SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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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 (S) 240.14a-11(c) or (S) 240.14a-12
BLOCKBUSTER INC.
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(Name of Registrant as Specified In Its Charter)
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
[BLOCKBUSTER LOGO]
April 12, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Blockbuster Inc. to be held at Blockbuster's corporate headquarters, 1201 Elm
Street, 21st Floor Assembly Room, Dallas, Texas, on Tuesday, May 21, 2002, at
10:00 a.m., Dallas time.
The attached Notice of Annual Meeting and Proxy Statement fully describe the
formal business to be transacted at the meeting, which includes (i) the
election of two Class III directors; and (ii) ratification of the appointment
of PricewaterhouseCoopers LLP as Blockbuster's independent accountants for
fiscal 2002. In addition, we will review with you the affairs and progress of
Blockbuster during the past fiscal year.
Directors and officers of Blockbuster will be present to help host the
meeting and to respond to any questions that our stockholders may have. I hope
you will be able to attend.
Blockbuster's Board of Directors believes that a favorable vote on each of
the matters to be considered at the meeting is in the best interests of
Blockbuster and its stockholders and unanimously recommends a vote "FOR" each
such matter. Accordingly, we urge you to review the accompanying material
carefully and to return the enclosed proxy promptly.
Please complete, sign, date and return the enclosed proxy without delay. If
you attend the meeting, you may vote in person even if you have previously
mailed a proxy.
I look forward to seeing you at the meeting.
Sincerely,
/s/ John Antioco
John F. Antioco
Chairman of the Board and
Chief Executive Officer
Blockbuster Inc. . Renaissance Tower . 1201 Elm Street . Dallas, TX 75270-2102
. Phone: (214) 854-3000
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 21, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Blockbuster Inc., a Delaware corporation, will be held at Blockbuster's
corporate headquarters, 1201 Elm Street, 21st Floor Assembly Room, Dallas,
Texas, on Tuesday, May 21, 2002, at 10:00 a.m., Dallas time, for the following
purposes:
(1) The election of two Class III directors for terms expiring in 2005;
(2) Ratification of the appointment of PricewaterhouseCoopers LLP as
Blockbuster's independent accountants for fiscal 2002; and
(3) The transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on March 26, 2002, has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the meeting
or any adjournment or adjournments thereof. For a period of at least ten days
prior to the meeting, a complete list of stockholders entitled to vote at the
meeting will be open to the examination of any stockholder during ordinary
business hours at Blockbuster's corporate headquarters located at 1201 Elm
Street, Dallas, Texas 75270.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM.
By Order of the Board of Directors,
/s/ Edward B. Stead
Edward B. Stead
Executive Vice President,
General Counsel and Secretary
Dallas, Texas
April 12, 2002
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 21, 2002
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Blockbuster Inc. for use at the Annual
Meeting of Stockholders of the Company to be held at the Company's corporate
headquarters, 1201 Elm Street, 21st Floor Assembly Room, Dallas, Texas, on
Tuesday, May 21, 2002, at 10:00 a.m., Dallas time, or at such other time and
place to which the meeting may be adjourned. The approximate date on which this
Proxy Statement and accompanying proxy are first being sent or given to
stockholders is April 12, 2002. Blockbuster Inc. will be referred to as
"Blockbuster" or the "Company" in this Proxy Statement.
All shares represented by valid proxies, unless the stockholder specifies
otherwise, will be voted (i) FOR the election of the two persons named under
"Proposal I--Election of Directors" as nominees for election as Class III
directors; and (ii) FOR the proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal
2002. The Board of Directors knows of no other business to be presented at the
meeting. If any other business is properly presented, the persons named in the
enclosed proxy have authority to vote on such matters in accordance with such
persons' discretion. Where a stockholder has appropriately specified how a
proxy is to be voted, it will be voted accordingly.
A stockholder executing a proxy retains the right to revoke it at any time
prior to exercise at the meeting. A proxy may be revoked by delivery of written
notice of revocation to the Secretary of the Company, by execution and delivery
of a later proxy, or by voting the shares in person at the meeting.
VOTING SECURITIES AND RECORD DATE
The Company has two classes of common stock outstanding: Class A Common
Stock, which is entitled to one vote per share, and Class B Common Stock, which
is entitled to five votes per share. The holders of Class A Common Stock and
Class B Common Stock vote together as a single class on the matters to be
considered at the meeting, and their votes are counted and totaled together.
Viacom International Inc., a subsidiary of Viacom Inc., currently holds all of
the outstanding shares of the Company's Class B Common Stock, or approximately
95% of the combined voting power of the Company. As a result, Viacom
International Inc. is able, acting alone, to approve the proposals submitted
for approval at the meeting. Viacom International Inc. has advised the Company
that it intends to vote all of its shares of Class B Common Stock in favor of
the election of the two nominated directors and ratification of the appointment
of PricewaterhouseCoopers LLP.
The record date for determining the stockholders entitled to notice of and
to vote at the meeting and any adjournments thereof was the close of business
on March 26, 2002, at which time the Company had issued and outstanding
34,037,802 shares of Class A Common Stock and 144,000,000 shares of Class B
Common Stock.
QUORUM AND VOTING
The presence at the meeting, in person or by proxy, of the stockholders of
record entitled to cast at least a majority of the votes that all stockholders
are entitled to cast is necessary to constitute a quorum. Each vote represented
at the meeting in person or by proxy will be counted toward a quorum. If a
quorum should not be present, the meeting may be adjourned from time to time
until a quorum is obtained.
Brokers holding shares of record for a customer have the discretionary
authority to vote on some matters if they do not receive timely instructions
from the customer regarding how the customer wants the shares voted. There are
also some matters with respect to which brokers do not have discretionary
authority to vote if they do not receive timely instructions from the customer.
When a broker does not have discretion to vote on a particular matter and the
customer has not given timely instructions on how the broker should vote, what
is referred to as a "broker non-vote" results. Any broker non-vote will be
counted as present at the meeting for purposes of determining a quorum, but
will be treated as not entitled to vote with respect to that matter. Therefore,
a broker non-vote will not count as a vote in favor of or against a particular
matter and, accordingly, will not affect the outcome of the vote. Brokers will
have discretionary authority to vote on Proposals I and II in the absence of
timely instructions from their customers. As a result, there should not be any
broker non-votes in connection with the meeting.
Proposal I. To be elected, each nominee for election as a Class III
director must receive the affirmative vote of a plurality of the votes of the
shares of Common Stock present or represented at the meeting and entitled to
vote on such proposal. Votes may be cast in favor of or withheld with respect
to each nominee. Votes that are withheld will be counted toward a quorum, but
will be excluded entirely from the tabulation of votes for such proposal and,
therefore, will not affect the outcome of the vote on such proposal.
Proposal II. Approval of the ratification of PricewaterhouseCoopers LLP as
the Company's independent accountants requires the affirmative vote of the
holders of a majority of the votes of the Common Stock present or represented
at the meeting and entitled to vote on such proposal. Abstentions may be
specified on this proposal and will have the same effect as a vote against such
proposal.
2
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides for
a Board of Directors divided into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year at the
Company's Annual Meeting of Stockholders. Each class of directors is elected
for a term of three years, except in the case of elections to fill vacancies or
newly created directorships.
There are two Class III directors to be elected for terms expiring at the
Company's Annual Meeting of Stockholders in 2005 or until their successors have
been elected and qualified. It is intended that the names of the nominees
indicated below will be placed in nomination and that the persons named in the
proxy will vote for their election. Each of the nominees has indicated his or
her willingness to serve as a member of the Board of Directors if elected;
however, in case either nominee shall become unavailable for election to the
Board of Directors for any reason not presently known or contemplated, the
proxy holders will have discretionary authority in that instance to vote the
proxy for a substitute. Proxies cannot be voted for more than two nominees.
Information concerning the two nominees proposed by the Board of Directors
for election as Class III directors, along with information concerning the
present Class I and Class II directors whose terms of office will continue
after the meeting, is set forth below.
The nominees for election as Class III directors are as follows:
Class III Nominees--Terms Expiring in 2005
Name Age Current Position
---- --- ----------------
John F. Antioco....... 52 Chairman of the Board and
Chief Executive Officer
Linda Griego.......... 54 Director
The present directors whose terms will expire after 2002 are as follows:
Class I Directors--Terms Expiring in 2003
Name Age Current Position
---- --- ----------------
Philippe P. Dauman.... 48 Director
Richard J. Bressler... 44 Director
Class II Directors--Terms Expiring in 2004
Name Age Current Position
---- --- ----------------
Mel Karmazin.......... 58 Director
John L. Muething...... 80 Director
Sumner M. Redstone.... 78 Director
Set forth below is a description of the backgrounds of each of the directors
of the Company.
John F. Antioco has served as the Company's Chairman of the Board of
Directors and Chief Executive Officer since 1997 and served as its President
from 1997 until September 2001. From 1996 until 1997, Mr. Antioco served as
President and Chief Executive Officer for Taco Bell Corporation. Mr. Antioco
serves as Chairman of the Board of Directors of Main Street & Main Incorporated
and, through March 31, 2002, as a director for CSK Auto Corporation. Mr.
Antioco is also a member of the Board of Governors of the Boys & Girls Clubs of
America.
3
Richard J. Bressler was elected as a director of the Company in May 2001.
Mr. Bressler has served as Senior Executive Vice President and Chief Financial
Officer of Viacom Inc. since 2001. Prior to joining Viacom Inc., Mr. Bressler
served as Executive Vice President of AOL Time Warner Inc. and Chief Executive
Officer of AOL Time Warner Investments. Prior to that, Mr. Bressler served in
various capacities with Time Warner Inc., including Chairman and Chief
Executive Officer of Time Warner Digital Media. He also served as Executive
Vice President and Chief Financial Officer of Time Warner Inc. from 1995 until
1999. Mr. Bressler serves on the National Advisory Committee of JPMorgan Chase.
Philippe P. Dauman was elected as a director of the Company in January 1995.
Mr. Dauman has served as a director of Viacom Inc. since 1987 and has been
Co-Chairman and Chief Executive Officer of DND Capital Partners, L.L.C., a
private equity firm, since 2000. Mr. Dauman served as Deputy Chairman of Viacom
Inc. from 1996 until 2000 and as its Executive Vice President from 1994 until
2000. From 1993 until 1998, Mr. Dauman also served as General Counsel and
Secretary of Viacom Inc. Mr. Dauman is a director of Genuity Inc., Lafarge
Corporation and National Amusements, Inc.
Linda Griego was elected as a director of the Company in July 1999. Ms.
Griego has served as President of Zapgo Entertainment Group, LLC, a television
programming production company, since 1997 and is the Managing General Partner
of Engine Co. No. 28, a restaurant that she founded in 1988. From July 1999
until January 2000, Ms. Griego served as the interim President and Chief
Executive Officer of the Los Angeles Community Development Bank, a $430 million
federally funded community bank. From 1994 until 1997, Ms. Griego served as
President and Chief Executive Officer of Rebuild LA, Inc., an economic
development corporation. Ms. Griego is a director of Granite Construction
Incorporated and Southwest Water Company and also serves as a Los Angeles
director of the Federal Reserve Bank of San Francisco.
Mel Karmazin was elected as a director of the Company in May 2000. Mr.
Karmazin has served as a director and as President and Chief Operating Officer
of Viacom Inc. since 2000. From 1999 until 2000, Mr. Karmazin served as
President and Chief Executive Officer of CBS Corporation. Mr. Karmazin was
President and Chief Operating Officer of CBS Corporation from April 1998
through December 1998. Mr. Karmazin joined CBS Corporation in December 1996 as
Chairman and Chief Executive Officer of CBS Radio and served as Chairman and
Chief Executive Officer of the CBS Station Group (Radio and Television) from
1997 until 1998. Mr. Karmazin served as Chairman, President and Chief Executive
Officer of Infinity Broadcasting Corporation from December 1998 until its
public shares were acquired by Viacom Inc. Mr. Karmazin is Vice Chairman of the
Board of Trustees for The Museum of Television and Radio and serves on the
Board of Directors of the New York Stock Exchange, Inc. and Westwood One, Inc.
John L. Muething was elected as a director of the Company in July 1999. Mr.
Muething has been Of Counsel to the Cincinnati, Ohio law firm of Keating,
Muething & Klekamp since 1986. He also served as a director of Spelling
Entertainment Group Inc. from 1992 until 1999.
Sumner M. Redstone was elected as a director of the Company in May 1999. Mr.
Redstone has been a director of Viacom Inc. since 1986 and Chairman of the
Board of Viacom Inc. since 1987 and acquired the title of Chief Executive
Officer of Viacom Inc. in 1996. Mr. Redstone has served as Chairman of the
Board of National Amusements, Inc. since 1986 and as its Chief Executive
Officer since 1967. He also served as President of National Amusements, Inc.
from 1967 through 1999. Mr. Redstone is a member of the Advisory Council for
the Academy of Television Arts and Sciences Foundation and is on the Board of
Trustees for The Museum of Television and Radio. Mr. Redstone served as the
first Chairman of the Board of the National Association of Theatre Owners and
is currently a member of its Executive Committee. Since 1982, Mr. Redstone has
been a member of the faculty of Boston University Law School, where he has
lectured on entertainment law, and since 1994, he has been a Visiting Professor
at Brandeis University. He has also been a frequent lecturer at colleges,
including Harvard Law School. Mr. Redstone graduated from Harvard University in
1944 and received an LL.B. from Harvard University School of Law in 1947. Upon
graduation, Mr. Redstone served as Law Secretary with the U.S. Court of
Appeals, and then as a Special Assistant to the U.S. Attorney General.
The Board of Directors recommends a vote FOR the election of the nominees
for Class III Director named above.
4
MEETINGS OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of its Board of
Directors. The Board of Directors meets on a regularly scheduled basis during
its fiscal year to review significant developments affecting the Company and to
act on matters requiring Board approval. It also holds special meetings when an
important matter requires Board action between scheduled meetings. The Board of
Directors met seven times and acted by unanimous written consent three times
during the 2001 fiscal year. During the 2001 fiscal year, each member of the
Board of Directors participated in at least 75% of all Board and applicable
committee meetings held during the period for which he or she was a director.
The Board of Directors has established audit, senior executive compensation
and compensation committees to devote attention to specific subjects and to
assist it in the discharge of its responsibilities. The functions of these
committees, their current members and the number of meetings held during the
2001 fiscal year are described below.
Audit Committee. The functions of the Audit Committee include, among
others: (i) reviewing the scope and results of the Company's internal auditing
procedures; (ii) reviewing the adequacy and effectiveness of the Company's
system of internal accounting controls; (iii) determining the duties and
responsibilities of the Company's internal audit staff; (iv) reviewing with
management and the independent accountants the Company's quarterly and annual
financial statements prior to the Company's release of earnings, including any
transactions, estimates and judgments and the accounting and reporting
practices applied thereto; (v) reviewing the scope of the independent
accountants' annual audit, the audit procedures to be employed and the results
thereof; (vi) reviewing the audit reports submitted by both the independent
accountants and the internal audit staff; (vii) annually recommending
independent accountants; and (viii) approving the retention of the independent
accountants for any non-audit service and the fee for such service. The Board
of Directors has adopted a written charter for the Audit Committee, a copy of
which is attached to this Proxy Statement as Appendix A. Ms. Griego (Chairman),
Mr. Muething and Mr. Dauman are members of the Audit Committee. The Board of
Directors has determined that Ms. Griego and Mr. Muething are "independent," as
defined by the rules of the New York Stock Exchange. Mr. Dauman is not
"independent," as defined by such rules, due to his position as an executive
officer of Viacom Inc. until May 2000; however, the Board of Directors
determined in its business judgment that Mr. Dauman's membership on the Audit
Committee is required by the best interests of the Company and its stockholders
due to his extensive industry and business expertise. The Board of Directors
also determined in its business judgment that Mr. Dauman's former position as
an executive officer of Viacom Inc. does not interfere with his exercise of
independent judgment. Therefore, it appointed Mr. Dauman as a member of the
Audit Committee in May 2001 pursuant to the override provision of the New York
Stock Exchange rules. The Audit Committee met seven times during the 2001
fiscal year.
Senior Executive Compensation Committee. The functions of the Senior
Executive Compensation Committee include: (i) reviewing and approving the
Company's policies and practices relating to the compensation of senior
executive officers of the Company, including the forms of their employment
agreements and individual compensation recommendations for such officers; (ii)
approving the Company's incentive compensation, including annual bonus and
stock options plans, for such senior executive officers, subject to stockholder
approval where appropriate; and (iii) where designated by the Board of
Directors, approving any other benefit programs for such senior executive
officers, subject to stockholder approval where appropriate. Mr. Muething
(Chairman) and Ms. Griego are members of the Senior Executive Compensation
Committee. The Senior Executive Compensation Committee met five times during
the 2001 fiscal year.
Compensation Committee. Subject to the authority of the Board of Directors,
and except with respect to matters entrusted to the Company's Senior Executive
Compensation Committee, the functions of the Compensation Committee include:
(i) assisting management in defining and overseeing the Company's general
compensation practices; (ii) reviewing and approving the forms of employment
agreements for employees at the level of vice president and above; (iii)
approving the Company's incentive compensation plans, subject to
5
stockholder approval where appropriate; and (iv) overseeing certain of the
Company's other employee benefit programs. Messrs. Dauman (Chairman), Muething
and Redstone and Ms. Griego are members of the Compensation Committee. The
Compensation Committee met four times during the 2001 fiscal year.
The Board of Directors does not have a nominating committee because the
Board of Directors as a whole functions in this capacity.
6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number of
shares of Viacom Inc. and Blockbuster Class A and Class B Common Stock
beneficially owned by (i) the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers who were
serving as such on December 31, 2001 (based on salary and bonus earned during
fiscal 2001), who will be referred to in this Proxy Statement as the "named
executive officers"; (ii) each director and nominee for director of the
Company; and (iii) all directors and executive officers of the Company as a
group. The following table also sets forth information with respect to the
number of shares of Blockbuster Common Stock beneficially owned by each person
known by the Company to beneficially own more than five percent (5%) of the
outstanding shares of its Common Stock. Except as otherwise noted, (i) the
persons named in the table have sole voting and investment power with respect
to all shares beneficially owned by them, and (ii) ownership is as of Februrary
28, 2002.
Beneficial Ownership of Equity Securities
----------------------------------------------------------------------
Number of Number of Percent
Name Title of Equity Security Equity Shares Option Shares(1) of Class
---- -------------------------- ------------- ---------------- --------
John F. Antioco...... Viacom Class A Common -- -- *
Viacom Class B Common 10,112(2)(3) 574,980 *
Blockbuster Class A Common 116,965(3) 589,695 2.1%
Blockbuster Class B Common -- -- *
Richard J. Bressler.. Viacom Class A Common -- -- *
Viacom Class B Common -- 250,000 *
Blockbuster Class A Common -- -- *
Blockbuster Class B Common -- -- *
Philippe P. Dauman... Viacom Class A Common 2,121(4) -- *
Viacom Class B Common 17,561(4) 2,336,000 *
Blockbuster Class A Common 8,950(5) -- *
Blockbuster Class B Common -- -- *
Linda Griego......... Viacom Class A Common -- -- *
Viacom Class B Common -- -- *
Blockbuster Class A Common 4,121 6,600 *
Blockbuster Class B Common -- -- *
Mel Karmazin......... Viacom Class A Common -- -- *
Viacom Class B Common 3,975,324(4)(6) 6,016,767 *
Blockbuster Class A Common -- -- *
Blockbuster Class B Common -- -- *
John L. Muething..... Viacom Class A Common -- -- *
Viacom Class B Common -- -- *
Blockbuster Class A Common 7,621 7,000 *
Blockbuster Class B Common -- -- *
James Notarnicola.... Viacom Class A Common -- -- *
Viacom Class B Common 153(3) 11,666 *
Blockbuster Class A Common 167(3) -- *
Blockbuster Class B Common -- -- *
Sumner M. Redstone(7) Viacom Class A Common 93,658,988(8) -- 68.2%
Viacom Class B Common 104,334,988(8) 3,916,666 6.6%
Blockbuster Class A Common 144,000,000(9) -- 81.0%
Blockbuster Class B Common 144,000,000(9) -- 100.0%
7
Beneficial Ownership of Equity Securities
--------------------------------------------------------------------
Number of Number of Percent
Name Title of Equity Security Equity Shares Option Shares(1) of Class
---- -------------------------- ------------- ---------------- --------
Edward B. Stead...................... Viacom Class A Common -- -- *
Viacom Class B Common 255(3) 44,250 *
Blockbuster Class A Common 12,275(3) 154,600 *
Blockbuster Class B Common -- -- *
Nigel Travis......................... Viacom Class A Common 40 -- *
Viacom Class B Common 374 63,416 *
Blockbuster Class A Common -- 131,782 *
Blockbuster Class B Common -- -- *
Larry J. Zine........................ Viacom Class A Common -- -- *
Viacom Class B Common 2,017(3) 26,250 *
Blockbuster Class A Common 33,690(3) 193,666 *
Blockbuster Class B Common -- -- *
Viacom International Inc.(10)........ Blockbuster Class A Common 144,000,000(9) -- 81.0%
Blockbuster Class B Common 144,000,000(9) -- 100.0%
Viacom Inc.(10)
NAIRI, Inc.(11)
National Amusements, Inc.(11)
A I M Management Group Inc.(12)...... Blockbuster Class A Common 1,786,000(13) -- 5.3%
Husic Capital Management(14)......... Blockbuster Class A Common 1,857,600(15) -- 5.5%
Frank J. Husic & Co.(14)
Frank J. Husic(14)
Janus Capital Corporation(16)........ Blockbuster Class A Common 4,831,390(17) -- 14.3%
Thomas H. Bailey(16)
Janus Olympus Fund(16)
Morgan Stanley Dean Witter &
Co.(18)............................ Blockbuster Class A Common 3,515,158(19) -- 10.4%
Directors and executive officers as a
Group other than Mr. Redstone
(14 persons)....................... Viacom Class A Common 2,161(4) -- *
Viacom Class B Common 4,006,081(20) 9,382,993 *
Blockbuster Class A Common 185,360(21) 1,374,759 4.4%
Blockbuster Class B Common -- -- *
--------
* Less than 1%.
(1) This includes shares subject to options to purchase such shares that, on
February 28, 2002, were unexercised but were exercisable within a period of
60 days from that date. These shares are excluded from the column headed
"Number of Equity Shares."
(2) This includes 10,000 shares that are held jointly with Mr. Antioco's spouse.
(3) This includes shares held through Blockbuster's 401(k) plan as of December
31, 2001.
(4) This includes shares held through Viacom Inc.'s 401(k) plan as of December
31, 2001.
(5) This includes 5,000 shares that are held by a 501(c)(3) family foundation
of which Mr. Dauman and his wife are trustees and share voting and
investment power.
(6) This includes (i) 2,175,338 shares as to which Mr. Karmazin has sole voting
power, but no investment power; (ii) 271,546 shares held by his spouse; and
(iii) 81,227 shares held by the Karmazin Foundation and 521,926 shares held
by the Karmazin Charitable Lead Annuity Trusts I and II, as to each of
which Mr. Karmazin disclaims beneficial ownership, except, in the case of
the Trusts, to the extent of his pecuniary interest.
(7) The address for Mr. Redstone is 200 Elm Street, Dedham, Massachusetts 02026.
8
(8) Except for 160 shares of each class of Viacom Common Stock owned directly
by Mr. Redstone, all shares are beneficially owned by National Amusements,
Inc. Mr. Redstone is the Chairman of the Board and the beneficial owner of
the controlling interest in National Amusements, Inc. and, accordingly,
beneficially owns all of such shares.
(9) This is based in part on a Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2000, which was jointly filed by
Viacom International Inc., Viacom Inc., NAIRI, Inc., National Amusements,
Inc. and Sumner M. Redstone. The shares of Class B Common Stock are
indirectly held by Viacom Inc. through its ownership of Viacom
International Inc. Approximately 68.2% of Viacom Inc.'s voting stock is
owned by NAIRI, Inc., which in turn is a wholly-owned subsidiary of
National Amusements, Inc. Beneficial ownership is attributed to Mr.
Redstone due to his beneficial ownership and control of National
Amusements, Inc., as disclosed in footnote (8) above, and NAIRI, Inc.
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, each share of the Company's Class B Common Stock is
convertible at the option of the holder thereof into one share of the
Company's Class A Common Stock. As a result, Viacom International Inc.,
Viacom Inc., NAIRI, Inc., National Amusements, Inc. and Mr. Redstone are
also deemed to beneficially own 144,000,000 shares of the Company's Class
A Common Stock.
(10) The address for Viacom Inc. and Viacom International Inc. is 1515
Broadway, New York, New York 10036.
(11) The address for NAIRI, Inc. and National Amusements, Inc. is 200 Elm
Street, Dedham, Massachusetts 02026.
(12) The address for A I M Management Group Inc. is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
(13) This is based in part on an amendment to Schedule 13G filed with the
Securities and Exchange Commission on March 8, 2002 by A I M Management
Group Inc. on behalf of itself and its wholly-owned subsidiaries A I M
Advisors, Inc. and A I M Capital Management, Inc.
(14) The address for Husic Capital Management, Frank J. Husic & Co. and Frank
J. Husic is 555 California Street, Suite 2900, San Francisco, California
94104.
(15) This is based in part on an amendment to Schedule 13G filed with the
Securities and Exchange Commission on March 16, 2001, which was jointly
filed by Husic Capital Management, Frank J. Husic & Co. and Frank J.
Husic. According to the Schedule 13G, the shares are indirectly held by
Frank J. Husic & Co. as the sole general partner of Husic Capital
Management and by Frank J. Husic as the sole stockholder of Frank J. Husic
& Co.
(16) The address for Janus Capital Corporation, Thomas H. Bailey and Janus
Olympus Fund is 100 Fillmore Street, Denver, Colorado 80206.
(17) This is based in part on a Schedule 13G filed with the Securities and
Exchange Commission on February 8, 2002, which was filed jointly by Janus
Capital Corporation, Thomas H. Bailey and Janus Olympus Fund. According to
the Schedule 13G, (i) Janus Capital Corporation may be deemed to
beneficially own all of the shares reported as a result of its role as
investment advisor to several investment companies registered under
Section 8 of the Investment Company Act of 1940 and individual and
institutional clients; (ii) Thomas H. Bailey may be deemed to beneficially
own such shares as a result of his position as Chairman, President and
Chief Executive Officer of Janus Capital Corporation, but disclaims
beneficial ownership of such shares; and (iii) the Janus Olympus Fund has
sole voting and dispositive power with respect to 1,732,075 shares.
(18) The address for Morgan Stanley Dean Witter & Co. is 1585 Broadway, New
York, New York 10036.
(19) This is based in part on an amendment to Schedule 13G filed with the
Securities and Exchange Commission on February 12, 2002. According to the
Schedule 13G, Morgan Stanley Dean Witter & Co. had shared voting power
with respect to 2,335,248 of such shares and shared dispositive power with
respect to all of such shares. On March 11, 2002, Morgan Stanley Dean
Witter & Co. filed a subsequent amendment to Schedule 13G to report
ownership of less than five percent of the Company's Class A Common Stock.
(20) This includes information disclosed in footnotes (2), (3), (4), (6) and
(8) above.
(21) This includes information disclosed in footnotes (3), (5) and (9) above.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of the named executive officers for each of the Company's last
three fiscal years.
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- --------------
Other
Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary($) Bonus ($)(1) ($)(2) Options (#)(3) ($)
--------------------------- ---- --------- ------------ ------------ -------------- ------------
John F. Antioco.............. 2001 1,455,000 2,500,000 69,178(4) 544,828 2,550(6)
Chairman of the Board 600,000(17)
and Chief Executive 2000 1,355,000 2,250,000 4,373(5) 545,455 2,550(6)
Officer 1999 1,257,692 5,000,000(7) -- 1,133,332 2,400(6)
James Notarnicola............ 2001 454,646 195,225 128(5) 100,000 14,677(8)
Executive Vice President 20,000(17)
and Chief Marketing 2000 436,800 202,113 -- 100,000 14,045(8)
Officer 1999 420,000 193,000 -- 495,000 8,900(8)
Edward B. Stead.............. 2001 449,615 245,725 1,235(5) 125,000 11,240(8)
Executive Vice President, 25,000(17)
General Counsel and 2000 407,308 205,276 1,154(5) 100,000 14,733(8)
Secretary 1999 375,000 250,000 -- 324,000 7,496(8)
Nigel Travis................. 2001 569,231 332,156 -- (9) 150,000 65,324(12)
President and Chief 25,000(17)
Operating Officer 2000 542,309 356,992 1,570(10) 125,000 151,810(12)
1999 450,058 226,000 67,912(11) 391,332 17,028(12)
Larry J. Zine................ 2001 489,288 284,856 204,801(13) 125,000 19,701(8)
Executive Vice President, 25,000(17)
Chief Financial Officer 2000 470,250 305,978 258,156(14) 100,000 6,801(8)
and Chief Administrative 1999 326,250 855,000(15) 215,899(16) 421,666 --
Officer 40,000(17)
--------
(1) This reflects bonuses earned during fiscal 2001, 2000 and 1999,
respectively. In some instances, all or a portion of the bonus was paid
during the next fiscal year.
(2) In accordance with the rules of the Securities and Exchange Commission,
perquisites totaling less than $50,000 have been omitted.
(3) Except where noted otherwise, this reflects options to acquire shares of
Blockbuster Class A Common Stock.
(4) This includes (i) $51,781 for personal use of the Company's plane; (ii)
$1,215 of reimbursement for taxes; and (iii) other executive perquisites,
none of which exeeds 25% of the total perquisites reported as other annual
compensation.
(5) This consists of reimbursement for taxes.
(6) This consists of employer matching contributions to the Company's 401(k)
plan.
(7) Of this amount, $3.0 million represents installments on Mr. Antioco's
sign-on bonus.
(8) This consists of employer matching contributions to the Company's 401(k)
and excess 401(k) plans.
(9) This does not reflect an estimated $112,901 in reimbursement for taxes that
had accrued, but had not been paid, as of December 31, 2001 for Mr. Travis'
benefit in connection with employer contributions under Blockbuster's U.K.
supplemental defined contribution plan, based on an average conversion rate
for 2001 of 1.440368 U.S. dollars to 1.00 British pound. The accrued amount
includes the amounts accrued as of the end of 2000 and 1999, as disclosed
in footnotes (10) and (11).
10
(10) This consists of reimbursement for taxes. This number does not reflect an
estimated $86,461 in reimbursement for taxes that had accrued, but had not
been paid, as of December 31, 2000 for Mr. Travis' benefit in connection
with employer contributions under Blockbuster's U.K. supplemental defined
contribution plan, based on an average conversion rate for 2000 of 1.51275
U.S. dollars to 1.00 British pound. The accrued amount includes the amount
accrued as of the end of 1999, as disclosed in footnote (11).
(11) This consists of reimbursement for taxes. A portion of the payments during
1999 were made in British pounds. Such payments have been converted to
U.S. dollars using an average conversion rate for 1999 of 1.61880 U.S.
dollars to 1.00 British pound. This number does not reflect an estimated
$59,614 in reimbursement for taxes that had accrued, but had not been
paid, as of December 31, 1999 for Mr. Travis' benefit in connection with
employer contributions under Blockbuster's U.K. supplemental defined
contribution plan, based on the average conversion rate for 1999.
(12) This consists of employer contributions to Blockbuster's U.K. defined
contribution and supplemental defined contribution plans, but does not
include amounts accrued but not contributed to Mr. Travis' account during
1999, 2000 and 2001, as applicable. The amount disclosed for 2001 reflects
a conversion from British pounds to U.S. dollars at an average conversion
rate for 2001 of 1.440368. The amount disclosed for 2000 reflects a
conversion from British pounds to U.S. dollars at an average conversion
rate for 2000 of 1.51275 and includes approximately $84,970 that had
accrued, but had not been paid, during prior years. The amount disclosed
for 1999 reflects a conversion from British pounds to U.S. dollars at an
average conversion rate for 1999 of 1.61880. As of December 31, 2001,
based on the average conversion rate for 2001, employer contributions of
approximately $3,907 had accrued for Mr. Travis' benefit, but had not yet
been paid in.
(13) This includes (i) $103,670 of forgiveness of principal and interest on the
Company's loan to Mr. Zine relating to income taxes payable in connection
with his sign-on bonus; and (ii) $87,194 of reimbursements for taxes,
including reimbursements made in connection with the forgiveness of
principal and interest on his loan, as discussed further under "Certain
Relationships and Related Transactions--Other Related Party Transactions."
This also includes other executive perquisites, none of which exceeds 25%
of the total perquisites reported as other annual compensation.
(14) This includes (i) $65,918 of forgiveness of principal and interest on the
Company's loan to Mr. Zine relating to income taxes payable in connection
with his sign-on bonus; and (ii) $89,448 of reimbursements for taxes,
including reimbursements made in connection with the forgiveness of
principal and interest on his loan, as discussed further under "Certain
Relationships and Related Transactions--Other Related Party Transactions."
This also includes $86,854 relating to relocation expenses and other
executive perquisites, none of which exceeds 25% of the total perquisites
reported as other annual compensation.
(15) Of this amount, $600,000 represents Mr. Zine's sign-on bonus.
(16) This includes (i) $143,814 relating to relocation expenses; (ii) $60,035
of reimbursement for taxes; and (iii) other executive perquisites, none of
which exceeds 25% of the total perquisites reported as other annual
compensation.
(17) This reflects options to acquire shares of Viacom Inc. Class B Common
Stock.
11
Option Grants During 2001 Fiscal Year
The following table provides information related to options granted to the
named executive officers during fiscal 2001.
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for Option
Individual Grants Term
----------------------------------------------------------- -----------------------
% of Total
Number of Shares of Options Exercise
Common Stock Granted to or Base
Underlying Employees in Price
Options Granted(#)(1) Fiscal 2001 ($/Sh) Expiration Date 5%($) 10%($)
--------------------- ------------ -------- --------------- ---------- ----------
John F. Antioco.. 344,828(2) 6.54 17.40 July 24, 2011 3,773,372 9,562,466
200,000(3) 3.79 25.55 Dec. 12, 2011 3,213,652 8,144,024
600,000(3)(4) 2.63(6) 42.00 Dec. 13, 2011 15,716,204 39,952,217
James Notarnicola 100,000(2) 1.90 17.40 July 24, 2011 1,094,277 2,773,112
20,000(4)(5) 0.09(6) 55.20 Jan. 31, 2011 716,127 1,794,248
Edward B. Stead.. 125,000(2) 2.37 17.40 July 24, 2011 1,367,846 3,466,390
25,000(4)(5) 0.11(6) 55.20 Jan. 31, 2011 895,159 2,242,810
Nigel Travis..... 150,000(2) 2.84 17.40 July 24, 2011 1,641,415 4,159,668
25,000(4)(5) 0.11(6) 55.20 Jan. 31, 2011 895,159 2,242,810
Larry J. Zine.... 125,000(2) 2.37 17.40 July 24, 2011 1,367,846 3,466,390
25,000(4)(5) 0.11(6) 55.20 Jan. 31, 2011 895,159 2,242,810
--------
(1) Except where noted otherwise, this reflects options to acquire shares of
Blockbuster Class A Common Stock.
(2) The options become exercisable with respect to 25% of the shares covered
thereby on each of July 24, 2002, 2003, 2004 and 2005.
(3) The options become exercisable with respect to 25% of the shares covered
thereby on each of January 1, 2003, 2004, 2005 and 2006.
(4) This reflects options to acquire shares of Viacom Inc. Class B Common Stock.
(5) The options become exercisable with respect to 25% of the shares covered
thereby on each of January 31, 2002, 2003, 2004 and 2005.
(6) This reflects the percentage of total options granted to all Viacom Inc.
and Blockbuster employees. The percentage of total options granted to all
Blockbuster employees was 79.47% for Mr. Antioco, 3.31% for each of Messrs.
Stead, Travis and Zine and 2.65% for Mr. Notarnicola.
12
Aggregated Option Exercises During 2001 Fiscal Year and Fiscal Year-End Option
Values
The following table provides information related to options exercised by the
named executive officers during the 2001 fiscal year and the number and value
of options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights.
Number of Securities Value of Unexercised
Underlying In-the-Money
Shares Unexercised Options as of Options as of
Acquired December 31, 2001 December 31, 2001($)
on Exercise Value ------------------------ -------------------------
Name (#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
John F. Antioco.. 42,000 1,534,449 693,280(2) 790,440(2) 18,031,692(2) 5,791,666(2)
-- -- 589,695(3) 1,633,920(3) 6,560,341(3) 15,434,765(3)
James Notarnicola 30,000 1,113,618 6,666(2) 43,334(2) 90,574(2) 623,301(2)
-- -- 223,000(3) 472,000(3) 2,374,600(3) 4,874,400(3)
Edward B. Stead.. -- -- 38,000(2) 50,000(2) 1,091,075(2) 717,813(2)
-- -- 154,600(3) 394,400(3) 1,676,920(3) 4,022,880(3)
Nigel Travis..... -- -- 57,166(2) 48,334(2) 1,539,649(2) 624,863(2)
-- -- 187,782(3) 478,550(3) 2,040,376(3) 4,896,210(3)
Larry J. Zine.... -- -- 10,000(2) 55,000(2) 14,625(2) 43,875(2)
-- -- 193,666(3) 453,000(3) 2,075,393(3) 4,620,600(3)
--------
(1) All such shares acquired on exercise represent shares of Viacom Inc. Class
B Common Stock.
(2) Represents securities underlying options to purchase Viacom Inc. Class B
Common Stock.
(3) Represents securities underlying options to purchase Blockbuster Class A
Common Stock.
Compensation of Directors
Directors who do not serve as officers or employees of Viacom Inc. or
Blockbuster are entitled to receive an annual retainer fee of $40,000 for
membership on Blockbuster's Board of Directors. Of this amount, $20,000 is paid
in the Company's Class A Common Stock that is non-transferable for one year
after it is paid. The other $20,000 is paid in cash. These directors are also
entitled to a per meeting attendance fee of $1,000 for each Board meeting
attended and $1,000 for each meeting of the Audit Committee, Compensation
Committee and Senior Executive Compensation Committee attended if such meeting
is held on a different day from the day of a Board meeting and the committee
member has to travel to participate in the committee meeting. Only one fee will
be paid for attendance at more than one committee meeting held on the same day.
Pension Plans
Defined Benefit Pension Plan. Through December 31, 1999, the Company
participated in a non-contributory qualified defined benefit pension plan and,
for some of the Company's highly compensated employees, a non-qualified excess
defined benefit pension plan. Both plans are sponsored by Viacom Inc. The
Company's employees became eligible to participate in these plans effective
January 1, 1996, with credit for past service on and after September 29, 1994
for eligibility and vesting purposes. An eligible employee will receive a
benefit at retirement that is based upon the employee's number of years of
benefit service and average annual compensation, including salary and bonus,
for the highest 60 consecutive months out of the final 120 months immediately
preceding retirement. Under the terms of the excess pension plan, such
compensation is limited to the greater of base salary as of December 31, 1995
or $750,000. The benefits under Viacom's excess pension plan are not subject to
the provisions of the Internal Revenue Code of 1986, as amended, that limit the
compensation used to determine benefits and the amount of annual benefits
payable under Viacom's qualified pension plans. The Company's employees ceased
to participate in Viacom's pension plans at December 31, 1999. Viacom retained
the accrued liability for benefits under these plans for the Company's
employees. All of the Company's employees who were actively employed by the
Company and participating in the qualified defined benefit pension plan or the
excess defined benefit pension plan on December 31, 1999 were fully vested in
their accrued benefits in these plans on that date.
13
The following table illustrates, for representative average annual
pensionable compensation and years of benefit service classifications, the
annual retirement benefit that would be payable to employees under both the
non-contributory defined benefit pension plan and the excess pension plan if
they retired in 2001 at age 65, based on the straight-life annuity form of
benefit payment and not subject to deduction or offset.
Pension Plan Table
Remuneration Years of Service
------------ -----------------------------------
15 20 25 30
-------- -------- -------- --------
$150,000.. $ 36,584 $ 48,779 $ 60,974 $ 73,168
300,000.. 75,959 101,279 126,599 151,918
450,000.. 115,334 153,779 192,224 230,668
600,000.. 154,709 206,279 257,849 309,418
750,000.. 194,084 258,779 323,474 388,168
Mr. Antioco and Mr. Notarnicola had been credited with 1 1/2 years of
benefit service as of December 31, 1999, and Mr. Stead had been credited with 1
1/4 years. Mr. Travis and Mr. Zine are not participants in the Viacom pension
plan or excess pension plan.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Mr. Antioco's employment agreement with the Company provides that he will be
employed as Chairman and Chief Executive Officer of Blockbuster until December
31, 2006 at an annual salary of $1,000,000. Mr. Antioco's employment agreement
also provides for deferred compensation for the calendar years 2000 through
2006 in the amount of $355,000, $455,000, $600,000, $750,000, $900,000,
$1,050,000, and $1,200,000, respectively. The deferred compensation will be
payable the year after he ceases to be an executive officer of Blockbuster. Mr.
Antioco is eligible to receive an annual bonus pursuant to the Company's Senior
Executive Short-Term Incentive Plan. His target bonus was set at 125% of his
base salary and deferred compensation for calendar years 1999 through 2001 and
increased to 150% of his base salary and deferred compensation for the calendar
years 2002 through 2006. Mr. Antioco's bonus is payable upon satisfaction of
performance objectives determined each year in accordance with the Senior
Executive Short-Term Incentive Plan. In accordance with his employment
agreement, (i) upon the completion of the Company's initial public offering,
Mr. Antioco received options to purchase one million shares of the Company's
Class A Common Stock at a price per share of $15.00; (ii) in 2000, Mr. Antioco
received options to purchase 545,455 shares of the Company's Class A Common
Stock at a price per share of $11.00; and (iii) in 2001, Mr. Antioco received
options to purchase 344,828 shares of the Company's Class A Common Stock at a
price per share of $17.40. These options vest at a rate of 20% per year for the
initial grant and 25% per year for the two subsequent grants, beginning on the
first anniversary of the date of grant. Mr. Antioco's employment agreement
provides for additional grants of options to purchase an aggregate of 800,000
shares of the Company's Class A Common Stock, to be awarded in increments of
200,000 shares. Mr. Antioco received the first and second grants on December
12, 2001 and March 12, 2002 at a price per share of $25.55 and $24.07,
respectively. The remaining two grants are to be awarded on June 12, 2002 and
September 12, 2002. Each of such grants will vest at a rate of 25% per year
beginning on January 1, 2003. Mr. Antioco also received options to purchase
600,000 shares of Viacom Inc. Class B Common Stock on December 13, 2001 at a
price per share of $42.00 in accordance with his employment agreement. These
options vest at a rate of 25% per year beginning on January 1, 2003. In the
event of the termination of Mr. Antioco's employment without cause or his
voluntary termination for good reason (as defined in his employment agreement)
during the employment term, he will be entitled to receive his salary, target
bonus, deferred compensation and agreed-upon benefits for the balance of the
employment term, subject to mitigation after the earlier of: (i) the first
twenty-four months, or (ii) the last day of the employment term. In addition,
his stock options, including options that would have been granted or that have
not vested by the date of termination, will be exercisable for at least six
months after the date of termination, but not beyond the expiration date of
such stock options. Mr. Antioco's employment agreement with Blockbuster
Entertainment Group, a
14
business unit of Viacom Inc., continues to apply with respect to his options to
purchase Viacom Class B Common Stock. The agreement provides that, in the event
of the termination of Mr. Antioco's employment without cause or his voluntary
termination for good reason (as defined in the agreement) during the employment
term, his Viacom stock options, including options that have not vested on or
prior to such date, will be exercisable for at least six months after the date
of termination, but not beyond the expiration date of such stock options.
The Company's employment agreements with each of Messrs. Notarnicola, Stead,
Travis and Zine are substantially similar. Each of these agreements provides
for automatic renewal on March 1 of each year for a term of three years unless
terminated by Blockbuster for any reason. Mr. Notarnicola's and Mr. Stead's
agreements provide that they will be employed at a monthly salary of $35,000
and $31,250, respectively. Mr. Travis' agreement provides that he will be
employed at a monthly salary of $45,833. In addition, pursuant to an addendum
to Mr. Travis' employment agreement, Mr. Travis receives additional perquisites
relating to his international assignment. Mr. Zine's employment agreement with
the Company provides that he will be employed at a monthly salary of $37,500.
Each of these agreements provides that the executive will be eligible to
receive an annual bonus pursuant to the Senior Executive Short-Term Incentive
Plan at a target amount of 50% of the executive's Salary, as defined by such
plan. Bonuses are payable upon satisfaction of performance objectives
determined each year in accordance with such plan. The executives' salary and
bonus target amounts are subject to increase pursuant to the authority of the
Senior Executive Compensation Committee to make individual compensation
recommendations for such officers, as discussed above under "Meetings of
Directors and Committees--Senior Executive Compensation Committee." In the
event of the termination of an executive's employment without cause during the
employment term, he will be entitled to receive his salary for 36 months after
the date of termination, subject to mitigation after the first twelve months.
In addition, he will be entitled to receive bonus compensation and certain
benefits for the balance of the employment term, subject to mitigation after
the first twelve months, and his Blockbuster stock options, including options
that would have vested during the employment term, will be exercisable for six
months after the date of termination, but not beyond the original expiration
date of such stock options. The employment agreement entered into between Mr.
Travis and Blockbuster Entertainment Group, a business unit of Viacom Inc.,
continues to apply with respect to his options to purchase Viacom Class B
Common Stock. Such agreement provides that, in the event of the termination of
Mr. Travis' employment without cause or his voluntary termination for good
reason (as defined in the agreement) during the employment term, his Viacom
stock options, including options that would have vested during the employment
term, will be exercisable for six months after the date of termination, but not
beyond the original expiration date of such stock options.
The Company has also made a loan to Mr. Zine with respect to income taxes
payable in connection with his sign-on bonus, as discussed under "Certain
Relationships and Related Transactions--Other Related Party Transactions."
15
Report of the Senior Executive Compensation Committee on Executive Compensation
General
The Senior Executive Compensation Committee of the Board of Directors was
appointed in July 1999 in connection with the Company's initial public
offering. Prior to such time, Viacom Inc.'s compensation committee determined
the compensation for the Company's executive officers. Subject to existing
contractual obligations, since the date of its appointment, the Senior
Executive Compensation Committee has reviewed and approved the compensation for
the Company's executive officers. All members of this committee are
non-employee directors.
Compensation Philosophy
The objectives of the executive compensation package for the Company's
executive officers include:
. setting levels of annual salary and bonus compensation that will attract
and retain superior executives in the highly competitive environment of
the Company's business;
. providing annual bonus compensation for executive officers that varies
with the Company's financial performance;
. providing long-term compensation that is tied to the Company's stock price
so as to focus the attention of the Company's executive officers on
managing the Company from the perspective of an owner with an equity
stake; and
. emphasizing performance-based compensation through annual bonus
compensation and long-term compensation.
The Senior Executive Compensation Committee evaluates the competitiveness of
its executive compensation packages based on information from a variety of
sources, including information obtained by management from consultants and
information obtained from the Company's own experience.
Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally limits to $1,000,000
the federal tax deductibility of compensation (including stock options) paid to
a named executive officer. Section 162(m) of the Internal Revenue Code provides
an exception to such limitation for certain performance-based compensation, and
it is the intent of the Senior Executive Compensation Committee to qualify
executive compensation for such exception to the extent necessary, feasible and
in the best interests of the Company. Certain compensation under the Company's
1999 Long-Term Management Incentive Plan and Senior Executive Short-Term
Incentive Plan is intended to qualify for such exception. Section 162(m) of the
Internal Revenue Code also includes an exception to the $1,000,000 deduction
limitation for deferred compensation paid to an executive officer when such
executive officer is no longer subject to Section 162(m).
Chief Executive Officer's Fiscal 2001 Compensation
Mr. Antioco's fiscal 2001 salary was determined pursuant to the terms of Mr.
Antioco's employment agreement, which provided for a base salary of $1,000,000
in 2001. Mr. Antioco's fiscal 2001 compensation also included $455,000 of
deferred salary in order to address Section 162(m) of the Internal Revenue
Code. In addition, Mr. Antioco's employment agreement provides for his annual
eligibility for a bonus pursuant to the terms of the Senior Executive
Short-Term Incentive Plan. In accordance with the terms of such plan, the
Senior Executive Compensation Committee established performance criteria for
the Company for fiscal 2001, the achievement of which would permit Mr. Antioco
to receive a bonus of up to eight times his base salary and deferred
compensation. Mr. Antioco received a $2,500,000 bonus for fiscal 2001 based on
the Senior Executive Compensation Committee's determination that the
established performance criteria had been achieved. The
16
Senior Executive Compensation Committee believes that Mr. Antioco's pioneering
of a series of innovative changes in the Company's business was key to the
Company's superior operating results during 2001 and, ultimately, achievement
of the established performance criteria. Pursuant to his employment agreement,
during 2001, Mr. Antioco also received two grants of options to purchase an
aggregate of 544,828 shares of the Company's Class A Common Stock, as well as a
grant of options to purchase 600,000 shares of Viacom Inc.'s Class B Common
Stock.
Compensation of Other Executive Officers
Fiscal 2001 compensation for the Company's other executive officers was
comprised of base salary, annual bonus compensation and long-term compensation
in the form of stock options.
Salary and Bonus. Fiscal 2001 salary levels for executive officers were
designed to be consistent with competitive practice and level of responsibility
within the Company and were based on recommendations from the Chief Executive
Officer. Fiscal 2001 bonuses for the Company's executive officers were provided
under the Senior Executive Short-Term Incentive Plan based on the same
performance criteria as was the bonus for the Chief Executive Officer.
Long-Term Compensation. The Senior Executive Compensation Committee
believes that the use of equity-based long-term compensation plans
appropriately links executive interests to enhancing stockholder value. The
Senior Executive Compensation Committee granted options to all of the Company's
executive officers in July 2001. The size of the grant to each executive was
within the range assigned to the executive's relative level of responsibility.
In determining the amounts awarded, the Senior Executive Compensation Committee
considered recommendations from management based on market assessments provided
by outside consulting firms and relative responsibilities and performance of
each executive.
The Senior Executive Compensation
Committee
Linda Griego
John L. Muething
17
Audit Committee Report
The Audit Committee assists the Board of Directors in overseeing and
monitoring the Company's financial reporting practices. As part of this
process, the Audit Committee has reviewed and discussed the Company's audited
consolidated financial statements with management. In addition, the Audit
Committee has discussed with PricewaterhouseCoopers LLP, the Company's
independent accountants, the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as modified by
Statement on Auditing Standards No. 90 (Audit Committee Communications). The
Audit Committee has also received the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees) and has discussed with
PricewaterhouseCoopers LLP that firm's independence from the Company.
Based on the Audit Committee's review and discussions referred to above, the
Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2001.
The Audit Committee
Linda Griego
John L. Muething
Philippe P. Dauman
Audit and Non-Audit Fees
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements
for the fiscal year ended December 31, 2001 and for the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for that fiscal year were $734,000.
Financial Information Systems Design and Implementation Fees
During the fiscal year ended December 31, 2001, PricewaterhouseCoopers LLP
did not render any professional services to the Company relating to financial
information systems design and implementation.
All Other Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for services
rendered to the Company during the fiscal year ended December 31, 2001, other
than the services described above, were $7,007,000, as further detailed in the
following table.
Statutory audit fees...... $ 297,000
Tax fees.................. 1,211,000
Management consulting fees 5,454,000
Other..................... 45,000
----------
Total all other fees...... $7,007,000
==========
The Audit Committee has considered whether the provision of these services
is compatible with maintaining PricewaterhouseCoopers LLP's independence. In
March 2002, the Company's Board of Directors amended its Audit Committee
Charter to provide that the Audit Committee has the authority to approve the
retention of the Company's independent accountants for any non-audit service
and the fee for such service.
18
Comparative Performance Graph
The following chart compares the cumulative total stockholder return on the
Company's Class A Common Stock over the period from August 11, 1999 to December
31, 2001, with the cumulative total return during such period of the Standard &
Poor's 500 Stock Index ("S&P 500 Index") and the Media General Financial
Services Industry Group Index 743-Music & Video Stores ("MG Index"). The
comparison assumes $100 was invested on August 11, 1999 in the Company's Class
A Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
Comparison of Cumulative Total Return
of Blockbuster Inc., the S&P 500 Index and the MG Index
[CHART]
8/11/99 12/31/99 6/30/00 12/31/00 6/30/01 12/31/01
------- -------- ------- -------- ------- --------
BLOCKBUSTER INC. 100.00 89.32 64.92 56.36 123.14 170.32
------ ------ ------ ------ ------ ------
S&P 500 INDEX... 100.00 111.18 110.71 101.05 94.29 89.04
------ ------ ------ ------ ------ ------
MG INDEX........ 100.00 78.94 59.96 44.18 95.40 132.45
------ ------ ------ ------ ------ ------
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships Between the Company and Viacom Inc.
The Company and Viacom Inc. have entered into several agreements in
connection with the Company's initial public offering in August 1999 and a
then-contemplated split-off, each of which is discussed below.
Initial Public Offering Agreement
General. The Company has entered into an Initial Public Offering and
Split-Off Agreement with Viacom Inc., which will be referred to in this Proxy
Statement as the "IPO Agreement." The IPO Agreement governs the respective
rights and duties of the Company and Viacom with respect to certain offerings
of the Company's Common Stock and other securities, including a possible
split-off of the Company from Viacom or similar transaction. In addition, the
IPO Agreement sets forth certain covenants to which the Company has agreed for
various periods following its initial public offering and certain other
provisions that would be applicable in the event that Viacom were to determine
to split-off Blockbuster.
Offerings of the Company's Securities. The Company has agreed to cooperate
with Viacom in all respects to accomplish any primary offerings of the
Company's Common Stock and other securities while it is controlled by Viacom.
The Company has also agreed that, at Viacom's direction, it will promptly take
all actions necessary or desirable to effect the foregoing, including the
registration under the Securities Act of 1933, as amended, of shares of the
Company's capital stock that Viacom owns.
Expenses. Unless otherwise provided for in the IPO Agreement or any other
agreement, the Company has generally agreed to pay all costs and expenses
relating to any primary offerings of the Company's Common Stock and other
securities of the Company while controlled by Viacom.
Access to Information. Generally, the Company and Viacom have agreed to
provide each other with, upon written request and subject to specified
conditions, and for a specified period of time, access to information relating
to the assets, business and operations of the requesting party. The Company and
Viacom have agreed to keep their books and records for a specified period of
time. In addition, the Company and Viacom have agreed to cooperate with each
other to allow access to each other's employees, to the extent they are
necessary, to discuss and explain all requested information mentioned above and
with respect to any claims brought against the other relating to the conduct of
the Company's business while controlled by Viacom.
Covenants. The Company has agreed that, for so long as Viacom is required
to consolidate its results of operations and financial position, the Company
will:
(i) provide Viacom with financial information regarding the Company and
its subsidiaries;
(ii) provide Viacom with copies of all quarterly and annual financial
information and other reports and documents the Company intends to file with
the Securities and Exchange Commission prior to such filings, as well as
final copies upon filing, and to actively consult with Viacom with respect
to any changes made to these reports;
(iii) provide Viacom with copies of the Company's budgets and financial
projections, as well as the opportunity to meet with the Company's
management to discuss such budgets and projections;
(iv) consult with Viacom regarding the timing and content of earnings
releases and cooperate fully and cause the Company's accountants to
cooperate fully with Viacom in connection with any of the Company's public
filings;
(v) not change its auditors without Viacom's prior written consent, and
use its reasonable best efforts to enable its auditors to complete their
audit of the Company's financial statements such that they will date their
opinion the same date that they date their opinion on Viacom's financial
statements;
20
(vi) provide to Viacom and its auditors all information required for
Viacom to meet its schedule for the filing and distribution of Viacom's
financial statements;
(vii) make the Company's books and records available to Viacom and
Viacom's auditors, so that they may conduct reasonable audits relating to
the Company's financial statements;
(viii) adhere to specified accounting standards;
(ix) agree with Viacom on any changes to the Company's accounting
policies; and
(x) agree with Viacom regarding the Company's accounting estimates and
principles.
Other Covenants. The IPO Agreement also provides that for so long as Viacom
beneficially owns 50% or more of the outstanding shares of the Company's Common
Stock, the Company may not take any action or enter into any commitment or
agreement that may reasonably be anticipated to result, with or without notice
and with or without lapse of time, or otherwise, in a contravention, or an
event of default, by Viacom of:
(i) any provision of applicable law or regulation, including but not
limited to provisions pertaining to the Internal Revenue Code, or the
Employee Retirement Income Security Act of 1974, as amended;
(ii) any provision of Viacom's certificate of incorporation or bylaws;
(iii) any credit agreement or other material instrument binding upon
Viacom; or
(iv) any judgment, order or decree of any governmental body, agency or
court having jurisdiction over Viacom or any of its assets.
Assignment and Assumption. In October 1998, about 380 BLOCKBUSTER MUSIC(R)
stores were sold to Wherehouse Entertainment Inc. Some of the leases
transferred in connection with this sale had previously been guaranteed either
by Viacom or its affiliates. Under the IPO Agreement, Viacom International Inc.
has assigned to the Company its rights and obligations under the agreement
related to the sale of the BLOCKBUSTER MUSIC stores to Wherehouse. The Company
has agreed to accept this assignment. The Company estimates that, as of the
time of the sale, the Company was contingently liable for approximately $84
million, on an undiscounted basis, with respect to base rent for the remaining
initial terms of these leases if Wherehouse were to default on all of these
leases. The Company's contingent liability will vary over time depending on the
lease terms remaining. Certain leases may be extended beyond the initial term
and remain subject to the guarantee.
Options. The Company granted to Viacom International Inc. a continuing
option, assignable to Viacom Inc. and any of its subsidiaries, to purchase,
under specified circumstances, additional shares of the Company's Class B
Common Stock or any shares of the Company's nonvoting capital stock. These
options may be exercised immediately prior to the issuance of any of the
Company's equity securities, (i) with respect to shares of the Company's Class
B Common Stock, only to the extent necessary to maintain Viacom International
Inc.'s then-existing percentage of equity value and combined voting power of
the Company's two outstanding classes of Common Stock; and (ii) with respect to
shares of nonvoting capital stock, to the extent necessary to own 80% of each
outstanding class of such stock. The purchase price of the shares of the
Company's Class B Common Stock purchased upon any exercise of the options,
subject to specified exceptions, is based on the market price of the Company's
Class A Common Stock. The purchase price of nonvoting capital stock is the
price at which such stock may be purchased by third parties. This option
terminates when Viacom or its affiliates own less than 45% of the equity of the
Company.
Indemnification Procedures. The IPO Agreement sets forth the procedures
that the Company and Viacom Inc. are to undertake if either of them demand to
be indemnified by the other under any indemnification right given in any of the
agreements between the Company and Viacom, other than the Tax Matters Agreement
discussed below.
21
Release and Indemnification Agreement
The Company has entered into a Release and Indemnification Agreement with
Viacom Inc., which will be referred to in this Proxy Statement as the
"Indemnification Agreement," under which the Company and Viacom have agreed to
indemnify each other and to release each other with respect to certain matters.
Indemnification Relating to the Company's Assets, Businesses and
Operations. The Company agreed to indemnify and hold harmless Viacom and
certain of its affiliates and their respective officers, directors, employees,
agents, heirs, executors, successors and assigns against any payments, losses,
liabilities, damages, claims and expenses and costs arising out of or relating
to:
(i) the Company's past, present and future assets, businesses and
operations and other assets, businesses and operations managed by the
Company or persons previously associated with the Company, except for
assets, businesses and operations of Paramount Parks Inc., Spelling
Entertainment Group Inc. and its subsidiaries, including Republic
Entertainment Inc. and Worldvision Inc., Showtime Networks Inc., Virgin
Interactive Entertainment Limited and Virgin Interactive Entertainment Inc.;
and
(ii) payments, expenses and costs that Viacom paid to a third party
associated with the transfer of the Company's assets, businesses and
operations from certain Viacom entities to the Company and its subsidiaries.
Viacom similarly agreed to indemnify the Company and certain of its
affiliates, and the Company's and such affiliates' respective officers,
directors, employees, agents, heirs, executors, successors and assigns, for
Viacom's past, present and future assets, businesses and operations, except for
assets, businesses and operations for which the Company agreed to indemnify
Viacom. In addition, the Transition Services Agreement, the Registration Rights
Agreement and the Tax Matters Agreement discussed below provide for
indemnification between Viacom and the Company relating to the substance of
such agreements.
Indemnification Relating to the Company's Initial Public Offering and Other
Offerings. The Company generally agreed to indemnify Viacom and certain of
Viacom's affiliates against all liabilities arising out of any material untrue
statements and omissions in any prospectus and any related registration
statement filed with the Securities and Exchange Commission relating to the
Company's initial public offering or any other primary offering of the
Company's securities while controlled by Viacom. However, the Company's
indemnification of Viacom does not apply to information relating to Viacom,
excluding information relating to the Company. Viacom agreed to indemnify the
Company for this information.
Release Relating to Actions by Viacom Related to Viacom's and the Company's
Assets, Businesses and Operations. Subject to certain exceptions, the Company
released Viacom and certain of its subsidiaries and affiliates and their
respective officers, directors, employees, agents, heirs, executors, successors
and assigns for all losses for any and all past actions and failures to take
action relating to the Company's and Viacom's assets, businesses and
operations. Viacom similarly released the Company.
Transition Services Agreement
The Company and Viacom Inc. have entered into a Transition Services
Agreement under which Viacom provides the Company with agreed-upon accounting,
legal, management information systems, financial and tax services and employee
benefit plan and insurance administration. These services may be changed upon
agreement between the Company and Viacom. The fee for these services could be
subject to adjustment. Charges under the Transition Services Agreement were
$1.8 million during fiscal 2001. The Company also agreed to pay or reimburse
Viacom for any out-of-pocket payments, costs and expenses associated with these
services.
22
Registration Rights Agreement
The Company and Viacom Inc. have entered into a Registration Rights
Agreement, which requires the Company, upon Viacom's request, to use the
Company's reasonable best efforts to register under the applicable federal and
state securities laws any of the shares of the Company's equity securities held
by Viacom for disposition in accordance with Viacom's intended method of
disposition, and to take such other actions as may be necessary to permit the
sale in other jurisdictions, subject to specified limitations. Viacom also has
the right to include the shares of the Company's equity securities Viacom
beneficially owns in other registrations of these equity securities that the
Company initiates. Except for the Company's legal and accounting fees and
expenses, the Registration Rights Agreement provides that Viacom generally pays
all or its pro rata portion of out-of-pocket costs and expenses relating to
each such registration that Viacom requests or in which it participates.
Subject to specified limitations, the registration rights will be assignable by
Viacom and its assigns. The Registration Rights Agreement contains
indemnification and contribution provisions that are customary in transactions
similar to those contemplated by this document.
Tax Matters Agreement
After the completion of the Company's initial public offering, the Company
and certain of its subsidiaries continued to be included in Viacom Inc.'s
consolidated group for U.S. federal income tax purposes and Viacom's combined,
consolidated or unitary group for various state and local income tax purposes
(the "consolidated group"). The Company and Viacom entered into a Tax Matters
Agreement whereby for the taxable years and portions thereof prior to
August 16, 1999, Viacom has and will pay all taxes for the consolidated group,
including any liability resulting from adjustments to tax returns relating to
such taxable years or portions thereof. The Company and its subsidiaries will
continue to be liable for all taxes that are imposed on a separate return basis
or on a combined, consolidated or unitary basis on a group of companies that
includes only the Company and its subsidiaries.
The Tax Matters Agreement requires the Company and Viacom to make payments
to each other equal to the amount of income taxes that would be paid by the
Company, subject to certain adjustments, as if the Company and each of its
subsidiaries included in the consolidated group were to file its own combined,
consolidated or unitary, or, where only one of the Company's entities is
included in the consolidated group, separate, federal, state and local income
tax returns for any taxable year or portion thereof beginning after August 16,
1999 in which the Company is included in the consolidated group. This would
include any amounts determined to be due as a result of a redetermination of
the tax liability of the consolidated group arising from an audit or otherwise.
With respect to some tax items attributable to periods following August 16,
1999 during which the Company is included in the consolidated group, such as
foreign tax credits, alternative minimum tax credits, net operating losses and
net capital losses, the Company has a right of reimbursement or offset, which
is determined based on the extent to which, and the time at which, such credits
or losses could have been used by the Company or its subsidiaries if it had not
been included in the consolidated group. This right to reimbursement or offset
continues regardless of whether the Company is a member of the consolidated
group at the time the attributes could have been used. The Company is only
entitled to reimbursement for carryback items that it could use on a stand
alone basis to the extent that such items result in an actual tax savings for
the consolidated group. The Tax Matters Agreement also requires the Company, if
so requested by Viacom, to surrender some tax losses of the Company's
subsidiaries that are resident in the United Kingdom for 1998 and earlier years
to Viacom's U. K. subsidiaries without any right to compensation. The Company
also agreed to pay Viacom an amount equal to any tax benefit the Company
receives from the exercise of Viacom's stock options by the Company's
employees, including in years that the Company is no longer included in
Viacom's consolidated group. The Company will also pay Viacom the amount of any
income taxes with respect to income tax returns that include only the Company,
which returns, as described below, will be filed by Viacom.
Viacom continues to have all the rights of a parent of a consolidated group
filing consolidated federal income tax returns. Viacom has similar rights
provided for by applicable state and local law with respect to a parent of a
combined, consolidated or unitary group. Viacom is the sole and exclusive agent
for the Company in any and all matters relating to income taxes of the
consolidated group. Viacom has sole and exclusive
23
responsibility for the preparation and filing of all income tax returns or
amended returns with respect to the consolidated group. Viacom has the sole
right to contest or compromise any asserted tax adjustment or deficiency and to
file, litigate or compromise any claim for refund on behalf of the consolidated
group, except that Viacom is not entitled to compromise any such matter in a
manner that would affect the Company's liability under the Tax Matters
Agreement without the Company's consent, which may not be withheld
unreasonably. Under the Tax Matters Agreement, Viacom has similar authority
with regard to income tax returns that the Company files on a separate basis
and related tax proceedings. This agreement may result in conflicts of interest
between the Company and Viacom.
Provided that Viacom continues to beneficially own, directly or indirectly,
at least 80% of the combined voting power and the value of the Company's
outstanding capital stock, the Company will be included for federal income tax
purposes in the consolidated group of which Viacom is the common parent. Viacom
has stated that it is the current intention of Viacom and its subsidiaries to
continue to file a single consolidated federal income tax return. In certain
circumstances, some of the Company's subsidiaries also will be included with
some of Viacom's subsidiaries, other than the Company's subsidiaries, in
combined, consolidated or unitary income tax groups for state and local tax
purposes. Each member of the consolidated group for federal income tax purposes
will be liable for the federal income tax liability of each other member of the
consolidated group. Similar principles will apply with respect to members of a
combined group for state and local tax purposes. Accordingly, although the Tax
Matters Agreement will allocate tax liabilities between the Company and Viacom
during the period in which the Company is included in the consolidated group,
the Company could be liable for the federal income tax liability of any other
member of the consolidated group in the event any such liability is incurred,
and not discharged, by such other member. The Tax Matters Agreement provides,
however, that Viacom will indemnify the Company to the extent that, as a result
of being a member of the consolidated group, the Company will become liable for
the federal income tax liability of any other member of the consolidated group,
other than the Company's subsidiaries.
Other Arrangements with Viacom and its Affiliates
Interest Rate Swaps
In March 2001, the Company entered into two interest rate swaps with Viacom
Inc. in order to obtain a fixed interest rate with respect to $400 million of
its outstanding floating rate debt under its credit facility. The swaps fixed
$200 million of the Company's outstanding debt at an interest rate of 5.01% for
two years and the other $200 million at an interest rate of 5.12% for two and
one-half years. The Company's effective interest rates also include a LIBOR
spread payable under its credit facility. Including the effect of the LIBOR
spread, the effective interest rates of the swaps are currently 6.26% and
6.37%, respectively. The swaps are subject to termination in the event that (i)
Viacom ceases to own greater than 80% of the Company's outstanding common stock
or (ii) the Company no longer has any obligations under the term loan portion
of its credit facility.
Paramount Pictures
The Company purchases certain videocassettes and DVDs for rental and sale
directly from Paramount Pictures, a Viacom subsidiary. The Company's total
purchases from Paramount were $127.2 million for the year ended December 31,
2001. In addition, Paramount allows the Company to direct a portion of
Paramount's home video advertising expenditures. The Company received $8.8
million from Paramount in 2001 related to this arrangement.
Advertising with Viacom Affiliates
The Company uses a third-party agency to allocate its media placement and
spending, based on specifications determined by the Company in accordance with
independent market studies. The third-party agency conducts a competitive
negotiation process with media outlets including Viacom affiliates, which are
generally offered an opportunity of first refusal. During the year ended
December 31, 2001, about $75.9 million of Blockbuster's aggregate advertising
expenditures were spent with Viacom affiliates, which represented 34.4% of the
Company's total advertising expenses during 2001.
24
Midway Games
Sumner M. Redstone and National Amusements, Inc. own an aggregate of about
30% of the common stock of Midway Games Inc. During the year ended December 31,
2001, the Company paid about $3.8 million for purchases of home video games
from Midway. The Company believes that the terms of these purchases were no
less favorable to the Company than would have been obtainable from parties in
which there was no such ownership interest. The Company expects to purchase
video games from Midway in the future.
Showtime Networks
The Company also has an agreement with Showtime Networks, Inc., a subsidiary
of Viacom Inc., whereby the Company agreed to license from Showtime the
exclusive domestic home video rights to up to 180 Showtime original motion
pictures and other programs over the period from April 1, 2000 through March
31, 2005. The Company's total purchases from Showtime were $4.1 million for the
year ended December 31, 2001.
Other
There are various other agreements between the Company and Viacom Inc. and
its affiliates, which the Company believes are not material to the Company or
Viacom. The Company believes the terms of these agreements approximate those
that would be available from third parties.
Other Related Party Transactions
Loan to Executive
In connection with the Company's employment of Larry Zine, Executive Vice
President, Chief Financial Officer and Chief Administrative Officer of the
Company, the Company agreed to loan Mr. Zine an amount equal to all federal,
state and local income taxes payable in connection with his sign-on bonus. The
Company has loaned Mr. Zine $246,300, which loan bears interest at 5.25%
compounded semi-annually. As of February 28, 2002, approximately $97,700 was
outstanding under such loan. The Company also agreed to forgive the aggregate
principal amount of the loan, together with any accrued interest thereon, on an
income tax free basis in three installments on the first, second and third
anniversaries of commencement of Mr. Zine's employment with the Company;
provided that, if Mr. Zine terminates his employment without good reason (as
defined in his employment agreement with Blockbuster Entertainment Group, a
business unit of Viacom Inc.) or the Company terminates Mr. Zine's employment
for cause, any outstanding aggregate principal amount of the loan, together
with any accrued interest thereon, will accelerate and become immediately due
and payable. As of February 28, 2002, the Company had forgiven approximately
$169,600 in principal and interest on the loan, including approximately
$103,700 since the beginning of fiscal 2001, and had paid approximately
$118,100 of taxes, including approximately $72,200 since the beginning of
fiscal 2001, on Mr. Zine's behalf. The largest aggregate amount of indebtedness
outstanding since January 1, 2001 was approximately $196,600.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Such persons are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) reports that
they file. To the Company's knowledge, based solely on its review of the copies
of such reports received by it with respect to fiscal 2001, or written
representations from certain reporting persons, the Company believes that all
filing requirements applicable to its directors, officers and persons who own
more than 10% of a registered class of the Company's equity securities have
been complied with, except that Richard J. Bressler's initial report on Form 3
was filed after the date set forth in Section16(a). Mr. Bressler's Form 3,
which reported no holdings of Company securities, was filed promptly after the
omission was discovered.
25
PROPOSAL II
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the Company's stockholders, in accordance with
the recommendation of the Audit Committee, the Board of Directors has selected
PricewaterhouseCoopers LLP as the Company's independent accountants to audit
the Company's consolidated financial statements for fiscal 2002 and to render
other services required of them. Representatives of PricewaterhouseCoopers LLP
are expected to be present at the meeting with the opportunity to make a
statement if they so desire and to be available to respond to appropriate
questions.
The Board of Directors recommends a vote FOR ratification of
PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal
2002.
STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals on matters appropriate for
stockholder action at subsequent annual meetings of the Company consistent with
Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended,
and the Company's bylaws. For such proposals to be considered for inclusion in
the Proxy Statement and proxy relating to the Company's 2003 Annual Meeting of
Stockholders, all applicable requirements of Rule 14a-8 must be satisfied and
such proposals must be received by the office of the Secretary of the Company
no later than December 13, 2002. Such proposals should be directed to
Blockbuster Inc., 1201 Elm Street, Dallas, Texas 75270, Attention: Secretary.
In addition to the requirements set forth above regarding stockholder
proposals generally, the Company's bylaws provide that a stockholder may
nominate a person for election to the Board of Directors only if written notice
of such nomination(s) is received by the Secretary within the time period set
forth above and such notice includes certain specified information such as (i)
the name and address of the nominating stockholder; (ii) the name, age,
business address and principal occupation of the nominee; and (iii) any other
information relating to such nominee that is required to be disclosed in
solicitations of proxies for elections of directors or is otherwise required by
the rules and regulations promulgated under the Securities Exchange Act.
In order for a proposal made outside of the requirements of Rule 14a-8 to be
considered timely in connection with the Company's 2003 Annual Meeting of
Stockholders, such proposal must be received by the office of the Secretary of
the Company at the address stated above no later than February 26, 2003. The
persons named in the proxies solicited by the Company in connection with the
2003 Annual Meeting of Stockholders will vote their proxies in their discretion
with respect to any proposal with respect to which the Company has not received
notification by such time.
OTHER BUSINESS
The Board of Directors knows of no matters other than those described herein
that will be presented for consideration at the meeting. However, should any
other matter(s) properly come before the meeting or any adjournment thereof, it
is the intention of the persons named in the accompanying proxy to vote in
accordance with their best judgment in the interest of the Company.
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by the
Company. In addition to solicitation by mail, directors, officers and employees
of the Company may solicit proxies personally or by telephone or
26
telegram, without additional compensation. The Company may also make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for forwarding of solicitation materials to the beneficial owners
of shares of Common Stock held by such persons, and the Company may reimburse
such brokerage houses and other custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
Accompanying this Proxy Statement is a copy of the Company's Annual Report
for the fiscal year ended December 31, 2001. The Annual Report is not to be
deemed a part of this Proxy Statement.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, including the financial statements and the financial
statement schedules, if any, but not including exhibits, will be furnished at
no charge to each person to whom a Proxy Statement is delivered upon the
written request of such person addressed to Blockbuster Inc., Attn.: Investor
Relations, 1201 Elm Street, Dallas, Texas 75270.
By Order of the Board of Directors,
/s/ Edward B. Stead
Edward B. Stead
Executive Vice President,
General Counsel and Secretary
April 12, 2002
27
APPENDIX A
BLOCKBUSTER INC.
AUDIT COMMITTEE CHARTER
(as amended March 21, 2002)
I. Purpose
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities relating to the
Company's corporate accounting, systems of internal controls, audit process,
financial reporting practices, and quality and integrity of financial reports.
It shall be the policy of the Audit Committee to maintain a free and open means
of communication between the independent accountants, the internal audit staff,
the financial management of the Company and the Board of Directors.
II. Qualification of Members
A. Number; Independence. The Audit Committee shall initially consist of at
least three directors. The Audit Committee shall be composed of directors each
of whom has no relationship to the Company that may interfere with the exercise
of his or her independence from management and the Company, as determined by
the Board based on applicable regulatory standards.
B. Financial Literacy. Each member of the Audit Committee shall be
financially literate, as such qualification is interpreted by the Board of
Directors in its business judgment, or must become financially literate within
a reasonable period of time after his or her appointment to the Audit
Committee. In addition, at least one member of the Audit Committee shall have
accounting or related financial management expertise, as the Board of Directors
interprets such qualification in its business judgment.
III. Scope of Authority and Responsibilities
A. Internal Audit. Subject to the authority of the Board of Directors, the
Audit Committee shall have the authority and responsibility to:
. review the scope and results of the Company's internal auditing
procedures and take such action as the Audit Committee may deem
appropriate to assure that the interests of the Company are adequately
protected;
. review the internal audit function of the Company, including the proposed
audit plans for the coming year and the coordination of such plans with
the independent accountants;
. determine the duties and responsibilities of the Company's internal audit
staff; and
. consider and review with the independent accountants and the Company's
internal audit staff (i) the adequacy and effectiveness of the Company's
system of internal accounting controls; and (ii) related findings and
recommendations of the independent accountants together with management's
responses.
B. Financial Reporting. Subject to the authority of the Board of
Directors, the Audit Committee shall have the authority and responsibility to:
. review with management and the independent accountants the Company's
quarterly and annual financial statements prior to the Company's release
of earnings, including any transactions, estimates and judgments and the
accounting and reporting practices applied thereto;
. meet with the independent accountants, the internal audit staff and
financial management of the Company to consider and review the scope of
the proposed audit for the current year and the audit procedures to be
employed;
. review the scope and results of the independent accountants' annual audit
and related comments, including: (i) the independent accountants' audit
of the Company's annual financial statements, accompanying footnotes and
its report thereon; (ii) any significant changes required in the
independent accountants' audit plans; (iii) any difficulties or disputes
with management encountered during the
A-1
course of the audit; (iv) the selection, application and disclosure of
critical accounting policies; and (v) any other matters related to the
conduct of the audit that are to be communicated to the Audit Committee
under generally accepted auditing standards; and
. review with management, the internal audit staff, and the independent
accountants the process used to manage those risks and exposures that
could have a material effect on the Company's financial statements.
C. Independent Accountants. The Board of Directors believes that the
Company's independent accountants are ultimately responsible to the Board of
Directors and the Audit Committee. Subject to the authority of the Board of
Directors, the Audit Committee shall have the authority and responsibility to:
. select, evaluate and, where appropriate, replace the independent
accountants (or to nominate the independent accountants to be proposed
for stockholder approval in any proxy statement);
. ensure that the independent accountants submit on a periodic basis to the
Audit Committee a formal written statement delineating all relationships
between the independent accountants and the Company;
. actively engage in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent accountants;
. recommend that the Board of Directors take appropriate action in response
to the independent accountants' report to satisfy itself of the
independent accountants' independence; and
. approve the retention of the independent accountants for any non-audit
service and the fee for such service.
The Audit Committee shall also have the authority and responsibility to
review the compensation of the independent accountants and, if necessary,
recommend the engagement of additional auditors with respect to matters of
accounting or reporting.
D. Charter Review. The Audit Committee shall review and reassess the
adequacy of this Charter on an annual basis.
E. Code of Conduct. The Audit Committee shall have right to review the
Company's compliance with the Company's code of conduct.
F. Investigations. The Audit Committee shall have the authority to conduct
or authorize investigations into any matters within its scope of
responsibilities.
G. Other Matters. The Audit Committee shall perform such other functions
as are required by law, the Company's charter or bylaws, or the Board of
Directors.
IV. Meetings
In order to carry out the responsibilities set forth in this Charter, the
Board of Directors deems it advisable that the Audit Committee meet four times
per year, but the Audit Committee may meet such greater number of times as it
deems appropriate. The Company's Corporate Secretary shall prepare minutes for
all meetings of the Audit Committee to document the Audit Committee's discharge
of its responsibilities. Written minutes of each meeting shall be duly filed
with the Company's records. The Chairman of the Audit Committee has the
authority to call an Audit Committee meeting whenever he or she deems
circumstances warrant. The Audit Committee may ask members of management or
others to attend the meeting and provide pertinent information as necessary. To
effectuate the goal of fostering open communication, the Audit Committee shall
meet periodically with the independent accountants, the internal audit staff
and management in separate executive sessions to discuss any matters that the
Audit Committee or any of these groups believe should be discussed privately.
The Audit Committee shall report committee actions to the Board of Directors
with such recommendations as the Audit Committee may deem appropriate.
A-2
PROXY-ANNUAL MEETING OF STOCKHOLDERS
BLOCKBUSTER INC.
1201 Elm Street
Dallas, Texas 75270
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R The undersigned hereby appoints Nigel Travis and Edward B. Stead as
Proxies, each with the power to act without the other and with full power
O of substitution and resubstitution, and hereby authorizes them to
represent and to vote, as designated on the reverse side, all shares of
X Blockbuster Inc. that the undersigned would be entitled to vote at the
Annual Meeting of Stockholders of Blockbuster Inc. to be held at
Y Blockbuster Inc.'s corporate headquarters, 1201 Elm Street, 21st Floor
Assembly Room, Dallas, Texas, on May 21, 2002, at 10:00 a.m., Dallas
time, upon such business as may properly come before the meeting or any
adjournments thereof, including the matters set forth on the reverse
side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2 AND AT THE DISCRETION OF THE PROXY HOLDERS
WITH REGARD TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENTS THEREOF.
(Continued and to be signed and dated on reverse side.)
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FOLD AND DETACH HERE
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X Please mark your |
votes as in this | 5132
example. |_________
The Board of Directors recommends that stockholders vote FOR each of the proposals. Please review
carefully the Proxy Statement delivered with this Proxy.
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FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Class III Nominees:
Directors. [ ] [ ] John F. Antioco 2. Ratification of the appointment [ ] [ ] [ ]
Linda Griego of PricewaterhouseCoopers
LLP as independent
accountants.
FOR, except vote withheld from the following nominee(s):
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The Proxies are authorized to vote, in their discretion, upon
such other business as may properly come before the meeting.
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NOTE: Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by a duly authorized officer. If a partnership,
please sign in partnership name by an authorized person.
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SIGNATURE(S) DATE
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FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO THE COMPANY. PLEASE SIGN, DATE AND RETURN YOUR PROXY
BY DETACHING THE TOP PORTION OF THIS SHEET AND RETURNING IT PROMPTLY USING THE
ENCLOSED REPLY ENVELOPE.