employment, the participant will be provided
with an office comparable in both quality and size to the office the participant
had prior to the participant's termination, at a location of the participant's
choice, subject to the Company's consent. The Company will bear the cost of
relocating the participant and will provide the participant with a secretary.
The executive severance plan provides for a gross-up payment to be made to
the participant to eliminate the effects of the imposition under the Internal
Revenue Code of the "golden parachute" excise tax, if any, on any payment or
benefit the participant may receive under the executive severance plan or
otherwise. Each participant will continue to be bound by the non-solicitation,
non-disparagement, confidentiality and cooperation with litigation covenants in
the participant's existing employment agreement, but the non-competition
covenant in each of the existing agreements will be waived by the Company.
III-26
<PAGE>
RELATED TRANSACTION
In November 1995, the Company entered into an agreement with Gabelli Asset
Management Company ("GAMCO") providing that GAMCO would manage certain assets in
the Company's Pension Plan. For the fiscal year ended December 31, 1999, the
Company paid GAMCO approximately $342,250 for such investment management
services. GAMCO is expected to continue to provide such investment management
services in the future. The Company entered into the arrangement with GAMCO
prior to GAMCO's disclosure of its interest in the Company. The Company
believes that the terms of the agreement with GAMCO are no less favorable to the
Company than it could have obtained from an unaffiliated party.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the NYSE. Executive
officers, directors and greater than 10% stockholders are required by the
Exchange Act to furnish the Company with copies of all Section 16(a) forms they
file. Based upon the Company's compliance program, as well as a review of the
copies of such forms furnished to the Company, or written representations that
no Form 5's were required, the Company believes that during 1999, its executive
officers, directors and greater than 10% beneficial owners complied with all
applicable Section 16(a) filing requirements.
III-27
