<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
WEST COAST ENTERTAINMENT CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
WEST COAST ENTERTAINMENT CORPORATION
ONE SUMMIT SQUARE -- SUITE 200
ROUTE 413 & DOUBLE WOODS ROAD
NEWTOWN, PENNSYLVANIA 19047
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON MONDAY, JUNE 16, 1997
The Annual Meeting of Stockholders of West Coast Entertainment Corporation
(the "Company") will be held at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, on Monday, June 16, 1997 at 11:00 a.m.,
local time, to consider and act upon the following matters:
1. To elect seven directors to serve until the 1998 Annual Meeting of
Stockholders.
2. To approve an amendment to the Company's 1995 Equity Incentive
Plan, providing for an increase of 500,000 in the number of shares
available for issuance thereunder;
3. To ratify the selection of Price Waterhouse LLP as the Company's
independent auditors for the current fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on May 2, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
M. Trent Standley, Secretary
Newtown, Pennsylvania
May 15, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES.
<PAGE> 3
WEST COAST ENTERTAINMENT CORPORATION
ONE SUMMIT SQUARE -- SUITE 200
ROUTE 413 & DOUBLE WOODS ROAD
NEWTOWN, PENNSYLVANIA 19047
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON JUNE 16, 1997
INTRODUCTION
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of West Coast Entertainment Corporation (the
"Company") for use at the Annual Meeting of Stockholders to be held on Monday,
June 16, 1997, and at any adjournment of that meeting. All proxies will be voted
in accordance with the stockholders' instructions, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting.
Portions of the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1997 were mailed to stockholders, along with these proxy
materials, on or about May 15, 1997.
QUORUM REQUIREMENT
At the close of business on May 2, 1997, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding and entitled to vote an aggregate of 13,184,029
shares of Common Stock of the Company, constituting all of the outstanding
voting stock of the Company. Holders of Common Stock are entitled to one vote
per share.
The holders of a majority of the number of shares of Common Stock
outstanding and entitled to vote at the Annual Meeting shall constitute a quorum
for the transaction of business at the Annual Meeting. Shares of Common Stock
represented in person or by proxy (including shares which abstain or otherwise
do not vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum is
present at the Annual Meeting.
VOTES REQUIRED
The affirmative vote of the holders of a plurality of the shares of Common
Stock present and voting on the matter is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present and voting on the matter is required for the approval of
the amendment to the Company's 1995 Equity Incentive Plan and for the
ratification of the selection of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending January 31, 1998.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by a broker or nominee who indicates on a proxy that it does
not have discretionary authority to vote as to a particular matter, will not be
voted in favor of such matter, and also will not be counted as shares voting on
such matter. Accordingly, abstentions and "broker non-votes" will have no effect
on the election of directors, the approval of the amendment to the Company's
1995 Equity Incentive Plan or the ratification of the selection of independent
auditors.
<PAGE> 4
BENEFICIAL OWNERSHIP OF VOTING STOCK
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 28, 1997 (i) by each person who is known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) by each director and nominee for election as a director, (iii) by
each of the executive officers, and (iv) by all directors and executive officers
as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)(2)
NAME AND ADDRESS OF ----------------------
BENEFICIAL OWNER NUMBER PERCENT
- --------------------------------------------------------------------- --------- --------
<S> <C> <C>
5% STOCKHOLDERS:
Ralph W. Standley III(3)(4)(5)....................................... 1,361,322 10.5%
Ralph W. Standley III Irrevocable Trust(3)(5)........................ 342,819 2.6
T. Kyle Standley(3)(5)(6)............................................ 1,431,388 11.0
M. Trent Standley(3)(5)(6)........................................... 664,958 5.1
OTHER EXECUTIVE OFFICERS:
Peter Balner(3)(7)................................................... 352,184 2.7
Jules E. Gardner(3).................................................. -- --
Kenneth R. Graffeo(3)................................................ 20,844 *
Donald R. Thomas(3).................................................. -- --
Richard G. Kelly(3).................................................. -- --
Jerry L. Misterman(3)................................................ -- --
Donald Weiss(3)...................................................... -- --
Matt Brown(3)........................................................ -- --
OTHER DIRECTORS:
C. Stewart Forbes.................................................... -- --
c/o Colliers International
84 State Street, 5th Floor
Boston, MA 02109
Wesley F. Hoag....................................................... -- --
c/o R. Meeder & Associates
6000 Memorial Drive
Columbus, OH 43215
All directors and executive officers as a group (13
persons)(4)(5)(6)(7)............................................... 4,173,515 32.1
</TABLE>
- ---------------
* Less than 1%.
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise indicated. In accordance with the
rules of the Securities and Exchange Commission, each stockholder is deemed
to beneficially own any shares subject to stock options or warrants which
are currently exercisable or which become exercisable, or convertible
securities which are currently exercisable or which become exercisable,
within 60 days after February 28, 1997, and any reference in these footnotes
to shares subject to stock options held by the person or entity in question
refers to stock options which are currently exercisable or which become
exercisable within 60 days after February 28, 1997. The inclusion herein of
shares listed as beneficially owned does not constitute an admission of
beneficial ownership. The number and percentage of outstanding shares owned
after this offering assumes none of the listed stockholders will purchase
additional shares in this offering.
(2) Number of shares deemed outstanding includes shares outstanding as of
February 28, 1997 and any shares subject to stock options held by the person
or entity in question that are currently exercisable or exercisable within
60 days following February 28, 1997.
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<PAGE> 5
(3) These holders have an address c/o the Company, One Summit Square, Suite 200,
Route 413 and Double Woods Road, Newtown, Pennsylvania 19047.
(4) Includes 1,297,018 shares held by a revocable trust over which this
stockholder has sole voting and dispositive power; also includes 64,304
shares owned by this stockholder's wife as to which this stockholder
disclaims beneficial ownership.
(5) Voting and dispositive power over 342,819 shares owned by this trust is
shared by T. Kyle Standley and John H. Chory, Esq., as co-trustees. The
beneficiaries of the trust are Ralph W. Standley III's children, who include
T. Kyle Standley and M. Trent Standley. The numbers of shares in the column
next to the names of Ralph W. Standley III, T. Kyle Standley and M. Trent
Standley exclude these shares.
(6) All shares owned by this individual are pledged to a bank as loan
collateral.
(7) Excludes 142,501 shares of Common Stock owned by two family trusts, over
which Mr. Balner has no voting or dispositive power.
PROPOSAL 1:
ELECTION OF DIRECTORS
There are currently seven members of the Board of Directors of the Company,
each of whose terms expire at the Annual Meeting, subject to the election and
qualification of their successors or to their earlier death, resignation or
removal.
The persons named in the enclosed proxy will vote to elect Ralph W.
Standley III, T. Kyle Standley, M. Trent Standley, Donald R. Thomas, Peter
Balner, Wesley F. Hoag and C. Stewart Forbes as directors to serve until the
1998 Annual Meeting of Stockholders, unless authority to vote for the election
of the nominee is withheld by marking the proxy to that effect. Each of the
nominees is currently serving as a director of the Company. Each nominee has
indicated his willingness to serve, if elected, but if he should be unable or
unwilling to stand for election, proxies may be voted for a substitute nominee
designated by the Board of Directors. THE BOARD OF DIRECTORS OF THE COMPANY
RECOMMENDS A VOTE IN FAVOR OF ALL NOMINEES FOR ELECTION AS DIRECTORS OF THE
COMPANY.
Set forth below are the names and certain information with respect to each
nominee for election as a director of the Company.
Ralph W. Standley III, age 58, has served as the Chairman of the Board of
the Company and its principal predecessors for the past five years. He also
served as President of two such predecessors, Nostalgia Ventures, Inc. ("NVI")
and Videosmith (DE) Incorporated ("VDI"), and as Secretary of two other
predecessors, Giant Video Corporation ("GVC") and G.V. Management Corp.
("GVMC"), from the date of their inception or acquisition by the Company through
July 1995. Ralph W. Standley III is the father of T. Kyle Standley and M. Trent
Standley.
T. Kyle Standley, age 33, has served as the President and Chief Executive
Officer and a Director of the Company and its predecessors since its inception
in February 1995. Previously, he served as an executive officer of two of the
Company's predecessors, GVC and GVMC, commencing in 1991. Mr. Standley was
director of research at Colliers International Property Consultants from 1989 to
1991, and prior thereto was a financial analyst at Paine Webber Incorporated.
Donald R. Thomas, age 53, has served as Chief Operating Officer since he
joined the Company in May 1995. Mr. Thomas has also served as Chairman of the
Board of Directors and Executive Consultant since 1985 to A-Z Video, a chain of
12 company-owned and 21 licensed video specialty stores; Chairman of the Board
of Directors, President and Chief Executive Officer of Club Donatello Owners
Association, a hotel-condominium owners association in San Francisco, since
early 1994; and as President of D.R. Thomas Enterprises, Ltd., a management
consulting firm, since 1991. From 1990 through 1992, Mr. Thomas also served as
Senior Vice President of Creative Strategies Research International, Inc., a
hightechnology market research and management consulting firm.
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<PAGE> 6
Peter Balner, age 50, has served as Executive Vice President-Corporate
Retail Operations and Development and as a Director of the Company since May
1996. Previously, he was President and Chief Executive Officer of Palmer Video,
a rental video retailer, from December 1981 until its acquisition by the
Company. Mr. Balner has received numerous awards, including "Retailer of the
Year" in 1989 and 1993 and "Video Man of the Year" in 1989, and was inducted
into the "Video Hall of Fame" in 1992. Mr. Balner has served on the Board of
Directors of the Video Software Dealers Association since 1993.
M. Trent Standley, age 32, has served as a Vice President, Secretary and a
Director of the Company since May 1995. He also served as President of one of
the Company's predecessors, GVI, from 1989 to 1995, as Vice President of two
other predecessors, VDI from 1994, to 1995 and GVMC from 1992 to 1995, and as
Secretary of a fourth predecessor, NVI, from 1993 to 1995.
C. Stewart Forbes, age 56, a Director of the Company since May 1996, has
served as President of Colliers International Property Consultants since 1979.
Wesley F. Hoag, age 40, a Director of the Company since May 1996, has
served as General Counsel and Vice President of R. Meeder & Associates, Inc., a
registered investment adviser ("Meeder"), since July 1993, and since April 1994
has served as Vice President of The Flex-funds and The Flex-Partners, investment
companies managed and sponsored by Meeder. From 1984 to 1993, Mr. Hoag was an
attorney at the law firm of Porter, Wright, Morris & Arthur.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
is responsible for reviewing the Company's financial statements, accounting
procedures and the scope and results of the annual audit of the Company's
financial statements. The Audit Committee met three times and held several
teleconference discussions during 1996. The current members of the Audit
Committee are Messrs. Forbes and Hoag.
The Company has a standing Compensation Committee of the Board of
Directors, which is responsible for reviewing compensation issues and making
decisions concerning the compensation (including stock option grants) of the
Company's executive officers. The Compensation Committee met twice and held
several teleconference discussions during 1996. The current members of the
Compensation Committee are Messrs. Forbes and Hoag.
The Company has a standing Acquisitions Committee of the Board of
Directors, which is responsible for reviewing potential acquisition targets and
authorizing the execution and performance by the Company of acquisition
agreements that (i) are consistent with the Company's current financing
arrangements, (ii) do not exceed an aggregate purchase price of $20 million and
(iii) that relate to target companies located in the United States and engaged
in the retail video or electronic game business. The Acquisitions Committee met
three times during 1996. The current members of the Acquisitions Committee are
Messrs. Hoag, Ralph Standley and Kyle Standley.
The Board of Directors met three times during 1996 and took several actions
by written consent. Each director attended at least 75% of the aggregate of the
number of Board meetings and the number of meetings held by all committees on
which he then served.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual stipend of $10,000, and all
directors are reimbursed for expenses incurred in connection with attendance at
Board of Directors and committee meetings.
Under the Company's 1995 Director Stock Option Plan, as amended to date (as
amended, the "Director Option Plan"), each non-employee director is eligible to
receive options, for such number of shares of Common Stock and at such times as
the Board of Directors may determine, which options have an exercise price equal
to the fair market value of the Common Stock on the date of grant. All
4
<PAGE> 7
options granted under the Director Option Plan vest over a three-year period,
provided the optionholder continues to serve as a director of the Company, and
expire ten years from the date of grant. The Director Option Plan was adopted by
the Board of Directors and approved by the stockholders of the Company in July
1995, and was amended by the Board of Directors in October 1996. On May 14,
1996, each of Messrs. Forbes and Hoag and James B. Dinneen, Jr. received an
option to purchase 3,000 shares of Common Stock at $13.00 per share. Mr. Dinneen
resigned as a Director of the Company in April 1997. The total number of shares
of Common Stock that may be issued under the Director Option Plan is 50,000.
EXECUTIVE COMPENSATION
Summary Compensation. The following Summary Compensation Table sets forth
certain information concerning the compensation of the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers
whose salaries and bonuses exceeded $100,000 for services rendered during the
fiscal year ended January 31, 1997 (the "Named Executive Officers"), together
with similar information with respect to the Named Executive Officers for each
of the fiscal years ended January 31, 1995 and 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)
---------------------------------- -----------------
OTHER NUMBER OF SHARES ALL
NAME AND FISCAL ANNUAL UNDERLYING STOCK OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
---------------------------- ------ --------- -------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
T. Kyle Standley............ 1997 $126,507 -- -- -- --
President and Chief 1996 $43,795 $30,000 -- -- --
Executive Officer 1995 $26,000 -- -- -- --
Kenneth R. Graffeo(3)....... 1997 $201,538 -- -- -- --
Executive Vice President, 1996 $200,000 -- -- -- --
Marketing 1995 -- -- -- -- --
Jules E. Gardner(3)......... 1997 $201,538 -- -- -- --
Executive Vice President, 1996 $200,000 -- -- -- --
Franchise Operations 1995 -- -- -- -- --
Jerry L. Misterman(3)....... 1997 $151,154 -- -- -- --
Vice President, 1996 $118,750 -- -- -- --
Accounting and Chief 1995 -- -- -- -- --
Accounting Officer
Peter Balner(4)............. 1997 $150,231 -- -- -- --
Executive Vice President, 1996 -- -- -- -- --
Corporate Retail 1995 -- -- -- -- --
Operations and Development
</TABLE>
- ---------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted, in accordance with the rules of the Securities and
Exchange Commission, as the aggregate amount of such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total annual salary and bonus for each executive officer in each fiscal year
covered.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts to these
individuals during any fiscal year covered.
(3) This executive officer joined the Company in July 1995; includes
compensation paid between February 1995 and July 1995 for comparable
services rendered to a predecessor to the Company.
(4) This executive officer joined the Company in May 1996.
Option Grants. No options to purchase Common Stock of the Company were
granted to any of the Named Executive Officers during the fiscal year ended
January 31, 1997.
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<PAGE> 8
Option Exercises and Holdings. None of the Named Executive Officers holds
any options to purchase Common Stock of the Company.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
In connection with the purchase by the Company's wholly-owned subsidiary,
West Coast Franchising Company ("WCFC") of substantially all the operating
assets pertaining to franchising operations of West Coast Entertainment, Inc.,
West Coast Video Enterprises, Inc., West Coast Services, Inc., Premier
Advertising, Inc. and Game Power Headquarters, Inc. (the "WCEI Companies") in
July 1995, WCFC entered into employment agreements with each of Messrs. Gardner,
Graffeo and Misterman. Each of these agreements has a two-year term which
expires in July 1997. Under such agreements, these employees serve WCFC as its
President, Executive Vice President-Marketing and Vice President-Finance,
respectively. Messrs. Gardner, Graffeo and Misterman are also executive officers
of the Company. These agreements, as currently in effect, provide for annual
salaries of $200,000 to each of Messrs. Gardner and Graffeo, and $150,000 to Mr.
Misterman. All reasonable travel, entertainment and other expenses incurred in
connection with the performance of their employment duties are reimbursable by
the Company.
In addition, in May 1996, December 1996 and January 1997, the Company
entered into employment agreements with Mr. Balner, Donald R. Thomas, its Chief
Operating Officer and a Director of the Company, and Matt Brown, an Executive
Vice President. Mr. Balner's agreement provides for an annual salary of $210,000
and expires in May 1997; Mr. Thomas' agreement provides for an annual salary of
$150,000 and expires in May 1999; Mr. Brown's agreement provides for an annual
salary of $150,000 and expires in January 2001. In addition, Mr. Thomas' and Mr.
Brown's agreements provide for the grant of options to purchase 25,000 and
40,000 shares of the Company's Common Stock, respectively, for an exercise price
equal to the fair market value of the Common Stock on the date of grant. Each of
these agreements provides that all reasonable travel, entertainment and other
expenses incurred in connection with the performance of their employment duties
are reimbursable by the Company.
CERTAIN TRANSACTIONS
The Company has entered into employment agreements with Messrs. Graffeo,
Gardner, Misterman, Balner, Thomas and Brown. See "Employment Agreements."
In May 1996, the following transactions occurred:
The Company granted certain stock options to Messrs. Forbes, Hoag and
Dinneen under the Director Option Plan. See "Management -- Director
Compensation."
The Company paid an aggregate purchase price of $9,156,781, consisting of
$4,578,391 in cash and 352,184 shares of Common Stock, to Mr. Balner in
connection with the acquisition by the Company of all outstanding stock of
Palmer Video Corporation owned by him, together with an additional $2,289,196,
consisting of $436,686 in cash and 142,501 shares of Common Stock, payable to
two family trusts of which Mr. Balner is trustee.
The Company paid an aggregate purchase price of $4,300,000 in cash to A-Z
Video, Inc. in connection with the acquisition of 12 video specialty stores. Mr.
Thomas, the Chief Operating Officer and a Director to the Company, was Chairman
of the Board of A-Z Video and owned 2% of its outstanding capital stock.
The Company repaid approximately $3.1 million of indebtedness to a
financial institution, all of which had been guaranteed by Ralph W. Standley
III, T. Kyle Standley and M. Trent Standley.
The Company repaid $216,781 of principal of and accrued interest on a
convertible note to Mr. Gardner. Mr. Graffeo elected to convert an additional
$216,781 of principal and accrued interest
6
<PAGE> 9
into 20,844 shares of Common Stock. Each of Messrs. Graffeo and Gardner had a
10% interest in such note, which was issued to West Coast Video Enterprises,
Inc. in July 1995 as part of the purchase price for the franchise-related assets
of that corporation which were acquired by WCFC.
In July 1995, the Company also agreed to pay to each of Messrs. Graffeo and
Gardner 1.11% (and the WCEI Companies 8.88%) of the total purchase price paid by
the Company to the seller in connection with the acquisition of the stock or
assets of any company which was a West Coast Video(R) franchisee as of July 12,
1995. Under this agreement, certain recent acquisitions of stores have resulted
in a payment of approximately $235,000 to each such individual.
In November 1996, the Company paid an aggregate purchase price of
$2,700,000 to the sellers of certain video stores in one of the recent
acquisitions. Donald Weiss, an Executive Vice President of the Company, is an
investor in, and director of, such sellers and received $1,100,000 of such
consideration.
The Company made advances on an interest-free basis to Ralph W. Standley,
III, during the year ended January 31, 1997 in the maximum amount of $72,541,
which amount was outstanding on January 31, 1997.
The Company has adopted a policy requiring all future transactions between
the Company and its officers, directors and affiliates to be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
to be approved by a majority of the disinterested members of the Company's Board
of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews the compensation levels of the Company's
executive officers, makes recommendations to the Board of Directors regarding
compensation, and has authority to grant options under the Company's 1995 Equity
Incentive Plan.
The Company's compensation program seeks to achieve the following
objectives:
- To attract and retain key executives who are important to the long-term
growth and success of the Company.
- To give appropriate incentives based on both individual performance and
the performance of the Company as a whole.
- To promote identity of interest between the Company's stockholders and
its senior management.
- To reward officers for their contributions to growing the number of video
stores (through acquisitions and new store construction) and increasing
the average annual revenue per store.
The Company's executive compensation program consists primarily of base
salaries, supplemented by equity incentives and bonuses under appropriate
circumstances. Base salaries are determined in a manner intended to be
comparable to the salaries that are paid to persons performing similar functions
for companies of comparable size in comparable industries, although a number of
subjective factors also influence salary decisions, including the Company's
judgment with respect to a given individual's particular skills, experience and
knowledge of the Company's industry. In addition, the compensation of executives
who joined the Company upon the Company's acquisition of their former employers
reflects the level at which they were compensated by such former employers. The
Company typically reviews executive base salaries on an annual basis, except in
the case of long-term contracts. Equity incentives represent the principal
performance-based component of the Company's compensation program. The Company
granted options to two executive officers in the fiscal year ended January 31,
1997; options grants were not believed to be necessary or appropriate to other
senior executives in part due to their already significant stock holdings in the
Company. The Company did not pay any bonuses relating to the fiscal year ended
January 31, 1997.
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<PAGE> 10
Compensation of the Chief Executive Officer. T. Kyle Standley's base
salary was increased from an annual rate of $138,000 to an annual rate of
$230,000 effective November 3, 1996. The Compensation Committee believed that
this increase was appropriate given the rapid growth of the Company and Mr.
Standley's contributions to that growth. Based on informal information, the
Compensation Committee believes that Mr. Standley's level of compensation is
near the middle of the range of compensation to chief executives for companies
of similar size within the industry.
Compensation Committee
Wesley F. Hoag
C. Stewart Forbes
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and regulations of the Securities and Exchange Commission
("SEC") thereunder require the Company's executive officers and directors, and
persons who own more than ten percent of the Company's outstanding Common Stock,
to file reports of initial ownership and changes in ownership with the SEC and
the National Association of Securities Dealers, Inc. Such officers, directors
and ten-percent stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on its
review of the copies of such forms received by it, or written representations
from certain reporting persons that no other reports were required for such
persons, the Company believes that, during or with respect to the period from
May 14, 1996 (the date of the closing of the Company's initial public offering)
to January 31, 1997, all of its executive officers, directors and ten-percent
stockholders complied with their Section 16(a) filing obligations.
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<PAGE> 11
STOCK PERFORMANCE GRAPH
The following graph compares, on a monthly basis, the cumulative total
stockholder return on the Common Stock of the Company between May 14, 1996 (the
date the Company's Common Stock commenced public trading) and January 31, 1997
with the cumulative total return of (i) the Nasdaq Market Index (US) and (ii) an
index compiled for the Company (the "Video Retailers Group") over the same
period. The Video Retailers Group is comprised of Hollywood Video, Inc., Movie
Gallery Inc., Moovies, Inc. and Video Update, Inc., other comparable
publicly-traded companies whose primary line of business is the retail rental
and sale of movies on videocassette. This graph assumes the investment of
$100.00 on May 14, 1996 in the Company's Common Stock, the Nasdaq Market Index
and the Video Retailers Group, and assumes that dividends, if any, are
reinvested.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
5/14/96 7/31/96 10/31/96 1/31/97
-------- ------- -------- -------
<S> <C> <C> <C> <C>
West Coast Entertainment Corporation.............. $100.00 $76.70 $86.41 $ 64.08
Nasdaq Market Index (US).......................... $100.00 $86.90 $98.24 $110.97
Video Retailers Group............................. $100.00 $80.53 $86.30 $ 83.42
</TABLE>
9
<PAGE> 12
PROPOSAL 2:
AMENDMENT TO THE 1995 EQUITY INCENTIVE PLAN
On April 15, 1997, the Board of Directors of the Company adopted, subject
to stockholder approval, an amendment to the Company's 1995 Equity Incentive
Plan (the "Equity Plan"), providing for an increase of 500,000 in the number of
shares available for issuance upon the exercise of stock options granted under
the Equity Plan (the "Amendment"). THE BOARD OF DIRECTORS OF THE COMPANY
BELIEVES THAT THE AMENDMENT IS IN THE BEST INTEREST OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
SUMMARY OF THE EQUITY PLAN
The Equity Plan was adopted by the Board of Directors and approved by the
stockholders of the Company in July 1995. The Equity Plan enables the Company to
grant options to purchase Common Stock, to make awards of restricted Common
Stock, and to issue certain other equity-related securities of the Company to
employees of and consultants to the Company. The total number of shares of
Common Stock which may currently be issued under the Equity Plan is 350,000
shares, which number will increase to 850,000 if the Amendment is approved.
Stock options entitle the optionee to purchase Common Stock from the Company for
a specified exercise price as determined by the Board of Directors, during a
period specified in the applicable option agreement. Restricted stock awards
entitle the recipient to purchase Common Stock from the Company under terms
which provide for vesting over a period of time and a right of repurchase in
favor of the Company with respect to the unvested portion of the Common Stock
subject to the award upon the termination of the recipient's employment or other
relationship with the Company. The maximum number of shares with respect to
which options or awards may be granted to any employee under the Equity Plan may
not exceed 90,000 shares of Common Stock during any calendar year.
Under the Equity Plan, the Company may grant options that are intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock
options"), or options not intended to qualify as incentive stock options
("nonstatutory options"). Incentive stock options may only be granted to
employees of the Company. Stock options granted under the Equity Plan will be
nontransferable, and it is expected that they will generally become exercisable
in four equal annual installments beginning one year from the date of grant and
expire ten years after the date of grant (subject to earlier termination in the
event of the termination of the optionee's employment with the Company).
The Equity Plan is administered by the Compensation Committee of the Board
of Directors, which selects the persons to whom stock options and restricted
stock awards are granted and determines the number of shares of Common Stock
covered by the option or award, its exercise price or purchase price, its
vesting schedule and (in the case of stock options) its expiration date. The
Board of Directors has delegated authority to Ralph W. Standley III, Chairman of
the Board, to make individual option grants of up to 20,000 per individual per
year, up to a maximum of 100,000 options to all individuals in the aggregate,
with exercise prices per share equal to at least the fair market value of a
share of the Company's Common Stock on the date of grant.
FEDERAL INCOME TAX CONSEQUENCES OF THE EQUITY PLAN
The following is a summary of the federal income tax treatment of incentive
stock and non-statutory options and restricted stock awards under the Equity
Plan.
Non-Statutory Stock Options. No taxable income is recognized by the
optionee upon the grant of a non-statutory option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount by
which the fair market value of the purchased shares on the date of exercise
exceeds the option price (and the Company is required to withhold an appropriate
amount for tax purposes). However, the following special rules apply to persons
required to file reports under Section 16 of the Securities Exchange Act of
1934, as amended ("Reporting Persons"). If a Reporting
10
<PAGE> 13
Person exercises the option within six months of the date of grant, upon
exercise of such option no income will be recognized by the optionee until six
months have expired from the date the option was granted, and the income then
recognized will include any appreciation in the value of the shares during the
period between the date of exercise and the date six months after the date of
grant, unless the optionee makes an election under Section 83(b) of the Code to
have the difference between the exercise price and fair market value at the time
of exercise recognized as ordinary income as of the time of exercise.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee. Any additional gain or any
loss recognized upon the subsequent disposition of the purchased shares will be
a capital gain or loss, and will be a long-term gain or loss if the shares are
held for more than one year.
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option granted under
the Equity Plan (provided that the difference between the option exercise price
and the fair market value of the stock on the date of exercise must be included
in the optionee's "alternative minimum taxable income" as described below), and
no corresponding expense deduction will be available to the Company. Generally,
if an optionee holds shares acquired upon the exercise of incentive stock
options until the later of (i) two years from the grant of the option and (ii)
one year from the date of transfer of the purchased shares to him or her (the
"Statutory Holding Period"), any gain to the optionee upon a sale of such shares
will be treated as capital gain. The gain recognized upon the sale of the stock
is the difference between the option price and the sale price of the stock. The
net federal income tax effect on the holder of incentive stock options is to
defer, until the stock is sold, taxation of any increase in the stock's value
from the time of grant to the time of exercise, and to cause all such increase
to be treated as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period (a "disqualifying disposition"), he or she will realize taxable
income at ordinary income tax rates in an amount equal to the lesser of (i) the
fair market value of the shares on the date of exercise less the option price,
or (ii) the amount realized on the sale less the option price, and the Company
will receive a corresponding business expense deduction. Any additional gain
realized as a result of appreciation between the date of exercise and the date
of sale will be treated as long-term capital gain if the shares are held for
more than one year prior to the sale and as short-term capital gain if the
shares are held for a shorter period. If the optionee sells the stock for less
than the option price, he or she will recognize a capital loss equal to the
difference between the sale price and the option price. The loss will be a long-
term capital loss if the shares are held for more than one year prior to the
sale and as a short-term capital loss if the shares are held for a shorter
period.
Special rules may apply to options held by directors and officers. If the
optionee making a disqualifying disposition is a Reporting Person, and the
option was exercised within six months of the date of grant, the amount of
taxable income realized at ordinary income tax rates (and the amount of the
Company's business expense deduction) will be equal to the lesser of (i) the
fair market value of the shares on the date that is six months after the date of
grant less the option price, or (ii) the amount realized on sale less the option
price.
For purposes of the "alternative minimum tax" applicable to individuals,
the exercise of an incentive stock option is treated in the same manner as the
exercise of a non-statutory option. Thus, an optionee must, in the year of
option exercise, include the difference between the exercise price and the fair
market value of the stock on the date of exercise in alternative minimum taxable
income. The alternative minimum tax is imposed upon an individual's alternative
minimum taxable income currently at rates of 26% to 28%, but only to the extent
that such tax exceeds the taxpayer's regular income tax liability for the
taxable year.
11
<PAGE> 14
PROPOSAL 3:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Price Waterhouse LLP as the
Company's independent auditors for the fiscal year ending January 31, 1998.
Although stockholder approval of the Board of Directors' selection of Price
Waterhouse LLP is not required by law, the Board of Directors believes that it
is advisable to give stockholders an opportunity to ratify this selection. If
this proposal is not approved at the Annual Meeting, the Board of Directors may
reconsider its selection. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE RATIFICATION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
stockholders.
OTHER MATTERS
MATTERS TO BE CONSIDERED AT THE MEETING
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
employees, without additional remuneration, may solicit proxies by telephone,
facsimile and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of stock held in their names, and, as required by law, the Company will
reimburse them for their out-of-pocket expenses in this regard.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal office
not later than January 16, 1998 for inclusion in the proxy statement for that
meeting.
By Order of the Board of Directors,
M. Trent Standley, Secretary
May 15, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
12
<PAGE> 15
THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1997 INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES THERETO (EXCEPT EXHIBITS) TO EACH OF THE
COMPANY'S STOCKHOLDERS UPON RECEIPT OF A WRITTEN REQUEST THEREFOR MAILED TO THE
COMPANY'S OFFICES, ATTENTION: INVESTOR RELATIONS. REQUESTS FROM BENEFICIAL
STOCKHOLDERS MUST SET FORTH A REPRESENTATION AS TO SUCH OWNERSHIP ON MAY 2,
1997.
13
<PAGE> 16
Appendix 1
----------
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
WEST COAST ENTERTAINMENT CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - JUNE 16, 1997
The undersigned hereby appoint(s) Ralph W. Standley, III, T. Kyle Standley,
Richard G. Kelly and John H. Chory as proxies to act without the other and with
full power of substitution, and hereby authorizes them to represent and vote, as
designated on the other side, all the shares of Common Stock of West Coast
Entertainment Corporation (the "Company") standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Stockholders of the Company to be held on June 16, 1997 or
any adjournment thereof.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this Proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company in
a fiduciary, custodial or joint capacity or capacities, this Proxy is signed by
the undersigned in every such capacity as well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT
THEREOF.
<PAGE> 17
Item 1 - Election of Directors
Nominees: Peter Balner, C. Stewart Forbes, Wesley F. Hoag, Ralph W. Standley,
III, T. Kyle Standley, M. Trent Standley, Donald R. Thomas
FOR [ ] WITHHOLD AUTHORITY [ ]
to vote for all nominees
WITHHELD FOR (Write that nominee's name
in the space provided below)
----------------------------------
----------------------------------
Item 2 - Approval of an Amendment to the 1995 Equity Incentive Plan, as
described in the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 3 - Ratification of Price Waterhouse LLP as independent auditors for the
fiscal year ended January 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
----------------------------------
Signature
----------------------------------
Signature
----------------------------------
Date:
NOTE: Please sign name as appears hereon. Joint owners should each sign. When
signing as an attorney, executor, administrator, trustee or guardian, please
give full title as such.
<PAGE> 18
Appendix 2
----------
WEST COAST ENTERTAINMENT CORPORATION
------------------------------------
1995 EQUITY INCENTIVE PLAN
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for West Coast
Entertainment Corporation (the "Company") and its shareholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Company and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth and
success. Except where the context otherwise requires, the term "Company" shall
include the parent and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code").
2. Type Of Options And Awards; Administration.
------------------------------------------
(a) TYPES OF OPTIONS AND AWARDS. Options granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code ("Non-Statutory Options"). Awards
granted pursuant to the Plan shall be authorized by action of the Board of
Directors of the Company (or a Committee designated by the Board of Directors)
and shall meet the requirements of Section 13 of the Plan.
(b) Administration.
--------------
(i) The Plan will be administered by the Board of Directors of the
Company, whose construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. The Board of Directors may in its sole
discretion (x) grant options to purchase shares of the Company's Common Stock
(as defined in Section 4 of the Plan), and issue shares upon exercise of such
options as provided in the Plan and (y) make awards for the purchase of shares
of Common Stock pursuant to Section 13 of the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option agreements, awards and the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements and awards, which need not be
identical, and to make all other determinations in the judgment of
<PAGE> 19
the Board of Directors necessary or desirable for the administration of the
Plan. The Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement or award in
the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No director
or person acting pursuant to authority delegated by the Board of Directors shall
be liable for any action or determination made in good faith.
(ii) The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations and Section 3(b) of this Plan,
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee. Unless all members of the Board of Directors are
"outside directors" within the meaning of Section 162(m) of the Code, as such
term is interpreted from time to time, the Board shall appoint such a Committee
of two or more directors, all of whom are outside directors, and shall delegate
to such Committee all of its powers under the Plan, except that the Board's
concurrent approval shall be required for any amendment to the Plan which may be
adopted by the Committee; and provided, that any failure of any director or
Committee member to satisfy the definition of outside director shall not
invalidate any action taken by the Board or Committee with respect to any
participant in the Plan, whether or not such person is a "covered employee"
within the meaning of Section 162(m) of the Code, as such term is interpreted
from time to time.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 promulgated under the Securities and Exchange
Act of 1934 (the "Exchange Act") or, any successor rules ("Rule 16b-3") or which
are required in order for certain option transactions to qualify for exemption
under Rule 16b-3 shall apply only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
(d) APPLICABILITY OF SECTION 162(m). Those provisions of the Plan which
are required by or make express reference to Section 162(m) of the Code or any
regulations thereunder, or any successor section of the Code or regulations
thereunder ("Section 162(m)") shall apply only upon the Company's becoming a
company that is subject to Section 162(m). Notwithstanding any provisions in
this Plan to the contrary, whenever the Board of Directors is authorized to
exercise its discretion in the administration or amendment of this Plan or any
option hereunder or otherwise, the Board may not exercise such discretion in a
manner that would cause any outstanding option that would otherwise qualify as
performance-based compensation under Section 162(m) to fail to so qualify under
Section 162(m).
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<PAGE> 20
3. Eligibility.
-----------
(a) GENERAL. Options and awards may be granted or made to persons who are,
at the time of grant, employees, officers or directors (so long as such officers
and directors are also employees) of, or consultants or advisors to, the
Company; PROVIDED, that the class of employees to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company; and PROVIDED
FURTHER that from the date on which the Company first has its Common Stock
registered under the Exchange Act, non-employee directors of the Company are not
eligible to receive options or awards of restricted stock under the Plan. A
person who has been granted an option or award may, if he or she is otherwise
eligible, be granted additional options or awards if the Board of Directors
shall so determine. Subject to adjustment as provided in Section 16 below, the
maximum number of shares with respect to which options or awards may be granted
to any employee under the Plan in any one calender year shall not exceed 90,000
shares of common stock.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. The selection of a
director or an officer (as the terms "director" and "officer" are defined for
purposes of Rule 16b-3) as a participant, the timing of the option grant or
award, the exercise price of the option or the sale price of the award and the
number of shares for which an option or award may be granted to such director or
officer shall be determined either (i) by the Board of Directors, of which all
members shall be "disinterested persons" (as hereinafter defined), or (ii) by a
committee of two or more directors having full authority to act in the matter,
of which all members shall be "disinterested persons." For the purposes of the
Plan, a director shall be deemed to be "disinterested" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
4. Stock Subject to Plan.
---------------------
Subject to adjustment as provided in Section 16 below, the total number of
shares which may be issued and sold under the Plan is 350,000 shares of Common
Stock, $.01 par value per share ("Common Stock"). Except as may be prohibited by
Rule 16b-3, (i) if an option granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject to such option shall again be available for subsequent option grants or
awards under the Plan, and (ii) if restricted stock awarded under the Plan shall
be repurchased by the Company, the repurchased shares subject to such award
shall again be available for subsequent option grants or awards under the Plan.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan
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<PAGE> 21
as may be approved by the Board of Directors. Such option agreements may differ
among recipients.
6. Purchase Price Upon Exercise of Options.
---------------------------------------
(a) GENERAL. Subject to Section 3(b), the purchase price per share of
Common Stock deliverable upon the exercise of an option shall be determined by
the Board of Directors, PROVIDED, HOWEVER, that in the case of an Incentive
Stock Option, or an option intended to qualify as performance-based compensation
within the meaning of Section 162(m), the exercise price shall not be less than
100% of the fair market value of such stock, as determined by the Board of
Directors, at the time of grant of such option, or less than 110% of such fair
market value in the case of options described in Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised or (ii) by any other means (including without limitation
by delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board). The fair market value of any shares
of the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined in such manner as may
be prescribed by the Board of Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that such date, in the case
of an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. [Intentionally Omitted]
-4-
<PAGE> 22
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
The Board of Directors shall determine the period of time during which an
optionee may exercise an option following (i) the termination of the optionee's
employment or other relationship with the Company or (ii) the death or
disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
-5-
<PAGE> 23
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), PROVIDED, that the agreement with respect to such option
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory
option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised, by the person to whom it is
transferred by will or the laws of descent and distribution, within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement).
For all purposes of the Plan and any option or award granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no stock option may be exercised after
its expiration date.
12. Additional Provisions.
---------------------
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any option granted under the Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; PROVIDED THAT such
additional provisions shall not be inconsistent with any other term or condition
of the Plan.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all or any particular option or options granted under the
Plan may be exercised.
-6-
<PAGE> 24
13. Awards.
------
A restricted stock award ("award") shall consist of the sale and issuance
by the Company of shares of Common Stock, and purchase by the recipient of such
shares, subject to the terms, conditions and restrictions described in the
document evidencing the award and in this Section 13 and elsewhere in the Plan.
(a) EXECUTION OF RESTRICTED STOCK AWARD AGREEMENT. As a condition to an
award under the Plan, each recipient of an award shall execute an agreement in
such form, which may differ among recipients, as shall be specified by the Board
of Directors at the time of such award.
(b) PRICE. The Board of Directors shall determine the price at which
shares of Common Stock shall be sold to recipients of awards under the Plan. The
Board of Directors may, in its discretion, issue shares pursuant to awards
without the payment of any cash purchase price by the recipients or issue shares
pursuant to awards at a purchase price below the then fair market value of the
Common Stock. If a purchase price is required to be paid, it shall be paid in
cash or by check payable to the order of the Company at the time that the award
is accepted by the recipient, or by such other means as may be approved by the
Board of Directors.
(c) NUMBER OF SHARES. The award shall specify the number of shares of
Common Stock granted thereunder.
(d) RESTRICTIONS ON TRANSFER. In addition to such other terms, conditions
and restrictions upon awards as shall be imposed by the Board of Directors, all
shares issued pursuant to an award shall be subject to the following
restrictions:
(1) All shares of Common Stock subject to an award (including any
shares issued pursuant to paragraph (e) of this Section) shall be subject
to certain restrictions on disposition and obligations of resale to the
Company as provided in subparagraph (2) below for the period specified in
the document evidencing the award, and shall not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of until such
restrictions lapse. The period during which such restrictions are
applicable is referred to as the "Restricted Period."
(2) In the event that a recipient's employment with the Company (or
consultancy or advisory relationship, as the case may be) is terminated
within the Restricted Period, whether such termination is voluntary or
involuntary, with or without cause, or because of the death or disability
of the recipient, the Company shall have the right and option for a period
of three months following such termination to buy for cash that number of
the shares of Common Stock purchased under the award as to which the
restrictions on
-7-
<PAGE> 25
transfer and the forfeiture provisions contained in the award have not then
lapsed, at a price equal to the price per share originally paid by the
recipient. If such termination occurs within the last three months of the
applicable restrictions, the restrictions and repurchase rights of the
Company shall continue to apply until the expiration of the Company's three
month option period.
(3) Notwithstanding subparagraphs (1) and (2) above, the Board of
Directors may, in its discretion, either at the time that an award is made
or at any time thereafter, waive its right to repurchase shares of Common
Stock upon the occurrence of any of the events described in this paragraph
(d) or remove or modify any part or all of the restrictions. In addition,
the Board of Directors may, in its discretion, impose upon the recipient of
an award at the time of such award such other restrictions on any shares of
Common Stock issued pursuant to such award as the Board of Directors may
deem advisable.
(e) ADDITIONAL SHARES. Any shares received by a recipient of an award as a
stock dividend on, or as a result of stock splits, combinations, exchanges of
shares, reorganizations, mergers, consolidations or otherwise with respect to,
shares of Common Stock received pursuant to such award shall have the same
status and shall bear the same restrictions, all on a proportionate basis, as
the shares initially purchased pursuant to such award.
(f) TRANSFERS IN BREACH OF AWARD. If any transfer of shares purchased
pursuant to an award is made or attempted contrary to the terms of the Plan and
of such award, the Board of Directors shall have the right to purchase for the
account of the Company those shares from the owner thereof or his or her
transferee at any time before or after the transfer at the price paid for such
shares by the person to whom they were awarded under the Plan. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by specific performance to the extent permitted by law. The Company
may refuse for any purpose to recognize as a shareholder of the Company any
transferee who receives any shares contrary to the provisions of the Plan and
the applicable award or any recipient of an award who breaches his or her
obligation to resell shares as required by the provisions of the Plan and the
applicable award, and the Company may retain and/or recover all dividends on
such shares which were paid or payable subsequent to the date on which the
prohibited transfer or breach was made or attempted.
(g) ADDITIONAL AWARD PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any award granted under the Plan,
including without limitation commitments to pay cash bonuses, make, arrange for
or guarantee loans or transfer other property to recipients upon the grant of
awards, or such other provisions as shall be determined by the Board of
Directors.
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<PAGE> 26
14. General Restrictions.
--------------------
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option or award is granted, as a condition of exercising such option or
purchasing the shares subject to the award, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option or award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option and award shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option or award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
or that the disclosure of non-public information or the satisfaction of any
other condition is necessary as a condition of, or in connection with, the
issuance or purchase of shares thereunder, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
15. Rights as a Shareholder.
-----------------------
The holder of an option or recipient of an award shall have no rights as a
shareholder with respect to any shares covered by the option or award
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
16. ADJustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) GENERAL. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (x) the maximum number
and kind of shares reserved for issuance under
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<PAGE> 27
the Plan, (y) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (z) the price for each share subject to
any then outstanding options under the Plan or repurchase rights of the Company,
without changing the aggregate purchase price as to which such options remain
exercisable, provided that no adjustment shall be made pursuant to this Section
16 if such adjustment would cause the Plan to fail to comply with Section 422 of
the Code.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 16 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
17. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) GENERAL. In the event of a consolidation or merger in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity or in the event of a
liquidation of the Company or sale of all or substantially all of the assets of
the Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options and
awards: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), PROVIDED that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iv) provide that
all or any outstanding options shall become exercisable in full immediately
prior to such event; provided, however, that the Board of Directors may not take
any action which would cause any option granted under the Plan to fail to
qualify as performance-based compensation within the meaning of Section 162(m).
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
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<PAGE> 28
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
18. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option or award shall confer upon
any recipient of an award or optionee any right with respect to the continuation
of his or her employment by the Company or interfere in any way with the right
of the Company at any time to terminate such employment or to increase or
decrease the compensation of the optionee.
19. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, neither the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise nor the value of an award granted to an employee will
constitute compensation with respect to which any other employee benefits of
such employee are determined, including, without limitation, benefits under any
bonus, pension, profit-sharing, life insurance or salary continuation plan,
except as otherwise specifically determined by the Board of Directors.
20. Amendment of the Plan.
---------------------
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required as to such modification or amendment
under Section 422 of the Code or any successor provision with respect to
Incentive Stock Options, or is required to ensure that any compensation
attributable to any option under the Plan is deductible by the Company for
federal income tax purposes under Section 162(m), the Board of Directors may not
effect such modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee or recipient of an award, affect his or
her rights under an option or award previously granted to him or her. With the
consent of the optionee or recipient of the award affected, the Board of
Directors may amend outstanding option agreements or awards in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable
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<PAGE> 29
federal income tax treatment (including deferral of taxation upon exercise) as
may be afforded incentive stock options under Section 422 of the Code and (ii)
the terms and provisions of the Plan and of any outstanding option or award to
the extent required to ensure that any compensation attributable to any option
under the Plan is deductible by the Company for federal income tax purposes
under Section 162(m), or any successor rule.
21. Withholding.
-----------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee or recipient of an award any federal, state or
local taxes of any kind required by law to be withheld with respect to any
shares issued upon exercise of options under the Plan or the purchase of shares
subject to the award. Subject to the prior approval of the Company, which may be
withheld by the Company in its sole discretion, the optionee or recipient of an
award may elect to satisfy such obligations, in whole or in part, (i) by causing
the Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or the purchase of shares subject to an award or (ii)
by delivering to the Company shares of Common Stock already owned by the
optionee or award recipient. The shares so delivered or withheld shall have a
fair market value equal to such withholding obligation. The fair market value of
the shares used to satisfy such withholding obligation shall be determined by
the Company as of the date that the amount of tax to be withheld is to be
determined. An optionee or award recipient who has made an election pursuant to
this Section 21(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3 (unless
it is intended that the transaction not qualify for exemption under Rule 16b-3).
(c) If the recipient of an award under the Plan elects, in accordance with
Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Company will require at
the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the purchase price of such shares and
the fair market value of such shares as of the date immediately preceding the
date of the award.
22. Cancellation and New Grant of Options, Etc.
------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new
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<PAGE> 30
options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled options or (ii) the
amendment of the terms of any and all outstanding options under the Plan to
provide an option exercise price per share which is higher or lower than the
then-current exercise price per share of such outstanding options.
23. Effective Date and Duration of the Plan.
---------------------------------------
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options previously granted
under the Plan shall not vest and shall terminate and no options shall be
granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 20) shall become
effective when adopted by the Board of Directors, but no option issued after the
date of such amendment shall become exercisable unless and until such amendment
shall have been approved by the Company's shareholders. If such shareholder
approval is not obtained within twelve months of the Board's adoption of such
amendment, any options granted on or after the date of such amendment shall
terminate to the extent that such amendment was required to enable the Company
to grant such option to a particular optionee. Subject to this limitation,
options and awards may be granted under the Plan at any time after the effective
date and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section 17,
the Plan shall terminate upon the close of business on the day next preceding
the tenth anniversary of the date of its adoption by the Board of Directors.
Options outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
24. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors on July 5, 1995.
Approved by the Stockholders on July 5, 1995.
Amended by the Board of Directors on October 7, 1996.
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