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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED
IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
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 ss. 240.14a-11(c) or ss. 240.14a-12
BIG ENTERTAINMENT, INC.
(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:
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. (Set forth the
amount on which the filing fee is calculated and state how
it was determined.)
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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26141.0006
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Dear Fellow Shareholders:
Through a series of acquisitions and other initiatives during the
last year, Big Entertainment, Inc. has become a leading provider of movie
information, data and merchandise over the Internet. These acquisitions include
hollywood.com, Inc., a premier website for movies, Showtimes.com, Inc., (also
known as CinemaSource) a leading provider of movie showtimes to the Internet,
and Baseline, Inc., a leading provider, through PKBaseline.com, of movie data to
professionals in the movie industry. To reflect our growing emphasis on these
businesses, the Board of Directors of Big Entertainment has voted in favor of
changing our name to Hollywood.com, Inc. and our ticker symbol on the Nasdaq
National Market to "HOLL."
The Board has also approved a transaction in which Big Entertainment
would issue to CBS Corporation approximately 6.7 million shares of its common
stock. CBS would pay for the common stock by providing $100 million of
advertising, promotion and content over a seven-year period for the
Hollywood.com website owned by Big Entertainment. In addition, CBS would pay Big
Entertainment $5.3 million in cash upon the closing of the transaction. The
proposed CBS transaction was announced on September 1, 1999. This Proxy
Statement provides you with detailed information about the transaction.
If the transaction is completed, CBS would become Big Entertainment's
largest shareholder, and would own approximately 31% of the outstanding shares
of Big Entertainment's common stock. CBS would also receive a warrant to
purchase an additional approximately 5% of Big Entertainment's common stock for
a purchase price of $10.9 million payable in advertising and cash. The
transaction cannot be completed unless this issuance of stock is approved by our
shareholders.
We have scheduled an annual meeting of shareholders to vote on the
name change and the issuance of stock to CBS. At the meeting you will also be
asked to vote in favor of increasing the number of shares of authorized common
stock of Big Entertainment from 25 million to 100 million shares. We have
proposed the increase in the authorized shares of common stock to allow us to
complete the CBS transaction and to provide the flexibility to pursue favorable
future opportunities without the delay and expense associated with holding
additional shareholder meetings. You will also be asked to vote in favor of the
election of nine directors nominated by our Board of Directors (including two
nominees of CBS and one nominee of The Times Mirror Company) and in favor of
various amendments to our 1993 Stock Option Plan.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
annual meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you sign, date and mail your proxy card without
indicating how you want to vote, your vote will be counted as a vote in favor of
the proposals. If you fail to return your card, your shares will not be counted
as present or voting, unless you attend and vote in person.
You can obtain additional information about Big Entertainment from
documents we have filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
Mitchell Rubenstein
Chairman and Chief Executive Officer
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE CBS TRANSACTION DESCRIBED IN THIS PROXY STATEMENT
OR THE COMMON STOCK TO BE ISSUED IN THE TRANSACTION, NOR HAVE THEY DETERMINED IF
THIS PROXY STATEMENT IS ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT DETERMINED THE FAIRNESS OR MERITS OF THE
TRANSACTION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Proxy Statement is dated November 15, 1999 and is first being
mailed to shareholders on or about November 19, 1999.
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BIG ENTERTAINMENT, INC.
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: December 22, 1999
Time: 10:00 a.m.
Place: 2255 Glades Road, Suite 228 West
Boca Raton, Florida 33431
Notice is hereby given that an Annual Meeting of Shareholders of Big
Entertainment, Inc. (the "Company") will be held for the following purposes:
1. To consider and vote upon a proposal to change the Company's name
to Hollywood.com, Inc. and to increase the number of shares of
the Company's authorized common stock from 25,000,000 to
100,000,000.
2. To consider and vote upon a proposal to approve the issuance by
the Company to CBS Corporation of 6,672,031 shares of its common
stock and a warrant to purchase an additional 1,178,892 shares of
its common stock.
3. To consider and vote upon the election of nine directors
nominated by the Company's Board of Directors.
4. To consider and vote upon a proposal to amend the Company's 1993
Stock Option Plan.
5. To consider and vote upon a proposal to ratify the selection of
Arthur Andersen LLP as the Company's independent public
accountants for the year ending on December 31, 1999.
6. Such other business as properly may be presented at the annual
meeting or any adjournments or postponements thereof.
You are cordially invited to attend the annual meeting. Whether or
not you plan to attend the annual meeting, please sign, date and return the
accompanying proxy card to ensure that your shares are represented at the
meeting. If you attend the annual meeting, you may vote in person if you wish,
whether or not you have executed and returned your proxy card. Your proxy may be
revoked at any time before it is voted. Please review the Proxy Statement
accompanying this notice for more complete information regarding the matters
proposed for your consideration at the annual meeting.
By Order of the Board of Directors
Laurie S. Silvers
President and Secretary
Boca Raton, Florida
November 15, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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QUESTIONS AND ANSWERS.................................................................................... 5
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS............................................... 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................... 10
THE MEETING.............................................................................................. 12
General....................................................................................... 12
Matters To Be Considered At The Meeting ...................................................... 12
Record Date; Quorum; Voting At The Meeting.................................................... 12
Proxies ...................................................................................... 13
PROPOSAL TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION........................................ 15
Reasons for the Increase in Number of Authorized Shares....................................... 15
THE CBS TRANSACTION...................................................................................... 17
General....................................................................................... 17
Stock Purchase Agreement...................................................................... 17
Warrant....................................................................................... 18
Advertising and Promotion Agreement........................................................... 19
Content License Agreement..................................................................... 20
Investor's Rights Agreement................................................................... 21
Voting Agreement.............................................................................. 22
Certain Consequences of, and Risks Related to, the CBS Transaction............................ 23
Reasons for the CBS Transaction; Recommendation of the Company's Board of Directors........... 23
Certain Tax Consequences of the CBS Transaction............................................... 24
Regulatory Approvals.......................................................................... 25
Federal Securities Law Consequences........................................................... 25
NASDAQ Listing................................................................................ 25
ELECTION OF DIRECTORS.................................................................................... 26
Nominees for Election to the Board............................................................ 26
Compliance with Section 16(a) of the Securities Exchange Act of 1934.......................... 29
Meetings and Committees....................................................................... 29
EXECUTIVE OFFICERS....................................................................................... 30
EXECUTIVE COMPENSATION................................................................................... 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................... 34
Transactions with The Times Mirror Company.................................................... 34
Transactions with Gannett Co., Inc. .......................................................... 36
Investments by Affiliate of the Simon Property Group.......................................... 36
Investment by the Company's Directors......................................................... 37
Consulting Agreement with Dr. Martin H. Greenberg............................................. 37
Line of Credit................................................................................ 37
PROPOSAL TO APPROVE AN AMENDMENT TO THE 1993 STOCK OPTION PLAN........................................... 38
Plan Description.............................................................................. 38
Terms and Conditions of Options............................................................... 39
Outstanding Options........................................................................... 40
Federal Income Tax Effects of Options Granted Under 1993 Plan................................. 41
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PROPOSAL TO RATIFY THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS....................................... 44
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS............................................................... 44
EXPERTS ................................................................................................. 44
OTHER MATTERS............................................................................................ 44
WHERE YOU CAN FIND MORE INFORMATION...................................................................... 44
ANNEX
ANNEX A -- 1993 Stock Option Plan
</TABLE>
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QUESTIONS AND ANSWERS
Q: WHY HAS THE COMPANY AGREED TO ENTER INTO THE CBS TRANSACTION?
A: The CBS transaction presents the Company with a unique
opportunity to partner with one of the leading media companies in
the nation. CBS will promote the Hollywood.com brand across its
full range of media properties, including the CBS television
network, CBS owned and operated television stations, CBS cable
networks, Infinity Broadcasting Corporation's radio stations and
outdoor billboards, CBS Internet sites and CBS syndicated
television and radio programs. In addition, CBS will include the
Hollywood.com website in all appropriate advertising sales
programs and presentations conducted by its cross-media sales
organization, CBS Plus. To supplement the Company's internal
sales efforts, the Company will have the right to require CBS to
sell advertisements on the Hollywood.com website generating
advertising revenues of up to $1.5 million per year and will pay
an 8% commission on any additional advertising revenues generated
by CBS Plus for the Company. The 8% commission structure
represents a substantial discount from the commissions that the
Company and other Internet companies typically pay to third party
advertising rep firms. The Company will also have the right to
display on the Hollywood.com website photographs, video, audio
and other content owned by CBS and related to the movie business
and particular motion pictures. The Company will acquire all of
these rights and benefits by issuing common stock to CBS rather
than by paying cash.
Q: WHAT AMOUNT IS CBS PAYING FOR ITS EQUITY INTEREST IN THE COMPANY?
A: CBS will pay an aggregate of $105,303,030 to the Company for the
purchase of approximately 6.7 million shares of the Company's
common stock. CBS will pay the purchase price by providing
$100,000,000 of advertising, promotion, content and advertising
sales support over a seven-year period for the Hollywood.com
website owned by the Company and by paying the Company $5,303,030
in cash upon the closing of the transaction. If CBS elects to
exercise the Warrant to purchase an additional approximately 1.2
million shares of common stock, it will pay the Company
$5,468,501 in cash and $5,468,501 in additional advertising and
promotion for the Hollywood.com website. The additional
advertising and promotion will be furnished during the 24-month
period immediately following the exercise of the Warrant by CBS.
The exercise price of the Warrant was agreed to based on the
overall consideration to be paid by CBS to the Company, including
the inherent value of the 8% commission structure on advertising
revenues generated by CBS Plus for the Company. The 8% commission
structure represents a substantial discount from the commissions
that the Company and other Internet companies typically pay to
third party advertising rep firms.
Q: WHAT PERCENTAGE OF THE COMPANY'S COMMON STOCK WILL CBS OWN AFTER
THE TRANSACTION?
A: The percentage of the Company's common stock to be received by
CBS was agreed to assuming the exercise of all outstanding
options and warrants to purchase the Company's common stock and
the repurchase by the Company of a portion of the shares of
common stock issued upon exercise of the options and warrants
using the cash proceeds received
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by the Company upon such exercises. Under this methodology, CBS
will own approximately 30% of the Company's common stock
immediately following the closing of the transaction. CBS will
own approximately 31% of the outstanding shares of the Company's
common stock immediately following the closing of the
transaction. If CBS exercises the Warrant to purchase additional
shares of the Company's common stock immediately following the
closing of the transaction, it will own approximately 33% of the
Company's common stock using the methodology described above and
approximately 34% of the outstanding shares of the Company's
common stock.
Q. WHAT EFFECT WILL THE CBS TRANSACTION HAVE ON THE PERCENTAGE OF
THE COMPANY'S COMMON STOCK THAT I OWN?
A. The CBS transaction will decrease, or dilute, the percentage of
the Company's common stock held by existing shareholders. By way
of example, if you owned 100,000 shares of the common stock on
the Record Date, you owned 0.663% of the outstanding common
stock. After the issuance of the shares in the CBS transaction,
you would own 0.459% of the outstanding common stock and if CBS
exercises the warrant, you would own 0.436% of the outstanding
common stock.
Q: WILL CBS HAVE THE RIGHT TO NOMINATE INDIVIDUALS FOR ELECTION TO
THE COMPANY'S BOARD OF DIRECTORS?
A: Yes, CBS will have the right to nominate individuals for election
to the Company's board of directors based on the percentage of
the Company's common stock that is holds. Initially, CBS will
have the right to nominate two individuals for election to the
Company's nine-member board.
Q: WHAT RISKS SHOULD I CONSIDER IN DECIDING WHETHER TO VOTE IN FAVOR
OF THE CBS TRANSACTION?
A: The section of this Proxy Statement entitled "The CBS
Transaction" contains a description of the material terms of the
CBS transaction and highlights certain risks to the Company and
its shareholders associated with the CBS transaction. These risks
include:
o CBS will own a significant equity interest in the Company and its
interests may differ from that of other shareholders of the
Company. CBS's significant equity interest in the Company could
delay or prevent a merger or other transaction involving a change
of control of the Company that is beneficial to the Company's
shareholders.
o CBS will have the right to terminate its obligation to deliver
advertising, promotion and content to the Company following
specified defaults by the Company that are not cured. If CBS
exercises its termination rights, it will not be required to
return the common stock received from the Company.
Q: WILL CBS BE SUBJECT TO ANY RESTRICTIONS RELATED TO THE
ACQUISITION OR DISPOSITION OF THE COMPANY'S COMMON STOCK?
A: Yes. CBS will not be permitted to transfer any shares of the
Company's common stock for a period of one year after the closing
of the transaction, except to certain affiliates of
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CBS. In addition, except under specified circumstances, CBS will
not be permitted to own more than 34.8% of the Company's
outstanding common stock.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to vote in favor of changing the Company's
name to Hollywood.com, Inc. and increasing the number of shares
of authorized common stock of the Company from 25 million shares
to 100 million shares. You are also being asked to vote in favor
of the issuance of common stock to CBS in the CBS transaction
described in this Proxy Statement. In addition, you are being
asked to vote in favor of the election of nine directors
nominated by our Board of Directors and in favor of various
amendments to our 1993 Stock Option Plan. Finally, you are being
asked to ratify the selection of Arthur Andersen LLP as the
Company's independent public accountants for 1999.
THE COMPANY'S BOARD OF DIRECTORS HAS APPROVED EACH OF THESE
PROPOSALS AND RECOMMENDS THAT YOU VOTE FOR EACH PROPOSAL.
Q: WHEN IS THE ANNUAL MEETING?
A: The annual meeting will be held on December 22, 1999 at 10:00
a.m., local time, at 2255 Glades Road, Suite 228 West, Boca
Raton, Florida 33431.
Q: WHEN DO YOU EXPECT TO COMPLETE THE CBS TRANSACTION?
A: We expect to complete the CBS transaction promptly after the
shareholders of the Company approve the issuance of the common
stock to CBS.
Q: WHAT SHOULD I DO NOW?
A: You should mail your signed proxy card in the enclosed postage
paid envelope as soon as possible, so that your shares will be
represented at the annual meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN A SIGNED PROXY CARD?
A: Yes. You can change your vote in one of the following ways at any
time before your proxy is voted at the annual meeting. First, you
can revoke your proxy by delivering a written notice to the
Secretary of the Company. Second, you can submit a new, later
dated proxy card. Third, you can attend the annual meeting and
vote in person.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Big Entertainment, Inc.
2255 Glades Road, Suite 237W
Boca Raton, Florida 33431
(561) 998-8000
Attention: Investor Relations Department
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<PAGE>
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANY?
A: From various sources described under "Where You Can Find More
Information" on page 44 of this Proxy Statement.
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<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements, including
(without limitation) those preceded by, followed by or that include the words
"believes," "expects," "anticipates" or similar expressions. For those
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You should understand that the factors, discussed under "The CBS
Transaction" and elsewhere in this document and in the documents which are
incorporated herein by reference, could affect the future results of the
Company, and could cause those results to differ materially from those expressed
in such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this Proxy Statement
might not occur.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of the Record Date by (1) each
person who owns more than 5% of the outstanding shares of the common stock, (2)
each director and director nominee of the Company, (3) each of the Named
Executive Officers of the Company and (4) all directors and executive officers
of the Company as a group. Except as otherwise indicated, the Company believes
that all beneficial owners named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them.
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED CLASS
- ---------------------- ------------------ -----
The Times Mirror Company 2,300,075 15.3%
Mitchell Rubenstein(2) 2,291,411 14.4%
Laurie S. Silvers(2) 2,291,411 14.4%
Gannett Co., Inc. (3) 758,229 5.0%
Dr. Martin H. Greenberg(4) 351,397 *
Jules L. Plangere, Jr.(5) 109,924 *
Dr. Lawrence Gould(6) 116,047 *
E. Donald Lass(7) 80,146 *
Harry T. Hoffman(8) 19,313 *
Deborah J. Simon (9) 18,754 *
Mitchell Semel _ *
Farid Suleman _ *
Thomas Unterman _ *
All directors and executive 2,989,492 18.6%
officers of the Company as a
group (9 persons) (9)(10)(11)
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* Less than 1%
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(1) Except as noted in this footnote, the address of each beneficial owner
is in care of the Company, 2255 Glades Road, Suite 237 West, Boca
Raton, Florida 33431. The business address of The Times Mirror Company
is 230 West First Street, Los Angeles, California 90012 and the
business address of Gannett Co., Inc. is 1100 Wilson Boulevard,
Arlington, Virginia 22234.
(2) Except for 100,000 shares owned individually by each of Mr. Rubenstein
and Ms. Silvers, all of such shares are held by Mr. Rubenstein and Ms.
Silvers jointly as tenants by the entireties. Includes an aggregate of
770,000 shares of common stock issuable pursuant to stock options
granted to, and 15,000 shares of common stock issuable pursuant to
warrants purchased by, Mr. Rubenstein and Ms. Silvers that are
currently exercisable or exercisable within 60 days of the Record Date.
(3) Includes 100,000 shares of common stock issuable pursuant to currently
exercisable stock options.
(4) Includes 91,667 shares of common stock owned by Dr. Greenberg's spouse,
39,552 shares of common stock issuable pursuant to currently
exercisable stock options, and 15,221 shares of common stock issuable
under currently exercisable warrants.
(5) Includes 21,590 shares of common stock issuable pursuant to options
that are currently exercisable and 28,334 shares of common stock
issuable under currently exercisable warrants.
(6) Includes 17,713 shares of common stock issuable pursuant to options
that are currently exercisable and 28,334 shares of common stock
issuable under currently exercisable warrants.
(7) Includes 21,590 shares of common stock issuable pursuant to options
that are currently exercisable and 18,334 shares of common stock
issuable under currently exercisable warrants.
(8) Represents 17,713 shares of common stock issuable pursuant to options
that are currently exercisable and 400 shares of common stock issuable
under a currently exercisable warrant.
(9) Represents shares of common stock issuable pursuant to options that are
currently exercisable. Does not include 580,517 shares of common stock,
owned by Tekno Simon, LLC ("Tekno Simon"), with respect to which Ms.
Simon disclaims beneficial ownership. Tekno Simon is controlled by
Melvin Simon, Deborah J. Simon's father.
(10) Includes 706,912 shares of common stock issuable pursuant to options
that are currently exercisable and 105,623 shares of common stock
issuable under currently exercisable warrants.
(11) Includes the directors and executive officers previously listed in this
table and W. Robert Shearer, the Company's Senior Vice President and
General Counsel.
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THE MEETING
GENERAL
This Proxy Statement is being furnished to holders of shares of
common stock in connection with the solicitation of proxies by the Company's
Board of Directors for use at the annual meeting of shareholders (the "Meeting")
to be held at the offices of the Company, located at 2255 Glades Road, Suite 228
West, Boca Raton, Florida 33431, on December 22, 1999, convening at 10:00 a.m.,
local time, and at any adjournments or postponements thereof. At the Record
Date, 15,074,672 shares of common stock were outstanding. This Proxy Statement
and the accompanying form of proxy are first being mailed to holders of common
stock on or about November 19, 1999.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of common stock will be requested
to consider and vote upon (1) a proposal to amend the Company's Amended and
Restated Articles of Incorporation to change the Company's name to
Hollywood.com, Inc. and to increase the number of authorized shares of common
stock from 25,000,000 to 100,000,000, (2) a proposal to approve the issuance by
the Company to CBS Corporation of 6,672,031 shares of its common stock, par
value $0.01 per share, and a warrant to purchase an additional 1,178,892 shares
of its common stock, (3) the election of nine directors nominated by the
Company's Board of Directors, (4) a proposal to amend the Company's 1993 Stock
Option Plan, (5) a proposal to ratify the selection of Arthur Andersen LLP as
the Company's independent public accountants for the year ending on December 31,
1999 and (6) such other business as properly may be presented at the Meeting or
any adjournments or postponements thereof.
THE COMPANY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE CBS
TRANSACTION IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS, HAS APPROVED THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND HAS APPROVED THE CHARTER AMENDMENT AND THE AMENDMENT TO
THE COMPANY'S 1993 STOCK OPTION PLAN, AND RECOMMENDS THAT HOLDERS OF COMMON
STOCK VOTE "FOR" THE ISSUANCE OF COMMON STOCK AND THE WARRANT TO PURCHASE COMMON
STOCK PURSUANT TO THE STOCK PURCHASE AGREEMENT AND "FOR" THE CHARTER AMENDMENT,
THE 1993 STOCK OPTION PLAN AMENDMENT, THE ELECTION OF THE NOMINEES TO THE BOARD
OF DIRECTORS OF THE COMPANY AND THE RATIFICATION OF THE COMPANY'S CHOICE OF
INDEPENDENT PUBLIC ACCOUNTANTS.
RECORD DATE; QUORUM; VOTING AT THE MEETING
The Company's Board of Directors has fixed November 15, 1999 as the
Record Date (the "Record Date"). Accordingly, only holders of record of shares
of common stock at the Record Date will be entitled to notice of and to vote at
the Meeting. At the Record Date, there were 15,074,672 shares of common stock
outstanding and entitled to vote. Each holder of record of common stock on the
Record Date is entitled to cast one vote per share in respect of the proposals
presented for the vote of such holders, either in person or by proxy, at the
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of common stock entitled to vote at the Meeting is
necessary to constitute a quorum at the Meeting.
Under the rules of the Nasdaq National Market ("NASDAQ"), on which
the shares of common stock are quoted, approval of shareholders is required as a
prerequisite to approval of applications to list additional shares of common
stock to be issued at a price less than market value if the number of shares of
common stock, or securities convertible into common stock, to be issued is equal
to or more than 20% of the number of shares of common stock outstanding before
the issuance. Therefore, under the rules of NASDAQ, the affirmative vote of the
holders of a majority of the shares of common stock voted at the
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Meeting (provided that a majority of the shares of common stock are represented
at the Meeting) is required for approval of the issuance by the Company of the
common stock and the warrant to purchase common stock pursuant to the Stock
Purchase Agreement. In addition, under Florida law, the approval and adoption of
the Charter Amendment by the Company's shareholders will require the affirmative
vote of the holders of a majority of the shares of common stock voted at the
Meeting (provided that a majority of the shares of common stock are represented
at the Meeting). Under Florida law, nominees for director will be elected if
they receive the affirmative vote of a plurality of the shares of common stock
voted at the Meeting. Approval of the amendment to the 1993 Stock Option Plan is
not required by Florida law, but is required by the terms of the 1993 Stock
Option Plan.
Prior to the Meeting, the Company will select one or more inspectors
of election for the Meeting. Such inspector(s) shall determine the number of
shares of common stock represented at the Meeting, the existence of a quorum and
the validity and effect of proxies, and shall receive, count and tabulate
ballots and votes and determine the results thereof. Abstentions will be
considered as shares of common stock present and entitled to vote at the Meeting
and will be counted as votes cast at the Meeting, but will not be counted as
votes cast for or against any given matter. A broker or nominee holding shares
of common stock registered in its name, or in the name of its nominee, which are
beneficially owned by another person and for which it has not received
instructions as to voting from the beneficial owner, may have discretion to vote
the beneficial owner's shares with respect to the matters addressed at the
Meeting. Any such shares of common stock that are not represented at the Meeting
either in person or by proxy will not be considered to have cast votes on any
matters addressed at the Meeting.
As of the Record Date, the directors and executive officers of the
Company beneficially owned in the aggregate approximately 18.6% of the
outstanding shares of common stock.
PROXIES
This Proxy Statement is being furnished to holders of common stock in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company for use at the Meeting.
Shares of common stock represented by properly executed proxies
received at or prior to the Meeting that have not been revoked will be voted at
the Meeting in accordance with the instructions contained therein. Shares of
common stock represented by properly executed proxies for which no instruction
is provided will be voted for approval of the issuance of common stock and the
warrant to purchase common stock pursuant to the Stock Purchase Agreement and
approval of the Charter Amendment, the amendment to the 1993 Stock Option Plan,
the election of the nominees to the Board of Directors of the Company and the
ratification of the Company's choice of independent public accountants. Holders
of common stock are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-prepaid envelope provided for such purpose to
ensure that their shares are voted. Any holder of common stock who so desires
may revoke his or its proxy at any time prior to the time it is exercised by (1)
providing written notice to such effect to the Secretary of the Company, (2)
duly executing a proxy bearing a date subsequent to that of a previously
furnished proxy or (3) attending the Meeting and voting in person. Attendance at
the Meeting will not in itself constitute a revocation of a previously furnished
proxy, and shareholders who attend the Meeting in person need not revoke their
proxy (if previously furnished) and vote in person.
If the Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the initial convening of the
Meeting (except for any proxies that theretofore effectively have been revoked
or withdrawn), notwithstanding that they may have been effectively voted on the
same or any other matter at a previous meeting.
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If any other matters properly are presented at the Meeting for
consideration, including consideration of a motion to adjourn the Meeting to
another time and/or place (including for the purpose of soliciting additional
proxies), the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. The persons named in the enclosed form of proxy will not exercise the
discretionary authority conferred by the form of proxy to use proxies voting
against the approval of the issuance of common stock and the warrant to purchase
common stock pursuant to the Stock Purchase Agreement to vote for the
adjournment of the Meeting to solicit additional proxies to obtain the requisite
votes of the holders of common stock for approval of the issuance of common
stock and the warrant to purchase common stock pursuant to the Stock Purchase
Agreement.
If any beneficial owner of common stock holds such stock in "street
name" and wishes to vote his or its stock at the Meeting, such owner must obtain
from the relevant nominee holding common stock a properly executed "legal proxy"
identifying the beneficial owner as a holder of common stock, authorizing the
beneficial owner to act on behalf of the nominee-record owner at the Meeting and
identifying the number of shares (and certificate numbers, if applicable) in
respect of which the authorization is granted.
The Company will pay the costs of soliciting proxies from the holders
of common stock, including the cost of printing and mailing this Proxy
Statement. In addition to solicitation by mail, directors, officers and
employees of the Company may solicit proxies by telephone, facsimile
transmission or otherwise. Such directors, officers and employees of the Company
will not be specially compensated for such solicitation, but may be reimbursed
for out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of common stock held of record by them will be reimbursed for
their reasonable expenses incurred in forwarding such material. Arrangements
also will be made with custodians, nominees and fiduciaries for the forwarding
of proxy solicitation materials to beneficial owners of shares of common stock
held of record by such custodians, nominees and fiduciaries, and the Company
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses incurred in connection therewith.
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PROPOSAL TO APPROVE AN AMENDMENT
TO THE ARTICLES OF INCORPORATION
The Board of Directors has unanimously approved an amendment to the
Company's Amended and Restated Articles of Incorporation to (1) change the name
of the Company to Hollywood.com, Inc. and (2) increase the authorized number of
shares of common stock that the Company has authority to issue from 25,000,000
to 100,000,000 (the "Charter Amendment"), and has directed that the Charter
Amendment be submitted to the shareholders of the Company for approval. To
effect such changes, Article I and the first paragraph of Article III of the
Company's Amended and Restated Articles of Incorporation will be amended to read
as follows:
ARTICLE I
NAME
----
The name of the corporation is Hollywood.com, Inc. (the
"Corporation").
ARTICLE III
CAPITAL STOCK
-------------
"The total number of shares of stock which the Corporation shall have
the authority to issue is one hundred and one million (101,000,000)
shares, consisting of (1) one hundred million (100,000,000) shares of
common stock, par value $0.01 per share (the "common stock") and (2)
one million (1,000,000) shares of preferred stock, par value $0.01
per share (the "Preferred Stock")."
The Charter Amendment will have no effect on the number of shares of
the Company's Preferred Stock authorized for issuance. If the Charter Amendment
is approved by the required vote of shareholders, it will become effective upon
the filing of Articles of Amendment with the Secretary of State of the State of
Florida.
REASONS FOR THE INCREASE IN NUMBER OF AUTHORIZED SHARES
The Company is presently authorized to issue 25,000,000 shares of
common stock, of which 15,074,672 were issued and outstanding at the close of
business on the Record Date. As of the Record Date, the Company had reserved
3,395,256 shares of common stock for issuance pursuant to outstanding warrants
and options of the Company exercisable for shares of common stock. If the CBS
transaction is consummated, the Company will issue 6,672,031 additional shares
of common stock and will reserve 1,178,892 shares of common stock for issuance
upon exercise of the CBS Warrant. Accordingly, an increase in the authorized
number of shares of common stock is required in order for the Company to
consummate the CBS transaction. In addition, the Board of Directors and
management of the Company believe that additional shares of common stock should
be authorized in order to provide flexibility by having authorized unissued and
unreserved shares of common stock available for proper corporate purposes.
Future purposes for additional shares could include paying stock
dividends, subdividing outstanding shares through stock splits, effecting
acquisitions of other businesses or properties, securing additional financing
for working capital or capital expenditures and providing incentives through
stock
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option or other incentive plans. The Company has no plan, commitment or
understanding at this time to issue any shares of common stock other than those
to be issued pursuant to the CBS transaction or reserved for issuance as
described above. However, the Board of Directors believes that such additional
authorized shares of common stock will enable the Company to take advantage of
industry conditions and the availability of favorable opportunities without the
delay and expense associated with holding a special meeting of its shareholders
at the time such additional shares are needed. Unless required by law,
regulatory authorities or applicable rules of the NASDAQ, the Company does not
anticipate that any future authorization by a vote of shareholders will be
sought for the issuance of any shares of common stock.
If the Charter Amendment is approved, the increase in authorized shares
will not, by itself, have any effect on the rights of holders of presently
issued and outstanding shares of common stock. However, the issuance of
additional shares of common stock may, among other things, have a dilutive
effect on earnings per share and on the equity and voting rights of the present
holders of common stock.
The authorized but unissued shares of common stock could be used by
the Board of Directors to make a change in control of the Company more
difficult, even if stockholders viewed such change in control as favorable to
their interests. Under certain circumstances, such shares could be used to
create voting impediments or to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. Such shares could be privately placed
with purchasers who might side with the Board of Directors in opposing a hostile
takeover bid. The Company is not aware of any effort to accumulate common stock
or obtain control of the Company by a tender offer, proxy contest or otherwise,
and the Company has no present intention to use the increased shares of
authorized common stock for anti-takeover purposes.
The additional shares of common stock for which authorization is
sought would be identical to the shares of common stock now authorized. The
holders of common stock do not presently have preemptive rights to subscribe for
any of the Company's securities and will not have any such rights to subscribe
for the additional common stock proposed to be authorized. CBS will have
contractual preemptive rights with respect to certain future issuances of common
stock by the Company. See "The CBS Transaction--Stock Purchase Agreement" and
"--Investor's Rights Agreement."
Approval of the proposed Charter Amendment requires the affirmative
vote of the holders of a majority of the shares of common stock voted at the
Meeting (provided that a majority of the shares of common stock are represented
at the Meeting). Consummation of the CBS transaction is conditioned upon
approval of the increase in the authorized number of shares of the Company's
common stock pursuant to the Charter Amendment.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF
COMMON STOCK VOTE FOR APPROVAL OF THE PROPOSED CHARTER AMENDMENT.
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THE CBS TRANSACTION
GENERAL
The Stock Purchase Agreement, dated August 26, 1999 (the "Stock
Purchase Agreement"), between the Company and CBS Corporation ("CBS") provides
for the issuance by the Company to CBS of 6,672,031 shares of the Company's
common stock for an aggregate purchase price of $105,303,030. $100,000,000 of
the purchase price is payable by CBS in advertising, promotion, content and
advertising sales support over a seven-year term pursuant to an Advertising and
Promotion Agreement (the "Promotion Agreement") and a Content License Agreement
(the "Content Agreement"). The Promotion Agreement and the Content Agreement
will be entered into by CBS and hollywood.com, Inc., the Company's wholly owned
subsidiary that operates the Hollywood.com website, upon the closing of the
transaction. CBS will pay the remaining $5,303,030 of the purchase in cash upon
the closing of the transaction. The Company will also issue to CBS upon the
closing of the transaction a Warrant (the "Warrant") to purchase an additional
1,178,892 shares of common stock for an aggregate exercise price of $10,937,002.
Half of the warrant exercise price is payable in cash and half is payable in
additional advertising and promotion under the Promotion Agreement. The
additional advertising and promotion will be furnished to the Company during the
24-month period following the exercise of the Warrant. Pursuant to the Stock
Purchase Agreement, the Company and CBS will, upon the closing of the
transaction, enter into an Investor's Rights Agreement, a Registration Rights
Agreement and a Voting Agreement.
The percentage of the Company's common stock to be received by CBS
was agreed to assuming the exercise of all outstanding options and warrants to
purchase the Company's common stock and the repurchase by the Company of a
portion of the shares of common stock issued upon exercise of the options and
warrants using the cash proceeds received by the Company upon such exercises.
Under this methodology, CBS will own approximately 30% of the Company's common
stock immediately following the closing of the transaction. CBS will own
approximately 31% of the outstanding shares of the Company's common stock
immediately following the closing of the transaction. If CBS exercises the
Warrant to purchase additional shares of the Company's common stock immediately
following the closing of the transaction, it will own approximately 33% of the
Company's common stock using the methodology described above and approximately
34% of the outstanding shares of the Company's common stock.
Each of the agreements described above was filed by the Company with
the Securities and Exchange Commission ("SEC") as an exhibit to the Company's
Current Report on Form 8-K filed on September 28, 1999, which is incorporated
herein by reference. See "Where You Can Find More Information." The summaries of
these agreements set forth below are qualified in their entirety by reference to
the full text of the agreements attached to the Current Report on Form 8-K. You
are encouraged to read each of the agreements carefully and in its entirety.
STOCK PURCHASE AGREEMENT
The Stock Purchase Agreement provides for the issuance by the Company
to CBS of 6,672,031 shares of the Company's common stock for an aggregate
purchase price of $105,303,030. The Stock Purchase Agreement contains customary
representations and warranties, covenants, closing conditions and
indemnification provisions for a transaction of this nature.
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Representations and Warranties. The Company and CBS make various
representations and warranties to each other as of the date of the Stock
Purchase Agreement and as of the date of the closing. The Company represents and
warrants to CBS with respect to due organization and good standing, corporate
authority and due authorization, subsidiaries, capital stock of the Company, no
conflicts, required consents, filings with the Securities and Exchange
Commission, title to assets, proprietary rights, material contracts, condition
of properties, necessary permits, insurance, sufficiency of assets, taxes,
litigation, employee benefit plans, absence of changes or events, compliance
with law, real property interests, and labor matters. CBS represents and
warrants to the Company with respect to due organization and good standing,
corporate authority and due authorization, no conflicts, required consents,
litigation and experience in investments of this type. All of the
representations and warranties will survive until the second anniversary of the
closing of the transaction.
Ordinary Course Covenant. The Company agrees in the Stock Purchase
Agreement to use its best efforts to conduct its business and operations in the
ordinary course consistent with past practice until the closing date. The
Company specifically agrees, among other things, that until the closing of the
CBS transaction it will not, without the consent of CBS:
(1) incur any indebtedness for borrowed money;
(2) sell, license or dispose of any of its material properties
or assets except in the ordinary course of business;
(3) acquire or agree to acquire any business or company (other
than up to two acquisitions for an aggregate purchase price
of $10 million); or
(4) consummate any registered public offering of common stock to
be sold for the account of the Company.
Preemptive Rights. During the period between the signing of the Stock
Purchase Agreement and the closing of the transaction, CBS has a preemptive
right to purchase a pro rata portion of shares of common stock or securities
convertible into common stock issued by the Company. If CBS elects to exercise
this right, it will purchase the shares for cash upon the closing of the
transaction between CBS and the Company and otherwise on the same terms as the
Company has agreed to issue the shares. This preemptive right does not apply to
certain issuances of shares by the Company, including issuances to directors,
officers, employees, contractors, advisors or consultants of the Company or its
subsidiaries in the ordinary course of business.
WARRANT
Upon the closing of the transactions under the Stock Purchase
Agreement, the Company will issue to CBS a Warrant to purchase 1,178,892 shares
of common stock for an aggregate exercise price of $10,937,002. Half of the
warrant exercise price is payable in cash at the closing and half is payable in
additional advertising and promotion under the Promotion Agreement. The
additional advertising and promotion will be furnished to the Company during the
24-month period immediately following the exercise of the Warrant by CBS. The
exercise price of the Warrant was agreed to based on the overall consideration
to be paid by CBS to the Company, including the inherent value of the 8%
commission structure on advertising revenues generated by CBS Plus for the
Company. The 8% commission structure represents a substantial discount from the
commissions that the Company and other Internet companies typically pay to third
party advertising rep firms. The Warrant may be exercised at any time prior to
the earlier of (1) the second anniversary of the date of its issuance and (2)
the consummation by the Company
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of its first underwritten, registered public offering of common stock following
the date of issuance of the Warrant.
ADVERTISING AND PROMOTION AGREEMENT
Pursuant to the Promotion Agreement, CBS will provide to the Company
an aggregate of $70 million in advertising and promotion of the Hollywood.com
website over a seven-year term. In addition, the Company has the right to
allocate up to $30 million in value deliverable under the Content Agreement to
additional advertising and promotion under the Promotion Agreement for a total
of up to $100 million in advertising and promotion. CBS will conduct the
advertising and promotion across its full range of media properties, including
the CBS television network, CBS owned and operated television stations, CBS
cable networks, Infinity Broadcasting Corporation's radio stations and outdoor
billboards, CBS Internet sites and CBS syndicated television programs. CBS will
deliver the advertising and promotion pursuant to a media plan jointly developed
by CBS and the Company, which will provide broad-based exposure for the
Hollywood.com website, including prominent placements in conjunction with
appropriate entertainment-related events and programming. The value of all
advertising and promotion furnished by CBS to the Company will be based on the
average unit price paid to CBS by third parties for the particular media on
which the advertising and promotion occurs.
CBS has the right to terminate its obligation to deliver advertising
and promotion under the Promotion Agreement by giving notice to the Company upon
the occurrence of any of the following:
(1) The Hollywood.com website contains, or links to, content
that violates specified CBS license guidelines and the
Company fails to remove such content or links from the
website within 10 days after CBS demands the removal
thereof.
(2) The Company breaches any material term or condition of the
Promotion Agreement, the Content Agreement, the Stock
Purchase Agreement, the Investor's Rights Agreement or the
Voting Agreement, and fails to cure such breach within 30
days after CBS' notice of such breach (or 60 days if the
breach is incapable of being cured within 30 days). The
foregoing cure periods do not apply to a breach incapable of
being cured.
(3) The Company becomes insolvent, is the subject of a voluntary
or involuntary petition in bankruptcy or is liquidated or
dissolved.
(4) The Company issues common stock or other voting securities
to a CBS Competitor and as a result of such issuance such
person beneficially owns or controls more than 15% of the
total voting power of the Company. "CBS Competitor" is
generally defined as any person who is primarily engaged in
North America directly, or indirectly through an affiliate,
in radio or television programming or radio or television
program distribution (including free over-the-air,
telephone, Internet or microwave). The definition
specifically excludes several types of businesses that fall
within the above definition, but do not constitute
competitors of CBS. The definition of "CBS Competitor" also
excludes entities engaged in television or radio programming
or program distribution that do not meet specified market
share or revenue criteria.
(5) The Company issues additional voting securities to any CBS
Competitor that owns 15% of the total voting power of the
Company.
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(6) The Company's Board of Directors consents to the acquisition
of voting securities by a CBS Competitor at any time when
the Company's Rights Agreement is in full force and effect
and, as a result of such consent, the CBS Competitor owns or
controls more than 15% of the total voting power of the
Company.
(7) The Company discontinues using its primary domain name and
does not establish use of a substitute domain name
reasonably acceptable to CBS within 30 days.
(8) The Hollywood.com website ceases to operate due to any
circumstances (other than circumstances beyond the Company's
reasonable control, which circumstances simultaneously
affect a substantial number of websites on the Internet) for
(i) a period of 30 consecutive days; or (ii) a period of one
week at least two times in any six month period.
The Company can cure certain of the defaults set forth above by
agreeing to a reduction in CBS' obligations under the Promotion Agreement or the
Content Agreement in an amount equal to any amount due and owing to CBS by the
Company. If the Company does not cure a default and CBS exercises its right to
terminate the Promotion Agreement, CBS will not be required to return the common
stock received from the Company.
CONTENT LICENSE AGREEMENT
Pursuant to the Content Agreement, CBS will provide to the Company an
aggregate of $30 million in value over a seven-year term to be allocated in the
Company's discretion to the license of content, advertising sales or advertising
and promotion, each of which is described below. The Company will receive $4.3
million in value during each of the first six years of the term and $4.2 million
in value during the last year of the term.
License of Content. CBS grants to the Company a license to use,
distribute and otherwise make available on the Hollywood.com website certain
text, graphics, photographs, video, audio and other information owned by CBS and
related to the movie business or any particular motion picture. In addition,
subject to compliance by the Company with certain obligations, it has the right
to archive the CBS content on the Hollywood.com website after expiration of the
term of the Content Agreement.
Advertising Sales. The Company has the right to require CBS to sell
advertisements on the Hollywood.com website totaling gross advertising revenues
of up to $1.5 million per year. In connection therewith, CBS agrees to include
the Hollywood.com website in all advertising sales programs and presentations
that are appropriate for the sale of advertising on the website. The Company
will pay to CBS a commission of 8% of gross advertising revenues generated by
advertising sold by CBS on the Hollywood.com website in excess of the portion of
the $1.5 million guaranteed amount selected by the Company each year. The 8%
commission structure represents a substantial discount from the commissions that
the Company and other Internet companies typically pay to third party
advertising rep firms.
Advertising and Promotion. The Company has the right to allocate all
or any portion of the $30 million in value to additional advertising and
promotion of the Hollywood.com website to be furnished by CBS under the
Promotion Agreement.
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CBS has the right to terminate its obligations under the Content
Agreement upon the occurrence of any of the events that permit it to terminate
its obligations under the Promotion Agreement. The Company can cure certain of
such defaults by agreeing to a reduction in CBS' obligations under the Promotion
Agreement or the Content Agreement in an amount equal to any amount due and
owing to CBS by the Company. If the Company does not cure a default and CBS
exercises its right to terminate the Content Agreement, CBS will not be required
to return the common stock received from the Company.
INVESTOR'S RIGHTS AGREEMENT
The Investor's Rights Agreement to be entered into by the Company and
CBS at the closing sets forth various rights and obligations of the Company and
CBS related to CBS's ownership of the Company's common stock, including CBS's
registration rights with respect to the common stock, the Company's right of
first refusal with respect to transfers by CBS of the common stock, standstill
provisions to which CBS is bound, and preemptive rights of CBS with respect to
certain issuances of common stock and other securities by the Company.
Registration Rights. CBS has the right to initiate up to four
registrations under the Securities Act of 1933 of the common stock that it is
acquiring from the Company. The Investor's Rights Agreement contains various
restrictions on the timing of such registrations. In addition, CBS has
"piggyback" registration rights allowing it to include the shares of common
stock that it acquires from the Company in registrations of the Company's common
stock initiated by the Company or other shareholders. The Company will pay all
expenses associated with any such registrations other than underwriters' fees or
commissions relating to the sale of the common stock.
Transfer Restrictions; Right of First Refusal. CBS is not permitted
to transfer any shares of the Company's common stock for a period of one year
after the closing, except to certain affiliates of CBS. If CBS proposes to
transfer any shares of common stock during the six year period following the
first year, other than to certain affiliates or in a bona fide public
distribution pursuant to an effective registration statement, the Company has
the right to purchase the shares on the same terms on which CBS proposes to
transfer them to a third party. The Company's right of first refusal will
terminate (a) at such time as Mitchell Rubenstein, the Company's Chairman of the
Board and Chief Executive Officer, and Laurie S. Silvers, the Company's Vice
Chairman of the Board and President, have sold more than 60% of the common stock
owned by them as of the closing or (b) at any time after the second anniversary
of the closing if CBS owns less than 15% of the Company's outstanding common
stock (other than as a result of transfers by CBS of at least half of the common
stock acquired by it from the Company).
Standstill Provisions. For a period of seven years after the closing,
CBS agrees that, except as contemplated by the Investor's Rights Agreement or
the Stock Purchase Agreement, it will not, directly or indirectly, do any of the
following:
(1) acquire or propose to acquire any securities of the Company if,
after giving effect thereto, CBS and its affiliates beneficially
own in excess of 34.8% of the Company's outstanding common stock;
(2) solicit proxies or become a participant in a solicitation of
proxies or consents with respect to any securities of the Company
or initiate or encourage the submission of any stockholder
proposal or election content with respect to the Company;
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(3) take any action for the purpose of convening a meeting of the
shareholders of the Company or initiate any process to solicit or
obtain consents of shareholders in lieu of a meeting;
(4) except as may be required by applicable law, make any public
announcement or disclosure in respect in respect of any plan,
contract or arrangement relating to the acquisition of capital
stock of the Company or a merger, sale of assets or other
extraordinary corporate transaction relating to the Company;
(5) deposit capital stock of the Company into a voting trust or
subject capital stock of the Company to voting agreements, or
grant a proxy or power-of-attorney with respect to any capital
stock of the Company to any person not designated by the Company
who is not an officer, director or employee of CBS or its
affiliates;
(6) form or in any participate in a group for the purpose of
acquiring, holding, voting or disposing of securities of the
Company; or
(7) disclose publicly any intention or arrangement inconsistent with
the foregoing or enter into any discussions or understandings
with any third party with a view to encouraging any action
prohibited with the foregoing.
If the Company's board of directors approves or recommends to its
shareholders for approval any transaction in which a party (other than Company's
existing large shareholders) would acquire at least 50% of the Company's
outstanding common stock, then the restrictions described above would not apply
during the pendency of the transaction and would cease upon the consummation of
the transaction.
VOTING AGREEMENT
The Voting Agreement to be entered into by the Company, CBS and
certain shareholders of the Company at the closing contains agreements by such
parties with respect to nominating individuals to serve on the Company's Board
of Directors and the voting of the common stock owned by such parties in favor
of such nominees. CBS has the right to nominate for election to the Company's
Board of Directors a number of individuals equal to the product of CBS's
percentage ownership of the Company's common stock and the total number of
members of the Board of Directors (rounded down to the nearest whole number). In
addition, as long as the Promotion Agreement and the Content Agreement remain in
effect, CBS shall have the right to designate at least one nominee to the Board.
In all elections for members of the Board, each of the shareholders that is a
party to the Voting Agreement agrees to vote all shares beneficially owned by
them in favor of the CBS designees. Each of The Times Mirror Company, Mitchell
Rubenstein, Laurie S. Silvers, Martin H. Greenberg and Rosalind Greenberg have
agreed to enter into the Voting Agreement. As of the Record Date, those
shareholders beneficially owned approximately 32% of the Company's outstanding
common stock.
In all elections for members of the Board, CBS agrees to vote all
shares of common stock owned by it, or over which it has voting control, in
favor of (1) each individual nominated for election to the Board by the Company,
and (2) each individual nominated for election to the Board by The Times Mirror
Company pursuant to the Shareholder Agreement between the Company and The Times
Mirror Company.
CBS's right to nominate directors for election to the Board will
terminate upon the acquisition by CBS of an equity interest in excess of 15% in
any entity who owns, operates or controls a website that is a
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competitor of the Hollywood.com website. The Voting Agreement contains a
description of the type of website that will constitute a competitor of the
Hollywood.com website.
CERTAIN CONSEQUENCES OF, AND RISKS RELATED TO, THE CBS TRANSACTION
CBS will own a 31% Equity Interest in the Company and its Interests
may Differ from that of Other Shareholders. CBS's significant equity interest in
the Company and other rights could delay or prevent a merger or other
transaction involving a change of control of the Company that is beneficial to
the Company's shareholders. CBS will own approximately 31% of the Company's
outstanding common stock upon the closing of the transaction. CBS will also have
rights to nominate individuals for election to the Company's Board of Directors
based on the percentage of the Company's common stock that it holds. Initially,
CBS will have the right to nominate two individuals for election to the
Company's nine-member board. If the Company issues common stock or securities
convertible into common stock in the future, with some limitations, CBS will
have the right to purchase for cash securities from the Company so it can
maintain its percentage ownership. As a result of its equity interest in the
Company and its right to nominate individuals for election to the Company's
board, CBS may be able to influence the Company's management and affairs.
Accounting Treatment of CBS's Investment in the Company. CBS's
commitment to provide $100 million of advertising, promotion and content for the
Hollywood.com website will be recorded as an asset on the Company's balance
sheet upon the closing of the transaction. As the Company receives the
advertising, promotion and content from CBS over the seven-year term of the CBS
agreements, the Company will record a non-cash expense on its income statement
in the amount of the advertising, promotion and content received. The Company
currently expects to record an expense of approximately $14.3 million per year
to reflect the value of the advertising, promotion and content expected to be
received each year during the seven-year term. This expense will result in an
operating loss to the Company to the extent the Company's revenues do not
increase by an amount at least equal to the amount of the expense.
REASONS FOR THE CBS TRANSACTION; RECOMMENDATION OF THE COMPANY'S BOARD OF
DIRECTORS
The Board of Directors of the Company has determined that the CBS
transaction is fair to and in the best interests of the Company and its
shareholders, has approved the Stock Purchase Agreement and the transactions
contemplated thereby, and recommends that the holders of common stock approve
the issuance of common stock to CBS. In reaching these decisions, the Company's
Board of Directors considered the following material factors:
(1) CBS will promote the Hollywood.com brand across its full range of
media properties, including the CBS television network, CBS owned
and operated television stations, CBS cable networks, Infinity
Broadcasting Corporation's radio stations and outdoor billboards,
CBS Internet sites and CBS syndicated television programs.
(2) CBS will include the Hollywood.com website in all appropriate
advertising sales programs and presentations conducted by its
cross-media sales organization, CBS Plus.
(3) To supplement the Company's internal sales efforts, the Company
will have the right to require CBS to sell advertisements on the
Hollywood.com website generating advertising revenues of up to
$1.5 million per year and will pay an 8% commission on any
additional advertising revenues generated by CBS Plus for the
Company.
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(4) The Company will have the right to display on the Hollywood.com
website photographs, video, audio and other content owned by CBS
and related to the movie business and particular motion pictures.
(5) The Company will acquire all of these rights and benefits by
issuing common stock to CBS rather than by paying cash.
In addition, in making its decision, the Board of Directors of the
Company considered that the issuance of shares of common stock to CBS would
result in ownership dilution of the current shareholders of the Company but
concluded that such dilution would be offset by the benefits to be attained by
the Company as a result of the transaction. In its deliberations, the Board of
Directors also considered other potentially negative factors, including, among
other things:
(1) CBS's ability to influence the management and affairs of the
Company as a result of its significant equity interest in the
Company and its right to nominate individuals to the Company's
Board of Directors.
(2) The rights of CBS to terminate the Promotion Agreement and the
Content Agreement upon the occurrence of certain defaults that
are not cured by the Company.
The foregoing discussion of the information and factors considered by
the Company's Board of Directors is not intended to be exhaustive but is
intended to include the material factors considered by the directors. In view of
the variety of factors considered by the Company's Board of Directors, the
directors did not find it practical to, and did not, quantify or otherwise
assign relative weight to the specific factors considered and individual
directors may have ascribed differing weights to different factors.
After taking into consideration all of the factors set forth above,
together with the presentations of management, the Board of Directors of the
Company determined that the CBS transaction is fair to and in the best interests
of the Company and its shareholders, and approved the Stock Purchase Agreement,
the issuance of common stock pursuant thereto and the other transactions
contemplated thereby.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF
COMMON STOCK VOTE FOR APPROVAL OF THE ISSUANCE OF COMMON STOCK TO CBS PURSUANT
TO THE STOCK PURCHASE AGREEMENT AND THE CBS WARRANT.
CERTAIN TAX CONSEQUENCES OF THE CBS TRANSACTION
The Company believes that it has generated net operating loss
carryforwards ("NOLs") that are available to offset future taxable income of the
Company during the fifteen year period following the year of the loss. The
Company's ability to use its NOLs during the carryforward period may be limited
upon the occurrence of certain ownership changes in respect of the Company.
In general, whenever there is a more than 50% ownership change of a
corporation during a three-year testing period, the ownership change rules in
section 382 of the Internal Revenue Code of 1986, as amended (the "Tax Code")
limit the corporation's utilization of pre-change NOLs on an annual basis
following the ownership change to the product of the fair market value of the
stock of the corporation immediately before the ownership change times the
"long-term tax-exempt rate" then in effect (which is an interest rate published
monthly by the Internal Revenue Service). A more than 50% ownership change
-24-
<PAGE>
occurs when the percentage of stock of the corporation owned by one or more
five-percent shareholders has increased by more than 50 percentage points
(determined by value) over the lowest percentage of the corporation's stock
owned by the same shareholders during the three-year testing period. The testing
period is the three-year period immediately preceding the testing date except
when an ownership change has previously occurred during such three-year period.
In that case the testing period commences on the day after the ownership change
and ends on the testing date.
The Company believes that an ownership change with respect to the
Company occurred in April 1998 as the result of a series of equity transactions
during the three years before such date. As a result, the testing period for the
CBS transaction is the period from April 1998 to the closing date of the CBS
transaction. The Company also believes that the CBS transaction will trigger an
ownership change with respect to the Company. However, the Company believes that
the CBS transaction is unlikely to have any material impact on the Company's
ability to utilize NOLs generated between April 1998 and the closing date of the
CBS transaction.
The foregoing summary is based on numerous assumptions and certain
factual and legal issues with respect to which there can be no certainty. No
ruling has been obtained from the Internal Revenue Service regarding the amount
or the availability of the Company's NOLs. The foregoing discussion does not
address any aspect of state and local taxation, including, without limitation,
the effect of state law limitations on the use of the Company's NOLs.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") and the rules promulgated thereunder by the Federal Trade Commission
(the "FTC"), the CBS transaction cannot be consummated until requisite
pre-merger notifications have been filed and certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and specified waiting period requirements have been
satisfied. At any time before or after the closing of the transaction, the
Antitrust Division or any state could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin consummation of the transaction or seeking divestiture of assets of the
Company or CBS. Private parties also may seek to take legal action under the
antitrust laws under certain circumstances.
The Company and CBS believe that the transaction can be effected in
compliance with federal and state antitrust laws.
FEDERAL SECURITIES LAW CONSEQUENCES
The issuance to CBS of shares of common stock and the Warrant to
purchase shares of common stock has not been registered under the Securities Act
of 1933 (the "Securities Act") and, therefore, such shares will not be freely
transferable and may not be resold except pursuant to an effective registration
statement under the Securities Act or an exemption therefrom.
NASDAQ LISTING
The Company will use all reasonable efforts to cause the shares of
common stock to be issued in the transaction and the shares of common stock to
be reserved for issuance upon exercise of the Warrant to be approved for listing
on the NASDAQ, subject to official notice of issuance, prior to the closing of
the transaction.
-25-
<PAGE>
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION TO THE BOARD
At the Meeting, nine directors will be elected by the shareholders to
serve until the next annual meeting of shareholders or until their successors
are elected and qualified. Mitchell Semel and Farid Suleman were nominated for
election to the Board of Directors by CBS and their election to the Board is
contingent on the approval by the shareholders of the issuance of common stock
to CBS in the CBS transaction. The accompanying form of proxy, when properly
executed and returned to the Company, will be voted FOR the election as
directors of the nine persons named below, unless the proxy contains contrary
instructions. Proxies cannot be voted for a greater number of persons than the
number of nominees named in this Proxy Statement. Management has no reason to
believe that any of the nominees is unable or unwilling to serve if elected. In
the event, however, that any of the nominees should become unable or unwilling
to serve as a director, the proxy will be voted for the election of such person
or persons as shall be designated by the Board of Directors.
The following table sets forth certain information concerning each
nominee as of the Record Date.
NAME AGE POSITION
---- --- --------
Mitchell Rubenstein 45 Chairman of the Board and Chief Executive
Officer
Laurie S. Silvers 47 Vice Chairman of the Board, President and
Secretary
Dr. Martin H. Greenberg 58 Director and Chief Executive Officer of
Tekno Books
Harry T. Hoffman 71 Director
Jules L. Plangere, Jr. 78 Director
Deborah J. Simon 43 Director
Mitchell Semel 40 Director Nominee(1)
Farid Suleman 48 Director Nominee(1)
Thomas Unterman 54 Director Nominee
- ---------------
(1) Election to the Board of Directors is contingent on the approval by the
shareholders of the issuance of common stock to CBS in the CBS transaction.
If the CBS transaction is not approved by the shareholders at the Meeting,
the full Board will consist of seven members.
MITCHELL RUBENSTEIN is a founder of the Company and has served as its
Chairman of the Board and Chief Executive Officer since its inception in January
1993. Mr. Rubenstein was a founder of the Sci-Fi Channel, a 24-hour national
cable television network devoted to science fiction, fantasy and horror
programming that was acquired by USA Network in March 1992. Mr. Rubenstein
served as President of the Sci-Fi Channel from January 1989 to March 1992 and
served as Co-Vice Chairman of the Sci-Fi Channel from March 1992 to March 1994.
Prior to founding the Sci-Fi Channel, Mr. Rubenstein practiced law for 10 years,
including as a partner with Rubenstein & Silvers, a law firm that specialized in
entertainment, cable television and broadcasting law, from 1981 to 1989. Mr.
Rubenstein also co-owned and served as an executive officer of several cable
television systems (including Flagship Cable Partners, who owned a cable
television system serving Boynton Beach and portions of Palm Beach County,
Florida) from 1983 to 1989. Mr. Rubenstein received a J.D. degree from the
University of Virginia
-26-
<PAGE>
School of Law in 1977 and a Masters in Tax Law from New York University School
of Law in 1979. He currently serves on the NYU Tax Law Advisory Board and is a
member of the Founders Society, New York University, as well as a member of the
University of Virginia School of Law Business Advisory Council. Together with
Ms. Silvers, Mr. Rubenstein was named Co-Business Person of the Year, City of
Boca Raton, Florida in 1992. Mr. Rubenstein is married to Laurie S. Silvers.
LAURIE S. SILVERS is a founder of the Company and has served as its
Vice Chairman, President and Secretary since its inception in January 1993. Ms.
Silvers was a founder of the Sci-Fi Channel, of which she served as Chief
Executive Officer from January 1989 to March 1992 and Co-Vice Chairman from
March 1992 to March 1994. Prior to founding the Sci-Fi Channel, Ms. Silvers
practiced law for 10 years, including as a partner with Rubenstein & Silvers, a
law firm that specialized in entertainment, cable television and broadcasting
law, from 1981 to 1989. Ms. Silvers also co-owned and served as an executive
officer of several cable television systems (including Flagship Cable Partners,
which owned a cable television system serving Boynton Beach and portions of Palm
Beach County, Florida) from 1983 to 1989 and co-owned a television station from
1990 to 1991. Ms. Silvers received a J.D. degree from University of Miami School
of Law in 1977. Ms. Silvers served on the Board of Directors of the Pine Crest
Preparatory School, Inc. from 1993 to 1999. She has been a member of the Pine
Crest Preparatory School, Inc. Board of Advisors (Boca Raton Campus) since 1987,
and served as its Chairman from 1995-1997. Ms. Silvers has served as a member of
the executive advisory board of the School of Business of Florida Atlantic
University, and has been a member of the Economic Council of Palm Beach since
1995. Together with Mr. Rubenstein, Ms. Silvers was named Co-Business Person of
the Year, City of Boca Raton, Florida in 1992 and has been a keynote speaker at
various business symposia, including one held at Harvard Business School. Ms.
Silvers is married to Mitchell Rubenstein.
DR. MARTIN H. GREENBERG has served as a director of the Company since
July 1993, and as a consultant to the Company since February 1993. Since
December 1994, Dr. Greenberg has served as Chief Executive Officer of Tekno
Books, 51% of which is owned by the Company and 49% of which is owned by Dr.
Greenberg. Dr. Greenberg was President and a principal shareholder of Tomorrow,
Inc., a company engaged in book licensing and packaging, from 1990 until its
acquisition by the Company in 1994. Dr. Greenberg is also co-publisher of
Mystery Scene Magazine, a mystery genre trade journal of which the Company owns
a majority interest. Dr. Greenberg is widely regarded as the leading anthologist
in trade publishing, and has served as editor or author of more than 700 books.
Dr. Greenberg also is the 1995 recipient of the Ellery Queen Award, presented by
the Mystery Writers of America for Lifetime Achievement. Dr. Greenberg is a
former Director of Graduate Studies at the University of Wisconsin - Green Bay.
HARRY T. HOFFMAN has served as a director of the Company since July
1993. From 1979 to 1991, Mr. Hoffman served as President and Chief Executive
Officer of Waldenbooks, Inc., a leading national retailer of books, magazines
and related items. From 1968 to 1978, he served as President and Chief Executive
Officer of Ingram Book Company, a national book wholesaler.
JULES L. PLANGERE, JR. has served as a director of the Company since
July 1993. Mr. Plangere is the former Chairman of the Board of New Jersey Press,
Inc. and its two subsidiary companies, Asbury Park Press and Press Broadcasting
Co. Mr. Plangere held various positions with Asbury Park Press in his 50-year
career, including Production Manager from 1954 to 1974, President and General
Manager from 1974 to 1977, and Publisher and Chief Executive Officer from 1977
to 1991. In addition, Mr. Plangere is a former member of the Board of Directors
of the New Jersey State Chamber of Commerce, a former member of the Board of
Directors of New Jersey Bell Telephone Co., the former Chairman of the Board of
Trustees of Monmouth University and a present Life Trustee, and the former
President of the New Jersey Press Association.
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<PAGE>
DEBORAH J. SIMON has served as a director of the Company since
November 1995. Ms. Simon has held the position of Senior Vice President of Simon
Property Group, an Indianapolis-based real estate development and management
firm that is listed on the New York Stock Exchange, since 1991. Prior to that,
Ms. Simon served as Vice President -- Western Region Leasing of the Simon
Property Group. She also has been an independent producer, with several
television credits to her name. She currently serves on the Board of Directors
of the Indianapolis Children's Museum, Indiana Repertory Theater, Indianapolis
Museum of Art and Circle Centre's Youth Investment Fund.
MITCHELL SEMEL has served as Senior Vice President, Programming, East
Coast for CBS Entertainment since April 1996, where he has been involved in the
production of the Late Show with David Letterman, the Late Late Show with Tom
Snyder and the Late Late Show with Craig Kilborn. From 1994 to 1996 he worked
with NBC Productions, Inc. as a consulting producer and as an executive producer
for various shows. Mr. Semel was Senior Vice President, Programming, Comedy
Central, New York from 1992 to 1994, and from 1991 to 1992, he was Vice
President, Programming, Public Broadcasting Service, Washington, D.C.
FARID SULEMAN has served as Executive Vice President, Chief Financial
Officer, Treasurer and a director of Infinity Broadcasting Corporation since
September 1998. He has also served as Senior Vice President and Chief Financial
Officer of the CBS Station Group since June 1997 and Senior Vice President,
Finance of CBS Corporation since August 1998. He has been Treasurer of CBS
Corporation since May 1999. From January 1997 to June 1997, he served as Senior
Vice President and Chief Financial Officer of CBS Radio. Prior to joining CBS
Corporation, he was Vice President - Finance, Chief Financial Officer and a
director of Infinity Broadcasting Corporation from 1986 until its acquisition by
CBS Corporation in December 1996. Mr. Suleman has also been the Executive Vice
President, Chief Financial Officer, Secretary and a director of Westwood One,
Inc. since February 1994.
THOMAS UNTERMAN has served as the Executive Vice President and Chief
Financial Officer of The Times Mirror Company since 1992. Prior to that time, he
had been a partner at the law firm of Morrison & Foerster since 1986. Mr.
Unterman is a director of Ticketmaster Online - CitySearch, Inc.
Pursuant to a November 1995 Stock Purchase Agreement with Tekno Simon
(the "Simon Stock Purchase Agreement"), Tekno Simon, an affiliate of Simon
Property Group, has the right to designate one nominee to the Company's Board of
Directors until such time as Tekno Simon holds less than 25% of the sum of (i)
the shares of Series A Preferred Stock and Series B Preferred Stock purchased
pursuant to the Simon Stock Purchase Agreement (or shares of common stock issued
or issuable upon conversion thereof) and (ii) the shares of common stock
purchased by Tekno Simon in the Company's August 1995 private offering. Certain
principal shareholders of the Company, including Mitchell Rubenstein, Laurie S.
Silvers and Dr. Martin H. Greenberg, have agreed to vote their shares of common
stock in favor of the election of Tekno Simon's nominee to the Board of
Directors. Tekno Simon's current nominee on the Board of Directors is Deborah J.
Simon. See "Certain Relationships and Related Transactions - Investments by
Affiliate of the Simon Property Group."
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board. The Company's directors hold office
until the next annual meeting of shareholders and until their successors have
been duly elected and qualified.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF
COMMON STOCK VOTE IN FAVOR OF THE PERSONS NOMINATED FOR ELECTION TO THE BOARD OF
DIRECTORS.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons who own more than 10% of
the Company's outstanding common stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock. Such persons are
required by SEC regulation to furnish the Company with copies of all such
reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company or written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater-than-10% beneficial owners for the
year ended December 31, 1998 have been complied with. Mitchell Rubenstein and
Laurie Silvers filed an amendment to the Form 5 filed by them for 1998 reporting
a gift of common stock not reported on the original Form 5.
MEETINGS AND COMMITTEES
During the year ended December 31, 1998 the Board of Directors met on
15 occasions, once in person and 14 times by unanimous written consent. E.
Donald Lass did not attend the meeting.
The Board of Directors has four committees, the Compensation
Committee, the Stock Option Committee, the Audit Committee and the Executive
Committee. The Board of Directors formed the Executive Committee in February
1999. Mitchell Rubenstein, Laurie S. Silvers and Dr. Lawrence Gould are the
members of the Executive Committee. Mitchell Rubenstein and two independent
directors, Harry T. Hoffman and Dr. Lawrence Gould, are the members of the
Compensation Committee. The Compensation Committee's responsibilities consist of
recommending, reviewing, and approving the salary and other benefits of the
Company's officers and employees, including compensation of executive officers
of the Company. The Compensation Committee acted by unanimous written consent on
two occasion(s) during the year ended December 31, 1998.
Mitchell Rubenstein, Harry T. Hoffman and Dr. Lawrence Gould are the
members of the Stock Option Committee. The Stock Option Committee administers
the Directors Plan and the 1993 Plan. The Stock Option Committee did not meet
during the year ended December 31, 1998.
Laurie S. Silvers, Harry T. Hoffman and Dr. Lawrence Gould are the
members of the Audit Committee. The Audit Committee is responsible for
recommending auditors to be engaged by the Company, assisting with the planning
of the audit, reviewing the results from the audit and directing and supervising
investigations into matters relating to the audit. The Audit Committee met on
one occasion during the year ended December 31, 1998.
During the 1998 fiscal year, there was no nominating committee or
other similar committee of the Board of Directors. Such function was performed
by the Board of Directors as a whole.
The board of directors of the Company's wholly owned Internet
subsidiary, Big Online, Inc., is currently comprised of Mitchell Rubenstein,
Laurie S. Silvers and Frederic M. Seegal, the President of Wasserstein Perella &
Co., Inc., an investment banking firm.
-29-
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information concerning each
executive officer of the Company as of the Record Date.
NAME AGE POSITION
---- --- --------
Mitchell Rubenstein 45 Chairman of the Board and Chief Executive
Officer
Laurie S. Silvers 47 Vice Chairman of the Board, President and
Secretary
Dr. Martin H. Greenberg 58 Chief Executive Officer of Tekno Books
W. Robert Shearer 29 Senior Vice President and General Counsel
See "Election of Directors - Nominees for Election to the Board"
above for biographical information for Mitchell Rubenstein, Laurie S. Silvers
and Dr. Martin H. Greenberg.
W. ROBERT SHEARER joined the Company as Senior Vice President and
General Counsel in June 1999. From 1994 to May 1999 Mr. Shearer practiced law
with Weil, Gotshal & Manges LLP with an emphasis on mergers and acquisitions and
securities law. Mr. Shearer received a Bachelor of Business Administration
degree from the University of Texas in 1991 with high honors and a J.D. degree
from the University of Houston Law Center in 1994, magna cum laude. Mr. Shearer
served as the Editor in Chief of the University of Houston Law Review during
1993 and 1994.
-30-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
aggregate compensation paid in 1998, 1997 and 1996 to the Chief Executive
Officer, the President, and the Chief Financial Officer of the Company during
such years. The Chief Executive Officer, the President and the Chief Financial
Officer are sometimes referred to herein as the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
RESTRICTED SHARES
OTHER ANNUAL STOCK UNDERLYING
NAME AND COMPENSATION AWARDS OPTIONS/SARS
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) (#)
------------------ ---- ---------- --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mitchell Rubenstein, 1998 235,793 67,572 7,800 (1) 306,200 (2) -
Chief Executive Officer 1997 185,217 25,000 7,800 (1) - 37,500(5)
1996 208,811 25,000 7,800 (1) - 75,000(5)
Laurie S. Silvers, 1998 235,793 67,572 7,800 (1) 306,200 (2) -
President 1997 185,217 25,000 7,800 (1) - 37,500(5)
1996 208,811 25,000 7,800 (1) - 75,000(5)
Marci L. Yunes, 1998 112,000 - - 54,464 (4) -
Chief Financial Officer(3) 1997 38,769 - - - 50,000(5)
- ----------
(1) Represents a car allowance paid to the Named Executive Officer.
(2) Represents 100,000 shares of restricted common stock granted to the Named
Executive Officers, which vest equally over 36 months beginning July 1,
1998. The value of the 100,000 shares of restricted common stock as of
December 31, 1998 was $1,400,000.
(3) Ms. Yunes joined the Company as its Chief Financial Officer on August 18,
1997 and served in such position until June 1, 1999.
(4) Represents 10,500 shares of common stock granted to Ms. Yunes at the time
such shares were issued. The value of the 10,500 shares of common stock as
of December 31, 1998 was $147,000.
(5) Represents options granted under the Company's 1993 Stock Option Plan (the
"1993 Plan").
</TABLE>
EMPLOYMENT AGREEMENTS. Effective July 1, 1993, the Company entered
into five-year employment agreements with each of Mitchell Rubenstein, the
Company's Chairman and Chief Executive Officer, and Laurie S. Silvers, the
Company's Vice Chairman and President. Effective July 1, 1998, the Company
extended each of these employment agreements for an additional five-year term.
The terms of each of the employment agreements are automatically extended for
successive one-year terms unless the Company or the Named Executive Officer
gives written notice to the other at least 90 days prior to the then-scheduled
expiration date. Each of the employment agreements provides for an annual salary
currently set at $238,686 (subject to automatic cost-of-living increases), an
annual bonus in an amount determined by the Board of Directors (but not less
than $25,000) and an automobile allowance of $650 per month. During 1997 the
Named Executive Officers elected to waive a portion of their base salary.
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<PAGE>
Each employment agreement provides that each of the Named Executive
Officers will continue to receive his or her salary until the expiration of the
term of the employment agreements if the Named Executive Officer's employment is
terminated by the Company for any reason other than death, disability or Cause
(as defined in the employment agreements), or for a period of 12 months after
termination of the employment agreement as a result of the Named Executive
Officer's disability, and that the Named Executive Officer's estate will receive
a lump sum payment equal to one year's base salary plus a pro rata portion of
any bonus to which the Named Executive Officer is entitled upon termination of
the employment agreement by reason of the Named Executive Officer's death.
The term "Cause" is defined in the employment agreements to mean (a)
a Named Executive Officer's act or omission which constitutes a willful and
material breach of such Named Executive Officer's employment agreement which is
not cured within 30 days after such Named Executive Officer's receipt of notice
of such breach, (b) a Named Executive Officer's fraud, embezzlement or
misappropriation of the Company's assets or property, or (c) a Named Executive
Officer's conviction for a criminal act that is a felony. A termination by the
Company of one of the Named Executive Officer's employment without Cause will
constitute a termination without Cause of the other Named Executive Officer for
purposes of the employment agreements. Each employment agreement also prohibits
the Named Executive Officer from directly or indirectly competing with the
Company for one year after termination of the employment agreement for any
reason except the Company's termination of the Named Executive Officer's
employment without Cause.
If a Change of Control (as defined in the employment agreements)
occurs, the employment agreements provide for the continued employment of the
Named Executive Officers until the earlier of two years following the Change of
Control or the then-scheduled expiration date of the term of employment. The
term "Change of Control", as used in the employment agreements, is defined to
mean (a) any person's or group's acquisition of 20% or more of the combined
voting power of the Company's outstanding securities, or (b) in the event of any
cash tender or exchange offer, merger or other business combination, sale of
assets or contested election, the persons who were directors of the Company
prior to such transaction ceasing to constitute a majority of the Board of
Directors following the transaction. In addition, following a Change in Control,
if the Named Executive Officer's employment is terminated by the Company other
than for Cause or by reason of the Named Executive Officer's death or
disability, or by the Named Executive Officer for certain specified reasons
(such as a reduction of the Named Executive Officer's compensation or diminution
of the Named Executive Officer's duties), the Named Executive Officer will
receive a lump sum cash payment equal to three times the Named Executive
Officer's then-existing base salary and most recent annual bonus. Mitchell
Rubenstein and Laurie S. Silvers have agreed that the CBS transaction will not
constitute a Change of Control under the employment agreements.
OPTION GRANTS IN LAST FISCAL YEAR. No individual grants of stock
options were made during the fiscal year ended December 31, 1998 to the
executive officers named above.
STOCK OPTION EXERCISES DURING 1998 AND STOCK OPTIONS HELD AT END OF
1998. The following table indicates the total number of shares acquired on
exercise of stock options during 1998 and the value realized therefrom, as well
as the total number and value of exercisable and unexercisable stock options
held by each Named Executive Officer as of December 31, 1998:
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mitchell Rubenstein - - 166,875 18,125 $ 1,200,450 $ 108,750
Laurie S. Silvers - - 166,875 18,125 $ 1,200,450 $ 108,750
Marci L. Yunes 12,500 $ 93,525 - 37,500 - $ 318,075
</TABLE>
STOCK OPTION PLAN. The 1993 Plan is designed to serve as an incentive
for retaining qualified and competent consultants and employees. The Stock
Option Committee of the Company's Board of Directors (the "Committee")
administers and interprets the 1993 Plan and is authorized to grant options
thereunder to all eligible consultants and employees, including officers of the
Company.
The 1993 Plan provides for the granting of both "incentive stock
options" (as defined in Section 422 of the Code) and nonqualified stock options.
Options are granted under the 1993 Plan on such terms and at such prices as
determined by the Committee. Each option is exercisable after the period or
periods specified in the option agreement, but no option can be exercised until
six months after the date of grant or more than 10 years from the date of grant.
Options granted under the 1993 Plan are not transferable other than by will or
by the laws of descent and distribution. The 1993 Plan also authorizes the
Company to make loans to optionees to enable them to exercise their options.
Such loans must provide for recourse to the optionee, bear interest and be
secured by the shares of common stock purchased.
The exercise price of options granted under the 1993 Plan is
determined by the Committee, provided that the exercise price of incentive stock
options will be no less than the fair market value of the common stock on the
date of grant.
See "Proposal to Approve an Amendment to the 1993 Stock Option Plan"
for a complete description of the terms of the 1993 Plan.
LONG-TERM INCENTIVE AND PENSION PLANS. The Company does not have any
other long-term incentive or pension plans.
COMPENSATION OF DIRECTORS. Directors of the Company who are neither
employees nor consultants ("non-employee directors") are compensated at the rate
of $1,000 for each meeting of the Board of Directors attended, and all directors
are reimbursed for travel and lodging expenses in connection with their
attendance at meetings. The Company has established for the non-employee
directors the Director's Stock Option Plan (the "Directors Plan"), which
provides for automatic grants to each non-employee director of options to
purchase shares of common stock having a market value at the time of grant equal
to $25,000 (i) upon a person's election as a director and (ii) each year
thereafter upon such person's reelection as a director of the Company, in both
instances at an exercise price equal to the fair market value of the common
stock on the date of the grant. A total of 100,000 shares of common stock have
been reserved for issuance upon exercise of options granted under the Directors
Plan. Options to issue 78,594 shares of common stock have been issued under the
Directors Plan. Options granted under the Directors Plan become exercisable six
months after the date of grant and, except as otherwise approved by the Board,
expire five years after the date of grant. The Board of Directors, in its
discretion, may cancel all options granted under the Directors Plan that remain
unexercised on the date of consummation of certain corporate transactions
described in the Directors Plan. The Directors Plan will
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<PAGE>
terminate in July 2003 unless sooner terminated under the provisions thereof. As
of the Record Date, options to purchase shares of common stock have been issued
to the Company's current directors under the Directors Plan as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT EXERCISE EXPIRATION
NAME OF DIRECTOR TO OPTIONS PRICE GRANT DATE DATE
---------------- ---------- ----- ---------- ----
<S> <C> <C> <C> <C>
Dr. Lawrence Gould 3,125 $8.00 11/1/93 11/1/03
4,762 $5.25 8/23/96 8/23/01
4,107 $5.125 3/2/98 3/2/03
5,719 $5.0625 7/2/98 7/2/03
Harry T. Hoffman 3,125 $8.00 11/1/93 11/1/03
4,762 $5.25 8/23/96 8/23/01
4,107 $5.125 3/2/98 3/2/03
5,719 $5.0625 7/2/98 7/2/03
E. Donald Lass 4,107 $5.125 3/2/98 3/2/03
5,719 $5.0625 7/2/98 7/2/03
Jules L. Plangere, Jr. 4,107 $5.125 3/2/98 3/2/03
5,719 $5.0625 7/2/98 7/2/03
Deborah J. Simon 4,166 $6.00 11/8/95 11/8/05
4,762 $5.25 8/23/96 8/23/01
4,107 $5.125 3/2/98 3/2/03
5,719 $5.0625 7/2/98 7/2/03
</TABLE>
See "Certain Relationships and Related Transactions - Consulting
Agreement with Dr. Martin H. Greenberg" for a description of the consulting
agreement between the Company and Dr. Greenberg.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. All
compensation decisions during 1998 were made by the Compensation Committee,
which consisted of Mitchell Rubenstein and two independent directors, Harry T.
Hoffman and Dr. Lawrence Gould.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE TIMES MIRROR COMPANY
In May 1999 the Company completed the acquisition of hollywood.com,
Inc. (formerly known as Hollywood Online Inc.) from The Times Mirror Company.
The Company paid the purchase price for the acquisition by issuing to Times
Mirror 2,300,075 shares of common stock and an unsecured promissory note for
$1,928,138. The promissory note matures on May 20, 2000 and bears interest at
the prime rate in effect from time to time of Citibank, N.A. plus 1%. Interest
is due quarterly in arrears beginning June 30, 1999 with the final payment due
at maturity. The promissory note may be prepaid in whole or in part at any time
without payment of any premiums or penalty.
The Company and Times Mirror entered into the following additional
agreements in connection with the Company's acquisition of hollywood.com, Inc.
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Shareholder Agreement. The Company and Times Mirror entered into a
Shareholder Agreement containing various rights and obligations associated with
Times Mirror's ownership of the common stock. Pursuant to the Shareholder
Agreement, Times Mirror agreed to certain standstill provisions, including that
it will not acquire any additional equity securities of the Company or solicit
proxies or consents with respect to the securities of the Company or initiate
any shareholder proposal. In addition, Times Mirror agreed that it will not
transfer any common stock to any competitor of the Company, or to any transferee
or group of related transferees of the Company that would, after such transfer,
hold more than 2.5% of the voting securities of the Company.
Times Mirror also agreed pursuant to the Shareholder Agreement that
for a period of three years after the closing of the acquisition it will vote
all shares of common stock owned by it in favor of the nominees for election to
the Company's Board of Directors recommended to the Company's shareholders by
the Board of Directors. In addition, with respect to all other matters submitted
to a vote of the shareholders of the Company (other than certain transactions
that would dilute its ownership of Company common stock or result in a change of
control of the Company), Times Mirror agrees that for a period of three years it
will vote all shares of Company common stock owned by it in the same proportion
as all other shareholders of the Company vote on any such matter.
Times Mirror will be entitled to designate one person as a nominee
for election to the Company's Board of Directors as long as it beneficially owns
at least 5% of the voting securities of the Company. If the Company increases
the size of its Board of Directors from nine to ten members, Times Mirror will
be entitled to designate one additional person as a nominee for election to the
Company's Board of Directors. If the Company increases the size of its Board of
Directors to a number greater than ten, Times Mirror shall be entitled to
designate a number of nominees proportionate to its percentage ownership of
Company common stock. Times Mirror's current nominee to the Board of Directors
is Thomas Unterman, the Chief Financial Officer of Times Mirror.
The standstill provisions of the Shareholder Agreement terminate upon
the earlier to occur of January 10, 2004 and the date of a change of control (as
defined) of the Company. The other provisions of the Shareholder Agreement
terminate on the earliest of these dates and the date on which Times Mirror
beneficially owns less than 5% of the voting securities of the Company.
Registration Rights Agreement. The Company and Times Mirror entered
into a Registration Rights Agreement upon the closing of the acquisition, which
provides Times Mirror with the right to require the Company to register the
common stock acquired by Times Mirror in the acquisition under the Securities
Act under certain conditions. Times Mirror and its permitted transferees have
the right on four separate occasions to require the Company to effect a
registration under the Securities Act of at least 20% of the common stock
acquired by Times Mirror in the acquisition to be sold in a firm commitment
underwritten public offering for cash. In addition, at any time when the Company
proposes to register shares of common stock under the Securities Act, it will
give notice to Times Mirror and its permitted transferees of its intention to do
so and of the material terms of the proposed registration. The Company will use
its best efforts to include in the proposed registration all shares of common
stock that it is requested in writing by Times Mirror or its permitted
transferees to register. The permitted transferees of Times Mirror that are
entitled to the benefits of the Registration Rights Agreement include only
wholly owned subsidiaries of Times Mirror and certain charitable organizations
affiliated with Times Mirror.
Non-Competition Agreement. The Company and Times Mirror also entered
into a Non-Competition Agreement upon the closing of the acquisition. Times
Mirror agrees in the Non-Competition Agreement that for a period of three years
after the closing, it will not engage or participate in any business or venture
that operates as its primary focus a national- or international-targeted web
site
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<PAGE>
dedicated to providing movie-going consumers with movie-related information or
offering for sale movie-themed merchandise or tickets for movies (a "Competing
Business"). In addition, Times Mirror agrees that for a period of three years
after the closing, it will not own, manage, operate, promote, control, or be
connected with as a stockholder (other than on a passive basis with less than 5%
of the equity of a publicly-traded company or less than 10% of the equity of a
privately-owned company), joint venturer or partner in, any Competing Business.
Notwithstanding the foregoing, certain business ventures and activities of Times
Mirror shall not be considered a Competing Business, including, among others,
the operation of the current web sites operated by newspapers owned by Times
Mirror to the extent the web sites provide primarily local and regional movie
information and movie-themed merchandise and the licensing and syndication of
movie information by the L.A. Times Syndicate to third parties, which
information is posted to such parties' web sites.
Cross-Promotion Agreement. In connection with the closing of the
acquisition, the Company and the Los Angeles Times, a division of Times Mirror,
entered into a cross-promotion and content sharing agreement whereby the Los
Angeles Times and the latimes.com website make certain entertainment-related
content available for use on the hollywood.com website and hollywood.com makes
certain content available for use on the latimes.com website. In addition, the
Company is the exclusive vendor of movie-related merchandise on the latimes.com
website and the Los Angeles Times receives a commission based on the revenues
generated by the sale of such merchandise through the latimes.com website.
TRANSACTIONS WITH GANNETT CO., INC.
During 1998, The Company entered into a web site affiliation
agreement with USA Today Information Network ("USA Today"), a subsidiary of
Gannett Co., Inc.. Under this agreement, the Company became the exclusive vendor
of movie studio-licensed merchandise on www.usatoday.com, USA Today's web site.
USA Today agreed to continuously promote the Company's Internet studio store on
its home page and on other pages throughout the USA Today web site throughout
the term of the agreement. In consideration of the exclusive arrangement, the
Company agreed to pay USA Today a percentage of the net transaction revenues
generated by customers who access the Company's web site through the USA Today
site, with a minimum transaction guarantee. The Company currently has no other
outstanding agreements with Gannett other than certain "piggyback" registration
rights granted to it in connection with the purchase of its shares of the
Company's common stock.
INVESTMENTS BY AFFILIATE OF THE SIMON PROPERTY GROUP
Pursuant to a 1995 stock purchase agreement with Tekno Simon, an
affiliate of the Simon Property Group, and its Co-Chairman, Melvin Simon, Tekno
Simon invested $2,000,000 in shares of the Company's Series A Preferred Stock
and Series B Preferred Stock and $1,000,000 in shares of the Company's common
stock.
Under the original Simon Stock Purchase Agreement, the Series A
Preferred Stock and the Series B Preferred Stock were convertible at the option
of the holder, at any time prior to November 28, 1997, into shares of common
stock on a one-for-one basis.
In May 1999 the Company agreed to extend the conversion option and
allow Tekno Simon to convert the Series A and Series B Preferred Stock into
common stock. In exchange, Tekno Simon agreed to waive certain accrued dividends
payable on the Series A and Series B Preferred Stock. In May 1999 Tekno Simon
converted all of the Series A and Series B Preferred Stock into 300,631 shares
of common stock.
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<PAGE>
Pursuant to the Simon Stock Purchase Agreement, Tekno Simon has the
right to designate one nominee to the Company's Board of Directors until such
time as Tekno Simon holds less than 25% of the sum of (i) the shares of common
stock issued upon conversion of the Series A Preferred Stock, and (ii) the
shares of common stock purchased by Tekno Simon in 1995. Certain principal
shareholders of the Company, including Mitchell Rubenstein, Laurie S. Silvers
and Dr. Martin H. Greenberg, have agreed to vote their shares of common stock in
favor of the election of Tekno Simon's nominee to the Board of Directors. Tekno
Simon's current nominee on the Board of Directors is Deborah J. Simon.
The Simon Property Group and other affiliates of Tekno Simon are
party to leases with the Company for the Company's mini in-line store at the
Mall of America, and a lease for a kiosk space in Indiana that the Company has
vacated.
INVESTMENT BY THE COMPANY'S DIRECTORS
In May 1999, the Company issued 569,820 shares of common stock in a
private placement at a purchase price of $21.25 per share. In addition, the
Company issued to the same investors warrants to purchase an aggregate of
189,947 shares of common stock at an exercise price of $21.25 per share. Five
members of the Company's Board of Directors participated in the private
placement and purchased an aggregate of 35,700 shares of common stock and
received warrants to purchase an aggregate of 11,902 shares of common stock on
the same terms as the other investors in the private placement.
In July 1998, six members of the Company's Board of Directors
(including the Company's Chairman of the Board and Chief Executive Officer, the
Company's Vice Chairman and President, and the Chief Executive Officer of Tekno
Books, the Company's 51%-owned subsidiary) purchased an aggregate of 187,442
shares of the Company's common stock for $5.00 per share, the then market price
of the stock. In conjunction with the private placement of these shares, the
investors received five-year warrants to purchase an aggregate of 93,721 shares
of the Company's common stock at $5.00 per share.
CONSULTING AGREEMENT WITH DR. MARTIN H. GREENBERG
In 1993 the Company entered into a consulting agreement with Dr.
Martin H. Greenberg pursuant to which Dr. Greenberg agreed to render advisory
and consulting services to the Company, including identifying best-selling
authors to create characters for the Company and negotiating agreements with
such authors, arranging for the publication of prose novels and anthologies for
children and adults based on the Company's characters, and attending trade shows
and conventions on the Company's behalf. The consulting agreement will expire in
November 2003, unless terminated earlier, which termination may take place only
under certain conditions. Pursuant to the consulting agreement, in November 1993
Dr. Greenberg began receiving consulting fees of $30,000 per year and was
granted an option to purchase 6,250 shares of common stock at an exercise price
of $8.00 per share. In connection with the acquisition of Tekno Books, the
consulting agreement was amended on December 9, 1994 (i) to provide that Dr.
Greenberg will have the exclusive right to package novelizations based on the
Company's entertainment properties, and (ii) in lieu of future annual stock
option grants to which Dr. Greenberg was entitled under the original agreement,
to grant Dr. Greenberg options to purchase 17,778 shares of common stock at an
exercise price of $8.4375 per share (the other approximate market price of the
common stock). Mr. Greenberg received the stock options and receives the
consulting fees in lieu of a base salary.
LINE OF CREDIT
During the first quarter of 1999, Mitchell Rubenstein, the Company's
Chairman of the Board and Chief Executive Officer, and Laurie S. Silvers, the
Company's Vice Chairman and President, agreed to
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increase their previously extended $1.1 million unsecured line of credit
facility to the Company to $5.5 million to enable the Company to meet its
working capital requirements for the balance of 1999. The interest rate on the
line of credit was set at the JP Morgan Bank prime rate of interest. This
commitment terminated in accordance with its terms during the second quarter of
1999 as a result of the Company raising in excess of $5.5 million from other
sources for working capital purposes. There were no borrowings by the Company
under this facility as of June 30, 1999.
PROPOSAL TO APPROVE AN AMENDMENT TO THE 1993 STOCK OPTION PLAN
On October 1, 1999, the Board of Directors of the Company amended the
1993 Plan, subject to shareholder approval, to increase the number of shares of
common stock reserved for issuance thereunder from a total of 1,500,000 shares
to a total of 3,000,000 shares. In addition, subject to shareholder approval,
the amended 1993 Plan provides that the number of shares reserved for issuance
thereunder shall automatically be increased on the first day of each fiscal
quarter of the Company so that such number equals at least 12.5% of the
Company's outstanding common stock. The amended 1993 Plan also contains revised
provisions governing the termination of nonqualifed stock options upon the
termination of an optionee's employment, which are described below.
PLAN DESCRIPTION
The statements in this Proxy Statement concerning the terms and
provisions of the 1993 Plan are summaries only and do not purport to be
complete. All such statements are qualified in their entirety by reference to
the full text of the 1993 Plan, which is attached hereto as Annex A.
The purpose of the 1993 Plan is to advance the interests of the
Company by providing an additional incentive to attract and retain qualified and
competent persons to serve as employees of or consultants to the Company, upon
whose efforts and judgment the success of the Company is largely dependent, and
to encourage stock ownership in the Company by such persons. The 1993 Plan was
effective as of July 1, 1993, and, unless sooner terminated by the Board of
Directors of the Company in accordance with the terms thereof, will terminate on
July 1, 2003.
The 1993 Plan is administered by the Stock Option Committee, which
has the right to determine, among other things, the persons to whom options are
granted, the number of shares of common stock subject to options, the exercise
price of options and the other terms and conditions thereof.
The 1993 Plan provides for the issuance of incentive stock options
("Incentive Stock Options") and nonqualified stock options ("Nonqualified Stock
Options"). An Incentive Stock Option is an option to purchase common stock that
meets the definition of "incentive stock option" set forth in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). A Nonqualified Stock
Option is an option to purchase common stock that meets certain requirements in
the plan but does not meet the definition of an "incentive stock option" set
forth in Section 422 of the Code. Nonqualified Stock Options and Incentive Stock
Options are sometimes referred to hereinafter as "Options."
The number of shares of common stock that may be issued pursuant to
Options granted under the 1993 Plan is currently 1,500,000, and if this proposal
is approved by the shareholders, the number of shares available for issuance
pursuant to options granted under the 1993 Plan will be increased to 3,000,000.
The maximum number of shares issuable pursuant to Incentive Stock Options will
be 3,000,000. In addition, if this proposal is approved by the shareholders, the
amended 1993 Plan will provide that the number of shares reserved for issuance
thereunder shall automatically be increased on the first day of each fiscal
quarter of the Company so that such number equals at least 12.5% of the
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Company's outstanding common stock. If any Option granted pursuant to the 1993
Plan terminates, expires, or is canceled or surrendered, in whole or in part,
shares subject to the unexercised portion may again be issued pursuant to the
exercise of Options granted under the 1993 Plan. The shares acquired upon
exercise of Options granted under the 1993 Plan will be authorized and unissued
shares of common stock. The Company's shareholders do not have any preemptive
rights to purchase or subscribe for the shares reserved for issuance under the
1993 Plan.
All employees of the Company, including officers and directors and
consultants to the Company, are eligible to receive grants of Options under the
1993 Plan; however, no Incentive Stock Option may be granted to a consultant who
is not also an employee of the Company or any of its subsidiaries. Upon
receiving grants of Options, each holder of an Option (an "Optionee") must enter
into an option agreement with the Company that contains the appropriate terms
and conditions as determined by the Committee.
TERMS AND CONDITIONS OF OPTIONS
Option Price. For any Option granted under the 1993 Plan, the option
price per share of common stock is determined by the Stock Option Committee but
may not be less than par value; furthermore, the option price per share of any
Incentive Stock Option may not be less than the "Fair Market Value" (as defined
in the 1993 Plan) of the common stock on the date such Incentive Stock Option is
granted. As of the Record Date, the Fair Market Value of the common stock was
$18.75 per share.
Exercise Of Options. Each Option is exercisable in such amounts at
such intervals and upon such terms as the Stock Option Committee may determine.
In no event may an Option be exercisable after 10 years from the date of grant.
Unless otherwise provided in an Option, one hundred percent (100%) of the
unvested outstanding Options held by each Optionee under the 1993 Plan shall
become immediately exercisable in full (i) if there occurs any transaction
(which shall include a series of transactions occurring within 60 days or
occurring pursuant to a plan), that has the result that shareholders of the
Company immediately before such transaction cease to own at least 51% of the
voting stock of the Company or of any entity that results from the participation
of the Company in a reorganization, consolidation, merger, liquidation or any
other form of corporate transaction; (ii) if the shareholders of the Company
shall approve a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless such plan is
subsequently abandoned); or (iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned). The Stock Option Committee may in its sole discretion
accelerate the date on which any Option may be exercised and may accelerate the
vesting of any shares subject to any Option or previously acquired by the
exercise of any Option. Options granted under the 1993 Plan to executive
officers or directors of the Company may not be exercised until six months
following the date of the grant.
Nontransferability. Options granted under the 1993 Plan are not
transferable by an Optionee other than by will or the laws of descent and
distribution, and Options are exercisable during an Optionee's lifetime only by
the Optionee.
Termination Of Options. The expiration date of an Option is
determined by the Stock Option Committee at the time of the grant and is set
forth in the applicable stock option agreement. In no event may an Option be
exercisable after 10 years from the date it is granted.
The 1993 Plan provides that if an Optionee's employment is
terminated, or, in the case of a consultant, if the consultant ceases his or her
relationship with the Company, for any reason other than for "Cause," mental or
physical disability or death, then the unexercised portion of the Optionee's
Options
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<PAGE>
shall terminate three months after such termination. Prior to the September 1993
Plan amendments, the 1993 Plan provided that if an Optionee's employment was
terminated, or, in the case of a consultant, if the consultant ceased his or her
relationship with the Company, for any reason other than for Cause, mental or
physical disability or death, then the unexercised portion of the Optionee's
Nonqualified Stock Options would terminate on the date on which the Optionee's
employment terminated or the removal of the Optionee as a consultant. "Cause" is
defined under the 1993 Plan as termination of the Optionee's employment, or in
the case of a consultant, the removal of the Optionee as a consultant, by reason
of the Optionee's willful misconduct or gross negligence. If an Optionee's
employment is terminated or the consultant is removed for Cause, the unexercised
portion of the Optionee's Options shall terminate immediately upon such
termination. If an Optionee's employment is terminated or the consultant is
removed by reason of the Optionee's mental or physical disability, the
unexercised portion of the Optionee's Options shall terminate 12 months after
such termination. If an Optionee's employment is terminated or the consultant is
removed by reason of the Optionee's death, the unexercised portion of the
Optionee's Options shall terminate 12 months after the Optionee's death.
The Stock Option Committee in its sole discretion may by giving
written notice cancel, effective upon the date of the consummation of certain
corporate transactions that would result in an Option becoming fully
exercisable, any Option that remains unexercised on such date. Such notice shall
be given a reasonable period of time prior to the proposed date of such
cancellation and may be given either before or after shareholder approval of
such corporate transaction.
OUTSTANDING OPTIONS
As of the Record Date, Options exercisable for a total of 1,314,100
shares of common stock were outstanding under the 1993 Plan and Options
exercisable for a total of 722,986 shares of common stock had been granted
subject to approval by the shareholders of the increase in the number of shares
available for issuance under the 1993 Plan. As of the Record Date, options to
purchase an aggregate of 185,900 shares of common stock granted under the 1993
Plan had been exercised. Outstanding Options, which are held by 163 persons, are
exercisable at prices ranging from $.01 per share to $22.00 per share and expire
on various dates from June 2001 through June 2009.
The following table sets forth the number of Options under the 1993
Plan received or to be received by: (i) the Named Executive Officers; (ii) all
current executive officers as a group; (iii) all current directors who are not
executive officers as a group; (iv) each nominee for election as a director; (v)
each associate of any such director, executive officer or nominee; (vi) each
other person who received or is to receive 5% of such Options; and (vii) all
employees, including all current officers who are not executive officers, as a
group:
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<TABLE>
<CAPTION>
OPTIONEE NUMBER OF OPTIONS
<S> <C>
Mitchell Rubenstein................................................... 485,000
Laurie S. Silvers..................................................... 485,000
Dr. Lawrence Gould(1)................................................. 0
Dr. Martin Greenberg.................................................. 36,528
Harry T. Hoffman(1)................................................... 0
E. Donald Lass(1)..................................................... 11,764
Jules L. Plangere, Jr.(1)............................................. 11,764
Deborah J. Simon(1)................................................... 0
Mitchell Semel........................................................ 0
Farid Suleman ........................................................ 0
Thomas Unterman ...................................................... 0
All current executive officers as a group (four persons).............. 1,081,528
All current directors who are not executive officers as a group....... 23,528
All employees, including all current officers who are not
executive officers, as a group...................................... 757,137
- -------------
(1) Does not include an aggregate of 78,594 options granted to these
individuals under the Directors Plan.
</TABLE>
The 1993 Plan is not qualified under the provisions of Section 401(a)
of the Code, nor is it subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
FEDERAL INCOME TAX EFFECTS OF OPTIONS GRANTED UNDER 1993 PLAN
INCENTIVE STOCK OPTIONS. Incentive Stock Options granted under the
1993 Plan are "incentive stock options" as defined in Section 422 of the
Internal Revenue Code. Under the Code, an Optionee generally is not subject to
ordinary income tax upon the grant or exercise of an Incentive Stock Option.
However, an employee who exercises an Incentive Stock Option by delivering
shares of common stock previously acquired pursuant to the exercise of an
Incentive Stock Option is treated as making a Disqualifying Disposition (defined
below) of such shares if the employee delivers such shares before the expiration
of the holding period applicable to such shares. The applicable holding period
is the longer of two years from the date of grant or one year from the date of
exercise. The effect of this provision is to prevent "pyramiding" the exercises
of an Incentive Stock Option (i.e., the exercise of the Incentive Stock Option
for one share and the use of that share to make successive exercises of the
Incentive Stock Option until it is completely exercised) without the imposition
of current income tax.
The amount by which the fair market value of the shares acquired at
the time of exercise of an Incentive Stock Option exceeds the purchase price of
the shares under such Option will be treated as an item of adjustment included
in the Optionee's alternative minimum taxable income for purposes of the
alternative minimum tax. If, however, there is a Disqualifying Disposition in
the year in which the Option is exercised, the maximum amount of the item of
adjustment for such year is the gain on the disposition of the common stock. If
there is a Disqualifying Disposition in a year other than the year of exercise,
the dispositions will not result in an item of adjustment for such other year.
If, subsequent to the exercise of an Incentive Stock Option (whether
paid for in cash or in shares), the Optionee holds the shares received upon
exercise for a period that exceeds (a) two years from the date
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such Incentive Stock Option was granted or, if later, (b) one year from the date
of exercise (the "Required Holding Period"), the difference (if any) between the
amount realized from the sale of such shares and their tax basis to the holder
will be taxed as long-term capital gain or loss. If the holder is subject to the
alternative minimum tax in the year of disposition, such holder's tax basis in
his or her shares will be increased for purposes of determining his or her
alternative minimum tax for such year, by the amount of the item of adjustment
recognized with respect to such shares in the year the Option was exercised.
In general, if, after exercising an Incentive Stock Option, an
employee disposes of the shares so acquired before the end of the Required
Holding Period (a "Disqualifying Disposition"), such Optionee would be deemed in
receipt of ordinary income in the year of the Disqualifying Disposition, in an
amount equal to the excess of the fair market value of the shares at the date
the Incentive Stock Option was exercised over the exercise price. If the
Disqualifying Disposition is a sale or exchange that would permit a loss to be
recognized under the Code (were a loss in fact to be sustained), and the sales
proceeds are less than the fair market value of the shares on the date of
exercise, the Optionee's ordinary income would be limited to the gain (if any)
from the sale. If the amount realized upon disposition exceeds the fair market
value of the shares on the date of exercise, the excess would be treated as
short-term or long-term capital gain, depending on whether the holding period
for such shares exceeded one year.
An income tax deduction is not allowed to the Company with respect to
the grant or exercise of an Incentive Stock Option or the disposition, after the
Required Holding Period, of shares acquired upon exercise. In the event of a
Disqualifying Disposition, a federal income tax deduction will be allowed to the
Company in an amount equal to the ordinary income to be recognized by the
Optionee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable, and the Company satisfies its
withholding obligation with respect to such income.
NONQUALIFIED STOCK OPTIONS. An Optionee granted a Nonqualified Stock
Option under the 1993 Plan will generally recognize, at the date of exercise of
such Nonqualified Stock Option, ordinary income equal to the difference between
the exercise price and the fair market value of the shares of common stock
subject to the Nonqualified Stock Option. This taxable ordinary income will be
subject to federal income tax withholding. A federal income tax deduction will
be allowed to the Company in an amount equal to the ordinary income to be
recognized by the Optionee, provided that such amount constitutes an ordinary
and necessary business expense to the Company and is reasonable, and the Company
satisfies its withholding obligation with respect to such income.
If an Optionee exercises a Nonqualified Stock Option by delivering
other shares, the Optionee will not recognize gain or loss with respect to the
exchange of such shares, even if their then fair market value is different from
the Optionee's tax basis. The Optionee, however, will be taxed as described
above with respect to the exercise of the Nonqualified Stock Option as if he or
she had paid the exercise price in cash, and the Company likewise generally will
be entitled to an equivalent tax deduction. Provided a separate identifiable
stock certificate is issued therefor, the Optionee's tax basis in that number of
shares received on such exercise that is equal to the number of shares
surrendered on such exercise will be equal to his or her tax basis in the shares
surrendered, and his or her holding period for such number of shares received
will include the holding period for the shares surrendered. The Optionee's tax
basis and holding period for the additional shares received on exercise of a
Nonqualified Stock Option paid for, in whole or in part, with shares will be the
same as if the Optionee had exercised the Nonqualified Stock Option solely for
cash.
The deductibility by the Company of compensation expense in excess of
$1,000,000 to certain executive officers is prohibited by Section 162(m) of the
Code. The amount otherwise deductible by the
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Company upon the exercise of a Nonqualified Stock Option or upon a Disqualifying
Disposition of an Incentive Stock Option may be counted against such $1,000,000
limit.
The discussion set forth above does not purport to be a complete
analysis of the potential tax consequences relevant to the Optionees or to the
Company, or to describe tax consequences based on particular circumstances. It
is based on federal income tax law and interpretational authorities as of the
date of this Proxy Statement, which are subject to change at any time.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF COMMON
STOCK VOTE FOR APPROVAL OF THE AMENDMENTS TO THE 1993 PLAN.
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PROPOSAL TO RATIFY THE SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, independent public accountants,
served as the Company's independent public accountants for the fiscal year ended
December 31, 1998. Pursuant to the recommendation of the Audit Committee, the
Board of Directors has appointed Arthur Andersen LLP to serve as the Company's
independent public accountants for the current year ending December 31, 1999 and
has directed that management submit such appointment for ratification by the
shareholders at the Meeting. One or more representatives of Arthur Andersen LLP
are expected to be present at the Meeting, will have the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions from shareholders.
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the SEC, a shareholder
intending to present a proposal to be included in the Company's proxy statement
for the Company's 2000 Annual Meeting of Shareholders must deliver a proposal in
writing to the Company's principal executive offices no later than July 18,
2000.
EXPERTS
The financial statements and schedules are incorporated by reference
in this Proxy Statement from the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998 and have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are incorporated in this Proxy Statement in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present, and have not been informed that any other
person intends to present, any matter for action at the Meeting, other than as
specifically discussed herein.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Proxy Statement, and later information that we
file with the SEC will automatically update and supersede this information. We
incorporate by reference the following filings and any filings made with the SEC
prior to the date of the Meeting under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"):
o Our Annual Report on Form 10-KSB for the year ended December 31,
1998;
o Our Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 1999;
o Our Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1999;
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<PAGE>
o Our Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1999; and
o Our Current Reports on Form 8-K filed with the SEC on January 20,
1999, June 1, 1999 (as amended on a Form 8-K/A dated June 23,
1999) September 15, 1999, September 28, 1999 and October 20,
1999.
We will provide, without charge, to each person to whom a copy of
this Proxy Statement is delivered, upon request, a copy of any or all of the
information incorporated herein by reference. Exhibits to any of the documents,
however, will not be provided unless such exhibits are specifically incorporated
by reference into such documents. The requests should be addressed to: Investor
Relations Department, Big Entertainment, Inc., 2255 Glades Road, Suite 237 West,
Boca Raton, Florida 33431, telephone number (561) 998-8000.
By Order of the Board of Directors
Laurie S. Silvers
President and Secretary
Boca Raton, Florida
November 15, 1999
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<PAGE>
BIG ENTERTAINMENT, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING TO BE HELD ON DECEMBER 22, 1999
The undersigned hereby appoints Mitchell Rubenstein and Laurie S.
Silvers, and each of them, the proxy or proxies of the undersigned, with full
power of substitution to vote all shares of the capital stock of Big
Entertainment, Inc., a Florida corporation (the "Company"), that the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company to be
held on December 22, 1999 (the "Meeting"), and all adjournments thereof, with
all powers the undersigned would possess if personally present, on the following
proposals as specified and, in their discretion, on such other matters as may
properly come before the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1:
1. Approval of an amendment to the Company's Amended and Restated
Articles of Incorporation to change the Company's name to Hollywood.com, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2:
2. Approval of an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of common
stock from 25,000,000 to 100,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3:
3. Approval of the issuance by the Company to CBS Corporation of
6,672,031 shares of its common stock and a warrant to purchase an additional
1,178,892 shares of its common stock pursuant to the Stock Purchase Agreement,
dated August 26, 1999, between the Company and CBS Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON OTHER SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED
BELOW:
4. Election of Directors:
Mitchell Rubenstein
Laurie S. Silvers
Dr. Martin H. Greenberg
Harry T. Hoffman
Jules L. Plangere, Jr.
Mitchell Semel
Deborah J. Simon
Farid Suleman
Thomas Unterman
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed above
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(To withhold your vote for any nominee or nominees, print the name(s) above.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5:
5. Approval of an amendment to the Company's 1993 Stock Option Plan
to increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from an aggregate of 1,500,000 shares to an aggregate of
3,000,000 shares and to make certain other changes to the 1993 Stock Option Plan
described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 6:
6. Ratify selection of Arthur Andersen LLP as the Company's
independent public accountants for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON OTHER SIDE)
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<PAGE>
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6
AND IN THE DISCRETION OF THE PROXIES APPOINTED HEREBY ON ANY OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name appears below.
Dated: , 1999.
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Signature
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Signature, if held jointly
Please sign exactly as your name appears on
this Proxy. If shares are registered in more
than one name, the signatures of all such
holders are required. A corporation should sign
in its full corporate name by a duly authorized
officer, stating such officer's title and
official capacity, giving the full title as
such. A partnership should sign in the
partnership name by an authorized person,
stating such person's title and relationship to
the partnership.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY,
USING THE ENCLOSED ENVELOPE.
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