RHIE Rhi Entertainment (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

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o   Preliminary Proxy Statement

o    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ   Definitive Proxy Statement

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o   Soliciting Material Pursuant to §240.14a-12

 

RHI Entertainment, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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April 15, 2009

 

DEAR STOCKHOLDER,

 

It is my pleasure to invite you to the 2009 Annual Meeting of Stockholders of RHI Entertainment, Inc. to be held on Tuesday, May 12, 2009, at the Hilton New York, 1335 Avenue of the Americas, New York, New York 10019 commencing at 12:00 p.m. local time.

 

Information regarding the matters to be voted upon at this year’s Annual Meeting is contained in the formal Notice of Meeting and Proxy Statement on the following pages. The RHI Entertainment, Inc. Annual Report for the fiscal year ended December 31, 2008 accompanies this Proxy Statement.

 

It is important that your shares be represented and voted whether or not you plan to attend the Annual Meeting. You may vote on the Internet, by telephone or by completing and mailing the enclosed proxy card or the instruction form forwarded by your bank, broker or other holder of record. Voting over the Internet, by telephone or by written proxy or instruction will ensure your shares are represented at the Annual Meeting. Voting on the Internet or by telephone may not be available to all stockholders. Please review the instructions on the enclosed proxy card or the instruction form forwarded by your bank, broker or other holder of record regarding each of these voting options. Your vote is important, regardless of the number of shares that you own.

 

On behalf of the Board of Directors, I thank you for your participation. We look forward to seeing you on May 12th.

 

Sincerely,

 

 

Jeff Sagansky

Chairman of the Board of Directors

RHI ENTERTAINMENT, INC.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 12, 2009

 

 

April 15, 2009

 

TO THE STOCKHOLDERS OF RHI ENTERTAINMENT, INC.

 

NOTICE IS HEREBY GIVEN that the 2009 Annual Meeting of Stockholders of RHI Entertainment, Inc. (the “Company”) will be held on Tuesday, May 12, 2009, commencing at 12:00 p.m. local time at the Hilton New York, 1335 Avenue of the Americas, New York, New York 10019, to consider and vote upon:

 

1. The election of Frank J. Loverro and Russel H. Givens, Jr. to serve on the Board of Directors of the Company for a term of office expiring on the date of the Annual Meeting of Stockholders in 2012 (see page 5 of the accompanying Proxy Statement).

 

2. The approval of the Amended and Restated RHI Entertainment, Inc. 2008 Incentive Award Plan, which adds 1,500,000 shares to the total shares reserved for issuance under the plan (see page 6 of the accompanying Proxy Statement).

 

3. Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009 (see page 15 of the accompanying Proxy Statement).

 

4. The transaction of any other business that may properly come before the Annual Meeting or any continuation, postponement or adjournment thereof.

 

The Board of Directors has fixed the close of business on April 9, 2009 as the record date for the Annual Meeting. All stockholders of record at the close of business on that date are entitled to notice of, and to be present and vote at, the Annual Meeting and at any continuation or adjournment thereof.

 

Accompanying this Notice of Annual Meeting is a proxy card, Proxy Statement and the Company’s Annual Report for the fiscal year ended December 31, 2008. Whether or not you plan to attend the Annual Meeting, we encourage you to vote by completing the enclosed proxy card. Most stockholders can also vote their proxy by internet or phone by following the instructions on the proxy card.

 

The meeting will be conducted pursuant to the Company’s Amended & Restated Bylaws and rules of order prescribed by the Chairman of the Annual Meeting.

 

By order of the Board of Directors

 

 

Henry S. Hoberman

Executive Vice President,

General Counsel & Secretary

 

TABLE OF CONTENTS

 

RHI ENTERTAINMENT, INC.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019

 

 

 

PROXY STATEMENT

 

 

 

RHI Entertainment, Inc., a Delaware corporation (the “Company”), will hold its Annual Meeting of Stockholders on Tuesday, May 12, 2009, commencing at 12:00 p.m. local time at the Hilton New York, 1335 Avenue of the Americas, New York, New York 10019. The enclosed proxy card is solicited on behalf of the Board of Directors (the “Board”) of the Company. This Proxy Statement, and the accompanying proxy card, is first being mailed to our stockholders on or about April 15, 2009. We have included a copy of the Company’s 2008 Annual Report with this Proxy Statement. The Annual Report contains financial and other information about our business during the last fiscal year.

 

	•	the Company’s 2009 Proxy Statement;
	•	the proxy card;
	•	the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008; and
	•	any amendments to the foregoing materials that are required to be furnished to stockholders.

 

Who Can Vote

 

You are entitled to vote if you were a stockholder of record of our common stock as of the close of business on April 9, 2009 (the “Record Date”). Your shares may be voted at the Annual Meeting only if you are present in person or represented by a valid proxy.

 

What Am I Voting On?

 

At the meeting, you will be entitled to vote on the following proposals:

 

1. The election of Frank J. Loverro and Russel H. Givens, Jr. to serve on the Board of Directors of the Company for a term of office expiring on the date of the Annual Meeting of Stockholders in 2012 (see page 5 of the Proxy Statement).

2. The approval of the Amended and Restated RHI Entertainment, Inc. 2008 Incentive Award Plan (the “Amended and Restated Incentive Award Plan”), which adds 1,500,000 shares to the total shares reserved for issuance under the plan (see page 6 of the Proxy Statement).

 

3. Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009 (see page 15 of the Proxy Statement).

 

4. The transaction of any other business that may properly come before the Annual Meeting or any continuation, postponement or adjournment thereof.

 

Attending the Annual Meeting

 

Attendance at the Annual Meeting will be limited to stockholders of record as of the Record Date (April 9, 2009), beneficial owners of Company common stock entitled to vote at the Annual Meeting having evidence of ownership, a maximum of one authorized representative of an absent stockholder and invited guests of management. Any person claiming to be an authorized representative of a stockholder must, upon request, produce written evidence of such authorization.

 

Shares Outstanding and Quorum

 

At the close of business on April 9, 2009, 13,505,100 shares of our common stock were outstanding and entitled to vote. A majority of the shares of our common stock outstanding on the Record Date, present in person or represented by proxy, will constitute a quorum, which is required in order to hold the Annual Meeting and conduct business.

 

How to Vote

 

Stockholder of Record: Shares Registered in Your Name

 

If you are a stockholder of record, you may vote by proxy on the Internet or by telephone by following the instructions on the enclosed proxy card. You may also vote by completing and mailing the printed proxy card. You may also vote in person at the Annual Meeting.

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If you are a beneficial owner of shares held in street name, please refer to the instructions provided by your bank, broker or other nominee for voting your shares. If you wish to vote in person at the Annual Meeting, you must obtain a valid proxy from the organization that holds your shares and have proof of ownership of our common stock as of the Record Date.

 

Board Recommendations

 

The Board recommends that you vote your shares as follows:

 

 

Voting of Shares

 

The shares represented by all properly executed and unrevoked proxies received in proper form in time for the meeting will be voted. Each stockholder is entitled to one vote for each share of common stock held on the Record Date. If you properly complete your proxy form or submit a proxy by telephone or the Internet before the polls close, your shares will be voted as you have directed. If you submit a signed proxy form or submit your proxy by telephone

or Internet and do not specify how you want to vote your shares, we will vote your shares as recommended by the Board of Directors:

 

 

If any other matter is presented, your proxies are authorized to vote in accordance with their best judgment. As of the date of this proxy statement, the Company knows of no other items of business that will be presented for consideration at the Annual Meeting other than those matters described in this proxy statement.

 

Revoking Your Proxy or Changing Your Vote

 

Stockholder of Record: Shares Registered in Your Name

 

Any proxy given may be revoked at any time before it is voted at the Annual Meeting. As a stockholder of record, you may revoke your proxy by (i) delivering a written notice of revocation to the attention of the Secretary of the Company at our principal executive office at 1325 Avenue of the Americas, 21st Floor, New York, NY 10019, (ii) duly submitting a later-dated proxy or submitting a new proxy through telephonic or internet voting, if available to you, or (iii) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If your shares are held in the name of a broker, bank or other nominee, you may change your voting instructions by submitting new voting instructions to your bank, broker or other record holder. Please note that if your shares are held of record by a broker, bank or other nominee, and you decide to attend and vote at the Annual Meeting, your vote in person at the Annual Meeting will not be effective unless you present a legal proxy, issued in your name from the record holder, your broker, bank or other nominee.

 

Counting of Votes

 

Shares held by persons attending the Annual Meeting but not voting, shares represented by proxies that reflect abstentions as to a particular proposal and broker “non-votes” will be counted as present for purposes of determining a quorum. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner has not received voting instructions from the beneficial owner and does not have discretionary authority to vote the shares. Brokers generally have discretionary authority to vote on Item 1 and Item 3, but do not have discretionary authority to vote on Item 2 to be considered at the Annual Meeting as set forth below.

 

Item 1:   Directors will be elected by a plurality of the votes of the shares present at the meeting in person or by proxy and entitled to vote thereon. Votes withheld as to one or more nominees will not be counted as votes cast for such individuals.

 

Item 2:   Approval of the Amended and Restated Incentive Award Plan and the number of shares reserved for issuance under the plan requires the affirmative vote of a majority of shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes against such approval. Brokers do not have discretionary authority to vote on this proposal. If a broker submits a non-vote, it will not be counted for purposes of the proposal.

 

Item 3:   The ratification of the selection of KPMG LLP requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes against the ratification. Although brokers have discretionary authority to vote on the ratification, if a broker submits a non-vote, it will not be counted for purposes of the ratification.

Any other proposal brought before the meeting will be decided by a majority of votes represented at the meeting and entitled to vote on the matter. Consequently, abstentions will have the same effect as votes against the matter, and broker non-votes will not be counted for purposes of determining whether a proposal has been approved.

 

Principal Executive Offices

 

The principal executive offices of the Company are located at 1325 Avenue of the Americas, New York, New York 10019. The Company’s telephone number is (212) 977-9001.

 

Solicitation of Proxies

 

The Company will bear the cost of the solicitation of proxies. In addition to solicitation over the Internet and by mail, the Company will request banks, brokers and other custodian nominees and fiduciaries to supply proxy materials to the beneficial owners of the Company’s common stock of whom they have knowledge, and will reimburse them for their expenses in so doing. Certain directors, officers and other employees of the Company, not specially employed for the purpose, may solicit proxies, without additional remuneration, by personal interview, mail, telephone, facsimile or electronic mail.

 

Forward-Looking Statements

 

This proxy statement includes forward-looking statements. All statements other than statements of historical facts contained in this proxy statement, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “seek,” “estimate,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include, but are not limited to, the factors described in our SEC filings, including the “Business” and “Risk Factors” Sections in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 5, 2009.

 

Any such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements. The Company disclaims any duty to update any forward-looking statement, all of which are expressly qualified by the foregoing, other than as required by law.

 

In this proxy statement, except where the context requires otherwise, references to: (1) “RHI LLC” refers to RHI Entertainment, LLC, a Delaware limited liability company that is the current operating company for our business, and the sole asset of RHI Entertainment Holdings II, LLC; (2) “Holdings II” refers to RHI Entertainment Holdings II, LLC, a Delaware limited liability company which holds RHI LLC as its sole asset; (3) “RHI,” “RHI Inc.,” the “Company,” “we,” “us,” and “our” refer to RHI Entertainment, Inc., a Delaware corporation, and its consolidated subsidiaries, including Holdings II and RHI LLC and their subsidiaries and predecessor companies; (4) “KRH” refers to KRH Investments LLC, a Delaware limited liability company, which together with RHI Inc. are the members of Holdings II; and (5) “Kelso” refers to Kelso & Company L.P. a Delaware limited partnership, an affiliate of the principal investor in KRH.

 

Our Board currently consists of seven directors. Under the Director Designation Agreement dated as of June 23, 2008, KRH Investments LLC (“KRH”) is permitted to appoint or designate up to four persons for nomination to election on our Board under the terms set forth in the agreement, one of which must qualify as “independent” as required by the rules promulgated by the SEC, and by the Nasdaq Stock Market (“NASDAQ”). See “Certain Relationships and Related Party Transactions — Transactions with Kelso — Director Designation Agreement”. The designees pursuant to this agreement were Messrs. Frank J. Loverro, Michael B. Goldberg, Robert A. Halmi, Jr. and Thomas M. Hudgins.

 

The Company’s Amended & Restated Bylaws (the “Bylaws”) provide that the size of the Board shall be fixed from time to time exclusively by the Board, but the Board shall constitute no more than seven persons. The Board presently consists of seven members, divided into three classes of the same or nearly the same number serving staggered three-year terms. Currently, the third class contains three directors while the first and second class contain two directors each. Directors in each class are elected on a rotating basis at the annual meeting of stockholders at which the term for such class expires.

 

Listed below as nominees for reelection at the 2009 Annual Meeting are Frank J. Loverro and Russel H. Givens, Jr., whose present terms will expire at that time. If reelected at the Annual Meeting, each would serve until the 2012 annual meeting of stockholders and until his successor is elected and qualified, or until his earlier retirement, resignation, disqualification, removal or death.

 

If any nominee should become unavailable or unwilling to serve for any reason prior to the Annual Meeting, an event that currently is not anticipated by the Board, the proxies will be voted in favor of the election of a substitute nominee or nominees proposed by the Board or the number of directors may be reduced accordingly. Each nominee has agreed to serve if reelected, and the Board has no reason to believe that any nominee will be unable or unwilling to serve.

 

Nominees for Directors at the 2009 Annual Meeting

 

Frank J. Loverro, age 40, has served as director of RHI since August 2007. He joined Kelso & Company L.P. (“Kelso”), a private equity company, in 1993 and is currently a Managing Director. Prior to joining Kelso, he worked in private equity investing at the Clipper Group. Mr. Loverro started his career in the High Yield Finance Group at Credit Suisse First Boston, where he focused on debt and equity financing alternatives for leveraged companies. Mr. Loverro received a Bachelor of Arts degree with distinction in Economics from the University of Virginia. Mr. Loverro is currently a director of MainLine Management LLC and Buckeye GP Holdings L.P.

 

Russel H. Givens, Jr. , age 62, has been a director of RHI since August 2008. Prior to his retirement, Mr. Givens served in various senior management roles at Crown Media International from 1998-2004; his most recent role was President & Chief Executive Officer from 2000 to 2004. Prior to that, he served as Executive Vice President & Chief Operating Officer from 1998 to 2000. Prior to joining Crown Media, Mr. Givens served as Vice President, European Cable/Telephony, for Media One International from 1994 to 1998.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE TWO NAMED NOMINEES FOR DIRECTORS.

 

Our Board has unanimously approved, subject to shareholder approval, the Amended and Restated Incentive Award Plan (as previously defined). The Amended and Restated Incentive Award Plan provides for the grant of a variety of awards including incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, stock payments, deferred stock units, and performance-based awards (including performance-based cash awards).

 

We believe that our officers, directors and other key employees and other individuals providing bona fide services to the Company should have a significant stake in our stock price performance under a program which links compensation to stockholder return. As of the date of this Proxy Statement, there are three non-employee directors, seven executive officers, approximately 73 other employees, including other officers, eligible participants under the Amended and Restated Incentive Award Plan. As of the date of this Proxy Statement, no consultants would be eligible participants under the Amended and Restated Incentive Award Plan.

 

The RHI Entertainment, Inc. 2008 Incentive Award Plan (as originally adopted prior to the initial public offering, the “Incentive Award Plan”) had an aggregate limit on the number of shares issuable under the Incentive Award Plan of 2,240,000 shares of our Common Stock, subject to certain adjustments. The proposed Amended & Restated Incentive Award Plan increases the aggregate limit on the number of shares issuable under the Incentive Award Plan from 2,240,000 to 3,740,000 (an increase of 1,500,000 shares). The increase in the number of shares issuable under the Amended & Restated Incentive Award Plan is the only substantive change to the Incentive Award Plan made by the proposed amendment and restatement.

 

As of April 9, 2009, awards covering 2,201,352 shares were outstanding under the Incentive Award Plan and 38,648 shares remained eligible for future grants. Our Board determined that with 38,648 shares remaining available under the Incentive Award Plan, the Company would be severely limited in its ability to attract, retain, reward and motivate non-employee directors, executive officers, employees and consultants through the use of equity incentive awards unless additional shares are added to the Incentive Award Plan. While our Board is cognizant of the potential dilutive effect of compensatory stock awards, it also recognizes the significant benefits that are achieved from making such awards.

 

The Incentive Award Plan is our only incentive plan providing for compensation awards related to RHI common stock (although certain executives were awarded KRH Value Units prior to our initial public offering, which are discussed in further detail under the heading, “Compensation Discussion & Analysis — KRH Compensation”). On April 8, 2009, the closing price per share of our common stock on NASDAQ was $2.85.

 

The Amended and Restated Incentive Award Plan remains subject to approval by our stockholders. If the Amended and Restated Incentive Award Plan is approved by our stockholders, then the Amended and Restated Incentive Award Plan will remain in effect through May 12, 2019, unless earlier terminated by our Board or the committee of the Board designated by our Board to administer the Amended and Restated Incentive Award Plan (either the Board or such committee, the “Administrator”). If the Amended and Restated Incentive Award Plan is not approved, the Incentive Award Plan, will remain in effect in accordance with its terms. Any early termination of the Incentive Award Plan by the Administrator will not affect awards granted prior to such termination, but no additional awards may be granted after any termination of the Incentive Award Plan.

 

The principal features of the Amended and Restated Incentive Award Plan are summarized below for the convenience and information of our stockholders. This description is qualified in its entirety by reference to the Amended and Restated Incentive Award Plan, which is attached to this proxy statement as Appendix A.

 

Introduction

 

Stockholder Approval Requirement

 

Stockholder approval of the Amended and Restated Incentive Award Plan is necessary in order for RHI to (1) meet the stockholder approval requirements of the NASDAQ, (2) take tax deductions for certain compensation

resulting from awards granted thereunder qualifying as performance-based compensation under Section 162(m) of the Internal Revenue Code, as amended (the “Code”), and (3) grant incentive stock options (“ISOs”) thereunder.

 

Highlights of the Amended and Restated Incentive Award Plan

 

The Amended and Restated Incentive Award Plan authorizes the Administrator to provide equity-based compensation in the form of stock options, stock appreciation rights (“SARs”), restricted shares, restricted share units, dividend equivalents, deferred stock, stock payments and performance-based awards structured by the Administrator within parameters set forth in the Amended and Restated Incentive Award Plan, for the purpose of providing RHI’s directors, officers, employees and consultants equity compensation, incentives and rewards for superior performance. Some of the key features of the Amended and Restated Incentive Award Plan that reflect RHI’s commitment to effective management of incentive compensation are as follows:

 

 

Administration

 

The Amended and Restated Incentive Award Plan will generally be administered by the Compensation Committee. However, the Compensation Committee may delegate to a committee of one or more members of the Board or one or more of the Company’s officers the authority to grant or amend awards to participants other than Company senior executives who are subject to Section 16 of the Exchange Act or employees who are “covered employees” within the meaning of Section 162(m) of the Code, and the regulations thereunder. The Amended and Restated Incentive Award Plan will be administered by the Administrator. Unless otherwise determined by the Board, the Administrator shall consist solely of two or more non-employee directors appointed by and holding office at the pleasure of the Board, each of whom is an “outside director” within the meaning of Section 162(m) of the Code, a Non-Employee Director, and an “independent director” under the rules of the NASDAQ (or other principal securities market on which shares of RHI common stock are traded). We have a standing Award Subcommittee comprised of individuals who are intended to be outside directors within the meaning of Rule 162(m) of the Code. In addition, the full Board will administer the Amended and Restated Incentive Award Plan with respect to awards made to non-employee directors.

 

The Administrator will have the authority to administer the Amended and Restated Incentive Award Plan, including the power to determine eligibility, the types and sizes of awards, the price and timing of awards and the acceleration or waiver of any vesting restriction, as well as the authority to delegate such administrative responsibilities.

Eligibility

 

All employees and consultants of RHI and its subsidiaries and affiliates, and all non-employee members of the Board, are eligible to participate in the Amended and Restated Incentive Award Plan as determined by the Administrator.

 

Limitation on Awards and Shares Available

 

The maximum number of shares of RHI common stock that may be issued pursuant to awards granted under the Amended and Restated Incentive Award Plan is 3,740,000 (which 3,740,000 limit also explicitly applies to shares issued upon the exercise of incentive stock options). The shares of RHI common stock covered by the Amended and Restated Incentive Award Plan may be treasury shares, authorized but unissued shares, or shares purchased in the open market.

 

If any shares subject to an award under the Amended and Restated Incentive Award Plan are forfeited or expire or an award under the Amended and Restated Incentive Award Plan is settled for cash, then any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the Amended and Restated Incentive Award Plan. Any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any award under the Amended and Restated Incentive Award Plan may be used again for new grants.

 

Awards granted under the Amended and Restated Incentive Award Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by an entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock (but not awards made in connection with the cancellation and repricing of an option or stock appreciation right) (“Substitute Awards”) will not reduce the shares authorized for grant under the Amended and Restated Incentive Award Plan.

 

The maximum number of shares of RHI common stock that may be subject to one or more awards granted to any one participant pursuant to the Amended and Restated Incentive Award Plan during any calendar year is 750,000 and the maximum amount that may be paid in cash to any one participant during any calendar year with respect to any performance-based award is $5,000,000.

 

Awards

 

The Amended and Restated Incentive Award Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, stock payments, deferred stock units, and performance-based awards (including performance-based cash awards). See the Summary Compensation Table and Grants of Plan-Based Awards Table provided elsewhere in this proxy statement for information on awards granted under the Incentive Award Plan to RHI’s named executive officers identified in those tables.

 

Stock options , including ISOs, as defined under Section 422 of the Code, and nonqualified stock options may be granted pursuant to the Amended and Restated Incentive Award Plan. The option exercise price of all stock options granted pursuant to the Amended and Restated Incentive Award Plan will not be less than 100% of the fair market value of RHI common stock on the date of grant. Stock options may be exercised as determined by the Administrator, but in no event may a stock option have a term extending beyond the tenth anniversary of the date of grant. ISOs granted to any person who owns, as of the date of grant, stock possessing more than ten percent of the total combined voting power of all classes of RHI stock, however, shall have an exercise price that is not less than 110% of the fair market value of RHI common stock on the date of grant and may not have a term extending beyond the fifth anniversary of the date of grant. The aggregate fair market value of the shares with respect to which options intended to be ISOs are exercisable for the first time by an employee in any calendar year may not exceed $100,000, or such other amount as the Code provides.

 

Restricted stock may be granted pursuant to the Amended and Restated Incentive Award Plan. A restricted stock award is the grant of shares of RHI common stock at a price determined by the Administrator, that is nontransferable and may be subject to substantial risk of forfeiture until specific conditions are met as determined by the Administrator. Conditions may be based on continuing service to RHI or any of its subsidiaries or affiliates or

achieving performance goals. During the period of restriction, all shares of restricted stock will be subject to restrictions and vesting requirements, as provided by the Administrator. The restrictions will lapse in accordance with a schedule or other conditions determined by the Administrator. Restricted stock may not be sold or encumbered until all restrictions are terminated or expire.

 

The other types of equity awards that may be granted under the Amended and Restated Incentive Award Plan include performance awards, dividend equivalents, deferred stock units, stock payments, restricted stock units, and stock appreciation rights.

 

Performance awards may also be granted pursuant to the Amended and Restated Incentive Award Plan. Performance awards may be granted in the form of cash bonus awards, stock bonus awards, performance awards or incentive awards that are paid in cash, shares or a combination of both. The value of performance awards may be linked to any one or more of the performance criteria listed below, or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Performance awards granted in the form of a cash bonus may be payable upon the attainment of pre-established performance goals based on established performance criteria. The goals are established and evaluated by the Administrator and may relate to performance over any periods as determined by the Administrator. The Administrator will determine whether performance awards are intended to be performance-based compensation within the meaning of Section 162(m) of the Code. Following is a brief discussion of the requirements for awards to be treated as performance-based compensation within the meaning of Section 162(m) of the Code.

 

The Administrator may grant awards to employees who are or may be “covered employees,” as defined in Section 162(m) of the Code, that are intended to be performance-based compensation within the meaning of Section 162(m) of the Code in order to preserve the deductibility of these awards for federal income tax purposes. With respect to performance awards intended to be exempt for the deduction limitation set forth in Section 162(m), Administrator refers to a committee of the Board consisting solely of two or two or more members of the Board, each of whom is an “outside director” within the meaning of Section 162(m). Under the Amended and Restated Incentive Award Plan, these performance-based awards may be either equity awards or performance bonus awards. Participants are only entitled to receive payment for a Section 162(m) performance-based award for any given performance period to the extent that pre-established performance goals set by the Board for the period are satisfied. These pre-established performance goals must be based on one or more of the following performance criteria: (i) net earnings (either before or after interest, taxes, depreciation and amortization); (ii) sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on net assets; (viii) cash flow return on capital; (ix) return on stockholders’ equity; (x) stockholder returns; (xi) return on sales; (xii) gross or net profit margin; (xiii) productivity; (xiv) return on assets; (xv) expense; (xvi) working capital; (xvii) earnings per share; (xviii) adjusted earnings per share (xix) price per share of RHI common stock; (xx) margins; (xxi) operating efficiency; (xxii) stock and market share; (xxiii) customer satisfaction; (xxiv) adjusted EBITDA; (xxv) economic value-added; and (xxvi) return on capital, any of which may be measured with respect to us, or any subsidiary, affiliate or other business unit of RHI’s, either in absolute terms, terms of growth or as compared to any incremental increase, as compared to results of a peer group. The Administrator will define in an objective fashion the manner of calculating the performance criteria it selects to use for such awards. With regard to a particular performance period, the Administrator will have the discretion to select the length of the performance period, the type of performance-based awards to be granted, and the goals that will be used to measure the performance for the period. In determining the actual size of an individual performance-based award for a performance period, the Administrator may reduce or eliminate (but not increase) the initial award. Generally, a participant will have to be employed by or providing services to RHI or any of its subsidiaries or affiliates on the date the performance-based award is paid to be eligible for a performance-based award for any period.

 

The Administrator, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of performance goals for such performance period in order to prevent the dilution or enlargement of the rights of participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

For all awards intended to qualify as performance-based compensation, such determinations will be made by the Administrator within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

 

Dividend equivalents may be granted pursuant to the Amended and Restated Incentive Award Plan. A dividend equivalent is the right to receive the equivalent value of dividends paid on shares. Dividend equivalents that are granted by the Administrator are credited as of dividend payments dates during the period between the date an award is granted and the date such award vests, is exercised, or is distributed or expires, as determined by the Administrator. Such dividend equivalents will be converted to cash or additional shares of our common stock by such formula, at such time and subject to such limitations as may be determined by the Administrator.

 

Stock payments may be granted pursuant to the Amended and Restated Incentive Award Plan. A stock payment is a payment in the form of shares of our common stock or an option or other right to purchase shares, as part of a bonus, deferred compensation or other arrangement. The number or value of shares of any stock payment will be determined by the Administrator and may be based on achieving one or more of the performance criteria listed above, or other specific criteria determined by the Administrator.

 

Deferred stock may be granted pursuant to the Amended and Restated Incentive Award Plan. Deferred stock is a right to receive shares of our common stock. The number of shares of deferred stock will be determined by the Administrator and may be based on achieving one or more of the performance criteria listed above, or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Shares underlying a deferred stock award which is subject to a vesting schedule or other conditions set by the Administrator will not be issued until those conditions have been satisfied. Deferred stock may constitute or provide for a deferral of compensation, subject to Section 409A of the Code and there may be certain tax consequences if the requirements of Section 409A of the Code are not met.

 

Restricted stock units may be granted pursuant to the Amended and Restated Incentive Award Plan. A restricted stock unit award provides for the issuance of RHI common stock at a future date upon the satisfaction of specific conditions set forth in the applicable award agreement. Restricted stock units may be awarded to any eligible individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. The Administrator will specify the dates on which the restricted stock units will become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. The Administrator will specify the conditions and dates upon which the shares underlying the restricted stock units will be issued, which dates may not be earlier than the date as of which the restricted stock units vest and which conditions and dates will be subject to compliance with Section 409A of the Code. On the distribution dates, RHI will transfer to the participant one unrestricted, fully transferable share of RHI common stock (or the fair market value of one such share in cash) for each restricted stock unit scheduled to be paid out on such date and not previously forfeited. Restricted stock units may constitute or provide for a deferral of compensation, subject to Section 409A of the Code and there may be certain tax consequences if the requirements of Section 409A of the Code are not met.

 

Stock appreciation rights may be granted pursuant to the Amended and Restated Incentive Award Plan. A stock appreciation right entitles its holder, upon exercise of all or a portion of the stock appreciation right, to receive from us an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the stock appreciation right from the fair market value on the date of exercise of the stock appreciation right by the number of shares with respect to which the stock appreciation right has been exercised, subject to any limitations imposed by the Administrator. The exercise price per share subject to a stock appreciation right will be set by the Administrator, but may not be less than 100% of the fair market value on the date the stock appreciation right is granted. The Administrator determines the period during which the right to exercise the stock appreciation right vests in the holder. No portion of a stock appreciation right which is unexercisable at the time the holder’s employment with us terminates will thereafter become exercisable, except as may be otherwise provided by the Administrator. Stock appreciation rights may be exercised as determined by the Administrator, but in no event may a stock appreciation right have a term extending beyond the tenth anniversary of the date of grant. Payment of the stock appreciation right may be in cash, shares, or a combination of both, as determined by the Administrator.

 

Payment Methods.   The Administrator will determine the methods by which payments by any award holder with respect to any awards granted under the Amended and Restated Incentive Award Plan may be paid, the form of

payment, including, without limitation: (1) cash or check; (2) shares of our common stock issuable pursuant to the award or held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a fair market value on the date of delivery equal to the aggregate payments required; (3) other property acceptable to the Administrator (including through the delivery of a notice that the award holder has placed a market sell order with a broker with respect to shares of our common stock then issuable upon exercise or vesting of an award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to us in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to us upon settlement of such sale). However, no participant who is a member of the Board or an “executive officer” of RHI within the meaning of Section 13(k) of the Exchange Act will be permitted to make payment with respect to any awards granted under the Amended and Restated Incentive Award Plan, or continue any extension of credit with respect to such payment in any method which would violate the prohibitions on loans made or arranged by RHI as set forth in Section 13(k) of the Exchange Act. Only whole shares of common stock may be purchased or issued pursuant to an award. No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding down.

 

Vesting and Exercise of an Award.   The applicable award agreement governing an award will contain the period during which the right to exercise the award in whole or in part vests, including the events or conditions upon which the vesting of an award will occur or may accelerate. No portion of an award which is not vested at the holder’s termination of service with us will subsequently become vested, except as may be otherwise provided by the Administrator in the agreement relating to the award or by action following the grant of the award.

 

Generally, an option or stock appreciation right may only be exercised while such person remains an employee, consultant or non-employee director of us or one of our subsidiaries or affiliates or for a specified period of time (up to the remainder of the award term) following the holder’s termination of service with us or one of our subsidiaries or affiliates. An award may be exercised for any vested portion of the shares subject to such award until the award expires. Upon the grant of an award or following the grant of an award, the Administrator may provide that the period during which the award will vest or become exercisable will accelerate, in whole or in part, upon the occurrence of one or more specified events, including (i) a change in control or (ii) a holder’s termination of employment or service with us or otherwise.

 

Transferability.   No award under the Amended and Restated Incentive Award Plan may be transferred other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a domestic relations order, unless and until such award has been exercised or the shares underlying such award have been issued and all restrictions applicable to such shares have lapsed. No award shall be liable for the debts or contracts of the holder or his successors in interest or shall be subject to disposition by any legal or equitable proceedings. During the lifetime of the holder of an award granted under the Amended and Restated Incentive Award Plan, only such holder may exercise such award unless it has been disposed of pursuant to a domestic relations order. After the holder’s death, any exercisable portion of an award may be exercised by his personal representative or any person empowered to do so under such holder’s will or the then applicable laws of descent and distribution until such portion becomes unexercisable under the Amended and Restated Incentive Award Plan or the applicable award agreement. Notwithstanding the foregoing, the Administrator may permit an award holder to transfer an award other than an ISO to any “family member” of the holder, as defined under the instructions to use of the Form S-8 Registration Statement under the Securities Act, subject to certain terms and conditions. Further, an award holder may, in a manner determined by the Administrator, designate a beneficiary to exercise the holder’s right and to receive any distribution with respect to any award upon the holder’s death, subject to certain terms and conditions.

 

Adjustment Provisions

 

Certain transactions with RHI’s stockholders not involving RHI’s receipt of consideration, such as a stock split, spin-off, stock dividend or certain recapitalizations may affect the share price of RHI common stock (which transactions are referred to collectively as “equity restructurings”). In the event that an equity restructuring occurs, the Administrator will equitably adjust the class of shares issuable and the maximum number and kind of shares of RHI common stock subject to the Amended and Restated Incentive Award Plan, and will equitably adjust

outstanding awards as to the class, number of shares and price per share of RHI common stock. Other types of transactions may also affect RHI common stock, such as a dividend or other distribution, reorganization, merger, or other changes in corporate structure. In the event that there is such a transaction, which is not an equity restructuring, and RHI’s Board determines that an adjustment to the Amended and Restated Incentive Award Plan and any outstanding awards would be appropriate to prevent any dilution or enlargement of benefits under the Amended and Restated Incentive Award Plan, the Administrator will equitably adjust the Amended and Restated Incentive Award Plan as to the class of shares issuable and the maximum number of shares of RHI’s common stock subject to the Amended and Restated Incentive Award Plan, as well as the maximum number of shares that may be issued to an employee during any calendar year, and will adjust any outstanding awards as to the class, number of shares, and price per share of RHI’s common stock in such manner as it may deem equitable.

 

Amendment and Termination

 

The Board may terminate, amend, or modify the Amended and Restated Incentive Award Plan at any time; however, except to the extent permitted by the Amended and Restated Incentive Award Plan in connection with certain changes in capital structure, stockholder approval will be obtained for any amendment to increase the number of shares available under the Amended and Restated Incentive Award Plan, reduce the per share exercise price of the shares subject to any option or stock appreciation right below the per share exercise price as of the date the option or stock appreciation right was granted, and cancel any option or stock appreciation right in exchange for cash or another award when the option or stock appreciation right price per share exceeds the fair market value of the underlying shares.

 

In no event may an award be granted pursuant to the Amended and Restated Incentive Award Plan on or after the tenth anniversary of the date the stockholders approve the Amended and Restated Incentive Award Plan.

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

The following is a general summary under current law of the material federal income tax consequences to an employee, consultant or non-employee director granted an award under the Amended and Restated Incentive Award Plan. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of federal income taxation that may be relevant in light of a holder’s personal circumstances. This summarized tax information is not tax advice and a holder of an award should rely on the advice of his or her legal and tax advisors.

 

With respect to nonqualified stock options, RHI is generally entitled to deduct and the optionee recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. A participant receiving incentive stock options will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of RHI common stock received over the option price is an item of tax preference income potentially subject to the alternative minimum tax. If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and RHI will not be entitled to any deduction. If the holding period requirements are not met, the incentive stock option will be treated as one that does not meet the requirements of the Code for incentive stock options and the tax consequences described for nonqualified stock options will apply.

 

The current federal income tax consequences of other awards authorized under the Amended and Restated Incentive Award Plan generally follow certain basic patterns: stock appreciation rights are taxed and deductible in substantially the same manner as nonqualified stock options; nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value over the price paid, if any, only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant through a Section 83(b) election); restricted stock units, stock-based performance awards, dividend equivalents and

other types of awards are generally subject to tax at the time of payment. Compensation otherwise effectively deferred is taxed when paid. In each of the foregoing cases, RHI will generally have a corresponding deduction at the time the participant recognizes income, subject to Section 162(m) of the Code with respect to covered employees.

 

Section 162(m) of the Code.   Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to awards under the Amended and Restated Incentive Award Plan, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year.

 

Certain kinds of compensation, including qualified “performance-based compensation,” are disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock awards will generally qualify as performance-based compensation if (1) the award is granted by a compensation committee composed solely of two or more “outside directors,” (2) the plan contains a per-employee limitation on the number of awards which may be granted during a specified period, (3) the plan is approved by the stockholders, and (4) under the terms of the award, the amount of compensation an employee could receive is based solely on an increase in the value of the stock after the date of the grant (which requires that the exercise price of the option is not less than the fair market value of the stock on the date of grant), and for awards other than options, established performance criteria that must be met before the award actually will vest or be paid.

 

The Amended and Restated Incentive Award Plan is designed to meet the requirements of Section 162(m); however, full value awards granted under the Amended and Restated Incentive Award Plan will only be treated as qualified performance-based compensation under Section 162(m) if the full value awards and the procedures associated with them comply with all other requirements of Section 162(m). There can be no assurance that compensation attributable to awards granted under the Amended and Restated Incentive Award Plan will be treated as qualified performance-based compensation under Section 162(m) and thus be deductible to us.

 

Section 409A of the Code.   Certain awards under the Amended and Restated Incentive Award Plan may be considered “nonqualified deferred compensation” subject to Section 409A of the Code, which imposes additional requirements on the payment of deferred compensation. Generally, if at any time during a taxable year a nonqualified deferred compensation plan fails to meet the requirements of Section 409A, or is not operated in accordance with those requirements, all amounts deferred under the nonqualified deferred compensation plan for the current taxable year and all preceding taxable years, by or for any participant with respect to whom the failure relates, are includible in the gross income of the participant for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under Section 409A, the amount will be subject to income tax at regular income tax rates plus an additional 20 percent tax, as well as potential premium interest tax.

 

New Plan Benefits

 

As of the date of this proxy statement, no awards had been granted pursuant to the Amended and Restated Incentive Award Plan. Awards are subject to the discretion of the Administrator. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the Amended and Restated Incentive Award Plan.

 

Certain tables in this proxy statement under the general heading “Compensation Discussion and Analysis,” including the Summary Compensation Table and Grants of Plan-Based Awards Table, set forth information with respect to prior awards granted to our individual named executive officers under the Amended and Restated Incentive Award Plan. In addition, the Securities Authorized for Issuance under Equity Compensation Plans Table below provides information as of December 31, 2008, regarding the equity outstanding under our equity compensation plans, the weighted average exercise price of outstanding equity, and the number of securities remaining available for issuance.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER THE EQUITY COMPENSATION PLAN

 

 

 

 

Vote Required

 

Adoption of the Amended and Restated Incentive Award Plan requires approval by the affirmative vote of a majority of the votes cast with respect to the proposal by the shares present in person or represented by proxy, and entitled to vote on the proposal at this Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the approval of the Amended and Restated Incentive Award Plan must exceed the number of votes “AGAINST” the approval of the Amended and Restated Incentive Award Plan.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDED AND RESTATED INCENTIVE AWARD PLAN.

Item 3 —  Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Audit Committee of the Board has appointed KPMG LLP as the independent registered public accounting firm for the Company’s fiscal year ending December 31, 2009. KPMG LLP has been the independent registered public accounting firm for the Company since the Company was formed in August 2007. We expect representatives of KPMG LLP to be present at the Annual Meeting.

 

In accordance with directions of the Audit Committee, this appointment is being presented to the stockholders for ratification at the 2009 Annual Meeting. While ratification by stockholders of this appointment is not required by law or the Company’s certificate of incorporation or Bylaws, the Audit Committee and management believes that such ratification is desirable as a matter of good governance. In the event this appointment is not ratified by the affirmative vote of a majority of shares present or represented by proxy and entitled to vote on the ratification, the Audit Committee will consider that fact when it selects independent registered public accounting firm for the following year.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL
TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

Ownership of the Company

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 8, 2009 by: (i) each director; (ii) our Named Executive Officers (as discussed on page 19, “NEO”); (iii) all of our directors, NEOs and executive officers as a group; and (iv) each person known by us to beneficially own more than 5% of our common stock.

 

 

 

 

Set forth below is the biographical information for our directors who are not standing for election at the 2009 Annual Meeting.

 

Directors Continuing in Office With Terms Expiring at the 2010 Annual Meeting

 

Thomas M. Hudgins , age 69, has been a director of the Company since June 2008. Mr. Hudgins retired from Ernst & Young in 2002 after a thirty-five year career with the accounting firm. As one of Ernst & Young’s partners, Mr. Hudgins served multi-national client companies and held numerous management positions at the firm. From 1993 to 1998, he served as office managing partner of Ernst & Young’s New York office. Mr. Hudgins also was a member of Ernst & Young’s international executive committee for its global financial services practice. Mr. Hudgins served on the Aurora Foods, Inc.’s Board from 2003 to 2004 and is currently a member of the Board for Foamex International Inc., a publicly listed company. Mr. Hudgins also serves on Foamex’s audit committee.

 

J. Daniel Sullivan, age 58, has been a director of the Company since August 2008. Mr. Sullivan was recently named the Chief Executive Officer of Titan Broadcast Management. He is also currently a member of the Board of Media General, Inc., a provider of local news, information and entertainment over multiple media platforms. Additionally, Mr. Sullivan has been a private investor and consultant specializing in advising various equity funds on media investments since 2004. Prior to that, he served as President & Chief Executive Officer of Quorum Broadcasting Company, Inc. from 1998 to 2004. Mr. Sullivan also served as President & Chief Executive Officer of Sullivan Broadcasting Company, Inc. from 1996 to 1998.

 

Directors Continuing in Office With Terms Expiring at the 2011 Annual Meeting

 

Robert A. Halmi, Jr. , age 52, has served as a director of RHI since August 2007 and has served as President & Chief Executive Officer of RHI and its predecessor companies for over fifteen years. In 1992, Mr. Halmi became President of RHI Entertainment, Inc., a publicly traded entertainment company founded by his father, Robert Halmi, Sr. In 1994, RHI was acquired by Hallmark Cards and Mr. Halmi became President, Chief Executive Officer and a director of Hallmark Entertainment. During his tenure at Hallmark Entertainment, Mr. Halmi also served as non-executive chairman of Crown Media, from May 2000 until the end of 2004. He continued his role as President & Chief Executive Officer of Hallmark Entertainment until January 2006, when he, along with members of senior management and affiliates of Kelso, acquired the company and re-launched it as RHI Entertainment, LLC. Mr. Halmi received a Bachelor of Arts degree from Syracuse University.

 

Michael B. Goldberg , age 62, has served as director of RHI since August 2007. He joined Kelso in 1991 as a Managing Director. Prior to joining Kelso, he spent two years as a Managing Director and co-head of the mergers and acquisitions department at The First Boston Corporation. From 1977 to 1988, Mr. Goldberg practiced corporate law in the mergers and acquisitions group of Skadden, Arps, Slate, Meagher & Flom. He was an associate at Cravath, Swaine & Moore from 1972 to 1977. Mr. Goldberg received a Bachelor of Science degree in Business Administration (Finance) with high honors from the University of Florida and a Juris Doctorate from the University of Virginia, where he was a member of the Order of the Coif and the Law Review. Mr. Goldberg is currently a director of Buckeye GP LLC, Buckeye Partners, L.P. and Hilite International, Inc.

 

Jeff Sagansky , age 57, has served as Chairman of the Board of RHI since February 2009. He has a career encompassing over 30 years as an investor and executive in the film, television and digital media business. He serves as Chairman of Elmtree Partners, a private casino development company and Chairman of Winchester Film Capital, a private motion picture financing company. From 2007 to February 2009, he served as Co-Chairman of the Board of Peace Arch Entertainment Group, Inc. (“Peace Arch”) and he served as the interim Chief Executive Officer of Peace Arch from November 2007 to July 2008. From 2002 to 2003, he was Vice Chairman of Paxson Communications. From 1998 to 2002, Mr. Sagansky served as CEO of Paxson Communications. He is currently a director of Scripps Networks Interactive, Inc. and serves on its audit committee and corporate governance committee. Mr. Sagansky earned a Bachelor of Arts from Harvard College and a Masters in Business from Harvard Business School.

Management

 

Set forth below is information regarding the current executive officers of the Company.

 

 

Robert Halmi, Jr.’s biographical information is provided above under the heading “Board of Directors.”

 

Peter N. von Gal.   Peter von Gal joined RHI’s predecessor company, Hallmark Entertainment, in 1994 and has served as Chief Operating Officer since 1996. Prior to joining Hallmark Entertainment, he was Vice President-Director of Sales & Marketing at the Univision Television Network from 1988 to 1994. Mr. von Gal received a Bachelor of Science degree in Economics and Business Administration from Wagner College.

 

William J. Aliber.   William Aliber has served as RHI’s Chief Financial Officer since he joined the Company in 2006. Prior to his tenure at RHI Inc., Mr. Aliber served as Executive Vice President & Chief Financial Officer of Crown Media since May 2000. Before his employment at Crown Media, Mr. Aliber was Executive Vice President & Chief Financial Officer of Crown Media International and Vice President & Chief Financial Officer of Hallmark Entertainment. Mr. Aliber also served as Director of Corporate Finance for Hallmark Cards from 1995-1996. Mr. Aliber holds a Masters of Business Administration degree from the University of Chicago and a Bachelor of Arts degree from Brown University.

 

Joel E. Denton.   Joel Denton joined RHI’s predecessor company, Hallmark Entertainment, in 1995 and has served as President of Production & Distribution since 2002. Prior to joining Hallmark Entertainment, Mr. Denton spent five years at ITEL, a joint venture between Time Warner, Inc. and MAI (now United News and Media plc). Mr. Denton received a Bachelor of Arts degree from Warwick University.

 

Henry S. Hoberman.   Henry Hoberman joined RHI in February 2008 as Executive Vice President and General Counsel and was appointed Secretary shortly thereafter. Prior to joining RHI Inc., he was Senior Vice President at ABC, Inc./The Walt Disney Company, serving in various positions of increasing responsibility from 1998 to 2008. He was a Partner in the Media and Communications Group of Baker & Hostetler LLP from 1992 to 1998 and an Assistant United States Attorney for the District of Columbia from 1989 to 1992. Mr. Hoberman holds a Juris Doctorate from University of Pennsylvania Law School and a Bachelor of Arts degree in English Literature from the University of Pennsylvania.

 

Board Independence

 

The Corporate Governance and Nominating Committee reviews on a regular basis the relationships that each director has with the Company either directly or as a partner, member, stockholder, director or officer of an entity or organization that has a relationship with the Company and makes recommendations to the Board about the independence of each director.

 

The Board currently consists of seven members. The Board has determined that Messrs. Givens, Sullivan and Hudgins qualify as independent directors under the applicable rules promulgated by the SEC, and the NASDAQ listing requirements. In making its independence determinations, the Board reviewed information regarding transactions and relationships provided by the director, Company records and publicly available information. None of the independent directors have a relationship with the Company other than as a director and/or a stockholder.

 

Rules promulgated by the SEC and NASDAQ listing requirements require that the majority of our Board must be independent prior to the one year anniversary of our initial public offering (the “IPO”). We expect to nominate and elect an additional independent director, and expect one of our non-independent directors to resign, prior to the one year anniversary of our initial public offering.

 

Board Meetings

 

The Board met three times in 2008, and all incumbent directors participated in more than 75 percent of the total number of meetings of the Board and committees on which they served, except for Mr. Sagansky, who was appointed to the Board on February 9, 2009. The independent directors met in executive session for a total of two times in 2008.

 

Corporate Governance Guidelines and Codes of Conduct and Ethics

 

The Board has adopted Corporate Governance Guidelines to assist the Board in the exercise of its responsibilities. Since September 2007, the Company has had a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all directors, management, officers and employees of the Company. The Corporate Governance Guidelines and the Code of Ethics are posted on the Company’s website at www.rhitv.com — Investor Relations — Corporate Governance and can also be obtained in print by request from the Company using the contact details below.

 

Policy on Attending the Annual Meeting

 

Under the Corporate Governance Guidelines, the Company’s policy is for directors to attend the Annual Meeting of Stockholders. We expect all directors to attend the 2009 Annual Meeting.

 

Communicating with the Board

 

Any stockholder or other interested party who desires to communicate with the Board, the independent directors, or the non-management directors regarding the Company can do so by writing to such person(s) at the following address:

 

Board/Independent Directors/Non-Management Directors
c/o Executive Vice President, General Counsel & Secretary
RHI Entertainment, Inc.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019
Phone: 212-977-9001
Fax: 212-261-9110

 

Communications with the Board, the independent directors or the non-management directors are screened and can be sent anonymously. Such communications will be distributed to the specific Director(s) requested by the shareholder or, if generally to the Board, to other members of the Board as may be appropriate depending on the material outlined in the shareholder communication.

 

Committees of the Board

 

Audit Committee

 

There are three standing committees of the Board: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. The Board maintains charters for each of its standing committees, which are available on our website www.rhitv.com — Investor Relations — Corporate Governance and can also be obtained in print from the Company upon request using the contact details above. The Board has determined that all members of the Audit Committee and the Nominating and Corporate Governance Committee qualify as independent directors as required by the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements. The Compensation Committee currently has four members serving, one of whom does not qualify as an independent director (Mr. Frank J. Loverro). Pursuant to applicable rules promulgated by the SEC, and NASDAQ listing requirements, the Compensation Committee must be comprised of all independent directors prior to the one year anniversary of our initial public offering. Therefore, we expect Mr. Loverro to resign from the Compensation Committee prior to such one year anniversary.

 

The Audit Committee appoints, in its sole discretion, the Company’s independent auditors and is responsible for the compensation, retention and oversight of the work of the independent auditors and for any special assignments given to such auditors. The Audit Committee also reviews the annual audit and its scope, including the independent auditor’s letter of comments and management’s responses thereto; approves any non-audit services provided to the Company by its independent auditors; reviews possible violations of the Company’s business ethics and conflicts of interest policies; reviews any major accounting changes made or contemplated; and reviews the effectiveness and efficiency of the Company’s internal audit staff. In addition, the Audit Committee confirms that no restrictions have been imposed by Company personnel on the scope of the independent auditors’ examinations. The Audit Committee is also responsible for the review and approval of related party transactions.

 

Members of the Audit Committee are Messrs. Hudgins (Chairman), Sullivan and Givens. Each member is “independent” as defined in, and is qualified to serve on the committee under, applicable rules promulgated by the SEC, and by the NASDAQ listing requirements. Each member is financially literate and possesses accounting or related financial management expertise, and Messrs. Hudgins has been determined by the Board to qualify as an “audit committee financial expert” as defined by the SEC.

 

The Audit Committee met three times in 2008. The Audit Committee can be contacted regarding accounting, internal accounting controls or other auditing matters as follows:

 

The Audit Committee

c/o Executive Vice President, General Counsel & Secretary
RHI Entertainment, Inc.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019
Phone: 212-977-9001
Fax: 212-261-9110

 

Nominating Committee

 

The Nominating and Corporate Governance Committee identifies and recommends individuals qualified to serve as members of the Board and assists the Board in reviewing the composition of the Board and its committees, monitoring a process to assess Board effectiveness and developing and implementing the Company’s Corporate Governance Guidelines. Members of the Nominating and Corporate Governance Committee are Messrs. Hudgins, Givens and Sullivan. The Committee did not have a formal meeting in 2008.

Prior to the appointment of Mr. Jeff Sagansky as Chairman of the Board in February 2009, the Nominating and Corporate Governance Committee had evaluated Mr. Sagansky as a potential member of the Board. Having found that Mr. Sagansky had the necessary skills, experiences and qualifications to fulfill the duties as Chairman of the Board, the Committee recommended that he be appointed a member of the Board, and the Board subsequently appointed Mr. Sagansky to the third class of the Board. The Board has determined that Mr. Sagansky is not “independent” under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements.

 

The Committee has reviewed and recommended that Messrs. Givens and Loverro be nominated for reelection by the stockholders at the 2009 Annual Meeting. The Board has determined that Mr. Givens is “independent” under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements. The Board has determined that Mr. Loverro is not “independent” under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements.

 

The Nominating and Corporate Governance Committee believes that nominees for election to the Board must possess certain minimum qualifications and attributes. Qualifications of director candidates that are considered by the Nominating and Corporate Governance Committee include an attained position of leadership in the candidates’ area of expertise, business and financial experience relevant to the Company, possession of demonstrated sound business judgment, expertise relevant to the Company’s lines of business, independence from management, the ability to serve on standing committees and the ability to serve the interests of all stockholders. The Nominating and Corporate Governance Committee also takes into consideration the needs of the Board and the qualifications of the candidate.

 

The Nominating and Corporate Governance Committee identifies potential director nominees by asking current directors and executive officers to notify the Committee if they become aware of persons meeting the criteria described above, who have had a change in circumstances that might make them available to serve on the Board. The Nominating and Corporate Governance Committee also, from time to time, engages firms that specialize in identifying director candidates. As described below, the Nominating and Corporate Governance Committee will also consider candidates recommended by stockholders. Once a person has been identified by the Nominating and Corporate Governance Committee as a potential candidate, the Committee collects and reviews publicly available information regarding the person to determine whether further consideration should be given to the person’s candidacy. If the Nominating and Corporate Governance Committee determines the candidate warrants further consideration, the Chairman or another member of the Committee will contact such person. Generally, if the person expresses a willingness to be considered and serve on the Board, the Nominating and Corporate Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of the qualifications of any other candidates the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more referees provided by the candidate or may contact other members of the business community or other persons that may have first-hand knowledge of the candidate’s accomplishments.

 

The Nominating and Corporate Governance Committee will consider suggestions from stockholders for nominees for election as directors at the Company’s Annual Meetings of Stockholders on the same terms as nominees selected by the Committee. Stockholder suggestions must be received by the Committee sufficiently in advance of the Company’s Annual Meeting to permit the Committee to complete its review in a timely fashion and must include the information set forth in Article II, Section 2.09 of the Bylaws of the Company.

 

The Nominating and Corporate Governance Committee can be contacted as follows:

 

The Nominating and Corporate Governance Committee

c/o Executive Vice President, General Counsel & Secretary
RHI Entertainment, Inc.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019
Phone: 212-977-9001
Fax: 212-261-9110

 

Compensation Committee

 

Duties, Procedures and Policies

 

The Compensation Committee advises the Board with respect to the compensation to be paid to the directors and executive officers of the Company and is responsible for both advising the Board with respect to the terms of contracts to be entered into with the senior executives of the Company and approving such contracts. The Compensation Committee also reviews and discusses with management the Company’s Compensation Discussion and Analysis (“CD&A”) included herein. Members of the Compensation Committee are Messrs. Sullivan (Chairman), Givens, Hudgins and Loverro. The Compensation Committee met four times in 2008.

 

The Compensation Committee is responsible for an annual review of the Company’s executive compensation plans in light of the Company’s goals and objectives with such plans; to evaluate annually the performance of the Chief Executive Officer in light of the goals and objectives of the Company’s executive compensation plans and together with the other independent directors, determine and approve the Chief Executive Officer’s compensation level based on this evaluation; to evaluate annually the performance of the other executive officers of the Company in light of the goals and objectives of the Company’s executive compensation plans and make recommendations to the Board with respect to the compensation of such other executive officers; to evaluate annually the appropriate level of compensation for Board and committee service by non-employee directors; to review and approve any severance or termination arrangements to be made with any executive officer of the Company; to review perquisites or other personal benefits to the Company’s executive officers and directors and recommend any changes to the Board; to review and discuss with management the Company’s Compensation, Discussion & Analysis (the “CD&A”), and based on that review and discussion, to recommend to the Board that the CD&A be included in the Company’s annual proxy statement or annual report on Form 10-K; to prepare the Compensation Committee Report for inclusion in the annual proxy statement or annual report on Form 10-K; and to review the description of the Compensation Committee’s process and procedures for the consideration and determination of executive officer and director compensation to be included in the Company’s annual proxy statement.

 

The Compensation Committee may form subcommittees for any purpose it deems appropriate and may delegate to any subcommittee such power and authority as it deems appropriate provided that no subcommittee shall consist of fewer than two members and that the Compensation Committee shall not delegate any power or authority required by any law, regulation or listing standard to be exercised by the Compensation Committee as a whole. We have a standing Award Subcommittee comprised of individuals who are intended to be outside directors within the meaning of Rule 162(m) of the Code. Under the Incentive Award Plan (and, if approved by the shareholders, the Amended and Restated Incentive Award Plan), the Compensation Committee may, to the extent that any such action will not prevent the Incentive Award Plan from complying with rules and regulations, delegate any of its authority thereunder to such persons as it deems appropriate.

 

The General Counsel of the Company generally acts as Secretary of the Compensation Committee.

 

The Compensation Committee can be contacted as follows:
The Compensation Committee

c/o Executive Vice President, General Counsel & Secretary
RHI Entertainment, Inc.
1325 Avenue of the Americas, 21st Floor
New York, New York 10019
Phone: 212-977-9001
Fax: 212-261-9110

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee is comprised exclusively of directors who have never been employed by the Company. Except for Mr. Loverro, the Compensation Committee is comprised of directors who are “independent” under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements. Mr. Loverro is a Managing Director of Kelso and currently serves on the Compensation Committee. For a summary of the Company’s transactions with Kelso, see “Relationships and Certain Related Transactions — Transactions with Kelso.” No

executive officer of the Company served as a member of the Compensation Committee of another entity, one of whose executive officers served on the Company’s Compensation Committee. No executive officer of the Company served as a director of another entity, one of whose executive officers either served on the Compensation Committee of such entity or served as a director of the Company.

 

Compensation Committee Report ¹

 

The Compensation Committee has reviewed and discussed with management the Company’s Compensation Discussion and Analysis, and based on such review and discussions, has recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s 2009 Annual Meeting Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K.

 

J. Daniel Sullivan, Chairman

Russel H. Givens, Jr.

Thomas M. Hudgins

Frank J. Loverro

 

 

¹  The material in this report is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made on, before, or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing.

 

Compensation Philosophy

 

The objective of our executive compensation program is to advance our equity holders’ interests by attracting, motivating and retaining executives of the highest caliber and by aligning our executives’ interests with those of our equity holders. Our program is designed to reward performance and dedication, and to hold executives accountable for individual and company wide results.

 

The compensation of our executives is determined by our Compensation Committee. Our Compensation Committee is comprised of four directors, three of which are deemed “independent” under the applicable rules promulgated by the SEC, and NASDAQ listing requirements, and one of which is not deemed to be “independent.” We expect the non-independent director, Mr. Frank J. Loverro, to resign from the Compensation Committee prior to the one year anniversary of the Company’s initial public offering.

 

The Board participates in regular reviews of our business operations, priorities and strategies. Those reviews are presented by our executive officers. This review process gives the committee members frequent interaction with and open access to executive officers, and provides many opportunities to ask questions and assess executive performance. In 2008, our Chief Executive Officer was invited to attend most meetings of the Compensation Committee and to offer recommendations on the compensation of other executives, but he did not vote in the committee’s determinations. In 2009, we expect that our Chief Executive Officer and our non-executive Chairman of our Board will share the responsibility for offering recommendations for the compensation of other executives, but that the Compensation Committee will continue to ultimately make compensation determinations with respect to our NEOs.

 

We do not have a strict policy for allocating between either (i) long-term or currently paid out compensation or (ii) cash and non-cash compensation. We strive to create an appropriate mix of compensation that rewards and motivates yearly and long-term performance by making the elements of compensation payable bi-weekly (salary), annually (annual performance bonuses) and over many years (equity awards with long-term vesting schedules). We feel that no single element achieves our compensation objectives, and that no single mix of the elements would be optimal for all of the NEOs, as defined in Regulation S-K section 402(a)(3), as a group. Allocations are thus made on a case-by-case basis.

 

In principle, we believe that:

 

 

Elements of Executive Compensation

 

Our executive compensation program consists of the following key elements: annual base salary, an annual bonus, and long-term equity-based awards, as well as certain perquisites and other benefits, including employer contributions to tax-qualified defined contribution retirement plans.

 

We believe that this approach best serves our interests and the interests of our equity holders. It enables us to meet the requirements of the highly competitive environment in which we operate while ensuring that our executive

officers are compensated in a way that advances both the short-term and long-term interests of the holders of our equity. The annual bonus permits individual performance to be recognized and is based, in significant part, on an evaluation of the contribution made by the executive to our overall performance. Long-term equity-based awards relate a significant portion of long-term remuneration directly to appreciation in the value of our equity. This type of compensation is intended to align the interests of management with those of the holders of our equity and further serves to promote an executive’s continued service to the organization.

 

In setting our executives’ compensation, we consider what is appropriate given the executives’ responsibilities and contributions to the company, as well as competition in the marketplace for such executives’ services.

 

Base Salary

 

We determine base salaries for our executive officers based on each executive’s position level, taking into account each executive’s contributions to the company and the compensation level required to retain the executive. Base salaries are intended to be competitive within the marketplace. It is our philosophy that total compensation should be weighted less towards fixed compensation and more towards variable performance-based compensation. We intend to continue this practice of emphasizing variable compensation opportunities that stress performance over fixed compensation.

 

Annual Bonus

 

Our executive officers are eligible to receive annual bonuses at the discretion of the Compensation Committee. These bonuses may be awarded pursuant to our Senior Executive Bonus Plan, which was approved by our Board on June 17, 2008, prior to the Company’s initial public offering. In determining the amount of each bonus, the Compensation Committee reviews the performance and contributions of the executive and our overall performance. During fiscal year 2008, none of the NEOs other than Joel Denton were awarded an annual cash bonus by the Compensation Committee, as discussed in the Summary Compensation Table.

 

KRH Compensation

 

Each of our NEOs was awarded long-term equity incentive compensation awards in the form of profits interests in KRH, referred to as “Value Units” in this proxy statement, which entitle the executives to share in the future profits of the business. In addition, following the distribution by KRH to its members of all of their unreturned invested capital in KRH, Mr. Halmi is entitled to receive a priority distribution from KRH in an amount equal to $3.5 million. Effective February 9, 2009, Mr. Halmi forfeited his rights to the Value Units in exchange for a right to additional priority distributions from KRH in an amount equal to $1.5 million plus a percentage of KRH’s profits.

 

The Value Units dilute only the interests of owners of KRH, and will not dilute direct holders of our common stock. However, our statement of operations reflects non-cash charges for compensation related to the Value Units. Value Units are described in further detail in the Narrative Disclosure to Grants of Plan-Based Awards Table.”

 

Incentive Award Plan

 

The Compensation Committee may grant equity compensation awards to our NEOs and other employees, directors and consultants pursuant to our Incentive Award Plan, which was approved by the Board on June 17, 2008, prior to the Company’s initial public offering.

 

The Incentive Award Plan provides for a variety of equity-based compensation awards, including non-qualified stock options, or “NSOs”, incentive stock options, or “ISOs” (within the meaning of Section 422 of the Code), stock appreciation rights, restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalents, performance share awards, performance-based awards, stock payment awards, or other stock-based awards.

 

Each of Mr. von Gal, Mr. Aliber, Mr. Denton and Mr. Hoberman was granted non-qualified stock options and restricted stock units (“RSUs”) in 2008 under the Incentive Award Plan in an effort to tie a portion of their compensation to corporate performance and Company equity value. The options were granted to each NEO on November 19, 2008, and the exercise price per share subject to these options is $3.54. The RSUs were granted to

each NEO on December 10, 2008. For each NEO, the options and the RSUs will vest with respect to 33 1 / 3 % of the shares of stock subject to the award on each of the first three anniversaries of the grant date, subject to each NEO’s continued employment through the applicable vesting date. Upon a change in control, all options become fully vested and exercisable, and all RSUs become fully vested and nonforfeitable, immediately prior to the change in control.

 

We have no minimum stock ownership guidelines, but believe our long-term incentive program helps align our executives’ interests with the interests of our shareholders.

 

Perquisites and Other Benefits

 

Our NEOs receive company-paid life, disability and business travel insurance coverage and are entitled to participate in and receive employer contributions to our 401(k) plan. We currently make matching contributions to the 401(k) Plan on behalf of eligible employees equal to 50% of each participant’s contributions (subject to applicable legal limits). At the end of each plan year, we may make an additional and discretionary matching contribution to the 401(k) Plan on behalf of eligible employees. For more information on employer contributions to our tax-qualified defined contribution retirement plans, see the Summary Compensation Table and its notes. The Company also pays the full premiums for supplemental life and disability insurance for each NEO, except Mr. Denton, which is reported as taxable income. Pursuant to UK regulations and the terms of the group plans he participates in, Mr. Denton’s premiums are not considered taxable income.

 

Our NEOs are eligible to participate in the same benefit plans provided to our other salaried employees, including health and welfare plans.

 

Other Tax and Accounting Considerations

 

Section 162(m) limits the U.S. federal income tax deductibility of non-“performance-based” compensation payments in excess of $1 million paid to a named executive officer in any one year. We intend to administer compensation plans in compliance with the provisions of Section 162(m) where feasible and where consistent with our compensation philosophy.

 

Section 409A of the Code imposes significant additional taxes and interest on underpayments of taxes in the event an executive defers compensation under a plan that does not meet the requirements of Section 409A. We have generally structured our programs and individual arrangements in a manner intended to comply with the requirements of Section 409A.

 

We have adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” (“SFAS No. 123R”). Under the fair value recognition provisions of SFAS No. 123R, we recognize stock-based compensation based on the fair value at the grant date net of an estimated forfeiture rate and only recognize compensation expense for those shares expected to vest over the requisite service period of the award.

Summary Compensation Table

 

The following table sets forth summary information concerning certain compensation awarded to, paid to, or earned by, our NEOs for all services rendered in all capacities to the Company and its subsidiaries for fiscal years ended December 31, 2008, 2007 and 2006.

 

 

 

 

All other compensation

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth summary information concerning profit interest awards in KRH (the “Value Units” and “Class B Units”) and RHI stock options and restricted stock units granted to our NEOs during fiscal year ended December 31, 2008:

 

 

 

 

Narrative Disclosure to Grants of Plan-Based Awards Table

 

Summary of Class B Units and Value Units

 

Certain executives previously received long-term equity incentive compensation awards in the form of profits interests in KRH, referred to as Value Units in this Proxy Statement, which entitle the executives to share in the future profits of the business. As of December 31, 2008, following the distribution by KRH to its members of all of their

unreturned invested capital in KRH, Mr. Halmi is entitled to receive a priority distribution from KRH in an amount equal to $3,500,000. Following this priority distribution to Mr. Halmi, our executive officers (along with other members of KRH) are entitled to an economic interest in any appreciation in the value of the assets of KRH as initial investors in KRH (including shares of our common stock owned by KRH when sold) equivalent to distributions from KRH until all members of KRH achieve an internal rate of return equal to 8% of their original investment in KRH (which, in the case of Mr. Halmi, will also include a deemed original investment in KRH of $2.8 million based upon his Class B Units).

 

Please refer to Current Form 8-K filed with the SEC on February 9, 2009 for certain changes to the distributions from KRH discussed above in connection with the hiring of Jeff Sagansky as Chairman of the Board.

 

Thereafter, our executive officers, as holders of these Value Units, are entitled to an economic interest in any appreciation in the value of the assets of KRH (including shares of our common stock owned by KRH when sold) equivalent to 25%-35% of all distributions made by KRH to its members based upon the achievement of certain internal rates of return and multiples of money thresholds on the original investment in KRH. The Value Units that entitle our executive officers to receive a proportion of these distributions are owned by our NEOs in the following proportions as of December 31, 2008: Mr. Robert Halmi, Jr. 50%; Mr. Peter von Gal 12.5%; Mr. William Aliber 10%; Mr. Joel Denton 7.5%; and Mr. Henry Hoberman 1.5%.

 

The Value Units dilute only the interests of owners of KRH, and will not dilute direct holders of the company’s common stock. However, our statement of operations reflects non-cash charges for compensation related to the Value Units.

 

Summary of Units Held as of December 31, 2008

 

 

 

 

Description of Employment Agreements

 

We have entered into employment agreements with each of our NEOs. These employment agreements, including the salary, bonus and other material terms of each agreement, are briefly described below. In addition to the terms set forth below, each of the employment agreements of the NEOs (other than Mr. Denton who is not a U.S. taxpayer) provides that, to the extent that delayed commencement of the NEO’s severance payments and benefits is required to avoid the application of the penalty tax under Section 409A of the Code, the severance payments and benefits will be delayed until the earlier of six months after termination or the date of the NEO’s death.

 

Robert Halmi, Jr.   We entered into an employment agreement with Mr. Halmi effective January 12, 2006, which was subsequently amended and restated effective as of November 8, 2007, to make amendments with respect to Section 409A of the Code, and further amended on December 10, 2008, to make amendments with respect to decreasing Mr. Halmi’s annual base salary and extending the term of his employment. The amended and restated agreement provides that Mr. Halmi will serve as our Chief Executive Officer for an initial term that ends on January 11, 2011, and is subject to annual automatic one year extensions thereafter unless either party provides prior notice of its intention not to renew. This amended and restated employment agreement sets the terms and conditions of Mr. Halmi’s employment. Under this amended and restated agreement, during the period beginning January 12, 2009 and ending January 11, 2010, Mr. Halmi’s annual base pay is $2,065,250, and will increase by 5% per year thereafter on each January 12. Mr. Halmi may also be awarded a bonus at the sole discretion of the Board.

In addition, the agreement provides for the grant of 500 Value Units to Mr. Halmi. Effective February 9, 2009, Mr. Halmi forfeited his rights to these Value Units in exchange for a right to additional priority distributions from KRH in an amount equal to $1,500,000 plus a percentage of KRH’s profits.

 

The employment agreement provides that in the event that Mr. Halmi’s employment is terminated by us other than for “cause” (as defined in the agreement), or if he resigns with or without “good reason” (as defined in the agreement), he will receive continued payments of base salary through the second anniversary of the date of termination. Mr. Halmi shall also be entitled to continued coverage for himself and his eligible dependents under the company’s group health plans through the second anniversary of the date of termination.

 

Under the agreement, Mr. Halmi is also subject to a restrictive covenant which prohibits him from soliciting certain of our employees or engaging in any activities which are competitive with our business for a period of two years commencing on his date of termination.

 

Peter von Gal.   We entered into an employment agreement with Mr. von Gal effective January 12, 2006, which was subsequently amended and restated effective as of November 8, 2007, to make amendments with respect to Section 409A of the Code, and further amended on December 11, 2008, to make amendments with respect to decreasing Mr. von Gal’s annual base salary, modifying the definition of “good reason,” and extending the term of his employment. The agreement provides that Mr. von Gal will serve as our Chief Operating Officer for an initial term that ends on January 11, 2011, and is subject to annual automatic one year extensions thereafter unless either party provides prior notice of its intention not to renew. This employment agreement sets the terms and conditions of Mr. von Gal’s employment. Under this agreement, during the period beginning January 12, 2009, and ending January 11, 2010, Mr. von Gal’s annual base pay is $1,128,125, and will increase by 5% per year thereafter on each January 12. Mr. von Gal may also be awarded an annual bonus at the sole discretion of the Board.

 

In addition, the agreement provides for the grant of 125 Value Units to Mr. von Gal. These Value Units will only become vested if Mr. von Gal remains employed by us through the date of a KRH liquidity event. The terms of the Value Units are described briefly under “Summary of Class B Units and Value Units” below.

 

The employment agreement provides that in the event that Mr. von Gal’s employment is terminated by us other than for “cause” (as defined in the agreement), or if he resigns for “good reason” (as defined in the first amendment to the agreement), he will receive continued payments of base salary through the second anniversary of the date of termination. Mr. von Gal shall also be entitled to continued coverage for himself and his eligible dependents under the company’s group health plans through the second anniversary of the date of termination.

 

Under the agreement, Mr. von Gal is also subject to a restrictive covenant which prohibits him from soliciting certain of our employees or engaging in any activities which are competitive with our business for a period of two years commencing on his date of termination.

 

William Aliber.   We entered into an employment agreement with Mr. Aliber effective August 23, 2006, which was subsequently amended and restated effective as of November 8, 2007, to make amendments with respect to Section 409A of the Code. The agreement provides that Mr. Aliber will serve as our Chief Financial Officer for an initial term that began October 1, 2006, and ends on September 30, 2009, and is subject to annual automatic one year extensions thereafter unless either party provides prior notice of its intention not to renew. This employment agreement sets the terms and conditions of Mr. Aliber’s employment. Under this agreement, Mr. Aliber’s initial annual base pay is $750,000 per annum, which shall be reviewed for increase not less frequently than annually. The agreement also provided for a one time signing bonus of $250,000, which was paid during 2006. Mr. Aliber may also be awarded an annual bonus at the sole discretion of the Board.

 

In addition, the agreement provides for the grant of 50 Value Units to Mr. Aliber. These Value Units will only become vested if Mr. Aliber remains employed by us through the date of a liquidity event. The terms of the Value Units are described briefly under “Summary of Class B Units and Value Units” below.

 

The employment agreement provides that in the event that Mr. Aliber’s employment is terminated by us other than for “cause” (as defined in the agreement), or if he resigns for “good reason” (as defined in the agreement), he will receive continued payments of base salary through the second anniversary of the date of termination. Mr. Aliber

shall also be entitled to continued coverage for himself and his eligible dependents under the company’s group health plans through the second anniversary of the date of termination.

 

Under the agreement, Mr. Aliber is also subject to a restrictive covenant which prohibits him from soliciting certain of our employees or engaging in any activities which are competitive with our business for a period of two years commencing on his date of termination.

 

Joel Denton.   We entered into an employment agreement with Mr. Denton effective January 12, 2006, which was subsequently amended and restated effective as of March 21, 2007, and further amended and restated effective as of January 12, 2009. The agreement provides that Mr. Denton will serve as our President, Production & Distribution for RHI Entertainment Distribution, LLC, for a term that began on January 12, 2009 and ends on January 11, 2012, continuing thereafter subject to either party giving six months prior notice of intent to terminate. This employment agreement sets the terms and conditions of Mr. Denton’s employment and is subject to the laws and requirements of the United Kingdom. Under the agreement, Mr. Denton’s annual base pay is £603,200 per annum through January 11, 2010, increasing to £627,328 per annum through January 11, 2011, increasing to £652,421 per annum until the end of his term. Mr. Denton may also be awarded a bonus at the discretion of the Board. The agreement also provides for contributions by the company to a personal pension plan governed by the laws of the United Kingdom in an amount equal to 7% of his annual base pay.

 

The agreement provides that in the event the company terminates Mr. Denton’s employment other than for “cause” (as defined in the agreement), the company shall pay Mr. Denton an amount equal to the amount he would have received under the agreement had his employment continued through the later of January 12, 2012, or the end of six months following such termination. Additionally, in the event the company experiences a “change in control” (as defined in the agreement) and within twelve months following the change in control Mr. Halmi is terminated without cause or resigns for good reason, Mr. Denton shall be entitled to resign within ten days following Mr. Halmi’s termination and receive a severance payment equal to the greater of six months base pay, or the base pay he would have received under the agreement had his employment continued through January 12, 2012.

 

Under the agreement, Mr. Denton is also subject to a restrictive covenant which prohibits him from soliciting certain of our employees for a period of one year following termination and from engaging in any activities which are competitive with our business for a period of three months commencing on his date of termination.

 

Henry Hoberman.   We entered into an employment agreement with Mr. Hoberman effective February 25, 2008. The agreement provides that Mr. Hoberman will serve as our Executive Vice President and General Counsel for an initial term that began February 25, 2008 and ends on February 25, 2011, and is subject to annual automatic one year extensions thereafter unless either party provides prior notice of its intention not to renew. This employment agreement sets the terms and conditions of Mr. Hoberman’s employment. Under this agreement, Mr. Hoberman’s annual base pay is $650,000 per annum through February 24, 2009, increasing to a salary of $725,000 per annum beginning February 25, 2009, through February 24, 2010, and increasing to a salary of $800,000 per annum beginning February 25, 2010, through February 24, 2011, the completion of his initial term. The agreement also provided for a one time signing bonus of $300,000, which was paid during 2008. Mr. Hoberman may also be awarded an annual bonus at the sole discretion of the Board.

 

In addition, the agreement provides for the grant of 15 Value Units to Mr. Hoberman. These Value Units become vested with respect to five Value Units on each of February 25, 2009, and February 25, 2010, and with respect to the remaining five Value Units on February 20, 2011, provided Mr. Hoberman remains employed by us through each such date. The terms of the Value Units are described briefly under “Summary of Class B Units and Value Units” below.

 

In connection with the completion of our initial public offering, Mr. Hoberman will receive additional cash payments of $333,333 on each of February 25, 2009, February 25, 2010 and February 25, 2011, provided Mr. Hoberman remains employed by RHI through each such date. To the extent the Company pays the initial bonus amount, Mr. Hoberman will also be entitled to an additional “gross-up” payment with respect to $250,000 of the $333,333 sufficient to place him in the same after-tax position as he would have been had he not been subject to any tax liability on the payment of $250,000. Mr. Hoberman, at his option, has the right to be paid these payments in cash or in RHI Inc. stock.

The employment agreement provides that in the event that Mr. Hoberman’s employment is terminated by RHI other than for “cause” (as defined in the agreement), or if he resigns for “good reason” (as defined in the agreement), he will receive continued payments of base salary through the second anniversary of the date of termination. Mr. Hoberman shall also be entitled to continued coverage for himself and his eligible dependents under the company’s group health plans through the second anniversary of the date of termination.

 

Under the agreement, Mr. Hoberman is also subject to a restrictive covenant which prohibits him from soliciting certain of our employees or engaging in any activities which are competitive with our business for a period of two years commencing on his date of termination.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table summarizes the outstanding equity awards and Value Units held by our NEOs as of December 31, 2008:

 

 

 

 

Pension Benefits

 

None of the NEOs receives any pension benefits.

 

Non-Qualified Deferred Compensation Table

 

None of the NEOs participates in any non-qualified deferred compensation plan.

 

Potential Payments Upon Termination Or Change In Control

 

Payments Made Upon Any Termination

 

Pursuant to the terms of each of the NEOs’ employment agreements, in the event of termination of employment for any reason, including death or disability, the named executive officer will be entitled to receive all accrued, but unpaid salary payable through the date of termination, any unused and accrued vacation pay and any accrued amounts or benefits arising from participation in any of the Company’s employee benefit plans. Unvested stock options and restricted stock unit awards for all NEOs are forfeited upon the NEOs termination of employment for any reason.

 

Payments Made Upon Involuntary Without Cause Termination or Voluntary Termination With Good Reason

 

In the event of an involuntary termination without cause or a voluntary termination with good reason of a NEO, (or, in the case of Mr. Halmi, in the event of an involuntary termination without cause or voluntary termination for any reason), in addition to the items identified above, the NEO will be entitled to receive the following items paid in accordance with each executive’s employment agreement:

 

 

“Good reason” generally includes a breach or failure to make a payment under the employment agreement, or a relocation by the Company outside of the New York metropolitan area. Pursuant to his amended and restated employment agreement dated November 8, 2007, however, Mr. Halmi is eligible to receive severance payments if he resigns his employment for any reason (with or without good reason).

 

Pursuant to the terms of his employment agreement, Mr. Hoberman will receive three additional cash payments of $333,333 on each of February 25, 2009, February 25, 2010, and February 25, 2011, provided Mr. Hoberman remains employed by RHI through each such date, with the Company paying a tax gross-up for the first $250,000 of the first installment. Upon termination without cause or for good reason, (or upon a change in

control as discussed below), Mr. Hoberman will also receive any cash bonus amounts payable to him, in addition to a tax gross-up payment, as applicable.

 

Each of the NEOs employment agreements contains confidentiality and non-disparagement covenants that last in perpetuity following the NEOs termination of employment, and a non-solicitation covenant that applies for two years following the NEOs termination of employment (and with respect to Mr. Denton a non-solicitation covenant that applies for one year following his termination of employment). In addition, each NEO is prohibited from engaging in, consulting with or being employed by any competing business for a period of two years after the date of termination, except for Mr. Denton, who is prohibited from participating in such activities for a period of three months after the date of termination. If any of the restrictive covenants are violated by an NEO, all remaining severance payments and benefits to which he is entitled will cease.

 

Payments Made Upon Death or Disability

 

In the event of the death or disability of a NEO, in addition to the benefits listed under the heading of “Payments Made Upon Any Termination” above, the NEO will also receive any amount arising from the Executive’s participation in any employee benefit plans, programs or arrangements.

 

Payments Made Upon Termination of Employment in Connection with a Change of Control

 

Upon a change in control, as defined in each award agreement, all options and restricted stock units become fully vested and exercisable with respect to all shares subject to the award. Messrs. Halmi, von Gal and Aliber are not entitled to receive any other payments upon a change in control, except if they are terminated without cause or for good reason in connection with such change in control, in which case they are entitled to the same severance payments they would have received had such termination of employment occurred prior to the change in control. If Mr. Hoberman’s employment is terminated without cause or for good reason in connection with a change in control he will also be entitled to the same severance payments he would have received had such termination of employment occurred prior to the change in control and, in addition, Mr. Hoberman would be entitled to receive any of the special $333,333 cash payments (and gross-up if applicable) not paid to him prior to the change in control.

 

Because Mr. Denton is based in the UK, Mr. Denton’s employment agreement has been prepared under applicable UK law and thus the terms regarding potential payments upon termination of employment or change in control provided in his agreement differ in some respects from the terms contained in the other NEO employment agreements. In particular, Mr. Denton’s employment agreement provides that in the event the Company terminates Mr. Denton’s employment other than for any serious repeated breach of his obligations, or any serious misconduct which is likely to materially affect the Company, the Company shall pay Mr. Denton an amount equal to the amount he would have received under the agreement had his employment continued through the later of the last day of the term (which as of December 31, 2008 was January 12, 2009), or the end of six months following such termination. In the event of a “failure” to discharge his duties (as defined in the agreement), the Company shall pay Mr. Denton an amount equal to the remainder of his salary and benefits due until the last day of the term (which as of December 31, 2008 was January 11, 2009). Additionally, in the event the Company experiences a “change in control” (as defined in the agreement) and within twelve months following such change in control Mr. Halmi is terminated without cause or resigns for good reason, Mr. Denton shall be entitled to resign within ten days following Mr. Halmi’s termination and receive a severance payment equal to the greater of six months base pay, or the base pay he would have received under the amended and restated agreement had his employment continued through the last day of the term (which as of December 31, 2008 was January 11, 2009). Following the end of fiscal year 2008, Mr. Denton entered into a new employment agreement with the Company, effective January 11, 2009, which extends the term of his employment to January 11, 2012. The provisions under his new agreement regarding payments upon termination of employment are substantially similar to those in the previous amended and restated agreement, except that where applicable, Mr. Denton would receive an amount equal to the amount he would have received under the agreement had his employment continued through the later of January 11, 2012, or the end of six months following the applicable termination event.

Table Regarding Potential Payments Upon Termination and/or Change of Control

 

The following table set forth quantitative estimates of the benefits that would have been paid to each of the NEOs if his employment had been terminated by us without cause, or for good reason by the NEO (or in the case of Mr. Halmi, any voluntary termination), on December 31, 2008. The table also sets forth quantitative estimates of the benefits that would have been paid to each NEO in connection with a change in control alone and a change in control in connection with any termination of employment upon which each NEO qualifies for additional payments beyond the standard payments made upon any termination.

 

The NEOs are only entitled to severance payments pursuant to their respective employment agreements and are not entitled to severance payments under any other plan or arrangement. None of the NEOs is entitled to additional payments or benefits upon a termination of employment for cause, as defined in the applicable executive’s employment agreement. Upon a termination of employment for cause, or death or disability, each NEO receives only accrued, but unpaid salary payable through the date of termination, any unused and accrued vacation pay and any accrued amounts or benefits arising from participation in any of the Company’s employee benefit plans.

 

For information concerning the circumstances, conditions and obligations applicable to the receipt of such payments, see also the discussion under “Description of employment agreements” above. Amounts below reflect potential payments pursuant to the employment agreements for such NEOs.

 

 

 

 

DIRECTOR COMPENSATION

 

Directors who are employees of the Company or any of its subsidiaries or affiliates do not receive separate compensation for service on the Board or Board committees. Non-employee directors are paid a retainer of $100,000 per year. Each of the Chairman of the Compensation Committee and the Corporate Governance and Nominating Committee is paid an additional annual retainer of $10,000 and the Chairman of the Audit Committee is paid an additional annual retainer of $20,000. Non-employee directors are also eligible for equity awards, including stock option awards and restricted stock unit awards.

 

Director Compensation Table

 

The following table sets forth the compensation that our non-employee directors earned during the year ended December 31, 2008 for services rendered as members of the Board.

 

 

 

 

Audit Committee Report

 

The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls.

 

The Audit Committee acts pursuant to a written charter first adopted and approved by the Board in June 2008 and subsequently amended most recently in September 2008. The committee’s current charter is posted on the Company’s website, www.rhitv.com — Investor Relations — Corporate Governance, and can also be obtained free of charge in print by request from the Company. Each member of the Audit Committee is “independent” as defined in, and is qualified to serve on the committee under the rules promulgated by the SEC, and by the NASDAQ listing requirements. Each member is financially literate and possesses accounting or related financial management expertise, and Messrs. Hudgins has been determined by the Board to qualify as an “audit committee financial expert” as defined by the SEC.

 

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board. In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited financial statements contained in the 2008 Annual Report on Form 10-K with the Company’s management and independent registered public accounting firm. Management is responsible for the financial statements and the reporting process, including the system of internal controls. The independent registered public accounting firm are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States.

 

The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended. In addition, the Company’s independent registered public accounting firm provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm communications with the Audit Committee concerning independence and discussed their independence with them. The Audit Committee concluded that the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with the independent registered public accounting firm’s independence. Based on the foregoing reviews and discussions, the Audit Committee recommended to the Board (and the Board has approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the SEC.

 

Thomas M. Hudgins, Chairman
J. Daniel Sullivan
Russel H. Givens, Jr.

 

Fees

 

The aggregate fees billed by KPMG LLP for professional services rendered for the fiscal years ended December 31, 2008 and 2007, were as follows:

 

 

 

 

Audit Committee Pre-Approval Policies

 

The Audit Committee has adopted guidelines for the provision of audit and non-audit services by KPMG LLP, including requiring Audit Committee pre-approval of any such audit and non-audit services. In developing these guidelines, the Audit Committee took into consideration the need to ensure the independence of KPMG LLP while recognizing that KPMG LLP may possess the expertise on certain matters that best positions it to provide the most effective and efficient services on certain matters unrelated to accounting and auditing. On balance, the Audit Committee will only pre-approve miscellaneous work and services (e.g., work related to opinions or consent letters) performed by KPMG with a monetary cap of $50,000 and prior notice of such work must be made to the Audit Committee Chair. The Audit Committee pre-approved all such services in 2008.

 

Overview

 

The business of the Company has been historically conducted through RHI LLC, which, after the IPO, became a wholly owned subsidiary of Holdings II. RHI Inc. and Holdings II were formed in connection with the IPO. RHI Inc. is the public vehicle for the business and its primary asset is common membership units in Holdings II. Holdings II has two members, which are RHI Inc. and KRH. Prior to the IPO, KRH owned all of the ownership interests in RHI LLC. In connection with the IPO, KRH contributed RHI LLC to Holdings II for common membership interests in Holdings II. RHI Inc. purchased from Holdings II a number of newly issued common membership units equal to the number of common shares sold in the IPO, at a price per unit equal to the public offering price per share.

 

RHI Inc. is the sole managing member of Holdings II and, as of December 31, 2008, owns           approximately 57.7% of the outstanding common membership units in Holdings II. KRH is the non-managing member of Holdings II and, as of December 31, 2008 owns the remaining approximately 42.3% of the outstanding common membership units in Holdings II.

 

We entered into several agreements to effect the reorganization and the financing transactions and to define and regulate the relationships among RHI Inc. and KRH after the completion of the IPO. Except as described in this section, we do not currently have any material arrangements with KRH, or its directors, officers or other affiliates, other than ordinary course. Further transactions between RHI Inc. and KRH, if any, have been and will continue to be approved by our Audit Committee, which is composed of independent members of our Board, or another committee comprised entirely of independent members of our Board. Our Audit Committee charter authorizes the Audit Committee to hire financial advisors and other professionals. The agreements contained in this proxy statement are qualified by reference to the complete text of agreements which have been filed with the SEC as exhibits to the Company’s Registration Statement and are incorporated by reference in the Company’s Annual Report on Form 10-K.

 

Transactions with KRH

 

Holdings II LLC Agreement

 

Appointment as manager.   Under the Holdings II LLC Agreement, RHI Inc. became the sole manager of Holdings II. As the sole manager, RHI Inc. controls all of the day-to-day business affairs and decision-making of Holdings II without the approval of any non-managing member of Holdings II except as described below. As such, RHI Inc., through RHI Inc.’s officers and directors, is responsible for all operational and administrative decisions of Holdings II and the day-to-day management of the business of Holdings II. The non-managing members of Holdings II do not have the ability to remove RHI Inc. as the managing member of Holdings II. The Holdings II LLC Agreement also provides that RHI Inc. owes a fiduciary duty to the non-managing members of Holdings II relating to our business.

 

Except as necessary to avoid being classified as an investment company or with the consent of all members of Holdings II, as long as RHI Inc. is the manager of Holdings II, RHI Inc.’s business is limited to owning and dealing with the membership units of Holdings II, managing the business of Holdings II and fulfilling RHI Inc.’s obligations under applicable laws and activities incidental to any of the foregoing.

 

Exchange rights.   The number of outstanding common membership units in Holdings II owned by RHI Inc. equals the number of shares of our outstanding common stock. With respect to any future offering of common stock, the proceeds we receive will be transferred to Holdings II in exchange for common membership units equal in number to the number of shares of common stock we issued. Each member of Holdings II (other than RHI, Inc.) is entitled to exchange its common membership units in Holdings II for, at our option, shares of RHI Inc. common stock on a one-for-one basis (as adjusted to account for stock splits, recapitalizations or similar events) or cash, or a combination of both stock and cash.

 

KRH special approval rights.   If any director designee designated by KRH is not appointed to RHI Inc.’s Board, nominated by RHI Inc. or elected by RHI Inc.’s stockholders, as applicable, then the consent of KRH will be

required in order for Holdings II or its subsidiaries to take any of the following actions (and Holdings II will not permit any of its subsidiaries to take any such action without the consent of KRH):

 

 

 

Supermajority vote for certain matters.   So long as KRH beneficially owns at least 30% of issued and outstanding common membership units of Holdings II, approval of at least 75% of the directors of RHI Inc. then in office will be required before RHI Inc., in its capacity as sole manager of Holdings II, may authorize Holdings II to take any of the following actions:

 

 

 

For purposes of calculating the beneficial ownership of common membership units in Holdings II by KRH with respect to KRH’s special approval rights and the supermajority vote of RHI Inc.’s Board for certain matters, the following shall apply: (i) shares of RHI Inc.’s common stock held by KRH or a permitted transferee issued upon an exchange of common membership units in Holdings II will be counted, without duplication, as being common membership units beneficially owned by KRH as if the common membership units in Holdings II had not been exchanged, so long as KRH or a permitted transferee continues to hold such shares of RHI Inc.’s common stock; (ii) shares of RHI Inc.’s common stock held by KRH or a permitted transferee issued as a stock dividend, stock split, recapitalization, anti-dilution adjustment or acquired through a rights offering to shareholders and/or members, to the extent acquired in respect of shares of RHI Inc.’s common stock described in clause (i) above or this clause (ii) shall be counted, without duplication, as being common membership units in Holdings II beneficially owned by KRH, as if such shares of RHI Inc.’s common stock were received in an exchange and KRH or the permitted transferee held the non-exchanged common membership units; and (iii) common membership units in Holdings II beneficially owned by permitted transferees of KRH will be counted as being beneficially owned by KRH. Permitted transferees include affiliates of KRH and entities that are owned more than 50% by KRH or entities that ultimately control KRH.

 

Distributions.   All distributions are made to the members pro rata in proportion to the relative number of membership units held. The Holdings II LLC Agreement provides that Holdings II is required to make distributions to the members on a quarterly basis in accordance with the relative number of units held by such members, in an aggregate amount at least equal to the product of: (i) the tax rate; and (ii) the aggregate amount of Holdings II’s U.S. federal taxable income, less the aggregate amount of Holdings II’s prior U.S. federal taxable losses, if any, to the extent not previously taken into account (but only to the extent usable by members). The Holdings II LLC Agreement provides that the tax rate is initially 41% but may be adjusted by RHI Inc. to reflect changes in applicable tax rates.

 

Transfer restrictions.   The Holdings II LLC Agreement generally permits members of Holdings II (other than RHI, Inc.) to transfer its common membership units of Holdings II, subject to limited exceptions. RHI Inc. may not transfer any common membership units of Holdings II to any third party. Any transferee of common membership units must assume, by operation of law or written agreement, all of the obligations of the transferring member with respect to the transferred units, even if the transferee is not admitted as a member of Holdings II. In the event of a transfer of common membership units by KRH, the transferee shall not have the rights and powers of KRH to designate nominees to our Board, unless the transferee is an entity that is affiliated with KRH or that is controlled by certain owners of KRH.

 

Common unit exchange right.   Members of Holdings II (other than RHI, Inc.) will have the right to exchange their common membership units in Holdings II for, at RHI Inc.’s option, shares of RHI Inc. common stock on a one-for-one basis (as adjusted to account for stock splits, recapitalization or similar events) or cash, or a combination of both stock and cash.

 

Issuance of units upon exercise of options or vesting of other equity compensation.   Upon the exercise of options RHI Inc. has issued or the vesting of shares for other types of equity compensation (such as issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock), Holdings II will have an obligation to purchase from RHI Inc., for their then-current fair market value, the number of RHI Inc.’s shares being issued in connection with the exercise of options or vesting of shares for other types of equity compensation. RHI Inc. will then contribute to Holdings II the amount of money received from Holdings II, in exchange for a number of common membership units in Holdings II equal to the number of RHI Inc.’s shares issued upon such exercise of options or vesting of shares.

 

In addition, any other issuance of common membership units of Holdings II will require the approval of the independent directors of RHI, Inc. as manager.

 

Dissolution.   The Holdings II LLC Agreement provides that the unanimous consent of all members holding common membership units is required to voluntarily dissolve Holdings II. In addition to a voluntary dissolution,

Holdings II will be dissolved upon the entry of a decree of judicial dissolution in accordance with Delaware law. Upon a dissolution event, the proceeds of liquidation will be distributed in the following order:

 

 

Confidentiality.   Each member agrees to maintain the confidentiality of the Holdings II’s intellectual property and other confidential information for a period of three years following the date of dissolution of Holdings II or such earlier date as such member ceases to be a member. This obligation covers information provided to Holdings II by the members and their affiliates, and excludes disclosures required by law or judicial process.

 

Amendment.   The Holdings II LLC Agreement may be amended by a vote of the members holding a majority of the outstanding common membership units plus the affirmative vote of KRH, if KRH does not hold the majority of outstanding common membership units. Amendments to specified provisions require the additional consent of the independent directors of RHI Inc. as manager. No amendment that would materially impair the voting power or economic rights of any outstanding common membership units in relation to any other outstanding class of units may be made without the consent of a majority of the affected units. No amendment that would materially impair the voting power or economic rights of any member in relation to the other members may be made without the consent of the affected member.

 

Indemnification.   The Holdings II LLC Agreement provides for indemnification of the manager, members and officers of Holdings II and their respective subsidiaries or affiliates, as described in more detail under “Management — Limitation of liability and indemnification of directors and officers.”

 

Expenses.   RHI Inc. and KRH entered into an amendment to the LLC Agreement on December 22, 2008 which, among other things, allows Holdings II and its subsidiaries to pay directly and/or reimburse RHI Inc. for all costs, fees and expenses incurred by RHI Inc., in its capacity as Manager, relating to its organization, the ownership of its assets and its operations and certain costs, fees and expenses related to RHI Inc.’s existence as a public company. Furthermore, Holdings II or its subsidiaries shall pay directly and/or reimburse each member (including KRH) for all costs, fees and expenses incurred in connection with the preparation of tax returns and filings, but such costs do not include any income tax liability.

 

Tax Receivable Agreement

 

KRH is entitled to exchange its common membership units in Holdings II for, at RHI Inc.’s option, shares of RHI Inc. common stock on a one-for-one basis (as adjusted to account for stock splits, recapitalizations, investments or similar events) or cash, or a combination of both stock and cash. Holdings II intends to make a special tax election pursuant to Section 754 of the Code, entitling RHI Inc. to a special tax basis adjustment in the assets of Holdings II that are attributable to the units acquired by RHI Inc. in the exchanges. These increases in tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce the amount of tax that RHI Inc. would otherwise be required to pay in the future.

 

In connection with the initial public offering, RHI Inc. and KRH entered into a tax receivable agreement that provides for the payment by RHI Inc. to KRH of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RHI Inc. realizes (or is deemed to realize in the case of an early termination payment by RHI Inc., as discussed below) as a result of these increases in tax basis and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Generally, such payments are required to be made annually. However, at any time that the present value of the payments that are forecasted to be made under the agreement, based on certain assumptions, is equal to or less than $25.0 million, and KRH owns less than 10% of the outstanding common membership units in Holdings II, KRH may, subject to any contractual or legal restrictions, require RHI Inc. to pay the present value amount; provided, however, that RHI Inc. may elect to pay such amount in, at its option, shares of RHI Inc. common stock, cash or a combination of both stock and cash. While the actual increase in tax basis, as well as the amount and

timing of any payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of RHI Inc.’s common stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of RHI Inc.’s income, we expect that as a result of the size of the increases in the tax basis of the assets of Holdings II, the payments that RHI Inc. may make to KRH will be substantial. The payments under the tax receivable agreement are not conditioned upon KRH’s continued ownership of Holdings II. RHI Inc. or its subsidiaries may need to incur debt or otherwise raise capital to finance payments under the tax receivable agreement to the extent RHI Inc.’s cash resources are insufficient to meet RHI Inc.’s obligations under the tax receivable agreement as a result of timing discrepancies or otherwise.

 

In addition, the tax receivable agreement provides that within a specified period of time after the occurrence of a change of control event, RHI Inc. will be required to terminate the agreement by making an early termination payment to KRH. A change of control event is defined as:

 

 

This early termination payment would equal the present value of the payments that are forecasted to be made under the agreement, based on certain assumptions, including that RHI Inc. would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. In addition to such an early termination payment after certain change of control events, the tax receivable agreement provides that RHI Inc. must make an early termination payment in the event of a material breach by RHI Inc.

 

A tax authority may challenge all or part of the tax basis increases discussed above and a court could sustain such a challenge. In that event, RHI Inc. may be required to pay additional taxes and possibly penalties and interest to one or more tax authorities and future payments to KRH under the tax receivable agreement would cease or diminish. Additionally, because KRH will not reimburse RHI Inc. for any payments made under the tax receivable agreement, if such tax authority successfully challenged all or part of the tax basis increases, payments under the tax receivable agreement could be in excess of RHI Inc.’s cash tax savings.

 

KRH’s rights under the tax receivable agreement are assignable to any person including transferees of its membership units in Holdings II (other than RHI, Inc. as transferee pursuant to an exchange of common membership units in Holdings II). In addition, KRH has the right to cancel the agreement at any time and such cancellation by KRH would not result in any accelerated payment.

 

Director Designation Agreement

 

Designation Rights.   Pursuant to a director designation agreement between RHI Inc. and KRH, so long as KRH owns at least 5% of the issued and then outstanding common membership units in Holdings II, KRH has the right to appoint or nominate directors to RHI Inc.’s Board for election. As indicated above, in the Holdings II LLC

Agreement, certain approval rights of KRH are triggered if any one of the designees is not appointed to RHI Inc.’s Board, nominated by RHI Inc. or elected by RHI Inc.’s stockholders, as applicable (subject to certain exceptions described below).

 

Initially KRH had the right to designate four director designees to RHI Inc.’s seven-member Board who were voted upon and elected. If KRH’s ownership of the then outstanding common membership units in Holdings II falls below 30% (but remains at or above 20%), then KRH will have the right to designate three designees to our Board. If KRH’s ownership of the then outstanding common membership units in Holdings II falls below 20% (but remains at or above 10%), then KRH will have the right to designate two designees to our Board. If KRH’s ownership of the then outstanding common membership units in Holdings II falls below 10% (but remains at or above 5%), then KRH will have the right to designate one designee to our Board. If KRH’s ownership of the then outstanding common membership units in Holdings II falls below 5%, then KRH will not have the right to designate any designees to our Board.

 

In the event that our Board. is increased in size and if KRH owns at least 30% of the outstanding common membership units of Holdings II, then KRH will have the right to designate additional designees to our Board that constitute at least a majority of the Board and, if KRH owns less than 30%, but at least 5%, of the outstanding common membership units of Holdings II, KRH will be entitled to nominate a comparable percentage of directors to our Board based on the seven-member composition of our Board.

 

Calculation of KRH’s beneficial ownership of membership units.   For purposes of calculating the beneficial ownership of common membership units by KRH with respect to the director designation rights of KRH, the following shall apply: (i) shares of RHI Inc.’s common stock held by KRH or a permitted transferee issued upon an exchange of common membership units in Holdings II will be counted, without duplication, as being common membership units beneficially owned by KRH as if the common membership units in Holdings II had not been exchanged, so long as KRH or a permitted transferee continues to hold such shares of RHI Inc.’s common stock; (ii) shares of RHI Inc.’s common stock held by KRH or a permitted transferee issued as a stock dividend, stock split, recapitalization, anti-dilution adjustment or acquired through a rights offering to shareholders and/or members, to the extent acquired in respect of shares of RHI Inc.’s common stock described in clause (i) above or this clause (ii) shall be counted, without duplication, as being RHI Inc.’s common membership units in Holdings II beneficially owned by KRH, as if such shares of common stock were received in an exchange and KRH or the permitted transferee held the non-exchanged common membership units; and (iii) common membership units in Holdings II beneficially owned by permitted transferees of KRH will be counted as being beneficially owned by KRH. Permitted transferees include affiliates of KRH and entities that are owned more than 50% by KRH or entities that ultimately control KRH.

 

Independent directors.   The director designation agreement further provides that, so long as KRH has the right to designate four director designees to our seven-member Board, one of those designees must qualify as an “independent director” at the time of designation. If an increase in the size of RHI Inc.’s Board occurs, and KRH continues to own at least 30% of common membership units in Holdings II, an additional KRH designee or designees, as applicable, must qualify as independent directors to the extent necessary under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements. If KRH’s right to designate director designees falls below four, KRH will not be obligated to designate a director designee that qualifies as an independent director. An “independent director” under the director designation agreement is a director who qualifies as an “independent director” of RHI Inc. under the applicable rules promulgated by the SEC, and by the NASDAQ listing requirements.

 

Company obligations.   RHI Inc. has agreed to cause each director designee to be included in the Board’s slate of nominees submitted to RHI Inc.’s stockholders for election of directors and in the proxy statement prepared by management in connection with soliciting proxies for every meeting of RHI Inc.’s stockholders called with respect to the election of members of the Board. RHI Inc. shall not be obligated to cause to be nominated for election to the Board or recommend to RHI Inc.’s stockholders the election of any director designee (i) who fails to submit to RHI Inc. on a timely basis such questionnaires as RHI Inc. may reasonably require of RHI Inc.’s directors generally and such other information as RHI Inc. may reasonably request in connection with preparation of RHI Inc.’s filings under securities laws or (ii) if the Board or nominating committee determines in good faith, after consultation with outside legal counsel, that such action would result in a breach of the directors’ fiduciary duties or applicable law. In

the event such determination is made, KRH shall be notified and given the opportunity to provide an alternative director designee. Upon the occurrence of either (i) or (ii) above, KRH’s special approval rights of certain matters with respect to Holdings II will be triggered and remain in effect until KRH’s replacement director designee is elected to our Board.

 

At any time a vacancy occurs because of the death, disability, resignation or removal of a director designee, then the Board, or any committee thereof, will not vote, fill such vacancy or take any action until such time that (i) KRH has designated a successor director designee and the Board has filled the vacancy and appointed such successor director designee, (ii) KRH fails to designate a successor director designee within 30 days of such vacancy, or (iii) KRH has specifically waived its rights to designate a successor director designee under the director designation agreement and has consented to the Board, or any committee thereof, taking a vote on such enumerated actions prior to the Board filling the vacancy with a successor director designee. KRH has the right to fill a vacancy with a successor director designee to any class of the Board so long as the class selected has a vacancy at the time such successor designee is provided by KRH.

 

RHI Inc. has agreed under the director designation agreement that RHI Inc. will not increase the size of the Board without the prior written consent of KRH.

 

Assignment and amendment.   The right to designate designees for election to RHI Inc.’s Board may not be assigned by KRH except upon the prior written consent of the other parties to the agreement. However, no prior written consent shall be required for an assignment by KRH to an affiliate who acquires common membership units in Holdings II and becomes a party to the director designation agreement. KRH may partially assign its designation rights to a permitted transferee that owns common membership units in Holdings II such that a permitted transferee may designate a portion of KRH’s total number of director designees permitted under the agreement. Such assignee’s rights will cease at such time as it ceases to be a permitted transferee (an affiliate of KRH). The director designation agreement may not be amended, modified, altered or supplemented except with the prior written consent of each of the parties to the agreement.

 

Registration Rights Agreement

 

In connection with the IPO, RHI Inc. entered into a registration rights agreement with KRH. The registration rights agreement provides KRH the unlimited right to demand that RHI Inc. use reasonable best efforts, upon any exchange of its common membership units in Holdings II for shares of RHI Inc.’s common stock, to effect the registration of any stock for KRH under the Securities Act, any applicable state securities laws and any applicable NASDAQ or any other stock exchange rules and regulations.

 

Additionally, upon request by KRH, RHI Inc. must use reasonable best efforts to maintain effectiveness of these mandatory registration statements until the earlier of the time when KRH has disposed of all its registrable securities and the time when all registered securities held by KRH are eligible for resale under specified exemptions from registration under federal securities laws and regulations. KRH has the right to designate the underwriter in connection with any registration and sale of RHI Inc.’s stock. RHI Inc. is responsible for the expenses in connection with the registration of securities pursuant to the registration rights agreement other than underwriters’ discounts and brokers’ commissions in connection with such registration and offering. RHI Inc. agrees to enter into an underwriting agreement with any underwriter in connection with any such registration which would provide customary indemnification and representations and warranties to any underwriter under such registration statement, as well as causing to be provided to such underwriter customary opinions, accountant’s “comfort letters” and other documents, agreements (including “lock-up agreements”) or instruments as may be reasonably requested by such underwriter. The registration rights agreement does not require any specific penalty or monetary consideration in the event that a registration statement is not declared effective or if effectiveness is not maintained.

 

The registration rights agreement also grants KRH unlimited “piggyback” registration rights with respect to other registrations of RHI Inc.’s common stock such that if RHI Inc. were to register for sale any of RHI Inc.’s common stock, KRH will have the ability to request that the common stock issuable upon the exchange of their common membership units in Holdings II be included under such registration statement.

Reorganization Agreement

 

RHI Inc. and KRH fulfilled all of their obligations under this agreement to effectuate the reorganization and transactions in connection with the Company’s IPO. This agreement would have terminated and the obligations in the agreement would not have survived if the initial public offering of our common stock was not completed by September 14, 2008.

 

KRH Compensation

 

Prior to our initial public offering, KRH provided certain executives with long-term equity incentive compensation awards in the form of profit interests in KRH, which entitle the executives to share in the future profits of the business. These profit interests will not be paid by RHI Inc. For a further discussion on the Value Units granted prior to the initial public offering, see “Executive compensation — Narrative Disclosure to Grants of Plan-Based Awards Table.” In addition, on February 9, 2009, KRH granted profit interests to our President and CEO, Robert A. Halmi, Jr. and our Chairman of the Board, Jeff Sagansky. For a summary of these transactions, please refer to the Company’s Current Form 8-K filed with the SEC on February 9, 2009.

 

Transactions with Holdings II

 

Membership Unit Subscription Agreement

 

RHI Inc. entered into a membership unit subscription agreement with Holdings II. Holdings II agreed to issue to us, and we agreed to subscribe to 13,500,100 common membership units of Holdings II, which represented approximately 57.7% of the common membership units of Holdings II. The per unit purchase price we paid for the common membership units will be equal to the per share purchase price that our common stock was sold to the public in the IPO. KRH contributed its 100% interest in RHI LLC to Holdings II in exchange for 9,900,000 common membership units in Holdings II, which represented approximately 42.3% of common membership units of Holdings II.

 

Immediately after transaction, Holdings II funded a distribution to KRH for $35.7 million intended to return capital contributions by KRH used for the funding of capitalized film production costs incurred prior to the reorganization, which KRH will used to repay its unsecured term loan facility. KRH and RHI Inc. agreed to waive their rights to pro rata distributions pursuant to the LLC Agreement for this one time cash distribution.

 

In addition to other customary closing conditions, the sale of the common membership units of Holdings II was conditioned upon our entry into an underwriting agreement with the managing underwriters for this offering, the completion of the reorganization and offering transactions, and the absence of any order, decree or judgment of any court or other governmental authority that made the sale of the common membership units of Holdings II to us illegal or invalid. The membership unit subscription agreement would have automatically terminated if the closing conditions were not satisfied or waived on or before a specified date or if the registration statement relating to this offering was withdrawn for any reason prior to such date.

 

Transactions with Kelso

 

Financial Advisory Agreement

 

Under the terms of the financial advisory agreement between Kelso, the principal investor of KRH, and us (as the successor to RHI Entertainment Holdings, LLC), dated January 12, 2006 (inception), we were required to pay a financial advisory fee of up to $600,000 per year, payable quarterly in advance to Kelso in consideration for financial advisory services provided to us. The financial advisory agreement provides that we will indemnify Kelso and Kelso’s officers, directors, affiliates’ respective partners, employees, agents and control persons (as such term is used in the Securities Act and the rules and regulations thereunder), against claims, losses and expenses as incurred in connection with the services rendered to us or our predecessors under the financial advisory agreement or arising out of any such person being a controlling person of KRH and our Company. It also provides that we reimburse Kelso’s expenses incurred in connection with Kelso’s investment in RHI LLC and with respect to all other services to be provided to us or our predecessors by Kelso. The financial advisory agreement also provides for the payment of certain fees, as may be determined by our Board, payable by us to Kelso in connection with financial advisory and