<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SOURCE MEDIA, INC.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0- 11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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<PAGE> 2
[SOURCE MEDIA LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1998
To the Stockholders of Source Media, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Source Media, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 13, 1998, beginning at 9:00 a.m., Dallas time, at the Marriott
Courtyard Northpark Hotel, 10325 North Central Expressway, Dallas, Texas, for
the following purposes:
1. To elect eight directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and qualified;
2. To consider and vote upon a proposal to amend the Company's 1995
Performance Equity Plan;
3. To amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Preferred Stock from 1,000,000 shares to
1,712,000 shares; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors of the Company has fixed April 6, 1998 as the
record date for determining the stockholders entitled to notice of, and to vote
at, the meeting or any adjournment thereof. The list of stockholders entitled to
vote will be available for inspection by any stockholder at the offices of the
Company, 5400 LBJ Freeway, Suite 680, Dallas, Texas, during ordinary business
hours for ten days prior to the meeting.
You are cordially invited to attend this meeting in person, if
possible. If you do not expect to be present in person, please sign and date the
enclosed proxy, and return it in the enclosed envelope, which requires no
postage if mailed in the United States. If you attend the meeting, you may vote
in person if you wish, whether or not you have returned your proxy. In any
event, a proxy may be revoked at any time before it is exercised.
BY ORDER OF THE BOARD OF DIRECTORS
Maryann Walsh, Secretary
Dallas, Texas
April 20, 1998
<PAGE> 3
SOURCE MEDIA, INC.
5400 LBJ FREEWAY
SUITE 680
DALLAS, TEXAS 75240
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1998
INTRODUCTION
This Proxy Statement is furnished to stockholders of Source Media,
Inc., a Delaware corporation, in connection with the solicitation by order of
the Board of Directors of the Company of proxies to be voted at the Annual
Meeting of Stockholders of the Company to be held on May 13, 1998, or any
adjournments thereof (the "Annual Meeting"), and is being mailed with proxies to
such stockholders on or about April 20, 1998. Unless the context otherwise
requires: (a) all references to the "Company" include Source Media, Inc. and its
wholly-owned subsidiaries and (b) all references to the Company prior to June
23, 1995 relate to SMI Holdings, Inc., a Texas corporation ("Holdings").
Shares represented by proxies in the form enclosed, properly executed
by stockholders and returned to the Company, and that are not revoked, will be
voted at the Annual Meeting in accordance with the directions given. If no
directions are given, the shares will be voted for the election of the nominees
for directors and other proposals set forth herein. A proxy may be revoked at
any time before it is voted by written notice thereof to the Secretary of the
Company or by execution of a subsequently dated proxy.
As of the date hereof, the Board of Directors knows of no other
business that will be presented for action by the stockholders at the Annual
Meeting. However, if other proper matters are brought before the Annual Meeting,
a vote may be cast pursuant to the accompanying proxy in accordance with the
judgment of the proxy holders.
Should any nominee named herein for the office of director become
unwilling or unable to accept nomination or election, the proxy holders will
vote for the election in his place of such other person, if any, as the Board
may recommend; however, the Board has no reason to believe that any of the
nominees will be unwilling or unable to serve if elected. Each nominee has
expressed his intention, if elected, to serve the entire term for which his
election is sought.
The 1997 Annual Report to Stockholders of the Company covering the
fiscal year ended December 31, 1997 is being mailed herewith to stockholders. It
does not, however, form any part of the material for the solicitation of
proxies.
VOTING SECURITIES
The record date for stockholders entitled to notice of, and to vote at,
the Annual Meeting was the close of business on April 6, 1998. At the close of
business on that date, the Company had issued, outstanding and entitled to vote
at the Annual Meeting 11,589,954 shares of Common Stock, $.001 par value (the
"Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the outstanding Common Stock is necessary to constitute a quorum at the Annual
Meeting. In deciding all questions, a holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock in the
stockholder's name on the record date. Stockholders have no cumulative voting
rights.
VOTING PROCEDURES AND TABULATION
The Company will appoint one or more inspectors of election to act at
the Annual Meeting and to make a written report thereof. Prior to the Annual
Meeting, the inspectors will sign an oath to perform their duties in an
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impartial manner and to the best of their abilities. The inspectors will
ascertain the number of shares outstanding and the voting power of each of such
shares, determine the shares represented at the Annual Meeting and the validity
of proxies and ballots, count all votes and ballots and perform certain other
duties as required by law.
With regard to the election of directors, votes may be cast in favor
of, or withheld from, each nominee. Votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
the other proposals to be acted upon and will be counted as present for purposes
of determining the existence of a quorum regarding such items of business.
Abstentions on such proposals will have the effect of a negative vote.
Under the rules of the New York Stock Exchange, brokers who hold shares
in street name have discretionary authority to vote on certain "routine" items
even if they have not received instructions from the persons entitled to vote
such shares. However, brokers do not have authority to vote on "nonroutine"
items without such instructions. Such "broker nonvotes" (shares held by brokers
or nominees as to which they have no discretionary power to vote on a particular
matter and have received no instructions from the persons entitled to vote such
shares) are counted as present and entitled to vote for purposes of determining
whether a quorum is present but are not entitled to vote on any nonroutine
matter to be acted upon. For matters requiring the affirmative vote of a
plurality of the shares of Common Stock present or represented at the Annual
Meeting, broker nonvotes will have no effect on the outcome of the vote. For
matters requiring the affirmative vote of a majority of the shares of Common
Stock, outstanding broker nonvotes will have the effect of votes against such
proposal. For matters requiring the affirmative vote of a majority of the shares
of Common Stock present or represented at the Annual Meeting and entitled to
vote, broker nonvotes will not be counted as among the shares entitled to vote
with respect to such matters. Thus, the effect of any broker nonvotes on such
proposals would be to reduce the number of affirmative votes required to approve
the proposals and the number of negative votes required to block such approval.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation sets forth information with respect to each
person as of April 1, 1998 who was known to the Company to be the beneficial
owner of more than 5% of the Common Stock. Except as noted, each person listed
below is believed to have sole voting power and sole investment power with
respect to such shares:
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------ ------------------ --------
<S> <C> <C>
Timothy P. Peters(1) .................................. 713,198 6.12%
5400 LBJ Freeway
Suite 680
Dallas, TX 75240
21st Century Communications Partners, L.P.(2) ......... 929,290 7.60%
767 Fifth Avenue
New York, NY 10019
Freedom Communications, Inc.(3) ....................... 738,094 6.31%
17666 Fitch
Irvine, CA 92714
Pecks Management Partners, Ltd.(4) .................... 1,250,000 10.79%
One Rockefeller Plaza, Suite 900
New York, NY 10020
</TABLE>
- ------------------
(1) Includes 68,071 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
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(2) Includes 635,949 shares of Common Stock issuable upon exercise of
exercisable warrants. See "Security Ownership of Management" for certain
information regarding Michael J. Marocco, a director of the Company and
limited partner of 21st Century Communications Partners, L.P.
(3) See "Security Ownership of Management" for certain information regarding
David L. Kuykendall, a director of the Company and Senior Vice President
and the Chief Financial Officer of Freedom Communications, Inc.
("Freedom"). Includes 100,000 shares of Common Stock issuable upon exercise
of exercisable warrants.
(4) Consists of shares of Common Stock issuable upon exercise of exercisable
warrants. Beneficial ownership of such shares was reported in a Schedule
13G dated January 27, 1998 filed with the SEC by Pecks Management Partners,
Ltd. ("Pecks"). In its Schedule 13G, Pecks reports that the shares for
which it reports beneficial ownership are owned by four investment advisory
clients of Pecks, which clients receive dividends and the proceeds from the
sale of such shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth information with respect to the
beneficial ownership of Common Stock as of April 1, 1998 (except as noted for
Mr. Pate) by each director of the Company, each nominee for director of the
Company, each executive officer listed in the Summary Compensation Table
included elsewhere in this Proxy Statement and all executive officers and
current directors of the Company as a group.
<TABLE>
<CAPTION>
NAME SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- ---- ------------------------- ----------------
<S> <C> <C>
Directors and Nominees for Director
Timothy P. Peters(1)(N)................................................ 713,198 6.12%
John J. Reed(2)(N)..................................................... 226,095 1.95%
W. Scott Bedford(3).................................................... 507,551 4.36%
David L. Kuykendall(4)(A).............................................. 747,094 6.39%
James L. Greenwald(5)(N)(C)............................................ 6,000 *
Michael J. Marocco(6)(N)............................................... 1,398,366 11.15%
Robert H. Alter(7)(C).................................................. 3,000 *
Robert J. Cresci(8)(A)................................................. 1,253,000 9.76%
Barry Rubenstein (9)................................................... 1,562,267 12.35%
Executive Officers (excluding any directors
named above)
Daniel D. Maitland(10)................................................. 65,000 *
W. Thomas Oliver (11).................................................. 90,000 *
Michael G. Pate(12).................................................... 33,424 *
All current directors and executive
officers as a group (12 persons)..................................... 5,368,911 37.43%
</TABLE>
- ---------------------
(A) Member of the Audit Committee.
(C) Member of the Compensation Committee.
(N) Member of the Nominating Committee.
* Less than one percent
(1) Includes 68,071 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(2) Includes 30,114 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(3) Includes 40,114 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(4) Includes (i) 738,094 shares of Common Stock beneficially owned by Freedom,
as to which Mr. Kuykendall, a Senior Vice President and the Chief Financial
Officer of Freedom, disclaims beneficial ownership and (ii) 9,000 shares of
Common Stock issuable upon exercise of options exercisable within 60 days.
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(5) Includes 6,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(6) Includes (i) 9,675 shares of Common Stock issuable upon exercise of
exercisable warrants and (ii) 6,000 shares of Common Stock issuable upon
exercise of options exercisable within 60 days. Through an affiliate, Mr.
Marocco is a general partner of Sandler Capital Management, which through
an affiliate is managing general partner of 21st Century Communications
Partners, L.P., 21st Century Communications T-E Partners, L.P. and 21st
Century Communications Foreign Partners, L.P. Accordingly, also includes
(iii) 293,341 shares of Common Stock, (iv) 635,949 shares of Common Stock
issuable upon exercise of exercisable warrants held by 21st Century
Communications Partners, L.P., (v) 99,772 shares of Common Stock and, (vi)
216,374 shares of Common Stock issuable upon exercise of exercisable
warrants held by 21st Century Communications T-E Partners, L.P., (vii)
39,527 shares of Common Stock, and (viii) 85,615 shares of Common Stock
issuable upon exercise of exercisable warrants held by 21st Century
Communications Foreign Partners, L.P.
(7) Includes 3,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(8) Includes 1,250,000 shares of Common Stock issuable upon the exercise of
exercisable warrants held by four funds for which Pecks serves as
investment advisor. Mr. Cresci is a Managing Director of Pecks, but
disclaims beneficial ownership in all such shares. Also includes 3,000
shares of Common Stock issuable upon exercise of options exercisable within
60 days.
(9) Includes (i) 16,125 shares of Common Stock issuable upon exercise of
exercisable warrants. Mr. Rubenstein is a general partner of Applewood
Associates, L.P. and Woodland Partners, L.P. Accordingly, also includes
(ii) 50,000 shares of Common Stock beneficially owned by Applewood
Associates, L.P. and (iii) 101,875 shares of Common Stock issuable upon
exercise of exercisable warrants held by Woodland Partners, L.P. as to
which he disclaims beneficial ownership except to the extent of his
pecuniary interest. Mr. Rubenstein is an officer and shareholder of
Infomedia Associates, Ltd. which is one of the general partners of 21st
Century Communications Partners, L.P., 21st Century Communications T-E
Partners, L.P. and 21st Century Communications Foreign Partners, L.P.
Accordingly, also includes (iv) 293,341 shares of Common Stock and (v)
635,949 shares of Common Stock issuable upon exercise of exercisable
warrants held by 21st Century Communications Partners, L.P., (vi) 99,772
shares of Common Stock and (vii) 216,374 shares of Common Stock issuable
upon exercise of exercisable warrants held by 21st Century Communications
T-E Partners, L.P., (viii) 39,527 shares of Common Stock, and (ix) 85,615
shares of Common Stock issuable upon exercise of exercisable warrants held
by 21st Century Communications Foreign Partners, L.P.
(10) Includes 65,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(11) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(12) Mr. Pate resigned effective November 21, 1997. Beneficial ownership shown
for Mr. Pate is as of November 21, 1997, the most recent date for which the
Company has such information.
ITEM 1. ELECTION OF DIRECTORS
The business and affairs of the Company are managed by its Board of
Directors, which exercises all corporate powers of the Company and establishes
broad corporate policies. The Bylaws of the Company provide that the number of
directors may be fixed from time to time by the Board of Directors. The Board of
Directors has determined that the number of directors constituting the Board
shall be fixed at eight. Accordingly, at the Annual Meeting eight directors will
be elected.
Directors are elected by plurality vote, and cumulative voting is not
permitted. All duly submitted and unrevoked proxies will be voted for the
nominees for director selected by the Board of Directors, except where
authorization so to vote is withheld. The Board recommends that stockholders
vote FOR the election of such nominees. If any nominee should become unavailable
for election for any presently unforeseen reason, the persons designated as
proxies will have full discretion to vote for another person designated by the
Board. Proxies cannot be voted for a greater number of persons than the number
of nominees for the office of director named herein. Directors
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are elected to serve until the next Annual Meeting of stockholders and until
their successors have been elected and qualified.
The nominees of the Board for directors of the Company are named below.
Each of the nominees has consented to serve as a director if elected. The table
below sets forth certain information with respect to the nominees. Except for
the [NEW NOMINEE] and Mr. Bedford, all the nominees are presently directors of
the Company and have served continuously as directors since the date of their
first election to the Board.
The Board of Directors' nominees for the office of director are as
follows:
Timothy P. Peters, age 40, has served as a director of the Company since
its inception in 1988, as President from inception through May 1996, and was
elected Chief Executive Officer in December 1992 and Chairman of the Board in
August 1994. In 1986, Mr. Peters founded Information Express, Co., an
operator-assisted Yellow Pages company that served the Denver area, where he
acted as a Vice President from 1986 to 1988. From 1979 to 1986 Mr. Peters served
as Regional Manager for Penn Central Telecommunications Company.
W. Scott Bedford, age 41, served as a director of the Company from its
inception in 1988 until September 1997 and has served as Chief Financial Officer
and Treasurer since December 1997. Mr. Bedford served as Chief Operating Officer
from December 1992 until December 1997. From 1988 to 1992, Mr. Bedford served in
various positions with the Company, including Executive Vice President, Vice
President of Sales and Secretary. From October 1993 until January 1997, Mr.
Bedford served as Chairman of the Board of ICT.
Michael J. Marocco, age 39, has served as a director of the Company since
May 1996. Mr. Marocco is a Managing Director of Sandler Capital Management
("Sandler") and has been associated with Sandler since April 1989. Prior to
that, Mr. Marocco was a vice president at Morgan Stanley & Co., Incorporated
where he was involved in raising capital and merger and acquisition
transactions. Mr. Marocco serves as a director of YES! Entertainment Corp. and
Paxson Communications Corp.
James L. Greenwald, age 71, has served as a director of the Company since
May 1996. Mr. Greenwald has served as chairman emeritus of Katz Media
Corporation ("Katz"), a communications representative firm, since August 1995.
Mr. Greenwald joined Katz in 1956 and has held various positions, including
President of the radio division from 1965 through 1970, Executive Vice President
from 1970 through 1975, President from 1975 through 1982 and Chairman of the
Board of Directors and Chief Executive Officer from 1975 through 1994. Mr.
Greenwald is a director of Granite Broadcasting Company and the Young Adult
Institute, an honorary trustee of the Foundation of American Women in Radio and
Television and past president of the International Radio and Television
Foundation and the Station Representatives Association.
Robert H. Alter, age 69, has served as a director of the Company since
May 1997. Mr. Alter has served as the President of Alter Associates, Inc., a
domestic and international television consulting firm, since its founding in
1992. Mr. Alter is currently vice-chairman and director of Cabletelevision
Advertising Bureau, with which he held the position of founding president and
chief executive officer from 1981 to 1991. From November 1991 through December
1992, he was a senior advisor to the Board of Star TV in Hong Kong. From 1958
through 1981, he was employed with the Radio Advertising Bureau, where his last
position was that of Executive Vice President. Mr. Alter is a director of
International Post, Ltd., AdCom, Inc., The Taft Institute of Government, The
International Council of the National Academy of Television Arts and Science and
The Young Adult Institute and Mentor.
Robert J. Cresci, age 54, has served as a director of the Company since
May 1997. Mr. Cresci has been a Managing Director of Pecks, an investment
management firm, since September 1990. Mr. Cresci serves as a director of
Bridgeport Machines, Inc., EIS International, Inc., Sepracor, Inc., Arcadia
Financial, Ltd., Hitox, Inc., Garnet Resources Corporation, HarCor Energy, Inc.,
Meris Laboratories, Inc., Film Roman, Inc., Educational Medical, Inc., Castle
Dental Centers, Inc., Candlewood Hotel Co., Inc., SeraCare, Inc. and several
private companies.
Barry Rubenstein, age 54, has served as a director of the Company since
September 1997. In 1994, Mr. Rubenstein co-founded the 21st Century
partnerships, of which he is presently a principal. In 1992, Mr. Rubenstein
co-founded Applewood Associates, L.P., of which he is presently a principal.
Prior to 1992, Mr. Rubenstein was
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<PAGE> 8
a founder of or founding consultant to Applied Digital Data Systems, Inc.,
Novell, Inc., and Cheyenne Software, Inc. From 1983 to 1987, Mr. Rubenstein held
various positions with Cheyenne Software, Inc., including President, Chief
Executive Officer, Director and Chairman of the Board. Mr. Rubenstein is a
director of or advisor to Infonautics Corporation, Millwood Press and several
private technology companies.
[NEW NOMINEE]
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held ten meetings during 1997. Each
director attended 75% or more of the Board meetings and the meetings of the
Committees on which they serve. The Audit Committee of the Company recommends
independent auditors to the Board and reviews the scope and results of audits
conducted and the Company's internal control procedures. The Audit Committee
held _____ meetings during 1997. The Nominating Committee of the Company,
created in 1997, recommends nominees for Board of Directors positions to the
Board. The Nominating Committee held one meeting during 1997. See "Item 1.
Executive Compensation - Report of Compensation Committee on Executive
Compensation" for a discussion regarding the membership, scope of authority and
report of the Company's Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company who are not full-time employees are paid a
retainer of $2,500 per fiscal quarter and $1,000 for each meeting of the Board
of Directors and of any Committee thereof that they attend (so long as the
Committee meeting is not on the same day as a Board of Directors meeting), or
$500 for each telephonic meeting in which they participate and are reimbursed
for travel and related expenses incurred in connection with attendance at Board
and Committee meetings. See "Executive Compensation - Compensation Committee
Interlocks and Insider Participation." Pursuant to the 1995 Nonqualified Stock
Option Plan for Non-Employee Directors, during 1997 each non-employee director
of the Company was granted an option to purchase 3,000 shares of Common Stock,
with an exercise price of $5.91, the fair market value of a share of Common
Stock on the date of grant (based on a trailing five-day average).
In certain instances, directors of the Company who are not full-time
employees may be engaged by the Board of Directors to participate in projects
for the benefit of the Company. In such instances, the Board of Directors has
authorized payment to those directors at a rate of $125 per hour, up to a
maximum of $1,000 per day, in addition to reimbursement of expenses incurred in
the performance of services.
EXECUTIVE COMPENSATION
The Compensation Committee Report appearing below and the information
presented herein under the caption "Executive Compensation -- Performance Graph"
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission (the "SEC") or subject to the SEC's proxy
rules, except for the required disclosure herein, or to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), and such
information shall not be deemed to be incorporated by reference into any filing
made by the Company under the Exchange Act or under the Securities Act of 1933.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors (the
"Compensation Committee") are currently Robert H. Alter and James L. Greenwald,
both of whom became members of the Compensation Committee on May 21, 1997. John
F. Baring was a member of the Compensation Committee from January 1, 1997 until
April 28, 1997, the effective date of Mr. Baring's resignation from the
Company's Board of Directors. Alan M. Flaherty was a member of the Compensation
Committee until May 21, 1997.
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Mr. Baring is a principal of Hackman, Baring & Co., Incorporated, which
has provided financial and investor relations consulting services to the
Company. On July 13, 1995, the Company entered into an agreement with Hackman,
Baring & Co., Incorporated, a stockholder of the Company owned equally by
Rhodric C. Hackman and Mr. Baring, whereby Hackman, Baring & Co., Incorporated
was engaged to act as advisor to the Company in connection with investor
relations. In connection with this agreement, the Company agreed to pay to
Hackman, Baring & Co., Incorporated a monthly retainer of $2,500. This
obligation to pay a monthly retainer of $2,500 terminated in April 1997.
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<PAGE> 10
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
To the Stockholders of
Source Media, Inc.:
The Compensation Committee establishes the level of compensation of the
executive officers of the Company, administers the Annual Management Incentive
Plan and administers the Company's stock option plans. The Compensation
Committee held _________ meetings during 1997 and took action by unanimous
consent on ________ occasions during the year.
GENERAL
The goal of the Company's executive compensation policy is to ensure that
an appropriate relationship exists between executive pay and the creation of
stockholder value, while at the same time motivating and retaining key
employees. To achieve this goal, the Company's executive compensation policies
integrate competitive levels of annual base compensation with bonuses based upon
corporate performance and individual goals and initiatives. This annual cash
compensation, together with the payment of equity-based incentive compensation,
is designed to attract and retain qualified executives and to ensure that such
executives have a continuing stake in the long-term success of the Company. All
executive officers and managers participate in the Company's incentive
compensation plans.
In establishing executive compensation, the Compensation Committee
neither bases its decisions entirely on quantitative relative weights of various
factors, nor does it follow a mathematical formula. Rather, the Compensation
Committee exercises discretion and makes judgments after considering all factors
that it considers relevant, including industry compensation information,
individual performance, level of responsibility, and the achievement of certain
objective targets relating to the Company's operating and financial performance.
In making its decisions about 1998 compensation, the Compensation Committee also
considered a comparative study prepared for the Company by Coopers & Lybrand LLP
in 1996. Coopers & Lybrand provided data extrapolated from its survey of
executive compensation at approximately 27 telecommunications and 11 cable
companies. Companies chosen for comparison purposes in the compensation survey
did not include all the companies in the peer group indices in the performance
graphs included in this Proxy Statement. The Compensation Committee believes
that the pool of executive talent for the Company comes from a broader group of
companies than those comprising the peer groups established for comparing
stockholder returns. The Coopers & Lybrand data indicated that total
compensation of all the executive officers, including the chief executive
officer, was below the range for executives holding similar positions at other
companies in the study.
CASH COMPENSATION
Base Salary. The base salaries of executive officers of the Company are
reviewed periodically by the Compensation Committee. Salaries are based
generally on consideration of factors such as the Company's performance and
financial condition, competitive conditions, general economic conditions and
cost of living increases. The Compensation Committee's evaluation of these
factors is subjective, with no particular weight being assigned to any one
factor. In March 1996, the Compensation Committee adjusted base salaries for
each of the executive officers on an individual basis. Effective April 1, 1996,
Mr. Peters' base salary was increased to $225,000 per year, and the salaries of
the Company's other executive officers were increased by an average of 60%.
These compensation adjustments were made to align the cash compensation of the
Company's executive officers more closely with executive officers in other
companies in the Coopers & Lybrand study. Base salaries for each of the
executive officers, including the chief executive officer, were not adjusted
during 1997.
Bonuses. The Compensation Committee believes that linking a substantial
portion of executive officer cash compensation to Company operating and
financial performance provides a meaningful incentive to such officers to
enhance Company performance. Accordingly, an integral part of executive officer
cash compensation is the use of cash bonuses under the Company's Annual
Management Incentive Plan. The majority of the bonus payments depends on
achievement of corporate and individual goals, which are established both
annually and quarterly to reflect those elements of Company performance that the
Compensation Committee deems of special significance in a particular period, and
the competitive environment in which the Company operates. The remaining portion
of the bonus may
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<PAGE> 11
be paid at the discretion of the Compensation Committee. Effective April 1,
1996, the maximum bonus that Mr. Peters is eligible to receive was set at 50% of
his base salary, and the maximum bonus that the Company's other executive
officers are eligible to receive was set at 45% or less of their respective base
salaries.
STOCK OPTIONS
The executive officers are also granted stock options under the Company's
stock option plans. The timing of such grants is determined by the Compensation
Committee based upon market conditions affecting the price of the Company's
Common Stock and other factors. The size of the overall option pool to be
awarded in any year is determined by the Compensation Committee based on such
factors as Company performance and the dilutive impact of such grants. Grants to
individual executive officers are based on the Compensation Committee's
evaluation of their performance and their contribution to the long-term
performance of the Company. The Compensation Committee's evaluation of these
factors is subjective with no particular weight being assigned to any one
factor. During 1997, stock options for 12,500 shares of Common Stock were
granted to Mr. Peters, and stock options for an aggregate of 79,000 shares of
Common Stock were granted to other executive officers. In January 1998, the
Compensation Committee granted stock options for 212,500 shares of Common Stock
to Mr. Peters and stock options for an aggregate of 404,000 shares of Common
Stock to other executive officers. Of such grants, the vesting of stock options
for 200,000 shares granted to Mr. Peters and 380,000 shares granted to other
executive officers are subject to attainment of certain targets for the market
price of Common Stock. See "Item 2. Proposal to Approve the Amendments to the
1995 Performance Equity Plan--Reasons for the Amendments to the Equity Plan."
COMPENSATION COMMITTEE
Robert H. Alter
James L. Greenwald
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<PAGE> 12
COMPARISON OF STOCK PRICE PERFORMANCE
On June 23, 1995, Holdings merged (the "Merger") into a wholly-owned
subsidiary of HBAC. HBAC was formed as a Delaware corporation in January 1993
for the purpose of acquiring a company in the communications industry. In
connection with the Merger, HBAC changed its name to Source Media, Inc. Because
HBAC was engaged in an activity substantially different than the activities of
Source Media Inc., two stock price performance comparisons follow. In addition,
in December 1995, in connection with its public offering of Common Stock, the
Common Stock was included in the Nasdaq Stock Market's National Market.
Post-Merger Performance Graph
The following graph and table compare cumulative total return of the
Company's Common Stock (listed in the graph and table under the symbol "SRCM")
with the cumulative total return of (i) the Total Return Index for The Nasdaq
Stock Market ("Nasdaq Index") and (ii) the Total Return Index for The Nasdaq
Telecommunication Stocks ("Telecom Index"). The graph and table assume $100 was
invested on June 23, 1995 (the date of the Merger) in each of the Company's
Common Stock, the Nasdaq Index and the Telecom Index, and the reinvestment of
dividends. The stockholder return shown is not necessarily indicative of future
stock performance.
STOCK PRICE PERFORMANCE COMPARISON
[GRAPH]
<TABLE>
<CAPTION>
6/23/95 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97
- ---------------------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SRCM 100.00 100.00 86.90 89.29 65.48 95.24 83.33
TELECOM INDEX 100.00 104.25 119.30 129.42 121.95 142.33 180.19
NASDAQ INDEX 100.00 99.44 112.78 127.68 138.72 155.32 170.31
- ---------------------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
</TABLE>
-10-
<PAGE> 13
Pre-Merger Performance Graph
The following graph and table compare cumulative total return of HBAC's
common stock (listed in the graph and table under the symbol "HBAC") with the
cumulative total return of (i) the Standard & Poor's Midcap 400 Index ("S&P
Index") and (ii) an industry peer group index consisting of four publicly held
Special Purpose Acquisition Corporation's (SPAC(sm) ("SPAC Index"). The graph
and table assume $100 was invested on June 30, 1993 (the day HBAC's common stock
was first traded on the OTC Bulletin Board) in each of HBAC common stock, the
S&P Index and the SPAC Index, and the reinvestment of dividends, through June
23, 1995, the date of the Merger.
STOCK PRICE PERFORMANCE COMPARISON
[GRAPH]
<TABLE>
<CAPTION>
6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/23/95
- --------------- ---------- ---------- ------------ ----------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HBAC 100.00 100.00 100.00 97.37 96.05 102.63 100.00 110.53 110.53
SPAC INDEX 100.00 96.20 96.80 101.80 95.60 101.80 98.20 98.40 98.00
S&P INDEX 100.00 104.57 106.76 102.21 97.98 104.07 100.85 110.33 118.74
- --------------- ---------- ---------- ------------ ----------- ---------- ---------- ----------- ------------ -----------
</TABLE>
-11-
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the annual
compensation paid or accrued, together with the number of shares covered by
options granted, to the Company's Chief Executive Officer and the four other
highest paid executive officers in 1997 (the "named executive officers") for the
years indicated:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
----------------------- ------------
COMMON STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------- ---- ------ ----- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Timothy P. Peters 1997 $225,000 $132,656 12,500 --
Chairman of the Board and 1996 200,580 27,323 75,000 --
Chief Executive Officer 1995 125,000 56,121 7,554 --
John J. Reed 1997 $210,000 $ 44,012 38,000 --
President 1996 189,330 21,210 70,000 --
1995 125,000 39,854 7,097 --
W. Scott Bedford 1997 $210,000 $107,120 10,000 --
Chief Financial Officer 1996 189,330 23,607 70,000 --
and Treasurer 1995 125,000 43,604 7,097 --
Daniel D. Maitland (2) 1997 $170,000 $105,002 5,000 --
Executive Vice President 1996 -- -- 60,000(3) --
1995 -- -- -- --
W. Thomas Oliver (4) 1997 $250,000 $ 37,856 25,000 --
Executive Vice President 1996 140,224 12,375 225,000 --
1995 -- -- -- --
Michael G. Pate 1997 $183,333 $100,406 -- --
former Chief Financial Officer 1996 181,610 28,292 150,000 --
and Treasurer 1995 125,000 50,007 1,331 --
</TABLE>
- -----------------------------
(1) Amounts earned in a year but deferred at the election of the Company to a
subsequent year have been included in the year in which the amounts were
paid. Amounts earned under the Company's Annual Management Incentive Plan
in each year presented are included for the relevant year.
(2) Mr. Maitland was elected as an Executive Vice President of the Company in
September 1997. Mr. Maitland agreed in November 1996 to become President
of the Company's telephone division and began serving as such in January
1997. During 1996, Mr. Maitland served as a consultant to the Company, for
which he was paid $88,125 in compensation.
(3) Mr. Maitland was awarded these options in November 1996 shares in
connection with his acceptance of full-time employment with the Company.
(4) Mr. Oliver was elected as an Executive Vice President of the Company in
September 1997. Mr. Oliver became employed by the Company in June 1996, as
President of its telephone division.
No individual named above received perquisites or non-cash compensation
during any of the years indicated exceeding the lesser of $50,000 or an amount
equal to 10 percent of such person's annual salary and bonus.
-12-
<PAGE> 15
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth, with respect to all options granted
during the Company's 1997 fiscal year to each of the Company's named executive
officers: (i) the number of shares of Common Stock covered by such options, (ii)
the percent that such options represent of total options granted to all Company
employees during the 1997 fiscal year, (iii) the exercise price, (iv) expiration
date, and (v) the potential realized value at the assumed annual rates of stock
price appreciation of 5% and 10% compounded over the term of the option. To
date, the Company has granted no stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZED VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OPTIONS RATES OF STOCK
OF SHARES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (2)
OPTIONS IN 1997 PRICE EXPIRATION ----------------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------- ---------------- ------------- --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Peters 12,500 3.5% $ 6.41 05/21/03 $ 98,035 $203,566
John J. Reed 10,000 2.8% $ 6.41 05/21/03 $ 78,428 $162,852
25,000 7.1% $ 8.25 12/15/07 $150,071 $361,131
W. Scott Bedford 10,000 2.8% $ 6.41 05/21/03 $ 78,428 $162,852
Daniel D. Maitland 5,000 1.4% $ 11.00 11/21/07 $ 16,264 $ 58,476
W. Thomas Oliver 25,000 7.1% $ 8.25 12/15/07 $150,071 $361,131
Michael G. Pate (3) -- -- -- -- -- --
</TABLE>
(1) All options were granted at or above fair market value on the date of
grant.
(2) The assumed 5% and 10% rates of stock price appreciation are specified by
the proxy rules and do not reflect expected appreciation. The amount shown
represents the assumed value of the stock options (less exercise price) at
the end of the ten year period beginning on the date of grant and ending
on the option expiration date. For a ten-year period beginning December
31, 1997, based on the closing price on The Nasdaq Stock Market's National
Market of the Common Stock of $8.75 on such date, a share of the Common
Stock would have a value on December 31, 2007 of approximately $14.25 at
an assumed appreciation rate of 5% and approximately $22.70 at an assumed
appreciation rate of 10%.
(3) Mr. Pate resigned effective November 21, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth for each of the named executive officers
of the Company: (i) the number of shares of Common Stock acquired upon exercise
of options during fiscal year 1997; (ii) the net aggregate dollar value realized
upon exercise; (iii) the total number of unexercised options held at the end of
fiscal year 1997; and (iv) the aggregate dollar value of in-the-money
unexercised options held at the end of fiscal year 1997. To date, the Company
has issued no SARs.
-13-
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED VALUE -------------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------- ------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Peters -- -- 5,571 91,499 -- $64,500
John J. Reed -- -- 5,114 108,999 -- $68,800
W. Scott Bedford -- -- 5,114 83,999 -- $56,300
Daniel D. Maitland -- -- 40,000 25,000 $16,000 $ 8,000
W. Thomas Oliver -- -- 75,000 175,000 -- $ 1,250
Michael G. Pate (1) 32,943 $53,113 -- -- -- --
</TABLE>
- --------------
(1) Mr. Pate is no longer employed by the Company.
CERTAIN TRANSACTIONS
In June 1993, John Reed, President and a director of the company
exercised an option he had received in 1989 to purchase an aggregate of 70,546
shares of common Stock at an aggregate price of $50,000, or approximately $0.71
per share. Mr. Reed paid for the shares by delivering to the company a
nonrecourse promissory note in the original principal amount of $50,000, bearing
interest at a rate of 10% per annum with all principal and interest payable in
May 1995. This note was cancelled and replaced by a similar note dated December
1, 1993 in the principal amount of $52,083, and the shares of Common Stock were
reissued as of such date. As of May 1995, the repayment date was extended to May
31, 1997. Effective May 15, 1997, the repayment date was extended to May 31,
1999. On February 20, 1998, the note was amended to prohibit prepayment and to
add certain other provisions. As of March 31, 1998, the aggregate principal and
accrued interest outstanding was $73,759.
Robert J. Cresci, a director of the company, is a Managing Director of
Pecks Management Partners Ltd., investment advisor to four of the lenders to the
Company under the senior secured notes issued in April 1997. The outstanding
balance of the senior secured notes, including accrued interest, held by funds
managed by Pecks Management Partners Ltd. as of October 23, 1997 was $10.7
million. The Company used proceeds from its 12% Senior Secured Notes and 13 1/2%
Senior PIK Preferred Stock to repay those notes.
ITEM 2. PROPOSAL TO APPROVE THE
AMENDMENTS TO THE 1995 PERFORMANCE EQUITY PLAN
At the Annual Meeting, holders of Common Stock will also be asked to
consider and approve the adoption of amendments (i) to increase from 1,400,000
to 1,975,000 the number of shares of Common Stock reserved for issuance under
the Company's 1995 Performance Equity Plan (the "Equity Plan") and (ii) to
delete the provision in the Equity Plan requiring a six-month holding period
(measured from the date of grant) for equity securities and options granted
pursuant to the Equity Plan and for equity securities underlying such options.
These amendments were adopted, subject to stockholder approval, by the Board of
Directors on April 15, 1998. The following is a summary of the terms of the
Equity Plan, as amended, which is qualified in its entirety by reference to the
complete text of the Equity Plan attached to this Proxy Statement as Exhibit A.
REASONS FOR THE AMENDMENTS TO THE EQUITY PLAN
As of April 1, 1998, there were outstanding stock options under the
Equity Plan covering 1,173,871 shares of Common Stock and only 179,264 shares
remained available for future awards under the Equity Plan. The purpose of the
proposal to increase the number of shares reserved for issuance under the Equity
Plan is to allow Source Media, Inc. and its present and future subsidiaries to
attract, retain and motivate employees, officers and consultants. The Company
anticipates that it will desire to issue additional options or other rights to
acquire shares of Common Stock to attract and retain personnel to facilitate the
continued development and expansion of Interactive Channel and the
-14-
<PAGE> 17
growth and expansion of IT Network.
Effective January 2, 1998, the Compensation Committee authorized the
granting of an aggregate of 769,600 stock options under the Equity Plan (the
"1998 Options"). The vesting of the 1998 Options is determined by attainment of
certain targets for the market price of Common Stock. Attainment of a particular
target occurs when the daily average of the last bid and ask price of Common
Stock quoted on the Nasdaq Stock Market before market close exceeds a certain
price for each of twenty days in any consecutive twenty-five day period (a
"Share Price Level"). The 1998 Options in effect as of April 1, 1998 vest in
accordance with attainment of targets based on the following Share Price Levels:
<TABLE>
<CAPTION>
Share Price Aggregate Number of Shares
<S> <C> <C>
Share Price Level I $11.00 187,900
Share Price Level II $14.00 187,900
Share Price Level III $17.00 187,900
Share Price Level IV $20.00 187,900
</TABLE>
The target for Share Price Level I was attained on March 12, resulting in
187,900 options becoming vested.
The 1998 Options have an exercise price of $8.675 per share, subject to
adjustment as described below, and expire ten years from the date of grant. At
the close of market on December 31 of each year, the 1998 Options that have not
yet vested because a Share Price Level was not attained during such year shall
be rolled forward to the next year, and the Compensation Committee shall
determine the Share Price Levels applicable for such next year and may adjust
the exercise price if it determines to do so. Any 1998 Options granted but not
yet vested on December 31 nine years after the date of grant shall be
immediately vested at the then current exercise price.
From the date a Share Price Level is achieved, the applicable 1998
Options become exercisable one-third each year, beginning on such achievement
date, but in no event shall a 1998 Option become exercisable less than six
months from the grant date.
Because, as of April 1, 1998, only 179,264 shares of Common Stock
remained available for issuance under the Equity Plan, if Share Price Level II
is achieved, an insufficient number of shares of Common Stock would be available
under the Equity Plan to cover the full exercise of the relevant 1998 Options.
Achievement of Share Price Levels III and IV would also result in an
insufficient number of shares to cover exercises. The agreements governing the
1998 Options provide that such options are granted pursuant to and subject to
the Equity Plan. Thus, that portion of the 1998 Options for which there are
insufficient shares of Common Stock reserved are effectively subject to
shareholder approval of the proposal to increase the number of shares reserved
for issuance.
-15-
<PAGE> 18
NEW PLAN BENEFITS
The following table sets forth certain information concerning the 1998
Options granted under the Equity Plan and in effect as of April 1, 1998 to the
executive officers named below, to all current executive officers who are
employees of the Company as a group, to all non-executive directors (i.e.,
outside directors) as a group, and to all employees who are not executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING 1998 OPTIONS
----------------------------------------------------------------
NAME AND POSITION SHARE LEVEL I SHARE LEVEL II SHARE LEVEL III SHARE LEVEL IV
- ----------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Timothy P. Peters, 50,000 50,000 50,000 50,000
Chairman of the Board and
Chief Executive Officer
John J. Reed, President 15,000 15,000 15,000 15,000
W. Scott Bedford, 25,000 25,000 25,000 25,000
Chief Financial Officer
and Treasurer
Daniel D. Maitland, 25,000 25,000 25,000 25,000
Executive Vice President
W. Thomas Oliver, 15,000 15,000 15,000 15,000
Executive Vice President
Michael G. Pate, -- -- -- --
former Chief Financial Officer
and Treasurer
Executive Group 145,000 145,000 145,000 145,000
Non-Executive Director Group -- -- -- --
Non-Executive Officer, 42,900 42,900 42,900 42,900
Employee Group
</TABLE>
The deletion of Section 5.1(a) of the Equity Plan will remove the
requirement that any equity security granted pursuant to the Equity Plan must be
held for six months from the date of grant or, in the case of an option, that at
least six months elapse from the date of acquisition of the option to the date
of disposition of the option (other than upon exercise or conversion) or its
underlying equity security. This provision was included in the Equity Plan to
comply with Securities and Exchange Commission rules which have subsequently
been amended.
DESCRIPTION OF EQUITY PLAN AS CURRENTLY IN EFFECT
On March 11, 1995, the Board of Directors of the Company adopted the
Equity Plan. At the 1997 Annual Meeting, the holders of Common Stock approved
amendments to the Equity Plan to increase from 900,000 to 1,400,000 the number
of shares of Common Stock reserved for issuance under the Equity Plan and to
allow awards to be granted to employees of the Company's subsidiaries. The
Equity Plan, as amended, provides for the grant of options to purchase up to
1,400,000 shares of Common Stock to employees, officers and consultants of
Source Media, Inc. and any of its present or future subsidiaries owned 50% or
more by Source Media, Inc. or, with respect to a lower-tier subsidiary, by a
subsidiary of Source Media, Inc. Pursuant to the Equity Plan, awards of (i)
stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv)
deferred stock, (v) stock reload options and/or (vi) other stock-based awards
(collectively, "Awards") may be made. The Committee administering the Equity
Plan may determine the specific type of Awards to be granted (e.g., stock option
and restricted stock), the number of shares subject to each
-16-
<PAGE> 19
Award, share prices, any restrictions or limitations on such Awards and any
vesting, exchange, deferral, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions related to such Awards.
Any equity security granted pursuant to the Equity Plan must be held for
six months from the date of grant or in the case of an option, at least six
months must elapse from the date of acquisition of the option to the date of
disposition of the option (other than upon exercise or conversion) or its
underlying equity security. In the event of a "change of control," as defined in
the Equity Plan, any option not then otherwise exercisable will immediately
become exercisable in full. Options generally expire 10 years after the date of
grant. As of April 1, 1998, there were options outstanding under the Equity Plan
to purchase 1,173,871 shares of Common Stock at a weighted average exercise
price of $8.98.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the United States Federal income tax
consequences to the Company and individuals receiving Awards under the Equity
Plan. The following summary is based upon an analysis of the Code, existing
laws, judicial decisions, administrative rulings, regulations and proposed
regulations, all of which are subject to change. Moreover, the following is only
a summary of United States Federal income tax consequences, and the tax
consequences to individuals participating in the Equity Plan may be either more
or less favorable than those described below depending on their particular
circumstances.
INCENTIVE STOCK OPTIONS. No income will be recognized by an optionee for
Federal income tax purposes upon the grant or exercise of an incentive stock
option. The basis of shares transferred to an optionee pursuant to the exercise
of an incentive stock option is the price paid for the shares. If the optionee
holds the shares for at least one year after transfer of the shares to the
optionee and two years after the grant of the option, the optionee will
recognize capital gain or loss upon sale of the shares received upon the
exercise equal to the difference between the amount realized on the sale and the
exercise price. Generally, if the shares are not held for that period, the
optionee will recognize ordinary income upon disposition in an amount equal to
the excess of the fair market value of the shares on the date of exercise over
the option price of such shares, or if less (and if the disposition is a
transaction in which loss, if any, will be recognized), the gain on disposition.
Any additional gain realized by the optionee upon such disposition will be a
capital gain.
The excess of the fair market value of shares received upon the exercise
of an incentive stock option over the option price for the shares is an item of
adjustment for the optionee for purposes of the alternative minimum tax.
The Company is not entitled to a deduction upon the exercise of an
incentive stock option by an optionee. If the optionee disposes of the shares
received pursuant to such exercise prior to the expiration of one year following
transfer of the shares to the optionee or two years after grant of the option,
however, the Company may, subject to the deduction limitation described below,
deduct an amount equal to the ordinary income recognized by the optionee upon
disposition of the shares at the time such income is recognized by the optionee.
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under an incentive stock option, the resulting tax
consequences will depend upon whether the already owned shares of Common Stock
are "statutory option stock", and, if so, whether such statutory option stock
has been held by the optionee for the applicable holding period referred to in
Section 424(c)(3)(A) of the Code. In general, "statutory option stock" (as
defined in Section 424(c)(3)(B) of the Code) is any stock acquired through the
exercise of an incentive stock option or of an option granted pursuant to an
employee stock purchase plan. If the stock is statutory option stock with
respect to which the applicable holding period has been satisfied, no income
will be recognized by the optionee upon the transfer of such stock in payment of
the exercise price of an incentive stock option. If the stock is not statutory
option stock, no income will be recognized by the optionee upon the transfer of
the stock unless the stock is not substantially vested within the meaning of the
regulations under Section 83 of the Code (in which event it appears that the
optionee will recognize ordinary income upon the transfer equal to the amount by
which the fair market value of the transferred shares exceeds their basis). If
the stock used to pay the exercise price of an incentive stock option is
statutory option stock with respect to which the applicable holding period has
not been satisfied, the transfer of such stock will be a disqualifying
disposition described in Section 421(b) of the Code which will result in the
recognition of ordinary income by the optionee in an amount equal to the excess
of the fair market value of the statutory option stock at the
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<PAGE> 20
time the incentive stock option covering such stock was exercised over the
option price of such stock. Under the present provisions of the Code, it is not
clear whether all shares received upon the exercise of an incentive stock option
with already owned shares will be statutory option stock or how the optionee's
basis will be allocated among such shares.
NONQUALIFIED STOCK OPTIONS. No income will be recognized by an optionee
for Federal income tax purposes upon the grant of a nonqualified stock option.
Upon exercise of a nonqualified stock option (if the optionee acquires shares of
Common Stock upon exercise), the optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option price of such shares. If such an optionee acquires
deferred stock upon exercise of a nonqualified stock option, the optionee will
recognize ordinary income on the date shares of Common Stock related to such
deferred stock are received (or, if earlier, the date such shares are made
available to the optionee) in an amount equal to the excess of the fair market
value of the shares on such date over the option price of the shares. If a
nonqualified stock option is transferred to a permitted transferee pursuant to
the Equity Plan, the optionee (not the transferee) will recognize ordinary
income upon exercise of the option (or later receipt of Common Stock related to
an option exercisable for deferred stock) by the transferee, as if the option
had not been transferred.
Nonqualified stock options are designed to provide the Company with a
deduction, subject to the deduction limitation described below, equal to the
amount of ordinary income recognized by the optionee at the time of such
recognition by the optionee.
The basis of shares transferred to an optionee pursuant to exercise of a
nonqualified stock option is the price paid for such shares plus an amount equal
to any income recognized by the optionee as a result of the exercise of the
option. If an optionee thereafter sells shares acquired upon exercise of a
nonqualified stock option, the difference between the amount realized and the
basis of the shares will constitute capital gain or loss to the optionee for
Federal income tax purposes.
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under a nonqualified stock option, the number of
shares received pursuant to the option which is equal to the number of shares
delivered in payment of the exercise price will be considered received in a
nontaxable exchange, and the fair market value of the remaining shares received
by the optionee upon such exercise will be taxable to the optionee as ordinary
income. If such already owned shares of Common Stock are not "statutory option
stock" (which is defined in Section 424(c)(3)(B) of the Code to include any
stock acquired through the exercise of an incentive stock option or an option
granted pursuant to an employee stock purchase plan) or are statutory option
stock with respect to which the applicable holding period referred to in Section
424(c)(3)(A) of the Code has been satisfied, the shares received pursuant to the
exercise of the option will not be statutory option stock and the optionee's
basis in the number of shares received in exchange for the shares delivered in
payment of the exercise price will be equal to the basis of the shares delivered
in payment. The basis of the remaining shares received upon such exercise will
be equal to the fair market value of such shares. However, if such already owned
shares of Common Stock are statutory option stock with respect to which the
applicable holding period has not been satisfied, it is not presently clear
whether such exercise will be considered a disqualifying disposition of the
statutory option stock, whether the shares received upon such exercise will be
statutory option stock or how the optionee's basis will be allocated among the
shares received.
STOCK APPRECIATION RIGHTS. A recipient of stock appreciation rights
("SARs") will not recognize income for Federal income tax purposes upon the
grant of SARs. When SARs are exercised, the recipient will recognize ordinary
income on the date of exercise in an amount equal to the cash (if any) and the
fair market value of the shares transferred to him or her, without limitation,
pursuant to SARs. The Company will be allowed a deduction, subject to the
deduction limitation described below, equal to the amount of ordinary income
recognized by the recipient due to the exercise of SARs at the time of such
recognition by the recipient.
The basis of any shares of Common Stock transferred to a recipient
pursuant to the exercise of an SAR is equal to the amount the recipient is
required to include in income as discussed above. If a recipient sells shares
acquired upon exercise of SARs, the difference between the amount realized and
the basis of such shares will constitute capital gain or loss to such recipient
for Federal income tax purposes.
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<PAGE> 21
RESTRICTED STOCK. If the restrictions placed upon an award of restricted
stock under the Equity Plan are of a nature that such shares are both subject to
a substantial risk of forfeiture and are not freely transferable within the
meaning of Section 83 of the Code, the recipient of such award will not
recognize income for Federal income tax purposes at the time of the award unless
such recipient affirmatively elects to include the fair market value of the
shares of restricted stock on the date of the award in gross income for the year
of the award pursuant to Section 83(b) of the Code. In the absence of such an
election, the recipient will be required to include in income for Federal income
tax purposes, in the year in which the shares either become freely transferable
or are no longer subject to a substantial risk of forfeiture within the meaning
of Section 83 of the Code, the fair market value of the shares of restricted
stock on such date plus the amount of any retained distributions related to such
shares, less any amount paid therefor. The Company will be entitled to a
deduction at such time, subject to the deduction limitation described below, in
an amount equal to the amount the recipient is required to include in income
with respect to the shares.
If the restrictions imposed upon an award of restricted stock under the
Equity Plan are not of a nature that such shares are both subject to a
substantial risk of forfeiture and not freely transferable, within the meaning
of Section 83 of the Code, the recipient of such an award will recognize
ordinary income for Federal income tax purposes at the time of the award in an
amount equal to the fair market value of the shares of restricted stock on the
date of the award, less any amount paid therefor. The Company will be entitled
to a deduction at such time, subject to the deduction limitation described
below, in an amount equal to the amount the recipient is required to include in
income with respect to the shares.
DEFERRED STOCK. Generally, an individual who receives an award of
deferred stock under the Equity Plan will not recognize any income for Federal
income tax purposes at the time of such award, and the Company will not be
entitled to any deduction at that time.
Upon the expiration of the deferral period (or, if applicable, the
additional deferral period) in accordance with the Equity Plan, the recipient
will recognize ordinary income on the date of receipt of shares of Common Stock
(or, if earlier, the date such shares are made available to the recipient) in an
amount equal to the fair market value of such shares on such date. The Company
will be entitled to a deduction, subject to the deduction limitation described
below, equal to the amount of ordinary income recognized by the recipient at the
time of such recognition.
The basis of shares of Common Stock transferred to a recipient of
deferred stock in accordance with the Equity Plan will be equal to the ordinary
income recognized by the recipient, as described above. If the recipient
thereafter sells such shares of Common Stock, the difference between the amount
realized and the basis of the shares will constitute capital gain or loss to the
recipient for Federal income tax purposes.
TAX WITHHOLDING. Income recognized by an employee of the Company with
respect to an Award under the Equity Plan will be considered compensation
subject to withholding at the time the income is recognized, and, therefore, the
Company must make the necessary arrangements with the employee to ensure that
the amount of the tax required to be withheld is available for payment.
LIMITATIONS ON THE COMPANY'S COMPENSATION DEDUCTION. Section 162(m) of
the Code limits the deduction which the Company may take for otherwise
deductible compensation payable to certain executive officers of the Company to
the extent that compensation paid to such officers for such year exceeds $1
million, unless such compensation is performance-based, is approved by the
Company's stockholders and meets certain other criteria. There is no assurance
that Awards made to employees under the Equity Plan will satisfy the
performance-based compensation requirements and, accordingly, the Company may be
limited by Section 162(m) of the Code in the amount of deductions it would
otherwise be entitled to take (as described in the foregoing summary).
Section 280G of the Code limits the deductibility of certain "parachute
payments" to disqualified individuals by the Company. Generally, "parachute
payments" consist of payments in the nature of compensation made in connection
with a change in control of the Company. It is possible that any accelerated
vesting of options that occurs upon a change in control of the Company could be
a "parachute payment" subject to the deduction limitations of Section 280G of
the Code. In addition, Section 4999 of the Code imposes a 20% nondeductible
excise tax upon the disqualified individual receiving certain "parachute
payments."
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RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of at least a majority of the Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on this proposal is required to approve the amendments to the
Equity Plan. The Board of Directors recommends that the Company's stockholders
vote FOR the proposal to approve the amendments to the Equity Plan.
ITEM 3. PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION
The Company is authorized to issue 50,000,0000 shares of the Common Stock
and 1,000,000 shares of preferred stock, par value $0.001 per share ("Preferred
Stock"). As of April 6, 1998, there were ___________ shares of Preferred Stock
of the Company outstanding, all of which shares are 13 1/2% Senior PIK Preferred
Stock (the "Senior PIK Preferred Stock") of the Company. On April 15, 1998, the
Board of Directors adopted a proposed amendment to Article Fourth of the
Company's Certificate of Incorporation increasing the authorized number of
shares of Preferred Stock from 1,000,000 shares to 1,712,000 shares (the
"Charter Amendment"), for submission to the shareholders at the Annual Meeting.
The Company's Certificate of Incorporation authorizes the issuance of the
Preferred Stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors of the Company. The
material terms and condition of the Senior PIK Preferred Stock are described
below.
Liquidation Preference. The liquidation preference of the Senior PIK
Preferred Stock is $25.00 per share, plus accumulated and unpaid dividends.
Optional Redemption. At any time and from time to time on or prior to
November 1, 2000, the Company may, subject to certain requirements, redeem up to
35% of the Senior PIK Preferred Stock with cash proceeds from one or more equity
offerings at a redemption price equal to 113.50% of the liquidation preference
thereof, plus accumulated and unpaid dividends to the date of redemption. After
November 1, 2000 and prior to November 1, 2002, the Senior PIK Preferred Stock
is not redeemable. On or after November 1, 2002, the Company may redeem the
Senior PIK Preferred Stock, in whole or in part, at any time at the redemption
prices set forth herein, together with all accumulated and unpaid dividends to
the date of redemption.
Mandatory Redemption. The Company is required, subject to certain
conditions, to redeem all of the Senior PIK Preferred Stock outstanding on
November 1, 2007 at a redemption price equal to 100% of the liquidation
preference thereof, plus accumulated and unpaid dividends to the date of
redemption.
Dividends. The Senior PIK Preferred Stock is entitled to dividends at a
rate equal to 13 1/2% per annum of the liquidation preference per share, payable
quarterly beginning February 1, 1998. The Company, at its option, may pay
dividends on any dividend payment date occurring on or before November 1, 2002
either in cash or by the issuance of additional Senior PIK Preferred Stock with
a liquidation preference equal to the amount of such dividends; thereafter,
dividends will be paid in cash. The indenture governing the Company's 12% Senior
Notes due 2004 (the "Indenture") limits the amount of cash dividends that may be
paid on the preferred stock of the Company, including the Senior PIK Preferred
Stock.
Dividend Payment Dates. Dividends are payable on February 1, May 1,
August 1 and November 1 of each year.
Voting. The Senior PIK Preferred Stock is non-voting, except as otherwise
required by law and except in certain circumstances, including (i) amending
certain rights of the holders of the Senior PIK Preferred Stock and (ii) the
issuance of any class of equity securities that ranks on a parity with or senior
to the Senior PIK Preferred Stock. In addition, if the Company (i) after
November 1, 2002 fails to pay cash dividends in any dividend period, (ii) fails
to make a mandatory redemption or an offer to purchase upon a change of control,
or (iii) fails to comply with certain
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<PAGE> 23
covenants or make certain payments on its indebtedness, holders of a majority of
the shares of the Senior PIK Preferred Stock, voting as a class, will be
entitled to elect two directors to the Company's board of directors.
Ranking. The Senior PIK Preferred Stock, with respect to dividend rights
and rights on liquidation, winding-up and dissolution of the Company, ranks
senior to all classes of common stock and to all other classes of preferred
stock of the Company subject to certain exceptions.
Change of Control. Upon the occurrence of a change of control, the
Company will be required to make an offer to repurchase the Senior PIK Preferred
Stock at a price equal to 101% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of repurchase.
Restrictive Covenants. The Certificate of Designation governing the
Senior PIK Stock (the "Certificate of Designation") contains certain restrictive
provisions that, among other things, limit (i) the incurrence of additional
indebtedness by the Company and its subsidiaries, (ii) the issuance of preferred
stock of the Company's subsidiaries, (iii) payment of dividends on, and
redemption of, capital stock of the Company and the redemption of certain
subordinated obligations of the Company, (iv) investments, including investments
over a certain amount in Interactive Channel by the Company or any restricted
subsidiary, (v) transactions with affiliates and (vi) consolidations, mergers
and transfers of all or substantially all of the assets of the Company.
REASONS FOR AND GENERAL EFFECTS OF THE CHARTER AMENDMENT
As described above, for all dividend dates through and including November
1, 2002, the Company may, at its option, pay dividends on the Senior PIK
Preferred Stock in additional shares of Preferred Stock in lieu of paying cash
dividends. However, the Company currently does not have a sufficient number of
authorized shares of Preferred Stock to pay dividends on the Senior PIK
Preferred Stock in additional shares of Preferred Stock on any quarterly
dividend date after May 1, 1999, and the Indenture limits the amount of cash
dividends that may be paid on shares of Preferred Stock of the Company. If the
shareholders do not approve the Charter Amendment and the Company is unable to
pay cash dividends, the holders of Senior PIK Preferred Stock would be entitled
to certain rights, including the right to elect two directors and an additional
2% dividend, for so long as dividends remain unpaid.
If the Charter Amendment is approved, all or any part of the authorized
but unissued shares of Preferred Stock may thereafter be issued without further
approval from the shareholders, except as may be required by law or the policies
of any stock exchange on which the shares of stock of the Company may be listed,
for such purposes and on such terms as the Board may determine. However, the
Certificate of Designation requires certain consent from the holders of Senior
PIK Preferred Stock in order to authorize additional shares of certain Preferred
Stock. The additional shares of Preferred Stock for which authorization is
sought would be designated as Senior PIK Preferred Stock so that there is a
sufficient number of authorized shares of Senior PIK Preferred Stock to pay
dividends on the Senior PIK Preferred Stock in additional shares of Preferred
Stock.
If the Charter Amendment is adopted, the first sentence of Article Fourth
of the Company's Certificate of Incorporation will be amended to read as
follows:
"The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 51,712,000 of which
50,000,000 shares shall be Common Stock of the par value of $0.001 per
share and 1,712,000 shares shall be Preferred Stock of the par value of
$0.001 per share."
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of at least a majority of the Common
Stock entitled to vote on this proposal is required to approve the Charter
Amendment. If approved by the shareholders, such increases in the number of
authorized shares will become effective upon the filing with the Secretary of
State of the State of Delaware of an amendment to the Company's Certificate of
Incorporation setting forth such increases. The Board of Directors recommends
that the Company's stockholders vote FOR the proposal to approve the Charter
Amendment.
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<PAGE> 24
INDEPENDENT AUDITORS
Based on the recommendation of the Audit Committee of the Board of
Directors of the Company, Ernst & Young LLP, which has served as the Company's
independent public accountants since 1989, has been appointed by the Board of
Directors to audit the financial statements of the Company for the year ending
December 31, 1998. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting to respond to appropriate questions from the
stockholders and will be given the opportunity to make a statement should they
desire to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and officers of the
Company, and persons who own more than ten percent of the Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
the Common Stock. Directors, officers and more than ten percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1997, all Section
16(a) filing requirements applicable to its directors, officers and more than
ten percent beneficial owners were in compliance.
STOCKHOLDER PROPOSALS
It is contemplated that the 1999 annual meeting of stockholders of the
Company will take place during the third week of May 1999. Stockholder proposals
for inclusion in the Company's proxy materials for the 1998 annual meeting of
stockholders must be received by the Company at its offices in Dallas, Texas,
addressed to the Secretary of the Company, not less than 120 days in advance of
the date (month and day only) the Proxy Statement is first distributed to
stockholders; provided that if the 1999 annual meeting of stockholders is
changed by more than 30 days from the presently contemplated date, proposals
must be so received a reasonable time in advance of the meeting.
The Board of Directors does not intend to present any other matters at
the Annual Meeting and knows of no other matters that will be presented;
however, if any other matter properly comes before the Annual Meeting, the
persons named in the enclosed proxy intend to vote thereon according to their
best judgment.
OTHER MATTERS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
form of proxy and the material used in the solicitation thereof will be borne by
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors, officers and employees
of the Company. Arrangements have been made with brokerage houses, banks and
other custodians, nominees and fiduciaries for the forwarding of soliciting
materials to the beneficial owners of Common Stock held of record by such
persons, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in connection therewith.
All information contained in this Proxy Statement relating to the
occupations, affiliations and securities holdings of directors and officers of
the Company and their relationship and transactions with the Company is based
upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than 5% of the Company
Common Stock is based upon information contained in reports filed by such owner
with the Securities and Exchange Commission.
The Company has provided without charge to each person whose proxy is
solicited hereby a copy of its 1997 Annual Report, which includes the Company's
Annual Report on Form 10-K, including the financial statements and schedules
thereto, for the fiscal year ended December 31, 1997 filed with the Securities
and Exchange Commission.
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<PAGE> 25
Additional copies of the Annual Report and a copy of the exhibits to such report
will be furnished without charge to any stockholder upon written request to W.
Scott Bedford, Chief Financial Officer and Treasurer, 5400 LBJ Freeway, Suite
680, Dallas, TX 75210.
BY ORDER OF THE BOARD OF DIRECTORS
Maryann Walsh, Secretary
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE ANNUAL MEETING. YOU
ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING.
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<PAGE> 26
EXHIBIT A
SOURCE MEDIA, INC.
1995 PERFORMANCE EQUITY PLAN
AS AMENDED AND RESTATED
[Language added to the Equity Plan is in boldfaced type and double underscored
and language deleted is struck through.]
SECTION 1. PURPOSE; DEFINITIONS.
1.1 Purpose. The purpose of the Source Media, Inc. ("Company") 1995
Performance Equity Plan, as amended and restated ("Plan"), is to enable the
Company to offer to the key employees, officers, directors and consultants of
the Company and its Subsidiaries whose past, present and/or potential
contributions to the Company and its Subsidiaries have been, are or will be
important to the success of the Company and its Subsidiaries, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
"Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an award under the Plan.
"Award" means an award of Stock under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto and the regulations promulgated
thereunder.
"Committee" means the Compensation Committee of the Board or any
other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then
all references in this Plan to "Committee" shall mean the Board.
"Common Stock" means the Common Stock of the Company, par value
$.001 per share.
"Company" means Source Media, Inc., a Delaware corporation
"Deferred Stock" means Stock to be received, under an award made
pursuant to Section 9 below, at the end of a specified deferral period.
"Disability" means incapacity by illness or other disability from
performing usual employment obligations for a period in excess of 240
days (whether or not consecutive) or 120 days consecutively, as the case
may be, during any twelve month period.
"Effective Date" means the date set forth in Section 12.
"Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of
any given date: (i) if the Common Stock is listed on a national
securities exchange or quoted on the Nasdaq National Market or Nasdaq
SmallCap Market, the last sale price of the Common Stock in the principal
trading market for the Common Stock on the date of grant of an award
hereunder, as reported by the exchange or Nasdaq, as the case may be;
(ii) if the Common Stock is not listed on a national securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but
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<PAGE> 27
is traded in the over-the-counter market, the closing bid price for the
Common Stock on the date of grant of an award hereunder for which such
quotations are reported by the National Quotation Bureau, Incorporated or
similar publisher of such quotations; and (iii) if the fair market value
of the Common Stock cannot be determined pursuant to clause (i) or (ii)
above, such price as the Committee shall determine, in good faith.
"Holder" means a person who has received an award under the Plan.
"Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section
422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Other Stock-Based Award" means an award under Section 10 below
that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
"Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
"Plan" means the Source Media, Inc. 1995 Performance Equity Plan,
as amended and restated and as hereinafter amended from time to time.
"Restricted Stock" means Stock, received under an award made
pursuant to Section 8 below, that is subject to restrictions under said
Section 8.
"Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as in effect from time to time.
"SAR Value" means the excess of the Fair Market Value of one share
of Common Stock over the exercise price per share specified in a related
Stock Option in the case of a Stock Appreciation Right granted in tandem
with a Stock Option and the Stock Appreciation Right price per share in
the case of a Stock Appreciation Right awarded on a free standing basis,
in each case multiplied by the number of shares in respect of which the
Stock Appreciation Right shall be exercised, on the date of exercise.
"Stock" means the Common Stock of the Company, par value $.001 per
share.
"Stock Appreciation Right" means the right, pursuant to an award
granted under Section 7 hereof, to recover an amount equal to the SAR
Value.
"Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
"Stock Reload Option" means any option granted under Section 6.3
as a result of the payment of the exercise price of a Stock Option and/or
the withholding tax related thereto in the form of Stock owned by the
Holder or the withholding of Stock by the Company.
"Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code.
"Tandem Stock Appreciation Right" means a Stock Appreciation Right
granted in tandem with all or part of any Stock Option granted under the
Plan.
SECTION 2. ADMINISTRATION.
2.1 Committee Membership. The Plan shall be administered by a Committee.
Committee members shall serve for such term as the Board may in each case
determine, and shall be subject to removal at any time by the
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<PAGE> 28
Board. It is the intent of the Board that the Plan qualify under Rule 16b-3
promulgated under the Securities Exchange Act of 1934 ("Exchange Act"). To that
end, unless otherwise determined by the Board, each Committee member shall be a
"disinterested person" (i.e., a director who has not, during the one year prior
to service as an administrator of the Plan, or during such service, received a
grant or award of equity securities of the Company pursuant to the Plan or any
other plan of the Company or any of its affiliates). The membership of the
Committee shall at all times be comprised of persons so as not to adversely
affect the compliance of the Plan with the requirements of Rule 16b-3 under the
Exchange Act or with the requirements of any other applicable law, rule or
regulation.
2.2 Powers of Committee. The Committee shall have full authority, subject
to Section 4 hereof, to award, pursuant to the terms of the Plan: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred
Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards. For
purposes of illustration and not of limitation, the Committee shall have the
authority (subject to the express provisions of this Plan):
(a) to select the key employees, officers, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock
Options and/or Other Stock-Based Awards may from time to time be awarded
hereunder;
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or
limitations, and any vesting, exchange, surrender, cancellation,
acceleration, termination, exercise or forfeiture provisions, as the
Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction
with or apart from other equity awarded under this Plan and cash awards
made by the Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder;
and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new
awards of any other type for previously granted awards of the same type,
which previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Sections 4.2 (b) and 11
hereof, the Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any award issued under the Plan (and to
determine the form and substance of all Agreements relating thereto), and
to otherwise supervise the administration of the Plan. Subject to Section
11 hereof, all decisions made by the Committee pursuant to the provisions
of the Plan shall be made in the Committee's sole discretion and shall be
final and binding upon all persons, including the Company, its
Subsidiaries and Holders. Determinations by the Committee under the Plan
relating to the form, amount and terms and conditions of awards need not
be uniform, and may be made selectively among persons who receive or are
eligible to receive awards under the Plan, whether or not such persons
are similarly situated.
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<PAGE> 29
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Tandem
Stock Appreciation Rights granted in conjunction with an Incentive Stock
Option) or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the Holder(s)
affected, to disqualify any Incentive Stock Option under such Section
422.
SECTION 3. STOCK SUBJECT TO PLAN
3.1 Number of Shares. The total number of shares of Common Stock reserved
and available for distribution under the Plan shall be one million nine hundred
seventy-five thousand (1,975,000) shares. Shares of Stock under the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. If any shares of Stock that have been granted pursuant to a Stock Option
cease to be subject to a Stock Option, or if any shares of Stock that are
subject to any Stock Appreciation Right, Restricted Stock, Deferred Stock award,
Reload Stock Option or Other Stock-Based Award granted hereunder are forfeited
or any such award otherwise terminates without a payment being made to the
Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, recapitalization, dividend (other than a
cash dividend), stock split, reverse stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and exercise price of shares subject to outstanding Options, in the
number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and in the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
4.1 General. Awards may be made or granted to key employees, officers,
directors and consultants of the Company or any of its Subsidiaries who are
deemed to have rendered or to be able to render significant services to the
Company or its Subsidiaries and who are deemed to have contributed or to have
the potential to contribute to the success of the Company or any of its
Subsidiaries. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
4.2 Awards and Grants.
(a) The granting of Stock Options and Awards under the Plan shall
be determined by a Committee of two or more directors of the Company, of
which all members shall be disinterested persons, as described in Section
2.1 hereof. No grants or awards will be made to any person whose
eligibility under the Plan would adversely affect the compliance of the
Plan with the requirements of Rule 16b-3.
(b) This Section 4.2 shall not be amended more than once every six
months, other than to comport with any changes in the Code or the
Employment Retirement Income Security Act, or the rules and regulations
promulgated thereunder.
SECTION 5. GENERAL TERMS AND CONDITIONS.
5.1 General. With respect to the award or grant of any (i) Stock Options,
(ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v)
Stock Reload Options and/or (vi) Other Stock-Based Awards, the following terms
and conditions shall apply:
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(a) Transferability:
(i) Incentive Stock Options: Any Stock Option issued
pursuant to and intended to be an Incentive Stock Option under the
Plan shall not be transferable by the Holder other than by will or
the laws of descent and distribution.
(ii) Non-Qualified Stock Options: Any Stock Option issued
pursuant to the Plan which is not intended to qualify as an
Incentive Stock Option, shall not be transferable by the Holder
other than by will or the laws of descent and distribution;
provided, however, should Rule 16b-3 so permit, such Stock Option
may also be transferred, for no consideration, by the Holder to
the following transferees ("Transferee"):
(A) a member of the Holder's immediate family. For
purposes of this section, "immediate family" shall include
only brothers and sisters (whether by the whole or half
blood) spouse, parents, and natural or adopted siblings,
(B) a trust for the benefit of members of the
Holder's immediate family, or
(C) a partnership whose only partners are members of
the Holder's immediate family,
if the Transferee shall agree to be subject to the same
restrictions and conditions as relate to the Holder pursuant to
the Plan.
(b) Change in Control. In the event of a Change in Control (as
defined below), all options to the extent not then currently exercisable
shall become immediately exercisable in full.
As used in this Plan, a "Change in Control" shall be deemed to occur (i)
when the Company acquires actual knowledge that any person, as such term is used
in the Exchange Act, including Section 14(d)(2) thereof, (other than (a) any
employee benefit plan established or maintained by the Company or any of its
Subsidiaries, and (b) any person who is deemed to be the beneficial owner of any
securities of the Company to which any person in clause (a) above is and remains
a beneficial owner, including, without limitation, any person that is a member
of a group (as defined in said Section 14(d)(2) of the Exchange Act) in which
any person defined in clause (a) above is also a member) is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, (ii) upon
the first purchase of the Company's Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company or an
employee benefit plan established or maintained by the Company or any of its
subsidiaries), (iii) upon the approval by the Company's stockholders of (A) a
merger or consolidation of the Company with or into another corporation (other
than a merger or consolidation in which the Company is the surviving corporation
and which does not result in any capital reorganization or reclassification or
other change in the Company's then outstanding shares of Common Stock), (B) a
sale or disposition of all or substantially all of the Company's assets or (C) a
plan of liquidation or dissolution of the Company, or (iv) if during any period
of two (2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute at least two-thirds thereof, unless the election or nomination for
the election by the Company's stockholders of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
SECTION 6. STOCK OPTIONS.
6.1. Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms,
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not inconsistent with this Plan, or with respect to Incentive Stock Options, the
Code, as the Committee may from time to time approve. The Committee shall have
the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options and may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option intended to
qualify as an Incentive Stock Option does not so qualify, it shall constitute a
separate Non-Qualified Stock Option. An Incentive Stock Option may only be
granted within the ten year period commencing from the Effective Date and may
only be exercised within ten years of the date of grant (or five years in the
case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Parent or
Subsidiary.
6.2. Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at
the time of grant and may be less than 100% of the Fair Market Value of
the Stock as defined above; provided, however, that the exercise price of
an Incentive Stock Option shall not be less than 100% of the Fair Market
Value of the Stock (110%, in the case of a 10% Stockholder).
(b) Option Term. Subject to the limitations in Section 6.1, the
term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Subject to Section 5.1 (a) hereinabove, Stock
Options shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee. If the
Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, i.e., that it vests over time, the
Committee may waive such installment exercise provisions at any time at
or after the time of grant in whole or in part, based upon such factors
as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock
Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company
specifying the number of shares of Stock to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, which
shall be in cash or, unless otherwise provided in the Agreement, in
shares of Stock (including Restricted Stock and other contingent awards
under this Plan) or, partly in cash and partly in such Stock, or such
other means which the Committee determines are consistent with the Plan's
purpose and applicable law. Cash payments shall be made by wire transfer,
certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be
required to deliver certificates for shares of Stock with respect to
which an Option is exercised until the Company has confirmed the receipt
of good and available funds in payment of the purchase price thereof.
Payments in the form of Stock shall be valued at the Fair Market Value of
a share of Stock on the date prior to the date of exercise. Such payments
shall be made by delivery of stock certificates in negotiable form which
are effective to transfer good and valid title thereto to the Company,
free of any liens or encumbrances. Subject to the terms of the Agreement,
the Committee may, in its sole discretion, at the request of the Holder,
deliver upon the exercise of a Non-Qualified Stock Option a combination
of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 9 of the Plan, such Deferred
Stock shall be fully vested and not subject to forfeiture. A Holder shall
have none of the rights of a stockholder with respect to the shares
subject to the Option until such shares shall be transferred to the
Holder upon the exercise of the Option.
(e) Termination by Reason of Death. If a Holder's employment by
the Company or a Subsidiary terminates by reason of death, any Stock
Option held by such Holder, unless otherwise determined by the Committee
at the time of grant and set forth in the Agreement, shall be fully
vested and may thereafter be exercised by the legal representative of the
estate or by the legatee of the Holder under the will of the Holder, for
a period of one year (or such other greater or lesser period as the
Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is
the shorter.
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(f) Termination by Reason of Disability. If a Holder's employment
by the Company or any Subsidiary terminates by reason of Disability, any
Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall be
fully vested and may thereafter be exercised by the Holder for a period
of one year (or such other greater or lesser period as the Committee may
specify at the time of grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(g) Other Termination. Subject to the provisions of Section 13.3
below and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the
Company or a Subsidiary at the time of grant and if such Holder's
employment by the Company or any Subsidiary terminates for any reason
other than death or Disability, the Stock Option shall thereupon
automatically terminate, except that if the Holder's employment is
terminated by the Company or a Subsidiary without cause or due to
retirement from active employment with the Company or any Subsidiary on
or after age 65, then the portion of such Stock Option which has vested
on the date of termination of employment may be exercised for the lesser
of three months after termination of employment or the balance of such
Stock Option's term.
(h) Additional Incentive Stock Option Limitation. In the case of
an Incentive Stock Option, the amount of aggregate Fair Market Value of
Stock (determined at the time of grant of the Option) with respect to
which Incentive Stock Options are exercisable for the first time by a
Holder during any calendar year (under all such plans of the Company and
its Parent and Subsidiaries) shall not exceed $100,000.
(i) Buyout and Settlement Provisions. The Committee may at any
time offer to buy out a Stock Option previously granted, based upon such
terms and conditions as the Committee shall establish and communicate to
the Holder at the time that such offer is made.
(j) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
6.3. Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Qualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Stock Reload
Option is related.
SECTION 7. STOCK APPRECIATION RIGHTS.
7.1. Grant and Exercise. Stock Appreciation Rights may be granted in
tandem with (i.e., Tandem Stock Appreciation Right) or in conjunction with all
or part of any Stock Option granted under the Plan or may be granted on a
free-standing basis. In the case of a Non-Qualified Stock Option, a Tandem Stock
Appreciation Right may be granted either at or after the time of the grant of
such Non-Qualified Stock Option. In the case of an Incentive Stock Option, a
Tandem Stock Appreciation Right may be granted only at the time of the grant of
such Incentive Stock Option.
7.2. Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 6 hereof and this Section 7 and may be subject to
the Code with respect to related Incentive Stock Options and such
additional limitations on exercisability as shall be determined by the
Committee and set forth in the Agreement. Other Stock Appreciation Rights
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee and set forth in the
Agreement.
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(b) Termination. A Tandem Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of
the related Stock Option, except that, unless otherwise determined by the
Committee at the time of grant, a Tandem Stock Appreciation Right granted
with respect to less than the full number of shares covered by a related
Stock Option shall not be reduced until after the number of shares
remaining under the related Stock Option equals the number of shares
covered by the Tandem Stock Appreciation Right.
(c) Method of Exercise. A Tandem Stock Appreciation Right may be
exercised by a Holder by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Holder shall
be entitled to receive such amount in the form determined pursuant to
Section 7.2(d) below. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the
related Tandem Stock Appreciation Rights have been exercised.
(d) Receipt of SAR Value. Upon the exercise of a Stock
Appreciation Right, a Holder shall be entitled to receive up to, but not
more than, an amount in cash and/or shares of Stock equal to the SAR
Value with the Committee having the right to determine the form of
payment.
(e) Shares Affected Upon Plan. Upon the exercise of a Tandem Stock
Appreciation Right, the Stock Option or part thereof to which such Tandem
Stock Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in Section 3 hereof
on the number of shares of Common Stock to be issued under the Plan, but
only to the extent of the number of shares, if any, issued under the
Tandem Stock Appreciation Right at the time of exercise based upon the
SAR Value.
SECTION 8. RESTRICTED STOCK.
8.1. Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2. Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name
of the Holder to whom such Restricted Stock shall have been awarded.
During the Restriction Period, certificates representing the Restricted
Stock and any securities constituting Retained Distributions (as defined
below) shall bear a legend to the effect that ownership of the Restricted
Stock (and such Retained Distributions), and the enjoyment of all rights
appurtenant thereto, are subject to the restrictions, terms and
conditions provided in the Plan and the Agreement. Such certificates
shall be deposited by the Holder with the Company, together with stock
powers or other instruments of assignment, each endorsed in blank, which
will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions
that shall be forfeited or that shall not become vested in accordance
with the Plan and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain
all regular cash dividends and other cash equivalent distributions as the
Board may in its sole discretion designate, pay or distribute on such
Restricted Stock and to exercise all other rights, powers and privileges
of a holder of Common Stock with respect to such Restricted Stock, with
the exceptions that (i) the Holder will not be entitled to delivery of
the stock certificate or certificates representing such Restricted Stock
until the Restriction Period shall have expired and unless all other
vesting requirements with respect thereto shall have been fulfilled; (ii)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Stock during the Restriction Period; (iii)
other than regular cash dividends and other cash equivalent distributions
as the Board may in its sole discretion designate, pay or distribute, the
Company will retain
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custody of all distributions ("Retained Distributions") made or declared
with respect to the Restricted Stock (and such Retained Distributions
will be subject to the same restrictions, terms and conditions as are
applicable to the Restricted Stock) until such time, if ever, as the
Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with
respect to which the Restriction Period shall have expired; (iv) a breach
of any of the restrictions, terms or conditions contained in this Plan or
the Agreement or otherwise established by the Committee with respect to
any Restricted Stock or Retained Distributions will cause a forfeiture of
such Restricted Stock and any Retained Distributions with respect
thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions
(i) all or part of such Restricted Stock shall become vested in
accordance with the terms of the Agreement, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested
to the extent that the Restricted Stock related thereto shall have become
vested. Any such Restricted Stock and Retained Distributions that do not
vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
SECTION 9. DEFERRED STOCK.
9.1. Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which receipt of the shares will be deferred, and all the other
terms and conditions of the awards.
9.2. Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 9.2(c) below, where
applicable), share certificates shall be delivered to the Holder, or his
legal representative, representing the number equal to the shares covered
by the Deferred Stock award.
(b) Vesting; Forfeiture. Upon the expiration of the Deferral
Period (or the Additional Deferral Period, where applicable) with respect
to each award of Deferred Stock and the satisfaction of any other
applicable limitations, terms or conditions, such Deferred Stock shall
become vested in accordance with the terms of the Agreement. Any Deferred
Stock that does not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Deferred Stock
that has been so forfeited.
(c) Additional Deferral Period. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an
installment of an award) for an additional specified period or until a
specified event ("Additional Deferral Period"). Subject to any exceptions
adopted by the Committee, such request must generally be made at least
one year prior to expiration of the Deferral Period for such Deferred
Stock award (or such installment).
SECTION 10. OTHER STOCK-BASED AWARDS.
10.1. Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
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10.2. Eligibility For Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such Other Stock-Based Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3. Terms and Conditions. Each Other Stock-Based Award shall be subject
to such terms and conditions as may be determined by the Committee.
SECTION 11. AMENDMENT AND TERMINATION.
The Board may at any time, and from time to time, amend, alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without his
consent.
SECTION 12. TERM OF PLAN.
12.1 Effective Date. The Plan, as amended and restated, shall be
effective as of April 15, 1998 ("Effective Date"), subject to the approval of
the Plan by the stockholders of the Company within one year after the Effective
Date. Any awards granted under the Plan after the Effective Date and prior to
such approval shall be effective when made (unless otherwise specified by the
Committee at the time of grant), but shall be conditioned upon, and subject to,
such approval of the Plan by the Company's stockholders and no awards shall vest
or otherwise become free of restrictions prior to such approval.
12.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
SECTION 13. GENERAL PROVISIONS.
13.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to, the terms of the Agreement executed by
the Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 60 days after the Agreement has been delivered to the Holder for
his or her execution.
13.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation and the Company shall
not be required to segregate any assets in respect of the Plan. With respect to
any payments not yet made to a Holder by the Company, nothing contained herein
shall give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 Employees.
(a) Engaging in Competition With the Company. In the event an
employee Holder terminates his employment with the Company or a
Subsidiary for any reason whatsoever, and within eighteen (18) months
after the date thereof accepts employment with any competitor of, or
otherwise engages in competition with, the Company or any Subsidiary, the
Committee, in its sole discretion, may require such Holder to return to
the Company the economic value of any award which was realized or
obtained (measured at the date of exercise, vesting or payment) by such
Holder at any time during the period beginning on that date which is six
months prior to the date of such Holder's termination of employment with
the Company or a Subsidiary.
(b) Termination for Cause. The Committee may, in the event a
Holder is terminated by the Company or a Subsidiary for cause, annul any
award granted under this Plan to such Holder and, in such event, the
Committee, in its sole discretion, may require such Holder to return to
the Company the economic value of any award which was realized or
obtained (measured at the date of exercise, vesting or payment) by such
Holder at any time during the period beginning on that date which is six
months prior to the date of such Holder's termination of employment with
the Company or a Subsidiary.
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(c) No Right of Employment. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any Holder of the
Company or any Subsidiary any right to continued employment with the
Company or any Subsidiary, nor shall it interfere in any way with the
right of the Company or any Subsidiary to terminate the employment of any
of its employees or agents at any time.
13.4 Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof, or
to take any other action which may be required in order to comply with any
applicable state securities laws or regulations.
13.5 Indemnification. No member of the Board or the Committee, nor any
officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan, and all members of the
Board or the Committee and all officers or employees of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
13.6 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.7 Withholding Taxes. Not later than the date as of which an amount
first becomes includible in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
13.8 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Texas (without regard to choice of law provisions).
13.9 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
13.10 Compliance with Rule 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
13.11 Non-Transferability. Except as otherwise expressly provided in the
Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbered or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
13.12 Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, as amended, and (ii)
the rules and regulations of any securities exchange on which the Stock may be
listed.
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13.13 Conflicts. If any of the terms or provisions of the Plan conflict
with the requirements of (with respect to Incentive Stock Options) Section 422
of the Code, then such terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of said Section 422 of the Code.
Additionally, if this Plan does not contain any provision required to be
included herein under Section 422 of the Code, such provision shall be deemed to
be incorporated herein with the same force and effect as if such provision had
been set out at length herein.
13.14 Non-Registered Stock. The shares of Stock being distributed under
this Plan have not been registered under the Securities Act of 1933, as amended
("1933 Act"), or any applicable state or foreign securities laws and the Company
has no obligation to any Holder to register the Stock or to assist the Holder in
obtaining an exemption from the various registration requirements, or to list
the Stock on a national securities exchange.
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SOURCE MEDIA, INC.
5400 LBJ FREEWAY
SUITE 680
DALLAS, TEXAS 75240
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints TIMOTHY P. PETERS and MARYANN WALSH,
and each of them, as the undersigned's attorneys and proxies, each with the
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as directed below, all the shares of common stock of SOURCE MEDIA, INC.
(the "Company") held of record by the undersigned on April 6, 1998, at the
annual meeting of stockholders to be held on May 13, 1998 or any adjournment
thereof.
Please mark boxes [X] in blue or black ink.
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed below (except as
marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME BELOW.)
<TABLE>
<S> <C> <C> <C>
Timothy P. Peters Michael J. Marocco Robert H. Alter Barry Rubenstein
W. Scott Bedford James L. Greenwald Robert J. Cresci ________________
</TABLE>
2. PROPOSAL TO AMEND THE COMPANY'S 1995 PERFORMANCE EQUITY PLAN:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK FROM
1,000,000 SHARES TO 1,712,000 SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. The above-named attorney and proxy (or his substitute) is authorized to
vote in his discretion upon such other business as may properly come
before the meeting or any adjournment thereof.
(Continued and to be signed on reverse side.)
<PAGE> 39
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR management's nominees for election as directors and FOR each of the other
proposals set forth above.
Date: , 1998
------------------------
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
