<PAGE>
Amended proxy - Original did not include Letter to Stockholders or
- ------------- Notice of Annual Meeting of Stockholders
SHOWBIZ PIZZA TIME, INC.
4441 West Airport Freeway
Irving, Texas 75062
May 8, 1995
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of the
Company to the held at 9:00a.m. local time, Thursday, June 8, 1995, at the
Company's Chuck E. Cheese's restaurant lcated at 7935 Grapevine Highway,
North Richland Hills, Texas.
At the meeting you will be asked to re-elect three current directors, authorize
an increase in the number of shares available for issuance under the Company's
current stock option plan and adopt a new formula stock option plan for non-
employee directors of the Company.
The formal Notice of the Annual Meeting of Stockholders and Proxy Statement
accompanying this leter provide detailed information concerning matters to be
considered and acted upon at the meeting.
It is important that your shares be represented at the meeting, whether or not
you attend personally. I urge you to sign, date and return the enclosed proxy
at your earliest convenience.
Sincerely,
Richard M. Frank
Chairman and Chief Executive Officer
<PAGE>
SHOWBIZ PIZZA TIME, INC.
4441 West Airport Freeway
Irving, Texas 75062
(214) 258-8507
To the Stockholders of
ShowBiz Pizza Time, Inc.
Notice is hereby given that the annual meeting of stockholders of ShowBiz Pizza
Time, Inc., a Kansas corporation, will be held at the Company's Chuck E.
Cheese's restaurant located at 7935 Grapevine Highway, North Richland Hills
Texas on June 8, 1995, at 9:00a.m. local time, for the following purposes:
1. to re-elect three Class I directors to serve for a term of three years
or until their respective successors are elected and qualified or until
their earlier resignation or removal;
2. to authorize an increase in the number of shares available for isuance
pursuant to the Company's 1988 Non-Statutory Stock Option Plan;
3. to adopt a Non-Employee Directors Stock Option Plan; and
4. to transact such other business as may properly come before the meeting.
It is desirable that as large a proportion as possible of the stockholder's
interests be represented at the meeting. Whether or not you plan to be present
at the meeting, you are requested to sign and return the enclosed proxy in the
envelope provided so that your stock will be represented. The giving of such
proxy will not affect your right to vote in person, should you later decide to
attend the meeting. Please date and sign the enclosed proxy and return it
promptly in the enclosed envelope.
Only stockholdrs of record at the close of business on May 1, 1995 are
entitled to notive of, and to vote at, the meeting or any adjournment thereof.
By Order of the Board of Directors,
RICHARD A. BLUNK
Secretary
Irving, Texas
May 8, 1995
<PAGE>
SHOWBIZ PIZZA TIME, INC.
4441 WEST AIRPORT FREEWAY
IRVING, TEXAS 75062
(214) 258-8507
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1995
This proxy statement is furnished to stockholders of ShowBiz Pizza
Time, Inc., a Kansas corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors") for use at the annual meeting of
stockholders (the "Annual Meeting") to be held at 9:00 A.M. local
time on June 8, 1995 at the Company's Chuck E. Cheese's restaurant
located at 7935 Grapevine Highway, North Richland Hills, Texas.
Proxies in the form enclosed will be voted at the Annual Meeting,
if properly executed, returned to the Company prior to the Annual
Meeting and not revoked. A proxy may be revoked at any time before
it is voted either in person at the Annual Meeting or by giving
prior written notice to the Secretary of the Company. This proxy
statement was first sent or given to the Company's stockholders on
or about May 8, 1995.
OUTSTANDING CAPITAL STOCK
The record date for stockholders entitled to notice of, and to vote
at, the Annual Meeting is May 1, 1995. At the close of business on
that date, the Company had issued and outstanding and entitled to
receive notice of and vote at the Annual Meeting 12,275,177 shares
of Common Stock, $.10 par value (the "Common Stock"), and 49,570
shares of Class A Preferred Stock, $60 par value (the "Preferred
Stock"). No other class of securities of the Company is entitled
to notice of, or to vote at, the Annual Meeting of stockholders.
<PAGE> 1
ACTION TO BE TAKEN AT THE ANNUAL MEETING
The accompanying proxy, unless the stockholder otherwise specifies
in the proxy, will be voted:
1. For the re-election of the three Class I director
nominees named herein to serve for a term of three years
each or until their respective successors shall be
elected and qualified or until their earlier resignation
or removal;
2. To authorize an increase in the number of shares
available for issuance pursuant to the Company's current
1988 Non-Statutory Stock Option Plan (the "1988 Option
Plan");
3. To adopt a Non-Employee Directors Stock Option Plan (the
"Formula Stock Option Plan"); and
4. In the discretion of the proxyholders, as to the
transaction of such other business as may properly come
before the Annual Meeting.
Where stockholders have appropriately specified how their proxies
are to be voted, they will be voted accordingly. If any other
matter or business is brought before the Annual Meeting, the
proxyholders may vote the proxies in their discretion. The Board
of Directors is not presently aware of any other matters or
business to be brought before the Annual Meeting.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority
of the aggregate outstanding shares of Common Stock and Preferred
Stock is necessary to constitute a quorum at the Annual Meeting.
The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock and Preferred Stock, voting
together as one class, represented in person or by proxy at the
Annual Meeting, is necessary to approve all matters to be submitted
to the stockholders. In deciding all questions, a holder is
entitled to one vote, in person or by proxy, for each share of
Common Stock or Preferred Stock held in his name on the record
date. Solely with respect to the election of directors, the bylaws
of the Company provide that a stockholder shall have that number of
votes equal to the number of shares held by him as of the record
date multiplied by the number of directors being elected and is
entitled to cumulate his votes and cast them all for any single
nominee or to spread his votes, so cumulated, among as many
nominees and in such manner as he sees fit. Directors must be
elected by a plurality of the votes cast.
<PAGE> 2
A stockholder who is present, in person or by proxy, and who
withholds his vote in the election of directors will be counted for
purposes of determining whether a quorum exists, but the
withholding of his vote will not affect the election of directors.
A stockholder who is present, in person or by proxy, and who
abstains from voting on other proposals, will be counted for
purposes of a quorum, and the abstention will have the same effect
as a vote against the proposals. Brokers' "non-votes" are treated
the same as votes withheld or abstained.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted at the Annual
Meeting. It may be revoked by filing with the Secretary of the
Company, Richard A. Blunk, 4441 W. Airport Freeway, Irving, Texas
75062, a written notice of revocation or duly executed proxy
bearing a later date, or it may be revoked by attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting
will not, by itself, revoke a proxy.
PRINCIPAL HOLDERS OF CAPITAL STOCK
The table on the following page sets forth information, as of
May 1, 1995, relating to the beneficial ownership of the Company's
Common Stock and Preferred Stock by: (i) each director and Named
Executive Officer (as hereinafter defined) of the Company as of
such date, (ii) the directors and the Named Executive Officers of
the Company as a group (10 persons) as of such date, and (iii) each
person, as that term is used in the Securities Exchange Act of
1934, known to the Company to own beneficially 5% or more of the
outstanding shares of Common Stock or Preferred Stock. Except as
otherwise indicated, each of the persons named in the table is
believed by the Company to possess sole voting and investment power
with respect to the shares of Common Stock or Preferred Stock
beneficially owned by such person. Information as to the
beneficial ownership of Common Stock and Preferred Stock by
directors and Named Executive Officers of the Company has been
furnished by the respective directors and Named Executive Officers.
<PAGE> 3
<TABLE>
Percentage of Class Outstanding
-------------------------------
<C> <C> <C> <C> <C>
Number of
Name (and address Shares of
for 5% Number of Shares Preferred Common Preferred
beneficial owners) of Common Stock Stock Stock Stock
- ------------------ ---------------- --------- -------- -----------
Charles A. Crocco, Jr. 1,930 (A)(B) 0 (C) 0.0%
Richard M. Frank 690,024 (D) 0 5.6% 0.0%
Anthony J. Gumbiner 0 (A)(E)(F) 0 (C) 0.0%
Richard T. Huston 33,612 (G) 0 (C) 0.0%
Robert L. Lynch 613 (A)(B) 0 (C) 0.0%
Michael H. Magusiak 42,177 (H) 0 (C) 0.0%
Louis P. Neeb 0 (B) 0 (C) 0.0%
Cynthia I. Pharr 0 (B) 0 (C) 0.0%
J. Thomas Talbot 7,500 (A)(B) 0 (C) 0.0%
Brian M. Troup 0 (A)(E)(I) 0 (C) 0.0%
Directors and Executive
Officers as a Group 775,856 0 6.3% 0.0%
The Hallwood Group 1,784,193 (J) 0 14.5% 0.0%
Incorporated
3710 Rawlins, Suite 1500
Dallas, TX 75219
Massachusetts Financial
Services Company 1,144,900 (K) 0 9.3% 0.0%
500 Boylston Street
Boston, MA 02116-0741
Snyder Capital 1,173,200 (L) 0 9.6% 0.0%
Management, Inc.
350 California Street
Suite 1460
San Francisco, CA 94104
Legg Mason, Inc. 763,400 (M) 0 6.2% 0.0%
111 South Calvert Street
Baltimore, MD 21203-1476
Time Warner, Inc. 0 16,011(N) 0.0% 32.3%
75 Rockefeller Plaza
New York, NY 10019
River Forest State Bank & 22 3,139(O) 0.0% 6.3%
Trust Co.
7727 West Lake Street
River Forest, IL 6030
(Footnotes appear on the following page)
</TABLE>
<PAGE> 4
__________________
(A) Excludes shares owned of record by The Hallwood Group, Inc.
("Hallwood"), described in Footnote J.
(B) Excludes 7,500 shares purchasable pursuant to options issued
under the Company's 1988 Option Plan, which options vest in
equal annual increments of 2,500 shares on each of August 19,
1995, August 19, 1996 and August 19, 1997.
(C) Constitutes less than 1% of the Company's outstanding Common
Stock.
(D) Includes 172,983 shares which are subject to forfeiture
pursuant to the terms of Mr. Frank's employment agreement. See
"Employment Agreements."
(E) Excludes 200,144 shares pledged to IBJ Schroder Bank & Trust
Company, as trustee under an indenture as collateral for bonds
issued by Hallwood Holdings SA, a Luxembourg corporation
("HHSA"). HHSA previously owned certain warrants issued by
the Company which entitled HHSA to purchase such shares, but
HHSA distributed such warrants to its shareholders as part of
a reduction of capital and premium in July 1993. HHSA no
longer claims any beneficial interest in the shares, but the
shares remain pledged as collateral for bonds issued by HHSA.
Mr. Gumbiner is a director of HHSA. Mr. Gumbiner's address is
c/o The Hallwood Group Incorporated, 3710 Rawlins Street,
Suite 1500, Dallas, Texas 75219. Mr. Troup is also a
director of HHSA. Mr. Troup's address is c/o The Hallwood
Group Incorporated, 3710 Rawlins Street, Suite 1500, Dallas,
Texas 75219. This note is based on information in Amendment
No. 3 to Schedule 13D of HHSA dated July 5, 1993.
(F) Excludes 496,382 shares held by a trust for which Mr. Gumbiner
has the power to designate and replace the trustees, 120,086 shares
of which are included in Footnote (E).
(G) Includes 15,000 shares purchasable pursuant to options issued
under the 1988 Option Plan but excludes 60,000 shares
purchasable pursuant to options issued under the 1988 Option
Plan which are not exercisable within 60 days of the date
hereof.
(H) Includes 15,000 shares purchasable pursuant to options issued
under the 1988 Option Plan but excludes 90,000 shares
purchasable pursuant to options issued under the 1988 Option
Plan which are not exercisable within 60 days of the date
hereof.
(I) Excludes 330,922 shares held by a trust for which Mr. Troup
has the power to designate and replace the trustees, 80,058 shares
of which are included in Footnote (E).
<PAGE> 5
(J) Based on information in Amendment No. 8 to Schedule 13D dated
June 3, 1994. The directors of Hallwood are Anthony J.
Gumbiner, Brian M. Troup, Charles A. Crocco, Jr., Robert L.
Lynch and J. Thomas Talbot. Mr. Gumbiner is Chairman of the
Board and Chief Executive Officer of Hallwood. Mr. Troup is
President and Chief Operating Officer of Hallwood. The
Company has also been informed that such shares are pledged as
collateral to secure certain obligations of Hallwood.
(K) Based on information in Amendment No. 1 to Schedule 13G dated
February 6, 1995. This number includes 750,000 shares
beneficially owned by MFS Series Trust II - MFS Emerging
Growth Fund.
(L) Based on information in Amendment No. 1 to Schedule 13D
received August 3, 1994. Of its total shares, Snyder Capital
Management, Inc. has shared voting power over 1,019,500 shares
and shared dispositive power over 1,173,200 shares. This
number also includes 117,000 shares owned by Stirling
Partners, of which Snyder Capital Management, Inc. is the
general partner.
(M) Based on information in Schedule 13G received February 13,
1995. These shares are held by Legg Mason Special Investment
Trust, Inc., a subsidiary of Legg Mason, Inc.
(N) Based on information in Amendment No. 2 to Schedule 13D dated
July 1, 1994. Of its total shares, Time Warner, Inc. has
shared voting power over 16,011 shares and shared dispositive
power over 16,011 shares.
(O) Based on records of stock transfer agent.
PROPOSAL 1:
RE-ELECTION OF CLASS I DIRECTORS
The terms of the three Class I directors expire at the Annual
Meeting of the stockholders in 1995. The Board of Directors has
nominated for re-election at the Annual Meeting all three incumbent
Class I directors, each to serve for a term of three years. Each
nominee of the Board of Directors has expressed his intention to
serve the entire term for which re-election is sought.
Directors will be elected by cumulative voting. To be elected as
a director, a candidate must be one of the three candidates who
receive the most votes out of all votes cast at the Annual Meeting
for the election of directors. See "Quorum and Voting."
The following table lists the names and ages (as of May 1, 1995) of
the three director nominees and the six directors whose terms of
office will continue after the Annual Meeting, the year in which
each director was first elected as a director of the Company, the
class to which each director has been or will be elected, and the
Annual Meeting at which the term of each director will expire.
<PAGE> 6
<TABLE>
<C> <C> <C> <C> <C>
Director Term
Nominee Directors Age Since Class Expires
- ----------------- --- --------- ------ ---------
Richard M. Frank 47 1985 I 1995
Anthony J. Gumbiner 50 1988 I 1995
Michael H. Magusiak 39 1988 I 1995
Continuing
Directors
- -----------
Charles A.Crocco,Jr. 56 1988 II 1996
Robert L. Lynch 77 1988 II 1996
Cynthia I. Pharr 46 1994 II 1996
J. Thomas Talbot 59 1988 III 1997
Brian M. Troup 48 1988 III 1997
Louis P. Neeb 56 1994 III 1997
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF
THE NAMED NOMINEES.
ADDITIONAL INFORMATION ABOUT THE EXECUTIVE OFFICERS, BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
-------------------
The following table sets forth the names and certain other
information regarding the executive officers of the Company as of
May 1, 1995.
Year First Elected
Name Age Position as Executive Officer
- ------ --- -------- ---------------------
Richard M. Frank 47 Chairman of the Board
and Chief Executive
Officer 1985
Michael H. Magusiak 39 President 1988
Richard T. Huston 49 Executive Vice
President--
Marketing and
Entertainment 1986
Larry G. Page 51 Executive Vice
President, Chief
Financial Officer
and Treasurer 1994
<PAGE> 7
BUSINESS HISTORY OF EXECUTIVE OFFICERS AND DIRECTORS
A brief description of the business history of the directors and
executive officers of the Company is provided below.
RICHARD M. FRANK has been Chairman of the Board and Chief Executive
Officer of the Company since March 1986 and has been a director of
the Company since June 1985. He served as President and Chief
Operating Officer from June 1985 until October 1988. He joined the
Company in 1985.
MICHAEL H. MAGUSIAK was elected President of the Company in June
1994. He had previously served as Executive Vice President, Chief
Financial Officer and Treasurer since June 1988. He has also
served as a director of the Company since 1988. He was Vice
President of the Company from October 1987 to June 1988 and
Controller of the Company from October 1987 to January 1989. He
joined the Company in July 1987.
RICHARD T. HUSTON has served as Executive Vice President of the
Company since July 1986 and as Director of Marketing and Strategic
Development since January 1993. His responsibilities were expanded
in June, 1994 to include entertainment as well as marketing. He
served as Director of Marketing and Development from October 1988
to January 1993. He served as Vice President from October 1985 to
July 1986, as Director of Marketing from October 1985 to October
1988, and as a director from July 1986 to September 1988. He
joined the Company in 1985.
LARRY G. PAGE has served as Executive Vice President, Chief
Financial Officer and Treasurer of the Company since October 1994.
Prior to joining the Company, Mr. Page served as Vice President and
Regional General Manager in the retail services division of Comdata
Holdings Corporation, a publicly-held financial services company,
from July 1985 to October 1994. Mr. Page is a Certified Public
Accountant and was a partner in various national and regional
public accounting firms, including Arthur Andersen LLP, from August
1978 through July 1985.
CHARLES A. CROCCO, JR. was appointed as a director of the Company
in September 1988. He is a shareholder in the New York City law
firm of Crocco & DeMaio, P.C. He has served as a director of
Hallwood, a merchant bank and diversified holding company, since
1981; and as a director of BancTEXAS Group, Inc., a publicly-held
bank holding company, since April 1988.
<PAGE> 8
ANTHONY J. GUMBINER was elected as a director of the Company in
September 1988. He has served as a director and Chairman of the
Board of Hallwood since 1981 and as Chief Executive Officer of
Hallwood since 1984; as Chairman of Hallwood Holdings S.A., a real
estate investment company, since March 1984; as a director of
Hallwood Energy Corporation, a publicly-held oil and gas company
that is the general partner of Hallwood Energy Partners L.P., since
May 1984 and as Chairman of the Board and Chief Executive Officer
since February 1987; as a director and Chairman of the Board of
Hallwood Realty Corporation, which is the general partner of
Hallwood Realty Partners L.P., a publicly traded master limited
partnership, since 1990; and as a director of Hallwood
Consolidated Resources Corporation, a oil and gas company, since
May 1992. He is a Solicitor of the Supreme Court of Judicature of
England.
ROBERT L. LYNCH was elected as a director of the Company in
September 1988. He has served as a director and Vice Chairman of
Hallwood since May 1984. He is Chairman of the Board and Chief
Executive Officer of Perpetual Storage, Inc. and has served as a
director of that company since 1969.
LOUIS P. NEEB was elected as a director in August 1994. From
August 1982 to present, Mr. Neeb has been President of Neeb
Enterprises, Inc., a management consulting firm specializing in
restaurants. From October 1993 through January 1994, he was
Chairman of the Board of Spaghetti Warehouse, Inc., a
publicly-traded restaurant company. From July 1991 through January
1994, Mr. Neeb was President and Chief Executive Officer of
Spaghetti Warehouse, Inc. From September 1989 through June 1991,
Mr. Neeb was President and Chief Executive Officer of GEEST USA
(and its affiliates), a refrigerated food business. Mr. Neeb has
also had other extensive experience in the restaurant industry
including serving as Chairman of the Board of Burger King
Corporation. Mr. Neeb was instrumental in the development of
Applebee's Neighborhood Grill and Bar as well as Bennigan's. Mr.
Neeb has also been a member of the Board of Directors of the
Franchise Finance Corporation of America, a publicly-traded real
estate trust which provides real estate for restaurants, since
August 1994.
CYNTHIA I. PHARR was elected as a director of the Company in August
1994. She is currently President and Owner of C. Pharr & Company,
a communications management consulting firm. She has served in
that position since March 1993. From May 1989 through February
1993, Ms. Pharr was President and Chief Executive Officer of Tracy
- - Locke/Pharr P R, a public relations firm. From August 1986
through April 1989, she was President and owner of C. Pharr &
Company, Inc. a public relations agency. Ms. Pharr has served as
a member of the Board of Directors of Spaghetti Warehouse, Inc.
since August 1991, as well as Chairman of the Board of GuestCare,
Inc., a privately held technology company, from February 1994 to
present.
<PAGE> 9
J. THOMAS TALBOT was elected as a director of the Company in
September 1988. He served as Chairman of the Board and Chief
Executive Officer of HAL, Inc., Hawaiian Airlines, and West Maui
Airport from August 1989 until July 1991. Mr. Talbot founded Jet
America Airlines, Inc., a commercial airline company, and served as
its Chairman from December 1980 until October 1986. He also has
been owner of The Talbot Company, a sole proprietorship, since
1982; a partner of Shaw and Talbot, a commercial real estate
investment and development company, since April 1975; and a partner
of Pacific Management Group, an asset management firm, since
December 1986. Mr. Talbot has served as a director of Hallwood
since 1984; as a director of Alliance Bancorporation, a bank
holding company, since April 1988 and as Chairman and Chief
Executive Officer of Alliance Bancorporation from August 1992 until
February 1994; as a director of Fidelity National Financial since
April 1991; and as a director of Resort Income Investors from June
1992 until October 1993; as a Director of The Baldwin Company and
the Koll Real Estate Group, Inc. since June 1993 and as a Director
of Hemmeter Enterprises, Inc. since October 1993.
BRIAN M. TROUP was elected as a director of the Company in
September 1988. He has served as a director of Hallwood since 1981
and as President and Chief Operating Officer of Hallwood since
April 1986; as a director of Hallwood Holdings S.A. since March
1984; as a director of Hallwood Energy Corporation since May 1984;
as a director of Hallwood Realty Corporation since 1990 and as a
director of Hallwood Consolidated Resources Corporation since May
1992. He is an associate of the Institute of Bankers in Scotland
and a member of the Society of Investment Analysts in the United
Kingdom.
Except as set forth above, none of the directors of the Company
hold directorships in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of
1934 (the "Exchange Act") or subject to the requirements of Section
15(d) of the Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Four meetings of the Board of Directors were held during 1994.
Each of the directors attended at least 75% of the meetings held by
the Board of Directors, and by each committee on which he or she
served, in 1994.
The Board of Directors has established an Executive Committee of
four members to assist the Board of Directors in carrying out its
duties. The Executive Committee (comprised of Messrs. Frank,
Gumbiner, Magusiak and Troup) acts in the place of the Board of
Directors when the Board of Directors is not in session and may
exercise substantially all of the powers of the Board of Directors
other than those powers specifically required by law or by the
<PAGE 10>
Company's Bylaws to be exercised by the full Board of Directors.
The Executive Committee held informal meetings in person or by
telephone on an irregular basis in 1994.
The Board of Directors has also established an Audit Committee of
three members. The Audit Committee is comprised of Messrs. Crocco,
Talbot and Troup. The functions performed by the Audit Committee
are: (i) consideration of the Company's system of internal
controls, (ii) review of the performance and findings of the
Company's Internal Audit Department and (iii) review of services
provided by the Company's independent auditors. The Audit
Committee met four times in 1994.
The Board of Directors has established a Compensation Committee of
three members. The Compensation Committee is comprised of Messrs.
Frank, Gumbiner and Troup. The functions performed by the
Compensation Committee are the: (i) recommendation of compensation,
including performance bonuses, payable to the Company's executive
officers (excluding Mr. Frank), and (ii) recommendation of
performance bonuses for other employees of the Company. The
Compensation Committee met on one occasion in 1994.
In March 1992, the Board of Directors established a Stock Option
Committee and a Stock Grant Committee, each comprised of Messrs.
Gumbiner and Troup, to administer the 1988 Option Plan and the
Company's Stock Grant Plan, respectively. These committees took
actions by various unanimous written consents in 1994.
<PAGE> 11
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Chief
Executive Officer and to each of the other most highly paid
executive officers of the Company (the "Named Executive Officers")
for the fiscal years ended January 1, 1993, December 31, 1993, and
December 30, 1994 (designated herein as fiscal years 1992, 1993 and
1994, respectively.)
<TABLE>
Long Term
Annual Compensation Compensation Awards
---------------------- ----------------------
<C> <C> <C> <C> <C> <C> <C>
Restricted
Name (and Other Annual Stock
Principal Fiscal Compensation Awards Options
Position) Year Salary($) ($)(A) Bonus($) ($)(B) (#)
- ---------- ------- --------- ------------ ------- -------- --------
Richard M.
Frank 1994 1,000,000 25,005 -- -- --
(Chief
Executive 1993 987,692 24,791 -- 11,823,841 --
Officer) 1992 360,000 21,441 2,978,516 -- --
Richard T. 1994 145,000 12,602 -- -- 60,000
Huston 1993 144,827 12,016 -- -- 10,000
(Executive Vice 1992 139,808 11,933 69,648 -- 15,000
President)
Michael H. 1994 193,096 12,467 -- -- 90,000
Magusiak 1993 144,827 11,676 -- -- 10,000
(President) 1992 139,423 11,564 50,839 -- 15,000
Larry G.
Page(B) 1994 31,240 11,578 -- 15,000
1993 -- -- -- --
1992 -- -- -- --
John T. 1994 250,000 21,644 -- -- 60,000
Spaight(C) 1993 250,000 17,676 -- -- 10,000
(Executive Vice 1992 248,077 16,908 115,357 -- 15,000
President)
</TABLE>
______________
(A) Includes car allowance of $15,600 per year for Mr. Frank and $9,000 per
year for Messrs. Huston, Magusiak, Page and Spaight. Relocation expense
of $9,293 is included for Mr. Page in 1994.
(B) Dollar values are calculated as the closing market price of Common Stock
on the date of grant minus par value of $.10 per share payable by the
recipient multiplied by the number of shares of restricted stock
awarded. All such stock is awarded under the Company's Stock Grant
Plan. The aggregate value of such restricted shares held by Mr. Frank
on December 30, 1994 (based on 248,708 shares at a closing price of
$7.765) is $1,906,347. Dividends are payable on such restricted stock
on the same terms as on other shares of the Company's Common Stock.
<PAGE> 12
(C) The amount indicated is Mr Page's actual salary received during fiscal
1994 which is less than his annualized salary of $127,000 because his
employment with the Company did not commence until October 1994.
(D) Mr. Spaight was President of the Company until June 1994 at which time
he became Executive Vice President - Operations. Mr. Spaight resigned
his position with the Company in January 1995.
EMPLOYMENT AGREEMENTS
Each of Messrs. Frank and Magusiak has entered into an employment agreement
(individually, an "Employment Agreement" and together, the "Employment
Agreements") with the Company, both of which expire on December 31, 1997.
Mr. Frank's Employment Agreement provides that he is to be paid a base annual
salary of $1,000,000 per year, with such additional benefits and/or
compensation as may be determined by the Board of Directors. Pursuant to his
Employment Agreement, Mr. Frank was issued 414,508 restricted shares of the
Company's Common Stock in April 1993 under the Stock Grant Plan, of which
20,725 shares would vest at the end of each fiscal quarter of the Company
during the term of his Employment Agreement, other than the last of such
fiscal quarters at the end of which 20,733 shares vest. As of May 1, 1995,
181,525 of such shares have vested. Effective March 31, 1995, Mr. Frank
forfeited 60,000 of the unvested restricted shares previously awarded to him,
which forfeiture is applied in equal annual increments of 20,000 shares,
applied quarterly to the shares otherwise scheduled to vest for that
particular quarter. Mr. Magusiak's Employment Agreement originally provided
for an annual base salary of $145,000, which amount may be increased in such
amounts and on such dates as the Compensation Committee of the Board of
Directors may determine. In January 1994, Mr. Magusiak's annual base salary
was increased to $175,000. In September 1994, Mr. Magusiak's annual base
salary was increased to $240,000. In addition, the Board of Directors, in
its sole discretion, may provide other compensation and/or benefits to
Messrs. Frank and Magusiak.
Under the terms of the respective Employment Agreements, if the covered
executive's employment with the Company is terminated by the Company (other
than as a result of "permanent disability" (as defined in the Employment
Agreement) or, in the case of Mr. Magusiak, upon his death or for "Cause" (as
defined in his Employment Agreement")), Mr. Frank will be entitled to receive
a severance amount equal to $3,000,000 and Mr. Magusiak will be entitled
receive a severance amount equal to twice his then current annual base salary
(together, the "Severance Amounts"). In the event Mr. Magusiak is terminated
for Cause, he shall receive his base salary through the date on which the
Board of Directors takes its action to terminate him. In the event of his
death, Mr. Magusiak shall be entitled to receive his base salary through the
date of his death.
The Employment Agreements also provide that each of Messrs. Frank and
Magusiak will receive their respective Severance Amount in the event there is
a Change of Control (as defined below) of the Company and the covered
executive voluntarily terminates his employment within one year after such a
Change of Control. A "Change of Control" is deemed to have occurred with
respect to the Company if: (i) any person or group of persons acting in
concert (other than Hallwood) or its affiliates in which the covered
<PAGE> 13
executive is not an investor, partner, officer, director or member shall
acquire, directly or indirectly, the power to vote, or direct the voting of,
more than 33% of the then outstanding voting securities of the Company or
(ii) during any consecutive 18 month period a majority of the Board of
Directors is elected or appointed and consists of persons who were not
directors of the Company as of the date of the respective Employment
Agreement and whose election or appointment as directors of the Company is
actively opposed by the covered executive.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to each of the Named Executive Officers in the fiscal year
ended December 30, 1994.
<TABLE>
Potential Realizable Value at
Assumed Annual Rates of
Number of % of Total Stock Price Appreciation
Securities Options for Option Term
Underlying Granted to --------------------------
Options Granted Employees in Exercise
Price Expiration
(#) Fiscal Year (Share) Date 5% 10%
---------------- -------------- ----------- ------- ---- ----
<C> <C> <C> <C> <C> <C>
Richard
M. Frank -- -- -- -- -- --
Richard T. 60,000 (A) 16.8% (A) (A) 186,624 410,228
Houston
Michael H. 60,000 (B) 16.8% (B) (B) 190,165 418,237
Magusiak 30,000 (C) 8.4% 8.13 8-18-99 67,385 148,903
Larry G. 15,000(D) 4.2% 7.94 10-3-99 32,905 72,712
Page
John T. 60,000 16.8% (E) (E) -- --
Spaight(E)
</TABLE>
____________________
(A) Options to acquire 39,000 of such shares at an exercise price of
$13.75 per share, which options expire on January 11, 1999, are
exercisable as follows: (i) 40% on January 11, 1996, (ii) 30%
on January 11, 1997 and (iii) 30% on January 11, 1998 and options
to acquire the remaining 21,000 shares which expire on January 4,
2000, were repriced in 1995 with an exercise price of $8.50 per share
and a vesting schedule of: (i) 50% on January 6, 1997 and (ii) 50%
on January 6, 1998. See "Ten-Year Option Repricings" and "Compensation
Committee Report on Executive Compensation."
(B) Options to acquire 40,800 of such shares at an exercise price of $13.75
per share, which options expire on January 11, 1999, are exercisable
as follows: (i) 40% on January 11, 1996, (ii) 30% on January 11, 1997
and (iii) 30% on January 11, 1998 and options to acquire the remaining
19,200 shares, which options expire on Janaury 4, 2000, were repreiced
in 1995 with an exercise price of $8.50 per share and a vesting schedule
of: (i) 50% on January 6, 1997 and (ii) 50% on January 6, 1998. See
"Ten-Year Option Repricings" and "Compensation Committee Report on
Executive Compensation."
(C) Options to acquire these shares become exercisable on August 19, 1996.
<PAGE> 14
(D) Options to acquire these shares are exercisable as follows: (i) 50% on
October 4, 1996, (ii) 25% on October 4, 1997 and (iii) 25% on October
4, 1998.
(E) Mr. Spaight resigned from his position with the Company in January 1995
and, as a result, all of his options were cancelled.
TEN YEAR OPTION REPRICINGS
The following table sets forth information regarding the repricing of stock
options during the last ten completed fiscal years.
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Length
Number of Market of original
securities price of Exercise option term
underlying stock at price New remaining
options time of at time exercise at date of
Name Date repriced repricing repricing price repricing
- ----- ----- -------- -------- --------- ----- ----------
Richard T.
Huston 1/11/94 10,000(A) $13.75 $33.50 $13.75 4 years
Michael H.
Magusiak 1/11/94 10,000(A) $13.75 $33.50 $13.75 4 years
John T.
Spaight 1/11/94 10,000(A) $13.75 $33.50 $13.75 4 years
</TABLE>
- ----------------
(A) These options were forfeited in connection with the granting on January
11, 1994 of options to acquire 60,000 shares of Common Stock at an exercise
price of $13.75 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
information regarding his exercise of stock options during the fiscal year
ended December 30, 1994 and the value of his unexercised stock options as of
December 30, 1994. The closing price for the Company's Common Stock, as
reported by the Nasdaq National Market, on December 30, 1994 (the last
trading day of the fiscal year) was $7.675.
<PAGE> 15
<TABLE>
<C> <C> <C> <C>
Number of Value of
Unexercised Unexercised In-The
Shares Options at Money Options at
Acquired Dec. 30, 1994 Dec. 30, 1994
on (exercisable/ (exercisable/
Exercise Value unexercisable) unexercisable
(#) Realized(D) (#) ($)
----------- ---------- -------------- --------------
Richard M.
Frank (A) -- -- 0 --
Richard T.
Huston 16,875 $110,194 15,000(E) 0(E)
60,000(U)(B) 0(U)
Michael H.
Magusiak 18,000 $124,172 15,000(E) 0(E)
90,000(U)(B) 0(U)
Larry G.
Page -- -- 0(E) 0(E)
15,000(U)(B) 0(U)
John T.
Spaight (C) -- -- 15,000(E)(C) 0(E)
60,000(U)(B)(C) 0(U)
</TABLE>
__________________
(A) Does not include shares issued under the Stock Grant Plan. See "Summary
Compensation Table."
(B) See "Option Grants in Last Fiscal Year" table.
(C) Mr. Spaight resigned from his position with the Company in January 1995
and all such options were cancelled pursuant to the 1988 Option Plan.
(D) Calculated as the closing price of common stock on the date of exercise
(minus the exercise price) multiplied by the number of shares acquired
on exercise.
(E) Options which are exercisable within 60 days of the date hereof.
(U) Options which are not exercisable within 60 days of the date hereof.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation program of the Company is designed as a tool to
reinforce the Company's strategic principles--to be a premier and progressive
growth company, with an objective of enhancing long-term shareholder value.
To this end, the following principles have guided the development of the
executive compensation program:
* Provide competitive levels of compensation to attract and retain the best
qualified executive talent. The Compensation Committee strongly believes
that the caliber of the Company's management group makes a significant
difference in the Company's success over the long-term.
* Embrace a "pay-for-performance" philosophy by placing significant amounts
of compensation "at risk"-- that is, a significant component of the
compensation payouts to executives must vary according to the overall
performance of the Company.
* Directly link executives' interests with those of shareholders by providing
opportunities for long-term incentive compensation based on changes in
shareholder value.
<PAGE> 17
The executive compensation program is intended to appropriately balance the
Company's short-term operating goals with its long-term strategy through a
careful mix of base salary, annual bonuses (payable upon satisfaction by the
Company of established revenue and profitability objectives) and long-term
performance compensation through the issuance of stock options under the 1988
Option Plan.
The compensation of the executive officers of the Company (excluding Mr.
Frank) is reviewed and determined annually by the Compensation Committee.
The compensation of such executive officers in 1994 was based on individual
and corporate performances as well as assigned responsibilities. In
establishing and reviewing executive compensation, consideration is also
given to executive salary ranges of comparable companies. Individual
performance is reflected in the officer's salary. Corporate performance is
reflected in a bonus, payable annually if earned, to each officer, based on
the achievement of targets for corporate revenue and profitability. Although
no bonus compensation was actually paid to executive officers for services
rendered in 1994, bonus compensation of each of the executive officers in
1994 would have been between 22% and 47.5% of the officer's salary at the
1994 target levels for revenue and profitability.
The Stock Grant Committee and the Stock Option Committee are made up of the
non-employee director members of the Compensation Committee. The Stock Grant
Committee and Stock Option Committee ratify and approve option and grants
recommendations, respectively, made by the Compensation Committee. No stock
grants were awarded in 1994. However, the Compensation Committee determined
the number of options to issue in accordance with the 1988 Option Plan based
upon base salary and levels of responsibility.
In January, 1994, the Stock Option Committee issued to certain of the
executive officers of the Company options to acquire 180,000 shares of the
Common Stock (each with an exercise price of $13.75 per share) in connection
with the surrender by such individuals to the Company of previously granted
options to acquire 30,000 shares of the Common Stock (each with an exercise
price of $33.50 per share). The issuance of these new options was determined
to be in the best interests of the shareholders of the Company in order to
properly incentivize such individuals to enhance shareholder value.
CEO Performance Evaluation
Although Mr. Frank's salary is established by the terms of his Employment
Agreement (see "Employment Agreements"), the Compensation Committee,
excluding Mr. Frank, nevertheless annually evaluates his performance based on
the same criteria as are applied to the other executive officers of the
Company. Any future stock option issuances or restricted stock grants to Mr.
Frank, and any increase in his annual base salary or the granting of a bonus,
will be based on individual and corporate performance, applying similar
factors for each as described above for the Company's other executives. The
Compensation Committee would also consider the number of unvested shares
available to Mr. Frank under his employment agreement and the Stock Grant
Plan at such time.
<PAGE> 17
The Compensation Committee has also considered the potential impact of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
adopted under the Omnibus Budget Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for individual
compensation to certain executives of such corporation exceeding $1,000,000
in any taxable year, unless compensation is performance-based. As discussed
above, Mr. Frank's annual base salary is $1,000,000. It is the intent of the
Company and the Compensation Committee to qualify to the maximum extent
possible its executives' compensation for deductibility under applicable tax
laws. The Compensation Committee will continue to monitor the impact of such
limitations on tax deductions and will take other appropriate actions if
warranted in the future.
The Compensation Committee is comprised of Messrs. Frank, Gumbiner and Troup.
The Stock Option Committee and the Stock Grant Committee are both comprised
of Messrs. Gumbiner and Troup.
Richard M. Frank
Anthony J. Gumbiner
Brian M. Troup
COMPENSATION OF DIRECTORS
Ms. Pharr and Messrs. Crocco, Lynch, Neeb and Talbot, who are not otherwise
employed by the Company or by Hallwood or its affiliates, receive a retainer
from the Company at the rate of $10,000 per year plus $750 for each meeting
of the Board of Directors attended. Other directors, who are either officers
or employees of the Company are employed by Hallwood or its affiliates, do
not receive separate compensation for their services as directors of the
Company.
PROPOSAL 2:
INCREASE IN NUMBER OF SHARES AVAILABLE
UNDER 1988 OPTION PLAN
The 1988 Option Plan became effective in December 1988. The purpose of the
1988 Option Plan is to secure for the Company and its stockholders the
benefits of the incentive inherent in stock ownership by certain directors
and key employees of the Company and its subsidiaries. The 1988 Option Plan
is currently administered by the Stock Option Committee, which is comprised
of Messrs. Gumbiner and Troup, who are not employed by the Company and who
are ineligible to receive options under the 1988 Option Plan. The Stock
Option Committee has the power to determine, in its discretion but subject to
the limitations set forth in the 1988 Option Plan, the persons to whom
options are granted, the number of shares covered by options and the exercise
price of options. The Stock Option Committee also determines the conditions,
if any, imposed upon the granting of options under the 1988 Option Plan. To
date, the Stock Option Committee has issued options under the 1988 Option
Plan to eligible directors (who are not members of the Stock Option
Committee) and eligible employees in correlation with their respective
responsibilities to the Company. However see "Proposal 3: Addition of
Formula Stock Option Plan." The periods over which ownership of such options
vest in the optionees is based on the period over which the Stock Option
Committee deems such incremental vesting of ownership appropriate in order to
support the Company's long term strategic plans.
<PAGE> 18
In March 1993, the Stock Option Committee adopted, subject to stockholder
approval, a proposal to increase the number of shares available for grant
under the 1988 Option Plan from 1,098,025 to 1,348,025. This amendment was
approved by the stockholders in June
1993.
As a result, the aggregate number of shares of the Common Stock which may be
issued pursuant to options granted under the 1988 Option Plan currently may
not exceed 1,348,025. Options granted under the 1988 Option Plan which
expire or terminate without being exercised may be regranted prior to
termination of the 1988 Option Plan. The exercise price for an option
granted under the 1988 Option Plan may be not less than the fair market value
of the Common Stock as of the date of the grant. Options granted pursuant to
the 1988 Option Plan are exercisable no later than five years after the date
of the grant.
The 1988 Option Plan terminates on December 31, 1998, and no option may be
granted after such date pursuant to the 1988 Option Plan. Options granted
under the 1988 Option Plan may not be exercised to any extent until the
optionee has been continuously employed by the Company or a subsidiary for a
period of at least one year after the date of grant. Payment for shares
purchased pursuant to an option must be made at the time of exercise either
in cash or in other shares of the Common Stock.
Options granted pursuant to the 1988 Option Plan may not be transferred,
except upon death or pursuant to a qualified domestic relations order, and
may only be exercised by the optionee, or, in the event of his death, by his
heirs or estate. If an optionee who has been employed for more than one year
ceases to be employed by the Company or its subsidiaries through termination
or resignation, the optionee may exercise his option within ten business days
following such termination or resignation, after which period of time any
unexercised option terminates. Even though an optionee has not been employed
for one year, upon his death, the option may be exercised by the optionee's
heirs or estate within three months following the optionee's death, after
which period of time any unexercised option terminates.
The Stock Option Committee may amend, modify or terminate the 1988 Option
Plan, including modification or waiver of terms as they may apply to
individual optionees. In August 1994, the Stock Option Committee amended the
1988 Option Plan to address certain technical issues affecting, among other
things, the 1988 Option Plan's compliance with the provisions of Rule 16b-3
promulgated under the Exchange Act. A copy of the 1988 Option Plan, as
amended, is attached hereto as Exhibit "A." No amendment, modification or
termination of the 1988 Option Plan may adversely affect the rights of any
optionee under any then outstanding option contract without the consent of
the optionee. The 1988 Option Plan provides for automatic adjustment to
prevent dilution or enlargement of the optionees' rights in the event of a
stock split, stock dividend or similar transaction.
Under the Code, the holder of an option granted under the 1988 Option Plan
will realize no taxable income upon the receipt of the option but will
realize compensation upon the exercise of such option, taxable as ordinary
income to the extent that the fair market value on the date of exercise
exceeds the option price. The Company is entitled to a deduction from income
<PAGE> 19
in an equal amount at the time the optionee realizes such income. Upon a
resale of shares acquired pursuant to exercise of an option by an optionee,
any difference between the sale price and the fair market value of the shares
on the date of exercise of the option will be treated as capital gain or
loss.
As of May 1, 1995, there were 112,502 shares available for grant under the
1988 Option Plan. As a result, in April, 1995, the Stock Option Committee
adopted, subject to the approval of the Company's stockholders, an amendment
to the 1988 Option Plan providing that the number of shares of Common Stock
which may be issued under the 1988 Option Plan would be increased from
1,348,025 to 1,848,025.
The Board of Directors believes that the proposed amendments to the 1988
Option Plan will enable the Company and its stockholders, through future
grants of stock options, to continue to secure the benefits of the incentive
inherent in stock ownership by certain of its employees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ABOVE
DESCRIBED AMENDMENTS TO THE 1988 OPTION PLAN.
PROPOSAL 3:
ADDITION OF FORMULA STOCK OPTION PLAN
In April, 1995, the Board of Directors adopted the Formula Stock Option Plan,
subject to the approval thereof by the Company's stockholders. Options to
purchase up to 100,000 shares of the Company's Common Stock may be granted
under the Formula Stock Option Plan. The Formula Stock Option Plan provides
for the granting of nonqualified stock options to non-employee directors of
the Company or its Affiliates (as defined in the Formula Stock Option Plan)
(the "Non-employee Directors"). The goal of the Formula Stock Option Plan is
to provide a means of retaining and attracting competent non-employee
personnel to serve on the Board of Directors by extending to such individuals
added long-term incentives for high levels of performance and for unusual
efforts designed to improve the financial performance of the Company. The
Formula Stock Option Plan would be administered by a committee comprised of
the President and the Chief Financial Officer of the Company. A copy of the
Formula Stock Option Plan is attached hereto as Exhibit "B". The description
of the Formula Stock Option Plan contained herein is not intended to be
complete and is qualified in its entirety by reference to Exhibit B, which
contains the complete text of the Formula Stock Option Plan.
On the date the Formula Stock Option Plan is approved by the stockholders,
each of Messrs. Gumbiner and Troup will be granted an option to purchase
7,500 shares of the Company's Common Stock. Any newly elected director would
also receive an option for 7,500 shares upon election. Thereafter, on the
fifth business day of each successive January, each Non-employee Director
shall be granted an option to purchase 2,500 shares of the Company's Common
Stock. The number of shares subject to such options shall be adjusted as a
result of various changes in the capitalization of the Company. Fifty
percent (50%) of the options granted under the Formula Stock Option Plan
shall vest on each of the second and third anniversaries of the respective
dates of grant.
<PAGE> 20
The exercise price of options granted under the Formula Stock Option Plan
will be the average of the closing prices of the Company's Common Stock
as reported by the Nasdaq National Market for the five-day period ending on
and including the date of grant. No option granted under the Formula Stock
Option Plan will be transferable by the optionholder other than upon death or
pursuant to a qualified domestic relations order. Options may be granted
until five years following the date of adoption of the Formula Stock Option
Plan. No option will be exercisable after the expiration of five years from
its date of grant.
Options granted under the Formula Stock Option Plan generally will become
exercisable as set forth above. Upon the termination of the directorship of
an optionholder for any reason other than death or on account of any act of
fraud or intentional misrepresentation or embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any affiliate, an
option (to the extent otherwise exercisable on the date of such termination)
will be exercisable by the optionholder at any time prior to the expiration
date of the option or within thirty days after the date
of such termination of the directorship, whichever is the shorter period. If
an optionholder dies while serving as a member of the Board of Directors, the
option will be exercisable (whether or not exercisable on the date of the
death of such optionholder) at any time prior to the expiration date of the
option or within ninety days after the date of death, whichever is the
shorter period. An option granted under the Formula Stock Option Plan will
automatically terminate as of the date the optionholder's directorship is
terminated, if the directorship is terminated on account of any act of fraud
or intentional misrepresentation, or embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any affiliate.
The Board of Directors may not amend any provision of the Formula Stock
Option Plan relating to the amount and price of the Company's Common Stock
subject to the options granted thereunder or the timing of grants thereunder
more than once every six months, other than to comport with changes in the
Code, and applicable law. Any amendment to the Formula Stock Option Plan
must be approved by the stockholders of the Company if the amendment would:
(i) materially increase the aggregate number of shares of the Company's
Common Stock which may be issued pursuant to options granted under the
Formula Stock Option Plan, (ii) materially modify the requirements as to
eligibility for participation in the Formula Stock Option Plan, or (iii)
materially increase the benefits accruing to holders of options under the
Formula Stock Option Plan.
A Non-employee Director who is granted an option under the Formula Stock
Option Plan will not be subject to federal income tax upon the grant of the
option, and the Company will not be entitled to a tax deduction by reason of
such grant. Subject to the following sentence, upon exercise of the option,
the excess of the fair market value of the shares acquired on the exercise
date over the exercise price will be considered compensation taxable as
ordinary income to the optionholder, and the Company may claim a tax
deduction at that time equal to the amount of taxable income realized by the
optionholder, provided that applicable federal income tax withholding and
reporting requirements are satisfied. If any profits associated with a sale
of Common Stock acquired pursuant to the exercise of an option under the
Formula Stock Option Plan could subject the optionholder to liability under
<PAGE> 21
the six-month provisions of Section 16(b) of the Exchange Act, there will be
no concurrent federal income tax consequences to either the optionholder or
the Company as a result of the exercise of such option. The inclusion of
such profits as income to the optionholder is generally deferred until the
earlier of: (i) the six-month period to which the preceding sentence refers,
or (ii) the date on which the Section 16(b) restrictions terminate. However,
if the optionholder makes a timely and proper election under Section 83(b) of
the Code to be taxed at the time shares of the Company's Common Stock are
transferred to him or her, then the excess of the fair market value of shares
of the Company's Common Stock on the exercise date over the exercise price
will be taxed as ordinary income. Such election must be made within thirty
days from the date of exercise. In the absence of such an election, the
excess of the fair market value of shares of the Company's Common Stock on
the date the Section 16(b) restrictions expire (or, if earlier, the date on
which the six-month period referred to above
expires) over the exercise price will be considered compensation taxable as
ordinary income to the optionholder. The Company will be entitled to a tax
deduction in an amount equal to the amount required to be recognized as
ordinary income by the optionholder at the time the optionholder is subject
to tax, provided that the applicable federal income tax withholding and
reporting requirements are satisfied.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
FORMULA STOCK OPTION PLAN.
INDEMNIFICATION
The bylaws of the Company provide for each director and officer of the
Company to be indemnified by the Company, as of right, to the full extent
permitted or authorized by the laws of the State of Kansas against any
liability, judgment, fine, amount paid in settlement, cost and expense
asserted or threatened against or incurred by such person in his capacity, or
arising out of his status, as a director or officer. The Company's Restated
Articles of Incorporation include a provision which eliminates director
liability for monetary damages for breach of the director's duty of due care,
as permitted under Kansas law.
COMPENSATION COMMITTEE AND BOARD OF DIRECTORS
INTERLOCKS AND INSIDER PARTICIPATION
Richard M. Frank, Anthony J. Gumbiner and Brian M. Troup served on the
Compensation Committee of the Company's Board of Directors in 1994. The
functions performed by the Compensation Committee are the: (i) recommendation
of compensation, including performance bonuses, payable to the Company's
executive officers (excluding Mr. Frank) and (ii) recommendation of
performance bonuses for other employees of the Company. Mr. Frank is
Chairman of the Board and Chief Executive Officer of the Company. Mr.
Gumbiner is Chairman of the Board and Chief Executive Officer of Hallwood.
Mr. Troup is President and Chief Operating Officer of Hallwood. See
"Principal Holders of Capital Stock" and "Certain Relationships and Related
Transactions." As discussed under the heading "Committees and Meetings of the
Board of Directors," the Stock Option Committee and the Stock Grant Committee
are both compromised of Messrs. Gumbiner and Troup.
<PAGE> 22
The Board of Directors is responsible for approving any amendment to either
Mr. Frank's or Mr. Magusiak's employment agreement. See "Employment
Agreements."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors intends that transactions with officers, directors and
affiliates will be entered into on terms no less favorable to the Company
than could be obtained from unrelated third parties and will be approved by
at least a simple majority of the directors of the Company.
With the exception of directors Pharr and Neeb, each of the directors of the
Company who are not employees of the Company are also directors of Hallwood
and Integra. As of May 1, 1995, Hallwood owned all of the common stock of
Integra. See "Principal Holders of Capital Stock" and "Business History of
Executive Officers and Directors."
Effective January 1989, the Company agreed to pay to Hallwood $125,000 per
year, in consideration for financial and management consulting services being
rendered to the Company by Hallwood in the ordinary course of business. The
Company's agreement with Hallwood will continue at the discretion of the
Board of Directors for such time and in such amounts as may be authorized so
as to fairly compensate Hallwood for its services.
In consideration for rent reductions resulting from Hallwood's negotiation of
the Company's home office lease agreement in December 1990, the Company
assigned to Hallwood its sublease interest in the portion of the home office
building subleased to Integra, with a fair value of approximately $120,000
per year.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative monthly total shareholder return
(change in share price plus reinvestment of any dividends) on the Company's
Common Stock since January 3, 1989 (the date the Company's Common Stock first
traded on the NASDAQ system), versus two indexes. The graph assumes $100 was
invested on January 3, 1989. The Company has not paid any cash dividends on
its Common Stock during the applicable period. The share price of the
Company's Common Stock has been adjusted for three-for-two stock splits in
the form of stock dividends distributed on March 26, 1991 and March 20, 1992.
<PAGE> 23
The Company's Common Stock is labelled on the graph as "SHBZ." The index
labelled "Restaurants," which was prepared by the Center for Research in
Securities Prices ("CRSP") at The University of Chicago, Graduate School of
Business, 1101 East 58th Street, Chicago, Illinois 60637 (telephone
312-702-7467) measures the total return (weighted for the market
capitalization of the component companies) on the approximately 144 domestic
and foreign companies which operate restaurants or other eating and drinking
places (SIC Code 58) and whose equity securities are traded on the NASDAQ
National Market or the NASDAQ Small-Cap Market. The identities of the
companies included in the "Restaurant" index will be made available in a
prompt manner to any shareholder upon written request addressed to Investor
Relations at the Company's Irving address upon request. The index labelled
"NASDAQ," also prepared by CRSP, measures the total return on the
approximately 4,000 United States companies whose common stock is traded on
the NASDAQ National Market or the NASDAQ Small-Cap Market.
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
CRSP Total
Returns
Index For: 1/3/89 12/29/89 12/28/90 12/27/91 12/31/92 12/31/93 12/30/94
- ---------- ------ -------- -------- -------- -------- -------- --------
ShowBiz Pizza
Time, Inc. 100.0 300.0 456.8 872.7 1370.5 542.0 311.9
Nasdaq Stock
Market (US
Companies) 100.0 121.6 102.5 159.9 192.8 221.4 216.5
NASDAQ
Stocks (SIC
5800-5899 US
+ Foreign)
Eating and
drinking
places 100.0 130.4 105.5 169.1 247.7 250.8 181.5
<PAGE> 24
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
executive officers and directors and the persons who own more than ten
percent of the Company's Common Stock to file initial reports of ownership of
Common Stock and reports of changes of ownership with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
and to furnish the Company with copies of such reports. Based on review of
such copies and other records of the Company, the Company has no reason to
believe that any reports were untimely filed or that any Form 5 filings were
made by any executive officers, directors or persons owning more than ten
percent of the Company's Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP served as the Company's independent public
accountants for the fiscal year ending December 30, 1994. A representative
of Deloitte & Touche LLP is expected to be present and available at the
Annual Meeting of stockholders to respond to appropriate questions and will
be given an opportunity to make a statement, if desired.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 1996
annual meeting of stockholders and who wishes to have it set forth in the
proxy statement and identified in the form of proxy prepared by the Company,
must deliver such proposal to the Company at its principal executive offices,
no later than January 8, 1996, in such form as is required under regulations
promulgated by the Securities and Exchange Commission.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of Directors
of the Company. The expense of preparing, printing and mailing the proxy and
the material used in the solicitation thereof will be borne by the Company.
In addition to the use of the mails, proxies may be solicited by directors
and regular officers and employees of the Company by means of personal
interview, telephone or telegram. Arrangements may also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of stock held
of record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses of such solicitation.
By Order of the Board of Directors,
RICHARD A. BLUNK
Secretary
Irving, Texas
May 8, 1995
<PAGE> 25
SHOWBIZ PIZZA TIME, INC.
NON-STATUTORY STOCK OPTION PLAN
SHOWBIZ PIZZA TIME, INC., a corporation organized and existing under the
laws of the State of Kansas (the "Company"), hereby formulates and adopts,
with respect to the shares of common stock of the Company ("Common Stock"),
a non-statutory stock option plan for certain individuals who are directors
or key employees of the Company or its subsidiaries, as follows:
a. Purpose of Plan. The purpose of this Non-Statutory Option Plan (the
"Plan") is to encourage certain individuals who are directors or key
employees to participate in the ownership of the Company, and to provide
additional incentive for such individuals to promote the success of its
business through sharing in the future growth of such business.
b. Effectiveness of Plan. The provisions of this Plan became effective on
December 30, 1988.
c. Administration. This Plan shall be administered by the Stock Option
Committee of the Board of Directors of the Company (the "Committee"), which
shall be comprised of two (2) or more directors, each of whom shall be
"disinterested persons," as defined in Rule 16b-3(c)(2)(i), promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee shall have full power and authority to construe, interpret and
administer the Plan, and may from time to time adopt such rules and
regulations for carrying out this Plan as it may deem proper and in the best
interests of the Company. Subject to the terms, provisions and conditions of
the Plan, the Committee shall have the authority to select the individuals to
whom options shall be granted, to determine the number of shares subject to
each option, to determine the time or times when options will be granted, to
determine the option price of the shares subject to each option, to determine
the time when each option may be exercised, to fix such other provisions of
each option agreement as the Committee may deem necessary or desirable,
consistent with the terms of this Plan, and to determine all other questions
relating to the administration of this Plan. The interpretation and
construction of this Plan by the Committee shall be final, conclusive and
binding upon all persons.
d. Eligibility. Options to purchase shares of Common Stock shall be
granted under this Plan only to those individuals selected by the Committee
from time to time who, in the sole discretion of the Committee, are currently
directors or key employees and who have made material contributions in the
past, or who are expected to make material contributions in the future, to
the successful performance of the Company. Options shall not be granted to
any individual while he is a member of the Committee.
e. Shares Subject to the Plan. Options granted under this Plan shall be
granted solely with respect to shares of Common Stock. Subject to any
adjustments made pursuant to the provisions of Section 12, the aggregate
number of shares of Common Stock which may be issued upon exercise of all the
options which may be granted under this Plan shall not exceed 1,348,025. If
any option granted under this Plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject to such
option shall be added to the number of shares otherwise available for options
<PAGE> 26
which may be granted in accordance with the terms of this Plan. The shares
to be delivered upon exercise of the options granted under this Plan shall be
made available, at the discretion of the Committee, from either the
authorized but unissued shares of Common Stock or any treasury shares of
Common Stock held by the Company.
f. Option Contract. Each option granted under this Plan shall be evidenced
by a non-statutory stock option contract which shall be signed by an officer
of the Company and by the individual to whom the option is granted (the
"optionee"). The terms of said contract shall be in accordance with the
provisions of this Plan, but it may include such other provisions as may be
approved by the Committee. The granting of an option under this Plan shall
be deemed to occur on the date on which the contract evidencing such option
is executed by the Company and the optionee, and every optionee, upon the
execution of a contract shall be bound by the terms and restrictions of this
Plan and such contract.
g. Option Price. The price at which shares of Common Stock may be
purchased under an option granted pursuant to this Plan shall be determined
by the Committee, but in no event shall the price be less than 100 percent of
the fair market value of such shares on the date that the option is granted.
The fair market value of shares of Common Stock for purposes of this Plan
shall be determined by the Committee, in it sole discretion.
h. Period and Exercise of Option. Period -- Subject to the provisions of
Sections 9 and 10 hereof with respect to the death or termination of
employment of an optionee, the period during which each option granted under
this Plan may be exercised shall be fixed by the Committee at the time such
option is granted, provided that such period shall expire no later than five
(5) years from the date on which the option is granted (the "Granting Date").
(1) Employment -- The Option may not be exercised to any extent until
the optionee has been continuously, for a period of at least one (1) year
after the Granting Date, employed by the Company or a subsidiary of the
Company.
(2) Exercise -- Any Option granted under this Plan may be exercised by
the optionee only by delivering to the Company written notice of the number
of shares with respect to which he is exercising his option right, paying in
full the option price of the purchased shares, and furnishing to the Company
a representation in writing signed by the optionee that he is familiar with
the business and financial condition of the Company, is purchasing the shares
of stock in good faith for himself for investment purposes and not with a
view towards the sale or distribution thereof, and will not effect any sale
in violation of any laws or regulations of the United States or any state.
Subject to the limitations of this Plan and the terms and conditions of the
respective stock option contract, each option granted under this Plan shall
be exercisable in whole or in part at such time or times as the Committee may
specify in such stock option contract.
(3) Payment for shares -- Payment for shares of Common Stock purchased
pursuant to an option granted under this Plan may be made in either cash or
in shares of Common Stock.
(4) Delivery of certificates -- As soon as practicable after receipt by
the Company of the notice and representation described in Subsection (c), and
of payment in full of the option price for all of the shares being purchased
pursuant to an option granted under this Plan, a certificate or certificates
representing such shares of stock shall be registered in the name of the
optionee and shall be delivered to the optionee. However, no certificate for
fractional shares of stock shall be issued by the Company notwithstanding any
request therefor. Neither any optionee, nor the legal representative,
legatee or distributee of any optionee, shall be deemed to be a holder of any
shares of stock subject to an option granted under this Plan unless and until
the certificate or certificates for such shares have been issued. All stock
certificates issued upon the exercise of any options granted pursuant to this
Plan may bear such legend as the Committee shall deem appropriate regarding
restrictions upon the transfer or sale of the shares evidenced thereby.
(5) Withholding -- The Company shall have the right to deduct any sums
that the Committee reasonably determines that Federal, state or local tax law
requires to be withheld with respect to the exercise of any option or as
otherwise may be required by those laws. The Company may require as a
condition to issuing shares of Common Stock upon exercise of the option that
the optionee or other person exercising the option pay any sums that Federal,
state or local tax law requires to be withheld with respect to the exercise.
The Company shall not be obligated to advise any optionee of the existence of
the tax or the amount which the Company will be so required to withhold.
Upon the exercise of an option, if tax withholding is required, an optionee
may, with the consent of the Committee, have shares of Common Stock withheld
("Share Withholding") by the Company from the shares otherwise to be
received; provided, however, that if the optionee is subject to the
provisions of Section 16 under the Exchange Act, no Share Withholding shall
be permitted unless such transaction complies with the requirements of Rule
16b-3(e) promulgated under the Exchange Act. The number of shares so
withheld should have an aggregate fair market value (as determined in
accordance with the terms of the Plan) on the date of exercise sufficient to
satisfy the applicable withholding taxes.
a. Termination of Employment. If an optionee shall cease to be an employee
of the Company or subsidiary of the Company for any reason other than death
after he shall have served in such capacity continuously for at least one (1)
year from the Granting Date, he may, but only within ten (10) business days
next succeeding such cessation, exercise his option to the extent that he was
entitled to exercise it at the date of such cessation. Nothing in this Plan
or any stock option contract shall be construed as an obligation on the part
of the Company or of any of its subsidiary corporations to continue the
optionee as an employee.
b. Death of optionee. In the event of the death of an optionee while
serving as an employee of the Company or its subsidiary, any option or
unexercised portion thereof granted to him under this Plan which is otherwise
exercisable may be exercised by the person or persons to whom such optionee's
rights under the option pass by operation of the optionee's will or the laws
of descent and distribution, at any time within a period of three (3) months
following the death of the optionee (even though such period is later than
the expiration date of the option as specified in Section 8(a) and in the
respective stock option contract). Such option shall be exercisable even
though the optionee's death occurs before he has continuously served as an
employee of the Company or its subsidiary for a period of one (1) year after
the date of grant.
<PAGE> 28
c. Nontransferability of Options. Each option granted under this Plan
shall not be transferable or assignable by the optionee other than by will or
the laws of descent and distribution, or pursuant to a qualified domestic
relations order and during the lifetime of the optionee may otherwise be
exercised only by him.
d. Adjustments upon Changes in Capitalization. In the event of any change
in the capital structure of the Company, including but not limited to a
change resulting from a stock dividend, stock split, reorganization, merger,
consolidation, liquidation or any combination or exchange of shares, the
number of shares of Common Stock subject to this Plan and the number of such
shares subject to each option granted hereunder shall be correspondingly
adjusted by the Committee. The option price for which shares of Common Stock
may be purchased pursuant to an option granted under this Plan shall be
adjusted so that there will be no change in the aggregate purchase price
payable upon the exercise of any option. The provisions of this Section
shall not apply to the one-for-ten reverse stock split proposed for adoption
at the 1988 annual meeting of the stockholders of the Company.
e. Amendment and Termination of Plan. No option shall be granted pursuant
to this Plan after December 31, 1998, on which date this Plan shall expire
except as to options then outstanding under the Plan, which options shall
remain in effect until they have been exercised or have expired. The
Committee may at any time before such date amend, modify or terminate the
Plan. No amendment, modification or termination of this Plan may adversely
affect the rights of any optionee under any then outstanding option granted
hereunder without the consent of such optionee.
f. Termination of Old Option Contract and Grant of New Option Contract.
An option may be granted under this Plan which may be conditioned upon the
termination of a non-statutory stock option contract previously granted to
the optionee which has not yet been terminated or been exercised.
<PAGE> 29
EXHIBIT B
SHOWBIZ PIZZA TIME, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
SHOWBIZ PIZZA TIME, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
TABLE OF CONTENTS
ARTICLE I - PURPOSE AND ADMINISTRATION. . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration . . . . . . . . . . . . . . . . . . . . . 1
1.3 Participation. . . . . . . . . . . . . . . . . . . . . . 1
1.4 Stock Subject to the Plan. . . . . . . . . . . . . . . . 1
1.5 Restrictions on Exercise . . . . . . . . . . . . . . . . 2
ARTICLE II - STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Grant and Option Price . . . . . . . . . . . . . . . . . 2
2.2 Stock Option Agreement . . . . . . . . . . . . . . . . . 2
2.3 Option Period. . . . . . . . . . . . . . . . . . . . . . 2
2.4 Vesting and Exercise of Options. . . . . . . . . . . . . 2
2.5 Non-Transferability of Options . . . . . . . . . . . . . 3
2.6 Termination of Directorship. . . . . . . . . . . . . . . 3
2.7 Issuance of Stock Certificates . . . . . . . . . . . . . 4
ARTICLE III - OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Adjustments Upon Changes in Capitalization . . . . . . . 4
3.2 Continuation of Directorship . . . . . . . . . . . . . . 5
3.3 Amendment and Termination. . . . . . . . . . . . . . . . 5
3.4 Time of Exercise . . . . . . . . . . . . . . . . . . . . 5
3.5 Privileges of Stock Ownership and
Non-Distributive Intent . . . . . . . . . . . . . . . . . . . . . 6
3.6 Effective Date of the Plan . . . . . . . . . . . . . . . 6
3.7 Expiration . . . . . . . . . . . . . . . . . . . . . . . 6
3.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . 6
3.9 Application of Funds . . . . . . . . . . . . . . . . . . 6
3.10 No Liability for Good Faith Determinations . . . . . . . 6
3.11 Information Confidential . . . . . . . . . . . . . . . . 6
3.12 Execution of Receipts and Releases . . . . . . . . . . . 6
3.13 No Guarantee of Interests. . . . . . . . . . . . . . . . 7
3.14 Payment of Expenses. . . . . . . . . . . . . . . . . . . 7
3.15 Company Records. . . . . . . . . . . . . . . . . . . . . 7
3.16 Information. . . . . . . . . . . . . . . . . . . . . . . 7
3.17 No Liability of Company. . . . . . . . . . . . . . . . . 7
3.18 Company Action . . . . . . . . . . . . . . . . . . . . . 7
3.19 Severability . . . . . . . . . . . . . . . . . . . . . . 7
3.20 Notice . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.21 Waiver of Notices. . . . . . . . . . . . . . . . . . . . 8
3.22 Successors . . . . . . . . . . . . . . . . . . . . . . . 8
3.23 Headings . . . . . . . . . . . . . . . . . . . . . . . . 8
3.24 Word Usage . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE> 30
SHOWBIZ PIZZA TIME, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
ARTICLE I
PURPOSE AND ADMINISTRATION
1.1 - Purpose. The purpose of the ShowBiz Pizza Time, Inc.
Non-Employee Directors Stock Option Plan (the "Plan") is to
strengthen ShowBiz Pizza Time, Inc. (the "Company") by providing a
means of retaining and attracting competent non-employee personnel
to serve on its board of directors by extending such individuals
added long-term incentives for high levels of performance and for
unusual efforts designed to improve the financial performance of
the Company. In order to effectuate this intent, the Company will,
pursuant to this Plan, grant to each non-employee director the
herein specified options to acquire shares of common stock of the
Company ("Common Stock"), which options shall vest over a specified
period of time.
1.2 - Administration. The Plan shall be administered by a
committee (the "Committee") which shall be comprised of the
President of the Company and the Chief Financial Officer of the
Company.
Subject to the express provisions of the Plan, the Committee
shall have powers and authorities which are exclusively ministerial
in nature, including the authority to construe and interpret the
Plan, to define the terms used in the Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of the
Plan, and to make all other determinations necessary or advisable
for the administration of the Plan. The determinations of the
Committee on all such matters referred to in this Plan shall be
conclusive. No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in
good faith with respect to the Plan or any transaction under the
Plan.
1.3 - Participation. Each member of the Board of Directors of
the Company (the "Board") who is not employed by the Company or any
Affiliate (collectively, the "Non-Employee Directors") shall be
eligible and shall participate in the Plan. For purposes of the
Plan, the term "Affiliate" shall mean any entity in which the
Company directly or through intervening subsidiaries owns
twenty-five percent (25%) or more of the total combined voting
power or value of all classes of stock or, in the case of an
unincorporated entity, a twenty-five percent (25%) or more interest
in the capital and profits.
<PAGE> 31
1.4 - Stock Subject to the Plan. Subject to adjustment as
provided in Section 3.1 hereof, the stock to be offered under the
Plan shall be treasury shares or shares of the Company's authorized
but unissued Common Stock (hereinafter collectively called
"Stock"). The aggregate number of shares of Stock to be issued
upon exercise of all options granted under the Plan shall not
exceed 100,000 shares, subject to adjustments as set forth in
Section 3.1 hereof. If any option granted hereunder shall lapse or
terminate for any reason without having been fully exercised, the
shares subject thereto shall again be available for purposes of the
Plan.
1.5 - Restrictions on Exercise. No option granted hereunder may
be exercised until a registration statement under the Securities
Act of 1933, as amended (the "Act"), relating to the Stock issuable
upon exercise of such option has been filed with, and declared
effective by, the Securities and Exchange Commission (the
"Commission"), and there is available for delivery a prospectus
meeting the requirements of Section 10 of the Act, or until the
Committee has determined that the issuance of Stock upon such
exercise is exempt from the registration and prospectus
requirements of the Act.
ARTICLE II
STOCK OPTIONS
2.1 Grant and Option Price.
(a) On the effective date of this Plan, Anthony J. Gumbiner and
Brian M. Troup shall each be granted an option to purchase 7,500
shares of Stock. Thereafter, on the day a Non-Employee Director is
first elected or appointed to the Board, such Non-Employee Director
shall be granted an option to purchase 7,500 shares of Stock.
(b) On the fifth Business Day in January of the year following
the effective date of the Plan, each Non-Employee Director who was
previously elected to the Board and who continues to serve in such
capacity at such time shall be granted an option to purchase 2,500
shares of Stock. For purposes of the Plan, the term "Business Day"
shall mean a day on which the NASDAQ National Market is open for
business and is conducting normal trading activity.
(c) The purchase price of the Stock covered by each option
granted under the Plan shall be equal to the Fair Market Value of
such Stock calculated as the average of the closing prices of the
Company's Common Stock for the trading day period ending on and including
the date of grant. Stock as reported by the Nasdaq National Market on such
date, or,if no reported sale of the Stock shall have occurred on such date,
then the closing price of the Stock as reported by the Nasdaq
National Market on the next preceding date on which there was such
a reported sale.
<PAGE> 32
(d) The total grant under both paragraphs (a) and (b) above
shall be limited accordingly to the greatest number of whole shares
of Stock which may thus be granted thereunder.
2.2 - Stock Option Agreement. Each option granted pursuant to
the Plan shall be evidenced by a Stock Option Agreement ("Option
Agreement"), in such form as the Committee shall require, between
the Company and the Non-Employee Director to whom the option has
been granted (the "Optionee").
2.3 - Option Period. Except as otherwise provided herein, each
option and all rights or obligations thereunder shall expire on the
fifth anniversary of the grant date (the "Expiration Date"), and
shall be subject to earlier termination as hereinafter provided.
2.4 - Vesting and Exercise of Options.
(a) Subject to Section 3.2 hereof, an option granted pursuant
to Sections 2.1(a) or (b) hereof shall be exercisable only to the
extent of shares that have vested in accordance with the following
schedule:
Portion of Shares
That are Vested
Annual On and After
Anniversary Such Anniversary
of Date and Before
of Grant Next Anniversary
------------ -------------------
First. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%
Third. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1000%
(b) The purchase price of the Stock purchased upon exercise of
an option shall be paid in full in cash or by check at the time of
each exercise of an option; provided, however, that if the Option
Agreement so provides and upon receipt of all regulatory approvals,
the person exercising the option may deliver in payment of a
portion or all of the purchase price certificates for Common Stock
of the Company, which shall be valued at the Fair Market Value of
such Stock on the date of exercise of the option.
2.5 - Non-Transferability of Options. An option granted under
the Plan shall, by its terms, be non-transferable by the Optionee
other than by will or by the laws of descent and distribution or
pursuant to a qualified domestics relations order. During the
Optionee's lifetime, the option shall be exercisable only by the
Optionee or by the Optionee's duly appointed guardian or personal
representative.
<PAGE> 33
2.6 - Termination of Directorship.
(a) If the directorship of the Optionee is terminated for any
reason other than (i) death of the Optionee, or (ii) on account of
any act of fraud or intentional misrepresentation or embezzlement,
misappropriation or conversion of assets or opportunities of the
Company or any Affiliate, an option (to the extent otherwise
exercisable on the date of such termination) shall be exercisable
by the Optionee at any time prior to the Expiration Date of the
option or within thirty (30) days after the date of such
termination of the directorship, whichever is the shorter period.
(b) If an Optionee dies while serving as a member of the Board,
the option shall be exercisable (whether or not exercisable on the
date of the death of such Optionee) by the person or persons
entitled to do so under the Optionee's will, or, if the Optionee
shall fail to make testamentary disposition of said option or shall
die intestate, by the Optionee's legal representative or
representatives, at any time prior to the Expiration Date of the
option or within ninety (90) days after the date of such death,
whichever is the shorter period. If an Optionee dies during the
thirty (30) day period described in subsection (a) above, the
option shall be exercisable (but only to the extent exercisable on
the date of death of such Optionee) by the person or persons
described above at any time within the thirty (30) day period
described in subsection (a) above or within ninety (90) days after
the date of such death, whichever is the longer period, but in no
event after the Expiration Date of the option.
(c) The option of a Non-Employee Director shall automatically
terminate as of the date his or her directorship is terminated, if
the directorship is terminated on account of any act of (a) fraud
or intentional misrepresentation, or (b) embezzlement,
misappropriation or conversion of assets or opportunities of the
Company or any Affiliate.
(d) Issuance of Stock Certificates. Upon exercise of an
option, but subject to the provisions of Section 3.5 of the Plan,
the person exercising the option shall be entitled to one stock
certificate evidencing the shares acquired upon such exercise;
provided, however, that any person who tenders Common Stock of the
Company in payment of a portion or all of the purchase price of
Stock purchased upon exercise of the option shall be entitled to
receive a separate certificate representing the number of shares
purchased in consideration of the tender of such Common Stock.
<PAGE> 34
ARTICLE III
OTHER PROVISIONS
3.1 - Adjustments Upon Changes in Capitalization.
(a) If a dividend or stock split shall be hereinafter declared
upon the Common Stock of the Company payable in shares of Common
Stock of the Company, the number of shares of Common Stock then
subject to any such option and the number of shares reserved for
issuance pursuant to the Plan but not yet covered by an option
shall be adjusted by adding to each such share the number of shares
which would be distributable thereon if such share had been
outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend or stock split.
(b) If the outstanding shares of the Common Stock of the
Company shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of
another corporation, whether through reorganization,
recapitalization, stock split, combination of shares, merger or
consolidation, then there shall be substituted for each share of
Common Stock subject to any such option and for each share of
Common Stock reserved for issuance pursuant to the Plan but not yet
covered by an option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be
exchanged.
(c) If there shall be any change, other than as specified above
in subsection (a) and (b), in the number or kind of outstanding
shares of Common Stock of the Company or of any stock or other
securities into which Common Stock shall have been changed or for
which it shall have been exchanged, then if the Committee shall in
its sole discretion determine that such change equitably requires
an adjustment in the number or kind of shares theretofore reserved
for issuance pursuant to the Plan but not yet covered by an option
and of the shares then subject to an option or options, such
adjustment shall be made by the Committee and shall be effective
and binding for all purposes of the Plan and of each Option
Agreement.
(d) In the case of any such substitution or adjustment as
provided for in this Section, the option price in each Option
Agreement for each share covered thereby prior to such substitution
or adjustment will be the option price for all shares of stock or
other securities which shall have been substituted for such share
or to which such adjustment provided for in this Section 3.1 shall
be made. No adjustment or substitution provided for in this
Section 3.1 shall require the Company pursuant to any Option
Agreement to sell a fractional share, and the total substitution or
adjustment with respect to each Option Agreement shall be limited
accordingly.
<PAGE> 35
3.2 - Continuation of Directorship. Nothing contained in this
Plan (nor in any option granted pursuant to this Plan) shall confer
upon any Non-Employee Director any right to continue as a member of
the Board or constitute any contract or agreement or interfere in
any way with the right of the Company to remove such Non-Employee
Director from the Board. Nothing contained herein or in any Option
Agreement shall affect any other contractual rights of a
Non-Employee Director.
3.3 - Amendment and Termination. The Board may at any time
suspend or terminate the Plan. No option may be granted during any
suspension of the Plan or after such termination. The amendment,
suspension or termination of the Plan shall not, without the
consent of the Optionee, alter or impair any rights or obligations
under any option theretofore granted under the Plan.
The Board may at any time amend the Plan as it shall deem
advisable without further action on the part of the stockholders of
the Company, provided, that the Board may not amend any provision
of the Plan relating to the amount and price of Stock subject to
the options granted hereunder or the timing of grants hereunder
more than once every six months, other than to comport with changes
in the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act, or the rules thereunder, and
provided further, that any amendment to the Plan must be approved
by the stockholders of the Company if the amendment would
(a) materially increase the aggregate number of shares of Stock
which may be issued pursuant to options granted under the Plan,
(b) materially modify the requirements as to eligibility for
participation in the Plan, or (c) materially increase the benefits
accruing to holders of options under the Plan.
3.4 - Time of Exercise. An option shall be deemed to be
exercised when the Secretary of the Company receives written notice
of such exercise from the person entitled to exercise the option
together with payment of the purchase price made in accordance with
Section 2.4 of this Plan.
3.5 - Privileges of Stock Ownership and Non-Distributive Intent.
The holder of an option shall not be entitled to the privilege of
stock ownership as to any shares of Stock not actually issued and
delivered to the holder. Subject to the provisions of Section 1.5
above, upon exercise of an option for Stock at a time when there is
not in effect under the Act a registration statement relating to
the Stock issuable upon exercise thereof or not available for
delivery a prospectus meeting the requirements of Section 10 of the
Act, the holder of the option shall execute a stock purchase
agreement in which he shall represent and warrant in writing to the
Company that, inter alia, the shares of Stock purchased are being
acquired for investment and not with a view to the resale or
distribution thereof. No shares of Stock shall be issued upon the
exercise of any option unless and until there shall have been
compliance with any then applicable requirements of the Commission,
other regulatory agencies having jurisdiction and any exchanges
upon which securities subject to the option may be listed.
<PAGE> 36
3.6 - Effective Date of the Plan. The Plan shall be effective
upon approval by the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock and Preferred Stock,
voting as one class, present and entitled to vote at a meeting duly
held or by the written consent of the holders of a majority of the
Common Stock and the Preferred Stock, voting a one clas, entitled to vote.
3.7 - Expiration. Unless previously terminated or extended by
the Board, the Plan shall expire at the close of business on the
date which is the last day of the five (5) year period beginning on
the date on which the stockholders approve the Plan, and no option
shall be granted under it thereafter, but such expiration shall not
affect any option theretofore granted.
3.8 - Governing Law. The Plan and the options issued hereunder
shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas applicable to contracts made
and performed within that State.
3.9 - Application of Funds. The proceeds received by the
Company from the sale of shares pursuant to options shall be used
for general corporate purposes.
3.10 - No Liability for Good Faith Determinations. Neither the
members of the Board nor any member of the Committee shall be
liable for any act, omission or determination taken or made in good
faith with respect to the Plan or any option granted under it.
3.11 - Information Confidential. As partial consideration for
the granting of each option hereunder, the Optionee shall agree
with the Company that he will keep confidential all information and
knowledge which he has relating to the manner and amount of his
participation in the Plan; provided, however, that such information
may be given in confidence to the Optionee's spouse or to a
financial institution to the extent that such information is
necessary.
3.12 - Execution of Receipts and Releases. Any payment or any
issuance or transfer of shares of Stock to the Optionee, or to his
legal representative, heir, legatee or distributee, in accordance
with the provisions hereof, shall, to the extent thereof, be in
full satisfaction of all claims of such persons hereunder. The
Board may require any Optionee, legal representative, heir, legatee
or distributee, as a condition precedent to such payment, to
execute a release and receipt therefor in such form as it shall
determine.
3.13 - No Guarantee of Interests. Neither the Board nor the
Company guarantees the Stock of the Company from loss or
depreciation.
3.14 - Payment of Expenses. All expenses incident to the
administration, termination or protection of the Plan, including,
but not limited to, legal and accounting fees, shall be paid by the
Company.
<PAGE> 37
3.15 - Company Records. Records of the Company and any
Affiliate regarding the Optionee's period of service, termination
of service and the reason therefor, leaves of absence, and other
matters shall be conclusive for all purposes hereunder, unless
determined by the Board to be incorrect.
3.16 - Information. The Company and any Affiliate shall, upon
request or as may be specifically required hereunder, furnish or
cause to be furnished all of the information or documentation which
is necessary or required by the Committee to perform its duties and
functions under the Plan.
3.17 - No Liability of Company. The Company assumes no
obligation or responsibility to the Optionee or his or her personal
representatives, heirs, legatees or distributees for any act of, or
failure to act on the part of, the Board or the Committee.
3.18 - Company Action. Any action required of the Company shall
be by resolution of the Board or by a person authorized to act by
Board resolution.
3.19 - Severability. If any provision of this Plan shall be
held to be illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions hereof, but
shall be fully severable and the Plan shall be construed and
enforced as if the illegal or invalid provision had never been
included herein.
3.20 - Notice. Whenever any notice is required or permitted
hereunder, such notice must be in writing and personally delivered
or sent by mail. Except as otherwise provided in Section 3.4 of
this Plan, any notice required or permitted to be delivered
hereunder shall be deemed to be delivered on the date on which it
is personally delivered or, whether actually received or not, on
the third (3rd) business day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed
to the person who is to receive it at the address which such person
has theretofore specified by written notice delivered in accordance
herewith.
The Company of an Optionee may change, at any time and from time to
time, by written notice to the other, the address which it or he
had theretofore specified for receiving notice. Until it is
changed in accordance herewith, the Company and each Optionee shall
specify as its and his address for receiving notice the address set
forth in the Option Agreement pertaining to the shares to which
such notice relates.
3.21 - Waiver of Notices. Any person entitled to notice
hereunder may waive such notice.
3.22 - Successors. The Plan shall be binding upon the Optionee,
his or her heirs, legatees and legal representatives, upon the
Company, its successors and assigns and upon the Board and its
successors.
<PAGE> 38
3.23 - Headings. The titles and headings of sections and
paragraphs are included for convenience of reference only and are
not to be considered in construction of the provisions hereof.
3.24 - Word Usage. Words used in the masculine shall apply to
the feminine where applicable and, wherever the context of this
Plan dictates, the plural shall be read as the singular and the
singular as the plural.
<PAGE> 39
</PAGE>
</TABLE>
