<PAGE>
--SCHEDULE 14A TEMPLATE--
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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
SHOWSCAN ENTERTAINMENT 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.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
SHOWSCAN ENTERTAINMENT INC.
3939 LANDMARK STREET
CULVER CITY, CALIFORNIA 90232
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, JANUARY 26, 1999
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Showscan Entertainment Inc. (the "Company") will be held at 3939 Landmark
Street, Culver City, California on Monday, January 26, 1999 at 10:30 a.m. for
the following purposes:
(1) To elect six members of the Board of Directors to serve until the
next annual meeting of stockholders;
(2) To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
March 31, 1999; and
(3) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on Thursday,
December 10, 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at the meeting. Only stockholders at the
close of business on the record date are entitled to vote at the meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL NOT
BE ABLE TO ATTEND THE MEETING TO VOTE IN PERSON, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE. The Proxy may be revoked at any time prior to its exercise at the
meeting.
By Order of the Board of Directors,
/s/ Marc T. Sabella
Marc T. Sabella
Secretary
Culver City, California
December 22, 1998
<PAGE>
SHOWSCAN ENTERTAINMENT INC.
3939 LANDMARK STREET
CULVER CITY, CALIFORNIA 90232
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 26, 1999
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Showscan
Entertainment Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by and on behalf of the Board of Directors of the
Company. The proxies solicited hereby are to be voted at the 1998 Annual
Meeting of Stockholders of the Company to be held on January 26, 1999, and at
any and all adjournments thereof (the "Annual Meeting").
A form of proxy is enclosed for your use. The shares represented by each
properly executed, unrevoked proxy will be voted as directed by the stockholder
executing the proxy. If no direction is made, the shares represented by each
properly executed, unrevoked proxy will be voted "FOR": (i) the election of
management's nominees for the Board of Directors; and (ii) the ratification of
the appointment of Ernest & Young LLP. With respect to any other item of
business that may come before the Annual Meeting, the proxy holders will vote
the proxy in accordance with their best judgment.
Any proxy given may be revoked at any time prior to the exercise thereof by
filing with Marc T. Sabella, Secretary of the Company, an instrument revoking
such proxy or by the filing of a duly executed proxy bearing a later date. Any
stockholder present at the meeting who has given a proxy may withdraw it and
vote his or her shares in person if such stockholder so desires.
It is contemplated that the solicitation of proxies will be made primarily by
mail. Should it, however, appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with stockholders, banks, brokerage houses and
others by telephone, telegraph, or in person to request that proxies be
furnished. All expenses incurred in connection with this solicitation will be
borne by the Company. In following up the original solicitation of proxies by
mail, the Company may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares eligible to vote at the Annual Meeting and will
reimburse them for their expenses in so doing.. This Proxy Statement and the
accompanying form of proxy are first being mailed to stockholders on or about
December 22, 1998.
1
<PAGE>
VOTING SECURITIES
Only holders of record of the Company's voting securities at the close of
business on December 10, 1998 are entitled to notice of and to vote at the
Annual Meeting. As of December 10, 1998, the Company had issued and outstanding
the following securities, the holders of which are entitled to vote at the
Annual Meeting: (i) 5,642,058 shares of the Company's Common Stock, $.001 par
value ("Common Stock"); and (ii) 49,000 shares of the Company's Series C
Convertible Preferred Stock ("Series C Preferred Stock"). Each share of Common
Stock that was issued and outstanding on December 10, 1998 is entitled to one
vote at the Annual Meeting and each share of Series C Preferred Stock is
entitled to the number of votes it would have if it were fully converted into
Common Stock. The presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes entitled to be cast by all stockholders
will constitute a quorum for the transaction of business at the Annual Meeting.
Directors will be elected by a plurality of the votes cast. Only votes cast
for a nominee will be counted, except that each properly executed, unrevoked
proxy will be voted for the six management nominees for the Board of Directors
in the absence of instructions to the contrary. Abstentions, broker non-votes
and instructions on a proxy to withhold authority to vote for one or more of
such nominees will result in the respective nominees receiving fewer votes.
Abstentions may be specified as to all proposals to be brought before the
Annual Meeting other than the election of directors. Approval of each of the
other proposals to be brought before the Annual Meeting (not including the
election of directors) will require the affirmative vote of at least a majority
in voting interest of the stockholders present in person or by proxy at the
Annual Meeting and entitled to vote thereon. As to those proposals, if a
stockholder abstains from voting on a proposal it will have the effect of a
negative vote on that proposal, but if a broker indicates that it does not have
authority to vote certain shares, those votes will not be considered as shares
present and entitled to vote at the Annual Meeting with respect to that proposal
and therefore will have no effect on the outcome of the vote.
2
<PAGE>
ELECTION OF DIRECTORS
NOMINEES
Directors are elected at each annual meeting of the stockholders and hold
office until their respective successors are elected and qualified. The Board
of Directors is of the opinion that the election to the Board of Directors of
the persons identified below, all of whom are currently serving as directors of
the Company and have consented to continue to serve if elected, would be in the
best interests of the Company. The names of such nominees are as follows:
William D. Eberle
William C. Soady
Charles B. Moss, Jr.
Thomas R. DiBenedetto
Kurt C. Hall
Dennis Pope
The shares of each properly executed, unrevoked proxy will be voted FOR the
election of all of the above named nominees unless the stockholder executing
such proxy indicates that the proxy shall not be voted for all or any one of the
nominees. If for any reason any nominee should, prior to the Annual Meeting,
become unavailable for election as a director, an event not now anticipated, the
proxies will be voted for such substitute nominee, if any, as may be recommended
by the Board of Directors. In no event, however, shall the proxies be voted for
a greater number of persons than the number of nominees named.
MEETINGS; ATTENDANCE; COMMITTEES
The Board of Directors of the Company met fourteen times during the fiscal
year ended March 31, 1998 either in person or by unanimous written consent.
Kurt C. Hall attended nine of these meetings and every other incumbent director
attended no less than 85% of all of these meetings of the Board of Directors.
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 Audit
Committee did not meet last fiscal year. 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 and
does not receive any meeting fees. The Nominating Committee makes
recommendations to the full Board of Directors concerning nominees for election
as directors of the Company. The Nominating Committee has recommended to the
Board of Directors the six nominees presented herein. The Nominating Committee
will consider in connection with the 1999 annual meeting the possible nomination
as directors of persons recommended by stockholders. Any such recommendations
should be in writing and should be mailed or delivered to the Company, marked
for the attention of the Nominating Committee, on or before the date for receipt
of stockholder proposals for the next annual meeting. See "Submission of
Stockholder Proposals."
3
<PAGE>
The Compensation Committee currently consists of Mr. Eberle, Mr. Moss, Mr.
DiBenedetto, Mr. Soady and Mr. Hall and does not receive any meeting fees. The
Compensation Committee administers the Company's stock option plans and
establishes the compensation of the Company's executive officers. The
Compensation Committee did not meet last year.
MANAGEMENT OF THE COMPANY
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 75 Chairman of the Board of Directors 1988
William C. Soady 55 Director 1994
Charles B. Moss, Jr. 54 Director 1993
Thomas R. DiBenedetto 49 Director 1993
Kurt C. Hall 39 Director 1994
Dennis Pope 54 President, Chief Executive Officer
and Director 1997
Michael B. Ellis 47 Senior Vice President --
Russell H. Chesley 41 Senior Vice President --
Marc T. Sabella 34 Vice President-Corporate Controller --
and Secretary
</TABLE>
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. From 1993, he was Of Counsel to Donovan, Leisure, Newton & Irvine. 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.,
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 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 President and Chief Executive Officer of the Company from March 1994 to March
1997, and was elected as a director of the Company in April 1994. Prior to
joining the Company, Mr. Soady served as President of Domestic Distribution of
TriStar Pictures, Inc. from July 1992 until he joined 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 and a director of Cinemania
(UK) Limited since 1994.
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.
4
<PAGE>
Kurt C. Hall was appointed the President and Chief Executive Officer of
United Artists Theatre Circuit, Inc. ("UA") in March 1998, after holding the
positions of Chief Operating Officer during 1997 through March 1998 and as
Executive Vice President and Chief Financial Officer of UA since 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.
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. 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 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.
Marc T. Sabella joined the Company as Controller in June 1995 and was
promoted to Vice President-Corporate Controller and Secretary of the Company in
September 1998. Mr. Sabella is responsible for all of the Company's accounting
and financial reporting. From July 1994 until June 1995, Mr. Sabella was
Controller of Heartland Music. From July 1993 until July 1994, Mr. Sabella was
Assistant Controller of Johnny Rockets International. Prior to joining Johnny
Rockets International, Mr. Sabella was a Senior Accountant with L.A. Gear, Inc.
from October 1990 through March 1993.
The Company has four wholly owned subsidiaries (Showscan Productions, Inc.,
Showscan CityWalk, Inc., Showscan Attractions, Inc. and Showscan Entertainment
B.V.). Showscan Attractions, Inc. currently owns 50% of the outstanding capital
stock of Cinemania (UK) Limited, a British company in liquidation. Mr. Pope is
the sole director and President of Showscan Productions, Inc., Showscan
CityWalk, Inc. and Showscan Attractions, Inc. Mr. Pope is director and
President of Showscan Entertainment B.V. Mr. Sabella is the Vice President -
Secretary of these subsidiaries. Mr. Pope and Mr. Moss are directors of
Cinemania (UK) Limited.
5
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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, 1998, 1997 and 1996 of (i) all persons who
served as the Chief Executive Officer of the Company during the fiscal year
ended March 31, 1998 and (ii) each of the other executive officers of the
Company whose total annual salary and bonus during the fiscal year ended March
31, 1998 exceeded $100,000. (The Chief Executive Officer and the other named
officers are collectively referred to as the "Named Executives.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------- COMPENSATION
AWARD
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
- -------------------------------------- ---- ------------ --------- ------------
<S> <C> <C> <C> <C>
Dennis Pope, President 1998 $250,000 $ -0- -0-
and Chief Executive Officer....... 1997 $220,000(1) $ -0- 115,000
1996 $213,846 $ -0- -0-
W. Tucker Lemon, Senior Vice 1998 $150,577(2) $ -0- -0-
President, General Counsel 1997 $127,501 $ -0- 35,000
and Secretary..................... 1996 $125,000 $ -0- -0-
Michael B. Ellis, Vice President- 1998 $129,116 $ -0- -0-
Engineering and Product 1997 $115,442 $ -0- -0-
Development........................ 1996 $115,000 $ -0- -0-
Russell H. Chesley, Vice President- 1998 $172,886(3) $ -0- -0-
Worldwide Sales.................... 1997 $124,458(3) $ -0- -0-
1996 $ 66,346 $ -0- 17,500
Rui C. Guimarais, Vice President- 1998 $123,284(4) $ -0- -0-
Film Licensing 1997 $101,397 $ -0- -0-
1996 $102,278 $ -0- 10,000
</TABLE>
____________
(1) Mr. Pope became 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.
(2) Mr. Lemon resigned from all the positions that he held with the Company and
its subsidiaries in September, 1998.
(3) Mr. Chesley's compensation consisted of a base salary of $110,000 plus
commissions on certain sales of the Company's equipment and films.
(4) Mr. Guimarais resigned from all the positions that he held with the Company
and its subsidiaries in May,1998.
6
<PAGE>
The following table contains information concerning stock options exercised
in the last fiscal year and stock options remaining unexercised on March 31,
1998 with respect to the Named Executives. No options were granted to, or
exercised by the Named Executives during the fiscal year ended March 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1998
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FISCAL YEAR- MONEY OPTIONS/SARS HELD AT
END (#) FISCAL YEAR-END ($) (1)
---------------------------- ----------------------------
SHARES ACQUIRED VALUE
ON EXERCISE REALIZED
NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Pope -0- -0- 141,250 123,750 -0- -0-
W. Tucker Lemon -0- -0- 38,750 26,250 -0- -0-
Michael B. Ellis -0- -0- 13,125 4,375 -0- -0-
Russell H. Chesley -0- -0- 8,750 8,750 -0- -0-
Rui C. Guimarais -0- -0- 10,625 6,875 -0- -0-
</TABLE>
_____________
(1) Value is determined by subtracting the exercise price from the fair market
value (the closing price for Common Stock as reported on the Nasdaq
National Market(R)) as of March 31, 1998, the last trading day in the fiscal
year ($.625 per share) and multiplying the resulting number by the number of
underlying shares of Common Stock.
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. Dennis
Pope was for the fiscal year ended March 31, 1998, both an officer and a
director of the Company though he was not a member of the Compensation
Committee.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
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. On
September 30, 1998, Mr. Pope's employment agreement was again amended to
increase his salary to $300,000. At that time he also received a bonus of
$75,000. 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
7
<PAGE>
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.
The Company's Board of Directors entered into agreements with Messrs. Pope,
Lemon, Ellis, Chesley and Guimarais that would protect each such officer in the
case of a change in control of the Company. The agreements with Messrs. Lemon
and Guimarais expired with their resignations in September 1998 and May 1998,
respectively. 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 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 Company's
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
Company's 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 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 are defined in the agreements).
Mr. Pope also has an additional period after a Change in Control in which he 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. The other two officers each will receive 75% of the greater of his
average salary and bonuses over the three (3) fiscal years preceding the Change
in Control or the period of three (3) fiscal years preceding his termination.
In addition, the unvested options of Mr. Pope 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.
BOARD COMPENSATION REPORT
Executive Officer Compensation Policy. During the fiscal year ended March
-------------------------------------
31, 1998 ("Fiscal 1998"), the Company did not hire any new executive officers
and did not change the compensation of any of its existing executive officers.
All executive officers of the Company received the compensation that they were
entitled to receive based on the employment arrangements in effect prior to
Fiscal 1998. Because of the Company's financial condition, the Company did not
grant any of its executive officers bonuses or stock options. As a result, the
Compensation Committee did not meet in Fiscal 1998.
Although the Compensation Committee did not meet in Fiscal 1998, its
compensation policies are expected to remain unchanged from prior years. The
executive officer compensation policy of the Compensation Committee, in general,
is designed to provide competitive levels of salaries to its executives, and to
grant its executives equity incentives, in the form of stock options, to enhance
the long-term growth of the Company. Accordingly, the Company's goal is to
establish the base salaries for its executive officers within the range of
salaries for persons holding similarly-responsible positions at other similar
companies, and grants such executives options or warrants to purchase Common
Stock. The Board of Directors views stock options as an important component of
its long-term, performance-based compensation philosophy. The number of options
granted is determined by the subjective evaluation of the executive's ability to
influence the Company's long-term growth and profitability. All options are
granted at the current market price. Since the value of an option bears a
direct relationship to the Company's stock price, it is an effective incentive
for managers that also creates value for stockholders. In order to retain and
motivate executives, the options granted to date have typically vested in
installments over four years.
The Compensation Committee of the Board of Directors will, however, consider
awarding additional discretionary annual cash bonuses to its executive officers
based, primarily, on the Company's overall
8
<PAGE>
performance and, to a lesser extent, on the contribution each executive made to
the Company's success. In keeping with its compensation philosophy that bonuses
should reflect increases in stockholder value, the Board of Directors did not
grant any discretionary bonuses to any of its executives during Fiscal 1998.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Pursuant to his Employment Agreement, Mr. Pope received a salary of $250,000
in Fiscal 1998.
The foregoing report has been approved by all of the current members of the
Compensation Committee:
William D. Eberle Thomas R. DiBenedetto
Charles B. Moss, Jr. Kurt C. Hall
9
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth a comparison of cumulative total returns for
the Company, the Nasdaq Market Value Index and a peer group index for the period
during which the Common Stock has been registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The peer
group index consists of all companies (i) that have the same Standard Industrial
Classification industry number as the Company and (ii) whose securities have
been registered under the Exchange Act during the period covered by the
performance graph.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
SHOWSCAN 100 123.92 100.00 106.52 43.48 10.87
PEER GROUP 100 155.46 131.44 194.09 192.47 220.30
NASDAQ 100 115.57 122.61 164.91 184.50 278.82
</TABLE>
================================================================================
The graph assumes that the value of the investment in the Company's Common
Stock, the Nasdaq Market Value Index and the peer group of companies each was
$100 on April 1, 1993 and that all dividends were reinvested.
10
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of each class of the Company's voting securities as of November 30,
1998 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.
Beneficial ownership has been determined in accordance with Rule 13d-3 under the
Exchange Act. Under this Rule, certain shares may be deemed to be beneficially
owned by more than one person (such as where persons share voting power or
investment powers). In addition, shares are deemed to be beneficially owned by
a person if the person has the right to acquire the shares (for example, upon
exercise of an option) within 60 days of the date as of which the information is
provided; in computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition rights on
or before November 30, 1998. As a result, the percentage of outstanding shares
of any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<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) 15.7% 12,000 24.5%
c/o B.S. Moss Enterprises
225 North Hill Street,
Aspen, CO 81611
Thomas R. DiBenedetto 1,014,362(5) 16.0% 12,000(6) 24.5%
c/o Junction Investors, Ltd.
84 State Street
Boston, MA 02109
DiBenedetto Showscan Limited 706,672(7) 11.1% 12,000 24.5%
Partnership
c/o Junction Investors, Ltd.
84 State Street
Boston, MA 02109
United Artists Theatre Circuit, Inc. 946,032(8) 14.4% 25,000 51.0%
9110 East Nichols 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 372,150(10) 6.3% -- --
605 Third Avenue
New York, NY 10158
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SERIES C
COMMON STOCK(2) PREFERRED STOCK
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
William C. Soady(11) 273,250 4.6% -- --
Dennis Pope(12) 198,500 3.4% -- --
W. Tucker Lemon(13) 2,000 * -- --
Michael B. Ellis(14) 17,500 * -- --
Russell H. Chesley(15) 8,750 * -- --
Rui C. Guimarais (16) -- -- -- --
All Officers and Directors 2,563,851 34.7% 24,000 100.0%
as a Group (10 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.
(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 (a) 468,577 shares underlying currently exercisable stock
purchase warrants, 44,101 of which are held by Charles B. Moss, III, Mr.
Moss' son, and 44,101 of which are held by Robin H. Moss, Mr. Moss' ex-wife,
as custodian for Elizabeth H. Moss, Mr. Moss' daughter, (b) 238,095 shares
of Common Stock issuable upon conversion of Mr. Moss' Preferred Stock, (c)
155,000 shares of Common Stock held by the Charles B. Moss, Jr. Family
Trust, (d) 6,200 shares of Common Stock held by M. F. P., LLC, a limited
liability company whose members are Mr. Moss' children, (e) 21,900 shares of
Common Stock held by Robin H. Moss, and (f) 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 (a) 238,095 shares of Common Stock issuable upon conversion of the
Preferred Stock held by DiBenedetto Showscan Limited Partnership, a Delaware
limited partnership, (b) 35,000 shares of the Common Stock owned by the
DiBenedetto 1993 Family Trust, (c) 35,000 shares of Common Stock owned by
the DiBenedetto Family Trust U/A/D 11/01/91 FBO Cory James DiBenedetto, (d)
35,000 shares of Common Stock owned by the DiBenedetto Family Trust U/A/D
11/01/91 FBO Christian Robert DiBenedetto, (e) 35,000 shares of Common Stock
owned by the DiBenedetto Family Trust U/A/D 11/01/91 FBO Thomas Austin
DiBenedetto, (f) 35,000 shares of Common Stock owned by the DiBenedetto
Family Trust U/A/D 11/01/91 FBO Marc Anthony DiBenedetto, (g) 468,577 shares
of Common Stock underlying currently exercisable stock purchase warrants
held by DiBenedetto Showscan Limited Partnership, and (h) 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 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
Preferred Stock.
12
<PAGE>
(8) Consists of 450,000 shares subject to currently exercisable stock purchase
warrants and stock purchase warrants exercisable within 60 days and 496,032
shares of Common Stock issuable upon conversion of Preferred Stock.
(9) Kurt C. Hall is an executive officer of United Artists Theatre Circuit,
Inc. Mr. Hall does not have voting or investment power with respect to the
securities held by United Artists Theatre Circuit, Inc.
(10) Neuberger & Berman disclaims beneficial ownership of 87,400 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.
(11) Includes 271,250 shares of currently exercisable stock options and options
exercisable within 60 days.
(12) Includes 187,500 shares of currently exercisable stock options and options
exercisable within 60 days.
(13) W. Tucker Lemon resigned from all positions with the Company in September,
1998. All options held by Mr. Lemon were canceled 30 days after his
resignation.
(14) Includes 17,500 shares of currently exercisable stock options and options
exercisable within 60 days.
(15) Includes 8,750 shares of currently exercisable stock options.
(16) Rui C. Guimarais resigned from all positions with the Company in May, 1998.
All options held by Mr. Guimarais were canceled 30 days after his
resignation.
(17) Includes 1,477,281 shares subject to stock options and stock purchase
warrants currently exercisable or exercisable within 60 days and 476,190
shares of Common Stock issuable upon conversion of Preferred Stock.
Showscan, United Artists Theatre Circuit, Inc. ("UA"), Charles B. Moss, Jr.
("Moss"), Thomas R. DiBenedetto and DiBenedetto Showscan Limited Partnership, a
Delaware limited 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 Company's Board of
Directors.
13
<PAGE>
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 Company's
Board of Directors. Additionally, affiliates of Moss and DiBenedetto have
entered into two transactions for the purpose of owning, operating, developing
and financing the Company's motion simulation attractions. The first
transaction, a venture called the "Showscan City Walk Venture," was formed for
the purpose of operating one of the Company's motion simulation attractions at
Universal City Walk in Universal City, California which opened in November 1993.
The parties to that venture are Showscan City Walk, Inc., a wholly-owned
California subsidiary of the Company and the managing partner of Showscan City
Walk Venture, Moss Family LA Corp., a California corporation controlled by Moss,
and DiBenedetto City Walk 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. As of September 30,
1998, the Moss and DiBenedetto affiliates each owed the Company $70,581 with
respect to advances made to the Showscan CityWalk Venture on their behalf to
satisfy capital calls to cover operating expenses. On July 8, 1998, the Moss
and DiBenedetto affiliates indicated to the Company that they dispute their
obligation to pay these sums and the Company has reserved such amounts in its
Fiscal 1998 financial statements. A Special Committee of the Board of Directors
has been formed to investigate this dispute and has retained independent legal
counsel to assist in the investigation. The members of the Special committee
are Messrs. Eberle, Hall and Soady.
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.
The Showscan Attractions Venture agreement contemplates that the parties
thereto will jointly develop, own and operate the Company's 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 the Company's motion simulator attraction in
London which opened in late September 1994
14
<PAGE>
(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%. As of September 30, 1998,
funding for the Attractions Venture has been provided by Showscan Attractions,
Inc. $2,404,805; Moss Partner $571,408; and DiBenedetto Partner $571,408. 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% stockholder and a
director of Robins. The stockholders of Cinemania (UK) Limited closed the London
Theatre on July 3, 1998 and have placed the company in liquidation.
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 the Company's 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 is 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 closed the theatre on September 7,
1997 and are liquidating its assets. The partners have further agreed to
distribute the theatre equipment to the Company, which is in the process of
negotiating to sell the equipment to a non-affiliated third party. The Company
expects to fully realize the carrying value of its investment in this venture
upon the completion of the liquidation and subsequent sale.
In connection with the Showscan Attraction Venture and Cinemania (UK)
Limited, the Moss Partner and the DiBenedetto Partner each owed the Company
$108,689 and $89,083, respectively, as of September 30, 1998 with respect to
advances made to the Showscan Attractions Venture on their behalf to satisfy
capital calls to cover operating expenses at the theatres. On July 8, 1998, the
Moss Partner and the DiBenedetto Partner indicated to the Company that they
dispute their obligation to pay these sums and the Company has reserved such
amounts in its Fiscal 1998 financial statements. A Special Committee of the
Board of Directors has been formed to investigate this dispute and has retained
independent legal counsel to assist in the investigation. The members of the
Special committee are Messrs. Eberle, Hall and Soady.
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 the Company's 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 the Company's 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.
15
<PAGE>
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 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 of 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 Company's
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 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 the Company's motion simulation attraction theatre, such
entity will have the exclusive rights to exhibit the Company's 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 the Company's
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 the Company's equipment, installation, servicing and the licensing
of the Company's 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.
Pursuant to the Theater Rights Agreement, UA has agreed to offer to the UA
Venture for ownership and operation by the UA Venture, up to 24 theatre sites at
any time prior to August 19, 1999 for the installation of Showscan Attractions
in existing or to-be-built UA theatre complexes. If the UA Venture declines to
acquire a particular location, then UA must install a Showscan motion simulation
attraction theatre at the first 24 sites that the UA Venture declines to
acquire. As of September 30, 1998 UA has installed 8 Showscan Attractions. The
Theater Rights Agreement also 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 has an
Obligation at March 31, 1998, to pay to the Company $712,000 together with
interest thereon at the rate of 7.5% per annum (the "Obligation") from January
1, 1996 until paid in full. In July 1998, the Company and UA reached an
agreement to settle the Obligation by means of a $318,000 payment in July 1998,
the purchase by the Company of certain new simulation equipment and other assets
owned by UA, the offset of certain amounts and the payment of the remaining
amounts over approximately one year. The Theater Rights Agreement contains
further provisions that require UA to make payments to the Company if UA is
unable to meet its obligations and that require the Company to make payments to
UA if the UA Venture is unable to meet certain of its obligations. UA is
obligated to pay the Company $330,000 for each Showscan Attraction which is not
purchased and installed by August, 1999 (presently 16 theatre sites aggregating
$5,280,000), and the Company is obligated to pay UA $165,000 if the UA Venture
does not select a joint venture site by August, 1999. UA may also satisfy its
obligations to the Company by actually paying to the Company at least
$13,950,000 in the aggregate for motion simulation and/or projection equipment;
provided, however, that in July, 1998 those provisions were modified so that
only 50% of each order for projection equipment sourced through the Company
shall be counted towards the target and any orders of projection equipment must
result in an aggregate benefit (as defined) to the Company of at least
$3,200,000. To date, UA has purchased approximately $7 million of equipment from
the Company or approximately one-half of the target amount. 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
16
<PAGE>
the UA Venture. The UA Venture had accepted the offer by UA of the Showscan
Attraction site in Austin, Texas, which acceptance was to be effective July 1,
1997. During the process of finalizing documentation relating to the
acquisition of the Austin site, however, UA entered into a merger transaction
with other large theatre chains and circumstances surrounding the merger
transaction created uncertainty with respect to the Austin site. In conjunction
therewith, UA advised the UA Venture not to proceed with the Austin site
acquisition, accordingly, the UA Venture has terminated its plans to acquire
ownership of the Showscan Attraction at the Austin site.
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 (the "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 July 1998, the Theater Rights Agreement was further amended (the
"Third Amendment") as discussed above, to eliminate the Payments after the
offset of certain amounts and to increase through June 30, 1999 the level of
percentage film rental that UA pays to the Company. These amendments together
with the purchase by the Company of certain motion base equipment owned by UA
were used in partial satisfaction of the Obligation. The Third Amendment also
amended the Theater Rights Agreement to expand the ability of UA to source
projection equipment through the Company. UA may now purchase 15/70, 8/70 and
4/35 projection equipment through the Company and 50% of each such purchase
shall apply towards the $13,950,000 equipment purchase target that is an
alternate way that UA may satisfy its obligations to the Company. The Third
Amendment also establishes that this expanded right to source projection
equipment through the Company must result in at least an aggregate benefit (as
defined) to the Company of $3,200,000.
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 the Company's 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.
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, 1997 and on written representations by
certain directors and executive officers of the Company, the Company believes
that all persons subject to the reporting requirements of Section 16(a) filed
all required reports on a timely basis during the past fiscal year.
17
<PAGE>
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Ernst & Young as independent auditors of the Company for the fiscal
year ending March 31, 1999, subject to ratification by the stockholders. A
representative of Ernst & Young LLP will be available at the Annual Meeting to
respond to appropriate questions or make other statements such representative
deems appropriate.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal, including nominations
to the Board of Directors, intended for consideration at the 1999 Annual Meeting
must be received by the Company no later than January 26, 1999 to be included in
the proxy material for the 1999 Annual Meeting. It is recommended that
stockholders submitting proposals direct them to the Company's Nominating
Committee, c/o Marc T. Sabella, Secretary of the Company, and utilize certified
mail, return-receipt requested in order to ensure timely delivery.
18
<PAGE>
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before such meeting, the persons voting the proxies will vote them in
accordance with their best judgment.
THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ William D. Eberle
William D. Eberle
Chairman of the Board
December 22, 1998
19
<PAGE>
SHOWSCAN ENTERTAINMENT INC.
PROXY FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS, JANUARY 26, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SHOWSCAN
ENTERTAINMENT INC.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement, each dated December 22, 1998, and does
hereby appoint William D. Eberle and Dennis Pope (the "Proxies"), and each of
them, with full power of substitution, as the proxy of the undersigned to
represent the undersigned and to vote all shares of Common Stock, $.001 par
value, of Showscan Entertainment Inc. which the undersigned would be entitled
to vote if personally present at the 1998 Annual Meeting of Stockholders, to be
held on January 26, 1999, at 10:30 A.M., and at any adjournments thereof.
1. ELECTION OF DIRECTORS: [_] FOR all nominees as listed below (except as
marked to the contrary)
(INSTRUCTIONS:) To withhold authority to vote for any individual nominee,
write that nominee's name on the line that follows:
-----------------------------------------------------------------
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
William D. Eberle, William C. Soady, Charles B. Moss, Jr., Thomas R.
DiBenedetto, Kurt C. Hall, Dennis Pope
PROXIES NOT MARKED TO WITHHOLD AUTHORITY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES WHOSE NAMES ARE NOT WRITTEN ON THE ABOVE LINE.
2. Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending March 31, 1998.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
The shares represented hereby will be voted as directed. Where no direction
is made, the shares will be voted FOR proposals 1 and 2.
- ------------------------------ ------------------------------------------
(Signature) (Signature, if held jointly)
Dated: ______________, 1999
Please sign exactly as
your name or names appear
hereon, and when signing
as attorney, executor,
administrator, trustee or
guardian, give your full
title as such. If the
signatory is a
corporation, sign the full
corporate name by a duly
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
