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SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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[x] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the Appropriate Box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
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SOURCE MEDIA, INC.
(Name of Registrant as Specified in its Charter)
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Payment of Filing Fee (check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:___________________________________
4) Proposed maximum aggregate value of transaction:______________________
5) Total fee paid: ______________________________________________________
[_] 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:_______________________________________________
2) Form, Schedule or Registration Statement No.:_________________________
3) Filing Party:_________________________________________________________
4) Date Filed:___________________________________________________________
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Copies of all communications to:
IRA I. ROXLAND, Esq.
DAN L. ROSENBAUM, Esq.
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
(212) 688-7000
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SOURCE MEDIA, INC.
5400 LBJ Freeway, Suite 680
Dallas, Texas 75240
June 5, 2000
Dear Warrantholder,
Your redeemable common stock purchase warrants, which were originally
issued in June 1993, are scheduled by their terms to expire on June 23, 2000.
We are willing to extend the expiration date of your warrants for a period of
six months to December 22, 2000, thereby affording you the opportunity, should
the market price of our common stock increase, to acquire our shares at what may
prove to be a favorable price, but only if you consent to a modification of the
conditions under which we may call your warrants for redemption. This proposed
modification is discussed in the accompanying consent statement.
We encourage you to consent to our proposed modification of the redemption
terms of your warrants. If you consent to such modification, please sign the
enclosed consent form and return it in the enclosed postage-paid pre-addressed
envelope. If you do not wish to consent to this modification, you need do
nothing. In such event, your warrants will remain unmodified and, unless
exercised, will expire, as scheduled, on June 23, 2000.
TO BE EFFECTIVE, WE MUST RECEIVE YOUR WRITTEN CONSENT PRIOR TO 5:00 P.M.,
NEW YORK TIME, ON JUNE 23, 2000.
Sincerely,
Stephen W. Palley
President and Chief Executive Officer
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SOURCE MEDIA, INC.
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SOLICITATION OF CONSENTS FROM
HOLDERS OF COMMON STOCK PURCHASE WARRANTS
TO MODIFICATION OF WARRANT TERMS
This consent statement and the accompanying consent form are being
furnished to the holders of the redeemable common stock purchase warrants of
Source Media, Inc., a Delaware corporation, originally issued pursuant to a
warrant agreement dated June 23, 1993 between the Company and Continental Stock
Transfer & Trust Company, as warrant agent. These materials relate to the
solicitation by the Company's Board of Directors of written consents from such
holders to a proposed modification to both the warrants and the warrant
agreement to change the terms and conditions that govern the circumstances under
which the Company may call the warrants for redemption. As of June 5, 2000,
warrants to purchase 2,253,863 shares of the Company's common stock were
outstanding. Warrantholders of record at the close of business on June 5, 2000
are entitled to receive notice of and consent to this modification.
The cost of soliciting consents will be borne entirely by the Company.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to reimburse them at customary rates for distributing these
materials to beneficial owners of warrants.
Each warrantholder who completes and executes the accompanying consent form
will be considered to have consented to the proposed modification to both the
warrants and the warrant agreement if such consent is received by the Company
before 5:00 p.m., New York time, on June 23, 2000. The modification will become
effective with respect to each consenting warrantholder upon receipt of such
holder's written consent, regardless of whether any or all of the other
warrantholders consent to the modification. Each consent, once received by the
Company, shall be irrevocable and shall become effective immediately upon
receipt.
If you do not wish to consent to the proposed modification, you need take
no action whatsoever. In such event, your warrants will remain unmodified and,
unless exercised, will expire in accordance with their terms at 5:00 p.m., New
York time, on June 23, 2000.
If you consent to the proposed modification, your existing certificates
will continue to represent your interest in the warrants following such
modification. DO NOT DESTROY YOUR CERTIFICATES AND DO NOT MAIL THEM TO THE
COMPANY OR TO THE WARRANT AGENT UNLESS AND UNTIL YOU WISH TO EXERCISE THE
WARRANTS.
This consent statement and the accompanying consent form were first mailed
to warrantholders on or about June 6, 2000. The address of the principal
executive office of the Company is 5400 LBJ Freeway, Dallas, Texas 75240;
telephone (972) 701-5400.
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PROPOSED MODIFICATION
Description of Proposed Modification
Section 6.1 of the warrant agreement currently provides that the warrants
may be called for redemption, at the option of the Company, as a whole at any
time or in part from time to time, after they become exercisable and prior to
their expiration, at the price of $.01 per warrant, provided that the last sales
price of the Company's common stock has been at least 181.81% of the then
effective exercise price of the warrants on each of the 20 consecutive trading
days ending on the third business day prior to the date on which notice of
redemption is given.
On May 18, 2000, the Company's Board of Directors unanimously approved
extending the scheduled expiration date of the warrants to December 22, 2000,
provided that the respective holders of the warrants agree to a modification of
section 6.1 of the warrant agreement to reduce the closing sales price of the
Company's common stock at which the Company may exercise its right to call the
warrants from redemption, from 181.81% of the then effective exercise price to
118.18%, and to reduce the time the Company's common stock must trade at that
level from 20 consecutive trading days to ten consecutive trading days. The
current exercise price of the warrants is $11.00 per share. For the Company to
call the warrants for redemption under the warrant agreement as presently in
effect, the last sales price of the Company's common stock must be $20.00 per
share or more for 20 consecutive trading days. The proposed modification would
allow the Company to call the warrants for redemption if the last sales price of
the Company's common stock was $13.00 per share or more for ten consecutive
trading days. As required by the warrant agreement, GKN Securities Corp. has
consented to the proposed modification.
Your consent to this modification will not affect any other provisions of
either the warrant agreement or your warrants or your interest in and to the
warrants or in and to the shares of the Company's common stock issuable upon
their exercise.
Why the Board believes you should consent to the proposed modification
The warrants are scheduled to expire by their terms on June 23, 2000. Given
the significant reduction in the market price of the Company's common stock over
the past several months, closing at $5.3125 per share on June 2, 2000, the Board
believes that it is unlikely that the warrants, which are currently exercisable
at $11.00 per share, will be exercised in any appreciable quantity, if at all,
prior to their scheduled expiration.
The Board believes that the Company's common stock is presently
undervalued. The Board is reluctant to relinquish the possibility that, if
there were to be a significant sustained increase in the common stock's market
price and the warrants were then still outstanding, all or a significant portion
of the warrants would be exercised. The Company would receive additional
working capital of more than $24 million if all of the currently outstanding
warrants were
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exercised. There are, of course, no assurances as to any future increase in the
market price of our common stock or as to the extent of future warrant
exercises, if any.
There is no legal requirement compelling the Board to extend the expiration
date of the warrants. Nevertheless, the Board is prepared to voluntarily extend
the warrants for an additional six months, thereby enhancing the Company's
possibility of deriving additional working capital from future warrant
exercises, but the Board's willingness to do so is expressly predicated upon
obtaining the consent of warrantholders to a reduction in the market price of
the Company's common stock that would trigger the Company's right to call the
warrants for redemption.
Approval of the proposed modification would enable the Company's to call
the warrants for redemption at a substantially lower market price threshold than
required by the present call provisions. It would compel warrantholders to
exercise their warrants when they might otherwise not be inclined to do so or
lose their purchase rights upon the Company's payment of the nominal redemption
price of $0.01 per warrant. This may be viewed as detrimental to warrantholders,
but for the fact that, absent their consent to the proposed modification, they
would have no rights whatsoever as warrantholders subsequent to June 23, 2000.
Federal Income Tax Consequences of Giving Consent
The proposed modification of the warrants or, if a holder does not consent
to the modification, the expiration of the warrants, will be treated, in each
case, as a taxable event for federal income tax purposes under the Internal
Revenue Code. A warrantholder who consents to the modification will be required
for federal income tax purposes to recognize either a gain or a loss, dependent
on the holder's basis in the warrants, equal to the difference between the fair
market value of the warrants at the time the modification is made and the
warrantholder's basis in the warrant immediately prior to the modification. A
warrantholder who does not consent to the modification will be required for
federal income tax purposes to recognize a loss at the time of the expiration
equal to the holder's basis in the warrant. The gain or loss arising from the
modification, or the loss arising from an expiration, will, in either case, be
capital in nature, rather than ordinary, assuming that the underlying shares of
the Company's common stock would be treated as capital assets if they had been
acquired by the warrantholder through the exercise of the warrants. A
warrantholder who consents to the modification will commence a new holding
period in the holder's warrants for determining long term or short term gain and
will acquire a new tax basis in the warrants equal to the fair market value of
the warrants at the time of the modification.
The foregoing is only a brief summary of the anticipated tax effects of the
proposed modification of the warrants under current federal tax law.
Warrantholders are encouraged to consult with their own tax advisors regarding
the effects of the modification under applicable federal, state, local and
foreign tax laws and regulations.
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Recommendation of the Board of Directors
For the reasons set forth above, the Board of Directors recommends that you
consent to the proposed modification of the warrant agreement and the warrants.
PRINCIPAL HOLDERS OF WARRANTS
AND SECURITY OWNERSHIP OF MANAGEMENT
As of June 5, 2000, the Company was not aware of any person who
beneficially owned 5% or more of the then outstanding warrants. As of such
date, no director or executive officer of the Company was the beneficial owner
of any of the warrants.
INCORPORATION OF INFORMATION BY REFERENCE
Incorporated herein by reference are the management's discussion and
analysis of financial condition and results of operations and disclosures about
market risk contained in the Company's Annual Report on Form 10-K, the Company's
audited consolidated financial statements and related notes for the year ended
December 31, 1999 contained in Amendment No.1 to the Company's Annual Report on
Form 10-K, and the Company's unaudited consolidated financial statements and
related notes for the fiscal period ended March 31, 2000 contained in the
Company's Quarterly Report on Form 10-Q, each as filed with the Securities and
Exchange Commission.
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SOURCE MEDIA, INC.
WRITTEN CONSENT OF WARRANTHOLDER
The undersigned hereby consents to the modification of all of the common
stock purchase warrants dated June 23, 1993, issued by Source Media, Inc., a
Delaware corporation (the "Company"), with respect to which the undersigned is
entitled to act, to reduce the closing price of the Company's common stock
required for the Company to exercise its right to redeem such warrants from
181.81% of the then effective exercise price of the warrants to 118.18% of the
then effective exercise price of the warrants and reduce the number of days over
which the last sales price of the Company's common stock must equal or exceed
such amount, all as further described in the Company's consent statement dated
June 5, 2000.
The undersigned acknowledges receipt of the notice of solicitation of
consents from warrantholders and the Company's consent statement dated June 5,
2000.
You are urged to sign and return your consent to the Company without delay,
AND IN ALL EVENTS BY THE CLOSE OF BUSINESS ON JUNE 23, 2000, in the return
envelope provided for that purpose which requires no postage if mailed in the
United States.
_____________________________ ______________________________
Name of Warrantholder Name of Warrantholder
_____________________________ ______________________________
Signature of Warrantholder Signature of Warrantholder
Number of Warrants: ________ Dated: June ____, 2000
When signing this written consent, please date it and take care to have the
signature conform to the warrantholder's name as it appears on the warrant
certificates or on a DTC security position listing as of the record date. If
warrants are registered in the names of two or more persons, each person should
sign. Executors, administrators, trustees and guardians should so indicate when
signing.
