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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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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 Rule 14a-11(c) or Rule 14a-12
-----------------------
OVERSEAS FILMGROUP, INC.
(Name of Registrant as Specified in its Charter)
---------------------
Not applicable
(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:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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OVERSEAS FILMGROUP, INC.
8800 SUNSET BOULEVARD
THIRD FLOOR
LOS ANGELES, CALIFORNIA
August 29, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Overseas Filmgroup, Inc. (the "Company") which will be held at the Ticketmaster
Screening Room, 8800 Sunset Boulevard, First Floor, Los Angeles, California on
Thursday, September 25, 1997 at 1:00 p.m., Pacific Daylight time.
At the meeting, the stockholders of the Company will be asked to elect two
directors to the Company's Board of Directors and to ratify management's
appointment of independent auditors for 1997. The Notice of Annual Meeting and
Proxy Statement accompanying this letter describe the matters upon which
stockholders will vote at the upcoming meeting, and we urge you to read these
materials carefully.
This will be our first annual meeting since the October 1996 merger between
the Company (then known as Entertainment/Media Acquisition Corporation) and the
then privately- held, Overseas Filmgroup, Inc. We hope you will be present to
hear management's report to stockholders. However, whether or not you plan to
attend the meeting in person and regardless of the number of shares you own, it
is important to the Company that your shares be represented at the meeting.
Accordingly, we urge you to complete, sign, date and return the accompanying
proxy in the enclosed postage pre-paid envelope as promptly as possible. If you
do attend the meeting and wish to vote your shares personally, you may revoke
your proxy at that time.
Sincerely,
/s/ Ellen Dinerman Little /s/ Robert B. Little
ELLEN DINERMAN LITTLE ROBERT B. LITTLE
President, Co-Chief Executive Officer and Co-Chief Executive Officer
and Co-Chairman of the Board of Directors Co-Chairman of the Board of
Directors
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OVERSEAS FILMGROUP, INC.
8800 SUNSET BOULEVARD
THIRD FLOOR
LOS ANGELES, CALIFORNIA 90069
(310) 855-1199
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 25, 1997
Notice is hereby given that the Annual Meeting of Stockholders of Overseas
Filmgroup, Inc. (the "Company") will be held at the TicketMaster Screening Room,
8800 Sunset Boulevard, First Floor, Los Angeles, California 90069 on Thursday,
September 25, 1997 at 1:00 p.m. Pacific Daylight time (the "Annual Meeting") for
the following purposes:
1. To elect two (2) directors to serve until the Annual Meeting of
Stockholders in 2000;
2. To ratify the Company's selection of Price Waterhouse LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997; and
3. To transact such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on August 20, 1997
as the record date ("Record Date") for determining the stockholders entitled to
receive notice of and to vote at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you are urged to promptly date and sign the
enclosed proxy and mail it to the Company in the enclosed envelope, which
requires no postage if mailed in the United States. Return of your proxy does
not deprive you of your right to attend the Annual Meeting and to vote your
shares in person.
By Order of the Board of Directors,
/s/ William F. Lischak
WILLIAM F. LISCHAK
Chief Operating Officer, Chief Financial Officer
and Secretary
August 29, 1997
Los Angeles, California
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OVERSEAS FILMGROUP, INC.
8800 SUNSET BOULEVARD, THIRD FLOOR
LOS ANGELES, CALIFORNIA 90069
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PROXY STATEMENT
---------------------
This Proxy Statement is furnished to stockholders of Overseas Filmgroup,
Inc. (the "Company") in connection with the solicitation of proxies by and on
behalf of the Board of Directors of the Company (the "Board" or "Board of
Directors") for use at the Annual Meeting of Stockholders to be held at 1:00
p.m., Pacific Daylight time, on Thursday, September 25, 1997, at the
Ticketmaster Screening Room, 8800 Sunset Boulevard, First Floor, Los Angeles,
California 90069, and at any postponements or adjournments thereof. The
approximate date on which this Proxy Statement and accompanying form of proxy
are first being mailed to stockholders is August 29, 1997.
At the Annual Meeting, stockholders of the Company will be asked to
consider and vote upon the following items:
Item No.1: The election of two directors to serve until the Annual
Meeting of Stockholders in 2000; and
Item No. 2: A proposal to ratify the Company's selection of Price
Waterhouse LLP as the Company's independent auditors for
the fiscal year ending December 31, 1997.
The Board of Directors believes that election of its director nominees and
approval of Item No. 2 are in the best interests of the Company and its
stockholders and recommends to the stockholders the approval of each of the
nominees and of Item No. 2.
PERSONS ENTITLED TO VOTE AT THE ANNUAL MEETING
The Board has fixed the close of business on August 20, 1997, as the Record
Date for the determination of stockholders entitled to receive notice of and to
vote at the Annual Meeting. Only holders of record of the Company's Common
Stock at the close of business on the Record Date will be entitled to notice of,
and to vote at, the Annual Meeting. At the close of business on the Record
Date, the Company had outstanding 5,732,778 shares of Common Stock.
Each share of Common Stock is entitled to one vote on all matters which may
come before the Annual Meeting. Pursuant to Delaware law and the Company's
Bylaws, each share of Common Stock may be voted for each nominee to be elected
to the Board of Directors and for whose election the share is entitled to vote.
The Company's stockholders are not entitled to cumulate votes with respect to
the election of directors.
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ACTION TO BE TAKEN UNDER PROXY
All proxies in the accompanying form that are properly executed and
returned in time and not revoked will be voted at the Annual Meeting and any
postponements or adjournments thereof in accordance with the specifications
thereon, or if no specifications are made, will be voted:
(i) FOR the election as a director of each of the two nominees described
herein; and
(ii) FOR ratification of the Company's selection of Price Waterhouse LLP as
the Company's independent auditors for the fiscal year ending December
31, 1997.
The Board of Directors knows of no matters, other than those stated above,
to be presented and considered at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any postponements or
adjournments thereof, it is the intention of the persons named in the enclosed
proxy to vote such proxy in accordance with their judgment on such matters. The
persons named as proxies were selected by the Board and are directors and
officers of the Company. The persons named in the enclosed proxy may also, if a
quorum is not present, vote such proxy to adjourn the Annual Meeting.
REVOCATION OF PROXY
Proxies may be revoked by a stockholder prior to their exercise by
delivering to the Company, to the Secretary's attention, a written instrument
signed by the stockholder revoking the same or a duly executed proxy bearing a
later date. In addition, a stockholder who attends the Annual Meeting may vote
his or her shares personally and thereby revoke his or her proxy at that time.
VOTE REQUIRED FOR APPROVAL
Assuming a quorum is present, the affirmative vote by the holders of a
plurality of the votes cast at the Annual Meeting will be required for the
election of directors, and the affirmative vote of a majority of the votes cast
at the Annual Meeting will be required to approve the proposal to ratify the
Company's selection of Price Waterhouse LLP as the Company's independent
auditors for fiscal 1997. For purposes of determining the number of votes cast
with respect to any voting matter, only those cast "for" or "against" are
included. However, with respect to all matters other than the election of
directors, broker non-votes (where a broker submits a proxy but indicates it
does not have discretionary authority to vote a customer's shares on one or more
matters) will not be treated as present and will have the effect of reducing the
number of affirmative votes required to achieve a majority of the votes cast,
while abstentions will be treated as present and entitled to vote and therefore
will have the effect of a vote against such proposal. With respect to the
election of directors, pursuant to Delaware law, shares as to which a
stockholder abstains or withholds from voting and broker non-votes will not be
counted as voting thereon and therefore will not affect the election of the
nominees receiving a plurality of votes cast.
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The presence, in person or by proxy, of a majority of all of the
outstanding shares of the Company's Common Stock as of the Record Date is
necessary to constitute a quorum to transact business at the Annual Meeting.
Those shares present, in person or by proxy, including shares as to which
authority to vote on any proposal being considered at the Annual Meeting is
withheld, shares abstaining as to any proposal being considered at the Annual
Meeting, and broker non-votes on any proposal being considered at the Annual
Meeting, will be considered present at the Annual Meeting for purposes of
establishing a quorum.
Certain stockholders of the Company (including, among others, Ellen
Dinerman Little, Co-Chairman of the Board of Directors, President and Co-Chief
Executive Officer of the Company, and Robert B. Little, Co-Chairman of the Board
of Directors and Co-Chief Executive Officer of the Company), who own an
aggregate of approximately 3,833,895 shares (66.9%) of the 5,732,778 shares of
the Company's Common Stock issued and outstanding as of the Record Date, are
parties to a stockholders voting agreement pursuant to which they have agreed to
vote in favor of the nominees for election as directors at the Annual Meeting
set forth herein. See "Certain Arrangements Regarding Management of the
Company, the Nomination and Election of Directors, and Voting" below. If such
parties do in fact cast their vote in such manner, the election of such director
nominees is assured. The Company has also been informed that Ms. Little and Mr.
Little, who are entitled to vote 3,202,778 shares (55.9%) of the 5,732,778
shares of the Company's Common Stock issued and outstanding as of the Record
Date, intend to vote in favor of the ratification of the Company's selection of
Price Waterhouse LLP as the Company's independent auditors for the Company's
fiscal year ending December 31, 1997. If Ms. Little and Mr. Little do in fact
cast their votes in such manner, the approval of the proposal to ratify the
selection of Price Waterhouse LLP as the Company's independent auditors is also
assured. See "Security Ownership of Certain Beneficial Owners and Management"
for a table of the beneficial ownership of the Company's Common Stock by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) each current director of the Company, (iii)
each of the executive officers of the Company listed in the Summary Compensation
Table under "Compensation of Directors and Executive Officers" below, and (iv)
all current executive officers and directors of the Company as a group.
EXPENSES OF SOLICITATION
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, proxies may be solicited by
officers, directors and regular employees of the company (none of whom will
receive additional compensation therefor), in person, or by telephone or other
means. The Company will also request brokerage firms, nominees, custodians and
fiduciaries to forward proxy materials to the beneficial owners of shares held
of record and will reimburse such persons for their reasonable out-of-pocket
expenses in connection therewith. The Company has also engaged the services of
D.F. King & Co., Inc., a firm specializing in proxy solicitation, to solicit
proxies for a fee of approximately $3,500.
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BACKGROUND REGARDING THE COMPANY - THE OCTOBER 1996 MERGER
The Company was incorporated in December 1993 under the name
Entertainment/Media Acquisition Corporation" as a Specified Purpose
Acquisition Company-Registered Trademark-(*) "Specified Purpose Acquisition
Company" is a registered servicemark of GKN Securities Corp.in order to
acquire an operating business in the entertainment and media industry by
merger or other similar type of transaction. From inception until the
October 1996 merger hereafter described, its operations were limited to
organizational activities, completion of an initial public offering in
February 1995, and the evaluation and negotiation of possible business
combinations. On October 31, 1996, pursuant to an Agreement of Merger dated
as of July 2, 1996, as amended as of September 20, 1996, among the Company,
Overseas Filmgroup, Inc. - a privately-held Delaware corporation ("Pre-Merger
Overseas"), and Ellen Dinerman Little and Robert B. Little (as amended, the
"Merger Agreement"), the Company merged with Pre-Merger Overseas (the
"Merger"), with the Company as the surviving corporation in the Merger. Upon
consummation of the Merger, the Company changed its name to "Overseas
Filmgroup, Inc." and succeeded to the business and operations of Pre-Merger
Overseas which had been established in 1980. Unless otherwise specifically
indicated or the context otherwise requires, the term the "Company" includes
the Company (Overseas Filmgroup, Inc.) and its wholly owned subsidiaries and
references to the operations of the Company are to the operations of
Pre-Merger Overseas through the date of the Merger and to the combined
company following the Merger. In addition, the term "EMAC" is sometimes used
herein to refer to the Company during the period from its inception as
"Entertainment/Media Acquisition Corporation" until the Merger.
The aggregate merger consideration paid by the Company to the three
stockholders of Pre-Merger Overseas (Ellen Dinerman Little, the Company's
President, Co-Chairman of the Board and Co-Chief Executive Officer, Robert B.
Little, the Company's Co-Chairman of the Board and Co-Chief Executive Officer,
and William F. Lischak, the Company's Chief Operating Officer, Chief Financial
Officer, Secretary and a Director) consisted of (i) 3,177,778 shares of the
Company's common stock, par value $.001 per share ("Common Stock"), (ii)
$1,500,000 in cash, and (iii) a $2,000,000, five year, secured promissory note
(the "Merger Note"). The cash merger consideration was paid from a portion of
the proceeds of a trust fund which held approximately 90% of the net proceeds of
the Company's initial public offering.
Prior to the Merger, no stockholder beneficially owned in excess of 10% of
the Company's issued and outstanding Common Stock and only one entity (a general
partnership (since dissolved) consisting of three individuals, including two
current directors, Stephen K. Bannon and Scot K. Vorse) beneficially owned in
excess of 5% of the Company's issued and outstanding Common Stock (5.1%). Upon
consummation of the Merger, Ellen Dinerman Little and Robert B. Little became
the beneficial owners of approximately 56.6% of the Company's Common Stock
(including for such purpose, shares of Common Stock for which they have been
granted proxies and shares of Common Stock underlying immediately exercisable
options held by them). Since the Merger, Ms. Little and Mr. Little have
purchased additional shares of the Company's Common Stock and now beneficially
own approximately 57.4% of the Company's Common Stock. See "Security
- ---------------------
* "Specified Purpose Acquisition Company" is a registered servicemark of GKN
Securities Corp.
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Ownership of Certain Beneficial Owners and Management" for information regarding
the beneficial ownership of the Company's Common Stock by Ellen Dinerman Little
and Robert B. Little as of the Record Date.
In connection with the Merger, the Company entered into a number of
agreements with certain of the former stockholders and executive officers of
Pre-Merger Overseas including a Lock-Up and Registration Rights Agreement (see
"Security Ownership of Certain Beneficial Owners and Management"), employment
agreements and non-competition agreements (see "Compensation of Executive
Officers and Directors - Employment and Related Agreements"), and a Tax
Reimbursement Agreement (see "Certain Relationships and Related Transactions").
The Company also adopted two stock option plans (see "Compensation of Executive
Officers and Directors - Stock Option Plans") and entered into certain
arrangements regarding management of the Company including a stockholders'
voting agreement among certain stockholders of the Company (see "Certain
Arrangements Regarding Management of the Company, the Nomination and Election of
Directors, and Voting"). Upon consummation of the Merger, the Company adopted
new Bylaws and amended and restated its Certificate of Incorporation to, among
other things, change the Company's name, increase its authorized capital stock,
and enact certain anti-takeover provisions, including, without limitation, a
classified board of directors. Upon consummation of the Merger, the officers of
the Company resigned their respective positions and new officers, consisting of
the former officers of Pre-Merger Overseas, were appointed by the Company's new
Board of Directors which had been elected at the Company's October 1996 Special
Meeting of Stockholders in lieu of 1996 Annual Meeting at which the Merger had
been approved by the Company's stockholders (the "October 1996 Special Meeting
of Stockholders"). For accounting and financial reporting purposes, the Merger
was considered a reverse acquisition of EMAC with Pre-Merger Overseas as the
acquirer. Accordingly, the results of operations and financial position of the
Company, for periods and dates prior to the Merger, are the historical results
of operations and financial position of Pre-Merger Overseas for such periods and
dates. Following the Merger, the fiscal year of the Company was changed from
November 30 to December 31 (Pre-Merger Overseas' fiscal year), effective for the
fiscal year ended December 31, 1996. References in this Proxy Statement to the
Company's fiscal year are to the twelve month periods beginning January 1 and
ending December 31 of each year. References in this Proxy Statement to the
Company's last fiscal year are to the twelve months ended December 31, 1996.
CERTAIN ARRANGEMENTS REGARDING MANAGEMENT OF THE COMPANY, THE NOMINATION AND
ELECTION OF DIRECTORS, AND VOTING
In accordance with the Merger Agreement, the current directors of the
Company were elected at the October 1996 Special Meeting of Stockholders. The
current directors consist of four persons designated prior to the Merger by
Pre-Merger Overseas (Ellen Dinerman Little, Robert B. Little, William F. Lischak
and Alessandro Fracassi) and three persons designated prior to the Merger by the
Company (Stephen K. Bannon, Jeffrey A. Rochlis and Scot K. Vorse). Pursuant to
the Merger Agreement, upon consummation of the Merger a Stockholders' Voting
Agreement, dated as of October 31, 1996 (the "Stockholders' Voting Agreement"),
was entered into among the Company, Ellen Dinerman Little, Robert B. Little,
William F. Lischak, and certain persons who were stockholders of the Company
prior to consummation of the Company's initial public offering
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(Jeffrey A. Rochlis, Barbara Boyle, the Hoberman Family Trust, John Hyde,
Stephen K. Bannon, Scot K. Vorse and Gary M. Stein - collectively, the "Initial
Stockholders"). The parties to the Stockholders' Voting Agreement, who as of
the Record Dated owned an aggregate of 3,832,895 (or 66.9%) of the Company's
issued and outstanding Common Stock, have agreed to use their best efforts to
cause the Board of Directors of the Company to consist of seven members during
the term of such agreement, including four individuals designated by Ms. Little
and Mr. Little and three individuals designated by the Initial Stockholders. In
accordance therewith, of the two current director nominees (Robert B. Little and
Stephen K. Bannon), Mr. Little was designated by Ms. Little and Mr. Little, and
Mr. Bannon was designated by the Initial Stockholders. Each party to the
Stockholders' Voting Agreement also agreed that the following actions shall
require the affirmative vote of at least seventy-five percent of the authorized
number of directors of the Company: (i) any amendment to the Restated
Certificate of Incorporation of the Company or the Company's Bylaws that would
change the voting rights of stockholders, the number or classes of directors, or
the notice and quorum requirements for meetings of the Board of Directors, its
committees or the shareholders; (ii) a merger or sale of all or substantially
all of the assets of the Company; (iii) the designation or issuance of any
preferred stock; and (iv) any amendments to the operating guidelines described
below (collectively, the "Supermajority Provisions"). The Stockholders' Voting
Agreement terminates eight and one-half years from the date of the Merger or
sooner if the employment with the Company of Ms. Little, Mr. Little and Mr.
Lischak is terminated. In addition, the right of Ms. Little and Mr. Little, and
of the Initial Stockholders, to designate directors (but not the obligation to
vote for the designees of others) will terminate (i) as to Ms. Little and Mr.
Little, (A) if they (and Mr. Lischak) own less than 794,444 shares of the
Company's Common Stock, they will be entitled to designate only two directors,
and (B) if they (and Mr. Lischak) own less than 20,000 shares, they will not be
entitled to designate any director; or (ii) as to the Initial Stockholders, (A)
if they own less than 175,000 shares of the Company's Common Stock, they will be
entitled to designate only two directors, (B) if they own less than 125,000
shares, they will be entitled to designate only one director, and (C) if they
own less than 20,000 shares, they will not be entitled to designate any
director. In connection with the Merger, operating guidelines for the Board of
Directors and management of the Company were established setting forth certain
general guidelines with respect to the authority and responsibilities of
officers of the Company, the structure and responsibilities of the Board of
Directors and the Executive Committee of the Company, and certain other general
business matters. The Board of Directors has also adopted operating resolutions
implementing the Supermajority Provisions.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors of the Company are divided into three classes, as indicated
below. At each annual meeting of stockholders, successors to the class of
directors whose terms expire at such meeting will be elected to serve for
three-year terms and until their successors are elected and have qualified.
It is intended that the persons named in the accompanying proxy will,
unless otherwise specifically instructed, vote for the election of the two
nominees listed below to serve as directors
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until the Annual Meeting of Stockholders in 2000 and until their respective
successors are elected and have qualified. Stockholders of the Company will
have an opportunity on their proxy cards to vote in favor of one or more
director nominees while withholding their authority to vote for one or more
director nominees. Both of the nominees are present directors of the Company
whose terms end at the 1997 Annual Meeting and who have consented to being named
in the Proxy Statement and to serve if elected. If either nominee, for any
reason presently unknown, cannot be a candidate for election, the shares
represented by valid proxies will be voted in favor of the remaining nominee and
may be voted for the election of a substitute nominee proposed by the Board of
Directors.
Nominees Term as Director
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Robert B. Little Until 2000 Annual Meeting
Stephen K. Bannon Until 2000 Annual Meeting
Incumbent Directors Term as Director
------------------- ----------------
Ellen Dinerman Little Until 1998 Annual Meeting
Scot K. Vorse Until 1998 Annual Meeting
William F. Lischak Until 1999 Annual Meeting
Alessandro Fracassi Until 1999 Annual Meeting
Jeffrey A. Rochlis Until 1999 Annual Meeting
Ellen Dinerman Little and Robert B. Little are married to each other.
INFORMATION CONCERNING THE NOMINEES AND OTHER CURRENT DIRECTORS
The information set forth below with respect to the principal occupation or
employment of each nominee and incumbent director and the name and principal
business of the corporation or other organization in which such occupation or
employment is, or has been, carried on, and other affiliations and business
experiences during the past five years, has been furnished to the Company by the
respective nominees and incumbent directors.
NOMINEES FOR DIRECTOR:
ROBERT B. LITTLE became Co-Chairman of the Board of Directors and Co-Chief
Executive Officer of the Company upon consummation of the Merger on October 31,
1996. Mr. Little co-founded the predecessor of Pre-Merger Overseas in February
1980 and served as Chairman of the Board of Pre-Merger Overseas from February
1987 until the Merger and its Chief Executive Officer from February 1990 until
the Merger. Mr. Little was a founding member of the American Film Marketing
Association, the organization which established the American Film Market, and
has served multiple terms on its Board of Directors. In 1993, Mr. Little served
on the City of Los Angeles Entertainment Industry Task Force, a task force
composed of industry leaders focused on maintaining and enhancing Los Angeles's
reputation as the entertainment capital of the world. Mr. Little is also a
founding member of The Archive Council, an industry support group for the
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University of California at Los Angeles (UCLA) Archive Film Preservation
Program, and a member of the Board of Directors of the Antonio David Blanco
Scholarship Fund, an endowment fund that annually benefits deserving students in
the UCLA Department of Film and Television. Mr. Little is 52 years old.
STEPHEN K. BANNON has been a director of the Company since its
incorporation as EMAC in December 1993. Since the Merger, he has served as Vice
Chairman of the Board of Directors of the Company and Chairman of its Executive
Committee. Previously, from the incorporation of EMAC until the Merger, he
served as Chairman of the Board of Directors of EMAC. Since June 1991, Mr.
Bannon has been the Chief Executive Officer of Bannon & Co., an investment
banking firm that specializes in the entertainment, media and communications
industries. In October 1996, Bannon & Co. entered into an alliance agreement
with Societe Generale, a private French bank. As part of an investment banking
assignment, from April 1, 1994 to December 31, 1995, Mr. Bannon served as acting
Chief Executive Officer of SBV, a division of Decisions Investment Corp., which
operates the Biosphere 2 project near Oracle, Arizona. Bannon & Co. is a
registered broker-dealer under the Securities Exchange Act of 1934, as amended,
and Mr. Bannon is a registered principal with the National Association of
Securities Dealers, Inc. ("NASD"). Bannon & Co. succeeded to the business of
Talbott, Bannon & Co., of which Mr. Bannon was a general partner from January
1990 to June 1991. From 1985 to 1990, Mr. Bannon was employed in various
capacities by Goldman, Sachs & Co., most recently as Vice President, Investment
Banking, where his responsibilities included advising clients on mergers and
acquisitions and corporate finance in the entertainment and media industry. Mr.
Bannon is 43 years old.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE.
OTHER DIRECTORS
ELLEN DINERMAN LITTLE became Co-Chairman of the Board of Directors,
Co-Chief Executive Officer and President of the Company upon consummation of the
Merger. Ms. Little co-founded the predecessor of Pre-Merger Overseas in February
1980 and served as its President and Director, as well as the President and a
Director of Pre-Merger Overseas since its incorporation in January 1984 until
the Merger. Ms. Little is a founding member of The Archive Council, serves on
the Board of Directors of the Antonio David Blanco Scholarship Fund, and has
been an active participant in the American Film Marketing Association, having
served on various of its committees. Ms. Little is Executive Producer of RICHARD
III, which was nominated for two Academy Awards. Ms. Little is 55 years old.
WILLIAM F. LISCHAK became Chief Operating Officer, Chief Financial Officer,
Secretary and a Director of the Company upon consummation of the Merger. Mr.
Lischak served as Pre-Merger Overseas' Chief Operating Officer from September
1990 until the Merger and its Chief Financial Officer from September 1988 until
the Merger. Mr. Lischak, a certified public accountant, previously had worked in
public accounting, including from 1982 to 1988 with the accounting firm of
Laventhol & Horwath. Mr. Lischak has a Masters Degree in Taxation and has
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taught courses in the extension program at UCLA in accounting, finance and
taxation for motion pictures and television. Mr. Lischak is 40 years old.
ALESSANDRO FRACASSI became a Director of the Company upon consummation of
the Merger. Mr. Fracassi founded Racing Pictures s.r.l. (an Italian motion
picture production and distribution company) in 1976 and has served as its
President since such date. Mr. Fracassi has extensive experience in the field of
Pan-European motion picture and television production. He has served as a Vice
President of the Italian Producers Association, an Italian entertainment
industry trade group. Additionally, Mr. Fracassi and his family are active
investors in various privately-held businesses in Italy. Mr. Fracassi is 45
years old.
JEFFREY A. ROCHLIS has been a Director of the Company since its
incorporation as EMAC in December 1993 and also served from such date until the
Merger as President and Chief Executive Officer of EMAC. Mr. Rochlis is the
founding principal of Rochlis & Associates, a firm established in 1989 which
specializes in new product/business development in the entertainment and media
industry. From 1987 through 1989, Mr. Rochlis served as the Executive Vice
President of Walt Disney Imagineering, responsible for the development of new
Disney theme parks and attractions around the world. From 1985 through 1987, he
served as Executive Vice President of The Walt Disney Studios, responsible for
finance, administration, operations and new business development for Walt
Disney, Touchstone and Buena Vista motion picture, television and home video
divisions worldwide. From 1983 through 1985, Mr. Rochlis was the President and
Chief Operating Officer of the video game company, Sega Enterprises, Inc. Mr.
Rochlis served as a Director of Paramount Pictures Corporation from 1983 through
1985. Mr. Rochlis is 52 years old.
SCOT K. VORSE became a Director of EMAC in January 1995 and continued to
serve as a Director of the Company following the Merger. From January 1995 until
the Merger, he served as Treasurer and Secretary of EMAC, and from January 1995
until November 1996, he served as Vice President of EMAC. Since June 1991, Mr.
Vorse has been an Executive Vice President, Managing Director and the Chief
Financial Officer of Bannon & Co. Mr. Vorse is a registered principal with the
NASD. On October 1, 1996, Bannon & Co. entered into an alliance agreement with
Societe Generale, a private French bank. From 1985 to May 1991, Mr. Vorse was
employed in various capacities by Goldman, Sachs & Co., most recently as Vice
President - Corporate Finance, where his responsibilities included advising
clients on mergers and acquisitions and private and public financings. Mr.
Vorse is 36 years old.
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
BOARD MEETINGS
During the year ended December 31, 1996, the Board of Directors of the
Company met once and acted by written consent (including for such purposes,
meetings and actions by written consent of the Board of Directors of EMAC prior
to the Merger) on three occasions. The Board has standing Executive,
Compensation and Audit Committees. The Company does not have a
9
<PAGE>
standing nominating or similar committee, the function of which is handled by
the Company's Board of Directors.
EXECUTIVE COMMITTEE. Ellen Dinerman Little, Robert B. Little and
Stephen K. Bannon currently serve on the Executive Committee, with Mr. Bannon
serving as Chairman of such committee. During intervals between the meetings of
the Board of Directors of the Company, the Executive Committee exercises all
powers of the Board of Directors (except those powers specifically reserved by
Delaware law or the Company's Bylaws to the full Board of Directors) in the
management and direction of the business and conduct of the affairs of the
Company in all cases in which specific directions have not been given by the
Board of Directors. In 1996, the Executive Committee (which was formed upon
consummation of the Merger on October 31, 1996) did not meet.
COMPENSATION COMMITTEE. Messrs. Bannon and Vorse currently serve on the
Compensation Committee. The Compensation Committee administers the Company's
stock option plans to the extent contemplated thereby and reviews, approves, and
makes recommendations with respect to compensation of officers, consultants and
key employees. See "Stock Option Plans" under "Compensation of Executive
Officers and Directors" below. In 1996, the Compensation Committee (which was
formed upon consummation of the Merger on October 31, 1996) acted by unanimous
written consent on one occasion.
AUDIT COMMITTEE. The Audit Committee of the Company currently consists of
Messrs. Bannon and Vorse. The function of the Audit Committee is, among other
things, to review and approve the selection of, and all services performed by,
the Company's independent auditors; to meet and consult with and to receive
reports from, the Company's independent auditors and the Company's financial and
accounting staff; and to review and act with respect to the scope of audit
procedures, accounting practices and internal accounting and financial controls
of the Company. In 1996, the Audit Committee (which was formed upon
consummation of the Merger on October 31, 1996) did not meet.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following "Summary Compensation Table" sets forth individual
compensation information with respect to the Company's Co-Chief Executive
Officers (Ellen Dinerman Little and Robert B. Little), EMAC's Chief Executive
Officer until the Merger (Jeffrey A. Rochlis) and four other executive officers
of the Company during the fiscal year ended December 31, 1996 whose total salary
and bonus compensation during fiscal 1996 from the Company (including Pre-Merger
Overseas) was in excess of $100,000 (William F. Lischak, Richard Guardian, MJ
Peckos and Mansour Mostaedi). Such seven executives are referred to herein as
the "Named Executives." Mr. Rochlis, who served as President and Chief Executive
Officer of EMAC from December 1993 until the Merger, received no compensation
for such services other than reimbursement for out-of-pocket expenses incurred
by him in connection with his activities on behalf of EMAC. With respect to the
six Named Executives who were executive officers of Pre-Merger Overseas and
became executive officers of the Company upon consummation of the Merger, the
Summary Compensation Table provides compensation information for services
10
<PAGE>
rendered to Pre-Merger Overseas during the fiscal year ended December 31, 1995
and to Pre-Merger Overseas and the Company during the fiscal year ended December
31, 1996.
Following the Summary Compensation Table are certain additional charts and
tables detailing other aspects of the compensation of the Named Executives
including (i) an Option/SAR Grants Table that includes information regarding
individual grants of options made to the Named Executives during fiscal 1996
along with the grant date present value of such options, and (ii) a table that
indicates whether any of the Named Executives exercised options in fiscal 1996
and includes the number and value of unexercised options held by the Named
Executives at December 31, 1996.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- AWARDS
---------------
<S> <C> <C> <C> <C> <C> <C>
NAME AND YEAR SALARY ($) BONUS ($) OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION ---- ---------- --------- COMPENSATION UNDERLYING COMPENSATION($)
- ------------------ ($) OPTIONS/ ---------------
--- SARS(#)
-------
ROBERT B. LITTLE 1996 $110,158 $25,000 $ -- (1) 1,100,000 $18,858(2)
CO-CHAIRMAN OF THE BOARD AND CO- 1995 90,000 0 37,709(3) 0 16,455(4)
CHIEF EXECUTIVE OFFICER
ELLEN DINERMAN LITTLE 1996 110,457 $25,000 -- (1) 1,100,000 24,812(5)
CO-CHAIRMAN OF THE BOARD, 1995 90,000 0 38,720(6) 0 30,134(4)
CO-CHIEF EXECUTIVE OFFICER AND
PRESIDENT
JEFFREY A. ROCHLIS 1996 0 0 0 5,000 0
FORMER PRESIDENT AND CHIEF 1995 0 0 0 0 0
EXECUTIVE OFFICER OF EMAC 1994 0 0 0 0 0
WILLIAM F. LISCHAK 1996 137,198 212,500 -- (1) 0 2,994(7)
CHIEF OPERATING OFFICER, CHIEF 1995 118,933 75,090 -- (1) 0 519(7)
FINANCIAL OFFICER AND SECRETARY
RICHARD GUARDIAN (9) 1996 126,244 81,529 -- (1) 0 2,942(7)
FORMER SENIOR VICE PRESIDENT 1995 110,969 53,636 -- (1) 0 1,648(8)
MJ PECKOS 1996 126,100 40,000 -- (1) 0 2,992(7)
SENIOR VICE PRESIDENT 1995 67,976 0 -- (1) 0 434(7)
MANSOUR MOSTAEDI (10) 1996 87,923 20,000 -- (1) 0 1,723(7)
FORMER SENIRO VICE PRESIDENT 1995 77,745 21,455 -- (1) 0 350(7)
</TABLE>
- -------------
* This table does not include S Corporation distributions made to the
stockholders of Pre-Merger Overseas.
(1) Perquisites with respect to such Named Executive did not exceed
the lesser of $50,000 or 10% of such executive officer's salary
and bonus.
(2) Represents $2,049 for the Company's 1996 contributions on behalf
of such Named Executive pursuant to the Company's 401(k) Plan and
$16,809 for life insurance premiums paid by the Company for the
benefit of such Named Executive.
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<PAGE>
(3) Includes $13,959 for automobile lease and maintenance expenses
and $23,750 representing one-half the cost of a home sound
system.
(4) Represents life insurance premiums paid by the Company for the
benefit of such Named Executive.
(5) Represents $2,049 for the Company's 1996 contribution on behalf
of such Named Executive pursuant to the Company's 401(k) Plan and
$22,763 for life insurance premiums paid by the Company for the
benefit of such Named Executive.
(6) Includes $14,970 for automobile payments and $23,750 representing
one-half the cost of a home sound system.
(7) Represents the Company's contributions on behalf of such Named
Executive pursuant to the Company's 401(k) Plan.
(8) Represents $488 for the Company's 1995 contributions on behalf of
such Named Executive pursuant to the Company's 401(k) Plan and
$1,160 for life insurance premiums paid by the Company for the
benefit of such Named Executive.
(9) Mr. Guardian resigned from his position as Senior Vice President,
Worldwide Distribution, of the Company in April 1997, and is no
longer with the Company.
(10) Mr. Mostaedi resigned from his position as Senior Vice President,
Finance, of the Company in August 1997, and is no longer with the
Company.
12
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE
-------------------------------------------------------------------------- VALUE
-----
<S> <C> <C> <C> <C> <C>
NAME NUMBER OF SECURITIES % OF TOTAL EXERCISE OR EXPIRATION GRANT DATE PRESENT
---- UNDERLYING OPTIONS/SARS BASE PRICE DATE VALUE
OPTIONS/SARS GRANTED GRANTED TO ($/SH) ---- ($)
(#)(1) EMPLOYEES IN ------ ---
------ FISCAL
YEAR
----
Ellen Dinerman Little 537,500 (3) 24% $5.00 10/30/03 $1,424,375 (2)
562,500 (4) 26% $8.50 10/30/03 $1,051,875 (2)
Robert B. Little 537,500 (3) 24% $5.00 10/30/03 $1,424,375 (2)
562,500 (4) 26% $8.50 10/30/03 $1,051,875 (2)
Jeffrey A. Rochlis 5,000 (5) (2) $5.25 10/31/06 $12,950 (2)
William F. Lischak 0 - - - -
Richard S. Guardian 0 - - - -
MJ Peckos 0 - - - -
Mansour Mostaedi 0 - - - -
</TABLE>
- --------------------------------
(1) Although the Company's 1996 Basic Stock Option and Stock Appreciation
Rights Plan provides for the granting of stock appreciation rights, no
grant of such rights has been made by the Company.
(2) These values were established using the modified Black-Scholes stock
option valuation model which modifies the Black-Scholes model to
include the impact of the right to exercise options prior to their
maturity. The actual value, if any, an executive may realize upon
exercise of such options will depend upon the excess of the stock
price over the exercise price on the date the option is exercised.
Therefore, there can be no assurance that the value realized by an
executive will be at or near the value estimated by this Black-Scholes
model. The estimated values under the model are based on arbitrary
assumptions as to variables and as to interest rates, stock price
volatility and future dividend yield. The above model assumes a period
of four years after grant until exercise, a volatility of the stock
price equal to that experienced by a peer company (Trimark Holdings,
Inc.) for the four years prior to October 31, 1996 (standard deviation
57%), a risk free interest rate of 6.03% (rate as of the grant date of
U.S. Treasury Notes with a term of four years) and a dividend yield of
0%.
(3) The option was exercisable on October 31, 1996 for 100,000 shares of
Common Stock with the balance vesting in five equal annual
installments beginning on October 30, 1997.
(4) The option vests in five equal annual installments beginning on
October 30, 1997.
(5) This option was granted after Mr. Rochlis resigned as President and
Chief Executive Officer of EMAC and represents an automatic grant
pursuant to the Company's 1996 Basic Stock Option and Stock
Appreciation Rights Plan to Mr. Rochlis as a non-employee member of
the Company's
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<PAGE>
Board of Directors. See "Board Fees" below. The option becomes
exercisable on October 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME SHARES ACQUIRED VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
---- ON EXERCISE REALIZED UNEXERCISED OPTIONS/SARS AT DECEMBER THE-MONEY OPTIONS/SARS AT
(#) ($) 31, 1996 DECEMBER 31, 1996
------------- -------- EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) ($)
------------------------------------ -------------------------
Ellen Dinerman Little 0 $ 0 100,000/1,000,000 $0/0
Robert B. Little 0 0 100,000/1,000,000 0/0
Jeffrey A. Rochlis 0 0 0/5,000 0
William F. Lischak 0 0 0 (2) 0
Richard S. Guardian 0 0 0 (2) 0
MJ Peckos 0 0 0 (2) 0
Mansour Mostaedi 0 0 0 (2) 0
</TABLE>
- --------------------
(1) Although the Company's 1996 Basic Stock Option and Stock Appreciation
Rights Plan provides for the granting of stock appreciation rights, no
grant of such rights has been made by the Company.
(2) The Named Executive did not hold any options at December 31, 1996.
BOARD FEES
Pursuant to the Automatic Option Grant Program under the Company's 1996
Basic Stock Option and Stock Appreciation Rights Plan, each individual serving
as a non-employee Board member on the effective date of the Merger (Messrs.
Bannon, Fracassi, Rochlis and Vorse) was automatically granted a non-qualified
option to purchase 5,000 shares of the Company's Common Stock. In addition,
each member of the Board of Directors who is not employed by the Company
receives an automatic grant of a non-qualified option to purchase 5,000 shares
of the Company's Common Stock (i) upon becoming a Board member after the
effective date of the Merger, whether through election at a meeting of the
Company's stockholders or through appointment by the Board of Directors, and
(ii) on the date of each annual meeting of stockholders (beginning with this
Annual Meeting), if such individual is to continue to serve as a Board member
after such meeting. Each such automatic option grant is, among other things,
exercisable at the fair market value of the Common Stock on the date of the
automatic grant and is generally exercisable after completion of one year of
service to the Board of Directors measured from the automatic grant date. In
addition, the Company reimburses all directors for travel and related expenses
incurred in connection with their activities on behalf of the Company. Directors
of the Company are not otherwise compensated for serving on the Board of
Directors.
14
<PAGE>
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its directors
(including those who are also executive officers) providing for indemnification
by the Company, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. These agreements constitute binding
agreements between the Company and each of the parties thereto, thus preventing
the Company from modifying its indemnification policy in a way that is adverse
to any person who is a party to such an agreement.
EMPLOYMENT AND RELATED AGREEMENTS
ELLEN DINERMAN LITTLE AND ROBERT B. LITTLE. In connection with the Merger,
Ms. Little and Mr. Little each entered into an employment agreement with the
Company with a five year term which commenced on October 31, 1996 and ends on
October 30, 2001. Ms. Little's and Mr. Little's employment agreements provide
for them to serve as Co-Chairs of the Board of Directors, members of the
Executive Committee of the Board of Directors, and Co-Chief Executive Officers
of the Company. Under Ms. Little's employment agreement, she also serves as
President of the Company. Pursuant to these employment agreements, they each
receive fixed annual compensation of $125,000 and an annual bonus of $25,000,
plus such additional bonus, if any, as may be awarded to them by the Company's
Board of Directors or compensation or similar committee, with Ms. Little and Mr.
Little abstaining from any vote thereon. The employment agreements also provide
for certain benefits including, among other things, life, disability and health
insurance, and an automobile allowance. In the event that the relevant
employment agreement is terminated by Ms. Little or Mr. Little for Good Reason
(as defined in the employment agreements and which includes certain changes in
control of the Company), or by the Company other than for Cause (as defined in
the employment agreements), she or he will receive (a) a lump-sum payment equal
to 250% of the greater of (i) the aggregate of all fixed annual compensation to
which she or he would otherwise have been entitled through the balance of the
term or (ii) an amount equal to the fixed annual compensation and annual bonus
for one full year; (b) a lump-sum payment equal to 250% of the aggregate of all
annual bonuses to which she or he would otherwise have been entitled through the
balance of the term; (c) such additional payments as may be necessary to take
into account and reimburse her or him for certain excise taxes which may be
applicable to payments and benefits relating to such termination; (d) for the
remainder of the term, life, disability and health insurance and other benefits
substantially similar to those received prior to termination; and (e) automatic
vesting of any stock options held. Such termination of the relevant employment
agreement would also constitute an event of default under the Merger Note. In
the event of the death or permanent disability of Ms. Little or Mr. Little, she
or he will be entitled to a disability benefit or death benefit to the
deceased's estate equal to the product of two times (i) the aggregate fixed
annual compensation that they were entitled to receive for the full employment
year in which the disability or death occurs, plus (ii) an amount equal to the
annual bonus.
In addition to their employment agreements, each of Ellen Dinerman Little
and Robert B. Little have entered into a Non-Competition Agreement, pursuant to
which she or he have agreed, for a period of five years commencing October 31,
1996, not to (i) own, manage, operate or control any business that competes with
the business of the Company (other than motion picture production
15
<PAGE>
activities and activities that are specifically permitted under their employment
agreements, and other than the right to hold de minimis investments in
publicly-held companies) or (ii) solicit any Company employee or interfere with
the relationship of the Company with any employee, customer, supplier or lessee.
The non-competition obligations terminate earlier than the five-year term if the
individual party's employment is terminated by him or her for Good Reason or by
the Company other than for Cause (as such terms are defined in their employment
agreements), or if the Company fails to pay any amount due under the Merger Note
at a time when Ms. Little and Mr. Little do not control a majority of the Board
of Directors of the Company.
WILLIAM F. LISCHAK. William F. Lischak has an employment agreement with
the Company with a five year term which commenced on October 31, 1996 and ends
on October 30, 2001 and which provides for his services as Chief Operating
Officer and Chief Financial Officer of the Company. Under the agreement, Mr.
Lischak receives an annual base salary of $175,000 for each of the first two
years of the term, $200,000 for the third and fourth years of the term and
$225,000 in the final year of the term. In addition, Mr. Lischak is entitled to
a guaranteed bonus of $50,000 per year payable in quarterly installments, plus
such additional bonus, if any, as may be awarded to Mr. Lischak by the Company's
Board of Directors or compensation or similar committee. Mr. Lischak also is
entitled to certain benefits including, among other things, certain health, life
and disability insurance benefits, and an automobile allowance. In the event of
a material uncured breach by the Company of his employment agreement, Mr.
Lischak is entitled to terminate the employment agreement and to receive his
base salary, fixed annual bonus, health, life and disability insurance benefits
due under the agreement through the remainder of the five-year term, and any
stock options held by Mr. Lischak will vest on the date of termination.
STOCK OPTION PLANS
The Company has two stock-based incentive compensation plans for the
Company's employees, directors and certain other persons providing services to
the Company: the 1996 Special Stock Option Plan and Agreement (the "Management
Option Plan") and the 1996 Basic Stock Option and Stock Appreciation Rights Plan
(the "Basic Plan") (collectively, the "Plans"). Under the Management Option
Plan, at the effective time of the Merger, each of Ms. Little and Mr. Little was
granted two non-qualified options for a total of 1,100,000 shares each of Common
Stock: one option for 537,500 shares of Common Stock at an exercise price of
$5.00 per share ("Group A Options") and one option for 562,500 shares at an
exercise price of $8.50 per share ("Group B Options"). See the "Option/SAR
Grants in Last Fiscal Year" table above for additional information regarding
such grants. All 2,200,000 shares of Common Stock initially reserved for
issuance under the Management Option Plan were subject to the options granted to
Ms. Little and Mr. Little. Regular full-time employees of the Company,
non-employee members of the Company's Board of Directors, and independent
consultants and other persons who provide services on a regular or substantial
basis to the Company are generally eligible to participate in the Basic Plan
(under which 550,000 shares of Common Stock are reserved for issuance). As of
August 15, 1997, options to purchase an aggregate of 20,000 shares of Common
Stock were outstanding under the Basic Plan, each with an exercise price of
$5.25 per share. The Plans are currently administered by the Compensation
Committee to the extent contemplated by the respective Plans.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was established upon consummation of
the Merger and currently consists of Messrs. Bannon and Vorse. Mr. Bannon was
Chairman of the Board of Directors of EMAC during 1996 until consummation of the
Merger and currently serves as Vice Chairman of the Company's Board of Directors
and Chairman of its Executive Committee. Mr. Vorse served as Vice President,
Treasurer, and Secretary of EMAC during 1996 through consummation of the Merger.
The Compensation Committee currently administers both of the Company's stock
option plans to the extent contemplated thereby. Prior to the Merger, no
executive officers of EMAC received any cash compensation for services rendered
to EMAC.
Messrs. Bannon and Vorse are officers, directors and stockholders of Bannon
& Co., Inc., which, prior to the Merger, made available to EMAC a small amount
of office space, as well as certain office and secretarial services, as required
by EMAC from time to time in consideration of $5,000 per month (an aggregate of
$50,000 in 1996). Such arrangement terminated upon consummation of the Merger.
Prior to the Merger, Messrs. Bannon and Vorse also were reimbursed for
out-of-pocket expenses incurred by them in connection with their activities on
behalf of EMAC.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The purpose of this Report is to inform the Company's stockholders of the
bases for the Chief Executive Officers' compensation for the last fiscal year
and the compensation policies applicable to the compensation of the executive
officers of the Company, including the relationship of corporate performance to
executive compensation.
EXECUTIVE COMPENSATION PHILOSOPHY. The Compensation Committee believes
that the Company's executive officers should be compensated on a basis generally
competitive with other quality companies in order to attract, retain and
motivate the qualified executives critical to the Company's long-term success.
The Compensation Committee further believes that, where possible, compensation
of such officers should be linked in part to operating performance. Often this
can be done by the grant of stock options. The Company does not apply specific
formulas or procedures in every case to link executive compensation to corporate
performance or to achieve other compensation goals. Instead, the Company can be
flexible in the manner in which it seeks to achieve its compensation goals given
the relatively small number of executive officers of the Company. This permits
the Company to structure the compensation arrangements of the Company's
executive officers with a view to the Company's compensation goals on a
case-by-case basis.
CHIEF EXECUTIVE OFFICERS' COMPENSATION FOR FISCAL 1996. Jeffrey A.
Rochlis, who served as President and Chief Executive Officer of EMAC from
December 1993 until the Merger in October 1996, received no compensation for
such services in 1996 and prior periods, other than reimbursement for
out-of-pocket expenses incurred by him in connection with his activities on
behalf of EMAC.
17
<PAGE>
Ellen Dinerman Little and Robert B. Little became Co-Chief Executive
Officers of the Company upon consummation of the Merger. Ms. Little and Mr.
Little co-founded the operations of Pre-Merger Overseas in 1980 and served as
the senior executives of Pre-Merger Overseas through the Merger. The Company
depends heavily on the services of the Co-Chief Executive Officers. Virtually
all decisions concerning the conduct of the business of the Company, including
the motion picture properties and rights to be acquired by the Company and the
arrangements to be made for the distribution, production and financing of motion
pictures by the Company, are made or are significantly influenced by the
Co-Chief Executive Officers. In order to secure the services of such key
employees and help ensure the continuity and stability of senior management, the
Merger Agreement provided that, as a condition to the Merger, Ms. Little and Mr.
Little each enter into an employment agreement with the Company upon
consummation of the Merger. The terms of such employment agreements were
negotiated between the Company and Ms. Little and Mr. Little, respectively. In
connection with the negotiation of such employment agreements, the Company
considered the advice and recommendations of the Company's financial advisors,
information publicly available or known in the motion picture industry regarding
employment arrangements of chairmen and/or chief executive officers (who perform
functions substantially similar to those performed by Ms. Little and Mr. Little,
respectively) of publicly-held entertainment companies, and such information
regarding the compensation of executive officers in similar positions and
performing similar functions in privately-held motion picture production
companies as was publicly available.
Compensation to be paid to Ms. Little and Mr. Little, respectively,
pursuant to their employment agreements is not based on any specific
quantitative or qualitative criteria relating to the Company's financial
performance. The Management Option Plan is a primary vehicle providing equity
incentives to the Co-Chief Executive Officers, thus linking their compensation
to the Company's performance. Adoption and execution of the Management Option
Plan was a condition to the Merger, and the terms of the Management Option Plan
and the grants of options pursuant thereto were negotiated between the parties
to the Merger. All 2,200,000 shares of Common Stock initially reserved for
issuance under the Management Option Plan were subject to the options granted to
Ms. Little and Mr. Little upon consummation of the Merger. The Compensation
Committee does not currently intend to grant additional stock options to Ms.
Little or Mr. Little as they now possess a significant equity interest in the
Company (the Group A and Group B Options, as well as their ownership of issued
and outstanding Common Stock) which the Compensation Committee believes aligns
the interest of such officers with those of the stockholders.
COMPENSATION OF OTHER EXECUTIVE OFFICERS. The Company attempts to attract
and retain the most qualified individuals to serve as executive officers of the
Company within the parameters of reasonable budgetary constraints. The
employment marketplace for highly qualified individuals with experience in the
motion picture industry is competitive. The Company competes for the services
of its executive officers with several "major" film studios which are dominant
in the motion picture industry (including The Walt Disney Company, Paramount
Pictures Corporation, Universal Pictures, Columbia Pictures, Twentieth Century
Fox, Warner Brothers Inc. and MGM/UA) as well as numerous independent motion
picture and television production and distribution companies, including Morgan
Creek Productions, Inc., New Regency Productions, Inc.,
18
<PAGE>
Majestic Films, Limited and Gramercy Pictures, many of whom have substantially
greater resources than the Company and are able to offer more attractive
non-salary benefits than the Company. In order to attract qualified executives,
the Company generally offers total compensation packages within the competitive
range of those offered by other prospective employers. With respect to the
compensation of executive officers other than the Co-Chief Executive Officers,
the Compensation Committee relies to a great extent upon the recommendations of
the Company's Co-Chief Executive Officers who observe and evaluate the
performance of the Company's executive officers in the regular course of the
Company's business and operations.
Prior to the Merger, decisions regarding the compensation of executive
officers of Pre-Merger Overseas were made by Pre-Merger Overseas' principal
stockholders, Ms. Little and Mr. Little. The compensation arrangements
(including salaries) of the executive officers of the Company following the
Merger were negotiated between the parties to the Merger. William F. Lischak,
the Chief Operating Officer, Chief Financial Officer, Secretary and a Director
of the Company, served as Pre-Merger Overseas' Chief Operating Officer from
September 1990 until the Merger and Chief Financial Officer from September 1988
until the Merger. Pursuant to the Merger Agreement, a condition to consummation
of the Merger was the execution by Mr. Lischak of an employment agreement with
the Company. As with the employment agreements of Ms. Little and Mr. Little,
the terms of Mr. Lischak's employment agreement were negotiated between the
parties to the Merger, and took into account publicly available information
regarding employment arrangements of chief operating and/or chief financial
officers of publicly-held and privately-held entertainment companies. The
Company also took into account the recommendation of Ms. Little and Mr. Little
as to the compensation of Mr. Lischak following the Merger.
Pursuant to the Merger Agreement, the Company agreed that promptly after
the Merger it would pay bonuses to employees of the Company who were formerly
employees of Pre-Merger Overseas in the aggregate amount of $175,000 (of which
$115,000 was paid to Mr. Lischak and $20,000 was paid to each of Messrs.
Guardian and Mostaedi and Ms. Peckos). Aside from an additional bonus of
$12,500 paid to Mr. Lischak pursuant to his employment agreement, the other
bonus amounts paid to these executive officers of the Company in 1996 were
bonuses paid by Pre-Merger Overseas, based upon the subjective evaluation of
such officers' performance by Ms. Little and Mr. Little.
19
<PAGE>
1996 BASIC STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN. The Basic Plan
provides an incentive for key employees, directors and consultants of the
Company to increase stockholder value by aligning such persons own interests
with those of the Company's stockholders. The Basic Plan is administered by the
Compensation Committee which determines who shall be granted options and the
terms of such option grants. Pursuant to the Merger Agreement, the Company
agreed to use its reasonable best efforts to grant options to purchase an
aggregate of 125,000 shares of Common Stock to employees of the Company who were
formerly employees of Pre-Merger Overseas in accordance with the recommendations
of Ms. Little and Mr. Little. The Company further agreed that such options were
to be granted at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant and would vest in installments (with
a portion potentially vesting on the grant date if so recommended by Ms. Little
and Mr. Little). Such options were not granted in 1996 as the Common Stock
underlying the options to be granted under the Basic Plan to officers and
employees had not, by year-end, been registered and qualified under applicable
federal and state securities laws. All other options will be granted at the
discretion of the Compensation Committee, generally taking into account, among
other things, (i) the recommendations of the Co-Chief Executive Officers as to
grants for other officers, (ii) prior grants to the officer, (iii) the salary
level of the officer, and (iv) subjective evaluations of performance. There is
no particular formula governing the number of option shares to be awarded to any
particular person. The Compensation Committee anticipates that most options
will be granted at the fair market value of the Common Stock on the date of
grant.
POLICY REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE. Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally
limits the federal income tax deduction that a public corporation may claim for
annual compensation paid to certain executive officers. The limitation with
respect to each affected executive officer is $1,000,000 per year. However, the
limitation does not apply to compensation which is performance-based and
satisfies certain other conditions set forth in Section 162(m)(4)(C) and the
regulations thereunder. With respect to the Co-Chief Executive Officers, the
Company anticipates that any compensation deemed paid by the Company in
connection with the exercise of the Group B Options granted to them will qualify
as performance-based compensation for purposes of Section 162(m) of the Code and
will not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those Group B Options will remain deductible by the Company
without limitation under Section 162(m) of the Code. The Group A Options will
not qualify as performance-based grants under Section 162(m) of the Code.
Accordingly, any compensation deemed paid by the Company in connection with the
exercise of the Group A Options will have to be taken into account for purposes
of the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. As a result,
the Company may not be allowed an income tax deduction for all or part of the
compensation deemed paid in connection with the exercise of the Group A Options.
With regard to such compensation to the Co-Chief Executive Officers as well as
with regard to future executive compensation actions, the Compensation
Committee's policy is to maintain flexibility to take actions that it deems to
be in the best interests of the Company and its stockholders but which may not
necessarily qualify for tax deductibility under Section 162(m) or other sections
of the Code.
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CONCLUSION. The Compensation Committee believes that the compensation
provided to the Co-Chief Executive Officers and to the Company's other executive
officers is fair, reasonable and in the best interests of the stockholders of
the Company.
SUBMITTED BY: STEPHEN K. BANNON
SCOT K. VORSE
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PERFORMANCE GRAPH
The graph on the following page compares the cumulative total return on
the Company's Common Stock with the cumulative total return of (i) the
Standard & Poor's SmallCap Index ("S&P Index"), (ii) the Russell 2000 Index,
(iii) an industry peer group index previously used by the Company ("Old Peer
Group") consisting of Financial Services Acquisition Corporation,
Restructuring Acquisition Corporation, Silver Diner Development, Inc.,
Productivity Technologies Corp., Network Systems, Inc., Niagara Corporation,
Source Media, Inc., Bogen Communications International, Inc., Kellstrom
Industries, Inc. and Zydeco Energy, Inc., and (iv) a new industry peer group
index composed of The Kushner-Locke Company, Polygram Filmed Entertainment,
Spelling Entertainment Inc. and Trimark Holdings, Inc. ("New Peer Group").
The graph assumes $100 was invested on February 17, 1995 (the date the Common
Stock of the Company, then named Entertainment/Media Acquisition Corporation,
began trading on the OTC Bulletin Board) in shares of the Company's Common
Stock, the stocks comprising the S&P Index, the stocks comprising the Russell
2000 Index, the stocks comprising the Old Peer Group, and the stocks
comprising the New Peer Group. The returns have been calculated assuming
reinvestment of dividends; the Company has not paid any dividends.
EMAC was a Specified Purpose Acquisition Company-Registered Trademark-
("SPAC"). A SPAC-Registered Trademark- is formed to acquire an operating
business in a particular industry and incorporates certain investor safeguards
including liquidation if a business combination is not consummated within
certain time periods. EMAC was formed to acquire an operating business in the
entertainment and media industry which it accomplished by the Merger. The Old
Peer Group is composed of other SPAC-Registered Trademark- stocks (equally
weighted for an industry peer group) due to the unique business purpose of
SAPC-Registered Trademark-s and the features of their securities and rights of
their security holders. As a result of the Merger, the Company is now operating
in the motion picture industry and the Company believes that the New Peer Group
which is composed of other companies in the motion picture industry is now, on a
going forward basis, a more relevant comparison than the Old Peer Group, which
is composed of companies in a variety of industries. The Old Peer Group will no
longer be used by the Company in future performance graphs.
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COMPARISON OF CUMULATIVE TOTAL RETURN
Feb. 17, 1995 Dec.31, 1995 Dec. 31, 1996
------------- ------------ -------------
Overseas Filmgroup, Inc. 100 111.76 108.83
S&P SmallCap 600 Index 100 127.07 154.16
Russell 2000 Index 100 125.36 146.03
Old Peer Group 100 95.93 89.41
New Peer Group 100 135.93 124.94
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date, August 20, 1997,
by (i) each person known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock, (ii) each current director of the Company,
(iii) each of the Named Executives listed in the Summary Compensation Table
under "Compensation of Directors and Executive Officers" above, and (iv) all
current executive officers and directors of the Company as a group. The number
of shares and percentages in the table and accompanying footnotes are based upon
5,732,778 shares of Common Stock outstanding as of the Record Date. The shares
of Common Stock underlying immediately exercisable options, warrants or rights,
or immediately convertible securities, or shares of Common Stock underlying
options, warrants, rights or convertible securities that become exercisable or
convertible within 60 days of the Record Date, are deemed to be outstanding for
the purpose of calculating the number and percentage beneficially owned by the
holder of such options, warrants, rights or convertible securities, but are not
deemed to be outstanding for the purpose of computing the percentage
beneficially owned by any other person. Unless otherwise indicated in the
footnotes following the table, the persons as to whom the information is given
had sole voting and investment power over the shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
PERCENT OF
NUMBER OF SHARES COMMON STOCK
OF COMMON STOCK BENEFICIALLY
NAME BENEFICIALLY OWNED OWNED
- ---- ------------------- -----
Ellen Dinerman Little (2) . . . . . . . . . 3,402,778 (1)(4) 57.4%
Robert B. Little (2). . . . . . . . . . . . 3,402,778 (1)(4) 57.4%
Stephen K. Bannon . . . . . . . . . . . . . 121,324 2.1%
William F. Lischak. . . . . . . . . . . . . 250,560 (3) 4.4%
Richard Guardian (10) . . . . . . . . . . . 0 0%
MJ Peckos . . . . . . . . . . . . . . . . . 0 0%
Mansour Mostaedi (11) . . . . . . . . . . . 0 0%
Alessandro Fracassi . . . . . . . . . . . . 0 0%
Jeffrey A. Rochlis. . . . . . . . . . . . . 132,353 2.3%
Scot K. Vorse . . . . . . . . . . . . . . . 126,323 2.2%
Kingdon Capital Management Corporation (5). 747,000 (6) 12%
Dolphin Offshore Partners, L.P. (7) . . . . 535,000 (8) 9%
All current executive officers
and directors as a
group (9 persons) . . . . . . . . . . . . 3,783,778 (9) 63.8%
- ---------------------
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(1) Includes shares of Common Stock held by Ellen Dinerman Little and
Robert B. Little as community property (including 25,000 shares held
as community property in a revocable living trust), and also includes
the right to vote approximately 249,560 shares of Common Stock
pursuant to an irrevocable proxy granted to Ms. Little and Mr. Little
by Mr. Lischak. Such proxy will continue during Mr. Lischak's
ownership of the shares, until October 31, 2001 (the "Expiration
Date"); provided, however, that such proxy terminates earlier if the
Littles own or control less than five percent of the outstanding
voting power of the Company, or if the shares to which the proxy
relates are sold in the public market. In addition, until the
Expiration Date, Ms. Little and Mr. Little also have, under certain
circumstances, certain rights to acquire (while the shares are held by
Mr. Lischak) 249,560 shares of Common Stock held by Mr. Lischak. See
footnote 3 below.
(2) Such person's business address is in care of the Company, 8800 Sunset
Boulevard, Los Angeles, California 90069.
(3) 249,560 of the shares indicated are subject in the event of transfer
(including voluntary and certain involuntary transfers) to a right of
first refusal or option to purchase at the then current market price
(and a right of repurchase at $2.00 per share in the event Mr.
Lischak's employment with the Company terminates for a reason other
than death, disability or the Company's material breach of Mr.
Lischak's employment agreement) in favor of Ellen Dinerman Little and
Robert B. Little during Mr. Lischak's ownership of such shares until
the Expiration Date. In addition, Mr. Lischak has granted the right
to vote such 249,560 shares to the Littles pursuant to an irrevocable
proxy which continues during Mr. Lischak's ownership of the shares
until the Expiration Date, subject to earlier termination in certain
circumstances. See footnote 1 above.
(4) Includes (i) 100,000 shares of Common Stock subject to immediately
exercisable options granted to such person under the Management Option
Plan and (ii) 100,000 shares of Common Stock subject to immediately
exercisable options granted to such person's spouse under the
Management Option Plan which generally may only be exercised by such
person's spouse (although such person disclaims beneficial ownership
of the shares subject to his or her spouse's options). Does not
include 1,000,000 shares of Common Stock subject to options granted to
such person under the Management Option Plan or 1,000,000 shares of
Common Stock subject to options granted to such person's spouse under
the Management Option Plan, the exercisability of which, in each case,
is subject to certain vesting requirements.
(5) The address of Kingdon Capital Management Corporation is 152 West 57th
Street, New York, New York 10019.
(6) Includes 498,000 shares of Common Stock issuable upon exercise of
Warrants. Information provided herein was obtained from a Schedule a
13D filed with the Securities and Exchange Commission in March 1995 by
Kingdon Capital Management Corporation.
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(7) The General Partner of Dolphin Offshore Partners is Peter E. Salas,
and the address of Mr. Salas and Dolphin Offshore Partners, L.P. is
c/o Dolphin Management, 129 East 17th Street, New York, New York
10003.
(8) Includes 200,000 shares of Common Stock issuable upon exercise of
Warrants. Information provided herein was obtained from the General
Partner of Dolphin Offshore Partners, L.P.
(9) Includes 100,000 shares of Common Stock subject to immediately
exercisable options granted to Ellen Dinerman Little under the
Management Option Plan and 100,000 shares of Common Stock subject to
immediately exercisable options granted to Robert B. Little under the
same stock option plan.
(10) Mr. Guardian, previously Senior Vice President, Worldwide
Distribution, of the Company, resigned from such position in April
1997 and is no longer with the Company. The information presented
regarding Mr. Guardian's ownership of the Company's Common Stock is as
of the date of his resignation.
(11) Mr. Mostaedi, previously Senior Vice President, Finance, of the
Company, resigned from such position in August 1997 and is no longer
with the Company. The information presented regarding Mr. Mostaedi's
ownership of the Company's Common Stock is as of the date of his
resignation.
The shares of Common Stock owned as of the Record Date by Messrs. Bannon,
Rochlis and Vorse (except for 5,000 shares of Common Stock held by Mr. Vorse),
are being held in escrow with Continental Stock Transfer & Trust Company, as
escrow agent, until February 16, 1998. Until such date, Messrs. Bannon, Rochlis
and Vorse will not be able to sell or otherwise transfer such shares of Common
Stock held in escrow, however, they have each retained the voting rights with
respect to their shares.
Pursuant to a Lock-Up and Registration Rights Agreement entered into by Ms.
Little, Mr. Little and Mr. Lischak upon consummation of the Merger (the "Lock-Up
and Registration Rights Agreement"), each such person has agreed not to sell, or
otherwise dispose of (except for estate planning purposes and other limited
exceptions), any shares received by them in the Merger (2,928,218 shares held by
the Littles and 249,560 shares held by Mr. Lischak) (the "Merger Shares") for a
period which commenced on the date of the Merger and ends in three equal
installments on February 16, 1998, February 16, 1999 and February 16, 2000. The
lock-up will terminate earlier (i) with respect to an individual, if such
person's employment with the Company is terminated Without Cause by the Company
or for Good Reason by such person (as such terms are defined in their respective
employment agreements with the Company); (ii) with respect to 10% of the Merger
Shares subject to the Lock-Up and Registration Rights Agreement if both Littles
are deceased; (iii) with respect to any Merger Shares held by Mr. Lischak that
are purchased by Ms. Little or Mr. Little or their designees pursuant to any
right of first refusal or repurchase agreement; (iv) with respect to any Merger
Shares surrendered in satisfaction of any indemnification obligation under the
Merger Agreement; and (v) with respect to a number of Merger Shares equal in
value to
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the outstanding principal balance (plus interest) of the Merger Note, if the
Company fails to pay any amount due under such note.
Pursuant to the Lock-Up and Registration Rights Agreement, the Littles and
Mr. Lischak have the right on three occasions (but not more than once in any
18-month period), on or after February 16, 1998 (or any earlier termination of
the lock-up), to require the Company, at its expense, to file a registration
statement under the Securities Act for the registration of a minimum of 250,000
of the Merger Shares released to them from the lock-up. These demand rights
terminate, as to one demand, on October 31, 2004; as to the second demand, on
October 31, 2008; and as to the third demand, on October 31, 2011. In addition,
the Littles and Mr. Lischak have unlimited "piggyback" rights in connection with
registration statements filed by the Company under the Securities Act until
October 31, 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers and
persons who own more than 10% of the Company's Common Stock ("10% Stockholders")
to file with the Securities and Exchange Commission (the "Commission") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Executive officers, directors and 10%
Stockholders of the Company are required by Commission regulations to furnish
the Company with copies of Section 16(a) forms they file. To the Company's
knowledge based solely upon a review of the Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, the Forms 5
furnished to the Company with respect to its most recent fiscal year, and
written representations of the Company's directors, executive officers and 10%
Stockholders, during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to the Company's executive officers, directors
and 10% Stockholders were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 31, 1996, as part of the Merger consideration, Ellen Dinerman
Little (Co-Chairman of the Board, Co-Chief Executive Officer and President of
the Company) and Robert B. Little (Co-Chairman of the Board and Co-Chief
Executive Officer of the Company) received the Merger Note, a $2,000,000 secured
promissory note of the Company, bearing interest at the rate of 9% per annum,
with principal and interest payable in monthly installments of $41,517 over a
five year period ending October 1, 2001. The Merger Note is secured by a
security interest (subordinate to the security interest of the Company's
commercial lenders) in substantially all of the Company's assets. During 1996,
an aggregate of $83,034 in principal and interest was paid to the Littles under
the Merger Note. At August 15, 1997, the aggregate amount outstanding
(including accrued interest) under such promissory note was $1,850,252.29. As
part of discussions regarding the restructuring of the Company's credit
facility, the lenders under the facility may request that certain payments to
the Littles pursuant to the Merger Note be deferred. Pursuant to the Merger
Agreement, on October 31, 1996, the Littles also received an unsecured
promissory note of the Company in the principal amount of $137,061 representing
the cash value at the time of Merger of
27
<PAGE>
certain life insurance policies under which the Company was named as the
beneficiary. This promissory note bears interest at the rate of 9% per annum,
with principal and accrued interest payable on October 31, 1997. At August 15,
1997, the aggregate amount outstanding (including accrued interest) under such
promissory note was $146,827.47.
Neo Motion Pictures, Inc., a California corporation ("Neo") involved in the
production of motion pictures, has, on a non-exclusive basis, provided
production services with respect to approximately 12 motion pictures for
Pre-Merger Overseas from 1989 through the date of Merger and may provide
production services to motion pictures for the Company in the future. With
respect to each of the films for which Pre-Merger Overseas arranged for Neo to
provide production services ("Produced Films"), Neo generally received a fee of
$75,000 to $150,000, an overhead allowance, plus in certain instances a net
profit participation. During 1996, Neo received $158,825 as overhead allowance
and $410,666 in production fees with respect to Produced Films. As permitted by
his employment agreement with the Company, Mr. Little performs consulting
services for Neo. During 1996, no consulting fees were paid by Neo to Mr.
Little, although, at August 15, 1997, Neo owed Mr. Little $269,121 in accrued
but unpaid consulting fees. Mr. Little also has an option to acquire a 50%
interest in Neo for a purchase price of less than $60,000. Mr. Little has
granted fifty percent of his interest in such option to the Company. The Company
has guaranteed payment by Neo of two promissory notes, each originally payable
by NEO on May 9, 1997, which the lender and NEO have agreed in principle to
extend (subject to documentation). An aggregate of approximately $248,939 in
principal and accrued interest was outstanding under such promissory notes as of
August 15, 1997.
Alessandro Fracassi, a Director of the Company, is the sole owner of
Original Film Company, an Italian corporation ("Original"), which owns or
controls, together with certain of its affiliates, distribution rights to 13
motion pictures for which the Company acts as sales agent pursuant to various
agreements. In exchange for licensing distribution rights to such films on
behalf of Original and its affiliates, the Company receives a sales agency fee
generally ranging from 5% to 15% of the revenues generated by such licensing,
depending on the film. During 1996, sales or licenses of distribution rights to
such films by the Company generated less than $12,000 in gross revenues. Until
August 1996, Mr. Little was also a co-owner of Original.
Mr. Fracassi is also the President and owner of Racing Pictures s.r.l., an
Italian corporation ("Racing Pictures") which is engaged in the production and
distribution of motion pictures. In 1990 and 1991, Pre-Merger Overseas licensed
to Racing Pictures various distribution rights (primarily Italian television and
video distribution rights) to approximately 86 motion pictures which the Company
owns or for which the Company controls various distribution or sales agency
rights. The licenses, which generally have terms of six to twelve years,
obligated Racing Pictures to pay aggregate minimum guarantees of approximately
$2,900,000 to Pre-Merger Overseas. With respect to video distribution rights
granted to Racing Pictures pursuant to such licenses, the Company is generally
entitled to a 25% royalty on all gross receipts of
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Racing Pictures relating to Racing Pictures' exploitation of such video
distribution rights. With respect to television rights granted to Racing
Pictures pursuant to such licenses, Racing Pictures is generally entitled to a
distribution fee of 25% of gross receipts from exploitation of such television
rights and recoupment of all Racing Pictures' distribution expenses. The Company
is entitled to the balance of the gross receipts of Racing Pictures from
exploitation of the television rights. Both the video royalty payable to the
Company and the Company's share of the gross receipts from Racing Pictures'
exploitation of the television rights are applied first to Racing Pictures'
recoupment of the minimum guarantees. As of January 1, 1996, $2,347,000 of the
minimum guarantees owed to Pre-Merger Overseas had been paid, while the
remainder of $693,000 was past due. From January 1, 1996 through September 11,
1996, an additional $140,000 was paid to Pre-Merger Overseas (including a
portion through offset of amounts owed by Pre-Merger Overseas to Racing Pictures
as described below). Pre-Merger Overseas and Racing Pictures agreed as of
September 12, 1996 to terminate Racing Pictures' distribution rights to five
motion pictures, reduce the $553,000 in remaining past due minimum guarantees to
$413,000, and extend payment of such amount, which is non-interest bearing, to
September 30, 1998. Upon payment by Racing Pictures of the remaining minimum
guarantees to the Company, the Company would be entitled to retain approximately
$70,675 of the total amount as distribution fees, with the remainder of such
amount to be paid to the various parties from which distribution rights to the
films licensed to Racing Pictures were acquired.
Racing Pictures also owns or controls distribution rights to three motion
pictures for which the Company acts as sales agent or distributor pursuant to
various agreements. In exchange for licensing distribution rights in such films,
the Company receives a fee generally ranging from 10% to 20% of the revenues
generated by such licensing, depending on the film. During 1996, sales or
licenses of distribution rights to such films by Pre-Merger Overseas and the
Company generated $109,000 in gross revenues of which $75,000 was offset against
amounts due from Racing Pictures (as described above), $20,000 was retained by
Pre-Merger Overseas and the Company as fees and $14,000 was retained by
Pre-Merger Overseas and the Company as reimbursement for distribution expenses
incurred by Pre-Merger Overseas and the Company on behalf of Racing Pictures.
Racing Pictures has agreed that future revenues generated from licensing such
films will also be offset against the past due minimum guarantees from Racing
Pictures.
From January 1989 until October 31, 1996, Pre-Merger Overseas was treated
for federal (but not state) income tax purposes as an S Corporation. As a
result, Pre-Merger Overseas's taxable income during this period was taxed for
federal purposes directly to the Pre-Merger Overseas stockholders (Ellen
Dinerman Little, Robert B. Little and William F. Lischak, Chief Operating
Officer, Chief Financial Officer, Secretary and a Director of the Company),
rather than to Pre-Merger Overseas. Pursuant to the Merger Agreement, the
Company entered into a Tax Reimbursement Agreement, dated October 31, 1996, with
Ms. Little, Mr. Little and Mr. Lischak (the "Tax Reimbursement Agreement").
Under the Tax Reimbursement Agreement, the Company agreed to reimburse these
individuals for up to $400,000 of federal income taxes payable for the short
1996 S corporation taxable year of Pre-Merger Overseas ending at the time of the
Merger (the "1996 Reimbursement Amount"). The corporate income tax returns of
Pre-Merger Overseas for its 1992 and 1993 fiscal years are currently under audit
by the Internal Revenue Service ("IRS") and returns for the 1994 and 1995 fiscal
years and the 1996 fiscal year (which is currently on extension for filing)
remain open to audit. In the absence of the Tax Reimbursement Agreement, the
stockholders of Pre-Merger Overseas during such periods, and not the Company,
would be responsible for any tax liability assessed as a result of any federal
income tax audits of pre-Merger periods because of the S corporation status for
such periods. Under the Tax Reimbursement Agreement, the Company agreed to
indemnify the three stockholders of Pre-Merger Overseas for
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any federal income tax liabilities of theirs (including penalties and interest)
arising from any adjustment to the income, deductions or credits of Pre-Merger
Overseas for periods prior to the Merger, together with any federal and state
income tax arising from such indemnity payments. The Company's reimbursement
obligations are limited to $150,000 (plus any of the $400,000 1996 Reimbursement
Amount not used to reimburse such individuals for their federal income taxes for
the short 1996 S Corporation taxable year), except with respect to adjustments
to the Company's income, deductions or credits which are reasonably expected to
result in decreases to the Company's income or increases in its deductions or
credits after the Merger. As of the date of this Proxy Statement, neither
Pre-Merger Overseas nor the Pre-Merger Overseas stockholders had filed their tax
returns for the short 1996 S corporation taxable year of Pre-Merger Overseas and
no amounts had been paid under the Tax Reimbursement Agreement.
Mr. Lischak and his spouse own BLAH, Inc. which provides the production
executive services of Mr. Lischak's spouse to the Company in accordance with the
a Loan-Out Agreement dated as of March 11, 1996, (the "Loan-Out Agreement"),
pursuant to which, BLAH, Inc. receives $1,200 per week (an aggregate of $48,733
in 1996).
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The stockholders of the Company are being asked to consider a proposal to
ratify the Company's selection, on the advice of its Audit Committee, of Price
Waterhouse LLP as the Company's independent auditors for the fiscal year ending
December 31, 1997.
Price Waterhouse LLP has served as Pre-Merger Overseas' independent
auditors since 1990 and as the Company's independent auditors since the Merger,
including for the fiscal year ended December 31, 1996. BDO Seidman, LLP had
previously served as EMAC's independent auditors from inception of EMAC through
the date of the Merger. The change of accountants at the time of the Merger was
based on the desire of the Board of Directors of the Company to provide
continuity of independent auditors in performing accounting services for the
business and operations of the Company. Upon consummation of the Merger, the
Company succeeded to the business and operations of Pre-Merger Overseas. As
indicated under "Background Regarding the Company - The October 1996 Merger,"
the results of operations and financial position of the Company, for periods and
dates prior to the Merger, are the historical results of operations and
financial position of Pre-Merger Overseas for such periods and dates. None of
BDO Seidman, LLP's reports rendered to EMAC during their service as EMAC's
independent auditors contained adverse opinions or disclaimers of opinion and
none of such reports were qualified as to uncertainty, audit scope, or
accounting principles. There were no disagreements between EMAC and BDO
Seidman, LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
BDO Seidman, LLP's satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with any of their reports. The
appointment of Price Waterhouse LLP to serve as the Company's independent
auditors after the Merger (including for the fiscal year ended December 31,
1996) was approved by the
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Company's Board of Directors and, at the October 1996 Special Meeting of
Stockholders, was also approved by the Company's stockholders.
Representatives of Price Waterhouse LLP are expected to attend the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
OTHER MATTERS
The Board of Directors is not aware of any other matter that may properly
come before the Annual Meeting. If any other matter not mentioned in this Proxy
Statement is brought before the Annual Meeting, the persons named in the
enclosed form of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment and applicable law.
STOCKHOLDERS PROPOSALS
Stockholders are advised that any stockholder proposals intended for
consideration at the 1998 Annual Meeting of Stockholders must be received by the
Company at its principal executive offices on or before May 1, 1998 in order to
be considered for inclusion in the Company's proxy materials for the 1998 Annual
Meeting. Proposals, as well as any questions related thereto, should be
submitted in writing to the Secretary of the Company. It is recommended that
stockholders submitting proposals utilize certified mail, return receipt
requested. Proposals may be included in the proxy statement for the 1998 Annual
Meeting if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission and if the stockholder submitting any such
proposal has complied with the Company's Bylaws.
INCORPORATION BY REFERENCE
To the extent this Proxy Statement has been or will be incorporated by
reference into any filing by the Company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, the sections of
this Proxy Statement entitled "Compensation Committee Report on Executive
Compensation" and "Performance Graph" shall not be deemed to be so incorporated
unless specifically otherwise provided in any such filings, and such sections
shall not otherwise be deemed filed under such Acts.
ANNUAL REPORT
Concurrently with this Proxy Statement, the Company is providing to each
stockholder a copy of its Annual Report to Stockholders, which contains the
Company's Annual Report on Form 10-K exclusive of exhibits. If for any reason a
stockholder entitled to vote at the Annual Meeting does not receive the
accompanying Annual Report to Stockholders, the Company will
31
<PAGE>
provide such stockholder a copy (without charge) upon the stockholder's written
request. Requests should be directed to Overseas Filmgroup, Inc., Attention:
Secretary, 8800 Sunset Boulevard, Third Floor, Los Angeles, California 90069.
By Order of the Board of Directors,
/s/ William F. Lischak
William F. Lischak
Chief Operating Officer, Chief Financial Officer
and Secretary
Los Angeles, California
August 29, 1997
STOCKHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION
IS APPRECIATED.
32
<PAGE>
OVERSEAS FILMGROUP, INC.
ANUUAL MEETING OF STOCKHOLDERS
SEPTEMBER 25, 1997
THIS REVOCABLE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Overseas Filmgroup, Inc. (the "Company")
hereby nominates, constitutes and appoints Ellen Dinerman Little, Robert B.
Little and William F. Lischak, and each of them, the agent and proxy of the
undersigned, each with full power of substitution, to vote all shares of Common
Stock of the Company which the undersigned is entitled to vote at the 1997
Annual Meeting of Stockholders of the Company to be held at Los Angeles,
California on September 25, 1997 at 1:00 p.m. Pacific Daylight time, and at any
and all postponements or adjournments thereof, as fully and with the same force
and effect as the undersigned might or could do if personally present thereat.
<TABLE>
<S> <C>
THIS REVOCABLE PROXY WILL BE VOTED AS DIRECTED BELOW. IN THE ABSENCE OF ANY DIRECTION, THIS PROXY WILL BE VOTED FOR ALL PLEASE
NOMINEES OF THE BOARD OF DIRECTORS IN THE ELECTION OF DIRECTORS AND FOR RATIFICATION OF THE COMPANY'S SELECTION OF PRICE MARK YOUR
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL 1997. VOTES AS
INDICATED
IN THIS
EXAMPLE
<CAPTION>
THIS REVOCABLE PROXY WILL BE VOTED AS DIRECTED BELOW. IN THE ABSENCE OF ANY DIRECTION, THIS PROXY WILL BE VOTED FOR ALL
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL 1997.
<CAPTION>
NOMINEES OF THE BOARD OF DIRECTORS IN THE ELECTION OF DIRECTORS AND FOR RATIFICATION OF THE COMPANY'S SELECTION OF PRICE /X/
</TABLE>
<TABLE>
<S> <C>
1. Election of Directors--Election of Stephen K. Bannon and Robert B. Little to serve on the Board of Directors of the
Company until the 2000 Annual Meeting of Stockholders and until their respective successors are elected and have
qualified.
/ / FOR ALL NOMINESS / / WITHHOLD AUTHORITY FOR ALL NOMINEES
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ELECTION OF ANY PERSON NOMINATED BY THE BOARD OF DIRECTORS, MARK FOR ABOVE
AND CROSS OUT THE NAME OR NAMES OF THE PERSON OR PERSONS WITH RESPECT TO WHOM AUTHORITY IS WITHHELD.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES.
(CONTINUED ON REVERSE SIDE)
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON REVERSE SIDE
<PAGE>
<TABLE>
<S> <C>
2. Independent Auditors--To ratify the selection of Price Waterhouse LLP to serve as the Company's independent auditors for
the fiscal year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF ITS SELECTION OF INDEPENDENT AUDITORS.
3. OTHER BUSINESS--TO TRANSACT SUCH OTHER BUSINESS AS PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS OR ANY ADJOURNMENTS THEREOF.
</TABLE>
Mark this box if you plan to attend the Annual Meeting. / /
Signature
------------------------------
Signature
------------------------------
Date
------------------------------
Note: Please sign as the name
appears hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such.
