<PAGE>
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
TO OUR SHAREHOLDERS Rancho Cordova, California
August 26, 1996
The Annual Meeting of the shareholders of AMERICAN RECREATION CENTERS, INC., has
been set for September 24, 1996, at the American Recreation Centers, Inc.
headquarters, 11171 Sun Center Drive, Suite 120, Rancho Cordova, California at
10:00 A.M. The enclosed proxy materials describe in some detail the items for
discussion. In addition to a report on your Company's present and planned
activities, we will:
(1) Elect Directors for Fiscal 1997;
(2) Ratify the appointment of Price Waterhouse as Auditor;
(3) Transact such other business as may properly come before the meeting.
Only shareholders of record as of the close of business on Friday, August 2,
1996, at 5:00 P.M. Pacific Daylight Time, will be entitled to vote.
Whether or not you plan to attend the meeting, please execute and return the
PROXY at once. It may be returned in the enclosed, postage paid envelope.
By Order of the Board of Directors,
G. Gervaise Davis III
Secretary
Enclosures: Proxy Statement
Proxy Form
<PAGE>
AMERICAN RECREATION CENTERS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
On
September 24, 1996
TO OUR SHAREHOLDERS:
This statement is furnished in connection with the solicitation by mail of
proxies by the present Board of Directors of AMERICAN RECREATION CENTERS, INC.
(the "Company"), to be used at the Annual Meeting of Shareholders to be held on
Tuesday, September 24, 1996, at 10:00 A.M. at the general offices of American
Recreation Centers, Inc., 11171 Sun Center Drive, Suite 120, Rancho Cordova,
California. The cost of this solicitation is borne by the Company, and is being
mailed on or about August 23, 1996.
Information Concerning the Proxy and Meeting
Properly executed proxies received prior to or at the meeting will be voted FOR
---
the proposed slate of five directors, four of whom are presently serving on the
Board. A shareholder may vote for less than all five by striking through the
name of any Director not desired to be elected. Unless marked to the contrary,
the proxies will also be voted for ratification of the appointment of Price
Waterhouse as auditors for the Company for the past fiscal year. In any
instance where there is a choice of voting for or against a proposal, the
proxies will be voted "For" a proposal unless the "Against" or "Abstain" box is
checked. A simple majority vote of those present in person or by proxy is
required for election of directors, ratification of auditors, or approval of any
other proposed action at the meeting. (See the description of the effect of
cumulative voting, below). Votes and abstentions will be counted by a
representative of ChaseMellon, transfer agent for the Company, which maintains
the Company's shareholder list.
Under California law, the five nominees receiving the highest number of votes
will be elected as directors at the Annual Meeting. As a result, proxies voted
to "Withhold Authority," which will be counted, and broker non-votes, which will
not be counted, will have no practical effect. Discretionary authority to
cumulate votes represented by proxies is solicited by the Board of Directors
because, in the event nominations are made in opposition to the nominees of the
Board of Directors, it is the intention of the persons named as proxy holders in
the enclosed Proxy to cumulate votes represented by proxies for individual
nominees in accordance with their best judgment in order to assure the election
of as many of the nominees named below to the Board of Directors as possible.
Should any of the listed nominees for the office of Director of the Company
either refuse election or otherwise fail to qualify (neither of which
eventuality is presently anticipated), the persons named as proxies reserve the
right to use their own discretion in the nomination and the election of other
suitable, qualified persons as Directors.
2
<PAGE>
The proxies will also be voted in accordance with the best judgment of the Board
of Directors, on whose behalf these proxies are solicited, on any other business
or any other items which may arise. Management is not aware of any other matters
to come before the meeting except as included herein. A shareholder, without
affecting any vote previously taken, may revoke a proxy by giving the Company
notice in writing, or in person, at any time prior to or in the open meeting.
Voting Securities and Principal Holders Thereof
The Company has two classes of stock -- Common and Preferred, of which
21,484,375 shares and 5,000,000 shares, respectively, are authorized. At May
29, 1996, the close of the Fiscal Year 1996, there were 4,647,899 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. No shares
of Preferred Stock have been issued.
The Board of Directors has fixed the close of business at 5:00 P.M., Friday,
August 2, 1996, as the date as of which shareholders entitled to vote at the
meeting shall be determined (the "Record Date").
The Common shares of the Company, as do all California corporations, have
cumulative voting rights. At the Annual Meeting, each shareholder will be
entitled to one vote for each share held on the record date, except that, for
the election of directors, upon request therefor made prior to the commencement
of voting, each shareholder will be accorded cumulative voting rights, under
which (s)he will be entitled to as many votes as equals the number of shares of
stock held, multiplied by the number of directorship positions to be filled
(five), all of which votes may be cast for a single candidate or distributed
among any or all of the candidates in such proportions as each shareholder sees
fit.
Security ownership of beneficial owners with 5% or more of Common Stock of the
Company, as of May 29, 1996, is as follows:
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Employee Stock Ownership 710,882/1/ 14.71%
Stock Plan (ESOP)
P.O. Box 580
Rancho Cordova, CA 95741
Common David L. Babson & 640,100 13.25%
Stock Company, Inc.
One Memorial Drive
Cambridge, MA 02142-1300
</TABLE>
/1/The Trustee of the ESOP holds these shares for the participants in the ESOP
pursuant to the Plan. The trustee has no beneficial interest in these
shares, as such. Shares held in the ESOP for officers are included in
individual totals and in the ESOP totals.
3
<PAGE>
Security Ownership of the Board and Management as of May 29, 1996 is as follows:
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent
Class Name of Beneficial Owner Beneficial Ownership/1/ of Class
- - ---------- ------------------------ ----------------------- --------
<S> <C> <C> <C>
Common Robert Feuchter 160,583 3.32%
Stock Chairman/Director
Common Robert A. Crist 138,252/2/ 2.86%
Stock President and Director
Common Karen B. Wagner 61,369/2/ 1.27%
Stock Vice President/Treasurer
Common Susan K. Cook/4/ 37,861/2/ /3/
Stock Vice President/Bowling
Division
Common Stephen R. Chanecka 19,350 /3/
Stock Director
Common Stanley B. Schneider 18,750 /3/
Stock Director
Common Stewart Bloom 17,250 /3/
Stock Director
Common G. Gervaise Davis III 5,266 /3/
Stock Vice President/Legal
Common Bruce Feuchter --
Stock Director-nominee ------- -----
Common All Directors and
Stock Officers (As a Group) 458,681 9.49%
======= =====
</TABLE>
/1/Includes vested options for the purchase of common stock as follows:
Robert A. Crist, 85,000; Karen B. Wagner, 43,334; Susan K. Cook, 32,834;
Stephen R. Chanecka, 7,500; Stanley B. Schneider, 7,500; and Stewart Bloom;
7,500.
/2/Includes shares beneficially owned in the Employee Stock Ownership Plan and
Employee Stock Purchase Plan.
/3/Less than 1% for each.
/4/In connection with the restructuring of the California Bowling Division,
Susan K. Cook's position as Vice President/Bowling Division was eliminated
effective July 12, 1996. Ms. Cook's vested options expire on September 11,
1996 if not exercised.
4
<PAGE>
Elections, Committees, Directors and Executive Officers
Last Election. At the September 1995 Annual Meeting the five directors
nominated by management in the Proxy Statement were all elected by a vote of
approximately 4,158,012 FOR, out of 5,054,799 common shares outstanding. Of the
eligible shares 83.1% were present and voting, in person or by proxy, making the
vote FOR election over 99.0% of the 4,198,114 shares voted.
Current and Proposed Directors. The following persons are standing for election
at the September 1996 meeting.
The Board of Directors has chosen to operate with five members at the present
time, although a total of eight directors are authorized by the Bylaws.
Robert A. Crist, age 50, President and Chief Executive Officer and a Director.
Mr. Crist joined the Company in April 1985 as Vice President/Treasurer and
Assistant Secretary and was elected to the Board of Directors in March 1987. He
was appointed President and Chief Operating Officer November 1, 1989 and
President and Chief Executive Officer June 1, 1990. Mr. Crist is a 1969
graduate of Michigan State University with a B.A. degree in Accounting and
Finance. From 1983 until joining the Company Mr. Crist was the Chief Financial
Officer for two privately held companies in Detroit, Michigan, SEM Newspapers,
Inc. and Star Line Corporation. From 1979 to 1983 he served as Chief Financial
Officer for Sierra Publishing Company in Sacramento, California. Mr. Crist is a
Certified Public Accountant and had attained the position of audit manager with
the national accounting firm of Ernst & Ernst during his ten years with that
firm from 1969 to 1979. Effective December 1, 1996, Mr. Crist will serve as
President of MUBIG (Multi-Unit Bowling Information Group), a national
organization of multi-unit bowling center operations.
Stewart Bloom, age 44, Director. Mr. Bloom was appointed to the Board of
Directors in September 1987. Mr. Bloom is currently a partner in the accounting
firm of Wershow & Bloom of Los Angeles, providing accounting and financial
services to a varied clientele of small and medium size businesses and to
individuals. Mr. Bloom is a 1972 graduate of City University of New York where
he earned a B.S. degree in Accounting and a graduate of Pace University, New
York where he earned a M.B.A. degree in Finance. Mr. Bloom is a Certified
Public Accountant, licensed in the state of California.
Stephen R. Chanecka, age 48, Director. Mr. Chanecka was elected to the Board of
Directors in May 1987. He is Vice President/Marketing for Dine-A-Mate, Inc., a
nationwide publisher of discount coupon books. He is also President and
Publisher of Valley Community Newspapers, Inc. of Sacramento and Chairman of
Informed Investors, Inc., which conducts forums and seminars to provide
financial information to investors. He received a B.S. degree in Economics in
1970 from the Wharton School at the University of Pennsylvania.
Stanley B. Schneider, age 60, Director. Mr. Schneider joined the Board of
Directors in September 1988. He is a California Certified Public Accountant and
founding member and the managing partner of Gursey, Schneider & Co., LLP, an
independent public accounting firm founded in 1964 that specializes in general
accounting services, litigation support, audits, tax consulting and compliance
as well as business management and management advisory services. Mr. Schneider
serves as director of
5
<PAGE>
Perceptronics, Inc., a Woodland Hills based high-tech defense firm; Jerry's
Famous Deli, Inc., a Los Angeles based restaurant company; Golden West Baseball
Co., the corporate co-owner of the California Angels; Golden West Broadcasters,
Inc., a broadcast media holding company; The Autry Museum of Western Heritage
and P.A.T.H., an organization dedicated to helping the homeless in Los Angeles.
Mr. Schneider obtained a Bachelor of Science in accounting from the University
of California at Los Angeles in 1958.
Bruce Feuchter, age 43, Proposed Director. Mr. Feuchter is a shareholder
attorney with the Newport Beach, California, law firm of Stradling Yocca Carlson
& Rauth. Mr. Feuchter has been practicing corporate securities law in Southern
California since 1979. He received a B.A. in Economics and an M.B.A. in Finance
at the University of California at Berkeley, and a J.D. at Hastings College of
Law, University of California. Mr. Feuchter currently serves as the Company's
securities counsel. He is the son of Robert Feuchter who has served as Chairman
of the Board of Directors since 1967. Mr. Robert Feuchter has elected to retire
and has chosen not to stand for re-election.
Other Executive Officers
G. Gervaise Davis III, age 63, Vice President/Legal and Corporate Secretary.
Mr. Davis has been Secretary of the Company since 1967 and Vice President/Legal
since 1969. He is a founding principal of Davis & Schroeder, P.C. of Monterey,
California, the Company's lead legal firm. He has extensive experience in the
fields of general business and real estate law, and presently specializes in
Internet issues, software protection, computer and intellectual property law.
He holds B.S. and J.D. degrees from Georgetown University in Washington, D.C.
He is a Director of a number of non-profit corporations and several privately-
held companies.
Karen B. Wagner, age 39, Vice President/Treasurer and Assistant Secretary. Ms.
Wagner joined the Company in February 1990. She is a Certified Public
Accountant and is a 1978 graduate of California State University, Chico where
she earned a B.S. degree in Business Administration. Prior to joining the
Company, Ms. Wagner was a senior audit manager with the national accounting firm
of Price Waterhouse, having worked in its Oakland and Sacramento, California
offices from 1978 to 1983 and 1985 to 1990, respectively. From 1984 to 1985 Ms.
Wagner served as the director of finance of Beauty For All Seasons, a privately
held company in Idaho Falls, Idaho.
Board and Committee Meetings. During Fiscal 1996, the Board of Directors held
four scheduled meetings and one special meeting as called for by the Chairman.
The Board of Directors has scheduled quarterly meetings, one following each of
the Company's fiscal quarters. The Board currently has the following standing
committees: Organizational and Compensation - Directors Robert Feuchter,
Schneider and Chanecka (Chairman), and Audit - Directors Bloom, Chanecka and
Schneider (Chairman). The Audit Committee meets each year with the Auditors to
evaluate the Auditor's performance and to discuss any financial or accounting
problems which may arise in the operations of the Company. The Audit Committee
met twice in Fiscal 1996. The Organizational and Compensation Committee meets
periodically throughout the year (both by phone and in person) to review the
Company's management structure and to evaluate executive compensation. That
Committee formally
6
<PAGE>
met two times during the year and had several consultations by phone.
Regarding Compliance With Section 16(a) of the Exchange Act
Based on review of copies of filings received by it, the Company believes that
each filing required to be made by its officers and directors pursuant to
Section 16(a) of the Securities Exchange Act was made in due and timely fashion.
Director's Compensation
Several years ago the Board adopted a Directors' Compensation program by which
the three outside directors of the Company, Chanecka, Schneider, and Bloom
receive an annual directors' honorarium of $10,000 each, plus $800 for every
meeting attended. The latter provision is to penalize non-attendance at
meetings. Chairman Robert Feuchter served as a consultant to the Company and
earned $30,000 in compensation during Fiscal 1996 and did not receive additional
compensation for Board activities. Directors do not receive additional
compensation for committee assignments, unless they result in separate meetings
on days other than board meetings.
The non-employee directors of the Company have been granted stock options in
accordance with the 1988 Non-Employee Director Stock Option Plan (Directors
Plan). Under the Directors Plan the maximum aggregate number of shares which
may be optioned and sold is 150,000 shares of authorized, but unissued common
stock of the Company. Options are required to be granted at the fair market
value of the stock at the date of the grant. Options may be granted until
September 30, 1998. Under the Directors' Plan, directors automatically receive
a grant of 5,000 options three months after becoming a director and 2,500
options for each of the next four years up to an aggregate maximum of 15,000
options. As of May 29, 1996, all of the non-employee directors have been
granted the aggregate maximum. Such options are vested at the date of grant.
Participants are required to exercise their options no later than five (5) years
after the last option vests or within sixty (60) days of termination of service
as a director.
During Fiscal 1996 directors Chanecka, Schneider and Bloom exercised 7,500
options each. At May 29, 1996 each of these three outside directors had 7,500
vested options with exercise prices ranging from $5.875 to $8.75.
Compensation Committee Interlocks and Insider Participation
In Compensation Decisions
Chairman Robert Feuchter served as a part-time consultant to the Company and
earned $30,000 in Fiscal 1996 under an informal deferred compensation plan under
which he was not paid earned compensation until he reached age 70 in January
1996. This arrangement was administered by Messrs. Chanecka and Schneider,
subject to final Board approval each year. Chairman Feuchter served as the
7
<PAGE>
Company's president and chief executive officer until October 31, 1989 and as
chief executive officer from November 1, 1989 through May 31, 1990.
During Fiscal 1996 the directors awarded Chairman Robert Feuchter a $50,000
bonus in appreciation for his many years of service to the Company and in lieu
of his exercising options for 50,000 shares of the Company's common stock.
Bruce Feuchter is a shareholder of the law firm of Stradling Yocca Carlson &
Rauth, the Company's securities counsel and he is a nominee for director.
G. Gervaise Davis III is a principal and part owner of the law firm of Davis &
Schroeder, P.C., and serves as Vice President-Legal, Secretary and General
Counsel to the Company. His firm's billings for legal services were $63,065 for
Fiscal 1996, including $6,045 reimbursement for out-of-pocket advances of
expenses.
Stephen R. Chanecka was the chairman of the Compensation Committee. During
Fiscal 1996 he received $14,000 in director's compensation, $3,450 for business
writing services provided the Company, and $2,500 was paid to Informed
Investors, Inc., of which Mr. Chanecka is Chairman, for the Company's
participation in seminars sponsored by that organization.
In the opinion of management, the fees paid to the persons above are fair and
reasonable and as favorable to the Company as those which could have been
obtained from unrelated third parties.
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or paid
to the Company's Chief Executive Officer and to each of the Company's most
highly compensated executive officers, other than the Chief Executive Officer.
During Fiscal 1996, the Company only had four officers, including its CEO and
Mr. Davis, Vice President Legal/Secretary, who is not an employee of the
Company.
8
<PAGE>
Summary Compensation Table/1/
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-----------------------------------------------
Other
Annual Securities All Other
Compen- ----------- Compen-
Name and Principal Fiscal Salary Bonus sation Options sation
Position Year ($) ($) ($) (#) ($)
(a) (b) (c) (d) (e) (g) (i)/3/
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CEO Robert A. Crist '96 $158,000 $23,000 $120,550/4/ 65,000 $13,665
- - ------------------------------------------------------------------------------------------------------------
CEO Robert A. Crist '95 $154,000 $37,000 $ 6,800/2/ -- $18,805
- - ------------------------------------------------------------------------------------------------------------
CEO Robert A. Crist '94 $150,000 $27,751 $ 6,800/2/ -- $20,632
- - ------------------------------------------------------------------------------------------------------------
CFO Karen B. Wagner '96 $106,000 $12,000 $ 23,100/4/ 35,000 $ 7,639
- - ------------------------------------------------------------------------------------------------------------
CFO Karen B. Wagner '95 $103,000 $18,500 $ 5,600/2/ -- $ 9,382
- - ------------------------------------------------------------------------------------------------------------
CFO Karen B. Wagner '94 $100,000 $13,875 $ 5,600/2/ 35,000 $ 9,554
- - ------------------------------------------------------------------------------------------------------------
VP-Bowling Div, Susan K. Cook/5/ '96 $ 96,000 $ -- $ 18,725/4/ -- $ 7,025
- - ------------------------------------------------------------------------------------------------------------
VP-Bowling Div, Susan K. Cook/5/ '95 $ 92,700 $ 8,307 $ 5,600/2/ -- $ 5,919
- - ------------------------------------------------------------------------------------------------------------
VP-Bowling Div, Susan K. Cook/5/ '94 $ 90,000 $11,012 $ 5,600/2/ 44,000 $ 7,570
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
/1/Columns (f) and (h) have been omitted as not applicable.
/2/Represents annual automobile allowance.
/3/Includes Company's contribution to the Employee Stock Purchase Plan on behalf
of the executives and the value of the allocation of the Company's
contribution to the ESOP for each executive.
/4/Represents value realized upon exercise of stock options plus annual
automobile allowance of $6,800 for Mr. Crist and $5,600 for Ms. Wagner and
Ms. Cook.
/5/In connection with the restructuring of the California Bowling Division,
Susan K. Cook's position as Vice President/Bowling Division was eliminated
effective July 12, 1996.
Employment Contracts and Change-in-Control Arrangements
Change-in-Control Arrangements are in place for the Company's CEO and CFO to
compensate these key executives for their efforts in maximizing shareholder
value in any transaction that may occur in the future. The agreements provide
for payments to the key executive officers in the event of a change in control
which leads to their termination or a substantial change in the nature of their
offices or duties. The agreements provide for the payment of 28 months of base
pay for the CEO and 12 months for the CFO, plus the continuation of existing
employee benefits for the same periods. The agreements expire March 31, 1997.
9
<PAGE>
Brief Description of Company Employee Benefit Plans
The Company's Employee Stock Ownership Plan and Trust (the "ESOP") adopted
during Fiscal 1974, is a defined contribution and employee stock ownership plan
qualified under the Internal Revenue Code and is available to all employees
pursuant to the ESOP's Eligibility to Participate provisions. The ESOP is
funded solely by contributions from the Company and generally invests only in
common stock of the Company. Contributions are allocated to each participant's
account on the basis of his or her individual compensation as defined in the
ESOP. Participants' accounts are vested 20% per year over the five years after
the first year of eligibility (as defined in the ESOP), or employment is
terminated by reason of death, disability or retirement.
The Company's contribution to the ESOP for the year ended May 29, 1996 was
$300,000. Allocations of the Company's ESOP contribution for the last fiscal
year were $5,925 for Mr. Crist, $5,091 for Ms. Wagner, and $4,470 for Ms. Cook.
Presently, the executive officers named above are 100% vested pursuant to the
terms of the ESOP. Due to the fact that the exact allocations are not made
until September of the following fiscal year, these figures are actually for
Fiscal Year 1995. Allocations for the current fiscal year will be slightly
lower, but have not yet been determined for Fiscal 1996.
The Company's Employee Stock Purchase Plan (the "ESPP") is a non-qualified
thrift plan and is available to all employees pursuant to the ESPP provisions.
The ESPP is a contributory plan wherein the Company adds $.50 to every dollar
invested by the employee from his/her after-tax compensation, up to a maximum of
10% of the employee's annual cash compensation.
Stock Options
In accordance with the 1988 Key Employee Incentive Stock Option Plan, as
amended, and the 1988 Stock Option Plan for Non-Employee Directors, as amended,
and as approved by the shareholders at the 1991 Annual Meeting of Shareholders,
stock options may be granted to key employees and non-employee directors.
These Plans became effective October 1, 1988 and continue for a ten-year period,
except that options granted under the Plans will continue to be effective
pursuant to the terms of each grant beyond the expiration of the 1988 Plans.
The Key Employee Incentive Stock Option Plan is administered by the Compensation
Committee of the Board of Directors. The Compensation Committee determines the
number of shares granted and the option exercise price, but such price may not
be less than 100% of the fair market value of common stock on the grant date.
10
<PAGE>
The Stock Option Plan for Non-Employee Directors is a formula plan that
specifically and automatically grants 5,000 options to each director three
months after becoming a director, and 2,500 options for each of the next
four years to a maximum of 15,000 options. The Board is not involved in
timing nor does it determine the amounts, all of which process is automatic
under the Plan.
Options Granted in Fiscal 1996 to Executives
The following table provides information regarding stock options granted to
the named officers during Fiscal 1996. The values assigned to each reported
option are shown using arbitrarily assumed annualized rates for stock
appreciation of 5% and 10% over the term of the options, which would result
in stock prices of $9.42 and $13.67, respectively, for the $6.375 grant.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRA-
NAME GRANTED IN FISCAL YEAR PRICE TION DATE 5% ($) 10% ($)
- - -----------------------------------------------------------------------------------------------------------------
Robert A. Crist 65,000 65% $6.375 5-20-04 $197,846 $473,875
- - -----------------------------------------------------------------------------------------------------------------
Karen B. Wagner 35,000 35% $6.375 5-20-04 $106,532 $255,163
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
The options granted to the executive officers were granted at their fair
market value on the date of grant. One third (1/3) of the options vest on
each annual anniversary of the grant until fully vested. Options must be
exercised within five years of vesting or sixty days of termination.
Stock Option Exercises and Fiscal Year-End Value Table
The Company's executive officers exercised stock options during Fiscal
1996. The table also includes the number of shares covered by both
exercisable and non-exercisable stock options at fiscal year-end. Values
for "in-the-money" options represent the position spread between the
exercise price of existing options and the $6.25 fiscal year-end price of
the Company's common stock.
11
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END
ACQUIRED ------------------------------------------------
ON VALUE EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE REALIZED CISABLE CISABLE CISABLE CISABLE
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Crist 16,851 $113,750 85,000 65,000 -- --
- - ---------------------------------------------------------------------------------------
Karen B. Wagner 2,592 $ 17,500 43,334 35,000 $5,834 $2,917
- - ---------------------------------------------------------------------------------------
Susan K. Cook 1,944 $ 13,125 32,834 14,667 $7,334 $3,664
- - ---------------------------------------------------------------------------------------
</TABLE>
Report of Compensation Committee on Executive Compensation
The Compensation Committee. The three-member Compensation Committee of the
Company's Board of Directors is responsible for annually reviewing and
evaluating the compensation of the Company's executive officers. Such
responsibilities include the administration of the Company's stock option plans,
incentive compensation plans and setting base salary levels. All decisions by
the Committee are submitted to the Board for review and approval by the non-
employee members of the Board. Mr. Crist, the CEO, does not vote on
compensation matters.
During Fiscal Year 1996, the Committee was comprised of Messrs. Stephen R.
Chanecka, Chairman, Stanley B. Schneider, and Robert Feuchter, Chairman of the
Board. None of the Committee members are employees of the Company.
Compensation Philosophy. Under the guidance of the Compensation Committee, the
Board has developed and implemented compensation policies, plans and programs
which seek to structure executive compensation consistent with the Company's
overall business strategy and objectives. The Compensation Policies are
intended to embody a "pay-for-performance" philosophy which rewards executives
for long-term strategic management and enhancement of shareholder value by
providing ownership incentives in the Company and a performance-oriented
environment that measures rewards against achievement of predetermined goals.
To accomplish this philosophy, the base salaries of the Company's executive team
and line management are set somewhat below market, so that a significant portion
of their compensation is "at risk" based upon achievement of profit targets as
described below.
Compensation Structure. The key components of the compensation of the Company's
Chief Executive Officer and the other named executives are: (1) Base Salary;
(2) Annual At Risk Incentive Compensation; and (3) Stock Based Incentives. The
latter consist of: Stock Options; Employee Stock Ownership Plan participation
(ESOP); and Employee Stock Purchase Plan participation (ESPP).
12
<PAGE>
Base Salaries. The Compensation Committee reviews with the Chief Executive
Officer (CEO) an annual salary plan for the Company. The annual salary plans
for all the executive officers, including the CEO, are then analyzed by the
Compensation Committee based on available compensation data for the bowling and
restaurant industries and for other companies similar in size. (The salary
plans for executive officers of companies included in the S & P Leisure Time
Index were not used to evaluate the Company's executive officers base salaries,
because of the unrelated size of those companies.) In addition, the Committee's
assessment of such officers' past performance and the Committee's expectation of
their future contributions in leading the Company, is evaluated in establishing
base pay. Salaries are adjusted on an annual basis by a percentage usually no
greater than the cost of living. Any major increase must be earned through
performance.
At Risk Incentive Compensation. The Compensation Committee reviews with the
Chief Executive Officer the Corporate Bonus Program, and the California Bowling
Division Bonus Program and annually reviews and resets the shareholder rate of
return which determines the profit level at which cash bonus compensation is
earned, and these rates are then applied to the incentive compensation formula.
Corporate At Risk Incentive Compensation Program. Effective with Fiscal 1994,
the starting point under the Corporate Incentive Program has been determined by
multiplying the end of the prior fiscal year shareholders' equity by the then
current rate of return for thirty-year Treasury Bonds (i.e., a proxy for a "risk
free" shareholder return). The product is the pre-tax starting target for the
following fiscal year--thus for Fiscal 1996 the equity figure was $29,671,000,
the bond rate was 7.00% and the product, or at risk incentive compensation
starting point, was $2,076,970. Incentive compensation is earned at the rate of
3.0% on the first $500,000 pre-tax profit in excess of this target, 4.0% on the
next $500,000, and so forth at a one percentage point increase rate until 10% is
reached at a pre-tax profit of $5,576,000. Gains or losses from real estate
capital asset transactions, including valuation adjustments, are excluded from
the formula as set forth above. These gains or losses, if any, will be subject
to a flat 3.0% incentive compensation rate calculation, and this amount will be
added to, or deducted from, the incentive compensation earned by the formula.
Reductions for net capital losses will be limited to the amount of the incentive
compensation earned under the formula, i.e.: they will not be deducted from the
base salaries. While actual Fiscal 1996 pre-tax profit from continuing
operations did not exceed the target, the Compensation Committee awarded a total
incentive compensation pool of $38,000 for Fiscal 1996 which was 1% of the pre-
tax gain on the sale of The Right Start, Inc.
The Corporate Incentive Compensation is divided as follows: 50% to Mr. Crist,
the CEO, 25% to Ms. Wagner, the CFO, and 25% to a pool for discretionary award
to non-executive officers, as recommended by the CEO.
For Fiscal 1997, the Corporate Incentive Compensation Plan will remain
substantially the same except that incentive compensation will be earned at a
rate of 8% on the first $300,000 in pre-tax profit in excess of the target, 9%
on the next $300,000, and so forth at a one percentage point increase until a
rate of 18% is reached.
13
<PAGE>
California Bowling Division Bonus Program. The starting point under the
California Bowling Division Bonus Program has been annually reset by the
Compensation Committee at a level that would result in a pre-tax profit break-
even for the overall corporation if none of the Company's other activities were
to be more than break-even. For Fiscal 1996, this figure was estimated to be
$2,126,000 for the California Bowling Division. Bonus is only earned on results
above this target at rates ranging from a low of 2.5% to a high of 5.5%,
depending upon how close actual results are to the Fiscal 1996 budget. The
California Bowling Division Bonus is divided between Ms. Cook, Vice President-
Operations (65%) and two regional managers (35%), neither of the latter two of
whom are an executive officer of the Company. The actual Fiscal 1996 results
did not exceed the targets, consequently no bonus was earned or paid.
As a result of the restructuring of the California Bowling Division and
elimination of the position of Vice President of that division, this bonus
program has been discontinued for Fiscal 1997. Incentive programs for the two
regional managers, who are not executive officers of the Company are being
developed.
Stock Based Incentives. The third component of the Company's executive
compensation is comprised of a stock option plan, as discussed above. The
Committee has established a maximum number of options available to be granted to
the Company's executives. The president and chief executive officer may receive
up to 150,000 options and the vice presidents up to 85,000. The Committee
considers previously granted options under the 1988 Incentive Stock Option Plan
in relation to the maximum available in determining additional grants under the
Plan. These grants are intended to provide executives with longer term
incentives which appreciate in value with the continued favorable future
performance of the Company.
The Company's officers also participate, on a non-discriminatory basis, with all
other employees in the Company's ESOP and ESPP, both of which are designed to
encourage long-term ownership in the Company. All executive officers
participated in the ESOP during Fiscal 1996. Mr. Crist and Ms. Wagner
participated in the ESPP during Fiscal 1996.
The tables included in the proxy statement and the accompanying narrative and
footnotes reflect the decisions covered by the above discussion.
The members of the Compensation Committee believe the Company's compensation
program is consistent with Company goals and have been applied in a fair and
even-handed manner in its best interests of the Company and its shareholders.
Members of the Compensation Committee for Fiscal 1996 were:
Stephen R. Chanecka, Chairman
Stanley B. Schneider
Robert Feuchter
14
<PAGE>
Performance Graph
The following graph compares the price performance of $100.00 if invested in the
Company's common stock, with the price performance of $100.00 invested in each
of the Standard & Poor's 500 Index and the Standard and Poor's Leisure Time
Index, which has been deemed by Management to be comparable. The performance
graph does not contain a comparison with the bowling industry index because the
great majority of other companies engaged in the bowling business are privately
held companies.
The price performance, as graphed below, is calculated by assuming $100.00 is
invested at the beginning of the period (May 1991) in the Company's common stock
at a price equal to its market value. At the end of each fiscal year, the total
value of the investment is computed by taking the number of shares owned,
assuming the Company's dividends are reinvested quarterly, multiplied by the
market price of the shares at the end of each fiscal year.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG AMERICAN RECREATION CENTERS, INC., THE S & P 500 INDEX
AND THE S & P LEISURE TIME INDEX
- - --------------------------------------------------------------------------------
AMERICAN RECREATION
CENTERS, INC. S & P 500 S & P LEISURE TIME
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
5/91 100 100 100
5/92 99 110 112
5/93 98 123 115
5/94 111 128 158
5/95 121 154 139
5/96 114 197 181
- - --------------------------------------------------------------------------------
</TABLE>
* $100 INVESTED ON 05/31/91 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS, RECAL YEAR ENDING MAY 31.
15
<PAGE>
Regarding Relationship with Independent Public Accountants
The national accounting firm of Price Waterhouse, Sacramento, California has
been auditor for the Company since 1960. Again last year the Board of Directors
selected Price Waterhouse as auditors to examine the consolidated financial
statements of the Company and its subsidiaries and issue an opinion thereon for
the Fiscal Year 1996. No decision has been made as to selection of auditors for
the year commencing on May 30, 1996. While the Company has no dispute with its
auditor, it continually examines the cost of its audit arrangements. The fees
for Fiscal 1996 for the auditing and accounting services were approximately
$88,165, of which $6,685 represented tax advice services. Accounting and
auditing fees are determined by the accountants and are not approved by the
Board of Directors or the Audit Committee, but services and fees are reviewed
with the Audit Committee once a year. To the best of the knowledge of the Board
of Directors, Price Waterhouse has no financial interest in, or connection with,
the Company except as auditors.
The Company has no obligation to submit this matter for shareholder approval but
has historically done so. A vote for ratification covers Price Waterhouse's
assignment only for the past year. A simple majority vote of shares present in
person or by proxy is required for ratification. It is not expected that any
representative of Price Waterhouse will be present at the Annual Meeting.
Regarding Shareholders Proposals
Shareholders desiring to present proposal(s) for action at the 1997 Annual
Meeting (scheduled for September 1997) must submit them in writing to the
Company so as to be received not later than May 25, 1997 for inclusion in the
Proxy Statement relating to that Meeting.
Regarding Other Business
Although the Board of Directors does not know of any business other than that
mentioned above to come before the meeting, if other business should be
presented, the holders of the proxies will vote thereon in their discretion.
16
<PAGE>
Regardless of the number of shares that you own, it is important that your
shares be represented at the meeting, so please execute and return the enclosed
proxy promptly, in order that your shares may be voted at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
AMERICAN RECREATION CENTERS, INC.
----------------------------------
G. Gervaise Davis III, Secretary
17
<PAGE>
AMERICAN RECREATION CENTERS, INC.
---------------------------------
PROXY FOR 1996 SHAREHOLDER MEETING
----------------------------------
This Proxy is Solicited on Behalf of the Board of Directors
-----------------------------------------------------------
The undersigned hereby appoints G. Gervaise Davis III, as Proxy, with the power
to appoint his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of common stock of American Recreation Centers,
Inc., at the Annual Meeting of Shareholders on September 24, 1996, and at any
adjournments, to be held at the principal executive office of the Company, 11171
Sun Center Drive, Suite 120, Rancho Cordova, California 95670.
1. ELECTION OF DIRECTORS:
FOR [_] WITHHOLD AUTHORITY [_]
all nominees listed below to vote for all nominees
(except for any nominee
whose name is lined through
below)
STEWART BLOOM, STEPHEN R. CHANECKA, ROBERT A. CRIST, BRUCE FEUCHTER, AND
STANLEY B. SCHNEIDER
2. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE as the independent
certified public accountant of the corporation for the past fiscal year:
FOR [_] AGAINST [_] ABSTAIN [_]
In his discretion, the Proxy is authorized to vote upon such other business as
may properly come before the meeting.
This Proxy will be voted as directed. If no direction is made, this Proxy will
be voted for the election of the five director nominees and for Proposal 2. This
Proxy confers discretionary authority to cumulate votes for any or all of the
nominees for which the authority to vote has not been withheld.
Please sign exactly as your name appears on the address label. When shares are
held by joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give the full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign the partnership name by the
authorized person.
Dated , 1996
---------------- ----------------------------------
Signature
----------------------------------
Signature (if jointly held)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
