<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
-----------
AMENDMENT NO. 1
to
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-15939
SHOWSCAN ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3940004
(State of incorporation) (I.R.S. Employer Identification No.)
3939 LANDMARK STREET, CULVER CITY, CALIFORNIA 90232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 558-0150
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.001 par value None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 20, 1997 was approximately $13,234,405 (based on last
NASDAQ-reported sale price of $2.625 per share of Common Stock on that date).
There were 5,642,058 shares of registrant's common stock outstanding as of June
20, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE> 2
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE TITLE SINCE
- ---- --- ----- --------
<S> <C> <C> <C>
William D. Eberle 73 Chairman of the Board of Directors 1988
William C. Soady 53 Director 1994
Charles B. Moss, Jr. 52 Director 1993
Thomas R. DiBenedetto 48 Director 1993
Kurt C. Hall 38 Director 1994
Dennis Pope 52 President, Chief Executive 1997
Officer and Director
W. Tucker Lemon 35 Senior Vice President, General --
Counsel and Secretary
Gregory W. Betz 48 Vice President and Director of
Finance
Michael B. Ellis 46 Vice President-Engineering and --
Product Development
Russell H. Chesley 40 Vice President-Worldwide Sales --
Rui C. Guimarais 37 Vice President-Film & Theatre --
Operations
</TABLE>
The Board of Directors of the Company has an Audit Committee, a Nominating
Committee and a Compensation Committee. The members of the Audit Committee
currently are Mr. Eberle, Mr. Moss, Mr. DiBenedetto and Mr. Hall. The duties of
the Audit Committee are to review and act or report to the Board of Directors
with respect to various audit and accounting matters, including the annual
audits of the Company (and their scope), the annual selection of the independent
auditors of the Company, the nature of the services to be performed by and the
fees to be paid to the independent auditors of the Company, and making
"fairness" determinations concerning transactions between the Company and its
directors and officers. The members of the Audit Committee do not receive any
meeting fees.
The Nominating Committee currently is composed of Mr. Eberle and Mr. Pope.
The Nominating Committee makes recommendations to the full Board of Directors
concerning nominees for election as directors of the Company. The members of the
Nominating Committee do not receive any meeting fees.
The Compensation Committee currently consists of Mr. Eberle, Mr. Moss, Mr.
DiBenedetto and Mr. Hall. The Compensation Committee administers the Company's
stock option plans and establishes the compensation of the Company's executive
officers. The members of the Compensation Committee do not receive any meeting
fees.
William D. Eberle was elected Chairman of the Board of Directors of the
Company in May 1993. Mr. Eberle has been a private investor in various companies
for more than five years and is Of Counsel to Kaye, Scholer, Fierman, Hays &
Handler. He currently is also the Chairman of Manchester Associates, Ltd.,
American Service Group and Barry's Jewelers, Inc. and is Deputy Chairman of
Mid-States Plc. He is a director of Ampco Pittsburgh Corp., Mitchell Energy &
Development Corp., Horace Small Apparel Company Plc., FAC Realty Trust, Inc. and
Sirrom Capital Corporation. Mr. Eberle served as the U.S. Trade Representative
for President Nixon and President Ford. In addition, he served as the
President's Special Representative for Trade Negotiations from 1971 through
1975, and as the executive director of the Cabinet Council on International
Economics from 1974 to 1975. Other positions previously held by Mr. Eberle
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include Chairman of the Board, President and Chief Executive Officer of American
Standard, Inc. and officer and director of Boise Cascade Corp.
William C. Soady has been the President of Distribution for PolyGram
Filmed Entertainment Distribution, Inc. since March 1997. Previously, Mr. Soady
served as the President and Chief Executive Officer of the Company since March
1994, and was elected as a director of the Company in April 1994. He is also
currently a director of Jalate, Inc. Prior to joining the Company, Mr. Soady
served as Executive Vice President of Distribution at Tri Star Pictures, Inc.
from September 1988 to July 1992, at which time he was promoted to President of
Domestic Distribution of Tri-Star Pictures, Inc., the position he held
immediately prior to joining the Company. Mr. Soady has been involved in motion
picture distribution in various capacities for over 20 years, including serving
as President of Universal Pictures Distribution.
Charles B. Moss, Jr. has been the President and Chief Executive Officer of
The B.S. Moss Enterprises, Inc. since 1979. Mr. Moss is also a director of
Robins Cinemas, Ltd., a United Kingdom corporation.
Thomas R. DiBenedetto has served as the President of Junction Investors,
Ltd. since 1991 and as the President of Boston International Group since 1983.
He is also currently a director of National Wireless Inc. and of Alexander's,
Inc.
Kurt C. Hall was appointed Chief Operating Officer of United Artists
Theatre Circuit, Inc. ("UA") in June 1997, after holding the positions of
Executive Vice President and Chief Financial Officer of UA since 1992. Mr. Hall
held several positions with United Artists Entertainment Company, the
predecessor to UA, since joining that company in 1988, including Director of
Finance from 1988 to 1990 and Vice President and Treasurer from 1990 to 1992.
Dennis Pope was appointed the President and Chief Executive Officer of the
Company in March 1997. Mr. Pope had been the Executive Vice President and Chief
Financial Officer of the Company since May 1994. From January 1993 until May
1994, Mr. Pope was the Managing Partner - Entertainment Business Group with
Kenneth Leventhal & Co. Prior to joining Kenneth Leventhal, Mr. Pope had served
as a consultant to that firm on entertainment industry matters in November and
December 1992.
W. Tucker Lemon was appointed Senior Vice President of the Company in
March 1997. Previously, Mr. Lemon was the Vice President, General Counsel and
Secretary, the position he held since he joined the Company in August 1994. From
February 1993 until he joined the Company, Mr. Lemon was of counsel to Corey,
Croudace, Dietrich & Dragun and prior thereto, Mr. Lemon was associated with
Latham & Watkins.
Gregory W. Betz joined the Company as Controller in June 1986, was
promoted to Vice President-Controller in December 1990, and became the Company's
Vice President and Director of Finance in October 1993.
Michael B. Ellis joined the Company as its Vice President-Engineering and
Product Development in July 1994. From February 1993 until he joined the
Company, Mr. Ellis was a consultant providing technical support to entertainment
and commercial construction industries. Prior thereto, Mr. Ellis was the
Corporate Director-Engineering and Project Development of Knott's Berry Farm
from May 1989 through February 1993.
Russell H. Chesley joined the Company as Vice President-Worldwide Sales in
August 1995. From March 1994 until he joined the Company, Mr. Chesley was
Director of Marketing and Sales at Westrex, an
2
<PAGE> 4
entertainment technology and equipment manufacturer. From November 1992 until
February 1994, Mr. Chesley was Sales and Marketing Director and an Executive
Producer at Starfax/The Editing Company, a post production facility. Prior
thereto, Mr. Chesley was an independent producer and consultant.
Rui C. Guimarais has held several management positions since joining the
Company in February 1993, including Controller, Director-Film Licensing and
Distribution and Director-Theatre Operations. In January 1996, Mr. Guimarais was
promoted to Vice President-Film Licensing while retaining his responsibilities
as Director-Theatre Operations. From 1992 until he joined the Company, Mr.
Guimarais was a partner in a joint venture engaged in wholesale distribution.
The Company has five wholly owned subsidiaries (Showscan Productions,
Inc., Showscan CityWalk, Inc., Showscan Attractions, Inc., Showscan Framingham,
Inc. and Showscan Entertainment B.V.). Showscan Attractions, Inc. currently owns
50% of the outstanding capital stock of Cinemania (UK) Limited. Mr. Pope is the
sole director and President of Showscan Productions, Inc., Showscan CityWalk,
Inc., Showscan Attractions, Inc. and Showscan Framingham, Inc. Mr. Soady
currently is director and President of Showscan Entertainment B.V.; however, the
process is under way to replace Mr. Soady with Mr. Pope in each such capacity.
Mr. Lemon is the Secretary of these subsidiaries. Mr. Pope, Mr. Moss, Mr. Lemon
and Mr. Guimarais are the directors of Cinemania (UK) Limited.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, as well as persons who own more than
ten percent of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of beneficial ownership and
reports of changes in beneficial ownership of the Common Stock. Directors,
executive officers and greater-than-ten-percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of copies of reports filed with the SEC and
submitted to the Company since April 1, 1996 and on written representations by
certain directors and executive officers of the Company, the Company believes
that, with the exception of the following, all persons subject to the reporting
requirements of Section 16(a) filed all required reports on a timely basis
during the past fiscal year: William C. Soady, Dennis Pope and W. Tucker Lemon
each failed to timely file a Statement of Changes in Beneficial Ownership (Form
4) upon receiving additional options from the Company.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following tables set forth certain information concerning the annual
and long-term compensation for services rendered to the Company in all
capacities for the fiscal years ended March 31, 1997, 1996 and 1995 of (i) all
persons who served as the Chief Executive Officer of the Company during the
fiscal year ended March 31, 1997 and (ii) each of the other executive officers
of the Company whose total annual salary and bonus during the fiscal year ended
March 31, 1997 exceeded $100,000. (The Chief Executive Officer and the other
named officers are collectively referred to as the "Named Executives.")
3
<PAGE> 5
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMP-
------------------------------------- ENSATION AWARD
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
--------------------------- ---- -------------- --------- ---------------
<S> <C> <C> <C> <C>
William C. Soady, President 1997 $323,078(1)(2) $ -0- 50,000
and Chief Executive Officer ... 1996 $350,000 $ -0- -0-
1995 $350,000(1) $50,000 -0-
Dennis Pope, President 1997 $220,000(2) $ -0- 115,000
and Chief Executive Officer .... 1996 $213,846 $ -0- -0-
1995 $152,308 $ -0- 150,000
W. Tucker Lemon, Senior Vice 1997 $127,501 $ -0- 35,000
President, General Counsel and 1996 $125,000 $ -0- -0-
Secretary....................... 1995 $ 79,326 $ -0- 30,000
Michael B. Ellis, Vice 1997 $115,442 $ -0- -0-
President-Engineering and 1996 $115,000 $ -0- -0-
Product Development............. 1995 $ 78,192 $ -0- 17,500
J. Chuck Allen, Vice 1997 $100,384(1) $ -0- -0-
President-Theatre Operations.... 1996 $100,000(1) $ -0- -0-
1995 $79,999(1)(3) $ -0- 17,500
Russell H. Chesley, Vice 1997 $124,458(4) $ -0- -0-
President-Worldwide Sales....... 1996 $ 66,346(4) $ -0- 17,500
Rui C. Guimarais, Vice 1997 $101,397 $ -0- -0-
President-Film and Theatre 1996 $102,278 $ -0- 10,000
Operations...................... 1995 $ 70,000 $ -0- 7,500
</TABLE>
- -------------------------
(1) In addition to the amounts shown in the table, certain of the Named
Executives received an automobile allowance. While each Named Executive
may derive personal benefit from this perquisite, the benefit did not
exceed the lesser of $50,000 or 10% of such Named Executive's salary and
bonus.
(2) Mr. Pope replaced Mr. Soady as President and Chief Executive Officer in
March, 1997. Prior to Mr. Pope assuming the office of President and Chief
Executive Officer, he served as the Company's Executive Vice President and
Chief Financial Officer.
(3) Mr. Allen resigned from all of his positions with the Company and its
subsidiaries in May, 1997.
(4) Mr. Chesley's compensation consisted of a base salary of $110,000 plus
commissions on certain sales of Showscan equipment and films.
The following table contains information concerning individual grants of
stock options made during the fiscal year ended March 31, 1997 for each of the
following Named Executives.
4
<PAGE> 6
OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER %OF TOTAL
OF OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE OF GRANT DATE
GRANTED EMPLOYEES IN OPTION EXPIRATION PRESENT VALUE
NAME OF OFFICER (#) FISCAL YR. ($/SHARE) DATE $(1)
- ---------------- ------- ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
William C. Soady 35,000 17.5% $6.125 7/18/06 $108,850
William C. Soady 15,000 7.5% $3.625 1/31/07 $ 27,600
Dennis Pope 35,000 17.5% $6.125 7/18/06 $108,850
Dennis Pope 80,000 40.0% $3.625 1/31/07 $147,200
W. Tucker Lemon 20,000 10.0% $6.125 7/18/06 $ 62,200
W. Tucker Lemon 15,000 7.5% $3.625 1/31/07 $ 27,600
</TABLE>
(1) The Black-Scholes method of calculating the value of the options granted
was used and the corresponding values for each grant are shown. The
expected volatility used in this model was .361. The assumptions for the
expected life of the options granted ranged from 7 to 10 years. The
risk-free interest rate assumed ranged from 5% to 6%.
The following table contains information concerning stock options
exercised in the last fiscal year and stock options remaining unexercised on
March 31, 1997 with respect to the Named Executives.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1997
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END (1)
------------------------------ ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Soady -0- -0- 187,500 112,500 -0- -0-
Dennis Pope -0- -0- 75,000 190,000 -0- -0-
W. Tucker Lemon -0- -0- 15,000 50,000 -0- -0-
Michael B. Ellis -0- -0- 8,750 8,750 -0- -0-
J. Chuck Allen -0- -0- 8,750 8,750 -0- -0-
Russell H. Chesley -0- -0- 4,375 13,125 -0- -0-
Rui C. Guimarais -0- -0- 6,250 11,250 -0- -0-
</TABLE>
(1) Value is determined by subtracting the exercise price from the fair market
value (the closing price for the Company's Common Stock as reported on the
Nasdaq National Market) as of March 31, 1997, the last trading day in the
fiscal year ($2.50 per share) and multiplying the resulting number by the
number of underlying shares of Common Stock.
5
<PAGE> 7
Director Compensation. Members of the Board of Directors who are not
officers of the Company receive a fee of $500 for each Board meeting that they
attend and are also reimbursed for the travel expenses incurred to attend such
meetings.
Board of Director Interlocks and Insider Participation. The Compensation
Committee of the Board of Directors made all compensation determinations during
the past fiscal year for the Company's executives. William C. Soady and Dennis
Pope were, for parts of the fiscal year ended March 31, 1997, both an officer
and a director of the Company though neither was a member of the Compensation
Committee.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements.
Mr. Soady had entered into an employment agreement, dated March 3, 1994
(the "Employment Agreement"), with the Company, Showscan CityWalk Venture,
Showscan CityWalk, Inc., Showscan Attractions Venture and Showscan Attractions,
Inc. pursuant to which he agreed to be the President and Chief Executive Officer
of the Company, Showscan CityWalk, Inc. and Showscan Attractions, Inc. and the
principal executive officer of Showscan CityWalk Venture and Showscan
Attractions Venture. This agreement was terminated upon Mr. Soady's resignation
on February 28, 1997.
Mr. Pope has entered into an employment agreement, dated May 3, 1994, and
amended on June 15, 1995, pursuant to which he agreed to be Executive Vice
President and Chief Financial Officer of the Company. Effective March 1, 1997,
Mr. Pope was made President and Chief Executive Officer and his employment
agreement was amended so that he will receive an annual salary of $250,000. The
agreement is terminable by either Mr. Pope or the Company upon 30 days notice to
the other party. However, if the Company terminates the agreement without cause
(where "cause" is defined to mean conviction of a felony, commission of fraud or
embezzlement, neglect of duties, death, permanent disability or breach of duty
of loyalty to the Company), then the Company is obligated to pay Mr. Pope his
salary and benefits for up to one year, subject to Mr. Pope's best efforts to
mitigate such obligation. In addition, the Company has granted Mr. Pope options
to purchase 150,000 shares of the Company's Common Stock at $8.125 per share,
35,000 shares at $6.125 per share and 80,000 shares at $3.625 per share. Such
options vest at the rate of 25% per year, commencing on the first anniversary of
the agreement by which they were granted.
Mr. Lemon has entered into an employment agreement, dated August 15, 1994,
pursuant to which he agreed to be Vice President, General Counsel and Secretary
of the Company. Effective March 1, 1997, Mr. Lemon was made Senior Vice
President, General Counsel and Secretary and his employment agreement was
amended so that he will receive an annual salary of $150,000. In addition, the
Company has granted Mr. Lemon options to purchase 30,000 shares of the Company's
Common Stock at $7.75 per share, 20,000 shares at $6.125 per share and 15,000
shares at $3.625 per share. Such options vest at the rate of 25% per year,
commencing on the first anniversary of the agreement by which they were granted.
If the Company terminates the agreement without cause, then the Company is
obligated to pay Mr. Lemon in one lump sum his salary for four months.
In August, 1996, the Board of Directors entered into agreements with
Messrs. Pope and Lemon that would protect each such officer in the case of a
change in control of the Company. These agreements are intended to provide
certain benefits to the officers upon a "Change of Control" which is defined to
mean (a) the acquisition by any person of 20% or more of the Common Stock and
Common Stock equivalents of the Company or 20% of the Company's voting power,
(b) a liquidation, merger or consolidation of the Company, or (c) a change in
the membership of the Board of Directors over any period of two (2) years or
less such that the directors sitting at the beginning of such period or who were
nominated by at least two-thirds of the sitting directors cease to be a majority
of the Board of Directors. These officers of the Company are entitled to receive
certain cash payments and health benefits if they leave the Company, either one
year
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<PAGE> 8
before or within two years after a Change in Control, for "Good Reason,"
"Disability," death or retirement or if they were terminated without "Cause" (in
each case as the foregoing terms will be defined in the agreements). These
officers also have an additional period after a Change in Control in which they
can voluntarily leave the Company and receive the benefits. The cash benefits
provided for Mr. Pope will equal 200% of his annual salary on the date of
termination. Mr. Lemon will receive 150% of the greater of his average salary
and bonuses over the period of three (3) fiscal years preceding the Change in
Control or the period of three (3) final years preceding his termination. In
addition, each such officer's unvested options shall become vested upon a Change
in Control. All such benefits shall be in lieu of any benefits provided under
any such officer's employment agreement.
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<PAGE> 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of each class of the Company's voting securities as of July
20, 1997 by (i) each of the Company's directors and Named Executives who
beneficially own Common Stock or Series C Preferred Stock, (ii) by all directors
and officers as a group, and (iii) based on reports filed by each person with
the Securities and Exchange Commission, by the known beneficial holders of more
than 5% of any class of outstanding shares of the Company's voting securities.
<TABLE>
<CAPTION>
SERIES C
COMMON STOCK(2) PREFERRED STOCK
---------------------- ---------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME AND ADDRESS OF OF OF OF
OF BENEFICIAL OWNER(1) SHARES OUTSTANDING SHARES OUTSTANDING
- ---------------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
William D. Eberle 55,127(3) * -- --
Charles B. Moss, Jr. 994,362(4) 15.0% 12,000 24.5%
c/o B.S. Moss Enterprises
225 North Hill Street,
Aspen, CO 81611
Thomas R. DiBenedetto 1,014,362(5) 15.3% 12,000(6) 24.5%
c/o Junction Investors, Ltd.
84 State Street
Boston, MA 02109
DiBenedetto Showscan Limited 706,672(7) 10.7% 12,000 24.5%
Partnership
c/o Junction Investors, Ltd.
84 State Street
Boston, MA 02109
United Artists Theatre 796,032 12.0% 25,000 51.0%
Circuit, Inc.
9110 East Nichol Avenue
Suite 200
Englewood, CO 80112
Kurt C. Hall(8) -- -- -- --
c/o United Artists Theatre
Circuit, Inc.
9110 East Nichols Avenue
Suite 200
Englewood, CO 80112
Neuberger & Berman 333,500(9) 5.0% -- --
605 Third Avenue
New York, NY 10158
William C. Soady(10) 198,250 3.0% -- --
Dennis Pope(11) 122,250 1.8% -- --
W. Tucker Lemon(12) 39,500 * -- --
Michael B. Ellis(13) 13,125 * -- --
J. Chuck Allen(14) -- -- -- --
Russell H. Chesley(15) 4,375 * -- --
Rui C. Guimarais(16) 8,750 * -- --
All Officers and Directors 2,450,101 37.0% 24,000 100%
as a Group(14 persons)(17)
</TABLE>
- ----------
* Less than 1%.
(1) Except as otherwise noted, the address of each beneficial owner listed in
this table is c/o Showscan Entertainment Inc., 3939 Landmark Street,
Culver City, California 90232.
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<PAGE> 10
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all securities
beneficially owned by them.
(3) Consists of 55,127 shares subject to currently exercisable stock purchase
warrants.
(4) Consists of (i) 468,577 shares underlying currently exercisable stock
purchase warrants, 49,001 of which are held by Charles B. Moss, III, Mr.
Moss' son, and 49,001 of which are held by Robin H. Moss, Mr. Moss'
ex-wife, as custodian for Elizabeth H. Moss, Mr. Moss' daughter, (ii)
238,095 shares of Common Stock issuable upon conversion of Mr. Moss'
Series C Preferred Stock, (iii) 155,000 shares of Common Stock held by the
Charles B. Moss, Jr. Family Trust, (iv) 6,200 shares of Common Stock held
by M.F.P., LLC, a limited liability company whose members are Mr. Moss'
children, (v) 21,900 shares of Common Stock held by Robin H. Moss, and
(vi) 104,590 shares of Common Stock owned by Mr. Moss. Robin H. Moss is
the sole trustee of the Charles B. Moss, Jr. Family Trust. Mr. Moss
disclaims beneficial ownership of the shares held by the Charles B. Moss,
Jr. Family Trust, M.F.P., LLC and Robin H. Moss and the warrants held by
Charles B. Moss, III and by Robin H. Moss as custodian for Elizabeth H.
Moss.
(5) Includes (i) 238,095 shares of Common Stock issuable upon conversion of
the Series C Preferred Stock held by DiBenedetto Showscan Limited
Partnership, a Delaware limited partnership, (ii) 35,000 shares of Common
Stock owned by the DiBenedetto 1993 Family Trust, (iii) 35,000 shares of
Common Stock owned by the DiBenedetto Family Trust U/A/D 11/01/91 FBO Cory
James DiBenedetto, (iv) 35,000 shares of Common Stock owned by the
DiBenedetto Family Trust U/A/D 11/01/91 FBO Christian Robert DiBenedetto,
(v) 35,000 shares of Common Stock owned by the DiBenedetto Family Trust
U/A/D 11/01/91 FBO Thomas Austin DiBenedetto, (vi) 35,000 shares of Common
Stock owned by the DiBenedetto Family Trust U/A/D 11/01/91 FBO Marc
Anthony DiBenedetto, (vii) 468,577 shares of Common Stock underlying
currently exercisable stock purchase warrants held by DiBenedetto Showscan
Limited Partnership, and (viii) 132,690 shares of Common Stock owned by
Mr. DiBenedetto. Mr. DiBenedetto has sole voting and dispositive power
over the securities beneficially owned by DiBenedetto Showscan Limited
Partnership. Linda M. DiBenedetto, Mr. DiBenedetto's wife, is co-trustee
of the DiBenedetto 1993 Family Trust. Mr. DiBenedetto disclaims beneficial
ownership of the shares of Common Stock held by the DiBenedetto 1993
Family Trust, the DiBenedetto Family Trust U/A/D 11/01/91 FBO Cory James
DiBenedetto, the DiBenedetto Family Trust U/A/D 11/01/91 FBO Christian
Robert DiBenedetto, the DiBenedetto Family Trust U/A/D 11/01/91 FBO Thomas
Austin DiBenedetto, and the DiBenedetto Family Trust U/A/D 11/01/91 FBO
Marc Anthony DiBenedetto.
(6) Consists of 12,000 shares of the Company's Series C Preferred Stock owned
by DiBenedetto Showscan Limited Partnership. Mr. DiBenedetto has sole
voting and dispositive power over these securities.
(7) Consists of 468,577 shares subject to currently exercisable stock purchase
warrants and 238,095 shares of Common Stock issuable upon conversion of
Series C Preferred Stock.
(8) Kurt C. Hall is an executive officer of United Artists Theatre Circuit,
Inc. which owns 25,000 shares of Series C Preferred Stock and 552,000
stock purchase warrants. Mr. Hall does not have voting or investment power
with respect to those securities.
(9) Neuberger & Berman disclaims beneficial ownership of 67,100 shares owned
by certain of its individual partner(s) in their own personal accounts.
Such shares were purchased with personal funds and each such partner has
sole voting and dispositive power over the shares in his/her account.
(10) Includes 196,250 shares of currently exercisable stock options and options
exercisable within 60 days.
(11) Includes 121,250 shares of currently exercisable stock options and options
exercisable within 60 days.
(12) Includes 37,500 shares of currently exercisable stock options and options
exercisable within 60 days.
(13) Includes 13,125 shares of currently exercisable stock options and options
exercisable within 60 days.
(14) J. Chuck Allen resigned from all positions with the Company in May, 1997.
All options held by Mr. Allen were canceled 30 days after his
resignation.
(15) Includes 4,375 shares of currently exercisable stock options and options
exercisable within 60 days.
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<PAGE> 11
(16) Includes 8,750 shares of currently exercisable stock options and options
exercisable within 60 days.
(17) Includes 1,373,531 shares subject to stock options and stock purchase
warrants currently exercisable or exercisable within 60 days.
The Company, United Artists Theatre Circuit, Inc. ("UA"), Charles B. Moss,
Jr. ("Moss"), Thomas R. DiBenedetto and DiBenedetto Showscan Limited
Partnership, a Delaware partnership (collectively, the "DiBenedetto Entities")
are party to that certain Voting Agreement, dated as of August 19, 1994,
pursuant to which UA, Moss and the DiBenedetto Entities have agreed to vote the
securities held by them in favor of each other's designees for the Board of
Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MOSS/DIBENEDETTO VENTURES. On September 27, 1993, the Company entered into that
certain Purchase Agreement (the "Purchase Agreement") with Mr. Charles B. Moss,
Jr., a director of the Company ("Moss"), Mr. Thomas R. DiBenedetto, a director
of the Company ("DiBenedetto"), and DiBenedetto Showscan Limited Partnership, a
Delaware limited partnership affiliated with, and controlled by, DiBenedetto
("DiBenedetto LP"), pursuant to which, among other things, Moss, DiBenedetto and
DiBenedetto LP collectively acquired the warrants to purchase an aggregate of
850,000 shares of Common Stock, 150,000 shares of Series A Preferred Stock, and
24,000 shares of Series B Preferred Stock. So long as Moss and DiBenedetto
collectively own shares of Common Stock or securities convertible into shares of
Common Stock representing in the aggregate 5% or more of the then outstanding
Common Stock, the terms of the Purchase Agreement require that the Company
continue to nominate Moss and DiBenedetto or their designees to the Board of
Directors. Additionally, affiliates of Moss and DiBenedetto have entered into
two transactions for the purpose of owning, operating, developing and financing
Showscan motion simulation attractions. The first transaction, a venture called
the "Showscan CityWalk Venture," was formed for the purpose of operating one of
the Company's motion simulation attractions at Universal CityWalk in Universal
City, California which opened in November 1993. The parties to that venture are
Showscan CityWalk, Inc., a wholly-owned California subsidiary of the Company and
the managing partner of Showscan CityWalk Venture, Moss Family LA Corp., a
California corporation controlled by Moss, and DiBenedetto CityWalk Limited
Partnership, a Delaware limited partnership controlled by DiBenedetto.
Initially, the Moss and DiBenedetto affiliates together owned a 1% investment
and had a right to acquire a collective 50% investment in the venture for a
price based on the cash flow of the motion simulation attraction. The Moss and
DiBenedetto affiliates exercised the right to acquire the 50% investment in
January 1994. Upon the exercise of the option, the Moss and DiBenedetto
affiliates each paid the Company $10,000. The balance of the purchase price
($247,772) was paid in March, 1996. See "Item 1. Business--Motion Simulation
Attractions--Owned and Operated Theatres--Moss/DiBenedetto Ventures."
The second venture, organized under the name "Showscan Attractions
Venture," was formed for the purpose of acting as the exclusive vehicle to
develop, own, manage and operate additional Showscan motion simulation
attractions throughout the world. The scope of the Showscan Attractions Venture
was subsequently narrowed in September 1994 to accommodate the venture with
United Artists Theatre Circuit, Inc. ("UA") discussed below. The parties to this
venture are Showscan Attractions, Inc., a wholly-owned California subsidiary of
the Company and the managing partner of Showscan Attractions Venture, Moss
Family O&O Corp., a California corporation controlled by Moss (the "Moss
Partner), and DiBenedetto O&O Limited Partnership, a Delaware limited
partnership controlled by DiBenedetto (the "DiBenedetto Partner"). Showscan
Attractions, Inc., currently owns a 50% interest in the Attractions Venture, the
Moss Partner currently owns a 25% interest in the venture, and the DiBenedetto
Partner owns the remaining 25% interest.
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The Showscan Attractions Venture agreement contemplates that the parties
thereto will jointly develop, own and operate Showscan motion simulator
attractions through the venture or through other corporations, partnerships or
entities formed by them. In accordance with the foregoing, the parties to the
Showscan Attractions Venture have formed Cinemania (UK) Limited for the purpose
of developing, owning and operating a Showscan motion simulator attraction in
London which opened in late September 1994 (the "London Theatre"). Showscan
Attractions, Inc. owns 50% of the outstanding capital stock of Cinemania (UK)
Limited, the Moss Partner owns 25% of the capital stock, and the DiBenedetto
Partner owns 25%. To date, funding for the Attractions Venture has been provided
by Showscan Attractions, Inc. $2,249,805; Moss Partner $493,908; and DiBenedetto
Partner $493,908. The rights contributed to the Showscan Attractions Venture
included the rights to two motion simulation attraction leases and the rights to
a trademark to be used in connection with one motion simulation attraction. The
services contributed, and to be contributed in the future, consist of
development services related to the London motion simulation attraction,
including coordinating the design and construction of the facility and the
opening and subsequent on-going management of the facility. The London Theatre
is managed by Showscan Attractions, Inc., as the managing partner of the
Showscan Attractions Venture, through a management agreement with Robins
Cinemas, Ltd. ("Robins"). Moss is a 5% shareholder and a director of Robins. See
"Item 1. Business--Motion Simulation Attractions--Owned and Operated
Theatres--Moss/DiBenedetto Ventures."
In August 1995, Showscan Attractions Venture and Maloney Development
Partnership Ltd. ("Maloney"), an unaffiliated Texas limited partnership, formed
a Texas limited liability company called Showscan Maloney, LLC to own and
operate a Showscan motion simulation attraction in the San Antonio Riverwalk
District, in San Antonio, Texas. Showscan Attractions Venture and Maloney own
equal interests in Showscan Maloney, LLC; therefore, the Company's share in the
cash flow from the motion simulation attraction shall be 25% plus the annual
film rentals, royalties and management fees that Showscan Maloney, LLC is
separately required to pay to the Company. Day-to-day management of the motion
simulation attraction is handled by the Company as the sole manager of Showscan
Maloney, LLC. The partners of Showscan Maloney, LLC have agreed to close the
attraction and liquidate its assets. See "Item 1. Business--Motion Simulation
Attractions--Owned and Operated Theatres--The Maloney Venture."
Pursuant to a Proprietary Property Acquisition and Management Agreement
dated as of September 27, 1993, between the Company and Showscan Attractions
Venture, the Company granted to the Showscan Attractions Venture rights to
utilize proprietary property and rights of the Company in connection with the
development and operation of Showscan motion simulation attractions. Under that
agreement, the Company has been retained to manage the motion simulation
attractions developed and operated by the venture. The venture has also retained
Moss Entertainment Corp., a corporation controlled by Moss, and DiBenedetto
Corp., an affiliate of DiBenedetto, to provide certain services in connection
with the acquisition of properties for Showscan motion simulation attractions
and the potential disposition of those attractions. Moss Entertainment Corp. and
DiBenedetto Corp. are to receive fees for providing acquisition and disposition
services upon the sale or other disposition of certain of the initial theatres
developed by the venture.
THE UNITED ARTISTS VENTURE. On August 19, 1994, the Company entered into that
certain Purchase Agreement (the "UA Purchase Agreement") with UA, pursuant to
which, among other things, UA purchased 25,000 shares of the Company's Series C
Convertible Preferred Stock and Warrants representing the right to purchase an
aggregate of 552,000 shares of Common Stock. So long as UA owns shares of Common
Stock or securities convertible into shares of Common Stock representing in the
aggregate at least 500,000 shares of Common Stock, the terms of the UA Purchase
Agreement require that the Company continue to nominate a designee of UA to the
Board of Directors. Kurt C. Hall, a director of the Company and an executive
officer of UA, is the designee of UA. In connection with the transactions
effected by the UA Purchase Agreement, the Company and UA agreed to be equal
partners in a venture called Showscan/United Artists Theatres Joint Venture (the
"UA Venture"). The Company is managing partner of the UA Venture
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while UA is the administrative partner. Pursuant to a Theater Rights Agreement,
dated as of August 19, 1994, as amended (the "Theater Rights Agreement"),
whenever UA or the UA Venture builds a Showscan motion simulation attraction
theatre, such entity will have the exclusive rights to exhibit Showscan motion
simulation attraction films within a pre-agreed area surrounding such location.
Also, pursuant to the Theater Rights Agreement, UA will develop and coordinate
the construction of new and/or the conversion of existing theatres to Showscan
motion simulation attractions and will manage each theatre pursuant to
pre-negotiated terms. The Company, in turn, has agreed to pre-negotiated terms
for the sale of Showscan equipment, installation, servicing and the licensing of
Showscan motion simulation films. The Company will also make available to both
the UA Venture and UA its library of specialty films which utilize the patented
Showscan process, to the extent that either the UA Venture or UA builds or
converts existing theatres into specialty theatres for the exhibition of
specialty films. See "Item 1. Business--Motion Simulation Attractions--Owned and
Operated Theatres--The United Artists Venture."
The Theater Rights Agreement contains certain provisions that require UA
to make payments to the Company if UA is unable to meet its obligations under
that agreement. The Theater Rights Agreement provided that two motion simulation
attraction theatres be installed and in operation in Malaysia no later that
December 31, 1995. UA was unable to meet this commitment and therefore UA now
has an obligation to pay to the Company $722,000 together with interest thereon
at the rate of 7.5% per annum (the "Obligation") from January 1, 1996 until paid
in full. The outstanding balance of the Obligation and all accrued and unpaid
interest thereon became due and payable on December 31, 1996 (the "Maturity
Date"). To date, UA has offered to the UA Venture eight sites at new or existing
UA movie theatre multiplexes. The UA Venture declined seven of these sites
because they did not meet the criteria of the UA Venture. On July 1, 1997, the
UA Venture exercised its right to accept the offer by UA of the Showscan
Attraction site in Austin, Texas, which became the first site under the UA
Venture. This site was completed by UA and was open prior to the UA Venture
acceptance. The amount owed by UA was reduced by $390,000 with the acceptance of
this site. The balance is due August 1, 1997. See "Note 6. Owned and Operated
Theatres" in the Notes to Consolidated Financial Statements. In connection with
the foregoing, the Theater Rights Agreement has been amended by the Company and
UA to eliminate certain installation requirements in Malaysia and to add those
requirements to the overall UA obligations. In connection with the amendment,
(a) UA relinquished its exclusivity rights to Malaysia and eliminated its rights
of first refusal in the Asia Territory (as defined in the Theater Rights
Agreement), (b) the Company agreed to make certain payments to UA each time the
Company sells a simulation theatre to a third party in Malaysia or the Asia
Territory, and (c) the Company agreed to certain reduced pricing for a certain
number of its 15/70 format theatre systems.
In connection with the formation of the UA Venture and the modification to
the Showscan Attractions Venture that it necessitated, the Company entered into
a royalty agreement with Moss and DiBenedetto Partner which provides that each
time that the UA Venture opens a Showscan motion simulation attraction theatre
in one of the areas granted to UA, each of Moss and DiBenedetto Partner will
receive a one-time cash fee and thereafter will receive an annual royalty based
on the net cash flow (as defined) received by the Company from the operations of
such UA Venture theatre.
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: July 29, 1997
SHOWSCAN ENTERTAINMENT INC.
By /s/ W. TUCKER LEMON
----------------------------------------
W. Tucker Lemon
Senior Vice President, General Counsel
and Secretary
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