<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[_] Definitive Additional Materials Rule 14a-6(e)(2)
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Iwerks Entertainment, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange
Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE>
IWERKS ENTERTAINMENT, INC.
___________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 1998
___________
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Iwerks Entertainment, Inc. ("Iwerks" or the "Company"), to be held at 4540
West Valerio Street in Burbank, California on December 17, 1998 at 10:00 a.m.,
local time. The Annual Meeting is being held for the following purposes:
1. To elect two Class II Directors to hold office for three years and
until their respective successors have been elected;
2. To approve the Company's 1998 Non-Employee Directors Stock Option
Plan; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Only stockholders of record of the Common Stock of the Company at the close
of business on October 27, 1998 are entitled to notice of and to vote at the
Annual Meeting and at any adjournments or postponements thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to complete and return the enclosed Proxy as promptly as possible in the
enclosed postage prepaid envelope. Any record holder attending the Annual
Meeting may vote in person, even though he or she has returned a Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Charles Goldwater
Charles Goldwater
President and Chief Executive Officer
4540 West Valerio Street
Burbank, California
October 28, 1998
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU ARE A RECORD HOLDER AND ATTEND THE MEETING, YOU MAY, IF YOU
PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
IWERKS ENTERTAINMENT, INC.
________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Iwerks Entertainment, Inc., a Delaware
corporation (the "Company"), for use at the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 4540 West Valerio Street in Burbank,
California on December 17, 1998 at 10:00 a.m., local time, and at any
adjournments or postponements thereof, for the purposes set forth in this Proxy
Statement and in the attached Notice of Annual Meeting of Stockholders.
Accompanying this Proxy Statement is the Board of Directors Proxy for the Annual
Meeting, which you may use to vote on the proposals described in this Proxy
Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted as indicated on the proposals described in this Proxy Statement unless
otherwise directed. A record holder may revoke his or her Proxy at any time
before it is voted either by filing with the Secretary of the Company, at its
principal executive offices, a written notice of revocation or a duly executed
Proxy bearing a later date, or by attending the Annual Meeting and expressing a
desire to vote his or her shares in person.
The close of business on October 27, 1998 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments or postponements thereof. At the record
date, 12,352,838 shares of the Company's Common Stock, par value $.001 per
share, were outstanding. The Common Stock is the only outstanding class of
securities entitled to vote at the meeting. At the record date, the Company had
approximately 941 stockholders of record. A stockholder is entitled to cast one
vote for each share of Common Stock held on the record date (each a "Share") on
all matters to be considered at the Annual Meeting. Abstentions and shares held
by brokers that are prohibited from exercising discretionary authority will be
counted as present for the purposes of determining if a quorum is present.
The Company's principal executive offices are located at 4540 West Valerio
Street, Burbank, California 91505-1046 and its telephone number is (818) 841-
7766. This Proxy Statement and the accompanying Proxy were mailed to all
stockholders entitled to vote at the Annual Meeting on or about November 10,
1998.
<PAGE>
ELECTION OF CLASS II DIRECTORS
In accordance with the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors is divided into three classes. At each annual
meeting of the stockholders of the Company, directors constituting one class are
elected for three-year terms. The Bylaws of the Company provide that the Board
of Directors shall consist of not less than five and not more than nine members
as determined from time to time by the Board of Directors. The Board of
Directors currently consists of two Class I Directors, with terms expiring in
1999, two Class II Directors, with terms expiring in 1998, and two Class III
Directors, with terms expiring in 2000. At this Annual Meeting, two Class II
Directors will be elected. If the number of directors is changed, any increase
or decrease is to be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible. Directors may be removed
only with cause by the vote of a majority of the stockholders then entitled to
vote. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below. If either nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting or any
postponement or adjournment thereof, the proxies will be voted for such nominee
as shall be designated by the current Board of Directors to fill the vacancy.
The Company has no reason to believe that either nominee will be unwilling or
unable to serve if elected as a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED BELOW.
The Board of Directors proposes the election of the following nominees as
Class II Directors:
Mr. Dag Tellefsen
Mr. Peter Hanelt
If elected, each nominee is expected to serve until the 2001 Annual Meeting
of Stockholders. The affirmative vote of a majority of the Shares present in
person or represented by proxy at the Annual Meeting and voting on the election
of the Class II Directors, is required for the election of each of the above
named nominees.
2
<PAGE>
INFORMATION WITH RESPECT TO NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of
October 13, 1998.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION WITH COMPANY
---- --- -------- ---------------------
<S> <C> <C> <C>
NOMINEES:
CLASS II DIRECTORS
(terms to expire in 2001)
Dag Tellefsen 56 1993 Director of Iwerks
Peter Hanelt 53 1998 Director Of Iwerks
CONTINUING DIRECTORS:
CLASS I DIRECTORS
(terms to expire in 2000)
Gary Matus 50 1996 Director of Iwerks
Don Iwerks 69 1986 Founder of Iwerks, Vice
Chairman Board of Directors,
Director of Iwerks
CLASS III DIRECTORS
(terms to expire in 1999)
Charles Goldwater 47 1998 Chairman of the Board, Director
of Iwerks, Chief Executive
Officer and President
Bruce Beda 57 1998 Director of Iwerks
OTHER EXECUTIVE
OFFICERS:
Bruce Hinckley 51 Executive Vice President,
Chief Financial Officer and
Secretary
Daniel Griesmer 50 Senior Vice President, General
Manager
Jack Shishido 52 Senior Vice President of
Worldwide Sales
Jon Corfino 40 Senior Vice President of Film
</TABLE>
The executive officers of Iwerks are appointed by and serve at the
discretion of the Board of Directors of Directors. There is no family
relationship between any director and any executive officer of Iwerks.
3
<PAGE>
Dag Tellefsen has been a director of Iwerks since March 1993. Since 1982,
Mr. Tellefsen has been the Managing General Partner of Glenwood Management, a
venture capital firm and Company stockholder. Mr. Tellefsen also serves or has
served as a director of ARIX Corp., KLA Instruments and Octel Communications,
Inc.
Peter Hanelt is a director of Iwerks. Since February 1998, Mr. Hanelt has
served as the Chief Executive Officer and acting Chief Financial Officer of
Natural Wonders Inc., a retailer of nature and science gifts. Prior thereto,
from April 1997 to February 1998, Mr. Hanelt was a principal of Regent Pacific
Management Corporation, a consulting firm. From October 1993 to April 1997, Mr.
Hanelt was both Chief Operating Officer and Chief Financial Officer of Esprit de
Corp, a wholesaler and retailer of apparel.
Gary J. Matus has been a director of Iwerks since July 1996. Mr. Matus has
held various positions with Bank of America, N.T. & S.A since December 1989,
including from October 1996 Executive Vice President and Chief Marketing
Officer, responsible for the bank's marketing operations. As of the date of this
Proxy, Mr. Matus serves as a consultant to Bank of America. Prior to October
1996, Mr. Matus served as Head of Trust Investment Management Private Banking
(1995-1996) and as Head of the Entertainment and Media Industries Group at Bank
of America (1989-1995).
Donald W. Iwerks is a co-founder of Iwerks and has been a Director and Vice
Chairman since Iwerks' inception. Mr. Iwerks served as Chief Technical Officer
of Iwerks until his retirement in December 1995. From 1950 to 1985, Mr. Iwerks
was employed by the Walt Disney Studios, where from 1965 to 1985 he was head of
the Technical Engineering and Manufacturing Division, which was responsible for
the design and manufacture of all film projection systems used in the Disney
theme parks.
Charles Goldwater joined Iwerks as its Chairman of the Board, Chief
Executive Officer and President on February 23, 1998. From September 1995 to
December 1997, Mr. Goldwater served as Chief Executive Officer and President of
Mann Theatres (Cinamerica Theatres L.P.). Prior thereto from 1990 to 1995, Mr.
Goldwater was Senior Vice President and General Manager of Sony/Loews Theaters.
Bruce Beda has been a director of Iwerks since July 1998. Mr. Beda has
served since February 1995 as President and Chief Executive Officer of Orion
Partners LLC, a private investment and consulting company. From December 1986
to January 1995, Mr. Beda served as Chief Financial Officer of Venturedyne Ltd.,
a private manufacturing conglomerate. Mr. Beda presently serves on the board of
directors of Stifel Financial Corp. and ECC International.
Bruce C. Hinckley joined Iwerks as its Executive Vice President and Chief
Financial Officer in September 1996. Prior thereto since September 1995 he was
a financial consultant. From November 1985 until September 1995 he was the Vice
President, Controller and Chief Accounting Officer of Caesars World, Inc., a
casino and hotel company. Mr. Hinckley is a certified public accountant.
Daniel R. Griesmer joined Iwerks as its Senior Vice President, General
Manager in March 1998. From November 1995 to February 1998, Mr. Griesmer served
as Vice President, Theater Planning and Development of Mann Theatres (Cinamerica
Theatres, L.P.). Prior thereto, from 1990 to 1995, Mr. Griesmer held various
positions at Sony/Loews Theaters, the most recent of which was Assistant
Director of Facilities.
Jack Shishido joined Iwerks in June 1998 as Senior Vice President,
Worldwide Sales and Marketing. Prior thereto since January 1997, he was Senior
Vice President, Business Development at Special F/X Inc., where he was
responsible for business development, sales and marketing. From September 1995
to January 1997, Mr. Shishido served as Director of Business Affairs at MCA,
where he was responsible for all administrative aspects of Universal Studios'
Japan project. Mr. Shishido also served from September 1992 to July 1997 as
Facilities Director of Business Planning at Warner Bros. Studios, providing
business analysis of studio operations.
Jon Corfino has served as Iwerks' Senior Vice President of Film and
Executive In Charge of Production since March 1998. Prior thereto since July
1993, Mr. Corfino has held various positions with the Company,
4
<PAGE>
including Vice President of Attractions, Vice President of Operations, Director
of Studio Operations, and Production Manager.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 14 meetings during the fiscal year
ended June 30, 1998. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee. During the fiscal year ended
June 30, 1998, each director attended at least 75% of the meetings of the Board
of Directors held while he was a director and of the Committees of the Board of
Directors on which he served.
The Audit Committee's functions include recommending to the Board of
Directors the engagement of the Company's independent auditors, reviewing and
approving the services performed by the independent auditors and reviewing and
evaluating the Company's accounting policies and internal accounting controls.
The Compensation Committee reviews and approves the compensation of officers and
key employees, including the granting of options under the Company's various
stock incentive plans. The Nominating Committee is responsible for proposing
potential candidates for the Board of Directors. Currently, the members of the
Audit Committee are Messrs. Gary Matus, Bruce Beda and Peter Hanelt, the members
of the Compensation Committee are Messrs. Dag Tellefsen, Bruce Beda and Peter
Hanelt and the members of the Nominating Committee are Messrs. Dag Tellefsen and
Don Iwerks.
COMPENSATION OF DIRECTORS
Upon the initial election or appointment to the Board of Directors of any
person who is not then a current employee or officer of the Company, each such
person an "Outside Director," such Outside Director is granted, effective as of
the date of the first meeting of the Board of Directors attended by the Outside
Director after their appointment or election, a ten year option to purchase
10,000 shares of Common Stock. Each Outside Director who is then serving on the
Board of Directors is granted effective on the date of each Annual Meeting of
the Company's stockholders (or any Special Meeting in lieu of an Annual
Meeting), a ten year option to purchase the number of shares of Common Stock
determined by dividing $50,000 by the per share fair market value of the Common
Stock on the date of grant. If the 1998 Non-Employee Directors Stock Option Plan
is adopted by the stockholders at the Annual Meeting, the annual grant of
options to Outside Directors shall be modified to impose a ceiling of options to
purchase 25,000 shares of the Common Stock. All of the above-described options
vest over four years. In addition, each Outside Director receives an annual
retainer fee of $8,000, which is paid quarterly. Further, each Outside Director
is entitled to receive $1,000 for in-person Board meetings, $500 for telephonic
Board meetings and committee meetings and reimbursement for travel expenses
incurred on behalf of Iwerks. In connection with his services rendered as a
director in 1998, which the Board of Directors considered extraordinary, the
Company has granted Mr. Matus a fully vested option to purchase 13,333 shares of
Common Stock for $1.625 per share, expiring July 23, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Dag Tellefsen and Don Iwerks served as members of the Board of
Directors' Compensation Committee during the 1998 fiscal year and through July
16, 1998. Since July 16, 1998, the Compensation Committee has been composed of
Messrs. Dag Tellefsen, Bruce Beda and Peter Hanelt. Mr. Iwerks is a co-founder
of Iwerks and served as Chief Technical Officer of Iwerks until his retirement
in December 1995. Beginning July 1997, in addition to his director fees, Mr.
Iwerks has received and will continue to receive a monthly consulting fee of
$5,000.
The Company has no interlocking relationships involving any of its
Compensation Committee members which would be required by the Securities and
Exchange Commission to be reported in this Proxy Statement, and no officer or
employee of the Company presently serves on its Compensation Committee.
REPORT OF COMPENSATION COMMITTEE
The following report of the Compensation Committee to the Board of
Directors shall not be deemed to be incorporated by reference into any filing by
the Company under either the Securities Act of 1933, as amended ("Securities
Act") or the Securities Exchange Act of 1934, as amended ("Exchange Act") that
incorporates future
5
<PAGE>
Securities Act or Exchange Act filings in whole or in part by reference.
General
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing and administering the policies that govern
executive compensation and benefit practices. All decisions of the Committee are
subject to the approval of the Company's Board of Directors. The Committee is
currently comprised of Messrs. Dag Tellefsen, Bruce Beda and Peter Hanelt.
Compensation Philosophy
The Company's executive compensation program is designed to (1) provide
levels of compensation that integrate pay and incentive plans with the Company's
strategic goals, so as to align the interests of executive management with the
long-term interests of the Company's stockholders, (2) attract, motivate and
retain executive talent capable of achieving the strategic business goals of the
Company, (3) recognize outstanding individual contributions, and (4) provide
compensation opportunities which are competitive to those offered by other
entertainment technology companies of similar size and performance. To achieve
these goals, the Company's executive compensation program consists of three main
elements: (i) base salary, (ii) annual cash bonus and (iii) long-term
incentives. Each element of compensation has an integral role in the total
executive compensation program. The Company also provides to its employees
(including the chief executive officer and other officers of the Company)
medical, dental, and long-term disability insurance and other customary employee
benefits.
Base Salary
Base salaries for executive officers are determined on an annual basis by
evaluating each executive officer's position, duties, responsibilities, tenure,
performance and potential contributions to the Company. This determination also
takes into account the compensation practices of similarly situated companies
for comparable positions. The financial performance of the Company also is
considered. Finally, factors consistent with the Company's overall compensation
policy are taken into account. In fiscal 1998, Mr. Goldwater received base
salary at an annual rate of $330,000. In fiscal 1998, Mr. Wright received
through October 30, 1997, base salary at an annual rate of $230,000 and from
October 30, 1997 through February 19, 1998, base salary at an annual rate of
$300,000. Pursuant to the terms of his separation agreement with the Company,
Mr. Wright provided continued employment services to Iwerks for a three month
period to assist in an orderly transition to his successor and, pursuant to the
terms of his separation agreement, during that period received base salary at an
annual rate of $600,000.
Annual Cash Bonuses
Executive officers are eligible for annual incentive bonuses in amounts
determined at the discretion of the Committee. The Committee considers an award
of an annual bonus subjectively, taking into account factors such as the
financial performance of the Company, increases in stockholder value, the
achievement of corporate goals and individual performance. In light of their
individual performance, certain of the Company's executive officers earned bonus
awards in fiscal 1998.
Long-Term Incentives
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options. The Committee is
responsible for selecting the individuals to whom grants should be made, the
timing of grants, the determination of the per share exercise price and the
number of shares subject to each option awarded. The Committee believes that
stock options provide the Company's executive officers with the opportunity to
purchase and maintain an equity interest in the Company and to share in the
appreciation of the value of the Common Stock. The Committee believes that stock
options directly motivate an executive to maximize long-term stockholder value.
The options incorporate vesting periods in order to encourage key employees to
continue in the employ of the Company. The Committee considers the grant of each
option subjectively, considering factors such as the individual performance of
executive officers and competitive compensation packages in the industry.
6
<PAGE>
Determination of Chief Executive Officer's Compensation
During fiscal 1998, the Board of Directors determined that it was advisable
to make a change in the Chief Executive Officer position. The Board of Directors
appointed a Nominating Committee to search for qualified candidates to serve as
Chief Executive Officer. The Nominating Committee retained an executive search
firm to assist it in identifying qualified candidates. After numerous meetings
with candidates, the Nominating Committee recommended Mr. Goldwater to the Board
of Directors as the most qualified candidate to serve as Chief Executive
Officer.
Mr. Goldwater has served as Chief Executive Officer of the Company since
February 23, 1998. As Chief Executive Officer, Mr. Goldwater is compensated
pursuant to an employment agreement described under "Employment Contracts,"
below. Mr. Goldwater's overall compensation was established through arm's length
negotiations at a level which was based on his proven talent and extensive
expertise in the film exhibition industry and which is believed to be comparable
to what would have been available to Mr. Goldwater at a company similar to
Iwerks.
Summary
The Compensation Committee believes that its executive compensation
philosophy of paying its executive officers by means of base salaries, annual
cash bonuses and long-term incentives, as described in this report, serves the
interests of the Company and the Company's stockholders.
COMPENSATION COMMITTEE: Dag Tellefsen
Bruce Beda
Peter Hanelt
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and
former Chief Executive Officer and as to each of the other four most highly
compensated officers whose compensation exceeded $100,000 during the last fiscal
year (the "Named Executive Officers"), information concerning all compensation
paid for services to the Company in all capacities for each of the three fiscal
years ended June 30 indicated below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------------ ---------------
OTHER ANNUAL STOCK OPTION ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) COMPENSATION
- --------------------------- ------ ---------- --------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles Goldwater (3)...... 1998 $134,538 -- $ 4,000 250,000 1,890(4)
Chairman, Chief
Executive Officer
and President
Roy A. Wright (5).......... 1998 $391,854(6) -- $ 9,615 -- $697,839(7)
Former Chairman, Chief 1997 214,192 -- 22,320 -- 3,090(4)
Executive Officer 1996 200,000 $200,000 18,822 300,000 3,090(4)
and President
Bruce C. Hinckley.......... 1998 $174,855(8) -- $ 7,000 -- --
Executive Vice President, 1997 110,769 $ 37,000 -- 130,000 --
Chief Financial Officer
and Secretary
John Corfino............... 1998 $119,001(9) $ 0 $ 7,000 -- --
Senior Vice President 1997 114,799 15,000 -- 20,000
of Film 1996 96,962 43,000 -- 25,000
William J. Battison (10)... 1998 $119,231 -- $ 2,000 -- $200,000(11)
Former Executive 1997 165,385 -- -- -- --
Vice President 1996 150,000 $140,000 -- 150,000 --
</TABLE>
_____________________
(1) Represents a stipend to defray a portion of the Named Executive Officer's
commuting expenses.
(2) All numbers reflect the number of shares of Common Stock subject to options
granted during the fiscal year.
(3) Mr. Goldwater joined Iwerks February 23, 1998 as Chairman of the Board,
Chief Executive Officer and President.
(4) Represents the dollar value of term life insurance premiums paid by Iwerks.
(5) Mr. Wright joined the Company as Chief Operating Officer in December 1994.
Mr. Wright was appointed Chief Executive Officer and President of Iwerks
effective July 1, 1995. Mr. Wright was succeeded by Mr. Charles Goldwater
as Chairman of the Board, Chief Executive Officer and President effective
February 23, 1998.
(6) Includes $66,584 for Mr. Wright's accrued vacation pay and $155,700 for
services rendered after Mr. Wright stepped down as Chief Executive Officer
on February 23, 1998.
8
<PAGE>
(7) Consists of severance payments made pursuant to Mr. Wright's separation
agreement with the Company.
(8) Includes $2,740 paid pursuant to the Company's 401(k) plan.
(9) Includes $2,506 paid pursuant to the Company's 401(k) plan.
(10) Mr. Battison's employment with Iwerks terminated effective January 23,
1998.
(11) Consists of severance payments made pursuant to Mr. Battison's separation
agreement with the Company.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended June 30, 1998 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PERCENT OF PRICE APPRECIATION FOR OPTION
TOTAL OPTIONS TERM(1)
NUMBER OF GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION
NAME GRANTED(2) FISCAL YEAR(3) SHARE(4) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Charles Goldwater(5).......... 150,000 32.3% $2.25 2/19/08 $212,252 $537,888
50,000 10.8% 2.81 2/19/08 42,751 151,296
50,000 10.8% 3.38 2/19/08 14,251 122,796
Roy A. Wright (5)............. -- -- -- -- -- --
Bruce C. Hinckley............. -- -- -- -- -- --
Jon Corfino................... -- -- -- -- -- --
William J. Battison(6)........ -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
______________________
(1) The potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated pursuant to applicable requirements of the Commission and do not
represent a forecast of the future appreciation of the Common Stock.
(2) Each of the option grants set forth on this chart are exercisable with
respect to one-fourth (1/4) of the total shares granted, rounded up to the
nearest whole share, on the first anniversary of the date of grant, and
thereafter exercisable with respect to one-forty-eighth (1/48) of the total
shares, rounded up to the nearest whole share, on the first day of each
month until all shares have become exercisable. The options may, at the
discretion of the Administrator, become immediately exercisable upon certain
change of control events. All of the options set forth in this chart were
granted for a term of 10 years.
(3) Options covering an aggregate of 464,000 shares were granted to eligible
employees during the fiscal year ended June 30, 1998.
(4) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(5) Mr. Wright was succeeded by Mr. Charles Goldwater as Chairman of the Board,
Chief Executive Officer and President effective February 23, 1998.
(6) Mr. Battison's employment with Iwerks terminated effective January 23, 1998.
STOCK OPTIONS HELD AT FISCAL YEAR-END
During the fiscal year ended June 30, 1998, no Named Executive Officer
exercised any stock options. The following table sets forth, for each of the
Named Executive Officers, certain information regarding the number of shares of
Common Stock underlying stock options held at fiscal
10
<PAGE>
year-end and the value of options held at fiscal year-end based upon the last
reported sales price of the Common Stock on the Nasdaq Stock Market SmallCap
Market on June 30, 1998 ($1 11/16 per share).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF ALL UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
--------------------- ------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------------------- --------------------- ------------------------
<S> <C> <C>
Charles Goldwater.............. 83,333/166,667 $0/0
Roy A. Wright (2).............. 469,994/81,250 $0/0
Bruce Hinckley................. 97,083/32,917 $0/0
Jon Corfino.................... 53,552/16,448 $0/0
William J. Battison(3)......... 220,875/40,625 $0/0
</TABLE>
_________________________
(1) Based upon the last reported sale price of the Common Stock on The Nasdaq
National Market on June 30, 1998, none of the options held by the Iwerks
Named Officers were "in-the-money."
(2) Mr. Wright was succeeded by Mr. Charles Goldwater as Chairman of the Board,
Chief Executive Officer and President effective February 23, 1998.
(3) Mr. Battison's employment with Iwerks terminated effective January 23,
1998.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Donald W. Iwerks, the Company's Chief Technical Officer, retired from full
time employment with the Company effective December 31, 1995. At that time, Mr.
Iwerks was 65 years of age. In this connection, Mr. Iwerks and the Company
entered into a Severance Agreement and General Release (the "Agreement"), dated
as of June 30, 1995. The Agreement provides that the Company will provide Mr.
Iwerks upon his resignation with, among other things, (a) $200,000 in severance
payments in full satisfaction of all of the Company's obligations to Mr. Iwerks,
and (b) effective upon the date of Mr. Iwerks' resignation, the full vesting of
all stock options then held by Mr. Iwerks and the extension of the exercise date
of such options until December 31, 1996. The Agreement also obligates the
Company, during the eighteen-month period commencing on July 1, 1995, to
purchase or arrange for the purchase of up to $250,000 of the Common Stock held
by Mr. Iwerks. Mr. Iwerks did not exercise any portion of the options which
expired on December 31, 1996. Pursuant to the Agreement, Mr. Iwerks has
provided the Company with a full release of all claims he may have against it
arising from his current and prior affiliation with the Company. Beginning
January 1, 1997, Mr. Iwerks began receiving "outside director" fees. Mr. Iwerks
continued to work on a part-time basis, generally two or three days a week, and
as compensation for this work he received a $50,000 advisory fee for services
rendered through June 30, 1997 and continued to receive Company health benefits
coverage until September 1, 1997. Beginning July 1997, in addition to his
director fees, Mr. Iwerks has received and will continue to receive a monthly
consulting fee of $5,000.
11
<PAGE>
Iwerks has entered into an employment agreement with Mr. Charles Goldwater
effective February 23, 1998 pursuant to which Mr. Goldwater shall serve as
Chairman of the Board, Chief Executive Officer and President for an initial
three year term (the "Initial Term"). Iwerks may extend the term of the
agreement for an additional two year period (the "Additional Term") upon the
same terms and conditions as during the Initial Term. Mr. Goldwater's base
salary for the period ended June 30, 1998 is payable at an annual rate of
$330,000. Commencing on the first day of the fiscal year ending June 30, 1999,
Mr. Goldwater's base salary for each fiscal year during the Initial Term and the
Additional Term shall be increased by an amount equal to 5% of the base salary
prevailing during the prior fiscal year. Commencing in fiscal 1999, Mr.
Goldwater is entitled to a performance based bonus, the amount of which will
vary depending upon the performance of Iwerks as compared to the goals
established by the Compensation Committee of the Board of Directors on an annual
basis. Mr. Goldwater was granted options to purchase 250,000 shares of Common
Stock upon commencement of his employment. Of the 250,000 options, 150,000 were
priced at $2.25, the closing sale price of the Common Stock on February 19, 1998
(the "Closing Price"), the date prior to the execution of the employment
agreement. Of the remaining options, 50,000 are priced at $2.81, 125% of the
Closing Price, and 50,000 are priced at $3.38, 150% of the Closing Price. Of
the options granted to Mr. Goldwater, 50,000 vested on February 23, 1998 with
the remaining options vesting in equal monthly installments over four years from
the date of grant.
Iwerks has entered into an employment agreement with Mr. Daniel Griesmer
effective March 2, 1998 pursuant to which Mr. Griesmer shall serve as Senior
Vice President - General Manager for an initial two year term (the "Initial
Term"). Iwerks may extend the term of the agreement for an additional two year
period (the "Additional Term") upon the same terms and conditions as during the
Initial Term. Mr. Griesmer's base salary for the period ended June 30, 1998 is
payable at an annual rate of $130,000. Commencing on March 2, 1999, Mr.
Griesmer's base salary for each subsequent year during the Initial Term and the
Additional Term shall be increased by an amount equal to 4% of the base salary
prevailing during the prior year. Commencing in fiscal 1999, Mr. Griesmer is
entitled to a performance based bonus, the amount of which will vary depending
upon the performance of Iwerks as compared to the goals established by the
Compensation Committee of the Board of Directors on an annual basis. Mr.
Griesmer was granted options to purchase 75,000 shares of Common Stock upon
commencement of his employment. Of the 75,000 options, 60,000 were priced at
$2.62, the closing sale price of the Common Stock on February 27, 1998 (the
"Closing Price"), the trading day prior to the effective date of the employment
agreement. The remaining 15,000 options are priced at $3.28, 125% of the
Closing Price. Of the options granted to Mr. Griesmer, 18,750 vest on March 2,
1999 with the remaining options vesting in equal monthly installments over the
following three years.
Iwerks has entered into an employment agreement with Mr. Jack Shishido
effective June 29, 1998 pursuant to which Mr. Shishido shall serve as Senior
Vice President Worldwide Sales and Marketing for an initial two year term (the
"Initial Term"). Iwerks may extend the term of the agreement for an additional
two year period (the "Additional Term") upon the same terms and conditions as
during the Shishido Initial Term. Mr. Shishido's base salary for the period
ended June 30, 1998 is payable at an annual rate of $160,000. Commencing on
August 3, 1999, Mr. Shishido's base salary for each year during the Initial Term
and each year during the Additional Term shall be increased by an amount equal
to 4% of the base salary prevailing during the prior year. Commencing in fiscal
1999, Mr. Shishido is entitled to a performance based bonus, the amount of which
will vary depending upon the performance of Iwerks as compared to the goals
established by the Compensation Committee of the Board of Directors on an annual
basis. The Company has also agreed to grant Mr. Shishido options to purchase
75,000 shares of Common Stock. Of the 75,000 options, 45,000 will be priced at
$1.44, the closing sale price of the Common Stock on June 28, 1998 (the "Closing
Price"), the trading day prior to the effective date of the employment
agreement. Of the remaining options, 15,000 will be priced at $1.80, 125% of
the Closing Price, and 15,000 are priced at $2.16, 150% of the Closing Price.
Of such options, 18,750 shall vest on June 29, 1999 with the remaining options
vesting in equal monthly installments over the following three years.
12
<PAGE>
Iwerks has entered into agreements with Messrs. Goldwater, Hinckley,
Griesmer, Shishido and Corfino that would protect each such officer in the case
of a termination without "cause," a "defacto termination" or a "change in
control" of Iwerks, each as defined below. These agreements are intended to
provide certain benefits to the officers upon the occurrence of any of these
events. "For cause" is defined to mean (a) an act of fraud, embezzlement or
similar conduct by the officer involving Iwerks, (b) any action by the officer
involving the arrest of such officer for violation of any criminal statute
constituting a felony or a misdemeanor involving moral turpitude if the Board of
Directors reasonably determines that the continuation of the officer's
employment after such event would have an adverse impact on the operations or
reputation of Iwerks in the financial community, (c) gross misconduct or
habitual negligence in the performance of the officer's duties, (d) an act
constituting a breach of the officer's fiduciary duty to Iwerks under the
Delaware General Corporation Law, or (e) a continuing, repeated and willful
failure or refusal by the officer to perform his duties. A "defacto termination"
is defined to include any of the following events: (a) Iwerks reduces the
officer's base salary in an aggregate amount in excess of 10% from that paid in
the prior fiscal year, except as part of a general reduction of compensation of
executive officers, (b) Iwerks fails to cause the officer to remain an executive
officer of Iwerks, (c) the officer was not afforded the authority, powers,
responsibilities and privileges customarily accorded to an executive with his or
her title, or (d) Iwerks requires the officer's primary services to be rendered
in an area other than Iwerks' principal offices in the greater Los Angeles
metropolitan area. A "change in control" is defined to mean (a) the acquisition
by any individual, entity or group (within the meaning of the Exchange Act) of
25% or more of the combined voting power of the then outstanding voting
securities of Iwerks entitled to vote in the election of directors, (b) a
liquidation, dissolution, reorganization, merger or consolidation of Iwerks,
except where (i) more than 60% of the combined voting power of the then
outstanding voting securities of the resulting corporation entitled to vote in
the election of directors shall be owned by substantially all of the persons who
were owners immediately prior to such event in substantially the same
proportions as their respective ownership immediately prior to such event, (ii)
no person owns 25% or more of the combined voting power of the resulting
corporation, or (iii) at least a majority of the members of the Board of
Directors shall have been members of the Board of Directors at the time of the
execution of the initial agreement providing for such event, or (c) a change in
the membership of the Board of Directors such that the directors sitting on the
Board of Directors on the date of each respective agreement referred to herein
cease to constitute at least a majority of the Board of Directors following the
event.
In the event of a termination not for cause or a defacto termination, (a)
Mr. Goldwater will receive (i) a cash amount equal to the base salary which
would have been payable to him over the remaining term of his employment
agreement, but not less than 18 months (24 months if termination occurs during,
or upon the expiration of, the initial term of Mr. Goldwater's employment
agreement), as computed based on Mr. Goldwater's base salary at the date of
notice of termination, (ii) a cash amount equal to the pro rated portion, based
on time served, of the performance bonus (100% of the performance bonus if
Iwerks achieves 100% of its scheduled performance goals in the fiscal year in
which termination occurs) which would have been paid to him under Iwerks'
performance bonus plan for the fiscal year in which the termination occurs if
his employment had continued through the end of the fiscal year and Iwerks had
achieved 100% of its scheduled performance goals, (iii) his automobile
allowance, (iv) paid up COBRA benefits for him and his family for the 18 months
(24 months if termination occurs during, or upon the expiration of, the initial
term of Mr. Goldwater's employment agreement) following the date of termination,
and (v) other applicable benefits under Iwerks' operative employee benefit and
welfare plans then in effect; (b) Mr. Hinckley will receive (i) a cash amount
equal to the base salary which would have been payable to him over 12 months,
(ii) a cash amount equal to the pro rated portion of the performance bonus which
would have been paid to him under Iwerks' performance bonus plan for the fiscal
year in which the termination occurs, if any such plan is in effect, if his
employment had continued through the end of the fiscal year and Iwerks had
achieved 100% of its scheduled performance goals, and (iii) paid up COBRA
benefits for himself and his family for the 12 months following the date of
termination; (c) Mr. Griesmer and Mr. Shisido will receive (i) a cash amount
equal to the base salary which would have been payable to him over the remaining
term of his employment agreement, but not less than 15 months (18 months if
termination occurs during, or upon the expiration of, the initial term of their
employment agreement), as computed based on Mr. Griesmer's base salary at the
date of notice of termination, (ii) a cash amount equal to the pro rated
portion, based on time served, of the performance bonus (100% of the performance
bonus if Iwerks achieves 100% of its scheduled performance goals in the fiscal
year in which termination occurs) which would have been paid to him under
Iwerks' performance bonus plan for the fiscal year in which the termination
occurs if his employment had continued through the end of the fiscal year and
Iwerks had achieved 100% of its scheduled performance goals, (iii) his
automobile allowance, (iv) paid up COBRA benefits for him and his family for 15
months (18 months if termination occurs during, or upon the expiration of, the
13
<PAGE>
initial term of their employment agreement) following the date of termination,
and (v) other applicable benefits under Iwerks' operative employee benefit and
welfare plans then in effect; and (d) Mr. Corfino will receive (i) a cash amount
equal to the base salary and which would have been payable to him over six
months, (ii) a cash amount equal to the pro rated portion of the performance
bonus which would have been paid to him under Iwerks' performance bonus plan for
the fiscal year in which the termination occurs, if any such plan is in effect,
if his employment had continued through the end of the fiscal year and Iwerks
had achieved 100% of its scheduled performance goals, and (iii) paid up COBRA
benefits for himself and his family for the 12 months following the date of
termination. Each of the benefit packages described above shall be referred to
herein as a "Separation Package." Additionally, all of the stock options held by
these officers which are not vested as of the date of termination (and in the
case of Messrs. Goldwater, Shishido and Griesmer, during the 12 month period
following termination) shall become vested and immediately exercisable and shall
remain exercisable for a period of (a) with respect to Messrs. Goldwater,
Shishido and Griesmer, three years following the date of termination, (b) with
respect to Mr. Hinckley, 15 months following the date of termination and (c)
with respect to Mr. Corfino 12 months following the date of termination.
Subsequent to the end of fiscal year, the Company advanced to Mr. Hinckley
$100,000 against funds payable upon termination.
In the event of a change in control, each of Messrs. Goldwater, Shishido
and Griesmer may terminate their employment commencing with the third month
anniversary of the change in control and terminating on the six month
anniversary of the change in control and receive (a) in the case of Mr.
Goldwater, (i) a cash amount equal to the base salary which would have been
payable to him over the remaining term of his employment agreement, but not less
than 24 months, as computed based on Mr. Goldwater's base salary at the date of
notice of termination, (ii) a cash amount equal to the pro rated portion, based
on time served, of the performance bonus which would have been paid to him under
Iwerks' performance bonus plan for the fiscal year in which the termination
occurs, if his employment had continued through the end of the fiscal year and
Iwerks had achieved 100% of its scheduled performance goals, (iii) his
automobile allowance, (iv) paid up COBRA benefits for him and his family for 18
months (24 months if termination occurs during, or upon the expiration of, the
initial term of Mr. Griesmer's employment agreement) following the date of
termination and (v) other applicable benefits under Iwerks' operative employee
benefit and welfare plans then in effect for the remaining term of his
employment agreement, but not less than 24 months, and (b) in the case of Mr.
Griesmer and Mr. Shishido, (i) a cash amount equal to the base salary which
would have been payable to him over the remaining term of his employment
agreement, but not less than 18 months, as computed based on Mr. Griesmer's base
salary at the date of notice of termination, (ii) a cash amount equal to the pro
rated portion, based on time served, of the performance bonus which would have
been paid to him under Iwerks' performance bonus plan for the fiscal year in
which the termination occurs, if his employment had continued through the end of
the fiscal year and Iwerks had achieved 100% of its scheduled performance goals,
(iii) his automobile allowance, (iv) paid up COBRA benefits for him and his
family for 15 months (18 months if termination occurs during, or upon the
expiration of, the initial term of their employment agreement) following the
date of termination and (v) other applicable benefits under Iwerks' operative
employee benefit and welfare plans then in effect for the remaining term of his
employment agreement, but not less than 18 months. In addition, upon the
occurrence of a change in control, all options then held by Messrs. Goldwater,
Shishido or Griesmer, as applicable, which are not yet vested shall vest as of
the date of a change in control and shall become immediately exercisable and
remain exercisable for a three year period following the change in control.
In the event of a change in control, each of Messrs. Corfino and Hinckley
may terminate his employment with Iwerks effective 30 days after the giving of
notice at any time commencing with the sixth month anniversary of the change in
control and terminating on the one year anniversary of the change in control and
receive his Separation Package. Also, if Iwerks terminates the officer's
employment for any reason at any time within the one year period following the
date of a change in control, then the officer shall receive his Separation
Package. In addition to the Separation Package and without regard to whether the
officer's employment is terminated following a change in control, upon the
occurrence of a change in control, all options then held by the officer which
are not yet vested shall vest as of the date of a change in control and shall
become immediately exercisable. These options shall remain exercisable with
respect to Mr. Corfino for 12 months following the date of the change in
control, and with respect to Mr. Hinckley, for 15 months following the date of
the change in control.
Effective February 23, 1998, Mr. Wright's position as Chairman of the
Board, Chief Executive Officer and President terminated. Pursuant to Mr.
Wright's separation agreement with Iwerks, Mr. Wright received $672,000, which
amount reflects Mr. Wright's base salary and annual stipend which would have
been payable to
14
<PAGE>
him for the 24 month period following termination. Mr. Wright also received paid
up group medical, supplemental life and disability and other insurance benefits
for himself and his family for the 24 months following the date of termination.
Mr. Wright also receives other benefits worth less than $10,000. Finally all
options held by Mr. Wright on the date of termination that were not vested
became vested and immediately exercisable for a period of 36 months following
the date of termination. Pursuant to the terms of the separation agreement, Mr.
Wright provided continued employment services to Iwerks for a three month period
from the date of notice of termination to assist in an orderly transition to his
successor. During such period, Mr. Wright received a base salary in an amount
equal to twice that of the base salary he was being paid prior to the
termination plus his annual stipend. In connection with his separation
agreement, Mr. Wright and Iwerks entered into an agreement on July 24, 1998
providing for the grant of an option to Mr. Wright to purchase 41,244 shares of
Common Stock for $1.625 per share, expiring July 23, 2001.
Effective January 23, 1998, Mr. Battison's employment with Iwerks terminated.
Pursuant to Mr. Battison's separation agreement with Iwerks, Mr. Battison has
received $200,000, which amount reflects Mr. Battison's base salary which would
have been payable to him for the 12 month period following termination. Mr.
Battison also received paid up COBRA benefits for himself and his family for the
12 months following the date of termination. Mr. Battison has also received
other benefits worth less than $10,000. Finally, all options held by Mr.
Battison on the date of termination that were not vested became vested and
immediately exercisable for a period of 15 months following the date of
termination.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers, directors and greater-than-ten percent stockholders
are required by SEC regulations to furnish the Company with all Section 16(a)
forms they file. Based solely on its review of the copies of the forms received
by it and written representations from certain reporting persons that they have
complied with the relevant filing requirements, the Company believes that,
during the year ended June 30, 1998, all the Company's executive officers,
directors and greater-than-ten percent stockholders complied with all Section
16(a) filing requirements except for Messrs. Shishido, Corfino and Beda, who
filed late Form 3(s) reporting their status as insiders of Iwerks; Mr. Iwerks,
who filed a late Form 4 reporting the sale of 10,000 shares of Common Stock; and
Mr. Goldwater, who filed a late Form 4 reporting the acquisition of 10,000
shares of Common Stock.
15
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the holders of the Common Stock with the cumulative
return of The Nasdaq Stock Market (US and Foreign Companies) Index and the Index
for NASDAQ Miscellaneous Amusement and Recreation Service Index for the period
commencing October 19, 1993 and ending on June 30, 1998. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN*
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/19/93 6/94 6/95 6/96 6/97 6/98
IWERKS ENTERTAINMENT, INC. 100.00 19.78 11.94 29.48 13.06 5.04
NASDAQ MISCELLANEOUS AMUSEMENT & 100.00 58.77 78.51 93.14 70.26 73.83
RECREATION SERVICE
NASDAQ STOCK MARKET (U.S. & FOREIGN) 100.00 92.76 123.02 156.99 190.80 249.84
</TABLE>
* The total return assumes that dividends were reinvested and is based on a $100
investment.
16
<PAGE>
PROPOSAL TO APPROVE THE 1998 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Company's 1998 Non-Employee Directors Stock Option Plan was adopted by the
Board of Directors on October 15, 1998, subject to stockholder approval (the
"Plan"). The Board adopted the Plan to promote the long-term success of the
Company and the creation of stockholder value encouraging the attraction and
retention of non-employee directors. The Plan seeks to achieve this by providing
for non-statutory stock options. The text of the Plan is set forth as Annex "A"
---------
to this Proxy Statement. The following is a summary of the principal features of
the Plan and does not purport to be complete. Stockholders are urged to read the
Plan in its entirety. This summary is subject to and qualified in its entirety
by reference to Annex "A".
---------
SHARES SUBJECT TO THE PLAN
Upon approval of this Proposal by the stockholders, there will be a total
of 250,000 shares of Common Stock authorized for option grants under the Plan.
The authorized shares issuable in connection with the Plan are subject to
adjustment in the event of stock splits, stock dividends and other situations.
If any option granted under the Plan expires or terminates for any reason
without having been exercised in full, then the unpurchased shares subject to
that option will once again be available for additional option grants under the
Plan.
PARTICIPANTS
The Plan provides for formula grants to directors who are not currently
officers or employees of the Company. Employee directors are not eligible to
participate in the Plan. Upon the initial election or appointment to the Board
of any person who is not then a current employee or officer of the Company, each
such person an "Optionee", the Committee shall grant to such Optionee, at the
first meeting of the Committee following the date of such election or
appointment and with an effective date of grant as of the date of the first
meeting of the Board of Directors attended by the Optionee after their
appointment or election, a ten year option to purchase 10,000 shares of Common
Stock. The Committee shall grant to each Optionee who is then serving on the
Board, with an effective date of grant as of the date of each Annual Meeting of
the Company's stockholders (or any Special Meeting in lieu of an Annual
Meeting), a ten year option to purchase the number of shares of Common Stock,
not to exceed 25,000 shares, determined by dividing $50,000 by the per share
fair market value of the Common Stock on the date of grant, subject to
adjustment as set forth in the Plan. The grants made pursuant to the Plan
constitute the only grants under the Plan or any other stock option plan of the
Company, permitted to be made to Optionees, unless the Optionee is expressly
made eligible for additional grants by a resolution of the Board.
ADMINISTRATION
The Plan will be administered by the Board or, at the Board's discretion, a
committee of the Board, provided, the timing and exercise price of options and
the number of shares subject to each option shall be determined by the express
terms of the Plan.
TERMS OF STOCK OPTIONS
The exercise price of each option shall be equal to 100% of the fair market
value of the shares on the date each option is granted. The exercise price is
payable (a) in United States dollars in cash or by check, (b) in whole or in
part in shares of Common Stock of the Company already owned by the exercising
party or (c) subject to the approval of the Plan administrator, in shares
subject to the option being exercised, valued at fair market value.
STOCKHOLDER RIGHTS
An Optionee shall have no dividend rights, voting rights or other rights as
a stockholder with respect to any Common Stock covered by his or her option
prior to the issuance of a stock certificate for such shares
17
<PAGE>
following the exercise of such option. No adjustment shall be made for cash
dividends or other similar rights for which the record date is prior to the date
when such certificate is issued.
RESTRICTIONS OF TRANSFER
Unless the option agreement otherwise provides, each option is transferable
only by will or the law of descent and distribution and shall only be
exercisable by the participant during his or her lifetime.
AMENDMENT OR TERMINATION OF THE DIRECTOR PLAN
The Board may, at any time and for any reason, amend or terminate the Plan;
provided, neither the Plan, nor any option agreement entered into pursuant to
the Plan, may be amended to reprice, or terminated to effect the repricing of,
an outstanding option, except as provided in the Plan. An amendment of the Plan
shall be subject to the approval of the Company's stockholders only to the
extent required by applicable laws, regulations or rules. No options shall be
granted under the Plan after the termination thereof. The termination of the
Plan, or any amendment thereof, shall not affect any option previously granted
under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the Plan
is intended to be a summary of applicable federal law. State and local tax
consequences may differ. The Plan does not constitute a qualified retirement
plan under Section 401(a) of the Code (which generally covers trusts forming
part of a stock bonus, pension or profit-sharing plan funded by the employer
and/or employee contributions which are designed to provide retirement benefits
to participants under certain circumstances) and is not subject to the Employee
Retirement Income Security Act of 1974 (the pension reform law which regulates
most types of privately funded pension, profit sharing and other employee
benefit plans). Because the federal income tax rules governing options and
related payments are complex and subject to frequent change, optionees are
advised to consult their tax advisors prior to exercise of options or
dispositions of stock acquired pursuant to option exercise.
Generally, an Optionee is not taxed on the grant of a non-statutory option.
On exercise, however, the Optionee recognizes ordinary income equal to the
difference between the option price and the fair market value of the shares on
the date of exercise. The Company is generally entitled to an income tax
deduction in the year of exercise in the amount recognized by the Optionee as
ordinary income. Provided the shares are held as a capital asset, any gain or
loss on subsequent disposition of the shares is short-term or long-term capital
gain or loss depending upon the length of time the shares have been held.
RECOMMENDATION AND REQUIRED APPROVAL
The Board of Directors has unanimously approved the Plan. Stockholder
approval of the Plan requires the affirmative vote of a majority of the shares
of Common Stock present or represented and entitled to vote on this matter at
the Annual Meeting. An abstention will be counted toward the tabulation of
votes cast and will have the same effect as a vote against the proposal. A
broker non-vote, however, will not be treated as a vote cast for or against
approval of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE 1998 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
18
<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of October 13, 1998 certain information
relating to the ownership of Common Stock by (a) each person known by Iwerks to
be the beneficial owner of more than 5% of the outstanding shares of the Common
Stock, (b) each of the directors of Iwerks, (c) each of the Named Executive
Officers, and (d) all of the executive officers and directors of Iwerks as a
group. Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each of such persons has the sole voting and
investment power with respect to the shares owned. Beneficial ownership has
been determined in accordance with Rule 13d-3 under the Exchange Act. Under
this Rule, certain shares may be deemed to be beneficially owned by more than
one person (such as where persons share voting power or investment powers). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided; in computing
the percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person (and
only such person) by reason of these acquisition rights on or before December
12, 1998, regardless of whether the market price for the shares underlying such
acquisition rights is substantially lower than the price at which the shares may
be acquired. As a result, the percentage of outstanding shares of any person as
shown in the following table does not necessarily reflect the person's actual
voting power at any particular date. Unless otherwise indicated, the address of
each person is c/o Iwerks Entertainment, Inc., 4540 West Valerio St., Burbank,
CA.
<TABLE>
<CAPTION>
Number Percent
of of Class
Name and Address Shares Owned
- ------------------------------------------- --------- --------
<S> <C> <C>
Charles Goldwater (1)...................... 99,167 * %
Bruce C. Hinckley (2)...................... 76,875 *
Roy A. Wright (3).......................... 581,244 4.50
William J. Battison (4).................... 301,500 2.39
Jon Corfino (5)............................ 48,708 *
Peter Hanelt............................... 0 *
Donald W. Iwerks (6)....................... 933,137 7.55
Bruce Beda................................. 30,000 *
Gary J. Matus (7).......................... 13,333 *
Dag Tellefsen (8).......................... 600,786 4.85
Heartland Advisors, Inc. (9)............... 3,009,100 24.36
790 North Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors, Inc. (10)....... 850,720 6.89
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All executive officers and directors as
a group (10 persons) (11).................. 1,852,496 14.66
</TABLE>
- ------------------------------
19
<PAGE>
* Less than one percent.
(1) Consists of 79,167 shares of Common Stock underlying options which are or
will become exercisable on or before December 12, 1998.
(2) Includes 61,875 shares of Common Stock underlying options which are or will
become exercisable on or before December 12, 1998.
(3) Includes 552,244 shares of Common Stock underlying options which are or
will become exercisable on or before December 12, 1998. Mr. Wright was
succeeded by Mr. Charles Goldwater as Chairman of the Board, Chief
Executive Officer and President effective February 23, 1998. Pursuant to
Mr. Wright's severance agreement with Iwerks, all unvested options as of
February 23, 1998 became vested and immediately exercisable.
(4) Includes 261,500 shares of Common Stock underlying options which are or
will become exercisable on or before December 12, 1998. Mr. Battison
provided consulting services in early fiscal 1995 and joined Iwerks as an
executive officer in January 1995. Mr. Battison's employment with Iwerks
terminated January 23, 1998. Pursuant to Mr. Battison's severance agreement
with Iwerks, all unvested options became exercisable as of January 23,
1998.
(5) Includes 47,708 shares of Common Stock underlying options which are or will
become exercisable on or before December 12, 1998.
(6) Includes 928,970 shares of Common Stock held by the Donald and Betty Iwerks
1995 Family Trust and 4,167 shares of Common Stock underlying options which
are or will become exercisable on or before December 12, 1998. Mr. Iwerks
resigned as Chief Technical Officer of Iwerks effective as of December 31,
1995. Mr. Iwerks currently serves on the Board of Directors and is a
consultant to Iwerks.
(7) Consists of options to purchase shares of Common Stock which are or will
become exercisable on or before December 12, 1998.
(8) Includes 31,597 shares of Common Stock underlying options which are or will
become exercisable on or before December 12, 1998. Includes 530,031 shares
of Common Stock owned by Meriken Nominees Limited as nominee for Glenwood
Ventures, 37,408 shares owned by Glenwood Management and 1,750 shares owned
by Dag Tellefsen and Associates, all of which Mr. Tellefsen disclaims
beneficial interest. Mr. Tellefsen is a principal of Glenwood Ventures,
Glenwood Management and Dag Tellefsen and Associates.
(9) Based on information contained in a Schedule 13G dated February 3, 1998.
(10) Based on information contained in a Schedule 13G dated February 10, 1998.
(11) Includes 287,337 shares of Common Stock underlying options which are or
will become exercisable on or before December 12, 1998.
20
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 1999 Annual
Meeting of Stockholders for inclusion in the Company's Proxy Statement and Proxy
form relating to such Annual Meeting must submit such proposal to the Company at
its principal executive offices by June 30, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young, LLP, independent public accountants, were selected by the
Board of Directors to serve as independent public accountants of the Company for
the year ended June 30, 1998. The Audit Committee has not yet had the
opportunity to review with Ernst & Young, LLP the proposed terms of their
engagement to audit the Company's financial statements for the fiscal year
ending June 30, 1999; and until the terms of such engagement have been finalized
and agreed upon, the Audit Committee cannot finalize its selection of auditors
for such year. Representatives of Ernst & Young, LLP are expected to be present
at the December 17, 1998 Annual Meeting of Stockholders, and will be afforded
the opportunity to make a statement if they desire to do so, and to be available
to respond to appropriate questions from stockholders.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by mail.
The cost of solicitation by management will be borne by the Company. The
Company will reimburse brokerage firms and other persons representing beneficial
owners of shares for their reasonable disbursements in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors and officers, without additional compensation,
personally or by mail, telephone, telegram or otherwise for the purpose of
soliciting such proxies.
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED JUNE 30, 1998 WILL BE MADE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, IWERKS ENTERTAINMENT, INC., 4540 WEST VALERIO STREET, BURBANK,
CALIFORNIA 91505-1046.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Bruce Hinckley
Bruce Hinckley
Chief Financial Officer
4540 West Valerio Street,
Burbank, California 91505-1046
October 28, 1998
21
<PAGE>
ANNEX A
IWERKS ENTERTAINMENT, INC.
1998 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE.
--------
This 1998 Non-Employee Directors Stock Option Plan (hereinafter, the "PLAN")
is intended to promote the interests of Iwerks Entertainment, Inc. (the
"COMPANY"), by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "BOARD").
2. AVAILABLE SHARES.
-----------------
The total number of shares of Common Stock, $.001 par value per share, of
the Company (the "COMMON STOCK"), for which options may be granted under the
Plan shall not exceed 250,000 shares subject to adjustment in accordance with
paragraph 10 of the Plan. Shares subject to the Plan are authorized but unissued
shares or treasury shares. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. ADMINISTRATION.
---------------
The Plan shall be administered by the Board or by a committee appointed by
the Board (the "COMMITTEE") composed solely of two or more Non-Employee
Directors (as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")). In the event the Board does not appoint a
Committee, the Board shall have all power and authority to administer the Plan.
In such event, the word "Committee" wherever used herein shall be deemed to mean
the Board. The Committee shall, subject to the provisions of the Plan, have the
power to construe the Plan, to determine all questions hereunder, and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable.
4. GRANTING OF OPTIONS.
--------------------
Upon the initial election or appointment to the Board of any person who is
not then a current employee or officer of the Company (each such person an
"OPTIONEE"), the Committee shall grant to such Optionee, at the first meeting of
the Committee following the date of such election or appointment and with an
effective date of grant as of the date of the first meeting of the Board of
Directors attended by the Optionee after their appointment or election, a ten
year option to purchase 10,000 shares of Common Stock. The Committee shall grant
to each Optionee who is then serving on the Board, with an effective date of
grant as of the date of each Annual Meeting of the Company's stockholders
commencing on the Annual Meeting for the fiscal year ended June 30, 1998 (or any
Special Meeting in lieu of an Annual Meeting), a ten year option to purchase the
number of shares of Common Stock, not to exceed 25,000 shares, determined by
dividing $50,000 by the per share fair market value of the Common Stock on the
date of grant, subject to adjustment as set forth herein. The grants made
pursuant to this Section 4, and any grants made pursuant to Section 10, shall
constitute the only grants under the Plan, or any other stock option plan of the
Company, permitted to be made to an Optionee, unless the Optionee is expressly
made eligible for additional grants by a resolution of the Board.
A-1
<PAGE>
5. OPTION PRICE.
-------------
The purchase price of the stock covered by an option granted pursuant to
this Plan (the "EXERCISE PRICE") shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of Section 10 below. For purposes
of this Plan "fair market value" per share at any date shall mean (i) if the
Common Stock is listed on an exchange or exchanges, or admitted for trading in a
market system which provides last sale data under Rule 11Aa3-1 of the Exchange
Act (a "MARKET SYSTEM"), the last reported sales price per share on the last
business day prior to such date on the principal exchange on which it is traded,
or in such a Market System, as applicable, or if no sale was made on such day on
such principal exchange or in such a Market System, as applicable, the last
reported sales price per share on the most recent day prior to such date on
which a sale was reported on such exchange or such Market System, as applicable;
or (ii) if the Common Stock is not then traded on an exchange or in such a
Market System, the average of the closing bid and asked prices per share for the
Common Stock in the over-the-counter market as quoted on Nasdaq on the day prior
to such date; or (iii) if the Common Stock is not listed on an exchange or
quoted on Nasdaq, an amount determined in good faith by the Committee, whose
determination shall be final and conclusive for purposes of the Plan and any
agreement entered into pursuant to the Plan.
6. PERIOD OF OPTION.
-----------------
Unless sooner terminated in accordance with the provisions of Section 8
below, an option granted hereunder shall expire on the date which is ten years
after the date of grant of the option.
7. VESTING OF SHARES, LEGENDS AND NON-TRANSFERABILITY OF OPTIONS.
--------------------------------------------------------------
(a) VESTING.
--------
Options granted under this Plan shall vest as to 1/4th of the shares of
Common Stock subject to such option on the first anniversary of the date of
grant, and as to 1/48th of the shares of Common Stock subject to each such stock
option as of the date of grant, subject to adjustment pursuant to Section 10, on
the first day of each month thereafter until each such stock option is fully
exercisable.
(b) LEGEND ON CERTIFICATES.
-----------------------
The certificates representing such shares shall carry such appropriate
legend and such written instructions shall be given to the Company's transfer
agent as may be deemed necessary or advisable by counsel to the Company in order
to comply with the requirements of the Securities Act of 1933, as amended, or
any state securities laws.
(c) NON-TRANSFERABILITY.
--------------------
Any option granted pursuant to this Plan shall not be assignable or
transferable other than by will or the laws of descent and distribution and
shall be exercisable during the Optionee's lifetime only by him or her.
8. TERMINATION OF OPTION RIGHTS.
-----------------------------
(a) In the event an Optionee ceases to be a member of the Board for any
reason other than death or permanent disability, as determined by the Committee
in its sole discretion ("PERMANENT DISABILITY"), any then unexercised portion of
options granted to such Optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the Optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
Optionee until the earlier of the scheduled expiration date of the option and 90
days after the date the Optionee ceased to be
A-2
<PAGE>
a member of the Board.
(b) In the event that an Optionee ceases to be a member of the Board by
reason of his or her death or Permanent Disability, any option granted to such
Optionee shall be immediately and automatically accelerated and become fully
vested and all unexercised options shall be exercisable by the Optionee (or by
the optionee's personal representative, heir or legatee, in the event of death)
until the earlier of the scheduled expiration date of the option or one year
after the death or disability of the Optionee.
(c) Notwithstanding the provisions in this Section 8, the Committee may, in
its sole discretion, establish different terms and conditions pertaining to the
effect of a participant's ceasing to be a member of the Board.
9. EXERCISE OF OPTION.
-------------------
An option granted hereunder shall, to the extent then exercisable, be
exercisable in whole or in part by giving written notice to the Company at its
principal office address, stating the number of shares with respect to which the
option is being exercised, accompanied by payment in full for such shares.
Payment may be (a) in United States dollars in cash or by check, (b) in whole or
in part in shares of Common Stock of the Company already owned by the person or
persons exercising the option or shares subject to the option being exercised
(subject to such restrictions and guidelines as the Board may adopt from time to
time), valued at fair market value determined in accordance with the provisions
of Section 5 or (c) consistent with applicable law and subject to the
Committee's approval at its sole discretion, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise. The Company's
transfer agent shall, on behalf of the Company, prepare a certificate or
certificates representing such shares acquired pursuant to exercise of the
option, shall register the Optionee as the owner of such shares on the books of
the Company and shall cause the fully executed certificates(s) representing such
shares to be delivered to the Optionee as soon as practicable after payment of
the option price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS.
-------------------------------------------------------------
Upon the occurrence of any of the following events, an Optionee's rights
with respect to options granted to him or her hereunder shall be adjusted as
hereinafter provided:
(a) STOCK DIVIDENDS.
----------------
If there is any change in the number of outstanding shares of Common
Stock through the declaration of stock dividends or through a recapitalization
resulting in stock splits, or combinations or exchanges of the outstanding
shares of Common Stock, (i) the number of shares covered by outstanding options
issued pursuant to the Plan, and (ii) the Exercise Price of any option issued
pursuant to the Plan in effect prior to such change, shall be proportionately
adjusted by the Committee to reflect such event; provided, however, that any
fractional shares resulting from the adjustment shall be eliminated.
(b) MERGER; CONSOLIDATION; LIQUIDATION; SALE OF ASSETS.
---------------------------------------------------
In the event the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation or if the Company is liquidated or sells or otherwise disposes of
all or substantially all of its assets to another corporation (a "LIQUIDATING
EVENT") while unexercised options remain outstanding under this Plan, (i)
subject to the provisions of clause (ii) below, after the effective date of
A-3
<PAGE>
such Liquidating Event each holder of an outstanding option, to the extent such
option is vested, shall be entitled, upon exercise of such option, to receive in
lieu of shares of Common Stock, shares of such stock or other securities as the
holders of shares of Common Stock received pursuant to the terms of the
Liquidating Event; or (ii) all outstanding options may be cancelled by the Board
as of the effective date of any such Liquidating Event, provided that notice of
such cancellation shall be given to each holder of an option, and each such
option shall immediately vest in full 30 days preceding the effective date of
such Liquidating Event such that each such holder thereof shall have the right
to exercise such option in full during such 30-day period preceding the
effective date of the Liquidating Event.
(c) ISSUANCE OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares subject to options. No adjustments shall be made
for dividends paid in cash or in property other than securities of the Company.
(d) NO FRACTIONAL SHARES.
---------------------
No fractional shares shall actually be issued under the Plan. Any fractional
shares which, but for this subparagraph (d), would have been issued to an
Optionee pursuant to an option shall be eliminated without the Company's payment
of any consideration to the Optionee.
(e) ADJUSTMENTS.
------------
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Section 2 above that are subject to options which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect such events. The Committee shall determine the
specific adjustments to be made under this Section 10 and its determination
shall be conclusive.
11. RESTRICTIONS ON ISSUANCE OF SHARES.
-----------------------------------
Notwithstanding the provisions of Sections 4 and 9 above, the Company shall
have no obligation to deliver any certificate or certificates upon exercise of
an option until one of the following conditions shall be satisfied: (i) the
shares with respect to which the option has been exercised are at the time of
the issue of such shares effectively registered under applicable federal and
state securities laws as now in force or hereafter amended; or (ii) counsel for
the Company shall have given an opinion that such shares are exempt from
registration under federal and state securities laws as now in force or
hereafter amended; and the Company has complied with all applicable laws and
regulations with respect thereto, including without limitation all regulations
required by any stock exchange upon which the Company's outstanding Common stock
is then listed.
12. REPRESENTATION OF OPTIONEE.
---------------------------
If requested by the Company, the Optionee shall deliver to the Company
written representations and warranties upon exercise of the option that are
necessary to show compliance with federal and state securities laws, including
representations and warranties to the effect that a purchase of shares under the
option is made for investment and not with a view to their distribution (as that
term is used in the Securities Act of 1933, as amended).
13. OPTION AGREEMENT.
-----------------
Each option granted under the provisions of this Plan shall be evidenced by
an option agreement, which
A-4
<PAGE>
agreement shall be duly executed and delivered on behalf of the Company and by
the Optionee to whom such option is granted. The option agreement shall contain
such terms, provisions and conditions not inconsistent with this Plan as may be
determined by the officer executing it.
14. TERM AND AMENDMENT OF PLAN.
---------------------------
This Plan was adopted by the Board effective as of October 15, 1998, and is
subject to approval by the stockholders of the Company. Prior to the adoption of
the Plan by the stockholders of the Company, no Optionee shall receive any
option grant hereunder. The Plan will terminate, and no options shall be
granted under the Plan, as of that date which is ten years from the date the
Plan is adopted by the Board, provided the Board may at any earlier time
terminate the Plan or make such modification or amendment thereof as it deems
advisable; provided, further that the Board may not, without approval by the
stockholders, (a) increase the maximum number of shares for which options may be
granted under the Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in the Plan,
(c) materially increase benefits accruing to option holders under the Plan or
(d) amend the Plan in any manner which would cause the Plan to cease to comply
with Exchange Act Rule 16b-3. Neither the Committee nor the Board shall, except
as provided in Section 10, have the power to adjust or amend the exercise price
of any options granted pursuant hereto, whether through amendment, cancellation
or replacement grants, or any other means. Termination or any modification or
amendment of the Plan shall not, without consent of a participant, affect his or
her rights under an option previously granted to him or her.
15. COMPLIANCE WITH REGULATIONS.
----------------------------
It is the Company's intent that this Plan comply in all respects with
Exchange Act Rule 16b-3 and any applicable Securities and Exchange Commission
interpretations thereof. If any provision of the Plan is deemed not to be in
compliance with Exchange Act Rule 16b-3, such provision shall be null and void.
16. TAX WITHHOLDING OBLIGATIONS.
----------------------------
To the extent required by applicable federal, state, local or foreign law,
an Optionee or his or her successor shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise in
connection with the Plan. The Company shall not be required to issue any Common
Stock or make any cash payment under the Plan until such obligations are
satisfied.
A-5
<PAGE>
IWERKS ENTERTAINMENT, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of IWERKS ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), hereby appoints Charles Goldwater and Bruce
Hinckley, and each of them, as the proxies of the undersigned, with full power
of substitution, to attend, vote and act for the undersigned at the Annual
Meeting of Stockholders of the Company, to be held on December 17, 1998, and any
postponements or adjournments thereof, and in connection herewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
The Board of Directors recommends a WITH vote on Proposal 1 and a FOR vote
on Proposal 2.
1. ELECTION OF CLASS II DIRECTORS, as provided in the Company's Proxy
Statement:
___ WITH ___ WITHOUT Authority to vote for the nominees
listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR THE NOMINEES, LINE THROUGH
OR OTHERWISE STRIKE OUT NAMES BELOW)
Mr. Dag Tellefsen Mr. Peter Hanelt
2. The approval of the 1998 Non-Employee Directors Stock Option Plan:
____ FOR ____ AGAINST ____ ABSTAIN
The undersigned hereby revokes any other proxy to vote at such Meeting, and
hereby ratifies and confirms all that said proxy may lawfully do by virtue
hereof. WITH RESPECT TO SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING AND ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF, SAID PROXY IS AUTHORIZED
TO VOTE IN ACCORDANCE WITH ITS BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE CLASS II DIRECTORS NAMED, THE 1998 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN, AND AS SAID PROXY SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS
MAY COME BEFORE THE MEETING, UNLESS OTHERWISE DIRECTED.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated October 28, 1998 relating to the
Meeting.
Date: ___________, 1998
________________________________________
________________________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should correspond exactly with
the name(s) of the stockholder(s) appearing on the
Stock Certificate. If stock is jointly held, all joint
owners should sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. If signer is a corporation,
please sign the full corporation name, and give title
of signing officer.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF IWERKS ENTERTAINMENT, INC.
