<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
GUITAR CENTER, INC.
- --------------------------------------------------------------------------------
(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)
(4) 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.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
GUITAR CENTER, INC.
[LOGO]
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
April 2, 1998
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Guitar Center, Inc. Annual Meeting
of Stockholders (the "Meeting") which will be held on May 6, 1998, at 9:00 a.m.
Pacific Time, at the Hyatt Westlake Plaza, 880 South Westlake Boulevard,
Westlake Village, California 91361. All stockholders of record as of March 26,
1998 are entitled to vote at the Meeting.
The Meeting will be held to:
(1) elect a board of eight directors for the ensuing year or until the
election and qualification of their respective successors;
(2) approve the Company's 1997 Equity Participation Plan, including an
amendment increasing the number of shares that may be issued from 875,000
shares to 1,375,000 shares (as amended, the "1997 Plan");
(3) amend the Company's 1996 Performance Stock Option Plan (the "1996 Plan")
to permit the Board of Directors or the Compensation Committee of the
Board of Directors to amend the 1996 Plan in substantially the same
manner as the 1997 Plan; and
(4) transact such other business, if any, as may properly be brought before
the Meeting or any adjournment or postponement thereof.
The enclosed proxy is solicited by the Board of Directors, which recommends
that stockholders (i) vote FOR the directors nominated, (ii) vote FOR approval
of the 1997 Plan, as amended, and (iii) vote FOR the proposed amendment to the
1996 Plan.
We hope you will attend the Meeting in person. Whether or not you expect to
attend the Meeting, however, we ask that you please complete, sign, date and
return the enclosed proxy card promptly to ensure that your shares will be
represented at the Meeting. If you attend the Meeting, you may vote in person
even if you have sent in your proxy card.
Sincerely,
[LOGO]
Larry Thomas
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
GUITAR CENTER, INC.
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1998
---------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Guitar Center, Inc. (the "Company") will be held at the Hyatt
Westlake Plaza, 880 South Westlake Boulevard, Westlake Village, California
91361, on Wednesday, May 6, 1998, at 9:00 a.m. Pacific Time, for the following
purposes:
1. To elect a board of eight directors for the ensuing year or until the
election and qualification of their respective successors;
2. To approve the Company's 1997 Equity Participation Plan, including an
amendment increasing the number of shares that may be issued from 875,000
shares to 1,375,000 shares (as amended, the "1997 Plan");
3. To amend the Company's 1996 Performance Stock Option Plan (the "1996
Plan") to permit the Board of Directors or the Compensation Committee of
the Board of Directors to amend the 1996 Plan in substantially the same
manner as the 1997 Plan; and
4. To transact such other business, if any, as may properly be brought
before the Meeting or any adjournment or postponement thereof.
Please refer to the attached Proxy Statement, which forms a part of this
Notice and is incorporated herein by reference, for further information with
respect to the business to be transacted at the Meeting.
Stockholders of record at the close of business on March 26, 1998 are
entitled to notice of, and to vote at, the Meeting or any adjournment or
postponement thereof. The list of stockholders will be available for examination
for the ten days prior to the Meeting at Guitar Center, Inc., 5155 Clareton
Drive, Agoura Hills, California 91301. All stockholders are cordially invited to
attend the Meeting.
By Order of the Board of Directors
[LOGO]
Bruce Ross
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL
OFFICER AND SECRETARY
Agoura Hills, California
April 2, 1998
<PAGE>
GUITAR CENTER, INC.
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1998
------------------------
INTRODUCTION
GENERAL
This Proxy Statement is furnished to stockholders of Guitar Center, Inc.
("Guitar Center" or the "Company") in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders to be held on May 6, 1998
(the "Meeting") at 9:00 a.m. Pacific Time, for the purposes of: (1) electing a
board of eight directors for the ensuing year or until the election and
qualification of their respective successors; (2) approving the Company's 1997
Equity Participation Plan, including an amendment increasing the number of
shares that may be issued from 875,000 shares to 1,375,000 shares (as amended,
the "1997 Plan"); (3) amending the Company's 1996 Performance Stock Option Plan
(the "1996 Plan") to permit the Board of Directors (the "Board") or the
Compensation Committee of the Board (the "Compensation Committee") to amend the
1996 Plan in substantially the same manner as the 1997 Plan; and (4) transacting
such other business, if any, as may properly be brought before the Meeting or
any adjournment or postponement thereof. A copy of the Company's 1997 Annual
Report to Stockholders and this Proxy Statement and accompanying proxy card will
be first mailed to stockholders on or about April 2, 1998.
This solicitation is made on behalf of the Board. Costs of solicitation will
be borne by the Company. Directors, officers and employees of the Company may
also solicit proxies by telephone, telegraph, fax or personal interview. The
Company will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to stockholders. The Company has retained ChaseMellon Shareholder Services,
L.L.C. to assist in the solicitation of proxies with respect to shares of common
stock of the Company, par value $.01 per share (the "Common Stock"), held of
record by brokers, nominees and institutions. The estimated cost of the services
of ChaseMellon Shareholder Services, L.L.C. is $6,200, plus expenses.
The Company's principal executive offices are located at 5155 Clareton
Drive, Agoura Hills, California 91301, telephone (818) 735-8800.
SHARES ENTITLED TO VOTE
The outstanding Common Stock constitutes the only class of securities of the
Company entitled to vote at the Meeting. Stockholders of record of the Common
Stock at the close of business on March 26, 1998 are entitled to notice of, and
to vote at, the Meeting. At that date, 19,362,118 shares of Common Stock were
outstanding. The presence at the Meeting, in person or by proxy, of a majority
of the shares of the Common Stock issued and outstanding on March 26, 1998 will
constitute a quorum. Each share of Common Stock is entitled to one vote.
VOTING PROCEDURES
A proxy card is enclosed for your use. You are solicited on behalf of the
Board to sign, date and return the proxy card in the accompanying envelope,
which is postage prepaid if mailed in the United States.
You have choices on each of the matters to be voted upon at the Meeting.
Concerning the election of the directors, by checking the appropriate box on
your proxy card you may: (a) vote for such director
<PAGE>
nominees; or (b) withhold authority to vote for any or all of such director
nominees. Concerning the approval of the 1997 Plan you may: (a) approve the 1997
Plan; (b) disapprove the 1997 Plan; or (c) abstain from voting for or against
the 1997 Plan. Concerning the amendment of the 1996 Plan you may: (a) vote for
such amendment; (b) vote against such amendment; or (c) abstain from voting for
or against such amendment.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted at the Meeting FOR (i) the election
of the director nominees to the Board listed herein; (ii) approval of the 1997
Plan and (iii) amendment of the 1996 Plan. With respect to any other business,
if any, which may properly come before the Meeting and be submitted to a vote of
stockholders, proxies received by the Board will be voted in accordance with the
best judgment of the designated proxy holders.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(I.E., shares held by a broker or nominee which are represented at the Meeting,
but with respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. The director nominees
shall be elected by a plurality of the votes of the shares present or
represented by proxy at the Annual Meeting and entitled to vote on the election
of a director. Approval of Proposal 2 requires the affirmative vote of a
majority of the Company's outstanding shares of Common Stock represented and
entitled to vote at the Meeting; approval of Proposal 3 requires the affirmative
vote of the Requisite Stockholder Shares (as defined in herein).
Stockholders may vote by either completing and returning the enclosed proxy
card prior to the Meeting, voting in person at the Meeting, or submitting a
signed proxy card at the Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
You may revoke your proxy at any time before it is actually voted at the
Meeting by delivering written notice of revocation to the Secretary of the
Company at 5155 Clareton Drive, Agoura Hills, California 91301, by submitting a
later dated proxy, or by attending the Meeting and voting in person. Attendance
at the Meeting will not, by itself, constitute revocation of the proxy. You may
also be represented by another person present at the Meeting by executing a form
of proxy designating such person to act on your behalf. Shares may only be voted
by or on behalf of the record holder of such shares as indicated in the
Company's stock transfer records.
Votes cast at the Meeting will be tabulated by the persons appointed by the
Company to act as inspectors of election for the Meeting.
2
<PAGE>
PROPOSAL NO. 1:
ELECTION OF NOMINEES TO BOARD OF DIRECTORS
GENERAL INFORMATION
Directors are elected at each Annual Meeting of Stockholders and hold office
until their resignation or removal and until their successors are duly elected
and qualified at the next Annual Meeting of Stockholders. The Company's Amended
and Restated Bylaws provide that the Board shall consist of nine directors.
Presently, however, there are eight incumbent directors with one vacancy. As of
the date of this Proxy Statement, the Board has no present intention to fill
this vacancy and, accordingly, only eight persons are nominated for election at
the Meeting. Proxies cannot be voted for a greater number of persons than the
number of nominees named.
Each nominee for director has indicated his willingness to serve if elected.
Proxies received by the Board will be voted for the nominees. Although the Board
does not anticipate that any nominee will be unavailable for election, in the
event of such occurrence the proxies will be voted for such substitute, if any,
as the Board may designate.
Each of the Company's nominees for election to the Board currently serves as
a director of the Company. Each of the Company's nominees first become a
director of the Company or its predecessor in the year set forth below and has
continually served as a director since then. From March 19, 1998 (the date of
the completion of the Company's initial public offering (the "IPO")) through
December 31, 1997, the board met three times. Each director attended at least
75% of the Board meetings held during such director's time of service, except
for Mr. Kibel who attended one of the two Board meetings held during his time of
service in 1997. The following table sets forth the names of, and certain
information with respect to, the eight persons nominated by the Company for
election at the Meeting.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES FOR DIRECTOR AGE POSITION SINCE
- ---------------------------------------- --- ------------------------------------------------------- ---------
<S> <C> <C> <C>
Larry Thomas............................ 48 President, Chief Executive Officer and Director 1984
Marty Albertson......................... 44 Executive Vice President, Chief Operating Officer and 1996
Director
Steven Burge(2)......................... 41 Director 1996
David Ferguson(1)....................... 42 Director 1996
Harvey Kibel(2)......................... 60 Director 1997
Michael Lazarus(1)...................... 42 Director 1996
Peter Starrett(1)....................... 50 Director 1997
Jeffrey Walker(2)....................... 42 Director 1996
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
The principal occupations and positions for the past five years, and in
certain cases prior years, of the directors named above are as follows:
LARRY THOMAS has been with Guitar Center since 1977. He has served as a
director since 1984 and has been the Company's President and Chief Executive
Officer since 1992. After working for a year as a salesperson in the San
Francisco, California store, Mr. Thomas became the store's manager. In 1980, Mr.
Thomas became the San Francisco area regional manager. After serving as a
regional manager in California and Illinois for four years, Mr. Thomas assumed
the role of Corporate General Manager and Chief Operating Officer. Mr. Thomas is
currently a member of the Los Angeles Chapter of the Young Presidents'
Organization and is a former board member of the National Association of Music
Merchants.
MARTY ALBERTSON has served as Executive Vice President and Chief Operating
Officer since 1990. Mr. Albertson was elected as a director in 1996. Mr.
Albertson joined the Company as a salesperson in 1979 and has held various
positions of increasing responsibility with the Company since such time. In
1980,
3
<PAGE>
he served as the Company's Advertising Director. In 1984, he became the
Company's National Sales Manager. Thereafter, in 1985, Mr. Albertson became Vice
President of Corporate Development, and then became the Vice President of Sales
and Marketing in 1987.
STEVEN BURGE is a Managing Director of Wells Fargo Small Business Investment
Company, Inc. ("Wells Fargo"). He became a director of the Company in 1996. From
1987 through 1995, Mr. Burge was a Managing General Partner of Wedbush Capital
Partners, a private investment fund, and was an executive in the Corporate
Finance Department of Wedbush Morgan Securities, a regional investment banking
firm. Prior to joining Wedbush Morgan Securities, Mr. Burge held various
positions with Wells Fargo Bank, N.A.
DAVID FERGUSON is a general partner of Chase Capital Partners, the sole
general partner of Chase Venture Capital Associates, L.P. ("Chase Ventures"). He
became a director of the Company in 1996. Prior to joining Chase Capital
Partners, Mr. Ferguson was a member of the mergers and acquisitions groups of
Bankers Trust New York Corporation and Prudential Securities, Inc. Mr. Ferguson
currently serves as a director of Wild Oats Markets, Inc. and various privately
held companies. Mr. Ferguson is a certified public accountant.
HARVEY KIBEL is the Chief Executive Officer of Kibel Green, Inc., a
privately held management consulting company which he co-founded in 1982. He
became a director of the Company in 1997. Mr. Kibel is currently on the Board of
Directors of the UCLA Medical School and various privately held companies.
MICHAEL LAZARUS is a general partner of Weston Presidio Capital Management
II, L.P., a venture capital firm and the sole general partner of Weston Presidio
Capital II, L.P. ("Weston Presidio"). From 1986 to 1991, he served as Managing
Director and Director of the Private Placement Department of Montgomery
Securities. He became a director of the Company in 1996. Mr. Lazarus is
currently on the Board of Directors of Just For Feet, Inc. and various privately
held companies.
PETER STARRETT is President of Warner Bros. Studio Stores and has been
employed by Warner Bros. Studio Stores since 1990. He became a director of the
Company in 1997. Mr. Starrett is currently on the Board of Directors of Petco
Animal Supplies, Inc. and Brylane, Inc.
JEFFREY WALKER is the managing general partner of Chase Capital Partners,
and a senior managing director and member of the Policy Council of The Chase
Manhattan Corporation. He became a director of the Company in 1996. Prior to
co-founding Chase Capital Partners in 1984, Mr. Walker worked in the Investment
Banking and Finance Divisions of Chemical Bank and the Audit and Consulting
Divisions of Arthur Young & Co. Mr. Walker is a certified public accountant and
a certified management accountant. Mr. Walker currently serves as a director of
various privately held companies and was Vice Chairman of the National
Association of Small Business Investment Companies.
DIRECTOR COMPENSATION
Each member of the Board who is not a full-time employee is paid $3,000 for
attendance at each meeting of the Board and $1,000 for attendance at each
meeting of a committee of the Board, and all directors are reimbursed for
reasonable out-of-pocket expenses arising from attendance at any Board or
committee meetings or otherwise related to Company business. The 1997 Plan
provides for the grant of options to certain non-employee directors.
Specifically, each non-employee director initially elected to the Board after
the Company's IPO automatically will be granted an option to purchase 15,000
shares of Common Stock on the date of such initial election, and each
non-employee director automatically will be granted an option to purchase 5,000
shares of Common Stock on the date of each annual meeting of stockholders at
which such director is re-elected to the Board, provided such annual meetings is
not less than 120 days after initial appointment to the Board. As a result of
the foregoing provisions of the 1997 Plan, each of Messrs. Kibel and Starrett
were granted options to purchase 15,000 shares of Common Stock upon their
initial election to the Board in July 1997, and, if elected at the Meeting, will
be granted additional options for the purchase of 5,000 shares of Common Stock.
In addition, each of Messrs. Burge, Ferguson, Lazarus and Walker, if elected at
the Meeting, will be granted options to purchase 5,000 shares of Common Stock.
All options granted to non-employee directors will have a per share exercise
price equal to fair market value of a share of Common Stock on the date of
grant.
4
<PAGE>
COMMITTEES OF THE BOARD
The Board has two standing committees, the Audit Committee and the
Compensation Committee. The Audit Committee has responsibility for reviewing and
making recommendations regarding the Company's employment of independent
accountants, the annual audit of the Company's financial statements, and the
Company's internal controls, accounting practices and policies. The members of
the Audit Committee are Messrs. Burge, Kibel and Walker. From the IPO through
December 31, 1997, the Audit Committee met three times. Each member of the Audit
Committee attended at least 75% of the meetings held during such director's time
of service. The Compensation Committee has responsibility for determining the
nature and amount of compensation of the management of the Company and for
administering the Company's employee benefit plans (including the 1996 Plan and
the 1997 Plan). The members of the Compensation Committee are Messrs. Ferguson,
Lazarus and Starrett. From the IPO through December 31, 1997, the Compensation
Committee met once. Each member of the Compensation Committee attended at least
75% of the meetings held during such director's time of service. Presently, the
Board of does not have a standing nominating committee. To date, all such
determinations have been made by the full Board.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation provides that a director
of the Company will not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the Delaware General Corporation
Law. The provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company or
its directors from compliance with federal or state securities laws. The
Company's Amended and Restated Bylaws generally provide that the Company shall
indemnify, to the fullest extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, investigation, administrative hearing or any other
proceeding (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another entity, against
expenses (including attorneys' fees) and losses, claims, liabilities, judgments,
fines and amounts paid in settlement actually incurred by him in connection with
such Proceeding. The Company has entered into agreements to provide
indemnification for the Company's directors and certain of its officers in
addition to the indemnification provided for in the Bylaws. These agreements,
among other things, will indemnify such directors and officers for certain
expenses (including attorney's fees), and all losses, claims, liabilities,
judgments, fines and settlement amounts incurred by such person arising out of
or in connection with such person's service as a director or officer of the
Company to the fullest extent permitted by applicable law.
COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership (Forms
3, 4 and 5) with the Securities and Exchange Commission. Executive officers,
directors and greater-than-ten-percent holders are required to furnish the
Company with copies of all such forms which they file.
Based solely on the Company's review of such reports or written
representations from certain reporting persons, the Company believes that during
the fiscal year ended December 31, 1997 all filing requirements applicable to
its executive officers, directors and greater-than-ten-percent stockholders
subject to Section 16(a) of the Exchange Act were complied with.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE DIRECTORS
NOMINATED IN PROPOSAL NO. 1.
5
<PAGE>
PROPOSAL NO. 2:
APPROVAL OF THE 1997 EQUITY PARTICIPATION PLAN, AS AMENDED
GENERAL
The Company's 1997 Plan was adopted by the Board and approved by the
stockholders in January 1997. In February 1998, the Board approved an amendment
to the 1997 Plan to increase the number of shares of Common Stock that may be
issued or sold under the plan from 875,000 shares to 1,375,000 shares. Pursuant
to the 1997 Plan in order for such amendment to be effective, it must be
approved by the Company's stockholders. Additionally, in order for any options
or SARs granted under the 1997 Plan to not be considered compensation pursuant
to Section 162(m) of the Code, the Company's stockholders must approve the 1997
Plan, as amended. Such approval is sought hereby.
The principal purposes of the 1997 Plan are to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
granting of options, restricted stock, stock appreciation rights, dividend
equivalent performance awards and deferred stock awards (collectively,
"Awards"), thereby stimulating their personal and active interest in the
Company's development and financial success, and inducing them to remain in the
Company's employ. In addition to Awards made to officers, employees or
consultants, the 1997 Plan permits the granting of options ("Director Options")
to the Company's non-employee directors.
Under the 1997 Plan, as currently in effect, not more than 875,000 shares of
Common Stock (or the equivalent in other equity securities) are authorized for
issuance upon exercise of options, stock appreciation rights ("SARs") and other
Awards, or upon vesting of restricted or deferred stock awards. Furthermore, the
maximum number of shares which may be subject to options or stock appreciation
rights granted under the 1997 Plan to any individual in any calendar year cannot
exceed 150,000. As of March 26, 1998, options to acquire 778,782 shares of
Common Stock had been granted under the 1997 Plan (none of which are currently
exercisable or will be exercisable within 60 days of March 26, 1998).
The Board believes that in order to continue to provide an incentive to
secure and retain key employees of outstanding ability and to provide added
incentives to those employees responsible for the success of the Company,
additional shares should be made available under the 1997 Plan. Currently,
approximately 100 employees of the Company (including approximately 60
merchandising, store and regional managers) have been granted stock options. At
March 26, 1998 a total of only 96,218 shares were available for future grants.
In order to continue the Company's goal of using stock incentives to secure and
retain key employees of outstanding ability, the Board has approved an amendment
of the 1997 Plan that would increase by 500,000 the number of shares of Common
Stock approved for issuance under the 1997 Plan.
The 1997 Plan currently requires the Board to solicit stockholder approval
prior to it or the Compensation Committee increasing the number of shares of
Common Stock that may be issued or sold under the 1997 Plan. The Board believes
that it is in the best interests of the Company and the Company's stockholders
to increase the number of shares of Common Stock that may be issued or sold
under the 1997 Plan and recommends that stockholders approve the 1997 Plan as so
amended.
DESCRIPTION OF THE PLAN
The principal features of the 1997 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1997 Plan, which is
filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 which is incorporated herein by reference. See "Other
Information--Annual Report on Form 10-K; Available Information."
ADMINISTRATION. The Compensation Committee administers the 1997 Plan with
respect to grants to employees or consultants of the Company and the full Board
administers the 1997 Plan with respect to Director Options. The Compensation
Committee will consist of at least two members of the Board, each of
6
<PAGE>
whom is a "non-employee director" for purposes of Rule 16b-3 ("Rule 16b-3")
under the Exchange Act, and, with respect to options and SAR's which are
intended to constitute performance-based compensation under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"), an "outside director" for the purposes of Section 162(m). Subject to
the terms and conditions of the 1997 Plan, the Board or Compensation Committee
has the authority to select the persons to whom Awards are to be made, to
determine the number of shares to be subject thereto and the terms and
conditions thereof, and to make all other determinations and to take all other
actions necessary or advisable for the administration of the 1997 Plan.
Similarly, the Board has discretion to determine the terms and conditions of
Director Options and to interpret and administer the 1997 Plan with respect to
Director Options. The Compensation Committee (and the Board) is also authorized
to adopt, amend and rescind rules relating to the administration of the 1997
Plan.
ELIGIBILITY. Options, SARs, restricted stock and other Awards under the
1997 Plan may be granted to individuals who are then officers or other employees
of the Company or any of its present or future subsidiaries based upon the
determination of the Compensation Committee. Such Awards also may be granted to
consultants of the Company selected by the Board or Compensation Committee for
participation in the 1997 Plan. Non-employee directors of the Company may be
granted NQSOs (as defined herein) by the Board.
GRANT OF AWARDS. The 1997 Plan provides that the Compensation Committee may
grant or issue stock options, SARs, restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments and other stock related
benefits, or any combination thereof. Each Award will be set forth in a separate
agreement with the person receiving the Award and will indicate the type, terms
and conditions of the Award as determined by the Compensation Committee.
NONQUALIFIED STOCK OPTIONS ("NQSOS") will provide for the right to purchase
Common Stock at a price not less than the fair market value on the date of
grant, and usually will become exercisable (in the discretion of the Board or
Compensation Committee) in one or more installments after the grant date,
subject to the participant's agreement to continue in the employ of the Company
for at least one year (or shorter period as fixed in a written agreement) and/or
subject to the satisfaction of individual or Company performance targets
established by the Board or Compensation Committee. NQSOs may be granted for up
to a ten-year term specified by the Board or Compensation Committee and the
exercise price thereof must be not less than the fair market value of the
underlying Common Stock on the date of grant. The Compensation Committee may
extend the term of any outstanding option in connection with any termination of
employment or consultancy of the optionee or amend any condition or term of such
option relating to such termination. Notwithstanding the foregoing, options may
not be repriced after issuance.
INCENTIVE STOCK OPTIONS ("ISOS") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Common Stock on the date of grant, may
only be granted to employees, must expire within a specified period of time
following the Optionee's termination of employment, and must be exercised within
the ten years after the date of grant, but may be subsequently modified to
disqualify them from treatment as ISOs. In the case of an ISO granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all classes of stock of the Company, the 1997 Plan provides that
the exercise price must be at least 110% of the fair market value of a share of
Common Stock on the date of grant and the ISO must expire no later than the
fifth anniversary of the date of its grant. Any option granted may be modified
by the Compensation Committee to disqualify such option from ISO treatment.
RESTRICTED STOCK may be sold to participants and made subject to such
restrictions as may be determined by the Board or Compensation Committee.
Restricted stock, typically, may be repurchased by the Company at the original
purchase price if the conditions or restrictions are not met. In addition, under
certain circumstances, the Company may repurchase the restricted stock upon
termination of employment at a cash price equal to the price paid by the
grantee. In general, restricted stock may not be sold, or
7
<PAGE>
otherwise transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will be entitled to receive dividends, if any, prior to the time when
the restrictions lapse.
DEFERRED STOCK may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Board or Compensation Committee.
Like restricted stock, deferred stock may not be sold, or otherwise transferred
or hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
STOCK APPRECIATION RIGHTS may be granted in connection with stock options or
other Awards, or separately. SARs granted by the Board or Compensation Committee
in connection with stock options or other awards typically will provide for
payments to the holder based upon increases in the price of Common Stock over
the exercise price of the related option or other Awards, but alternatively may
be based upon criteria such as book value. Except as required by Section 162(m)
with respect to an SAR intended to qualify as performance-based compensation as
described in Section 162(m), there are no restrictions specified in the 1997
Plan on the exercise of SARs or the amount of gain realizable therefrom,
although restrictions may be imposed by the Board or Compensation Committee in
the SAR agreements. The Board or Compensation Committee may elect to pay SARs in
cash or in Common Stock or in a combination of both.
DIVIDEND EQUIVALENTS represent the value of the dividends per share, if any,
paid by the Company, calculated with reference to the number of shares covered
by the stock options, SARs or other Awards held by the participant. Dividend
equivalents will be converted into cash or additional shares of Common Stock as
determined by the Compensation Committee.
PERFORMANCE AWARDS may be granted by the Board or Compensation Committee on
an individual or group basis. Generally, these Awards will be based upon
specific performance targets and may be paid in cash or in Common Stock or in a
combination of both. Performance Awards may include "phantom" stock awards that
provide for payments based upon increases in the price of the Company's Common
Stock over a predetermined period.
STOCK PAYMENTS may be authorized by the Board or Compensation Committee in
the form of shares of Common Stock or an option or other right to purchase
Common Stock as part of a deferred compensation arrangement in lieu of all or
any part of compensation, including bonuses, that would otherwise be payable in
cash to the key employee or consultant. Such payments will be determined by the
Compensation Committee based on specific performance criteria.
Generally, in addition to the payment of any purchase price as consideration
for the issuance of an Award, the grantee must agree to remain in the employ of
or to consult for, the Company for at least one year after such Award is issued.
In addition, under the terms of the 1997 Plan Awards are exercisable or payable
only while the grantee is an employee or consultant of the Company. However,
under certain conditions, the Committee may determine that any such Award may be
exercisable or paid subsequent to termination of employment.
DIRECTOR OPTIONS will be granted to the Company's non-employee directors
under the 1997 Plan at a per share price not less than the fair market value of
a share of Common Stock on the date of grant. Following the IPO, (i) a person
who is initially elected to the Board and who is a non-employee director at the
time of such initial election automatically will be granted a Director Option to
purchase 15,000 shares of Common Stock on the date of such initial election, and
(ii) a person who is re-elected to the Board and who is a non-employee director
at the time of such re-election automatically shall be granted a Director Option
to purchase 5,000 shares of Common Stock on the date of each annual meeting of
stockholders at which such director is re-elected to the Board. Notwithstanding
the foregoing, (A) no grant shall be made to a non-employee director pursuant to
the foregoing clause (i) if: (x) an affiliate of such non-employee
8
<PAGE>
director served on the Board within the twelve-month period prior to the initial
election of such non-employee director or (y) such non-employee director is an
employee of the Company who subsequently retires from the Company and remains on
the Board, and (B) no grant shall be made to a non-employee director pursuant to
the foregoing clause (ii) if such non-employee director was initially elected to
the Board within 120 days of such annual meeting of stockholders. Director
Options granted to non-employee directors will vest over a three-year period.
Although the Board presently has an intention to grant only Director Options to
non-employee directors, the Board may grant other stock options or Awards to
non-employee directors in accordance with the provisions of the 1997 Plan.
The 1997 Plan may be amended, suspended or terminated at any time by the
Board or the Compensation Committee. However, the maximum number of shares that
may be sold or issued under the 1997 Plan may not be increased without approval
of the Company's stockholders.
SECURITIES LAWS AND FEDERAL INCOME TAXES
SECURITIES LAWS. The 1997 Plan is intended to conform to the extent
necessary with all provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. The 1997 Plan will be administered, and options
will be granted and may be exercised, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law, the
1997 Plan and options granted thereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of NQSOs, SARs, restricted stock, deferred
stock, dividend equivalents, performance awards and stock payments under the
1997 Plan are taxable under Section 83 of the Code upon their receipt of Common
Stock or cash with respect to such awards or grants and, subject to Section
162(m), the Company will be entitled to an income tax deduction with respect to
the amounts taxable to such recipients. Under Sections 421 and 422 of the Code,
recipients of ISOs are generally not taxable on their receipt of Common Stock
upon their exercises of ISOs if the ISOs and option stock are held for certain
minimum holding periods and, in such event, the Company is not entitled to
income tax deductions with respect to such exercises.
SECTION 162(M) LIMITATION. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction limit
does not apply to certain "performance-based compensation" established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the compensation
is based solely on an increase in the stock price after the grant date (I.E.,
the option exercise price is equal to or greater than the fair market value of
the stock subject to the award on the grant date). Under a Section 162(m)
transition rule for compensation plans of corporations which are privately held
and which become publicly held in an initial public offering, the 1997 Plan was
not subject to Section 162(m) until the adoption of the amendment referred to
above to increase the number of shares issuable under the plan (the "Transition
Date"). After the Transition Date, rights or awards granted under the 1997 Plan,
other than options and SARs, will not qualify as "performance-based
compensation" for purposes of Section 162(m) unless such rights or awards are
granted or vest upon preestablished objective performance goals, the material
terms of which are disclosed to and approved by the stockholders of the Company.
Thus, the Company expects that such other rights or awards under the 1997 Plan
will not constitute "performance-based compensation" for purposes of Section
162(m).
9
<PAGE>
The Company has attempted to structure the 1997 Plan in such a manner that,
after the Transition Date, subject to obtaining the stockholder approval for the
1997 Plan sought hereby, the remuneration attributable to stock options and SARs
which meet the other requirements of Section 162(m) will not be subject to the
$1,000,000 limitation. The Company has not, however, requested a ruling from the
IRS or an opinion of counsel regarding this issue.
VOTE REQUIRED
Approval of Proposal 2 requires the affirmative vote of the holders of a
majority of the Company's outstanding shares of Common Stock represented at and
entitled to vote at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE 1997 EQUITY PARTICIPATION PLAN, AS AMENDED,
AS SET FORTH IN PROPOSAL NO. 2.
10
<PAGE>
PROPOSAL NO. 3:
AMENDMENT OF THE 1996 PERFORMANCE STOCK OPTION PLAN
GENERAL
The Company's 1996 Performance Stock Option Plan was adopted by the Board
and approved by the Company's then sole stockholder in June 1996. As of March
26, 1998, the Company had outstanding under the 1996 Plan options to purchase
663,209 shares of Common Stock at an exercise price of $10.89 per share (168,004
shares of which are currently exercisable or will be exercisable within 60 days
of March 26, 1998). No further options will be granted under the 1996 Plan. The
1996 Plan is administered by the Compensation Committee.
BACKGROUND OF PROPOSED AMENDMENT
The 1996 Plan currently requires the Board to seek the approval of the
Company's stockholders before it or the Compensation Committee can amend any
provision of the 1996 Plan. The Company believes that it is in the best
interests of the Company and the Company's stockholders to amend the 1996 Plan
to permit the Board or the Compensation Committee to effect most future
amendments to the 1996 Plan unless, under applicable law, regulation or rule,
approval of the stockholders is required. The 1997 Plan contains similar
amendment provisions. Other than the proposed amendment for which approval is
sought hereby, however, neither the Board nor the Compensation Committee
presently contemplates any other amendments to the 1996 Plan. The principal
purpose of this amendment is to permit the Board promptly to respond to any
amendments that may be required in the future to comply with applicable law or
which are otherwise advisable. The Board will not authorize the issuance of
further shares under the 1996 Plan, or the decrease in the exercise price of
existing options (other than by operation of anti-dilution adjustments), without
the approval of the stockholders. For further information about the 1996 Plan,
reference is made to the full text thereof which is filed as an exhibit to the
Company's Annual Report on Form 10-K, which is incorporated herein by reference.
See "Other Information--Annual Report on Form 10-K; Available Information."
FORM OF AMENDMENT
If Proposal 3 is approved, Section 15 of the 1996 Plan will be amended and
restated to read as follows:
Except as otherwise provided in this Section 15, this Plan may be
wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Board or the
Committee. However, without the approval of the Company's stockholders
given within twelve months before or after action by the Board or the
Committee, no action of the Board or the Committee may increase the
maximum number of shares issuable under this Plan, and no action of the
Board or the Committee may be taken that would otherwise require
stockholder approval as a matter of applicable law, regulation or rule.
VOTE REQUIRED
Approval of this Proposal 3 requires the affirmative vote of the Requisite
Stockholder Shares (as defined in the 1996 Plan), which represents approximately
60% of the shares of Common Stock outstanding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT OF THE 1996 PERFORMANCE STOCK OPTION PLAN
AS SET FORTH IN PROPOSAL NO. 3.
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information in the following table sets forth the ownership of the
Common Stock, as of March 26, 1998, of the Company by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
shares of Common Stock; (ii) each Named Executive Officer (as defined herein);
(iii) each director of the Company; and (iv) all directors and executive
officers of the Company, as a group. As of March 26, 1998, the Company had
19,362,118 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1) OWNERSHIP(1)
- ----------------------------------------------------------------------------- -------------------- ---------------
<S> <C> <C>
Chase Venture Capital Associates, L.P.(2).................................... 4,589,164 23.7%
380 Madison Avenue, 12th Floor
New York, NY 10017
Larry Thomas(3).............................................................. 1,730,169 8.8
Raymond Scherr(4)............................................................ 1,500,966 7.8
32129 Lindero Canyon Road, Suite 206
Westlake Village, California 91361
Putnam Investments, Inc.,(5)................................................. 1,415,447 7.3
One Post Office Square
Boston, Massachusetts 02109
Marty Albertson(6)........................................................... 1,325,622 6.7
Provident Investment Counsel, Inc.(7)........................................ 1,010,256 5.2
300 North Lake Avenue
Pasadena, California 91101
Steven Burge(8).............................................................. -- *
David Ferguson(9)............................................................ -- *
Harvey Kibel................................................................. -- *
Michael Lazarus(10).......................................................... -- *
Peter Starrett............................................................... -- *
Jeffrey Walker(9)............................................................ -- *
Bruce Ross(11)............................................................... 10,383 *
Barry Soosman(12)............................................................ 76,293 *
All Executive Officers and Directors as a group
(10 persons)............................................................... 3,122,467 15.4
</TABLE>
- ------------------------
* Represents less than 1% of the issued and outstanding shares.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options and warrants which are currently exercisable, or will become
exercisable within 60 days of March 26, 1998, are deemed outstanding for
computing the percentage of the person or entity holding such securities but
are not outstanding for computing the percentage of any other person or
entity. Except as indicated by footnote, and subject to the community
property laws where applicable, to the knowledge of the Company the persons
named in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them. Unless
otherwise indicated, the address for each person is the Company's address at
5155 Clareton Drive, Agoura Hills, California 91362.
(2) Based solely on a filing on Schedule 13G, dated February 13, 1998, in which
Chase Ventures reported sole voting and dispositive power with respect to
such shares of Common Stock. Includes shares subject to Investor Options (as
defined herein) granted by Chase Ventures to certain members of management
for the purchase of 207,899 shares of Common Stock.
12
<PAGE>
(3) Represents: (i) 1,222,462 shares of Common Stock held by a trust for the
benefit of Mr. Thomas and his spouse for which Mr. Thomas and his spouse
serve as co-trustees; (ii) 109,722 shares of Common Stock issuable upon the
exercise of an Investor Option granted to Mr. Thomas by the Investors (as
defined herein); and (iii) 397,985 shares of Common Stock issuable upon the
exercise of a Management Stock Option (as defined herein). Excludes 52,632
shares of Common Stock held by a charitable foundation for which Mr. Thomas
and his spouse serve as its sole directors and have the power to vote such
shares. Mr. Thomas disclaims beneficial ownership of such shares.
(4) Based solely on the Company's stock transfer records and information
provided on behalf of Mr. Scherr, includes (i) 1,101,539 shares of Common
Stock held by the Scherr Living Trust for which Mr. Scherr and his spouse
serve as co-trustees and share voting and investment control over such
shares of Common Stock; (ii) 199,696 shares of Common Stock held in trust
for the benefit of Mr. Scherr and his son for which Mr. Scherr's brother
serves as trustee and exercises voting and investment control; and (iii)
199,731 shares of Common Stock held in trust for the benefit of Mr. Scherr's
spouse and daughter for which Mr. Scherr's brother serves as trustee and
exercises voting and investment control.
(5) Based solely on a filing on Schedule 13G, dated January 21, 1998, in which
Putnam Investments, Inc., on behalf of itself and Putnam Investment
Management, Inc., The Putnam Advisory Company, Inc., Putnam OTC & Emerging
Growth Fund and Marsh & McLennan Companies, Inc., disclosed beneficial
ownership of such shares.
(6) Represents: (i) 711,717 shares of Common Stock held by a trust for the
benefit of Mr. Albertson and his spouse for which Mr. Albertson and his
spouse serve as co-trustees; (ii) 52,602 shares of Common Stock held in
trust for the benefit of Mr. Albertson and one of his children for which Mr.
Albertson serves as trustee; (iii) 52,602 shares of Common Stock held in
trust for the benefit of Mr. Albertson's spouse and one of his children for
which Mr. Albertson serves as trustee; (iv) 497 shares held by Mr.
Albertson; (v) 497 shares held by Mr. Albertson's spouse; (vi) 109,722
shares of Common Stock issuable upon the exercise of an Investor Option
granted to Mr. Albertson by the Investors; and (vii) 397,985 shares of
Common Stock issuable upon the exercise of a Management Stock Option.
(7) Based solely on a filing on Schedule 13G, dated March 12, 1998, in which
Provident Investment Counsel, Inc. disclosed sole dispositive power over
such shares and sole voting power over 936,756 of such shares.
(8) Mr. Burge does not own any Common Stock. However, as a managing director of
Wells Fargo, he may be deemed to share voting or investment control over the
878,589 shares of Common Stock owned by Wells Fargo and over the additional
39,611 shares of Common Stock owned by Wells Fargo that are subject to the
Investor Options. Mr. Burge disclaims beneficial ownership of the shares
held by Wells Fargo, except to the extent of his pecuniary interest therein.
(9) Neither Mr. Walker nor Mr. Ferguson own any Common Stock. Messrs. Walker
and Ferguson are the Managing General Partner and a General Partner,
respectively, of Chase Capital Partners, a New York general partnership, and
the sole general partner of Chase Ventures. Each of Messrs. Walker and
Ferguson disclaims beneficial ownership of the shares owned by Chase
Ventures, except to the extent of his pecuniary interest therein.
(10) Mr. Lazarus does not directly own any Common Stock. However, as a general
partner of Weston Presidio Management II, L.P., the sole general partner of
Weston Presidio, he may be deemed to share voting and investment control
over the 658,966 shares of Common Stock held by Weston Presidio and over the
additional 29,684 shares of Common Stock owned by Weston Presidio that are
subject to the Investor Options. Mr. Lazarus disclaims beneficial ownership
of the shares held by Weston Presidio, except to the extent of his pecuniary
interest therein.
13
<PAGE>
(11) Represents (i) 3,850 shares of Common Stock issuable upon the exercise of
an Investor Option granted to Mr. Ross by the Investors; and (ii) 6,533
shares of Common Stock issuable upon the exercise of options granted to Mr.
Ross under the 1996 Plan. Excludes 132,665 shares of Common Stock issuable
upon the exercise of options granted to Mr. Ross under the 1996 Plan which
are not currently exercisable and will not be exercisable within 60 days of
March 26, 1998.
(12) Represents: (i) 45,910 shares of Common Stock held by the Soosman Family
Trust with respect to which Mr. Soosman and his spouse serve as co-trustees
and share voting and investment control; (ii) 3,850 shares of Common Stock
issuable upon the exercise of an Investor Option granted to Mr. Soosman by
the Investors; and (iii) 26,533 shares of Common Stock issuable upon the
exercise of options granted to Mr. Soosman under the 1996 Plan. Excludes
132,665 shares of Common Stock issuable upon the exercise of options granted
to Mr. Soosman under the 1996 Plan which are not currently exercisable and
will not be exercisable within 60 days of March 26, 1998.
14
<PAGE>
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
Set forth below is certain information regarding each of the executive
officers of the Company as of December 31, 1997. Further information with regard
to Messrs. Thomas and Albertson is presented under "Proposal No. 1: Election of
Nominees to Board of Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Larry Thomas.................................. 48 President and Chief Executive Officer
Marty Albertson............................... 44 Executive Vice President and Chief Operating Officer
Bruce Ross.................................... 49 Executive Vice President, Chief Financial Officer and
Secretary
Barry Soosman................................. 38 Senior Vice President of Corporate Development and General
Counsel
</TABLE>
The principal occupations and positions for the past five years, and in
certain cases prior years, of the executive officers named above, other than
Messrs. Thomas and Albertson, as are as follows:.
BRUCE ROSS joined the Company in July 1994 as Chief Financial Officer. In
February 1998, Mr. Ross was promoted to Executive Vice President. Prior to
joining the Company, Mr. Ross was Chief Financial Officer of Fred Hayman Beverly
Hills, Inc., a retailer of high end fashion clothing on Rodeo Drive in
California and a wholesaler of men's and women's fragrances. From 1982 to 1990,
Mr. Ross was employed by Hanimex Vivitar Corporation, a worldwide manufacturer
and distributor of photographic products. Mr. Ross served in various capacities
with Hanimex Vivitar in Australia, the United States and Europe. While working
for Hanimex Vivitar in the United States, Mr. Ross was promoted to the position
of Chief Financial Officer in 1986 and Chief Executive Officer for North America
in 1988.
BARRY SOOSMAN joined the Company in July 1996 as Vice President of Corporate
Development and General Counsel. In February 1998, Mr. Soosman was promoted to
Senior Vice President. Mr. Soosman has been a practicing attorney for fourteen
years specializing in real estate, commercial and corporate law. Since 1992 and
prior to joining the Company, Mr. Soosman had been the outside general counsel
to the Company. In June 1996 Mr. Soosman became of counsel to the law firm of
Buchalter, Nemer, Fields & Younger, a Professional Corporation. Mr. Soosman is a
former Adjunct Professor at Southwestern School of Law.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table provides for the periods shown certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the three other
highest paid executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION ($) SECURITIES
----------------------------------------- UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION ($)(1) SAR#(2) COMPENSATION ($)(3)
- -------------------------- --------- --------- --------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Larry Thomas ............. 1997 $ 500,000 $ 500,000 $ 18,917,192(4) -- $ 11,250
President and Chief 1996 500,000 -- 10,660,728(5) 397,985 11,250
Executive Officer 1995 500,000 285,715 -- -- 25,645
Marty Albertson .......... 1997 375,000 375,000 12,611,441(4) -- 11,250
Executive Vice 1996 375,000 -- 7,107,146(5) 397,985 11,250
President and Chief 1995 375,000 214,285 -- -- 25,645
Operating Officer
Bruce Ross ............... 1997 214,000 225,000 -- -- 11,250
Executive Vice 1996 195,000 58,500 -- 159,198 11,250
President and Chief 1995 180,000 48,060 -- -- --
Financial Officer
Barry Soosman ............ 1997 225,000 112,500 -- -- --
Senior Vice President of 1996 112,500 10,000 -- 159,198 --
Corporate Development 1995 -- -- -- -- --
and General Counsel
</TABLE>
- ------------------------
(1) Excludes perquisites and other personal benefits, securities or property
aggregating less than $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer.
(2) The securities underlying the options are shares of Common Stock.
(3) All other compensation consists of contributions made by the Company to its
profit sharing plan on behalf of each Named Executive Officer.
(4) Other annual income consists of non-cash compensation that is considered to
have been earned by such Named Executive Officer for federal and state
income tax purposes upon the termination of the trading and other
restrictions associated with the Junior Preferred Stock, $.01 par value
("Junior Preferred Stock"), held by such Named Executive Officer at the time
such shares of Junior Preferred Stock converted into Common Stock in
connection with the IPO.
(5) Other annual compensation consists of cash compensation received by such
Named Executive Officer in connection with the Company's 1996
recapitalization and related transactions. Excludes restricted shares of
Junior Preferred Stock received by such Named Executive Officer upon the
cancellation of employee stock options in connection with the
recapitalization that were converted into Common Stock in connection with
the IPO.
During the periods indicated above, none of the Named Executive Officers
received any awards under any long-term incentive plan, and the Company does not
have a pension plan.
16
<PAGE>
EMPLOYMENT AGREEMENTS
On June 5, 1996, the Company entered into a five-year employment agreement
with each of Larry Thomas and Marty Albertson, a three-year employment agreement
with Bruce Ross and a three and one-half year employment agreement with Barry
Soosman (collectively, as amended to date, the "Employment Agreements"). The
Employment Agreements provide Messrs. Thomas, Albertson, Ross and Soosman (each
a "Senior Officer" and, collectively, the "Senior Officers") with base salaries
of $500,000, $375,000, $195,000 and $225,000, respectively. During 1997, the
Board increased the annual salary for Mr. Ross to $225,000. Each Senior Officer
is entitled to participate in all insurance and benefit plans generally
available to executives of the Company. In addition to their base salary,
Messrs. Thomas and Albertson will be paid an annual bonus equal to 57.14% and
42.86%, respectively, of a bonus pool determined at the end of each year, not to
exceed $900,000. The amount of the bonus pool with respect to any fiscal year
will be a percentage ranging from 10% to 30% of the excess of the Company's
actual earnings before interest expense, tax expense, depreciation expense and
amortization expense ("EBITDA") over the Company's target EBITDA as determined
by the Board. Messrs. Ross and Soosman will receive annual bonuses at the
discretion of the Board. Pursuant to their employment agreements, each of
Messrs. Ross and Soosman were granted options under the Company's 1996 Plan to
purchase 79,599 shares of Common Stock at an exercise price of $10.89 per share.
Such options vest ratably over a three-year period. The Company has also granted
each of Messrs. Ross and Soosman options under the Company's 1996 Plan to
purchase an additional 79,599 shares of Common Stock at an exercise price of
$10.89 per share, all such options to vest on June 5, 2001 provided that such
Senior Officer is employed on such date, subject to acceleration upon the
attainment of certain performance objectives set forth in such Senior Officer's
employment agreement.
Under the terms of each Employment Agreement, if a Senior Officer is
terminated without cause or resigns with reasonable justification, such Senior
Officer will be entitled to receive his base salary, annual cash bonus (equal to
the last annual bonus he received prior to termination) and continuation of his
benefits through the term of the agreement. With certain exceptions, if a Senior
Officer is terminated without cause, all stock options held by such Senior
Officer will immediately vest. If a Senior Officer's employment is terminated
for any other reason, he will be entitled only to his accrued base salary
through the date of termination.
MANAGEMENT STOCK OPTION AGREEMENTS
In June 1996, the Company granted options (each, a "Management Option") to
each of Messrs. Thomas and Albertson to purchase 397,985 shares of Common Stock
at an exercise price of $10.89 per share pursuant to stock option agreements
(the "Management Stock Option Agreements"). Unless terminated or accelerated,
each Management Option was to vest in three equal installments in 2003, 2004 and
2005 and will terminate upon the first to occur of: (i) June 5, 2005; (ii) the
consummation of a Company Sale (as defined in the Management Stock Option
Agreements); or (iii) the termination, either voluntarily or for cause, of the
employment of such executive officer with the Company. The vesting of each
Management Option was subject to acceleration upon the attainment of certain
performance targets. Each Management Option became exercisable in full in 1997
as a result of the performance targets being satisfied.
OTHER OPTION ARRANGEMENTS
Chase Ventures, Wells Fargo and Weston Presidio (collectively the
"Investors") granted certain members of management options (the "Investor
Options") to purchase an aggregate of 277,194 shares of Common Stock at a
purchase price of $4.33 per share to certain officers and key managers of the
Company. Each grant of an Investor Option is, to the extent possible, deemed to
be granted by each Investor to each member of management in the same ratio as
granted by each Investor (I.E., 75.00% by Chase Ventures, 14.29% by Wells Fargo
and 10.71% by Weston Presidio). Included in the Investor Options are options to
purchase 109,722 shares of Common Stock that were granted to each of Messrs.
Thomas
17
<PAGE>
and Albertson and 3,850 shares of Common Stock that were granted to each of
Messrs. Ross and Soosman. The Investor Options were granted in December 1996,
are presently exercisable and will expire on December 30, 2001. The Company is
not a party to this agreement and has not, and will not, incur any obligation in
connection with such options.
1996 PERFORMANCE STOCK OPTION PLAN
The Company's 1996 Plan is described under "Proposal No. 3: Amendment of the
1996 Performance Stock Option Plan."
1997 EQUITY PARTICIPATION PLAN, AS AMENDED
The Company's 1997 Plan is described under "Proposal No. 2: Approval of the
1997 Equity Participation Plan, as Amended."
OPTION GRANTS IN 1997; AGGREGATE OPTION EXERCISES IN 1997; 1997 YEAR-END OPTION
VALUES
In 1997, the Company granted no options to any employees. In 1997, the
Company granted to each of Messrs. Kibel and Starrett options to purchase 15,000
shares of Common Stock under the 1997 Plan. See "--Director Compensation."
The following table sets forth, on an aggregated basis, information
regarding securities underlying unexercised options during the year ended
December 31, 1997 by the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION VALUES AT DECEMBER 31, 1997
-------------------------------------------------------
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(1)(#) FISCAL YEAR-END ($)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Larry Thomas............................................. 397,985 -- $ 4,819,598 --
Marty Albertson.......................................... 397,985 -- 4,819,598 --
Bruce Ross............................................... 26,533 132,665 321,315 $ 1,606,573
Barry Soosman............................................ 26,533 132,665 321,315 1,606,573
</TABLE>
- ------------------------
(1) The securities underlying the options are shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Messrs.
Ferguson, Lazarus and Starrett, none of whom (i) is a present or former officer
or employee of the Company or (ii) engaged in any transactions required to be
described under "Certain Transactions."
18
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
In connection with the conversion of management's shares of Junior Preferred
Stock upon completion of the IPO, a significant amount of non-cash income was
deemed to have been earned by certain employees of the Company who are also
stockholders of the Company (including Larry Thomas and Marty Albertson) for
federal and state income tax purposes (whether or not such employees have
received any cash with respect to the underlying stock). In February 1997, the
Company entered into an agreement with Larry Thomas, Marty Albertson and certain
other senior employees pursuant to which the Company agreed to redeem
approximately 1,317,000 shares of Common Stock, at a price equal to the initial
public offering price in the IPO less the net underwriting discount, to provide
sufficient cash to such employees to finance a portion of such federal and state
income tax obligations. Pursuant to the terms of such agreement, the Company
used approximately $18.4 million of the proceeds from the IPO to redeem for cash
such shares of Common Stock (of which approximately $6.7 million and $4.5
million were paid to Messrs. Thomas and Albertson, respectively).
TRANSACTIONS WITH AFFILIATES OF CHASE VENTURES
Chase Securities, Inc., an affiliate of Chase Ventures, acted as an
underwriter in the IPO. In connection with such transactions, Chase Securities,
Inc. received customary fees. ChaseMellon Shareholder Services, L.L.C., an
affiliate of Chase Ventures, acts as the Company's transfer agent and registrar
and is soliciting proxies in connection with the Meeting. In connection with
such transactions, Chase Mellon Shareholder Services, L.L.C. received and will
receive customary fees.
TRANSACTIONS WITH AN AFFILIATE OF WELLS FARGO
Wells Fargo Bank, N.A., an affiliate of Wells Fargo, was a lender under the
Company's prior credit facility for which it was paid customary fees.
Additionally, Wells Fargo Bank, N.A. acts as a lender under the Company's
existing credit facility and provides banking related services for which it
receives customary fees.
19
<PAGE>
COMPENSATION COMMITTEE REPORT
During 1997, the Compensation Committee of the Board was comprised of
Messrs. Ferguson, Lazarus and Starrett, three non-employee directors, who
administered the Company's executive compensation programs and policies. The
Company's executive compensation programs are designed to attract, motivate and
retain the executive talent needed to optimize shareholder value in a
competitive environment. The programs are intended to support the goal of
increasing shareholder value while facilitating the business strategies and
long-range plans of the Company.
The following is the Compensation Committee's report submitted to the Board
addressing the compensation of the Company's executive officers for fiscal 1997.
COMPENSATION POLICY AND PHILOSOPHY
The Company's executive compensation policy is (i) designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long term growth objectives and its ability to attract and
retain qualified executive officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries with (i) annual incentive bonuses
based on corporate performance and on the achievement of specified performance
objectives set forth in the Company's financial plan for such fiscal year and
(ii) stock options through various plans. In support of this philosophy, a
meaningful portion of each executive's compensation is placed at-risk and linked
to the accomplishment of specific results that are expected to lead to the
creation of value for the Company's stockholders from both the short-term and
long-term perspectives. The Compensation Committee believes that cash
compensation in the form of salary and performance-based incentive bonuses
provides Company executives with short term rewards for success in operations,
and that long term compensation through the award of stock options encourages
growth in management stock ownership which leads to expansion of management's
stake in the long-term performance and success of the Company. The Compensation
Committee considers all elements of compensation and the compensation policy
when determining individual components of pay.
The Board believes that leadership and motivation of the Company's employees
are critical to achieving the objective of becoming a leader in music products
retailing in the United States. The Compensation Committee is responsible to the
Board for ensuring that its executive officers are highly qualified and that
they are compensated in a way that furthers the Company's business strategies
and which aligns their interests with those of the stockholders. To support this
philosophy, the following principles provide a framework for executive
compensation: (i) offer compensation opportunities that attract the best talent
to the Company; (ii) motivate individuals to perform at their highest levels;
(iii) reward outstanding achievement; (iv) retain those with leadership
abilities and skills necessary for building long-term shareholder value; (v)
maintain a significant portion of executives' total compensation at risk, tied
to both the annual and long-term financial performance of the Company and the
creation of incremental shareholder value; and (vi) encourage executives to
manage from the perspective of owners with an equity stake in the Company.
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, the Company's executive compensation package is
primarily comprised of three components: base salary, annual incentive bonuses
and stock options.
BASE SALARY. In 1997, all four Named Executive Officers were employed under
contracts established in 1996, subject, in one instance, to an adjustment in
base compensation approved in 1997.
ANNUAL INCENTIVE BONUSES. For fiscal 1997, annual incentive bonuses for the
Chief Executive Officer and Chief Operating Officer were based upon their
employment contracts signed in 1996. The employment
20
<PAGE>
contracts state that annual bonuses will be paid out of a bonus pool not to
exceed $900,000. The amount of the bonus pool with respect to any fiscal year
will be a percentage ranging from 10% to 30% of the excess of the Company's
actual EBITDA over the Company's target EBITDA (as determined by the Board).
Bonuses for the other Named Executive Officers are determined at the discretion
of the Committee and include the following components: (i) the Company's
targeted net income and earnings per share estimates for fiscal 1997, and (ii)
individual merit. Target awards for each executive officer were set in relation
to base salary. On average, actual bonuses for executive officers were 91.5% of
each executive's base salary for fiscal year 1997. See "Summary Compensation
Table."
LONG TERM INCENTIVE COMPENSATION. No stock options were granted to the
Chief Executive Officer or the other Named Executive Officers in 1997.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Larry Thomas, the Company's Chief
Executive Officer, provides valuable services to the Company and that his
compensation should therefore be competitive with that paid to executives at
comparable companies. In addition, the Compensation Committee believes that an
important portion of his compensation should be based on Company performance.
Mr. Thomas' annual base salary for fiscal 1997 was $500,000. Mr. Thomas' base
salary was determined by his employment agreement, which expires June 5, 2002.
The annual incentive bonus paid to Mr. Thomas for fiscal 1997 was $500,000. Such
bonus was paid to Mr. Thomas for his performance and role in effectuating the
Company's achievement of certain earnings targets during fiscal 1997.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162 of the Code, the amount of compensation paid to certain
executives that is deductible with respect to the Company's corporate taxes is
limited to $1,000,000 annually. It is the current policy of the Compensation
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive officers
of the Company to the extent consistent with the best interests of the Company
and its shareholders.
COMPENSATION COMMITTEE
David Ferguson
Michael Lazarus
Peter Starrett
THE BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION SHALL NOT
BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY
REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OR THE
EXCHANGE ACT, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
21
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on the Common Stock (no dividends have been paid thereon) with the
cumulative total return of (i) the S&P 500 Index and (ii) the S&P Retail
(Specialty) Index, for the period commencing March 13, 1997 (the date of the
commencement of trading in connection with the IPO) through December 31, 1997.
The historical stock market performance of the Common Stock shown below is
not necessarily indicative of future stock performance.
Research Data Group Peer Group Total Return Worksheet
Guitar Ctr Inc (GTRC)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------------------------------
3/14/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guitar Ctr Inc GTRC 100.00 106.67 94.17 127.50 112.50 140.00 148.33 165.00
S & P 500 100.00 95.89 101.62 107.80 112.63 121.59 114.78 121.07
S & P RETAIL (SPECIALTY) 100.00 102.60 104.82 110.20 118.32 124.77 117.73 121.15
<CAPTION>
10/31/97 11/30/97 12/31/97
<S> <C> <C> <C>
Guitar Ctr Inc 145.00 145.00 153.33
S & P 500 117.02 122.44 124.54
S & P RETAIL (SPECIALTY) 114.74 117.46 110.17
</TABLE>
THE STOCK PERFORMANCE GRAPH ABOVE SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OR UNDER THE EXCHANGE ACT,
EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY
REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
22
<PAGE>
OTHER INFORMATION
OTHER MATTERS AT THE MEETING
The Board does not know of any matters to be presented at the Annual Meeting
other than those mentioned in this Proxy Statement. If any other matters are
properly brought before the Annual Meeting, it is intended that the proxies will
be voted in accordance with the best judgment of the person or persons voting
such proxies.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's auditors for the fiscal year ended December 31, 1997 were KPMG
Peat Marwick LLP. A representative of KPMG Peat Marwick LLP will be present at
the Meeting, will have an opportunity to make a statement if he so desires and
is expected to be available to respond to appropriate questions.
ANNUAL REPORT ON FORM 10-K; AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission an Annual
Report on Form 10-K. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY STOCKHOLDER
RECEIVING THIS PROXY STATEMENT A COPY OF ITS ANNUAL REPORT ON FORM 10-K, WITHOUT
EXHIBITS, UPON WRITTEN REQUEST TO CORPORATE SECRETARY, GUITAR CENTER, INC., 5155
CLARETON DRIVE, AGOURA HILLS, CALIFORNIA 91301.The Company will also provide a
copy of the 1996 Plan and the 1997 Plan upon such written request. Copies of
other exhibits to the Company's Annual Report on Form 10-K are available from
the Company upon reimbursement of the Company's reasonable costs in providing
such documents. The Company's filings with the Securities and Exchange
Commission may be inspected at the offices of the Securities and Exchange
Commission located in Washington, D.C., New York, New York and Chicago,
Illinois. Documents filed electronically with the Securities and Exchange
Commission may also be accessed through the website maintained by it at:
www.sec.gov.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board proposals to be considered for submission
to the stockholders at the 1999 Annual Meeting. Any such proposal must comply
with the requirements of Rule 14a-8 under the Exchange Act and be submitted in
writing by notice delivered or mailed by first-class United States mail, postage
prepaid, to the Corporate Secretary, Guitar Center, Inc., 5155 Clareton Drive,
Agoura Hills, California 91301 and must be received no later than December 3,
1998. Any such notice shall set forth: (a) the name and address of the
stockholder and the text of the proposal to be introduced; (b) the number of
shares of stock held of record, owned beneficially and represented by proxy by
such stockholder as of the date of such notice; and (c) a representation that
the stockholder intends to appear in person or by proxy at the meeting to
introduce the proposal specified in the notice. The chairman of the meeting may
refuse to acknowledge the introduction of any stockholder proposal not made in
compliance with the foregoing procedures or the applicable provisions of the
Company's Amended and Restated Bylaws. The Company's Amended and Restated Bylaws
provide for notice procedures to recommend a person for nomination as a director
or to propose business to be considered by stockholders at a meeting.
By Order of the Board of Directors
[LOGO]
Larry Thomas
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Agoura Hills, California
April 2, 1998
23
<PAGE>
[LOGO]
<PAGE>
- -------------------------------------------------------------------------------
GUITAR CENTER, INC.
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
AT 9:00 A.M., WEDNESDAY, MAY 6, 1998
HYATT WESTLAKE PLAZA
880 SOUTH WESTLAKE BOULEVARD
WESTLAKE VILLAGE, CALIFORNIA 91361
The undersigned stockholder of Guitar Center, Inc. (the "Company")
hereby revokes any proxy or proxies previously granted and appoints Larry
Thomas, Bruce Ross and Barry Soosman, or any of them, as proxies, each with
full powers of substitution and resubstitution, to vote the shares of the
undersigned at the above-stated Annual Meeting and at any adjournment or
postponement thereof:
- -------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
Please mark your
votes as indicated /X/
in this example
FOR all nominees listed WITHHOLD AUTHORITY
below (except as provided to vote for all
to the contrary below) nominees below
1. Election of Directors. / / / /
Larry Thomas, Marty Albertson, Steven Burge, David Ferguson,
Harvey Kibel, Michael Lazarus, Peter Starrett and Jeffrey Walker
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name in the space provided below.)
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve the Company's 1997 / / / / / /
Equity Participation Plan,
including an amendment
increasing the number of shares
that may be issued from 875,000
shares to 1,375,000 shares.
3. Amendment to the Company's 1996 / / / / / /
Performance Stock Option Plan to
amend the 1996 Plan to permit
the Board of Directors or the
Compensation Committee of the
Board of Directors to amend the
1996 Plan in the substantially
same manner as the 1997 Plan.
4. On any other business that may
properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE
__ __ ON THE REVERSE SIDE. IF A CHOICE IS NOT
| INDICATED WITH RESPECT TO ITEMS (1) THIS
| PROXY WILL BE VOTED "FOR" EACH OF THE
NOMINEES LISTED. IF A CHOICE IS NOT
INDICATED WITH RESPECT TO ITEM (2) OR (3)
THIS PROXY WILL BE VOTED "FOR" SUCH ITEM.
THE PROXIES WILL USE THEIR DISCRETION WITH
RESPECT TO ANY MATTER REFERRED TO IN ITEM
(4) UNLESS THE BOX LABELED "ABSTAIN: IS
CHECKED. THIS PROXY IS REVOCABLE AT ANY
TIME BEFORE IT IS EXERCISED.
RECEIPT HEREWITH OF THE COMPANY'S ANNUAL
REPORT TO STOCKHOLDERS AND NOTICE OF
MEETING AND PROXY STATEMENT, DATED
APRIL 2, 1998, IS HEREBY ACKNOWLEDGED.
PLEASE SIGN, DATE AND MAIL TODAY.
(Signature of Stockholder(s))_____________________________ Dated___________,1998
(Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on
this card. When signing as attorney, trustee, executor, administrator, guardian
or corporate officer, please give your FULL title.)
- --------------------------------------------------------------------------------
-TRIANGLE- FOLD AND DETACH HERE -TRIANGLE-
