Commission file No. 0-21150
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14(a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Spice Entertainment Companies, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC.
536 Broadway
New York, New York 10012
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on August 5, 1997
--------------------------
The Annual Meeting of the Stockholders (the "Annual Meeting") of SPICE
ENTERTAINMENT COMPANIES, INC. (the "Company") will be held on Tuesday, August 5,
1997 at 9:00 a.m., at the Angelika Film Center, 18 West Houston Street, New
York, New York 10012 for the following purposes:
1. To elect seven Directors of the Company to serve for the ensuing year
(Proposal 1);
2. To approve the amendment of the Company's Certificate of Incorporation
to provide that actions required or permitted by the stockholders must
be effected at a duly called annual or special meeting of stockholders
(Proposal 2);
3. To approve an amendment to the Company's 1991 Amended Management
Stock Option Plan (Proposal 3);
4. To ratify the appointment of Grant Thornton LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997
(Proposal 4); and
5. To transact such other business as may properly come before the
Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. Only stockholders of record at the close of business on June 20, 1997
are entitled to vote at the Annual Meeting (including any adjournments thereof).
By of the Board of Directors
DANIEL J. BARSKY
Senior Vice President, General Counsel
and Secretary
New York, New York
July , 1997
YOUR VOTE IS IMPORTANT. To assure your representation at the Annual Meeting, you
are urged to mark, sign, date and return the enclosed Proxy in the enclosed
postage-prepaid envelope.
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC.
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PROXY STATEMENT
FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
PROCEDURAL MATTERS
General
This Proxy Statement is being furnished for the solicitation of proxies
by the Board of Directors of Spice Entertainment Companies, Inc. (the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
on August 5, 1997 at 9:00 a.m., local time, and at any adjournment thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The Annual Meeting will be held at the Angelika Film Center, 18
West Houston Street, New York, New York 10012. The telephone number at the
Angelika is 212.995.2000. The Company's headquarters are located at 536
Broadway, 7th Floor, New York, New York 10012, and the telephone number at that
location is 212.941.1434.
These proxy solicitation materials were mailed on or about July 1,
1997, together with the Company's 1996 Annual Report, to all stockholders
entitled to vote at the Annual Meeting.
Voting at the Annual Meeting and Record Date
Holders of record of shares of the Company's Common Stock (the
"Shares") at the close of business on June 20, 1997 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 11,339,948 Shares issued and outstanding. For information regarding
security ownership by the directors, management and the beneficial owners of
more than 5% of the Company's Common Stock, see "SHARE OWNERSHIP BY DIRECTORS,
PRINCIPAL STOCKHOLDERS AND MANAGEMENT."
Quorum; Required Vote
The holders of a majority of the outstanding Shares entitled to vote,
present in person or by proxy, will constitute a quorum for the transaction of
business. Each Share is entitled to one vote on all matters properly brought
before the Annual Meeting.
For the election of Directors (Proposal 1), a plurality of the votes
cast, in person or by proxy, is required for approval if a quorum is present and
voting. The affirmative vote of a majority of the outstanding Shares, in person
or by proxy, is required for the approval of the proposal to amend the Company's
Certificate of Incorporation (Proposal 2). The affirmative vote of a majority of
Shares present and voting at the Annual Meeting, in person or by proxy, is
required for approval of the proposal to approve the amendment to the 1991
Amended Management Stock Option Plan and for ratification of the independent
auditors (Proposals 3 and 4).
Abstentions are counted in determining the total number of votes
present, in person or by proxy. While not counted as votes for or against a
proposal, abstentions have the same effect as votes against a proposal. If a
broker or other nominee holding Shares for a beneficial owner does not vote on a
proposal (broker non-votes), the Shares will not be counted in determining the
number of votes present. With respect to Proposal 1, stockholders can withhold
authority to vote for all nominees for Director or can withhold authority to
vote for certain nominees for Director. The nominees for Directors with the
seven highest number of affirmative votes (a plurality) will be elected as
Directors. Because the Directors will be elected by a plurality, votes withheld
and broker non-votes will have no effect on the outcome of the election of
Directors. With respect to Proposal 2, abstentions and broker non-votes have the
same effect as votes against such proposal. With respect to Proposals 3 and 4,
abstention have the same effect as votes against such proposals while broker
non-votes will not be counted for purposes of determining the number of votes
cast for such proposals and, therefore, have no effect on the vote for such
proposals.
Proxies
All Shares entitled to vote and represented by properly executed
proxies received prior to the Annual Meeting will be voted at the Annual Meeting
in accordance with the instructions indicated on those proxies if not revoked
prior to the Annual Meeting. If no instructions are indicated on a properly
executed proxy, the Shares represented by that proxy will be voted for the named
nominees to the Company's Board of Directors and in favor of the other proposals
set forth on the proxy. If any other matters are properly presented for
consideration at the Annual Meeting, the proxy holders will have discretion to
vote on those matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. A proxy may be revoked (i) by
delivering a written notice of revocation or a duly executed proxy to the
Secretary of the Company bearing a date later than the prior proxy relating to
the same Shares or (ii) by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not of itself revoke a proxy).
Any written notice of revocation or subsequent proxy must be received by the
Secretary of the Company prior to the taking of the vote at the Annual Meeting.
Expenses of Solicitation
The Company will bear all expenses of this solicitation, including the
cost of preparing and mailing this Proxy Statement. The Company may reimburse
brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of Shares for their reasonable expenses in
forwarding solicitation material to such beneficial owners. Directors, officers
and employees of the Company may also solicit proxies in person or by telephone,
telegram, letter or facsimile. Such directors, officers and employees will not
be additionally compensated, but they may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation.
Procedure for Submitting Stockholder Proposals
Stockholders may present proper proposals for inclusion in the
Company's proxy materials for consideration at the next annual meeting of its
stockholders by submitting their proposals to the Secretary of the Company in a
timely manner. In order to be included in the Company's proxy materials for the
1998 Annual Meeting, stockholder proposals must be received by the Secretary of
the Company no less than 10 nor more than 60 days prior to the 1998 Annual
Meeting of Stockholders, and must otherwise comply with the requirements of Rule
14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the Company's Amended and Restated Bylaws (the "Amended Bylaws").
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
General
The Company's business is conducted by management under the direction
of the Board of Directors. The Board is currently comprised of seven members all
of whom are seeking to be elected at the Annual Meeting. If any of the nominees
is unable or declines to serve as a director at the Annual Meeting, the proxy
holders will vote in their discretion for a substitute nominee or will vote for
a fewer number of directors as may be prescribed by the Board of Directors in
accordance with the Company's Bylaws. It is expected that all nominees will be
available to serve as Board members. The term of office of each person elected
as director will continue until the next Annual Meeting of Stockholders or until
his or her successor has been elected and qualified. Leland H. Nolan is required
to be nominated as a director under the terms of a Separation Agreement between
the Company and Mr. Nolan until December 31, 1998, except in certain
circumstances.
Certain information regarding the beneficial ownership of Shares of
each such director is set forth below at "SHARE OWNERSHIP BY PRINCIPAL
STOCKHOLDERS, DIRECTORS, NOMINEES AND MANAGEMENT."
Information Regarding Nominees for Directors
The following table sets forth the name, age and certain other
information regarding the nominees for directors.
<TABLE>
<CAPTION>
Name Ag Position, Occupation and Business Experience
- ----------------- ---- --------------------------------------------------------------------------
<S> <C> <C>
J. Roger Faherty 58 Chairman of the Board of Directors, Chief Executive Officer,
President and Director. Mr. Faherty has been Chairman of the Board
and a Director of the Company since December 1991. In 1991 he was
elected as the Company's Chief Executive Officer and became President
in 1996. Beginning in March 1990 and until joining the Company in
December 1991, he was a consultant to the Company.
Leland H. Nolan 50 Director. Mr. Nolan has been a Director of the Company since 1988
and from that time and until the end of 1995, held various executive
positions, most recently as Vice Chairman, International Initiatives.
Prior to joining the Company, he was Chairman of the Board of Orange
Entertainment Company, a video production and distribution company.
Dean R. Ericson 51 Director. Mr. Ericson was elected a Director of the Company on
January 24, 1994. Mr. Ericson is co-founder and President, since
1987, of Media Management Services, Inc., a Denver-based consulting
practice providing technology and business development services to
selected media and telecommunications companies. He was formerly
Vice President of New Business Development, Director of Pay
Television, and Manager of Special Markets at American Television and
Communications Corporation.
R. Christopher Yates 58 Director. Mr. Yates was elected a Director of the Company on July
23, 1996. He has been the Chief Executive Officer of The Home Video
Channel Ltd. ("HVC") since HVC's 1989 formation. Since the end of
1994, HVC has been a wholly-owned subsidiary of the Company. Prior
to 1989 he was the Chief Executive of Cabletel Communications Ltd.,
which was owned by the Ladbroke Group PLC and Comcast Communications
Inc., and operated a fully interactive cable system in West London.
Mr. Yates is also a founding member of the Cable Television
Association in the U.K. and has served in various capacities with
that organization.
Rudy R. Miller 49 Director. Mr. Miller was elected a Director of the Company on July
23, 1996. He has served as Chairman, President and Chief Executive
Officer of Miller Management Corp., a financial consulting firm,
since 1972 and of Miller Capital Corp., a venture capital, financial
services and investor relations firm, since 1993. Mr. Miller was
Chairman, President and Chief Executive Officer of StatesWest
Airlines, Inc. operating as US Air Express from 1986 to 1993. That
company petitioned for protection under Chapter 11 of the U.S.
Bankruptcy Code in December 1992 which was dismissed by the
Bankruptcy Court in September 1994. Mr. Miller was also a member of
the board of directors of America West Airlines from 1982 to 1986 and
a member of the board of directors of Jacor Communications Inc., one
of the largest radio broadcasting groups in the United States.
Steve Saril 43 Director, Senior Vice President, Sales & Marketing. Mr. Saril has
been an executive officer of the Company since 1989 and is currently
its Senior Vice President of Sales and Marketing. He was elected as a
Director on September 26, 1996. Between 1979 and 1989, he was a
Director of National Accounts for Showtime Networks, Inc., an
operator of cable movie networks.
Stephen K. Liebmann 59 Director. Mr. Liebmann was elected a Director on May 22, 1997. Mr.
Liebmann has been a self-employed marketing consultant to
growth-oriented consumer businesses since 1976. Mr. Liebmann has
provided consulting services to several major corporations including
several in businesses related to the Company including American
Television & Communication Corp. (a subsidiary of a predecessor of
Time Warner), Paragon Cable, Home Box Office, Primestar Partners, and
Hughes Network Systems. He has also provided consulting services to
other consumer businesses including Sara Lee, Hallmark, Quaker Oats
Company and Cadbury Scwheppes U.S.A.
</TABLE>
Committees; Board Meetings
The Board of Directors of the Company held nine meetings during 1996.
Each Director attended all of the 1996 meetings except for Edward M. Spector, a
former Company Director, who attended seven meetings.
The Board of Directors currently has three committees: an Audit
Committee, a Compensation Committee and a Stock Option Committee. The Audit
Committee is responsible for reviewing the activities of the Company's
independent auditors (including fees, services and scope of audit), monitoring
the efficacy of the Company's internal accounting controls, reviewing the
Company's accounting procedures and policies and reviewing the Company's
budgeting and forecasting. The Audit Committee met twice during 1996 and
delivered two reports to the Board.
The Compensation Committee is responsible for reviewing and
establishing the compensation policy for the Company. The Compensation Committee
met twice during 1996, and delivered two reports to the Board. The Stock Option
Committee is responsible for administering the Company's employee stock option
plans and for reviewing and implementing all matters with respect to the plans
including granting options and setting vesting schedules and exercise prices.
The Stock Option Committee met three times during 1996 and delivered three
reports to the Board.
The members of each committee are currently Messrs. Ericson, Miller
and Nolan, the non-employee Company Directors. Mr.Ericson is chairman of
the Compensation and Stock Option Committees. Mr. Miller is chairman of the
Audit Committee. The committee members attended all of the committee meetings
during 1996.
Director's Compensation
The Company pays $1,000 per meeting, plus expenses for regular board
meetings, and $250 for telephone conference call board meetings to non-employee
directors serving on its Board of Directors. In addition, non-employee directors
are entitled to participate in the Directors Stock Option Plan, as amended (the
"Directors Plan"). A total of 100,000 shares are reserved for issuance under the
Directors Plan. As of May 1, 1997, there were 60,000 options available under the
Directors Plan. The Directors Plan provides for the automatic issuance of 10,000
options to non-employee directors on December 31 of each year such person is
qualified to participate in the Directors Plan. Messrs. Ericson, Miller and
Nolan were each granted options under the Directors Plan on December 31, 1996.
For a more detailed summary of the Directors Plan, see "EXECUTIVE COMPENSATION
Stock Option Plans."
THE BOARD RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
<PAGE>
PROPOSAL 2
STOCKHOLDER MEETING PROPOSAL
In May, 1997, the Company's Board of Directors approved two measures
that affect the ability of the Company's stockholders to approve corporate
actions. One of the measures, which is being submitted for approval by the
Company's stockholders at the Annual Meeting, would require that stockholder
action be effected only at a duly called meeting of stockholders rather than by
written consent of the stockholders (the "Stockholder Meeting proposal"). The
second measure, contained in the Amended and Restated Bylaws of the Company (the
"Amended Bylaws"), which does not require stockholder approval, requires advance
notice to the Company of (i) stockholder nominations for the election of
Directors and (ii) stockholder proposed amendments to the Company's Certificate
of Incorporation and Amended Bylaws (the "Notice provisions").
Stockholder Meeting proposal
Under the Delaware General Corporation Law ("Delaware Law"), any action
required or permitted to be taken by a Delaware corporation's stockholders may
be taken, unless the corporation's certificate of incorporation provides
otherwise, without a meeting and without a stockholder vote if a written consent
setting forth the action to be taken is signed by the holders of shares of
outstanding stock having the requisite number of votes that would be necessary
to authorize such action at a meeting of stockholders. The Company's current
Certificate of Incorporation (the "Certificate of Incorporation") does not limit
the right of stockholders to act by written consent. The Stockholder Meeting
proposal being submitted to the Company's stockholders at the 1997 Annual
Meeting, if approved, would require that stockholder action be taken only at an
annual or special meeting of stockholders and would prohibit stockholder action
by written consent. If Proposal 2 is approved, a new Article Eleventh would be
added to the Certificate of Incorporation. The text of proposed Article Eleventh
is attached to this Proxy Statement as Exhibit 1.
Notice Provisions
In conjunction with the Board's approval and submission to the
stockholders of the Stockholder Meeting proposal, the Board also adopted the
Notice provisions, which require advance notice of stockholder nominations for
the election of Directors and of stockholder proposed amendments to the
Certificate of Incorporation and Amended Bylaws. The Notice provisions,
incorporated in the Amended Bylaws, were approved by the Board of Directors,
and, since they do not require stockholder approval, are presently in effect.
Because the two measures are related, the proposal to adopt the Stockholder
Meeting proposal should be considered in light of the Notice provisions that are
currently in place.
The Notice provisions require that stockholders proposing to nominate
one or more persons for election as Directors provide the Company with advance
written notice (i) at least 90 days and no more than 120 days prior to a
scheduled Annual Stockholders' Meeting or (ii) not more than 60 days prior to a
Special Meeting nor later than 7 business days following communication to
stockholders of notice of the Special Meeting. The written notice must contain
specified information including: (i) the names and addresses of the stockholder
and the proposed nominee, (ii) a representation that the stockholder proposing
the nomination is a stockholder of record and intends to appear at the meeting
to nominate the proposed nominee, (iii) any arrangements between the stockholder
and each such nominee, (iv) any other information that would be required in a
proxy statement filed under the proxy rules of the Securities and Exchange
Commission and (v) the nominee's consent to serve as a Director if elected.
The Notice provisions concerning amendments to the Certificate of
Incorporation and Amended Bylaws require that the stockholder proposing such
amendment provide the Company with advance notice not less than 10 days nor more
than 60 days prior to any annual or special meeting of stockholders when the
proposed amendment will be voted upon. The written notice must contain specified
information including (i) the text of the proposed amendment, (ii) a
representation that the stockholder proposing the amendment is a stockholder and
the number of Shares held by such person, (iii) a list of the names of the other
stockholders who are acting in concert with the stockholder proposing the
amendment and (iv) an opinion of counsel that the Certificate of Incorporation,
as proposed to be amended, will not conflict with the laws of the State of
Delaware.
Purpose of Stockholder Meeting Proposal and Notice Provisions
Proposals for stockholder action typically involve important issues
relating to the Company and its future, and the Board believes that such
proposals should be considered in a manner that permits discussion of the
issues, following notice to all, not just some, of the Company's stockholders.
The Board adopted the Notice provisions, and is recommending the adoption of the
Stockholder Meeting proposal, to increase the likelihood that the Company and
all of its stockholders are given an opportunity to carefully consider and
respond to important stockholder proposals.
Stockholders should keep in mind that the advance notice required by
the Notice provisions and Stockholder Meeting proposal could have the effect of
deterring persons from initiating hostile takeover attempts against the Company.
If a bidder is required to provide advance notice of stockholder measures
intended to further a hostile takeover attempt, the bidder loses an element of
surprise. As a result, the Board of Directors has more of an opportunity to
devise and employ methods to defend against such an attack, should it determine
that the bid is not in the best interests of the Company and its stockholders.
In addition, the Stockholder Meeting proposal and Notice provisions would impair
the stockholders' ability to remove one or more members of the Board of
Directors or to conduct a proxy contest involving the election of Directors or
other matters.
Taking all these factors into consideration, however, the Board of
Directors believes that these measures should increase the likelihood that all
Company stockholders will be treated equally and fairly when stockholder action
is taken and should enhance the ability of the Company and its stockholders to
carefully consider stockholder proposals.
Delaware Law permits Delaware corporations to adopt a number of other
measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. In addition to the proposed Stockholder Meeting proposal and the
Notice provisions contained in the Amended Bylaws, other provisions of the
Amended Bylaws, the Certificate of Incorporation, Delaware Law and certain
agreements to which the Company is a party could deter, to varying degrees and
in various circumstances, an effort to take control of the Company without the
approval of the Board of Directors. These are summarized below in "Existing
Anti-Takeover Provisions."
The Company is not aware of any proposed takeover attempt or attempt to
acquire control of the Company. No tender offer, leverage buyout or similar
transaction involving the change of control of the Company is currently pending.
The affirmative vote of a majority of the outstanding Shares is
required to approve the Stockholder Meeting proposal.
THE BOARD OF DIRECTOR'S RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF
THE STOCKHOLDER MEETING PROPOSAL.
Existing Anti-takeover Provisions
The following summary describes the provisions of the Certificate of
Incorporation, Amended Bylaws, Delaware Law and agreements to which the Company
is a party or is subject, which could deter, to varying degrees and in various
circumstances an effort to take control of the Company without the approval of
the Board of Director. The summary is qualified in its entirety by reference to
the particular provisions and agreements.
Stockholder Rights Plan. Under the Company's Stockholder Rights Plan,
which was adopted on June 13, 1997, one right ("Right") was distributed to
stockholders of record on June 27, 1997 and is presently attached to and trades
with each outstanding Share. These Rights become exercisable and transferable
apart from the Shares on the earlier of (i) the 10th calendar day after the
public announcement that a person, including affiliates and associates (an
"Acquiring Person"), has acquired beneficial ownership of 15% or more of the
Company's Common Stock ("15% Ownership") or (ii) the 10th business day after the
commencement of a tender offer or exchange offer for the Company's Shares if
upon consummation thereof, the Acquiring Person acquires 15% Ownership. Once
exercisable, each Right entitles the holder to purchase one one-hundredth
(1/100) of a share of Series B Junior Participating Preferred Stock at an
exercise price of $12.50, subject to adjustment to prevent dilution. The Rights
have no voting power and, until exercised, no dilutive effect on net income per
Share. The Rights expire on June 12, 2007 and are redeemable under certain
circumstances. If a person acquires 15% Ownership, except in an offer approved
by the Company under the Plan, then each Right not owned by the Acquiring Person
or related parties will entitle its holder to purchase, at the Right's exercise
price, common stock or common stock equivalents having a market value
immediately prior to the triggering of the Right of twice the exercise price. In
addition, after an Acquiring Person obtains 15% Ownership, if the Company is
involved in certain mergers, business combinations or asset sales with the
Acquiring Person, each Right not owned by the Acquiring Person or related
persons will entitle its holder to purchase, at the Right's exercise price,
shares of common stock of the other party to the transaction having a market
value immediately prior to the triggering of the Right of twice the exercise
price.
Takeover Statute. In general, Delaware Law Section 203 restricts for
three years certain business combinations between a Delaware corporation and a
stockholder that acquires 15% or more (a "15% stockholder") of the corporation's
voting stock. An exception is provided where the stockholder, upon consummation
of the transaction which resulted in such stockholder becoming a 15%
stockholder, acquires more than 85% of the corporation's total voting shares
(excluding shares held by directors who are also officers and by certain
employee benefit plans). In addition, business combinations with 15%
stockholders are permitted if (a) prior to the stockholder becoming a 15%
stockholder, the board of directors approved either the business combination or
the transaction that resulted in the person becoming a 15% stockholder, or (b)
on or after the date such person became a 15% stockholder, the business
combination was approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned by the 15%
stockholder or its affiliates and associates.
Supermajority Votes in the Amended Bylaws. The Amended Bylaws contain a
number of provisions which require a supermajority vote of the Directors for
certain actions to be taken. Some of the actions which require a supermajority
vote include: (i) calling for a stockholders' meeting, (ii) amending or
repealing the Amended Bylaws or adopting new bylaws, (iii) changing the number
of Directors; and (iv) removing the Chairman of the Board.
Stockholders Not Empowered to Call Special Meetings. The stockholders
are not empowered to call a Special Meeting of Stockholders which may be called
only pursuant to a vote of 75% of the members of the Board of Directors then in
office.
No Preemptive Rights. Holders of Shares do not have preemptive rights.
Additional Authorized Capital Stock. The Company has 9,975,750 of
authorized but unissued shares of preferred stock (in addition to the shares of
Series B Junior Participating Preferred Stock issuable under the Stockholders'
Rights Plan) and approximately 13 million of authorized but unissued Shares of
Common Stock and 700,000 Shares of Common Stock held in treasury. The Board
could use these authorized but unissued shares of stock to defend against a
hostile takeover.
Certain Agreements. The Company currently has agreements with Messrs.
Faherty and Saril, as well as certain other senior officers, that provide for
severance compensation if their employment is terminated within 18 months
following a change in control of the Company. The Company has also entered into
Indemnity Agreements with its directors which provide for, among other things,
indemnification of the directors to the fullest extent permitted by law and for
the prompt advancement of costs and reimbursement thereof if indemnification is
not permitted by law.
<PAGE>
PROPOSAL 3
AMENDMENT OF AMENDED 1991 MANAGEMENT STOCK OPTION PLAN
The Company's Board of Directors has unanimously adopted, subject to
stockholder approval, and recommended that the stockholders approve, amendments
to the Amended 1991 Management Stock Option Plan (the "Amended 1991 Plan") to
increase the number of Shares reserved for issuance under the Amended 1991 Plan
by 750,000 Shares from 2,100,000 Shares to 2,850,000 Shares.
The Company stockholders have previously approved four employee stock
option plans providing options to acquire an aggregate of 4,000,000 Shares and
the Directors Stock Option Plan providing for options to acquire 100,000 Shares
(collectively the "Current Plans"). As of June 18, 1997, options to acquire
3,550,715 Shares have been granted under the Current Plans. The Current Plans
have available options to purchase 401,510 Shares. See "MANAGEMENT - Executive
Compensation - Stock Options," below for a more detailed description of the
Current Plans and of options granted to the Company's Directors and senior
management in 1996.
The purpose of the amendment to the Amended 1991 Plan is to increase
the pool of available options and to advance the interests of the Company by
inducing persons of outstanding ability and potential to join and remain with
the Company, by encouraging and enabling employees, directors and consultants to
acquire proprietary interests in the Company and by providing the participating
employees, directors and consultants with additional incentive to promote the
success of the Company.
The Stock Option Committee, comprised of non-employee members of the
Board of Directors, is responsible for administration of the Amended 1991 Plan
and has not made any determination as to who would receive the additional
options authorized for grant under the Amended 1991 Plan.
Description of the Amended 1991 Plan
The following description of the Amended 1991 Plan is qualified in its
entirety by reference to the Amended 1991 Plan, a copy of which was attached to
the Proxy Statement for a Special Meeting of Stockholders of Jericap, Inc. (a
predecessor of the Company) held on May 7, 1992. Attention is particularly
directed to the description therein of the prices, expiration dates and other
material conditions upon which the options may be granted and exercised.
The Stock Option Committee may grant options to such persons to
purchase the number of shares as the Stock Option Committee may determine. As
non-employee members of the Board, the Stock Option Committee members are
ineligible to receive grants of options under the Amended 1991 Plan.
Options granted under the Amended 1991 Plan may either be Incentive
Stock Options ("ISO's") pursuant to which the recipient receives certain tax
benefits or non-ISO's. The Amended 1991 Plan provides, among other things, that
options may be granted to purchase Shares at a price per share fixed by the
Stock Option Committee and, in the case of an ISO, at not less than the fair
market value of the applicable class of the Company's Common Stock on the date
of option grant (110% of such fair market value in the case of optionees holding
10% or more of the combined voting rights of the Company's securities). For
grants to officers, the price will be the minimum price described in the
preceding sentence.
At the discretion of the Stock Option Committee, options are for a term
not to exceed 10 years or, for Option granted to a Holder of 10% or more of the
Company's Shares, 5 years. Options may be exercised by the payment in full in
cash or by, with approval of the Stock Option Committee, payment of par value in
cash with a note for the balance or in a "cash-less" exercise by either
exchanging previously issued Shares or by surrendering additional options, in
either case with a market value equal to the exercise price.
All Shares available under the Amended 1991 Plan are subject to
adjustments that may be made for a merger, recapitalization, stock dividend,
stock split or other similar change affecting the number of outstanding Shares.
Shares subject to an option that lapses, terminates or is forfeited will be
available for future options or awards.
The Board may at any time amend, suspend, or discontinue the Amended
1991 Plan, provided that certain amendments may not be made by the Board without
approval of the stockholders. Amendments may not alter an outstanding option
without the consent of the optionee.
Federal Income Tax Consequences
Under the Internal Revenue Code of 1986 ("Code"), the Federal income
tax consequences of the grant and exercise of options to purchase Shares under
the Plan, and the sale of such shares, will depend upon whether or not the
option is an ISO. No tax is imposed on the grantee, and no deduction is
available to the Company, at the time of grant of an option. Upon the exercise
of an option (other than an ISO), generally the grantee will be treated as
receiving compensation (and the Company will be entitled to a deduction) equal
to the excess of the fair market value of the related shares at the time of
exercise over the exercise price. If Shares are delivered by the optionee in
exercise of an option (other than an ISO), no amount will be includable in the
optionee's gross income with respect to the number of shares received, up to the
number delivered, and the optionee's basis in the number of shares so acquired
will be the same as his basis in the number of shares delivered; the fair market
value of any additional shares so received will be includable in the optionee's
gross income and this amount will become the basis for those shares. According
to proposed regulations issued by the Internal Revenue Service, the fair market
value of any additional shares received upon the exercise of an ISO by delivery
of Shares would not be includable in the optionee's gross income and the
optionee's basis for such additional shares will be zero. Finally, a corporate
insider subject to the six-month period described in Section 16(b) of the
Securities Exchange Act of 1934 may postpone the realization of income from an
exercise until six months after the exercise, with the amount includable in his
gross income determined at the end of the six months period, by not electing to
have the amounts includable in his gross income determined at the time of
exercise.
Although an individual can receive an unlimited number of ISO's during
any calendar year, the aggregate fair market value (determined at time of option
grant) of the stock with respect to which ISO's first become exercisable during
any calendar year (under all of the Company's employee stock option Plans)
cannot exceed $100,000 per individual. An optionee will not realize taxable
income for federal income tax purposes upon the exercise of an ISO (but such
exercise may subject such optionee to the alternate minimum tax) provided he
does not dispose of the shares acquired upon the exercise within two years from
the date of grant or within one year from the date of exercise. If these
conditions are met, the Company will not be entitled to a deduction in
connection with the grant or the exercise of the option.
The net capital gain realized on the resale or disposition of the
shares is subject to tax at the same rate as ordinary income, except that an
individual's net capital gains will be subject to a maximum tax rate of 28%. If
the optionee disposes of the shares within the two or one-year periods mentioned
above, he will realize taxable ordinary income in an amount equal to any excess
of the fair market value of the shares on the date of exercise (or the amount
realized on disposition, if less) over the option price, and the Company will be
allowed a corresponding deduction as in the case of a non-ISO.
Board Recommendation
The Board of Directors is of the opinion that ratification of the
adoption of the Amended 1991 Plan is in the best interests of the Company in
that it will aid the Company in securing and retaining competent management and
other personnel by making it possible to offer them an opportunity to acquire
stock of the Company and thereby increase their proprietary interest in the
Company's success.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE
AMENDMENT OF THE AMENDED 1991 PLAN.
<PAGE>
PROPOSAL 4
APPROVAL OF AUDITORS
The Board has appointed the firm of Grant Thornton LLP, independent
public accountants, to audit the Company's financial statements for the fiscal
year ending December 31, 1997, and recommends that stockholders vote for
ratification of this appointment. Grant Thornton LLP was engaged by the Company
as its independent auditors on February 13, 1997 and has reported to the Company
that none of its members has any direct financial interest or material indirect
financial interest in the Company.
Representatives of Grant Thornton LLP will be present at the meeting to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
The Board recommends a vote "FOR" this proposal.
<PAGE>
SHARE OWNERSHIP BY DIRECTORS, PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as at June 18, 1996 (i) by
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each of the Company's directors, (iii)
each of the Company's named executive officers and (iv) all officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Executive Officers, Shares Percentage of
Directors and 5% Beneficially Shares
Shareholders Address Owned Outstanding (1)
- -------------------------- ------------------------------------ --------------- -----------------
<S> <C> <C> <C>
J. Roger Faherty Spice Entertainment Companies, Inc.
536 Broadway, 7th Fl
New York, NY 10012 1,1025,297(2)(3) 9.3
Mark Graff Web Feat, Inc.
611 Broadway
New York, NY 10012 869,066(4) 7.2
Leland H. Nolan , Spice Entertainment Companies, Inc.
536 Broadway, 7th Fl
New York, NY 10012
976,442(5)(6) 8.1
Dean R. Ericson 5429 South Krameria Street
Englewood, CO 80111 85,000(7) 0.7
Rudy R. Miller 4909 East McDowell Road
Phoenix, AZ 85008 55,000(8) 0.5
Steve Saril Spice Entertainment Companies, Inc.
536 Broadway, 7th Fl
New York, NY 10012 265,067(9) 2.3
R. Christopher Yates Aquis House, Station Road
Hayes, Middlesex UB3 4DX
United Kingdom 385,762(10) 3.4
Stephen K. Liebmann 351 East 84th Street
New York, NY 10028 60,000(11) 0.5
Harlyn C. Enholm Spice Entertainment Companies, Inc.
536 Broadway, 7th Fl
New York, NY 10012 4,741(12) 0.0
Daniel J. Barsky Spice Entertainment Companies, Inc.
536 Broadway, 7th Fl
New York, NY 10012 70,750(13) 0.6
T. Rowe Price New 100 East Pratt Street
Horizons Fund, Inc. Baltimore, MD 21202 650,000(14) 5.7
All directors and executive officers as a group (10 persons) 3,166,058 23.6%
</TABLE>
(1) Assumes exercise of options ansd warrants exercisable within sixty
days owned by such person and the exercise of no other options or
warrants.
(2) Includes 729,791 shares issuable upon exercise of outstanding options.
(3) Mr. Faherty's shares do not include the 85,097 shares owned by his
spouse and the 10,800 shares owned by his children. Mr. Faherty does
not have or share voting or investment power over the shares owned
by his spouse or children and disclaims beneficial ownership of such
shares.
(4) Includes 702,916 shares issuable upon exercise of outstanding options.
(5) Includes 684,166 shares issuable upon exercise of outstanding options.
(6) Mr. Nolan's shares do not include the 25,500 of shares issuable upon
exercise of outstanding options owned by his wife. Mr. Nolan does not
have or share voting or investment power over the shares owned by
his spouse and disclaims beneficial ownership of such shares.
(7) Includes 35,000 shares issuable upon exercise of options and 50,000
shares issuable upon exercise of warrants.
(8) Includes 5,000 shares issuable upon exercise of options and 50,000
shares issuable upon exercise of warrants.
(9) Includes 203,500 shares issuable upon exercise of options and 40,000
shares of Restricted Stock.
(10) Includes 14,351 shares issuable upon exercise of options.
(11) Includes 4,741 shares issuable upon exercise of options.
(12) Includes 50,000 shares issuable upon exercise of warrants.
(13) Includes 43,750 shares issuable upon exercise of options and 27,000
shares of Restricted Stock.
(14) The information concerning beneficial ownership by T. Rowe Price
New Horizons Fund, Inc. was obtained from a Schedule 13G filed by such
stockholder. Pursuant to this Schedule 13G, these securities are
owned by various individual and institutional investors including
T. Rowe Price New Horizon Fund, Inc., which T. Rowe Price Associates,
Inc. (Price Associates) serves as investment advisor with power to
direct investments and/or sole power to vote the securities.
<PAGE>
MANAGEMENT
Executive Officers
The biographies of Mr. Faherty, the Company's Chief Executive Officer
and President and Steve Saril, the Company's Senior Vice President, Sales and
Marketing, are set forth in "PROPOSAL 1, ELECTION OF DIRECTORS."
<TABLE>
<CAPTION>
Name Age Position, Occupation and Business Experience
- ----------------- --- ----------------------------------------------------
<S> <C> <C>
Harlyn C. Enholm 55 Executive Vice President, Chief Financial Officer. Mr.
Enholm was appointed as the Company's Executive Vice
President and Chief Financial Officer on May 20, 1996 having
previously worked for SEG as its Chief Financial Officer
since June, 1994. Between joining SEG in 1994 and 1991,
he was a self-employed consultant. From 1984 to 1991, he
was Executive Vice President and Chief Financial Officer of
The Geneva Companies.
Rich Kirby 36 Senior Vice President, Network Operations. Mr. Kirby has
been an executive officer of the Company since 1988 and is
currently its Senior Vice President, Network Operations.
Between 1985 and 1988, Mr. Kirby was Vice President of
Operations for Reiss Media, which operated Request
Television.
Daniel J. Barsky 41 Senior Vice President, General Counsel & Secretary. Mr.
Barsky has been an executive officer of the Company since
1995 and is currently its Senior Vice President, General
Counsel and Secretary. Prior to joining the Company, he was
a partner in Dornbush Mensch Mandelstam & Schaeffer, which
acted as the Company's legal counsel from 1989 to 1994.
</TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31,
1996, 1995 and 1994, compensation paid by the Company for services in all
capacities to the Chief Executive Officer, the former Chief Operating Officer
and the four most highly compensated executive officers during 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ ------------------------------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Salary Compensation Awards Options Compensation(16)
Principal Position Year ($) ($) ($) (#) ($)
- ---------------------------- -------- --------- ----------- ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
J. Roger Faherty 1996 358,077 44,071(1) 38,500(5) 12,954
Chairman and Chief 1995 421,539 58,298(1) 435,585(6) 19,909
Executive Officer 1994 400,000 67,667(1) 12,432
Edward M. Spector* 1996 341,250 (2) (7) 15,371
Director, Former Chief 1995 80,769
Operating Officer & President 1994
R. Christopher Yates, 1996 348,032 42,442(3) 38,407(8) 43,535
Director, President 1995 378,013 (2) 38,000(9) 43,997
Spice International 1994 264,699 (2) 31,783
Steve Saril 1996 200,000 (2) 70,000(10) 462
Director, Senior Vice 1995 193,462 (2) 345,000(4) 70,000(11) 1,435
President Sales & Marketing 1994 177,500 (2) 50,000(12) 1,500
Harlyn C. Enholm 1996 148,900 (2) 18,962(13)
Executive Vice President, 1995
Chief Financial Officer 1994
Daniel J. Barsky 1996 150,000 (2) 45,000(14) 667
Senior Vice President, 1995 142,500 (2) 233,000(4) 20,000(15) 811
General Counsel, & Secretary 1994 20,000(15)
*No longer a Company employee.
</TABLE>
(1) Mr. Faherty's other annual compensation included a Company provided
leased automobile and payments of auto operating expenses of $14,400 in
1995 and $24,115 in 1994, respectively, and deferred compensation of
$36,566 each year in 1996, 1995 and 1994 and long-term disability
premiums of $7,505 in 1996, $7,332 in 1995 and $6,986 in 1994.
(2) Other Annual Compensation for these executives is less than 10% of
such executive's salary and bonus compensation for the year.
(3) Mr. Yates' other annual compensation consists of auto operating
expenses of $12,499, premiums paid on a long-term disability policy of
$3,937 and deferred compensation of $26,006.
(4) Messrs. Saril and Barsky received 40,000 and 27,000 shares,
respectively, of Restricted Stock on May 12, 1995 at a market
value of $8.63 per share.
(5) Mr. Faherty's securities underlying options for 1996 include (i)
21,000 options granted on August 13, 1996 with an exercise price of
$2.75 and (ii) 17,500 options granted on December 13, 1996 with an
exercise price of $1.75.
(6) Mr. Faherty's securities underlying options in 1995 include 249,585
options granted on December 11, 1995 with an exercise price of $3.875
in replacement of the identical number of options which were granted in
1991, exercised in April 1995 and whose exercise was rescinded in
December, 1995. Mr. Faherty was also granted 25,000 options on May 12,
1995 which were repriced on December 11, 1995. In addition, 136,000
options previously granted in 1993 were repriced on December 11, 1995.
(7) Mr. Spector was granted 17,500 options on August 13, 1996 with an
exercise price of $2.75 and 17,500 options on December 13, 1996 with
an exercise price of $1.75. These options were canceled as part of the
SEG Settlement Agreement
(8) Mr. Yates' securities underlying options for 1996 include (i) 18,589
options granted on August 13, 1996 with an exercise price of $2.75 and
(ii) 19,818 options granted on December 13, 1996 with an exercise price
of $1.75.
(9) Mr. Yates' securities underlying options for 1995 include 19,000
options granted on May 12, 1995 which were repriced on December 11,
1995.
(10) Mr. Saril's securities underlying options for 1996 include (i) 10,000
options with an exercise price of $4.25 granted on January 26, 1996 in
lieu of a cash raise for 1996 based on 1995 performance and (ii) 40,000
options granted on January 26, 1996 in lieu of a performance based cash
bonus. Mr. Saril was also granted 10,000 options on August 13, 1996
with an exercise price of $2.75 and 10,000 options on December 13, 1996
with an exercise price of $1.75.
(11) Mr. Saril's securities underlying options for 1995 include 10,000
options granted on May 12, 1995 which were repriced on December 11,
1995. 50,000 options granted on January 6, 1995 were also repriced on
December 11, 1995.
(12) Mr. Saril's securities underlying options for 1994 include 50,000
options granted on January 6, 1994 which were repriced on December 11,
1995.
(13) Mr. Enholm's securities underlying options for 1996 include 9,250
granted on August 13, 1996 with an exercise price of $2.75 and 9,712
options on December 13, 1996 with an exercise price of $1.75.
(14) Mr. Barsky's securities underlying options for 1996 include (i) 7,500
options granted in January 26, 1996 with an exercise price of $4.25 in
lieu of a cash raise for 1996 based on 1995 performance and (ii) 22,500
options granted in January 26, 1996 in lieu of a performance based cash
bonus. Mr. Barsky was also granted 7,500 options on August 13, 1996
with an exercise price of $2.75 and 7,500 options on December 13, 1996
with an exercise price of $1.75.
(15) Mr. Barsky's securities underlying options for 1995 include 20,000
options granted on December 16, 1994 were repriced on December 11,
1995.
(16) The amount paid by the Company for Messrs. Faherty, Yates, Spector,
Saril and Barsky for premiums for life insurance and for employer
contributions to the 401(k) Plan, or with respect to Mr. Yates, a
pension plan was as follows:
Life Ins. 401(k), Pension Plan
Name Year Premiums Contributions
J. Roger Faherty 1996 12,088 866
1995 17,599 2,310
1994 10,122 2,310
R. Christopher Yates 1996 6,131 37,404
1995 6,196 37,801
1994 5,323 26,460
Edward M. Spector 1996 15,371
1995
1994
Steve Saril 1996 462
1995 1,435
1994 1,500
Daniel J. Barsky 1996 436 231
1995 436 375
1994
1996 Compensation Program for Key Executives. At a Compensation
Committee meeting held on November 17, 1995, the committee determined that the
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer
would not receive compensation adjustments for 1996. Compensation adjustments
for other employees were capped at 5% and employees earning over $61,000 would
receive options in lieu of cash raises. No cash bonuses would be paid at year
end 1995; options would be issued in lieu thereof.
At a meeting held on January 30 and 31, 1996, the Compensation
Committee granted an aggregate of 114,771 options in lieu of raises including
10,000 options granted to Mr. Saril and 7,500 options granted to Mr. Barsky. The
committee also granted an aggregate of 127,500 options in lieu of cash bonuses
under the performance based plan to five executives including 40,000 options
granted to Mr. Saril and 22,500 options granted to Mr. Barsky. Both of these
sets of option grants had an exercise price of $4.25 and all options were
immediately exercisable.
Employment Agreements. Mr. Faherty is employed by the Company as its
Chairman, Chief Executive Officer and President pursuant to an Employment
Agreement (as amended, the "Employment Agreement") effective January 11, 1992
which was amended effective June 15, 1993, March 23, 1994, March 23, 1995,
January 1, 1996 and as of April 1, 1997 (the "April Amendment"). The Employment
Agreement provides for a base salary of $350,000, with any adjustments
determined annually. The Employment Agreement has a six year term. On January
1st of each year that the Employment Agreement is not terminated, the agreement
shall be effective for six years from that date. Under the April Amendment, the
Employment Agreement provides for loans from the Company of up to $215,000
exclusive of accrued interest. The loan has a maturity date of December 31, 1998
and bears interest at the same rate the Company is paying its principal lender.
The Employment Agreement also provides for annual retirement benefits of not
less than $100,000 (implemented by the deferred compensation agreement described
below) and provides for other benefits including reimbursement for automobile
costs.
Prior to the April Amendment, Mr. Faherty's Employment Agreement
required the Company to grant to Mr. Faherty options to acquire 109,443 shares
of the Shares in each year commencing in 1998 that the Employment Agreement was
renewed. In lieu of this annual option grant, the April Amendment granted Mr.
Faherty an option to acquire 400,000 shares of Shares on April 1, 1997 at an
exercise price of $2.125. Options to acquire 100,000 shares of Shares were
immediately exercisable. Options to acquire 150,000 shares of Shares become
exercisable on the earlier of (i) the date following 20 consecutive trading days
where the price of the Shares is at least $4.00 or (ii) December 31, 1997 if the
Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") for the fiscal year ended December 31, 1997 exceeds certain
pre-determined levels. The remainder of the options will vest based on the
Company's performance in 1998, as determined by the Board of Directors. If the
options do not vest under the foregoing criteria, then the Board of Directors is
to establish new vesting criteria.
The April Amendment also provides for a "parachute payment" if, within 18 months
following a change in control of the Company, Mr. Faherty or the Company elects
to terminate his employment. The amount of the parachute payment is equal to
four times his then current salary (including any bonuses) grossed up by the
amount equal to the excise tax on any portion of the severance benefit treated
as an "excess parachute payment" under the Code and the incremental income taxes
payable on the grossed up amount. In addition, upon a change in control, no
payments will be due on the loan until the end of the sixth calendar year after
the change in control. At that point, the loan will be repayable in ten equal
annual installments of principal and interest.
On October 1, 1992, the Company entered into a Deferred Compensation
Agreement with Mr. Faherty. Under the Agreement the Company is obligated to
provide for retirement benefits to the executive on or after reaching the age of
65 and also provide for early retirement benefits. Upon retirement the executive
will receive from the Company a total of 180 monthly payments which will provide
a benefit of $100,000 per annum. Upon early retirement the executive will
receive maximum benefits of $95,000 or a minimum of $50,000 annually upon
retirement on or after age 55 but before the age of 65. Upon the death of the
executive, prior to the age of 65 but after the age of 55, his beneficiary will
receive maximum annual benefits of $95,000 or a minimum benefit of $50,000
payable monthly.
Mr. Yates is employed by HVC pursuant to a Service Agreement dated
January 22, 1993 and amended on June 16, 1994. Mr. Yates' original annual salary
of (pound)125,000 was adjusted to (pound)239,400 based on HVC's pre-tax profits
for the fiscal period ending July 31, 1994. In addition, the Agreement requires
pension contribution equal to 10% of his salary. The Agreement expires on one
year prior notice provided such termination occurs after March 1, 1997 and
provides for a lump sum severance payment of (pound)125,000. On May , 1997, Mr.
Yates' Employment Agreement was extended by the Company for an additional 18
months on terms and conditions to be agreed upon. The Company and Mr. Yates are
currently negotiating the terms of the extension of his Employment Agreement.
Mr. Enholm had been employed by SEG pursuant to an Employment Agreement
dated August 31, 1995. As part of the SEG Settlement Agreement, SEG terminated
Mr. Enholm's employment and the Company continued the engagement of Mr. Enholm
as its Chief Financial Officer pursuant to a Consulting Agreement effective
February 1, 1997 which was amended on June 4, 1997. Under this agreement as
amended, , Mr. Enholm has agreed to serve as the Company's Chief Financial
Officer through August 31, 1997.
Mr. Saril is employed by the Company pursuant to a June 13, 1997
Employment Agreement. The Agreement provided for a base salary of $250,000 and a
$1,000 a month car allowance. The Agreement has a three-year term and contains a
parachute payment provision the same as that contained in the April Amendment to
Mr. Faherty's Employment Agreement. Mr. Barsky is employed by the Company
pursuant to an Agreement similar to Mr. Saril's Agreement except that his base
salary is $175,000 and the parachute payment is triggered only if the Company
terminates Mr. Barsky's employment within 18 months following a change in
control of the Company.
Stock Option Plans
The Company has four stock option plans (the 1992, 1993, 1994 and 1995
Plans) (collectively the "Plans") for officers, employees, directors and
consultants of the Company or any of its subsidiaries and a Directors Plan ( the
"Directors Plan"). Options granted to employees may be either incentive stock
options (ISO's) or non-ISO's; ISO's may not have an exercise price of not less
than 100% of fair market value of the Company's common stock on the grant date
and all options may not have an exercise price of less than 100% of fair market
value on the grant date in the case of options granted to holders of 10% or more
of the voting power of the Company's stock on the date of the grant. The
aggregate fair market value, as determined on the grant date, of ISO's that may
become exercisable in any one year cannot exceed $100,000. Options canceled
subsequent to issuance are returned to the Plan and are available for
re-issuance as determined by the Stock Option Committee.
The Plans are currently administered by the Stock Option Committee
consisting of three non-employee Directors (the "Committee"). In general, the
Committee has the responsibility to select the persons to whom options will be
granted and will determine, subject to the terms of the Plan, the number, the
exercise period, vesting schedule and other provisions of such options.
The options are evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the Plans as the
Committee may impose. Each option, unless sooner terminated, expires no later
than 10 years (five years in the case of ISO's granted to holders of 10% of the
voting power of the Company's common stock) from the date of grant, as the
Committee may determine. The Committee has the right to amend, suspend or
terminate the Plans at any time, provided, however, that unless ratified by the
Company's stockholders within 12 months thereafter, no amendment or change in
the Plans including: (a) increasing the total number of shares which may be
issued under the Plans; (b) reducing below fair market value on the date of
grant the price per share at which any option which is an ISO may be granted;
(c) extending the term of the Plan or the period during which any option which
is an ISO may be granted or exercised; (d) altering in any way the class of
persons eligible to participate in the Plans; (e) materially increasing the
benefits accruing to participants under the Plans; or (f) with respect to
options which are ISO's, amending the Plans in any respect which would cause
such options to no longer qualify for incentive stock option treatment pursuant
to the Internal Revenue Code of 1986, as amended, will be effective.
The Stock Option Committee established a pool of 200,000 options to be
granted to senior management and with vesting to be tied to the Company's
performance. On April 1, 1997, these options were granted to eight senior
officers, including Messrs. Saril and Barsky who were granted 60,000 and 21,000
options, respectively. The options have an exercise price of $2.125. As to half
of Mr. Saril's options, 75% will vest in 1997 if the Spice Networks revenues
meet certain target levels and 25% will vest if the Company's EBITDA meets
certain target levels. The vesting criteria for the other half of the options
granted to Mr. Saril is dependent upon the Company's performance in 1998 based
on criteria to be set by the Stock Option Committee. Half of the options granted
to Mr. Barsky will vest if the EBITDA target is meet; the other half will vest
dependent upon the Company's performance in 1998 based on criteria to be set by
the Stock Option Committee.
The Directors Plan, as amended, provides for the automatic annual
issuance of 10,000 options to each non-employee Director on the last business
day of the calendar year. The exercise price of options issued under the
Directors Plan is equal to the closing price of the Company's common stock on
the date of grant. In 1996, 10,000 options were issued to each of Messrs.
Ericson, Nolan and Miller non-employee Directors who are also the Stock Option
Committee members.
The following table sets forth stock options that the Company granted
to the named executive officers during 1996.
<TABLE>
<CAPTION>
Option/Grants in Last Fiscal Year
Individual Grants
- --------------------------------------------------------------------------------------------
Potential Realizable
Number of Annual Rates of
Shares of of Stock Price
Common Stock Total Options Appreciation for Option
Underlying Granted to Exercise Term
Name Options Employees or Base ----------------------------
Granted in Fiscal Year Price Expiration 5% 10%
(#) (%) ($/Sh) Date ($) ($)
- --------------------------- ------------- -------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Roger Faherty 21,000(1) 1.79 2.75 8/13/06 34,599 86,737
17,500(2) 1.49 1.75 12/13/06 19,153 48,477
R. Christopher Yates 18,584(1) 1.58 2.75 8/13/06 30,619 76,758
19,818(2) 1.69 1.75 12/13/06 21,690 54,898
Edward M. Spector 17,500(3) 1.49 2.75 8/13/06 28,833 72,281
17,500(3) 1.49 1.75 12/13/06 19,153 48,477
Steve Saril 10,000(4) .85 4.25 1/25/06 23,670 58,422
40,000(5) 3.41 4.25 1/26/06 94,715 233,793
10,000(1) .85 2.75 8/13/06 16,476 41,303
10,000(2) .85 1.75 12/13/06 10,945 27,701
Harlyn C. Enholm 9,250(1) .79 2.75 8/13/06 15,240 38,206
9,712(2) .83 1.75 12/13/06 10,630 26,903
Daniel J. Barsky 7,500(4) .64 4.25 1/25/06 17,752 43,816
22,500(5) 1.92 4.25 1/26/06 53,277 131,508
7,500(1) .64 2.75 8/13/06 12,357 30,978
7,500(2) .64 1.75 12/13/06 8,209 20,776
</TABLE>
(1) These options were granted on August 13, 1996. Twenty five percent
were immediately exercisable and the balance are exercisable in three
equal annual installments commencing August 13, 1997, one year after
the effective date of the grant.
(2) These options were granted on December 13, 1996. Twenty five percent
were immediately exercisable and the balance are exercisable in three
equal annual installments commencing December 13, 1997, one year after
the effective date of the grant.
(3) The options granted to Mr. Spector were canceled on February 7, 1997
pursuant to the SEG Settlement Agreement.
(4) These options were granted on January 25, 1996 in lieu of a cash raise
for 1996.
(5) These options were granted on January 25, 1996 in lieu of a
performance based cash bonus.
<PAGE>
Aggregate Options Exercised in Last Fiscal Year
and Year End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End FY-End
- --------------------------------------------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
on Exercise Realized Unexercisable Unexercisable(1)
Name (#) ($) (#) ($)
- ---------------------------- ----------------- --------------- ----------------- --------------------
<S> <C> <C> <C> <C>
J. Roger Faherty None None 620,347 1,085,608
157,069 274,870
R. Christopher Yates None None 14,351 25,113
43,052 75,340
Edward M. Spector None None 8,750 15,313
26,250 45,938
Steve Saril None None 203,500 356,125
22,500 39,375
Harlyn C. Enholm None None 4,741 8,296
14,222 24,888
Daniel J. Barsky None None 43,750 76,563
21,250 37,188
(1) Based on the last trade price on December 31, 1996 of $1.75 quoted by The NASDAQ Small Cap Market.
</TABLE>
401(k) Tax Deferred Savings Plan. Effective January 1, 1993, all
qualified employees, including the executive officers, are eligible to
participate in the Company's 401(k) Tax Deferred Savings Plan (the "401(k)
Plan"). Under the 401(k) Plan, each employee may, at his or her option, elect to
defer (and contribute to the Plan) up to 15% of his or her salary. At its
discretion, the Company may elect to contribute a percentage of the
contributions of the employees. Contributions to the 401(k) Plan shall be
invested as determined by the Plan trustees, Messrs. Faherty and Barsky. The
trustees have retained Nationwide Services Company to invest the 401(k) Plan
funds.
Compensation and Stock Option Committee Report
Dean Ericson, Rudy Miller and Leland Nolan, non-employee Directors of
the Company, are the Compensation and Stock Option Committees' (the
"Committees") members. The Committees establish the Company's compensation
policy and believe that executive compensation should:
* provide motivation to achieve strategic goals by tying executive
compensation to Company performance;
* provide compensation reasonably comparable to that offered by other
companies in the same industry as the Company and of similar size and
profitability to attract qualified executives; and
* provide long-term incentives to tie the executive to the long-term
interests of the Company's stockholders.
During 1996, the Committees oversaw the termination of the employment
of several executives who had worked in the Company's international,
hotel/motel, television and movie production and other initiatives as part of
the Company-wide restructuring and adopted other cost saving measures designed
to reduce the Company's cash outlays for salary and other employee benefits. The
Committees also instituted a hiring freeze.
As the effects of restructuring took hold and the Company's financial
position stabilized and cost structure came into line, the Stock Option
Committee authorized a Company wide option grant on account of 1995 employment
on August 13, 1996. At Committee meetings held on December 13, 1996, the
Committees made the following recommendations:
(1) The Company enter into employment agreements with key executives which
would include change in control/parachute provisions.
(2) The Company establish an incentive plan for senior management,
exclusive of the Chief Executive Officer, consisting of a pool of stock
options and, if the Company achieved profitability, performance based
cash incentives.
(3) For persons who did not receive promotions, the maximum raise would be
limited to 5%.
(4) There would be a Company-wide employee stock option grant on account of
1996 employment.
During Committee meetings held on May 7, 1997 and in subsequent
discussions, the Committees reviewed various issues including the progress of
the new employment agreements and the need to augment the company's pool of
available employee options. The Committee also finalized an amendment to Mr.
Faherty's employment agreement and apportioned the pool of 200,000 options
designated for senior management and developed vesting criteria for such
options.
June 16, 1997 Dean Ericson
Rudy R. Miller
Leland H. Nolan
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock for the period from August 31, 1992 to December 31, 1996 with the
cumulative total return on the NASDAQ Stock Market-United States Index and a
peer group (1) of comparable companies (the "Peer Group") selected by the
Company over the same period (assuming the investment of $100 in the Shares, the
NASDAQ Stock Market-United States Index and the Peer Group on August 31, 1992
and the reinvestment of all dividends).
The following table is an Edgar representation of the data points used in
the printed graphic presentation:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
SUMMARY
9/92 1992 1993 1994 1995 1996
------- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spice Entertainment
Companies, Inc. 100 242 325 450 185 70
Peer Group 100 118 228 195 474 237
NASDAQ Stock Market -
United States 100 118 136 133 188 231
(C) Paul Kagan Associates, Inc. estimates. All rights reserved.
</TABLE>
(1) The peer group comprises those companies which compete against the
Company in the interactive television and pay-per-view industries. None
of the companies in the peer group is fully comparable with the
Company's business. The returns of each company have been weighted
according to their respective stock market capitalization for purposes
of arriving at a peer group average. The members of the peer group are
as follows: Macromedia, Inc., Hypermedia Communications, Lodgenet
Entertainment Corp., Interfilm Inc., Iwerks Entertainment Inc., Creative
Program Tech Venture, Videotron Group Ltd., Actv Inc., NTN
Communications Inc., Interactive Network Inc., Playboy Enterprises Inc.,
and Spi Holding Inc.
<PAGE>
MISCELLANEOUS
Compensation Interlocks and Insider Participation
Since 1994, recommendations relating to executive compensation have
been made by the Company's Compensation Committee to the Board of Directors. The
Compensation Committee members are Messrs. Ericson, Miller and Nolan,
non-employee Directors of the Company.
Filings with Securities and Exchange Commission
Section 16(a) of the Securities Exchange Act of 1934 requires that
officers, directors and 10% stockholders of the Company file reports of their
ownership with the Securities and Exchange Commission. No officer or Director
was late with their filings for 1996.
Certain Transactions
During 1995, Messrs. Faherty, Graff and Nolan borrowed $215,000,
$24,000 and $82,000, respectively, from the Company. All of the loans bear
interest at the same rate the Company pays on its loan from its senior secured
lender. Pursuant to the Fourth Amendment to Mr. Faherty's Employment Agreement
and a December 31, 1996 letter from the Chairman of the Compensation Committee
of the Board of Directors, Mr. Faherty's loan is due on December 31, 1997. Mr.
Graff plans to repay his loan in full in the second quarter of 1997 and Mr.
Nolan's loan will be paid in monthly installments beginning January, 1998.
As part of the SEG Merger, certain members of the Spector Group and the
Company entered into a Letter Agreement dated August 14, 1995, as amended (the
"August 14th Agreement"), under which the Company was granted an option to
acquire and the Spector Group signatories were granted a put ("Put") to sell,
all of the issued and outstanding shares of the Spector Information Systems,
Inc. (n/k/a United Transactive Systems, Inc.) in exchange for a formula
determined number of Shares. As part of the SEG Settlement Agreement, the
parties to the August 14th Agreement also entered into a Termination Agreement
dated as of February 7, 1997 terminating the August 14th Agreement and
suspending the Spector Group's prior exercise of the Put. The Company also
entered into a Transponder Services Agreement with SEG pursuant to which the
Company will provide transponder services to SEG for monthly payments of $80,000
for two years.
SEG had a note receivable from Buccaneer Games, Inc. ("Buccaneer"), a
developmental corporation, owned by Eric M. Spector. During the third quarter of
1996, the Company deemed that the note was uncollectable and established a
provision for the write-down of the note. SEG leased offices from Margate
Associates, an affiliate of Edward M. Spector. The aggregate lease payments were
$221,000 in 1996. SEG also leased equipment from entities affiliated with Mr.
Spector; the aggregate 1996 lease payments were $150,000 in 1996. As a
consequence of the split off of SEG pursuant to the SEG Settlement Agreement,
the Company has no further liability under these transactions.
The Company has consulting agreements with Miller Capital Corporation
("MCC") and MMS, Inc. ("MMS") and issued warrants to acquire 50,000 shares at an
exercise price of $2.625 per share to each of MCC and MSS on March 26, 1997.
Rudy Miller is the President and sole shareholder of MCC and Dean Ericson is the
President and principal shareholder of MMS. The Company has also entered into a
consulting agreement with S. Liebmann & Associates, Inc. ("SLA") issued a
warrant to acquire 50,000 shares at an exercise price of $2.5625 on June 3,
1997. Stephen K. Liebmann is the sole shareholder and president of SLA.
Management believes that the terms of the transactions described above
are no more favorable than could be obtained in transactions between
non-affiliated parties.
Other Matters
The Board of Directors know of no other matters to be submitted to the
Annual Meeting. If any other matters properly come before the Annual Meeting,
then the persons named in the enclosed form of proxy will vote the shares they
represent in such manner as the Board may recommend.
THE BOARD OF DIRECTORS
New York, New York
Dated: July , 1997
<PAGE>
EXHIBIT 1
Amendment to Certificate of Incorporation
Regarding Elimination of Stockholder Action
by Written Consent
ELEVENTH: Subject to the rights of the holders of any series
of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing in lieu of a meeting of such
stockholders. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80
percent of the voting power of the then outstanding voting stock,
voting together as a single class, shall be required to amend, repeal
or adopt any provision inconsistent with this Article ELEVENTH.
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
HELD AUGUST 5, 1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints J. Roger Faherty and Steve Saril as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them, and each of them, to represent and vote, as designated below, all the
shares of common stock of Spice Entertainment Companies, Inc. ("Company") held
of record by the undersigned on June 20, 1997 at the Annual Meeting of
Stockholders to be held on August 5, 1997 or any adjournment thereof. (Please
mark boxes in blue or black ink.)
1. To elect seven Directors to serve for the ensuing year.
You may withhold your vote for any nominee by lining through or
otherwise striking out the name of any nominee.
J. Roger Faherty Leland H. Nolan Steve Saril Stephen K. Liebmann
Dean R. Ericson R. Christopher Yates Rudy R. Miller
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To approve the amendment of the Company's Certificate of
Incorporation to provide that actions required or permitted by the stockholders
must be effected at duly called annual or special meeting of stockholders:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's 1991 Amended Management
Stock Option Plan:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To ratify the appointment of Grant Thornton LLP as the Company's
independent auditors for the fiscal year ended December 31, 1997:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. To transact such other business as may properly come before the
meeting.
If no direction is made, this proxy will be voted FOR Proposals 1, 2 3 and 4.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign below exactly as your name(s) appear(s) on your stock certificate
and/or proxy. If signing for an estate, trust, corporation, or partnership,
title or capacity should be stated. If shares are held jointly, each holder
should sign.
- ------------------------------------- -----------------------------------
(Signature) (Co-Signature, if applicable)
Date:-------------------------------- -----------------------------------
(Title, if applicable)
