ITEM 10. Directors, Executive Officers and
Corporate Governance
Information about Directors and Executive Officers
The following table sets forth the name, age, and
position of each of the Company’s executive officers and directors:
Name | |
Age | |
Position | |
Audit
Committee | |
Compensation
Committee | |
Nominating
&
Governance
Committee | |
Technology,
Data &
Innovation
Committee |
William J. Rouhana, Jr.* | |
70 | |
Chairman of the Board and Chief Executive Officer | |
| |
| |
| |
|
Christopher Mitchell* | |
53 | |
Chief Financial Officer (Parent) and Director | |
| |
| |
| |
|
Jason Meier | |
53 | |
Chief Financial Officer (Company) | |
| |
| |
| |
|
Amy L. Newmark* | |
66 | |
Senior Brand Advisor and Director | |
| |
| |
| |
|
Fred M. Cohen | |
78 | |
Director | |
✓ | |
✓ | |
✓ | |
|
Cosmo DeNicola | |
68 | |
Director | |
✓ | |
| |
| |
✓ |
Martin Pompadur | |
87 | |
Director | |
| |
| |
✓ | |
✓ |
Christina Weiss Lurie | |
63 | |
Director | |
| |
✓ | |
| |
|
Diana Wilkin | |
64 | |
Director | |
✓ | |
✓ | |
| |
✓ |
Vikram Somaya | |
47 | |
Director | |
| |
| |
✓ | |
✓ |
*Services
provided pursuant to the CSS Management Agreement. See below under “— Conflicts of Interest — CSS Management Agreement,”
“— Conflicts of Interest — CSS License Agreement,” and “— Conflicts of Interest —
CSS Agreements Modification.”
Each director nominee serves as a current director
of the Company and attended at least 75% of all meetings of the Board of directors and each committee on which he or she sat or was eligible
to sit in during 2022.
We believe that it is necessary for each of our
directors to possess qualities, attributes, and skills that contribute to a diversity of views and perspectives among the directors and
enhance the overall effectiveness of the board of directors. As described below under “Nominating and Governance Committee —
Guidelines for Selecting Director Nominees,” the nominating and governance committee of our Board considers all factors it
deems relevant when evaluating prospective candidates or current members of our Board for nomination to our Board, as prescribed in the
committee’s written charter and established guidelines and the Company’s corporate governance guidelines. All of our directors
bring to the Board leadership experience derived from past service. They also all bring a diversity of views and perspectives derived
from their individual experiences working in a range of industries and occupations, which provide our Board, as a whole, with the skills
and expertise that reflect the needs of the Company. The following skills matrix shows the diverse range of experience our current directors
provide to our Company:
|
|
Qualification |
|
Experience |
|
|
Executive Leadership |
|
Public Company Director |
|
Audit Committee Financial Expert(1) |
|
Finance |
|
Law |
|
M&A |
|
Media & Entertainment Industry Experience |
William J. Rouhana, Jr. |
|
✓ |
|
|
|
|
|
✓ |
|
✓ |
|
✓ |
|
✓ |
Christopher Mitchell |
|
✓ |
|
|
|
|
|
✓ |
|
|
|
✓ |
|
✓ |
Amy L. Newmark |
|
✓ |
|
✓ |
|
|
|
✓ |
|
|
|
✓ |
|
✓ |
Fred M. Cohen |
|
✓ |
|
|
|
|
|
|
|
|
|
✓ |
|
✓ |
Cosmo DeNicola |
|
✓ |
|
|
|
✓ |
|
✓ |
|
|
|
✓ |
|
✓ |
Martin Pompadur |
|
✓ |
|
✓ |
|
|
|
|
|
✓ |
|
✓ |
|
✓ |
Christina Weiss Lurie |
|
✓ |
|
|
|
|
|
|
|
|
|
|
|
✓ |
Diana Wilkin |
|
✓ |
|
|
|
|
|
|
|
|
|
|
|
✓ |
Vikram Somaya |
|
✓ |
|
|
|
|
|
|
|
|
|
✓ |
|
✓ |
| (1) | Indicates audit committee members who the board has determined meet the criteria of an “Audit Committee Financial Expert”
under applicable SEC rules. |
Certain individual experiences, qualifications,
and skills of our directors that contribute to the board of directors’ effectiveness as a whole are described in the biographies
set forth below:
William
J. Rouhana, Jr. Mr. Rouhana has been the Company’s Chairman since the formation of the Company’s predecessor
in December 2014, has been the Company’s Chief Executive Officer since January 1, 2017 and has been the Chief Executive
Officer of each of Chicken Soup for the Soul Holdings, LLC (“CSS Holdings”) and Chicken Soup for the Soul, LLC (“CSS”)
since April 2008. Mr. Rouhana has been a leader in the media, entertainment and communications industries for more than 35 years.
He was the founder and Chief Executive Officer of Winstar Communications, a wireless broadband pioneer, and Winstar New Media, one of
the earliest online video content companies, from 1993 until 2001. During his career, Mr. Rouhana has led the acquisition of numerous
media companies including Virgin Vision, a Virgin Group worldwide film distribution venture, in the 1980s. As an entertainment and finance
lawyer from 1977 to 1985, he developed new film financing models for major producers such as Blake Edwards. He received his B.A. from
Colby College, where he is currently trustee emeritus, and his J.D. from Georgetown Law School. He is the co-founder of The Humpty Dumpty
Institute, which created the International Film Exchange, and the Chairman of the Global Creative Forum, which connects the United Nations
with major film and television executives and talent. Among other qualifications, Mr. Rouhana brings to the Board extensive executive
leadership in the communications, media and entertainment industries including production and distribution of content, and broad experience
in business financings and acquisitions. Mr. Rouhana is the husband of Amy Newmark, a member of the Board.
Christopher
Mitchell. Mr. Mitchell has served as the Chief Financial Officer of CSS, our parent, since January 1, 2019. He also
served as the Company’s Chief Financial Officer from January 1, 2019 through November 2022. He has more than 25 years
of experience managing and financing businesses and providing financial and strategic advice to senior management teams. Mr. Mitchell
was elected to our board of directors at the June 10, 2021, meeting of stockholders. Since May 2013, he has been a member of
the executive leadership team and an Executive Vice President at CSS, and the Chief Executive Officer of Chicken Soup for the Pet Lover’s
Soul LLC, a subsidiary of CSS. From 2009 to 2013, he was the Chief Executive Officer and founder of TMG Partners, a specialized private
capital investment firm focused on enterprising consumer goods and media companies. From 2004 to 2009, Mr. Mitchell was a senior
founding member of a proprietary investment fund at Bank of America Merrill Lynch focused on making direct private investments into mostly
consumer goods and media companies, including an investment in CSS, and from 1993 to 2003, he was a member of the Leveraged Finance team
at Bank of America Merrill Lynch. During his career, Mr. Mitchell has led or assisted 59 transactions totaling more than $17 billion,
including financings for subscription based or ad supported media businesses such as Bloomberg, Inc., QwestDex, Inc., Radio
One, Inc., Block Communications, Gray Television, Inc., and Entercom Radio, LLC and consumer goods companies such as Del Monte,
S&W Fine Foods, Contadina, College Inn, StarKist, Sun Fresh, Orchard Select, Kibbles ‘n Bits, C&H Sugar, Bell Sports and
Accessory Network (leading accessories designer and manufacturer for Calvin Klein, Karl Lagerfeld, Tahari and Izod). Mr. Mitchell
received his B.S. in Finance and B.S. in Management from Virginia Tech and studied International Law and Finance at the London School
of Economics and Political Science.
Jason
Meier. Mr. Meier has been our Chief Financial Officer since November 2022. Prior to becoming our Chief
Financial Officer, Mr. Meier had served as our Executive Vice President, Finance, and Chief Accounting Officer since joining
our company in September 2021. Mr. Meier has exetensive experience in operational finance and controllership roles, in both
private joint ventures and publicly traded companies. From April 2017 to March 2020, Mr. Meier was an Executive Vice
President and Chief Financial Officer of EPIX, a division of Metro-Goldwyn-Mayer and provider of digital media subscription premium
pay television. Mr. Meier served a Senior Vice President and Worldwide Controller for Viacom Media Networks, the US-based mass
media division of Viacom Inc. (“Viacom”), from 2014 to 2015. From 2012 to 2014, he served as a Vice President and
Controller of Viacom International Media Networks, Viacom’s international division, and from 2012 to 2014, he served as Vice
President and Deputy Controller of MTV Networks and Acting CFO of MTC Games, each a division of Viacom. From 2009 to 2011,
Mr. Meier served as VP Accounting Services and External Reporting for Viacom. Prior to this, Mr. Meier was a Senior
Manager with PricewaterhouseCoopers LLP and held various roles from 1993 to 1998 and resumed his position from 2000 to 2007, after
serving at the U.S. Securities and Exchange Commission from 1998 to 2000. Mr. Meier is a CPA and received his BS degree from
Cornell University and his MBA from Columbia University.
Amy
L. Newmark. Ms. Newmark has been a member of the Board since the Company’s formation in May 2016. She has more
than 30 years of media and telecommunications industry and investment banking experience. Ms. Newmark has been the Publisher, Editor-in-Chief,
and an author for CSS since April 2008 and has co-authored the publication of more than 175 books under the brand during her tenure.
Ms. Newmark also serves as our Senior Brand Advisor. Ms. Newmark founded and managed a successful hedge fund for five years.
Prior to that she was a Managing Director at CJ Lawrence and was a top-ranked telecom analyst during her tenure. She received her A.B.
from Harvard University and is a Chartered Financial Analyst. Among other qualifications, Ms. Newmark brings to the Board important
financing experience, content publications expertise and an intimate knowledge of the Chicken Soup for the Soul brand and related operations.
Ms. Newmark is the wife of Mr. Rouhana, the Company’s Chairman and Chief Executive Officer.
Fred
M. Cohen. Mr. Cohen has been a member of the Board since June 2016. He has more than 35 years of media and entertainment
experience. Since 2004, he has been the Chairman of the International Academy of Television Arts & Sciences (Emmys), and, since
2000, the Chairman of its Foundation. Previously, he was the Executive Vice President of CBS Broadcast International, the President of
King World International Productions, advisor to Harpo Productions on the international distribution of its television properties including
The Oprah Winfrey Show and Dr. Oz. He is Chair Emeritus of PCI — Media Impact, a New York based international NGO (non-governmental
organization). He received his B.A. from The University of Michigan and his M.S. from Stanford University. Among other qualifications,
Mr. Cohen brings to the Board extensive executive and operational experience in the media and entertainment industries, including
the international segments of such industries.
Cosmo
DeNicola. Mr. DeNicola has been a member of the Board since June 2019. Mr. DeNicola is the founder of the Cosmo
DeNicola Companies, a portfolio company that holds a diverse range of businesses in the healthcare, technology, publishing, professional
sports, and entertainment industries. He is the founder of Amtech Software and Futura Services Inc., and a co-founder of InfoLogix Inc.,
LogisStar Solutions and Pursuit Healthcare Advisors. Mr. DeNicola received Ernst & Young’s Philadelphia Region Entrepreneur
of the Year Award in 2018 and was honored by the Fox School of Business as one of 100 world-wide entrepreneurs and visionaries who have
helped shape Fox Business School and the business world. Mr. DeNicola received his B.A. from Temple University. Among other qualifications,
Mr. DeNicola brings to the Board extensive executive and entrepreneurial experience.
Martin
Pompadur. Mr. Pompadur has been a member of the Board since June 2019. Mr. Pompadur has over 50 years of experience
in the media and entertainment industry. He joined American Broadcasting Company in 1960 and became the youngest person ever appointed
to ABC, Inc.’s Board of Directors. He is currently on the board of Nexstar Media Group, Inc., and has previously served
on the boards of IMAX Corporation, ABC Inc., Ziff Corporation, News Corporation Europe, Sky Italia, News Out of Home, BSkyB, and Metromedia
International Group. Mr. Pompadur received his B.A. from Williams College and an L.L.B. from University of Michigan Law School. Among
other qualifications, Mr. Pompadur brings to the board extensive executive and operational experience in the media and entertainment
industries.
Christina
Weiss Lurie. Ms. Weiss Lurie has been a member of the Board since June 2016. Her multi-faceted career spans the worlds
of sports, entertainment and philanthropy. She is a minority owner of the Philadelphia Eagles and President of Eagles Charitable Foundation
(formerly Eagles Youth Partnership). She is also an Oscar award-winning film producer. As executive producer, Ms. Weiss Lurie received
an Oscar for Inside Job (2011), which tackles the consequences of systematic corruption of the U.S. by the financial services industry,
and Inocente (2013), which features the struggles of a homeless, undocumented teen. She is the co-founder of multiple independent film
companies, including Tango Pictures and Fourth and Twenty Eight Films. She was born and raised in Mexico and is also a noted philanthropist.
Under her leadership, the Philadelphia Eagles earned the coveted 2011 Beyond Sport Team of the Year award for their work in the community
and for trailblazing environmental programs in professional sports. She received her B.A. from Yale University. Among other qualifications,
Ms. Weiss Lurie brings to the Board extensive content production experience and broad management skills.
Diana
Wilkin. Ms. Wilkin has been a member of the Board since June 2016. She has over 20 years of experience in the media
industry. Since January 2017, Ms. Wilkin has been the President of Broadcast of Share Rocket, a social media measurement company.
She has been Managing Director of Twelve 24 Media, a broadcast and media consulting firm, since February 2014. Formerly she served
as President of CBS Affiliate Relations from 2008 to December 2013, where she was responsible for network agreements with all major
broadcast groups’ television stations. From 2000 to 2008, she was involved in the management of both CBS and FOX affiliates as Vice
President, General Manager in numerous markets. She received her B.S. from the University of Southern California. Among other qualifications,
Ms. Wilkin brings to the Board, extensive management and operational experience in the media and entertainment industries, particularly
in the television broadcasting industry.
Vikram
Somaya. Mr. Somaya has been a member of the Board since October 2021. He currently serves as Chief Data and Analytics
Officer at PepsiCo. and brings to Chicken Soup for the Soul Entertainment’s board an extensive knowledge of new technologies, digital
media, data analytics, corporate strategies, consumer behaviors, distribution and new advertising platforms. Prior to joining PepsiCo
in 2019, Mr. Somaya served in various leadership roles at data-driven organizations. Previously, Mr. Somaya served as EVP, Chief
Data Officer at Nielson; SVP, Global Data Officer and Ad Platforms at ESPN; General Manager of AdFX and Analytics at The Weather Company;
and the VP of Global Operations and Audience at Thomson Reuters.
Board Composition
Effective as of the Annual Meeting,
assuming election of the director nominees set forth in this proxy statement, our board composition will be as follows:
Board Diversity Matrix (As of April 28, 2023) |
Board Size: |
|
|
|
Total Number of Directors |
9 |
|
Female |
Male |
Did Not Disclose Gender |
Gender Identity |
|
|
|
Directors |
2 |
6 |
1 |
Demographic Background |
|
|
|
Asian |
0 |
1 |
0 |
White |
2 |
5 |
0 |
Did Not Disclose Demographic Background |
1 |
Family Relationships
William J. Rouhana, Jr., the Company’s
Chairman and Chief Executive Officer, is the husband of Amy Newmark, a member of the Board.
Leadership Structure
William J. Rouhana, Jr. serves as Chairman
and Chief Executive Officer. The Company does not believe that its size or the complexity of its operations warrants a separation of the
Chairman and Chief Executive Officer functions. Furthermore, the Company believes that combining the roles of Chairman and Chief Executive
Officer promotes leadership and direction for executive management, as well as allowing for a single, clear focus for the chain of command.
Mr. Rouhana is one of the Company’s founders and has substantial experience in the Company’s industry. The Company believes
that he is uniquely qualified through his experience and expertise to be the person who generally sets the agenda for, and leads discussions
of, issues relating to the implementation of the Company’s strategic plan. While the Board does not have a lead independent director,
the independent directors meet in executive session regularly without the presence of management.
Conflicts of Interest
Our certificate of incorporation provides that:
| · | we renounce any interest or expectancy in, or being offered an opportunity to participate in, any business opportunities that are
presented to us or our officers, directors or stockholders or affiliates thereof, including but not limited to, CSS Productions, LLC (“CSS
Productions”) and its affiliates; and |
| · | our officers and employees will not be liable to our company or our stockholders for monetary damages for breach of any fiduciary
duty by reason of any activities of us or any of the CSS Companies to the fullest extent permitted by Delaware law. |
CSS License Agreement
We have entered into agreements with our affiliated
companies which provide us with access to important assets and resources. This include a trademark and intellectual property license agreement
(“CSS License Agreement”) through which we have been granted a perpetual, exclusive, worldwide license to produce and distribute
video content using the brand and related content, such as stories published in the Chicken Soup for the Soul books. Pursuant to the CSS
License Agreement, the CSS Companies have agreed not to produce and distribute video content. Accordingly, if any of our executive officers
or directors becomes aware of a non-video content opportunity which is suitable for an entity to which he or she has current fiduciary
or contractual obligations, he or she will be entitled to present those opportunities to the CSS Companies prior to presenting them to
us. Beginning in August 2022, under the terms of the HPS Credit Facility, the 5% license fee as it relates to Redbox’s net
revenues is applied only to certain limited revenue categories. For the years ended December 31, 2022 and 2021, we recorded $9.2
million and $5.5 million, respectively, of license fee expense under this agreement. We believe that the terms and conditions of the CSS
License Agreement, which provides us with the rights to use the trademark and intellectual property in connection with our video content,
are more favorable to us than any similar agreement we could have negotiated with an independent third party.
CSS Management Agreement
We have a management services agreement (the
“CSS Management Agreement”) pursuant to which we pay our parent company, Chicken Soup for the Soul, LLC, a management
fee equal to 5% of our net revenue. Under the terms of the CSS Management Agreement, we are provided with the broad operational
expertise of CSS and its subsidiaries and personnel, including the services of our chairman and chief executive officer,
Mr. Rouhana, Ms. Newmark, and Mr. Mitchell our chief financial officer through November 14, 2022 and continues
to the chief financial officer of CSS. The CSS Management Agreement also provides for services, such as
accounting, legal, marketing, management, data access and back-office systems, and provides us with office space and equipment
usage. On August 1, 2019, we entered into an amendment to the CSS Management Agreement which removed our obligation to pay
sales commissions to CSS in connection with sponsorships for our video content or other revenue generating transactions arranged by
CSS or its affiliates. On March 15, 2021, we entered into a further amendment to the CSS Management Agreement which clarified
that the term of the CSS Management Agreement shall continue on a month-to-month basis until terminated by either party thereto.
Beginning in August 2022, under the terms of the HPS Credit Facility, the 5% management fee as it relates to Redbox’s net
revenues is applied to certain limited revenue categories. For the years ended December 31, 2022 and 2021, we recorded $9.2
million and $5.5 million, respectively, of management fee expense under this agreement. We believe that the terms and conditions of
the CSS Management Agreement, as amended, are more favorable and cost effective to us than if we hired the full staff to operate the
Company.
CSS Agreements Modification
In March 2023, we entered into a modification
with CSS (the “CSS Agreements Modification”) to each of the CSS Management Agreement and CSS License Agreement, pursuant to
which (a) $3.45 million of the aggregate fees under the CSS Management Agreement and CSS License Agreement that were earned by CSS
in the first quarter of 2023 and (b) 25% (or $12.75 million) of the next $51 million of such fees that will be earned by CSS after
April 1, 2023 shall be paid through the issuance by our company of shares of our Class A common stock. The shares payable with
respect to clause (a), above, are being issued promptly following the execution of the CSS Agreements Modification. The shares that shall
become issuable in the future under clause (b) shall be issued each fiscal quarter as such fees are earned. The shares shall be valued
at the higher of (a) $3.05 (which was the highest of our closing price (as reflected on Nasdaq.com) of our Class A common stock
on the trading day immediately preceding the signing of the modification, and the average closing price of our Class A common stock
(as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the modification, and (b) the average
closing price of our Class A common stock (as reflected on Nasdaq.com) for the five trading days immediately following the filing
of the Company’s 10-K for the year ended December 31, 2022.
Independence of Directors
The Company’s Class A common stock,
9.75% Series A Cumulative Redeemable Perpetual Preferred Stock, and its 9.50% Notes due 2025 are each listed on the Global Market
of The Nasdaq Stock Market (“Nasdaq”) and the Company adheres to the Nasdaq listing standards in determining whether a director
is independent. The Board consults with its counsel to ensure that its determinations are consistent with those rules and all relevant
securities and other laws and regulations regarding the independence of directors.
Nasdaq requires that a majority of the Board must
be composed of “independent directors,” which is defined generally as a person other than an officer of a Company, who does
not have a relationship with the Company that would interfere with the director’s exercise of independent judgment in carrying out
the responsibilities of a director. Consistent with these considerations, the Company has determined that each of Messrs. DeNicola,
Pompadur, Somaya, and Cohen, and each of Mses. Wilkin and Weiss Lurie is an independent director.
Board Role in Risk Oversight
The Board’s primary function is one of oversight.
The Board as a whole works with the Company’s management team to promote and cultivate a corporate environment that incorporates
enterprise-wide risk management into strategy and operations. Management periodically reports to the Board about the identification, assessment
and management of critical risks and management’s risk mitigation strategies.
Each committee of the Board is responsible for
the evaluation of elements of risk management based on the committee’s expertise and applicable regulatory requirements. In evaluating
risk, the Board and its committees consider whether the Company’s programs adequately identify material risks in a timely manner
and implement appropriately responsive risk management strategies throughout the organization. The audit committee focuses on assessing
and mitigating financial risk, including risk related to internal controls, and receives at least quarterly reports from management on
identified risk areas. In setting compensation, the compensation committee strives to create incentives that encourage behavior consistent
with the Company’s business strategy, without encouraging undue risk-taking. The nominating and governance committee considers areas
of potential risk within corporate governance and compliance, such as management succession. Each of the committees reports to the Board
as a whole as to their findings with respect to the risks they are charged with assessing.
Board Meetings and Committees
During the fiscal year ended December 31,
2022, the Board met twelve times and acted by written consent eighteen times. All of the Company’s directors attended all of the
meetings of the Board and committees on which they served. The directors are encouraged to attend meetings of stockholders, if they are
able, and all of our directors attended the 2022 annual meeting of stockholders.
The Board has four separately standing committees:
the audit committee, the compensation committee, the nominating and governance committee, and the technology, data and innovations committee.
Each committee is composed entirely of independent directors as determined in accordance with the rules of Nasdaq for directors generally,
and where applicable, with the rules of Nasdaq for such committee. In addition, each committee has a written charter, a copy of which
is available free of charge on the Company’s website at http://ir.cssentertainment.com.
Audit Committee
The audit committee consists of Mr. DeNicola
(committee chairman), Mr. Cohen, and Ms. Wilkin, each of whom is “independent” as defined in Rule 10A-3 of
the Exchange Act and the Nasdaq listing standards. During the fiscal year ended December 31, 2022, the audit committee met six times.
The audit committee’s duties, which are specified
in the audit committee charter, include, but are not limited to:
| · | reviewing and discussing with management and the independent registered public accounting firm the annual audited financial statements,
and recommending to the Board whether the audited financial statements should be included in the Company’s annual reports; |
| · | discussing with management and the independent registered public accounting firm significant financial reporting issues and judgments
made in connection with the preparation of the Company’s financial statements; |
| · | discussing with management major risk assessment and risk management policies; |
| · | monitoring the independence of the independent registered public accounting firm; |
| · | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner
responsible for reviewing the audit as required by law; |
| · | reviewing and approving all related-party transactions; |
| · | inquiring and discussing with management the Company’s compliance with applicable laws and regulations; |
| · | pre-approving all audit services and permitted non-audit services to be performed by the Company’s independent registered public
accounting firm, including the fees and terms of the services to be performed; |
| · | appointing or replacing the independent registered public accounting firm; |
| · | determining the compensation and oversight of the work of the independent registered public accounting firm (including resolution
of disagreements between management and the independent registered public accounting firm regarding financial reporting) for the purpose
of preparing or issuing an audit report or related work; and |
| · | establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal
accounting controls or reports which raise material issues regarding the Company’s financial statements or accounting policies. |
Financial Experts on Audit Committee
The audit committee will at all times be composed
exclusively of “independent directors” who are “financially literate” as defined under the Nasdaq listing standards.
The definition of “financially literate” generally means being able to read and understand fundamental financial statements,
including a company’s balance sheet, income statement and cash flow statement. The Board has determined that each of Messrs. DeNicola
and Cohen, and Ms. Wilkin are independent directors and are financially literate.
Additionally, we must annually certify to Nasdaq
that the audit committee has, and will continue to have, at least one member who has past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable experience or background that results in the individual’s
financial sophistication. The Board has determined that Mr. DeNicola qualifies as an “audit committee financial expert,”
as defined under rules and regulations of the SEC.
Report of the Audit Committee
The audit committee reviewed and discussed the
Company’s audited financial statements for year ended December 31, 2022 with management, as well as with the Company’s
independent registered public accounting firm. The audit committee discussed with the independent registered public accounting firm the
matters required to be discussed by the statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting
Oversight Board (“PCAOB”) in Rule 3200T, as well as various accounting issues relating to presentation of certain items
in the Company’s financial statements and compliance with Section 10A of the Securities Exchange Act of 1934, as amended. The
audit committee received the written disclosures and letter from the independent registered public accounting firm required by the applicable
requirements of the PCAOB regarding such firm’s communications with the audit committee concerning independence, and the audit committee
discussed with such firm its independence.
Based upon the review and discussions referred
to above, the audit committee recommended that the Company’s audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2022 for filing with the Securities and Exchange Commission. The Board evaluated
the performance of Rosenfield & Co. and re-appointed the firm as the Company’s independent registered public accounting
firm for the fiscal year ending December 31, 2023.
|
Submitted by the Audit Committee: |
|
|
|
Cosmo DeNicola (Chairman) |
|
Fred M. Cohen |
|
Diana Wilkin |
Compensation Committee
The compensation committee consists of Ms. Weiss
Lurie (committee chairwoman), Ms. Wilkin, and Mr. Cohen, each of whom is an independent director. During the fiscal year ended
December 31, 2022, the compensation committee met four times.
The compensation committee’s duties, which
are specified in the Company’s compensation committee charter, include, but are not limited to:
| · | reviewing and approving on an annual basis the corporate goals and objectives relevant to the Chief Executive Officer’s compensation
(if any), evaluating the Chief Executive Officer’s performance in light of such goals and objectives and determining and approving
the remuneration (if any) of the Chief Executive Officer based on such evaluation; |
| · | reviewing and approving the compensation of all of the other executive officers (including through the Company’s management
services agreements); |
| · | reviewing the terms of the CSS Management Agreement as further described below under “Certain Relationships and Related Transactions
— Affiliate Resources and Obligations — CSS Management Agreement;” |
| · | reviewing the Company’s executive compensation policies and plans; |
| · | implementing and administering the Company’s equity-based incentive compensation plans, determining who participates in the
plans, establishing performance goals, if any, and determining specific grants and bonuses to the participants; |
| · | assisting management in complying with the Company’s proxy statement and annual report disclosure requirements; |
| · | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for the Company’s
executive officers and employees; |
| · | if required, producing a report on executive compensation to be included in the Company’s annual proxy statement; and |
| · | reviewing, evaluating and recommending changes to non-executive director compensation. The compensation committee makes all decisions
regarding executive officer compensation. |
The compensation committee periodically reviews
the elements of compensation for the executive officers, including annual base salary, annual incentive bonus, and equity compensation,
and advises the Board whether executive compensation is properly aligned with measures of shareholder value. The compensation committee
also periodically reviews the terms of employment agreements with the executive officers, including in connection with any new hire or
the expiration of any existing employment agreements. The compensation committee will consider the recommendations of the Chief Executive
Officer when determining compensation for other executive officers of the Company. Executive officers do not determine any element or
component of their own pay package or total compensation amount.
The compensation committee also reviews and approves
the Company’s compensation plans, policies and programs and administers the Company’s equity incentive plans. In addition,
the Chief Executive Officer, the Chief Financial Officer, and other members of management make recommendations to the compensation committee
with regard to overall pay strategy for all employees, including program designs, annual incentive design, and long-term incentive plan
design. Management from time to time provides the compensation committee with market information and relevant data analysis as requested.
The compensation committee retains sole authority
to engage compensation consultants, including determining the nature and scope of services and approving the amount of compensation for
those services, and legal counsel or other advisors. The compensation committee assesses the independence of any consultants pursuant
to the rules and regulations of the Securities and Exchange Commission and the listing standards of Nasdaq. The Company will provide
for appropriate funding, as determined by the compensation committee, for payment of any such investigations or studies and the compensation
to any consulting firm, legal counsel or other advisors retained by the compensation committee.
Nominating and Governance Committee
The nominating and governance committee consists
of Mr. Cohen (committee chairman),
Mr. Pompadur, and Vikram Somaya, each of whom
is an independent director under the Nasdaq listing standards. During the fiscal year ended December 31, 2022, the nominating and
governance committee met two times. The nominating and governance committee is responsible for overseeing the selection of persons to
be nominated to serve on the Board. During the fiscal year ended December 31, 2022, the nominating and governance committee met two
times.
The nominating and governance committee’s
duties, which are specified in the Company’s nominating and governance committee charter, include, but are not limited to:
| · | Developing the criteria and qualifications for membership on the Board; |
| · | Recruiting, reviewing and nominating candidates for election to the Board or to fill vacancies on the Board; |
| · | Periodically reviewing our company’s corporate governance policies and recommending to the Board modifications to the policies
as appropriate, including changes necessary to satisfy any applicable requirements of the NASDAQ, the SEC, and any other legal or regulatory
requirements; and |
| · | Reviewing the Company’s policies and programs concerning corporate social responsibility, including environmental, social, diversity,
and governance matters. |
Guidelines for Selecting Director Nominees
The nominating and governance committee will consider
persons identified by its members, management, stockholders, investment bankers and others. The guidelines for selecting nominees, which
are specified in the nominating and governance committee charter, generally provide that persons to be nominated:
| · | should have demonstrated significant achievements in business, education, or public service; |
| · | should possess the requisite intelligence, education and experience to make a significant contribution to the Board and bring a range
of skills, diverse perspectives, and backgrounds to its deliberations; and |
| · | should have the highest ethical standards, a strong sense of professionalism, and intense dedication to serving the interests of the
stockholders. |
The nominating and governance committee will consider
a number of qualifications relating to management and leadership experience, background, and integrity and professionalism in evaluating
a person’s candidacy for membership on the Board. The nominating and governance committee may require certain skills or attributes,
such as financial or accounting experience, to meet specific Board needs that arise from time to time and will also consider the overall
experience and makeup of its members to obtain a broad and diverse mix of board members. Although the Board does not have specific guidelines
on diversity, it is one of many criteria considered by the nominating and governance committee when evaluating candidates. The nominating
and governance committee does not distinguish among nominees recommended by stockholders and other people.
Procedure for Stockholders to Recommend Director
Candidates
The nominating and governance committee does not
have a written policy or formal procedural requirements for stockholders to submit recommendations for director nominations. However,
the nominating and governance committee will consider recommendations from stockholders. Stockholders should communicate nominee suggestions
directly to the nominating and governance committee and accompany the recommendation with biographical details and a statement of support
for the nominee. The suggested nominee must also provide a statement of consent to being considered for nomination. There have been no
material changes to the procedures by which security holders may recommend nominees to the Board.
In March 2022 our nominating and governance
committee recommended to our board of directors the nomination of Fred M. Cohen, Cosmo DeNicola, Christopher Mitchell, Amy L. Newmark,
Martin Pompadur, William J. Rouhana, Jr., Vikram Somaya, Christina Weiss Lurie, and Diana Wilkin for re-election as directors. Our
nominating and governance committee did not receive recommendations from any stockholders or others for director candidates.
Technology, Data and Innovation Committee
The technology, data and innovation committee consists
of Mr. Vikram Somaya (committee chairman), Mr. DeNicola, Ms. Wilkin and Mr. Pompadur. The technology, data and innovation
committee was formed in April 2022 and met once during 2022.
Our technology, data and innovation committee is
responsible for assisting our board in overseeing and supporting the actions being taken by management in relation to technology and innovation.
The technology, data and innovation committee will focus on key strategic issues in relation to our technology backbone and help our board
and company in related areas, including:
| · | the development of existing technology, architecture, and processes to enhance the customer experience and maintain the health and
resilience of our IT systems; |
| · | adoption and implementation of new and future data and technology capabilities; |
| · | acquisition, innovations, partnerships, and joint ventures that can improve our technology or data capabilities; |
| · | consideration and implementation of strategies, policies and technologies that can enhance data security; and |
| · | evaluation of key threats and opportunities resulting from new business models and disruptive technologies. |
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires
our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes
in ownership with the SEC. Based solely upon a review of such forms and written representations received by the Company from certain reporting
persons, we believe that during the year ended December 31, 2022 all Section 16(a) filing requirements were complied with
in a timely manner.
Code of Ethics
In August 2017, the Company adopted a code
of ethics that applies to all of its respective executive officers, directors and employees. The code of ethics codifies the business
and ethical principles that govern all aspects of the Company’s business. This code of ethics is posted on the Company’s corporate
website at http://ir.cssentertainment.com. In addition, the Company intends to post on its website disclosures that are required by law
concerning any amendments to, or waivers from, any provision of the Company’s code of ethics.
Stockholder Communications
Stockholders may contact the Board or individual
members of the Board by writing to them in care of the Secretary, Chicken Soup for the Soul Entertainment Inc., P.O. Box 700, Cos
Cob, Connecticut 06807. The Secretary will forward all correspondence received to the Board or the applicable director from time to time.
This procedure was approved by the Company’s independent directors.
Director Compensation
Each of the Company’s independent Directors
receives annual director fees totaling $85,000 per year in two equal semi-annual installments, payable 50% in cash and 50% in shares of
Class A common Stock.
The following table sets forth compensation earned
by each independent Director who are not named executive officers and served during the year ended December 31, 2022.
Name | |
Fees Earned or Paid in Cash ($)(1) | | |
Stock Awards(2) | | |
Total ($) | |
Fred M. Cohen | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
Christina Weiss Lurie | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
Diana Wilkin | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
Cosmo DeNicola | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
Martin Pompadur | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
Vikram Somaya | |
| 42,500 | | |
| 42,500 | | |
| 85,000 | |
| (1) | Represents the cash portion of annual director fees. |
| (2) | Represents the fair value of the share awards for the year ended December 31, 2022, calculated in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. These amounts do not necessarily
correspond to the actual value that may be realized by the board member. The assumptions made in valuing the share awards reported in
this column are discussed in the Company’s audited financial statements in its Annual Report on Form 10-K for the year ended
December 31, 2022, including in Note 2, Summary of Significant Accounting Policies — Share-Based Compensation, and Note
6, Share-Based Compensation. |
There were no outstanding stock options held by the Company’s
non-executive directors as of December 31, 2022.
ITEM 11. Executive Compensation
Compensation Objectives
Our compensation program is designed to attract,
retain, and motivate highly qualified executive officers and to establish an appropriate relationship between executive compensation and
the creation of stockholder value.
Summary Compensation Table
The following table sets forth the compensation
paid to or earned by each of our Chief Executive Officer, Chief Financial Officer, and our next highest paid executive officer
of our company (including subsidiaries) (“Named Executive Officers”) for each of the fiscal years ended December 31,
2022 and 2021.
Name and Position |
| |
Year | | |
Salary($) | | |
Bonus ($) | | |
Stock Awards ($) (2) | | |
All
Other | | |
Total ($) | |
William J. Rouhana, Jr. |
(1) | |
2022 | | |
| 375,000 | | |
| — | | |
| — | | |
| 10,856 | | |
| 385,856 | |
Chief Executive Officer |
| |
2021 | | |
| 135,000 | | |
| — | | |
| — | | |
| 9,638 | | |
| 144,638 | |
Christopher Mitchell |
(1)(3) | |
2022 | | |
| 400,962 | | |
| 160,385 | | |
| — | | |
| 35,264 | | |
| 596,611 | |
Chief Financial Officer |
| |
2021 | | |
| 200,000 | | |
| 150,000 | | |
| — | | |
| 19,024 | | |
| 369,024 | |
Jason Meier |
(3) | |
2022 | | |
| 366,539 | | |
| 96,766 | | |
| — | | |
| 30,571 | | |
| 493,876 | |
Chief Financial Officer |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Galen Smith |
(4) | |
2022 | | |
| 311,233 | | |
| 960,000 | | |
| 739,211 | | |
| 2,841,909 | | |
| 4,852,353 | |
Executive Vice Chairman |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Elana B. Sofko |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Chief Strategy Officer |
| |
2021 | | |
| 396,731 | | |
| 208,750 | | |
| 263,097 | | |
| 10,658 | | |
| 879,236 | |
| (1) | Represents
the allocable portion (based on business time allocated to CSSE) of salary and bonus, medical care, vision, and long-term disability
coverage premiums that is paid by our parent company to the listed executive officers. These amounts are not paid separately by CSSE;
they are covered by payments CSSE makes under the CSS Management Agreement. The services of Messrs. Rouhana and Mitchell
are provided to our company under the CSS Management Agreement. |
| (2) | The amounts reported in the “Stock Awards” column reflect
the fair value of stock options for the year ended December 31, 2022, calculated in
accordance with ASC Topic 718. These amounts do not necessarily correspond to the actual
value that may be realized by the named executive officers. The assumptions made in valuing
the stock option awards reported in this column are discussed in the Company’s audited
financial statements in its Annual Report on Form 10-K for the year ended December 31,
2022, including in Note 2, Summary of Significant Accounting Policies — Share-Based
Compensation, and Note 6, Share-Based Compensation. Mr. Smith’s stock awards represents
the value of CSSE class A common stock issued to him as a result of his Redbox restricted
stock units being accelerated and exchnaged in conjunction with the acquisition. |
| (3) | Mr. Mitchell was the Chief Financial Officer of CSSE from January 1,
2022 through November 14, 2022, after which time, he continues to be the Chief Financial Officer of CSS, our parent company, and a Director
of CSSE. On November 15, 2022, Mr. Meier was named the Chief Financnal Officer of our company. |
| (4) | The
amounts reported for Messr. Smith relate to the period after the acquisition of Redbox on August 11, 2022. In December 2022, Mr. Smith tendered his resignation triggering his
contractual severance benefits of approximately $2.8 million. Disclosures related to Mr. Smith’s 2021 salary and benefits are included
in Redbox Entertainment’s 2021 Form 10-K. |
Compensation Arrangements for Named Executive Officers
William J. Rouhana, Jr., and
Christopher Mitchell — CSS Management Agreement
The Company entered into the CSS Management Agreement
with our parent company, CSS, on May 12, 2016. Under the terms of the CSS Management Agreement, we are provided with the broad operational
expertise of the CSS companies’ personnel, including our company’s chairman and chief executive officer, senior brand advisor
and director, and parent chief financial officer. CSS also provides us with numerous other services under the CSS Management Agremeent,
including accounting, legal, marketing, social media support, management, data access and back office systems, as well as office space
and equipment usage. The terms of the CSS Management Agreement and payments made by the Company to date thereunder are described under
“Certain Relationships and Related Transactions — Affiliate Resources and Obligations — CSS Management Agreement.”
Jason Meier
Mr. Meier became our Chief Financial Officer
on November 15, 2022. Prior to this, he was our Chief Accounting Officer since September 2021. As the Chief Financial Officer, Mr.
Meier is entitled to a base salary of $475,000 and a target bonus of 40%. Due to the merger with Redbox, in 2022 Mr. Meier, was
awarded 80% of his eligible 2022 bonus as a special one-time transaction bonus, in lieu of a 2022
performance bonus.
Elana B. Sofko
Ms. Sofko became our Chief Strategy Officer
on May 1, 2021. Prior to this, she was our Chief Operating Officer since November 6, 2017. During 2021 her annual base salary
was $400,000. Ms. Sofko is entitled to receive a discretionary cash bonus of up to 80% in 2021, of her annual base salary. For the year
ended December 31, 2021, Ms. Sofko was awarded a cash bonus of $208,750.
Galen C. Smith
Mr. Smith became the Executive Vice Chairman of
CSSE upon the acquisition of Redbox on August 11, 2022. Prior to the acqusition, Mr. Smith was the CEO of Redbox Entertainment, Inc. Amounts
reflected above represent the allocable portion of his $800,000 salary, $1,200,000 target bonus and other compensation directly attributable
to the post acquisition period in 2022. Based on the terms of the merger, Mr. Smith’s restricted stock units in Redbox were accelerated
and converted into shares of CSSE Class A common stock. In December 2022, Mr. Smith tendered his resignation triggering his
contractual severance benefits of approximately $2.8 million. Disclosures related to Mr. Smith’s 2021 salary and benefits are included
in Redbox Entertainment’s 2021 Form 10-K.
Pay Versus Performance
As required by Section 953(a) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information
about the relationship between executive compensation actually paid and the Company’s financial performance.
Required Tabular Disclosure of Compensation
Actually Paid versus Performance
The following table discloses information on “compensation
actually paid” (CAP) to our principal executive officer (“PEO”) and (on average) to our other Named Executive Officers
(“non-PEO NEOs”) during the specified years alongside total shareholder return (TSR) and net income (loss) metrics.
Year | |
Summary Compensation Table Total for PEO | | |
Compensation Actually Paid to PEO | | |
Average
Summary Compensation Table Total for Non-PEO NEOs (1) | | |
Average
Compensation Actually Paid to Non-PEO NEOs (1) | | |
Value of Initial Fixed $100 Investment Based On: Total Shareholder Return | | |
Net Income (Loss) | |
2022 | |
$ | 385,856 | | |
$ | 385,856 | | |
$ | 1,980,947 | | |
$ | 1,966,613 | | |
$ | (72.52 | ) | |
$ | (111,290,202 | ) |
2021 | |
$ | 144,638 | | |
$ | 144,638 | | |
$ | 464,299 | | |
$ | 605,188 | | |
$ | (24.90 | ) | |
$ | (59,419,724 | ) |
|
(1) | The Average Summary Compensation for Non-PEO NEOs and the Average Compensation
Actually Paid to Non-PEO NEOs is higher than normal in 2022, as it includes approximately $3.6 million of severance and other benefits
that are owed to Mr. Smith, under his contractual agreement assumed by our company in conjunction with our acquisition of Redbox. |
Required Disclosure of the Relationship Between
Compensation Actually Paid and Financial Performance Measures
The following describe the relationship
between the pay and performance figures that are included in the pay versus performance tabular disclosure above. In addition, the first
graph below further illustrates the relationship between our company’s total shareholder return and that of the S&P 500 Index.
As noted above, “compensation actually paid” for purposes of the tabular disclosure and the following graphs were calculated
in accordance with SEC rules and do not fully represent the actual final amount of compensation earned by or actually paid to our
NEOs during the applicable years.
Relationship Between Compensation Actually Paid
and Company Shareholder Return
Relationship Between Compensation Actually Paid
and Net Loss
![](https://content.edgar-online.com/edgar_conv_img/2023/04/28/0001104659-23-053142_image_1.jpg)
Payments upon Termination or Change in Control
In December 2022, Mr. Smith tendered his resignation
triggering his contractual severance benefits of approximately $2.8 million.
Mr. Meier’s employment arrangement contains
provisions for the payout of severance in certain circumstances. If Mr. Meier’s employment is terminated by our company other than
for cause or by Mr. Meier for good reason, then he will be entitled to continued salary for a period of twelve months. Mr. Meier is not
entitled to accelerated vesting of any outstanding equity awards.
Ms. Sofko’s employment arrangement contains
a severance and change of control provisions. If Ms. Sofko’s employment is terminated by our company other than for cause, then
she will be entitled to continued salary for a period of six months. Ms. Sofko is not entitled to accelerated vesting of any outstanding
equity awards. Additionally, if there is a change in control of our company, Ms. Sofko is entitled to a one-time payment.
The following table summarizes the amounts payable
upon certain events for Mr. Meier and Ms. Sofko, assuming such events occurred on December 31, 2022 and December 31, 2021, respectively.
For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total
but not as a present value (the single sum does not reflect any discount).
|
|
Potential Payments ($) |
|
Name |
|
By the
Executive
for Good Reason |
|
|
By the
Company for
Cause |
|
|
By the
Company
Without
Cause |
|
|
Change In
Control of
the
Company |
|
Jason Meier |
|
$ |
475,000 |
|
|
|
— |
|
|
$ |
475,000 |
|
|
$ |
— |
|
Elana B. Sofko |
|
|
— |
|
|
|
— |
|
|
$ |
200,000 |
|
|
$ |
585,000 |
|
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the outstanding
option and stock awards as of December 31, 2022 for each Named Executive Officer.
Name | |
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | |
Option Award
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercised | | |
Option Exercise
Price ($) | | |
Option
Expiration Date | |
William J. Rouhana, Jr.(3). | |
| – | | |
| – | | |
| – | | |
| – | |
Chief Executive Officer | |
| | | |
| | | |
| | | |
| | |
Christopher Mitchell(3) | |
| 100,000 | | |
| – | | |
$ | 8.08 | | |
| 1/15/2024 | |
Chief Financial Officer | |
| | | |
| | | |
| | | |
| | |
Jason Meier | |
| 7,500 | | |
| 7,500 | | |
$ | 22.00 | | |
| 10/5/2026 | |
Chief Financial Officer | |
| | | |
| | | |
| | | |
| | |
Elana B. Sofko | |
| 33,948 | | |
| – | | |
$ | 14.05 | | |
| 12/8/2026 | |
Chief Strategy Officer | |
| 100,000 | | |
| – | | |
$ | 8.08 | | |
| 1/15/2024 | |
Galen C. Smith | |
| – | | |
| – | | |
| – | | |
| – | |
Vice Chairman | |
| | | |
| | | |
| | | |
| | |
We beleive equity grants provide our executives
with a strong link to our company’s long-term performance, create an ownership culture and help to align the interests of our executives
and stockholders. In addition, the Board and the compensation committee periodically review the equity incentive compensation of our Named
Executive Officers and, from time to time, may grant equity incentive awards to them in the form of stock options or other equity awards.
ITEM 13. Certain Relationships and Related
Transactions, and Director Independence
Related Person Policy
Our Code of Ethics requires that
we avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests,
except under guidelines approved by the Board. Related party transactions are defined under SEC rules as transactions in which (1) the
aggregate amount involved will or may be expected to exceed the lesser of $120,000 or one percent of the average of the Company’s
total assets in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any (a) executive
officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of the Company’s shares of common
stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect
material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict
of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively
and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits
as a result of his or her position.
No director may participate in the approval of
any transaction in which he is a related party, but that director is required to provide the other members of the Board with all material
information concerning the transaction. Additionally, the Company requires each of its directors and executive officers to complete a
directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether
any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director,
employee or officer.
Affiliate Resources and Obligations
CSS License Agreement
We have a trademark and intellectual property license
agreement with CSS, which we refer to as the “CSS License Agreement.” Under the terms of the CSS License Agreement, we have
been granted a perpetual, exclusive, worldwide license to produce and distribute video content using the Chicken Soup for the Soul brand
and related content, such as stories published in the Chicken Soup for the Soul books. We pay CSS an incremental recurring license fee
equal to 4% of our net revenue for each calendar quarter, and a marketing fee of 1% of our net revenue. Beginning in August 2022,
under the terms of the HPS Credit Facility, the 5% license fee as it relates to Redbox’s net revenues is applied only to certain
limited revenue categories.
For the years ended December 31, 2022 and
2021, we recorded $9.2 million and $5.5 million, respectively, of license fee expense under this agreement. We believe that the terms
and conditions of the CSS License Agreement, which provides us with the rights to use the trademark and intellectual property in connection
with our video content, are more favorable to us than any similar agreement we could have negotiated with an independent third party.
CSS Management Agreement
We have a management services agreement, which
we refer to as the “CSS Management Agreement”, in which we pay CSS a management fee equal to 5% of our net revenue. Under
the terms of the CSS Management Agreement, we are provided with the broad operational expertise of CSS and its subsidiaries and personnel,
including the services of our chairman and chief executive officer, Mr. Rouhana, our senior brand advisor and director, Ms. Newmark,
and Mr. Mitchell, our chief financial officer through November 14, 2022 and continues to be the chief financial officer of CSS. The CSS Management Agreement also provides for services, such as accounting, legal,
marketing, management, data access and back-office systems, and provides us with office space and equipment usage. On August 1, 2019,
we entered into an amendment to the CSS Management Agreement which removed our obligation to pay sales commissions to CSS in connection
with sponsorships for our video content or other revenue generating transactions arranged by CSS or its affiliates. On March 15,
2021, we entered into a further amendment to the CSS Management Agreement which clarified that the term of the CSS Management Agreement
shall continue on a month-to-month basis until terminated by either of the parties thereto. Beginning in August 2022, under the terms
of the HPS Credit Facility, the 5% management fee as it relates to Redbox’s net revenues is only applied to certain limited revenue
categories.
For the years ended December 31, 2022 and
2021, we recorded $9.2 million and $5.5 million, respectively, of management fee expense under this agreement. We believe that the terms
and conditions of the CSS Management Agreement, as amended, are more favorable and cost effective to us than if we hired the full staff
to operate the Company.
Modification of CSS License Agreement and CSS
Management Agreement
In March 2023, we entered into a modification
with CSS (the “CSS Agreements Modification”) to each of the CSS Management Agreement and CSS License Agreement, pursuant to
which (a) $3.45 million of the aggregate fees under the CSS Management Agreement and CSS License Agreement that were earned by CSS
in the first quarter of 2023 and (b) 25% (or $12.75 million) of the next $51 million of such fees that will be earned by CSS after
April 1, 2023 shall be paid through the issuance by our company of shares of our Class A common stock. The shares payable with
respect to clause (a), above, are being issued promptly following the execution of the CSS Agreements Modification. The shares that shall
become issuable in the future under clause (b) shall be issued each fiscal quarter as such fees are earned. The shares shall be valued
at the higher of (a) $3.05 (which was the highest of our closing price (as reflected on Nasdaq.com) of our Class A common stock
on the trading day immediately preceding the signing of the modification, and the average closing price of our Class A common stock
(as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the modification, and (b) the average
closing price of our Class A common stock (as reflected on Nasdaq.com) for the five trading days immediately following the filing
of the Company’s 10-K for the year ended December 31, 2022.
ITEM 14. Principle Accounting Fees and Services
The following fees were incurred for services rendered
by Rosenfield & Co. in years ended December 31, 2021 and 2022:
| |
Year Ended December 31, | |
| |
2021 | | |
2022 | |
Audit Fees(1) | |
$ | 485,000 | | |
$ | 670,000 | |
Audit-Related Fees(2) | |
| 81,500 | | |
| 76,420 | |
Tax Fees(3) | |
| – | | |
| – | |
All Other Fees | |
| – | | |
| – | |
Total Fees | |
$ | 566,500 | | |
$ | 746,420 | |
| (1) | Audit fees consist of fees billed for professional services by Rosenfield & Co. for audit and quarterly review of our
consolidated financial statements during the years ended December 31, 2022 and 2021 and related services normally provided in connection
with statutory and regulatory filings or engagements. |
| (2) | Audit related fees represent the aggregate fees billed for assurance and related professional services rendered by Rosenfield &
Co. that are reasonably related to the performance of the audit of our financial statements and are not reported
under “Audit Fees.” |
| (3) | Tax fees represent the aggregate fees billed for professional services rendered by Rosenfield & Co. for tax compliance, tax
advice and tax planning services. |
Pre-Approval Policies and Procedures
In accordance with Section 10A(i) of the Securities Exchange
Act of 1934, as amended, before we engage our independent registered public accounting firm to render audit or non-audit services, the
engagement is approved by our Audit Committee. Our Audit Committee approved all of the fees referred to in the rows titled “Audit
Fees,” “Audit-Related Fees,” and “Tax Fees” in the table above.