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.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(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.:
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(3) Filing party:
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(4) Date filed:
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* Set forth the amount on which the filing fee is calculated and state how it
was determined.
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OVERSEAS FILMGROUP, INC.
8800 Sunset Boulevard
Third Floor
Los Angeles, California 90069
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held October 28, 1999
--------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Overseas Filmgroup, Inc. ("Company") will be held at the TicketMaster Screening
Room, 8800 Sunset Boulevard, First Floor, Los Angeles, California 90069, on
Thursday, October 28, 1999, at 3:00 p.m. local time, for the following purposes:
1. To elect three directors of the Company for a term of three years
and until their successors are elected and qualified; and
2. To transact such other business as may properly come before the
meeting, or any or all postponement(s) or adjournment(s) thereof.
Only stockholders of record at the close of business on September 30,
1999, will be entitled to notice of, and to vote at, the meeting and any
postponement(s) or adjournment(s) thereof.
You are urged to read the attached Proxy Statement, which contains
information relevant to the actions to be taken at the meeting. In order to
assure the presence of a quorum, whether or not you expect to attend the meeting
in person, please sign and date the accompanying Proxy Card and mail it promptly
in the enclosed addressed, postage prepaid envelope. You may revoke your proxy
if you so desire at any time before it is voted.
By Order of the Board of Directors
William F. Lischak
Chief Operating Officer, Chief Financial
Officer and Secretary
Los Angeles, California
October 13, 1999
<PAGE>
OVERSEAS FILMGROUP, INC.
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1999
This Proxy Statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by the Board of Directors of Overseas
Filmgroup, Inc. ("Company") to be used at the Annual Meeting of Stockholders of
the Company to be held on October 28, 1999, and any postponements or
adjournments thereof ("Annual Meeting"). The matters to be considered at the
Annual Meeting are set forth in the attached Notice of Annual Meeting.
The proxy will be voted (or withheld from voting) in accordance with
any specifications made. Where no specifications are indicated, the proxies will
vote "FOR" the director nominees as described below under Proposal 1, and, in
the discretion of the proxy holders, on any other business properly coming
before the meeting and any postponement(s) or adjournment(s) thereof. A proxy
may be revoked by giving notice to the Secretary of the Company in person, or by
written notification actually received by the Secretary, at any time prior to
its being exercised.
The Company's executive offices are located at 8800 Sunset Boulevard,
Third Floor, Los Angeles, California 90069. This Proxy Statement and the
enclosed form of proxy are first being sent to stockholders on or about October
13, 1999.
VOTING SECURITIES
The Board of Directors has fixed the close of business on September 30,
1999 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. Only stockholders of record at the close
of business on that date will be entitled to vote at the Annual Meeting or any
and all postponement(s) or adjournment(s) thereof. As of September 30, 1999, the
Company had issued and outstanding 6,295,305 shares of Common Stock, the
Company's only class of voting securities outstanding. Each stockholder of the
Company will be entitled to one vote for each share of Common Stock registered
in his, her or its name on the record date. The presence, in person or by proxy,
of a majority of all of the outstanding shares of Common Stock constitutes a
quorum at the Annual Meeting. Proxies that are marked "abstain" and proxies
relating to "street name" shares that are returned to the Company but marked by
brokers as "not voted" will be treated as shares present for purposes of
determining the presence of a quorum on all matters but will not be treated as
shares entitled to vote on the matter as to which authority to vote is withheld
by the broker ("broker non-votes").
The election of the directors requires a plurality vote of those shares
of Common Stock voted at the Annual Meeting with respect to the election of the
directors. "Plurality" means that the individuals who receive the highest number
of votes cast "FOR" are elected as directors. Consequently, any shares of Common
Stock not voted "FOR" a particular nominee (whether as a result of a direction
to withhold authority or a broker non-vote) will not be counted in such
nominee's favor.
<PAGE>
All other matters to be voted on will be decided by the affirmative
vote of a majority of the shares of Common Stock present or represented at the
Annual Meeting and entitled to vote. On any such matter, an abstention will have
the same effect as a negative vote, but because shares of Common Stock held by
brokers will not be considered entitled to vote on matters as to which the
brokers withhold authority, a broker non-vote will have no effect on the vote.
The following table sets forth certain information as of September 30,
1999 with respect to the Common Stock ownership of (i) those persons or groups
known to beneficially own more than 5% of the Company's voting securities, (ii)
each director and director-nominee of the Company, (iii) each current executive
officer whose compensation exceeded $100,000 in the 1998 fiscal year, and (iv)
all current directors and executive officers of the Company as a group.
Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended ("Exchange Act"). The information
concerning the stockholders is based upon information furnished to the Company
by such stockholders. Except as otherwise indicated, all of the shares of Common
Stock are owned of record and beneficially and the persons identified have sole
voting and investment power with respect thereto.
Amount and Nature of Percent of Class
Name of Beneficial Owner Beneficial Ownership of Voting Securities
- ------------------------ -------------------- --------------------
Ellen Dinerman Little........... 4,602,778(1)(2) 59.8%
Robert B. Little................ 4,602,778(1)(2) 59.8%
William F. Lischak.............. 259,560(1)(3) 4.0%
MJ Peckos....................... 10,000(1)(4) *
Stephen K. Bannon............... 141,324(5) 2.2%
Alessandro Fracassi............. 20,000(6) *
Gary M. Stein................... 187,000(7) 3.0%
Scot K. Vorse................... 146,323(8) 2.2%
Dolphin Offshore Partners, L.P.. 1,262,500(9) 19.1%
Jay Goldman..................... 620,300(10) 9.0%
Yahoo! Inc...................... 562,527(11) 8.9%
All current executive officers and
directors as a group (8 persons). 5,117,425(12) 65.6%
- ------------------------
* Less than 1%
(1) Such person's business address is in care of the Company, 8800 Sunset
Boulevard, Third Floor, Los Angeles, California 90069.
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<PAGE>
(2) Represents (i) 2,953,218 shares of Common Stock held by Ellen Dinerman
Little and Robert B. Little as community property in a revocable living
trust, (ii) the right to vote 249,560 shares of Common Stock pursuant to an
irrevocable proxy granted to Ms. Little and Mr. Little by Mr. Lischak,
(iii) 700,000 shares of Common Stock issuable upon exercise of immediately
exercisable options granted to such person under the Management Option Plan
and (iv) 700,000 shares of Common Stock issuable upon exercise of
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 (i)
400,000 shares of Common Stock issuable upon exercise of options granted to
such person under the Management Option Plan or (ii) 400,000 shares of
Common Stock issuable upon exercise of 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. The proxy granted to
Ms. Little and Mr. Little by Mr. Lischak will continue during Mr. Lischak's
ownership of the shares, until October 30, 2001; provided, however, that
such proxy will terminate earlier if the Littles own or control less than
5% 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
October 30, 2001, Ms. Little and Mr. Little also have, under certain
circumstances, the right to acquire the 249,560 shares of Common Stock held
by Mr. Lischak while the shares are held by Mr. Lischak. See footnote (3)
below.
(3) Represents (i) 10,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan and (ii)
249,560 shares of Common Stock which 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 October 30, 2001. In addition,
Mr. Lischak has granted the right to vote all such shares to the Littles
pursuant to an irrevocable proxy that continues during Mr. Lischak's
ownership of the shares until October 30, 2001, subject to earlier
termination in certain circumstances. See footnote (2) above.
(4) Represents 10,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan.
(5) Includes (i) 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan and (ii) 5,000
shares of Common Stock issuable upon exercise of options to be granted
under the Basic Plan on the date of the Annual Meeting. Mr. Bannon's
business address is c/o SG Cowen Securities Corporation, 202 North Canyon
Drive, Beverly Hills, California 90210.
(6) Represents (i) 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan and (ii) 5,000
shares of Common Stock issuable upon exercise of options to be granted
under the Basic Plan on the date of the Annual Meeting. Mr. Fracassi's
business address is Via Dei Tre Orologi, 10 Rome 00197 Italy.
(7) Includes (i) 5,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan, (ii) 5,000
shares of Common Stock issuable upon exercise of options to be granted
under the Basic Plan on the date of the Annual Meeting and (iii) 10,000
shares of Common Stock issuable upon exercise of immediately exercisable
non-plan options. Mr. Stein's business address is 900 19th Avenue South,
Unit 411, Nashville, Tennessee 37212.
(8) Represents (i) 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted under the Basic Plan, (ii) 5,000
shares of Common Stock issuable upon exercise of options to be granted
under the Basic Plan on the date of the Annual Meeting and (iii) 126,323
shares of Common Stock contributed by Mr. Vorse to a revocable living trust
for the benefit of Mr. Vorse's spouse. Mr. Vorse's business address is c/o
SG Cowen Securities Corporation, 202 North Canyon Drive, Beverly Hills,
California 90210.
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(9) Includes 328,000 shares of Common Stock issuable upon exercise of
publicly-traded warrants. Information provided herein was obtained from the
General Partner of Dolphin Offshore Partners, L.P. and is included in a
Schedule 13D/A, dated December 21, 1998 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.
(10) Includes (i) 458,000 shares of Common Stock issuable upon exercise of
warrants held by Mr. Goldman (including those held in his IRA account),
(ii) 25,000 shares of Common Stock issuable upon exercise of unit purchase
options held by Mr. Goldman (each unit consisting of one share of Common
Stock and two Warrants), (iii) 50,000 shares of Common Stock issuable upon
exercise of the warrants issuable upon the exercise of the unit purchase
options held by Mr. Goldman, (iv) 8,000 shares of Common Stock held of
record by Mr. Goldman's spouse and (v) 78,500 shares of Common Stock
issuable upon exercise of warrants held in Mr. Goldman's spouse's IRA
account. Mr. Goldman's address is 40 Kean Road, Short Hills, New Jersey
07078. Information provided was obtained from Mr. Goldman's Form 13-G dated
November 23, 1998 filed by Mr. Goldman with the Securities and Exchange
Commission.
(11) Yahoo! Inc.'s business address is 3420 Central Expressway, Santa Clara,
California 95051.
(12) Includes (i) 700,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted to Ellen Dinerman Little under the
Management Option Plan, (ii) 700,000 shares of Common Stock issuable upon
exercise of immediately exercisable options granted to Robert B. Little
under the Management Option Plan, (iii) an aggregate of 70,000 shares of
Common Stock issuable upon exercise of immediately exercisable options
granted to Messrs. Lischak, Bannon, Fracassi, Vorse and Stein and Ms.
Peckos under the Basic Plan, (iv) 10,000 shares of Common Stock issuable
upon exercise of immediately exercisable non-plan options and (v) an
aggregate of 20,000 shares of Common Stock issuable upon exercise of
options to be granted under the Basic Plan on the date of the Annual
Meeting to Messrs. Bannon, Fracassi, Vorse and Stein.
Pursuant to a Lock-Up and Registration Rights Agreement, dated October
31, 1996, by and among the Company, Ms. Little, Mr. Little and Mr. Lischak, each
such person has agreed not to sell, or otherwise dispose of (except for estate
planning purposes and other limited exceptions), any shares (2,928,218 shares
held by the Littles and 249,560 shares held by Mr. Lischak) (the "Merger
Shares") received by them in the merger of Overseas Filmgroup, Inc. into the
Company in October 1996 ("Merger") for a period which commenced on October 31,
1996 and ends in three equal installments on February 16, 1998, February 16,
1999 and February 16, 2000. As of September 30, 1999, 976,073 Merger Shares held
by the Littles and 83,187 Merger Shares held by Mr. Lischak remain subject to
the lock-up. 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 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 the outstanding
principal balance (plus interest) of the $2,000,000 five-year secured promissory
note ("Merger Note") issued by the Company to Ms. Little and Mr. Little as part
of their consideration in the Merger, 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) to require the Company, at its expense, to file a registration
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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 30, 2004; as to the second demand, on
October 30, 2008; and as to the third demand, on October 30, 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 30, 2004.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each of which
serves for a term of three years, with only one class of directors being elected
in each year. The term of the first class of directors, consisting of William F.
Lischak, Alessandro Fracassi and Gary M. Stein, will expire on the date of this
year's Annual Meeting. The term of the second class of directors, consisting of
Robert B. Little and Stephen K. Bannon, will expire in 2000 and the term of the
third class of directors, consisting of Ellen Dinerman Little and Scot K. Vorse,
will expire in 2001. In each case, each director serves from the date of his
election until the end of his term and until his successor is elected and
qualified.
Three people will be elected at the Annual Meeting to serve as
directors for a term of three years. The Company has nominated William F.
Lischak, Alessandro Fracassi and Gary M. Stein as candidates for election.
Unless authority is withheld, the proxies solicited by management will be voted
"FOR" the election of these nominees. In case a nominee becomes unavailable for
election to the Board of Directors, an event which is not anticipated, the
persons named as proxies, or their substitutes, shall have full discretion and
authority to vote or refrain from voting for a substitute nominee proposed by
the Board of Directors.
Information About the Nominees
William F. Lischak became Chief Operating Officer, Chief Financial Officer,
Secretary and a director of the Company upon consummation of the Merger in
October 1996. Mr. Lischak served as Chief Operating Officer of Overseas
Filmgroup, Inc. ("Pre-Merger Overseas") from September 1990 until October 1996
and its Chief Financial Officer from September 1988 until October 1996. 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 taught courses in
the extension program at UCLA in accounting, finance and taxation for motion
pictures and television. Mr. Lischak is 42 years old.
Alessandro Fracassi became a director of the Company upon consummation of the
Merger in October 1996. In 1976, Mr. Fracassi founded Racing Pictures s.r.l.
("Racing Pictures"), an Italian motion picture production and distribution
company, 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 48 years old.
Gary M. Stein has served as a director of the Company from December 1994 until
the Merger in October 1996 and since September 1998. Since January 1997, Mr.
Stein has served as general partner of Britten and Stone Music, a
Nashville-based publishing and consulting business, which he co-founded with his
wife. From March 1990 to October 1996, Mr. Stein served as Executive Vice
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President--Corporate and Financial Development for Lancit Media Entertainment,
Inc., a leading producer of quality children's television programming. Mr. Stein
currently serves on the Board of Directors of Seventh Generation, Inc., a
publicly held supplier of environmentally-friendly household products. From 1987
through February 1990, Mr. Stein was an independent corporate development
consultant to a wide variety of media and entertainment firms. From 1984 to
1987, Mr. Stein served as Senior Analyst--Investment Banking at Rosenkrantz,
Lyon and Ross, a New York Stock Exchange-member securities firm (now known as
Josephthal & Co.) where he helped form the firm's corporate finance division.
Mr. Stein is 42 years old.
Information About Other Directors
Each of the directors named in the following table will continue in
office after the Annual Meeting and until his or her term expires in the year
indicated and his or her successor is elected and qualified:
Term Served as
Expires Director
Name Age In Since Principal Occupation
- ---- ---- ------- -------- ---------------------
Robert B. Little 54 2000 1996 Co-Chairman of the Board and
Co-Chief Executive Officer of
the Company
Stephen K. Bannon 45 2000 1993 Managing Director and Co-Head
of media and entertainment
industries group of SG Cowen
Securities Corporation
Ellen Dinerman 58 2001 1996 Co-Chairman of the Board, Co-
Little Chief Executive Officer and
President of the Company
Scot K. Vorse 39 2001 1996 Managing Director and Co-Head
of media and entertainment
industries group of SG Cowen
Securities Corporation
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
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
University of California at Los Angeles ("UCLA") Archive Film Preservation
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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.
Ellen Dinerman Little became Co-Chairman of the Board of Directors, Co-Chief
Executive Officer and President of the Company upon consummation of the October
1996 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 a number of its committees. Ms. Little is Executive Producer of
RICHARD III, which was nominated for two Academy Awards.
Stephen K. Bannon has been a director of the Company since its inception in
December 1993. Since the October 1996 Merger, he has served as Vice Chairman of
the Board of Directors of the Company and Chairman of its Executive Committee.
From inception until the October 1996 Merger, he served as the Company's
Chairman of the Board. From June 1991 through July 31, 1998, Mr. Bannon served
as the Chief Executive Officer of Bannon & Co., Inc., an investment banking firm
specializing in the entertainment, media and communications industries. On July
31, 1998, Bannon & Co., Inc. was acquired by SG Cowen Securities Corporation, an
integrated, full service U.S. securities and investment banking firm. Since such
date, Mr. Bannon has been serving as a Managing Director and Co-Head of SG Cowen
Securities Corporation's media and entertainment group. 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. Mr. Bannon
is a registered principal with the National Association of Securities Dealers,
Inc.
("NASD").
Scot K. Vorse became a director of the Company in January 1995. From January
1995 until the Merger in October 1996, he served as Treasurer and Secretary of
the Company, and from January 1995 until November 1996, he served as Vice
President of the Company. From June 1991 through July 31, 1998, Mr. Vorse served
as an Executive Vice President and the Chief Financial Officer of Bannon & Co.,
Inc., an investment banking firm specializing in the entertainment, media and
communications industries. On July 31, 1998, Bannon & Co., Inc., was acquired by
SG Cowen Securities Corporation, an integrated, full service U.S. securities and
investment banking firm. Since such date Mr. Vorse has been serving as a
Managing Director and Co-Head of SG Cowen Securities Corporation's media and
entertainment group. Mr. Vorse is a registered principal with the NASD.
Other Executive Officers
Name Age Position
- ---- --- --------
MJ Peckos 44 Senior Vice President, Domestic Distribution
and Marketing
MJ Peckos became Senior Vice President, Domestic Distribution and Marketing, of
the Company upon consummation of the October 1996 Merger, having served since
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May 1995 in the same position with Pre-Merger Overseas. From January 1995
through April 1995, Ms. Peckos served as Vice President of Advertising for Dazu
Advertising, a graphic design firm which is active in the entertainment
industry. From January 1992 to November 1994 she served as Senior Vice President
of Marketing & Distribution for Academy Entertainment, an independent film
company, and from July 1991 to December 1992 she served as Co-Managing Director
of CLG Films, also an independent film company. Ms. Peckos also previously
served with several other companies in the motion picture industry including The
Samuel Goldwyn Company, MGM and Warner Bros.
Board of Directors' Meetings and Committees
During 1998, the Board of Directors met three times and acted by
unanimous consent on three occasions. The Company has standing executive,
compensation and audit committees of the Board of Directors. The Company does
not have a standing nominating committee.
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. During 1998,
the Executive Committee met once and acted by unanimous consent on one occasion.
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. During
1998, the Compensation Committee met once.
Audit Committee
The Audit Committee of the Company currently consists of Messrs. Bannon
and Vorse. The functions of the Audit Committee are: 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. During 1998, the Audit
Committee met once and acted by unanimous consent on one occasion.
Stockholders' Voting Agreement
In connection with the Merger in October 1996, a Stockholders' Voting
Agreement, dated as of October 31, 1996, was entered into among the Company,
Ellen Dinerman Little, Robert B. Little, William F. Lischak and certain persons
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who were stockholders of the Company prior to consummation of the Company's
initial public offering (Stephen K. Bannon, Scot K. Vorse, Jeffrey A. Rochlis,
Barbara Boyle, the Hoberman Family Trust and Gary M. Stein; collectively, the
"Initial Stockholders"). The parties to the Stockholders' Voting Agreement, who
as of September 30, 1999 owned of record an aggregate of 3,642,245 shares (or
57.9%) 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 the agreement, including four individuals
designated by Ms. Little and Mr. Little and three individuals designated by the
Initial Stockholders. Of the three current director-nominees (William F.
Lischak, Alessandro Fracassi and Gary M. Stein), William F. Lischak and
Alessandro Fracassi were designated by Ms. Little and Mr. Little, and Gary M.
Stein was designated by the Initial Stockholders. Of the remaining incumbent
directors, Robert B. Little and Ellen Dinerman Little have been designated by
Ms. Little and Mr. Little and Stephen K. Bannon and Scot K. Vorse have been
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 75% of the authorized number of directors of the Company: (i)
any amendment to the Company's Restated Certificate of Incorporation or By-laws
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 Company's assets; (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 on April 30, 2004 or sooner if Ms.
Little's or Messrs. Little and Lischak's employment with the Company 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. As of
September 30, 1999, Ms. Little, Mr. Little and Mr. Lischak owned of record an
aggregate of 3,202,778 shares of Common Stock and the Initial Stockholders owned
an aggregate of 439,647 shares of Common Stock. In connection with the Merger,
operating guidelines for the Board of Directors and management of the Company
were established 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.
Director Compensation
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 October 31, 1996 (Messrs. Bannon, Fracassi 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, whether through election at a meeting of the
Company's stockholders or through appointment by the Board of Directors, and
9
<PAGE>
(ii) on the date of each annual meeting of stockholders, if such individual is
to continue to serve as a Board member after such meeting; provided such
individual has served as a non-employee member of the Board of Directors for at
least six months. 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.
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.
Executive Compensation
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) and two other executive
officers of the Company during the fiscal year ended December 31, 1998 whose
total salary and bonus compensation during fiscal 1998 from the Company exceeded
$100,000 (William F. Lischak and MJ Peckos). These four individuals are referred
to herein as the "Named Executives." With respect to the four Named Executives,
the Summary Compensation Table provides compensation information for services
rendered to the Company during the fiscal years ended December 31, 1996, 1997
and 1998, respectively. The Summary Compensation Table does not include
distributions made to the stockholders of Pre-Merger Overseas. Following the
Summary Compensation Table is a table that indicates whether any of the Named
Executives exercised options in fiscal 1998 and includes the number and value of
unexercised options held by the Named Executives at December 31, 1998. No stock
options or stock appreciation rights were granted to the Named Executives in
1998.
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------------------- --------------
Other Securities
Annual Underlying All Other
Name and Compens- Options/SARS Compensation
Principal Position Year Salary ($) Bonus ($) ation ($) (#) ($)
- ------------------------------- --------- ------------ ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Little 1998 125,000(1) 25,000(2) 29,189(3) 0 116,165(4)
Co-chairman of the Board and 1997 125,000 27,404(2) 40,511(5) 0 16,695(6)
Co-chief Executive Officer 1996 110,158 25,000(2) - (7) 1,100,000 18,858(8)
Ellen Dinerman Little 1998 125,000(9) 25,000(2) 17,203(10) 0 106,612(11)
Co-chairman of the Board, 1997 125,000 27,404(2) 27,184(12) 0 23,892(13)
Co-chief Executive Officer 1996 110,457 25,000(2) - (7) 1,100,000 24,812(14)
and President
William F. Lischak 1998 193,209 50,000 - (7) 0 10,677(15)
Chief Operating Officer, Chief 1997 175,000 53,365 - (7) 0 9,410(16)
Financial Officer and 1996 137,198 212,500 - (7) 0 2,994(17)
Secretary
MJ Peckos 1998 153,224 0 - (7) 0 4,985(17)
Senior Vice President, 1997 156,483 20,000 - (7) 0 2,923(17)
Domestic Distribution and 1996 126,100 40,000 - (7) 0 2,922(17)
Marketing
</TABLE>
- -----------------------
(1) Represents salary earned by the Named Executive pursuant to his Employment
Agreement, the payment of $68,066 of which has been deferred.
(2) Includes bonus of $25,000 earned by each of such Named Executives, payment
of which has been deferred until a date to be agreed to by the Company and
the Named Executive.
(3) Represents $11,985 for automobile lease payments $2,204 in automobile
expenses and $15,000 in business management and accounting fees. Of the
total amount, $5,205 has been deferred until a date to be agreed to by the
Company and the Named Executive.
(4) Represents $2,266 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $22,319 in life
insurance premiums paid by the Company for the benefit of the Named
Executive, $11,939 in life insurance premiums which amount has been
deferred until a date to be agreed upon by the Company and the Named
Executive, $2,123 in disability insurance premiums paid by the Company for
the benefit of the Named Executive and $68,064 in interest and principal
payment of a life insurance note and $9,454 in tax preparation fees for
1996 for which the Named Executive is entitled to reimbursement.
(5) Represents $13,499 for automobile lease payments, $25,301 in business
management and accounting fees and $1,711 in automobile expenses paid on
behalf of the Named Executive by the Company.
(6) Represents $2,625 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $2,131 representing
reimbursement of disability insurance premiums paid by the Company for the
benefit of the Named Executive and $11,939 in life insurance premiums for
which the Named Executive is entitled to reimbursement by the Company.
(7) 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.
11
<PAGE>
(8) Represents $2,049 for the Company's contributions on behalf of the 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 the Named
Executive.
(9) Represents salary earned by the Named Executive pursuant to her Employment
Agreement, the payment of $68,063 of which has been deferred.
(10) Represents $10,700 of business management and accounting fees paid on
behalf of the Named Executive, $2,203 in automobile expenses and $4,300 of
business management and accounting fees, payment of which has been deferred
until a date to be agreed to by the Company and the Named Executive.
(11) Represents $2,267 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $15,100 in life
insurance premiums paid by the Company for the benefit of the Named
Executive and $18,906 in life insurance premiums which amount has been
deferred until a date to be agreed upon by the Company and the Named
Executive, $2,275 in disability insurance premiums paid by the Company for
the benefit of the Named Executive and $68,064 in interest and principal
payment of a life insurance note for which the Named Executive is entitled
to reimbursement by the Company.
(12) Represents $25,301 of business management and accounting fees paid on
behalf of the Named Executive by the Company and $1,883 in automobile
expenses.
(13) Represents $2,633 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $2,353 representing
reimbursement of disability insurance premiums paid by the Company for the
benefit of the Named Executive and $18,906 in life insurance premiums for
which the Named Executive is entitled to reimbursement by the Company.
(14) Represents $2,049 for the Company's contribution on behalf of the 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 the Named
Executive.
(15) Represents $3,077 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $5,135 for life
insurance premiums paid by the Company for the benefit of the Named
Executive and $2,463 for disability insurance premiums paid by the Company
for the benefit of the Named Executive.
(16) Represents $3,256 in contributions made by the Company on behalf of the
Named Executive pursuant to the Company's 401(k) Plan, $4,622 for life
insurance premiums paid by the Company for the benefit of the Named
Executive and $1,532 for disability insurance premiums paid by the Company
for the benefit of the Named Executive.
(17) Represents the Company's contributions on behalf of such Named Executive
pursuant to the Company's 401(k) Plan.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1998 December 31, 1998
on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name (#) ($) (#) ($)
- --------------------------- ------------- ------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Ellen Dinerman Little 0 0 500,000/600,000 0/0
Robert B. Little 0 0 500,000/600,000 0/0
William F. Lischak 0 0 0(2) 0
MJ Peckos 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, 1998.
Compensation Arrangements for Current Executive Officers
Ellen Dinerman Little and Robert B. Little. Ms. Little and Mr. Little
each have 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 are each entitled to receive fixed annual
compensation of $125,000 and to 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 of Ms. Little and Mr. Little
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 (i) a lump-sum
payment equal to 250% of the greater of (A) the aggregate of all fixed annual
compensation to which she or he would otherwise have been entitled through the
balance of the term or (B) an amount equal to the fixed annual compensation and
annual bonus for one full year; (ii) 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; (iii) 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; (iv) for the remainder of the term, life, disability and health
insurance and other benefits substantially similar to those received prior to
termination; and (v) automatic vesting of any stock options held. Such
termination of the relevant employment agreement would also constitute an event
13
<PAGE>
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.
Since May 1997, payment of salary to Ms. Little and Mr. Little pursuant
to the terms of their respective employment agreements has been deferred. For a
more detailed discussion of the terms of such deferral, see "Certain
Relationships and Related Transactions."
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
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.
MJ Peckos. MJ Peckos does not have a written employment agreement and
she currently receives an annual base salary of $150,000. She is entitled to the
same benefits that other employees generally receive.
Stock Option Plans
The Company has two stock-based incentive compensation plans (together,
the "Plans") for the Company's employees, directors and certain other persons
providing services to the Company: the 1996 Special Stock Option Plan and
14
<PAGE>
Agreement (the "Management Option Plan") and the 1996 Basic Stock Option and
Stock Appreciation Rights Plan (the "Basic Plan"). The Management Option Plan
primarily provides equity incentives to Ellen Dinerman Little and Robert B.
Little, the Company's Co-Chief Executive Officers. Under the Management Option
Plan, on October 31, 1996, each of Ms. Little and Mr. Little was granted two
non-qualified options for a total of 1,100,000 shares of Common Stock: one
option for 537,500 shares of Common Stock at an exercise price of $5.00 per
share (exercisable on October 31, 1996 for 100,000 shares with the balance
vesting in five equal annual installments beginning on October 30, 1997) and one
option for 562,500 shares at an exercise price of $8.50 per share (vesting in
five equal annual installments beginning on October 30, 1997). 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 September 30, 1999, options to purchase
an aggregate of 149,500 shares of Common Stock were outstanding under the Basic
Plan with exercise prices ranging from $1.875 to $5.25. The Plans are currently
administered by the Compensation Committee to the extent contemplated by the
respective Plans.
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 1998. Ellen Dinerman
Little and Robert B. Little became Co-Chief Executive Officers of the Company
upon consummation of the Merger in October 1996 and entered into five year
employment agreements with the Company at such time which, among other things,
govern the annual compensation paid to Ms. Little and Mr. Little (including the
compensation paid to them in 1998). The terms of such employment agreements were
negotiated between the Company and Ms. Little and Mr. Little, respectively,
prior to the Merger in 1996. In connection with the negotiation of such
employment agreements, the Company considered the advice and recommendations of
15
<PAGE>
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 (including the compensation paid to them
in 1998) is not based on any specific quantitative or qualitative criteria
relating to the Company's financial performance. The Management Option Plan
primarily provides 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 in 1996. 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 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.
In light of the Company's working capital requirements in 1998, Ms.
Little and Mr. Little agreed to defer payment to them of certain amounts
otherwise payable to them, including, among other things, an aggregate of
$125,000 in bonuses payable to them under their employment agreements and an
aggregate of approximately $123,600 in expenses for which they are entitled to
reimbursement under their employment agreements. As of September 30, 1999, such
bonuses have not been paid and such expenses have not been reimbursed.
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, Sony Pictures Entertainment, Inc.,
Twentieth Century Fox, Warner Brothers Inc. and MGM/UA) as well as numerous
independent motion picture and television production and distribution companies,
including Lion's Gate Entertainment Corp., Morgan Creek Productions, Inc., New
Regency Productions, Inc., Trimark Holdings, Inc. and USA Networks, Inc., 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.
16
<PAGE>
The compensation of both William F. Lischak, the Chief Operating
Officer, Chief Financial Officer, Secretary and a director, and MJ Peckos,
Senior Vice President, Domestic Distribution and Marketing, was established at
the time of the Merger and took into account the recommendation of Ms. Little
and Mr. Little. Mr. Lischak 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 (including the
compensation paid to him in 1998) were negotiated between the parties to the
Merger in 1996, 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.
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. Options (other than automatic grants to
non-employee directors under the plan) 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
17
<PAGE>
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.
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
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was established in October 1996
and currently consists of Messrs. Bannon and Vorse. Mr. Bannon was Chairman of
the Board of Directors of the Company during 1996 until consummation of the
Merger and currently serves as Vice Chairman of the Board of Directors and
Chairman of the Executive Committee. Mr. Vorse served as Vice President,
Treasurer and Secretary of the Company 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.
18
<PAGE>
Performance Graph
The graph below compares the cumulative total return on the Company's
Common Stock with the cumulative total return of (i) the Standard & Poor's
SmallCap 600 Index ("S&P Index"), (ii) the Russell 2000 Index and (iii) an
industry peer group composed of other companies in the motion picture industry:
The Kushner-Locke Company and Trimark Holdings, Inc. ("Peer Group"). The graph
assumes $100 was invested on February 17, 1995 (the date the Common Stock of the
Company 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 and the stocks comprising the Peer Group. The returns have
been calculated assuming reinvestment of dividends; the Company has not paid any
dividends.
Comparison of 46 Month Cumulative Total Return
Among Overseas Filmgroup, Inc., The S&P SmallCap 600 Index,
The Russell 2000 Index and a Peer Group
Company February December December December December
Name/Index 17, 1995 31, 1995 31, 1996 31, 1997 31, 1998
- ------------------------ -------- -------- -------- -------- ---------
S&P SmallCap 600 100 132 160 201 206
Russell 2000 100 130 152 186 184
Peer Group 100 77 61 66 105
Overseas Filmgroup 100 112 109 49 47
19
<PAGE>
Certain Relationships and Related Transactions
On October 31, 1996, as part of the consideration to them in the
Merger, 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 originally 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.
In May 1997, in order to address what the Company had anticipated was a
need for additional working capital availability, Ms. Little and Mr. Little
agreed to defer payments to them under the Merger Note. In April 1998, the
Company and the lenders under the credit facility amended the Company's credit
facility, as well as extended the date of the lender's annual review of the
facility and the expiration of their commitment to lend under the facility. As
part of the amendments to the Company's credit facility, Ms. Little and Mr.
Little agreed to continue deferral of payments under the Merger Note. During
1998, no principal and interest was paid to the Littles under the Merger Note
and an aggregate of $498,200 was deferred. Payments under the Merger Note accrue
but are being deferred with interest until outstanding borrowings under the
operating facility portion of the credit facility are reduced to at least
$5,000,000 and the Company and the lenders view such reduction as permanent (the
"Deferral Lapse Date"); provided, however, that, prior to the Deferral Lapse
Date, pursuant to the 1999 amendment to the credit facility, an amount equal to
the Littles' aggregate weekly salary can be paid to the Littles on a weekly
basis towards repayment of the Merger Note so long as the Littles defer such
weekly salary payments until the Deferral Lapse Date. The Littles' salary is
currently being deferred, without interest, and an amount equal to such weekly
salary is being applied towards the Merger Note (such amount was previously
applied to the Insurance Note described below). The Merger Note is being
extended for the period of time Merger Note payments are deferred, the deferred
payments will continue to bear interest, and the monthly payments will be
adjusted to compensate for additional interest accrued pursuant to the deferral
of payments. The rights of Ms. Little and Mr. Little under the Merger Note and
related security agreement are not otherwise affected. At September 30, 1999,
the aggregate amount outstanding (including accrued interest) under the Merger
Note was $2,067,022 (including an aggregate of $1,123,814 in previously deferred
payments of principal and interest).
As part of the April 1998 amendments to the Company's credit facility,
Ms. Little and Mr. Little also agreed to personally guarantee for the benefit of
the lenders under the credit facility all amounts in excess of $6,000,000 (up to
a maximum guarantee amount of $618,000) drawn under the operating facility
portion of the credit facility; provided that the guarantee will be extinguished
when the amounts outstanding under the operating facility are permanently
reduced to less than $6,000,000.
In connection with the Merger, on October 31, 1996, the Littles also
received an unsecured promissory note (the "Insurance Note") of the Company in
the principal amount of $137,061, bearing interest at the rate of 9% per annum.
The Insurance Note represented the cash value on such date of certain life
insurance policies, the ownership of which was transferred to the Company upon
the consummation of the Merger, and under which the Company was named
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as the beneficiary. During 1998, an aggregate of $99,480 in principal and
$36,649 in accrued interest was paid to the Littles under the note. During 1999,
an aggregate of $52,344 in principal and $545 in accrued interest was paid to
the Littles under the note, resulting in the full repayment of the note in
February 1999.
In connection with the Merger, the Company entered into a Tax
Reimbursement Agreement with Ellen Dinerman Little, Robert B. Little and William
F. Lischak, pursuant to which the Company agreed to (i) 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 and (ii) indemnify them for 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 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. During 1998, no payments were
made pursuant to the Tax Reimbursement Agreement, although the Company and the
Littles are discussing the amount due to the Littles under the provisions of the
Tax Reimbursement Agreement. The Company currently estimates $200,000 is payable
to the Littles.
In December 1997 and February 1998, Ms. Little and Mr. Little loaned
the Company an aggregate of $400,000 in order to provide a portion of the funds
required by Company for the print and advertising costs associated with the
domestic theatrical release by the Company of MRS. DALLOWAY. The loan is secured
by a security interest in domestic revenues from MRS. DALLOWAY (subordinate to
the security interest of the Company's commercial lenders), bears interest at
the rate of 9% per annum, and is to be repaid as and when revenues from MRS.
DALLOWAY and DIFFERENT FOR GIRLS are received by the Company (after repayment of
a Film Facility related to the acquisition of domestic rights to both DIFFERENT
FOR GIRLS and MRS. DALLOWAY and print and advertising costs lent by the lenders
with respect to DIFFERENT FOR GIRLS). At September 30, 1999, the aggregate
amount outstanding (including accrued interest) pursuant to such loan was
approximately $461,601.
Neo Motion Pictures, Inc., a California corporation ("Neo") involved in
the production of motion pictures, provided production services on a
non-exclusive basis 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 Company in the future. As permitted
by his employment agreement with the Company, Mr. Little performs consulting
services for Neo. During 1998, no consulting fees were paid by Neo to Mr.
Little, although, at September 30, 1999, Neo owed Mr. Little $269,121 in accrued
but unpaid consulting fees. In September 1996, Mr. Little and Neo entered into
an agreement pursuant to which Neo granted Mr. Little an option to acquire a 50%
interest in Neo for a purchase price of less than $60,000. Also in September
1996, Mr. Little and the Company entered into an agreement pursuant to which the
Company has the option to purchase 50% of the shares that Mr. Little receives
from Neo for the same price per share to be paid by Mr. Little. The Company has
guaranteed payment by Neo of a $324,000 principal amount promissory note payable
to a third party in September 2000 (extended originally from May 9, 1997), which
was paid in full on August 11, 1999.
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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 1998, sales or licenses of distribution rights to
such films by the Company generated less than $18,800 of gross revenues to the
Company.
Mr. Fracassi is also the President and owner of Racing Pictures, an
Italian corporation 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 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. In September 1996, the Company and Racing
Pictures agreed that $413,000 in then past due minimum guarantees owed by Racing
Pictures to the Company were to be paid to the Company, without interest, by
September 30, 1998, which was later extended to April 1, 2000. In 1998, $264,000
of such amount was paid by Racing Pictures to the Company, all with respect to
films for which the Company owns the copyright. Upon payment by Racing Pictures
of the remaining $149,000 of such minimum guarantees to the Company, the Company
would be entitled to retain approximately $17,800 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 1998, sales
or licenses of distribution rights to such films by the Company generated $6,400
in total revenues, of which, the Company retained less than $1,000 in fees.
Mr. Lischak and his spouse own BLAH, Inc. which, until March 1, 1998,
provided the production executive services of Mr. Lischak's spouse to the
Company in accordance with a Loan-Out Agreement dated as of March 11, 1996,
(the "Loan-Out Agreement"). Pursuant to the Loan-Out Agreement, BLAH, Inc.
received an aggregate of $24,657 in 1998.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of 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 year ended December 31,
1998, all Section 16(a) filing requirements applicable to the Company's
executive officers, directors and 10% Stockholders were complied with except the
Form 3 for Gary M. Stein, who became a director on September 3, 1998, was not
filed with the Commission until February 8, 1999.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP served as the Company's independent
certified public accountants for the year ended December 31, 1998. The Board has
selected PricewaterhouseCoopers LLP as the Company's independent certified
public accountants for the fiscal year ending December 31, 1999. A
representative of PricewaterhouseCoopers LLP is expected to be present at the
meeting with an opportunity to make a statement if the representative desires to
do so and is expected to be available to respond to appropriate questions from
stockholders.
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of
the Company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegraph using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the Common
Stock.
2000 ANNUAL MEETING STOCKHOLDER PROPOSALS
In order for any stockholder proposal to be presented at the Annual
Meeting of Stockholders to be held in 2000 or to be eligible for inclusion in
the Company's Proxy Statement for such meeting, it must be received by the
Company at its principal executive offices in Los Angeles, California, by June
13, 2000.
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OTHER MATTERS
The Board of Directors knows of no matter which will be presented for
consideration at the Annual Meeting other than the matters referred to in this
Proxy Statement. Should any other matter properly come before the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their best judgment.
By Order of the Board of Directors
William F. Lischak
Chief Operating Officer, Chief Financial
Officer and Secretary
Los Angeles, California
October 13, 1999
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OVERSEAS FILMGROUP, INC. - PROXY
Solicited by the Board of Directors
for Annual Meeting to be held on October 28, 1999
P The undersigned Stockholder(s) of OVERSEAS FILMGROUP, INC., a Delaware
corporation ("Company"), hereby appoints William F. Lischak, as the agent,
attorney and proxy of the undersigned, to vote the shares standing in the
R name of the undersigned at the Annual Meeting of Stockholders of the
Company to be held on October 28, 1999 and at all adjournments thereof.
This proxy will be voted in accordance with the instructions given below.
O If no instructions are given, this proxy will be voted FOR all of the
following proposals.
X 1. Election of the following Directors: William F. Lischak, Alessandro
Fracassi and Gary M. Stein
Y |_| FOR |_| WITHHELD AUTHORITY
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write the nominee's name in the space provided)_______________
2. In his discretion, the proxy is authorized to vote upon such other
business as may come before the meeting or any adjournment thereof.
|_| I plan to attend the Annual Meeting.
Dated___________________________, 1999
_______________________________________
Signature
_______________________________________
Signature if held jointly
Please sign exactly as name appears above.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a corpora-
tion, please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
