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
[ ] Definitive Additional Materials by 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:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date filed:
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<PAGE>
IWERKS ENTERTAINMENT, INC.
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 13, 2000
-----------
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders (the "Annual Meeting") of Iwerks Entertainment, Inc. (the
"Company"), to be held at 4540 West Valerio Street in Burbank, California at
10:00 a.m., local time. The Annual Meeting is being held for the following
purposes:
1. To elect two Class I Directors to hold office for three years
and until their respective successors have been elected;
2. To approve the proposal to amend the Company's Amended and
Restated Certificate of Incorporation, as amended, to effect a
one-for-three and one-half reverse stock split of the shares
of the Company's Common Stock; 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 November 24, 1999 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
December 17, 1999
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 JANUARY 13, 2000
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Iwerks Entertainment, Inc., a Delaware
corporation ("Iwerks" or the "Company"), for use at the 1999 Annual Meeting of
the Company's Stockholders (the "Annual Meeting") to be held at 4540 West
Valerio Street in Burbank, California 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 November 24, 1999 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, 12,390,581 shares of the Company's common stock, par value $.001 per share
("Common Stock"), 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 868 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 will
be counted toward the tabulation of votes cast on proposals submitted to
stockholders and will have the same effect as negative votes, while broker
non-votes will not be counted as votes for or against such matters. The
presence, in person or by Proxy, of a majority of the votes entitled to be cast
by the stockholders entitled to vote at the Annual Meeting is necessary to
constitute a quorum. Abstentions and broker non-votes 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 December 17,
1999.
<PAGE>
ELECTION OF CLASS I DIRECTORS
In accordance with the Company's Amended and Restated Certificate of
Incorporation, as amended ("Certificate of Incorporation"), and Bylaws, as
amended ("Bylaws"), the Company's Board of Directors (the "Board") is divided
into three classes. At each annual meeting of the Company's stockholders,
directors constituting one class are elected for three-year terms. The Company's
Bylaws provide that the Board shall consist of not less than five and not more
than nine members as determined from time to time by the Board. The Board
currently consists of two Class I Directors, with terms expiring in 1999, three
Class II Directors, with terms expiring in 2001, and three Class III Directors,
with terms expiring in 2000. At the Annual Meeting, two Class I 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 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 UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.
The Board proposes the election of the following nominees as Class I
Directors:
Mr. Donald W. Iwerks
Mr. Gary J. Matus
If elected, each nominee is expected to serve until the 2002 Annual
Meeting of the Company's stockholders. The two nominees for election as Class I
Directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected.
Page 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
December 10, 1999.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION WITH COMPANY
---- --- ---------- ---------------------
<S> <C> <C> <C>
NOMINEES:
CLASS I DIRECTORS
(terms to expire in 2002)
Donald W. Iwerks(1) 70 1986 Co-Founder and Director
Gary J. Matus(2) 51 1996 Director
CONTINUING DIRECTORS:
CLASS II DIRECTORS
(terms to expire in 2001)
Peter Guber 57 1999 Director and Chairman of the Board
Peter Hanelt(2)(3) 54 1998 Director
Dag Tellefsen(1)(3) 57 1993 Director
CLASS III DIRECTORS
(terms to expire in 2000)
Bruce Beda(2)(3) 59 1998 Director
Charles Goldwater 48 1998 Chief Executive Officer, President and Director
Paul Schaeffer 52 1999 Director and Vice Chairman of the Board
OTHER EXECUTIVE
OFFICERS:
Jon Corfino 41 Senior Vice President of Film and Executive
in Charge of Production
Jeffrey M. Dahl 37 Senior Vice President, Chief Financial Officer and Secretary
<FN>
- --------------------------------------
(1) Member of the Nominating Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
</FN>
</TABLE>
The executive officers of Iwerks are appointed by and serve at the
discretion of the Board. There is no family relationship between any director
and any executive officer of Iwerks.
Page 3
<PAGE>
DONALD W. IWERKS is a co-founder of Iwerks and has been a director
since Iwerks' inception. Mr. Iwerks served as Chief Technical Officer of Iwerks
until his retirement in December 1995 and as Vice Chairman of the Board until
September 1999. 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.
GARY J. MATUS has been a director of Iwerks since July 1996. Since May
1999, Mr. Matus has served as Chief Operating Officer of Themeware/Internet
Toolbox. From December 1989 to May 1999, Mr. Matus held various positions with
Bank of America, N.T. & S.A., including from October 1996, Executive Vice
President and Chief Marketing Officer, responsible for the bank's marketing
operations. Prior thereto, 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).
PETER GUBER joined Iwerks as a director and Chairman of the Board in
September 1999. Mr. Guber is the co-founder of Mandalay Entertainment Group,
which includes Mandalay Pictures, Mandalay Television, Mandalay Sports
Entertainment, Mandalay Media Arts and Mandalay E-Media, and has served as its
Chairman and Chief Executive Officer since its inception in 1995. Prior thereto,
from 1989 to 1995, Mr. Guber served as Chairman and Chief Executive Officer of
Sony Pictures Entertainment.
PETER HANELT has been a director of Iwerks since July 1998. Since
February 1998, Mr. Hanelt has served as Chief Executive Officer and 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.
Mr. Hanelt also serves as director of Shoe Pavilion, Inc., Patelco Credit Union,
Interhealth Nutraceuticals and Natural Wonders, Inc.
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-Tencor Corporation and
Octel Communications Corporation.
BRUCE BEDA has been a director of Iwerks since July 1998. Since
February 1995, Mr. Beda has served 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 Corp.
CHARLES GOLDWATER has been a director of Iwerks and served as its Chief
Executive Officer and President since February 20, 1998. Mr. Goldwater served as
Chairman of the Board until September 1999. 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.
PAUL SCHAEFFER joined Iwerks as a director and Vice Chairman of the
Board in September 1999. Mr. Schaeffer is a co-founder of Mandalay Entertainment
Group and has served as its Vice Chairman and Chief Operating Officer since its
inception in 1995. Prior thereto, from 1989 to 1995, Mr. Schaeffer served as
Executive Vice President of Sony Pictures Entertainment, overseeing worldwide
corporate operations including Worldwide Administration, Financial Affairs,
Human Resources, Corporate Affairs, Legal Affairs and Corporate Communications.
During his tenure, Mr. Schaeffer also had supervisory responsibility for the
rebuilding and renovation of Sony Pictures Studios.
Page 4
<PAGE>
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, including Vice
President of Attractions, Vice President of Owned and Operated Operations,
Director of Studio Operations and Production Manager.
JEFFREY M. DAHL, C.P.A. has served as Iwerks' Senior Vice President,
Chief Financial Officer and Secretary since February 1999. From October 1996 to
February 1999, Mr. Dahl served as Vice President and Controller of Iwerks. Prior
thereto, from January 1994 to October 1996, Mr. Dahl served as Controller of ACT
III Broadcasting Inc.
BOARD MEETINGS AND COMMITTEES
The Board held a total of 6 meetings during the fiscal year ended June
30, 1999. The Board has an Audit Committee, a Compensation Committee and a
Nominating Committee. During the fiscal year ended June 30, 1999, the Audit
Committee held a total of 4 meetings. During the fiscal year ended June 30,
1999, each director attended at least 75% of the meetings of the Board held
while he was a director and of the committees of the Board on which he served.
The Audit Committee's functions include recommending to the Board 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. Currently, the members of the Audit Committee are
Messrs. Gary J. 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 Donald
W. Iwerks.
COMPENSATION OF DIRECTORS
Upon the initial election or appointment to the Board of any person who
is not then a current employee or officer of the Company (an "Outside
Director"), such Outside Director is granted, effective as of the date of the
first meeting of the Board attended by the Outside Director after his or her
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 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, up to a
maximum of 25,000 shares. 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. With the exception of reimbursement for travel expenses incurred on
behalf of Iwerks, Messrs. Peter Guber and Paul Schaeffer do not receive any
compensation for serving as directors of the Company.
Page 5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Dag Tellefsen and Donald W. Iwerks served as members of the
Board's Compensation Committee 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 (the "SEC") 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 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 (the "Exchange Act"), that
incorporates future Securities Act or Exchange Act filings in whole or in part
by reference.
GENERAL
The Compensation Committee of the Board (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 Board. 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.
Page 6
<PAGE>
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. None of the Company's
executive officers earned bonus awards in fiscal 1999.
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.
DETERMINATION OF CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Goldwater has served as Chief Executive Officer of the Company
since February 20, 1998. As Chief Executive Officer, Mr. Goldwater is
compensated pursuant to an employment agreement described under "Certain
Transactions with Management," below. Mr. Goldwater's overall compensation was
established through arm's length negotiations with the Committee, which at the
time consisted of Messrs. Dag Tellefsen and Don Iwerks, at a level which was
based on his proven talent and executive 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. Pursuant to Mr.
Goldwater's employment agreement, Mr. Goldwater was compensated at an annual
rate equal to $330,000 during his first year of employment with the Company,
which commenced on February 20, 1998. Each year thereafter, his salary shall
increase by 5% over the previous year's base salary. Mr. Goldwater also is
eligible for a bonus at the discretion of the Board. For the year ended June 30,
1999, Mr. Goldwater did not receive a bonus.
SUMMARY
The 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 (Since July 16, 1998)
Peter Hanelt (Since July 16, 1998)
Page 7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and
as to each of the other five 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)....... 1999 $ 330,000 -- $ 12,000 -- $ 11,255(4)
Chief Executive Officer, 1998 134,538 -- 4,000 250,000 1,890(5)
President and Former
Chairman of the Board
Bruce Hinckley(6).......... 1999 $ 138,583 -- $ 8,000 -- $ 202,552(7)
Former Executive Vice 1998 172,115 -- 7,000 -- 2,740(8)
President, Chief Financial 1997 110,769 $37,000 -- 37,474 --
Officer and Secretary
Jeffrey M. Dahl(9)......... 1999 $ 112,923 -- $ 12,000 25,000 $ 3,026(8)
Senior Vice President, 1998 96,404 -- 7,000 -- 2,885(8)
Chief Financial Officer 1997 60,308 $12,000 -- 6,705 --
and Secretary
Daniel Griesmer(10)........ 1999 $ 131,580 -- $ 12,000 -- $ 3,797(8)
Former Senior Vice 1998 40,000 -- 5,968 75,000 --
President -
General Manager
Jon Corfino................ 1999 $ 125,793 -- $ 12,000 25,000 $ 3,626(8)
Senior Vice President 1998 116,495 -- 7,000 -- 2,526(8)
of Film and Executive in 1997 114,799 $15,000 -- 6,744 --
Charge of Production
Jack Shishido(11).......... 1999 $ 156,923 -- $ 12,000 -- $ 3,508(8)
Former Senior Vice
President of Worldwide
Sales
- ----------------------
<FN>
(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 resigned as Chairman of the Board in September 1999
concurrent with Mr. Peter Guber's appointment as Chairman of the Board.
Page 8
<PAGE>
(4) Includes (i) $9,365 paid pursuant to the Company's 401(k) plan and (ii)
$1,890 which represents the dollar value of term life insurance premiums
paid by Iwerks.
(5) Represents the dollar value of term life insurance premiums paid by Iwerks.
(6) Mr. Hinckley resigned from his positions with Iwerks in February 1999.
(7) Includes (i) $200,000 in severance payments made pursuant to Mr. Hinckley's
second amended and restated separation agreement with the Company and (ii)
$2,552 paid pursuant to the Company's 401(k) plan.
(8) Represents amounts paid pursuant to the Company's 401(k) plan.
(9) Mr. Dahl joined Iwerks as Vice President and Controller in October 1996 and
was appointed Senior Vice President, Chief Financial Officer and Secretary
in February 1999.
(10) Mr. Griesmer resigned from his position with Iwerks in December 1999.
(11) Mr. Shishido resigned from his position with Iwerks in August 1999.
</FN>
</TABLE>
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, 1999 to the Named
Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION FOR
GRANTED TO OPTION TERM(1)
NUMBER OF EMPLOYEES EXERCISE OR -----------------------------
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED(2) YEAR(3) PER SHARE(4) DATE 5% 10%
- ------------------------------- --------- ---------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charles Goldwater(5)........... -- -- -- -- -- --
Bruce Hinckley(6).............. -- -- -- -- -- --
Jeffrey M. Dahl(7)............. 6,705(8) 1.49% $1.8125 7/15/08 $ 7,643 $19,368
25,000 5.56% 1.25 4/12/09 19,653 $49,804
Daniel Griesmer(9)............. -- -- -- -- -- --
Jon Corfino.................... 19,213(10) 4.27% $1.8125 7/15/08 $21,900 $55,500
25,000 5.56% 1.25 4/12/09 19,653 49,804
Jack Shishido(11).............. -- -- -- -- -- --
- ----------------------
<FN>
(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
Page 9
<PAGE>
term. These amounts are calculated pursuant to applicable requirements of
the SEC 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 plan 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 449,563 shares were granted to eligible
employees during the fiscal year ended June 30, 1999. Of these options,
89,986 were issued in exchange for outstanding options. See "Exchange of
Stock Options," below.
(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. Goldwater resigned as Chairman of the Board in September 1999
concurrent with Mr. Peter Guber's appointment as Chairman of the Board.
(6) Mr. Hinckley resigned from his positions with Iwerks in February 1999.
(7) Mr. Dahl was appointed as Iwerks' Senior Vice President, Chief Financial
Officer and Secretary in February 1999.
(8) Represents options issued in exchange for outstanding options. See
"Exchange Of Stock Options," below.
(9) Mr. Griesmer resigned from his position with Iwerks in December 1999.
(10) Represents options issued in exchange for outstanding options. See
"Exchange Of Stock Options," below.
(11) Mr. Shishido resigned from his position with Iwerks in August 1999.
</FN>
</TABLE>
Page 10
<PAGE>
STOCK OPTIONS HELD AT FISCAL YEAR-END
During the fiscal year ended June 30, 1999, 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 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 National Market on June 30, 1999 ($1.06 per share).
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF ALL UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR-END
--------------------- ------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- -------------------------- --------------------- ------------------------
<S> <C> <C>
Charles Goldwater(1)...... 116,665/133,335 $0/0
Bruce Hinckley(2)......... 37,474/0 $0/0
Jeffrey M. Dahl(3)........ 0/31,705 $0/0
Daniel Griesmer(4)........ 23,437/51,563 $0/0
Jon Corfino............... 15,500/44,213 $480/0
Jack Shishido(5).......... 18,750/56,250 $0/0
- ------------------------
<FN>
(1) Mr. Goldwater resigned as Chairman of the Board in September 1999
concurrent with Mr. Peter Guber's appointment as Chairman of the Board.
(2) Mr. Hinckley resigned from his positions with Iwerks in February 1999.
(3) Mr. Dahl was appointed as Senior Vice President, Chief Financial Officer
and Secretary in February 1999.
(4) Mr. Griesmer resigned from his position with Iwerks in December 1999.
(5) Mr. Shishido resigned from his position with Iwerks in August 1999.
</FN>
</TABLE>
EXCHANGE OF STOCK OPTIONS
Competition for skilled executives in the movie exhibition industry is
intense and the use of significant stock options for retention and motivation of
such personnel is widespread in the entertainment industry. The Compensation
Committee believes that stock options are a critical component of the
compensation offered by the Company to promote longer-term retention of key
employees, motivate high levels of performance and recognize employee
contributions in the success of the Company. Since 1994, the market price of the
Common Stock has generally decreased. In light of this decline in the market
price, the Compensation Committee believed that the larger numbers of
outstanding stock options with exercise prices in excess of the actual market
price were no longer an effective tool to encourage employee retention or to
motivate high levels of performance. As a result, during the fiscal year ended
June 30, 1999, the Compensation Committee approved a plan whereby employees of
Iwerks were provided the opportunity to have certain of their stock options
cancelled and exchanged for new stock options ("New Stock Options") with an
exercise price of $1.8125, representing the fair market value of the Common
Stock as of the grant date. The number of New Stock Options granted to an
employee was equal to the number of stock options being cancelled multiplied by
a fraction, the numerator of which was the new
Page 11
<PAGE>
exercise price ($1.8125) and the denominator of which was the exercise price of
those stock options being cancelled. All New Stock Options were subject to a new
four-year vesting period and a new ten-year term. Three Named Executive Officers
(Messrs. Jeffrey M. Dahl, Jon Corfino and Bruce Hinckley) elected to have
certain of their stock options cancelled and exchanged as follows: (1) Mr. Dahl
had (a) 10,000 stock options with an exercise price of $5.4375 cancelled and
exchanged for 3,333 New Stock Options and (b) 10,000 stock options with an
exercise price of $5.375 cancelled and exchanged for 3,372 New Stock Options;
(2) Mr. Corfino had (a) 20,000 stock options with an exercise price of $5.375
cancelled and exchanged for 6,744 New Stock Options, (b) 25,000 stock options
with an exercise price of $5.00 cancelled and exchanged for 9,063 New Stock
Options, (c) 6,500 stock options with an exercise price of $4.875 cancelled and
exchanged for 2,417 New Stock Options and (d) 3,000 stock options with an
exercise price of $5.50 cancelled and exchanged for 989 New Stock Options; and
(3) Mr. Hinckley had (a) 100,000 stock options with an exercise price of $6.625
cancelled and exchanged for 27,358 New Stock Options and (b) 30,000 stock
options with an exercise price of $5.375 cancelled and exchanged for 10,116 New
Stock Options.
The cancellation and exchange of certain stock options held by any
executive officer, including the Named Executive Officers, during the last 10
completed fiscal years is provided in the following table:
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT NEW OPTION TERM
OPTIONS TIME OF TIME OF EXERCISE REMAINING AT
AMENDED AMENDMENT AMENDMENT PRICE DATE OF
NAME DATE (#) ($) ($) ($) AMENDMENT
- --------------------------- --------- ----------------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charles Goldwater(1) -- -- -- -- -- --
Bruce Hinckley(2) 7/16/98 10,116(6) $ 1.8125 $ 5.375 $ 1.8125 103 months
7/16/98 27,358(7) 1.8125 6.625 1.8125 98 months
Jeffrey M. Dahl(3) 7/16/98 3,372(8) $ 1.8125 $ 5.375 $ 1.8125 103 months
7/16/98 3,333(9) 1.8125 5.4375 1.8125 99 months
Daniel Griesmer(4) -- -- -- -- -- --
Jon Corfino 7/16/98 6,744(10) $ 1.8125 $ 5.375 $ 1.8125 103 months
7/16/98 9,063(11) 1.8125 5.00 1.8125 87 months
7/16/98 2,417(12) 1.8125 4.875 1.8125 80 months
7/16/98 989(13) 1.8125 5.50 1.8125 65 months
7/25/94 3,000(14) 5.50 25.50 5.50 113 months
Jack Shishido(5) -- -- -- -- -- --
- -------------------------
<FN>
(1) Mr. Goldwater resigned as Chairman of the Board in September 1999
concurrent with Mr. Peter Guber's appointment as Chairman of the Board.
(2) Mr. Hinckley resigned from his positions with Iwerks in February 1999.
(3) Mr. Dahl was appointed as Senior Vice President, Chief Financial Officer
and Secretary in February 1999.
(4) Mr. Griesmer resigned from his position with Iwerks in December 1999.
(5) Mr. Shishido resigned from his position with Iwerks in August 1999.
(6) Represents 30,000 stock options that were cancelled and exchanged for
10,116 New Stock Options.
Page 12
<PAGE>
(7) Represents 100,000 stock options that were cancelled and exchanged for
27,358 New Stock Options.
(8) Represents 10,000 stock options that were cancelled and exchanged for 3,372
New Stock Options.
(9) Represents 10,000 stock options that were cancelled and exchanged for 3,333
New Stock Options.
(10) Represents 20,000 stock options that were cancelled and exchanged for 6,744
New Stock Options.
(11) Represents 25,000 stock options that were cancelled and exchanged for 9,063
New Stock Options.
(12) Represents 6,500 stock options that were cancelled and exchanged for 2,417
New Stock Options.
(13) Represents 3,000 stock options that were cancelled and exchanged for 989
New Stock Options.
(14) Represents 3,000 stock options with an exercise price of $25.50 that were
cancelled and exchanged for 3,000 new stock options with an exercise price
of $5.50, representing the fair market value of the Common Stock as of the
grant date. These new stock options were subject to a new four-year vesting
period and a new ten-year term.
</FN>
</TABLE>
COMPENSATION COMMITTEE: Dag Tellefsen
Bruce Beda (Since July 16, 1998)
Peter Hanelt (Since July 16, 1998)
Page 13
<PAGE>
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. 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.
Iwerks has entered into an employment agreement with Mr. Charles
Goldwater effective February 20, 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"). Mr. Goldwater resigned as Chairman
of the Board in September 1999 concurrent with Mr. Peter Guber's appointment as
Chairman of the Board. 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 was payable at an annual rate of $330,000. Commencing
on the first day of the fiscal year ended 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 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 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 125% of the Closing Price and 50,000 are priced at 150% of the Closing
Price. Of the options granted to Mr. Goldwater, 50,000 vested on February 20,
1998 with the remaining options vesting in equal monthly installments over four
years from the date of the 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 was 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 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 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 125% of the Closing Price. Of the options
granted to Mr. Griesmer, 18,750 vested on March 2, 1999 with the remaining
options vesting in equal monthly installments over the following three years.
Effective December 3, 1999, Mr. Griesmer's employment with Iwerks
terminated. Pursuant to Mr. Griesmer's separation agreement with the Company,
Mr. Griesmer will continue to receive his salary, auto allowance and benefits
(excluding short term disability, long term disability and 401(k) participation)
through February 29, 2000 pursuant to the same terms and conditions of his
current employment relationship with the Company. In addition, Mr. Griesmer
agrees to make himself available through
Page 14
<PAGE>
February 29, 2000 to provide transition services to the Company. Finally, all
options held by Mr. Griesmer on the date of termination became vested and
immediately exercisable and shall remain exercisable until February 28, 2001, at
which time, to the extent unexercised, they shall terminate.
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 Initial Term. Mr. Shishido's base salary for the period ended June
30, 1998 was 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 on an annual basis. Mr. Shishido was
granted options to purchase 75,000 shares of Common Stock. Of the 75,000
options, 45,000 were priced at 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 are priced at 125%
of the Closing Price, and 15,000 are priced at 150% of the Closing Price. Of the
options granted to Mr. Shishido, 18,750 vested on June 29, 1999 with the
remaining options vesting in equal monthly installments over the following three
years.
Effective August 27, 1999, Mr. Shishido's employment with Iwerks
terminated. Pursuant to Mr. Shishido's separation agreement with the Company,
Mr. Shishido will continue to receive his salary, auto allowance and benefits
(excluding short term disability, long term disability and 401(k) participation)
for the 6-month period following his termination of employment with the Company
pursuant to the same terms and conditions of his current employment relationship
with the Company. Finally, all options held by Mr. Shishido on the date of
termination were terminated.
Iwerks entered into agreements with Messrs. Goldwater, Corfino and Dahl
that would protect each 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 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, as amended, 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.
With respect to Mr. Goldwater, 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) liquidation, dissolution, reorganization, merger or consolidation
of Iwerks, except where (i) more than
Page 15
<PAGE>
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 shall have been members of the Board at the time of the
execution of the initial agreement providing for such event or (c) a change in
the membership of the Board such that the directors sitting on the Board on the
date of each respective agreement referred to herein cease to constitute at
least a majority of the Board following the event.
With respect to Messrs. Corfino and Dahl, a "change in control" is
defined to mean (a) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than 50% of the combined voting power of the then
outstanding voting securities of Iwerks entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that neither of the following acquisitions shall constitute a change in control:
(i) any acquisition by Iwerks or (ii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by Iwerks or any corporation
controlled by Iwerks; (b) individuals who, as of the date of the agreement,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date of the agreement whose election, or
nomination for election by the stockholders of Iwerks, shall be approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board; (c) approval by the stockholders of Iwerks of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation: (i) more than 60% of the combined voting power of the then
outstanding voting securities of the corporation resulting from such
reorganization, merger, or consolidation, which may be Iwerks (the "Resulting
Corporation"), entitled to vote generally in the election of directors (the
"Resulting Corporation Voting Securities") shall then be owned beneficially,
directly or indirectly, by all or substantially all of the Persons who were the
beneficial owners of Outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the same proportions
as their respective ownership of Outstanding Voting Securities immediately prior
to such reorganization, merger, or consolidation; (ii) no Person (excluding
Iwerks, any employee benefit plan (or related trust) of Iwerks, the Resulting
Corporation, and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 25% or more of
the combined voting power of Outstanding Voting Securities) shall own
beneficially, directly or indirectly 25% or more of the combined voting power of
the Resulting Corporation Voting Securities and (iii) at least a majority of the
members of the Board shall have been members of the Incumbent Board at the time
of the execution of the initial agreement providing for such reorganization,
merger or consolidation or (d) approval by the stockholders of Iwerks of (x) a
complete liquidation or dissolution of Iwerks or (y) the sale or other
disposition of all or substantially all of the assets of Iwerks, other than to a
corporation (the "Buyer") with respect to which (i) following such sale or other
disposition, more than 60% of the combined voting power of securities of Buyer
entitled to vote generally in the election of directors ("Buyer Voting
Securities"), shall be owned beneficially, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Outstanding Voting Securities immediately prior to such sale or other
disposition, in substantially the same proportion as their respective ownership
of Outstanding Voting Securities, immediately prior to such sale or other
disposition; (ii) no Person (excluding Iwerks and any employee benefit plan (or
related trust) of Iwerks or Buyer and any Person that shall immediately prior to
such sale or other disposition own beneficially, directly or indirectly, 25% or
more of the combined voting power of Outstanding Voting Securities), shall own
beneficially, directly or indirectly, 25% or more of the combined voting power
of the Buyer Voting Securities and (iii) at least a majority of the members of
the board of directors of the Buyer shall have been members of the
Page 16
<PAGE>
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition or assets of Iwerks.
In the event of a termination without 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 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 himself and his family and
(v) other applicable benefits under Iwerks' operative employee benefit and
welfare plans then in effect; and (b) Messrs. Corfino and Dahl will receive (i)
a cash amount equal to their respective base salaries which would have been
payable to them over the 12 months following the date of termination (18 months
if termination occurred on or before July 1, 1999), computed at the annual rate
in effect at the date 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 them under Iwerks' performance bonus plan for the fiscal year in which
the termination occurs, if their respective 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 themselves and their respective
families for 12 months following termination (18 months if termination occurred
on or before July 1, 1999). Each of the benefit packages described above shall
be referred to herein as a "Separation Package." Additionally, all the stock
options held by these officers which are not vested as of the date of
termination (and in the case of Mr. Goldwater, 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 Mr. Goldwater, three
years following the date of termination and (b) with respect to Messrs. Corfino
and Dahl, 12 months following the date of termination (18 months if termination
occurred on or before July 1, 1999).
In the event of a change in control, Mr. Goldwater may terminate his
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 (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 himself and his family 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. In addition, upon the occurrence of a change in control, all
options then held by Mr. Goldwater which are not yet vested shall vest as of the
date of a change in control, shall become immediately exercisable and shall
remain exercisable for a three-year period following the change in control.
In the event of a change in control, Messrs. Corfino and Dahl may
terminate their respective 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 their respective Separation Packages. Also, if Iwerks
terminates either of their respective employment for any reason at any time
within the one-year period following the date of a change in control, then such
officer shall receive his respective Separation Package. In addition to the
Separation Package and without regard to whether the officer's employment is
terminated following a
Page 17
<PAGE>
change in control, upon the occurrence of a change in control, all options then
held by such 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 for 12 months following the date of the change in control.
Effective February 5, 1999, Mr. Hinckley's employment with Iwerks
terminated. Pursuant to Mr. Hinckley's second amended and restated separation
agreement with the Company, Mr. Hinckley has received $200,000. Mr. Hinckley
also received paid up COBRA benefits for himself and his family for the 3 months
following the date of termination. Finally, all options held by Mr. Hinckley on
the date of termination became vested and immediately exercisable and shall
remain exercisable for a period of 15 months following the date of termination,
at which time, to the extent unexercised, they shall terminate.
Effective September 8, 1999, Iwerks sold for $250,000 to family trusts
established by Messrs. Peter Guber and Paul Schaeffer (the "Trusts"), warrants
to purchase approximately 10% of its outstanding Common Stock at exercise prices
ranging from $1.43 per share to $3.00 per share (the closing sale price of the
Common Stock on the date of sale was $0.8125). The warrants may not be exercised
until September 8, 2001 unless (a) the closing price of Common Stock on its
trading market is at least $4.00 per share on each of the ten consecutive
trading days prior to the date that notice of exercise is given, or (b) a change
of control of Iwerks occurs. Thereafter, the warrants may be exercised at any
time until September 7, 2004. Iwerks has the right to redeem the unexercised
portion of the warrants at any time after September 8, 2001 for the ratable
portion of the warrant purchase price if the closing price of the Common Stock
on its trading market is more than $10.00 per share on each of the 30
consecutive trading days prior to the date that notice of redemption is given.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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 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, 1999,
all of the Company's executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements.
Page 18
<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 (U.S. & Foreign) Index and The NASDAQ Miscellaneous
Amusement & Recreation Service Index for the period commencing July 1, 1994 and
ending on June 30, 1999. The stock price performance on the following graph is
not necessarily indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG IWERKS ENTERTAINMENT, INC.,
THE NASDAQ STOCK MARKET (U.S. & FOREIGN) INDEX AND THE NASDAQ
MISCELLANEOUS AMUSEMENT & RECREATION SERVICE INDEX
[GRAPH OMITTED]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN*
-------------------------------------------------------
6/94 6/95 6/96 6/97 6/98 6/99
<S> <C> <C> <C> <C> <C> <C>
IWERKS ENTERTAINMENT, INC. 100 60 149 66 25 16
THE NASDAQ MISCELLANEOUS AMUSEMENT & RECREATION
SERVICE INDEX 100 129 159 129 142 134
THE NASDAQ STOCK MARKET (U.S. & FOREIGN) INDEX 100 133 169 206 268 378
</TABLE>
* The total return assumes that dividends were reinvested and is based on a
$100 investment.
Page 19
<PAGE>
PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT A ONE-FOR-THREE AND ONE-HALF
REVERSE STOCK SPLIT OF THE SHARES OF THE COMMON STOCK
GENERAL
The Board has unanimously adopted a resolution approving, and
recommending to the Company's stockholders for their approval, an amendment to
Article Fourth of the Company's Certificate of Incorporation, authorizing a
one-for-three and one-half reverse stock split of the shares of Common Stock
(the "Reverse Stock Split"). The form of the proposed amendment is annexed to
this Proxy Statement as Annex "A" (the "Reverse Stock Split Amendment"). The
Reverse Stock Split Amendment will effect a one-for-three and one-half reverse
stock split of the shares of Common Stock issued and outstanding, or held as
treasury shares, but will not change the number of authorized shares of Common
Stock.
REASONS FOR THE REVERSE SPLIT
The Common Stock currently is listed on the Nasdaq National Market. The
continued listing requirements of the Nasdaq National Market require, among
other things, that the Common Stock maintain a minimum bid price of $1.00 per
share. The bid price of the Common Stock has ranged between a low of $.6562 and
a high of $1.3438 between July 1, 1999 and December 15, 1999. Nasdaq has
informed the Company that it must have a definitive plan to attain compliance
with the minimum bid price requirement and that the Reverse Stock Split would
satisfy the requirement that the Company have a definitive plan in place. If it
does not come into compliance with this requirement, the Common Stock will be
delisted from the Nasdaq National Market.
The Board has determined that the continued listing of the Common Stock
on the Nasdaq National Market is in the best interests of the Company's
stockholders. If the Common Stock were delisted from the Nasdaq National Market,
trading, if any, would thereafter be conducted on either the Nasdaq SmallCap
Market or the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq National Market or Nasdaq
SmallCap Market inclusion/maintenance requirements. As with the Nasdaq National
Market, one of the maintenance requirements of the Nasdaq SmallCap Market is
that securities maintain a minimum bid price of $1.00. Accordingly, in the event
that the shares of Common Stock do not satisfy the $1.00 minimum bid price
required by the Nasdaq National Market, the Common Stock may not be eligible for
inclusion on the Nasdaq SmallCap Market. The Board believes a delisting from the
Nasdaq National Market, could, among other things, decrease the liquidity of the
outstanding Common Stock and consequently reduce the trading price and increase
the transaction costs of trading these shares.
In addition, a higher stock price may increase investor interest and
reduce resistance of brokerage firms to recommend the purchase of the Common
Stock. Certain institutional investors have internal policies preventing the
purchase of low-priced stocks and many brokerage houses do not permit low-priced
stocks to be used as collateral for margin accounts. Further, a variety of
brokerage house policies and practices tend to discourage brokers within those
firms from dealing in low-priced stocks. Moreover, the Board believes that the
perception of the investment community may be negative toward common stock that
sells below $1.00 per share and that the Reverse Stock Split may improve the
perception of the Common Stock as an investment.
The Company believes that if the Reverse Stock Split is approved by the
stockholders and thereafter effected, the bid price of the Common Stock will
likely increase substantially over the $1.00 minimum bid price requirement
thereby permitting the Company to continue to list the Common Stock on the
Nasdaq National Market. There can be no assurance, however, that the market
price of the Common Stock will rise in proportion to the reduction in the number
of outstanding shares resulting from the
Page 20
<PAGE>
Reverse Stock Split or that the market price of the post-split Common Stock can
be maintained above $1.00.
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT.
Pursuant to the Reverse Stock Split, each holder of three and one-half
shares of Common Stock (the "Old Common Stock"), immediately prior to the
effectiveness of the Reverse Stock Split would become the holder of one share of
Common Stock (the "New Common Stock"), after consummation of the Reverse Stock
Split.
Although the Reverse Stock Split, will not, by itself, impact the
Company's assets or prospects, the Reverse Stock Split could result in a
decrease in the aggregate market value of the Company's equity capital. The
Board believes that this risk is outweighed by the benefits of the continued
listing of the Common Stock on the Nasdaq National Market.
If approved, the Reverse Stock Split will result in some stockholders
owning "odd-lots" of less than 100 shares of Common Stock. Brokerage commissions
and other costs of transactions in odd-lots are generally higher than the costs
of transactions in "round-lots" of even multiples of 100 shares.
SHARES OF COMMON STOCK ISSUED AND OUTSTANDING OR HELD AS TREASURY SHARES
The Company is currently authorized to issue a maximum of 50,000,000
shares of Common Stock. As of the Record Date, there were 12,390,581 shares of
Common Stock issued and outstanding, or held as treasury shares. Although the
number of authorized shares of Common Stock will not change as a result of the
Reverse Stock Split, the number of shares of Common Stock issued and
outstanding, or held as treasury shares, will be reduced to a number that will
be approximately equal to (a) the number of shares of Common Stock issued and
outstanding, or held as treasury shares, immediately prior to the effectiveness
of the Reverse Stock Split, divided by (b) three and one-half.
With the exception of the number of shares issued and outstanding, or
held as treasury shares, the rights and preferences of the shares of Common
Stock prior and subsequent to the Reverse Stock Split will remain the same. It
is not anticipated that the financial condition of the Company, the percentage
ownership of management, the number of the Company's stockholders, or any aspect
of the Company's business would materially change as a result of the Reverse
Stock Split.
The Common Stock is currently registered under Section 12(g) of the
Exchange Act, and as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The proposed Reverse Stock Split
will not affect the registration of the Common Stock under the Exchange Act.
INCREASE OF SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE
As a result of the Reverse Stock Split, there will be a reduction in
the number of shares of Common Stock issued and outstanding, or held as treasury
shares, and an associated increase in the number of authorized shares which
would be unissued and available for future issuance after the Reverse Stock
Split (the "Increased Available Shares"). The Increased Available Shares could
be used for any proper corporate purpose approved by the Board including, among
others, future financing transactions.
Because the Reverse Stock Split will create the Increased Available
Shares, the Reverse Stock Split may be construed as having an anti-takeover
effect. Although neither the Board nor the management of the Company views the
Reverse Stock Split as an anti-takeover measure, the Company could use the
Increased Available Shares to frustrate persons seeking to effect a takeover or
otherwise gain control of the Company.
Page 21
<PAGE>
EFFECTIVENESS OF THE REVERSE STOCK SPLIT
The Reverse Stock Split, if approved by the Company's stockholders,
would become effective (the "Effective Date") upon the filing with the Secretary
of State of the State of Delaware of a Certificate of Amendment of the Company's
Certificate of Incorporation in substantially the form of the Reverse Stock
Split Amendment attached to this Proxy Statement as Annex "A." It is expected
that such filing will take place on or shortly after the date of the Annual
Meeting, assuming the stockholders approve the Reverse Stock Split. However, the
exact timing of the filing of the Reverse Stock Split Amendment will be
determined by the Board based upon its evaluation as to when such action will be
most advantageous to the Company and its stockholders, and the Board reserves
the right to delay filing the Reverse Stock Split Amendment for up to twelve
months following stockholder approval thereof. In addition, the Board reserves
the right, notwithstanding stockholder approval and without further action by
the stockholders, to elect not to proceed with the Reverse Stock Split Amendment
if, at any time prior to filing the Reverse Stock Split Amendment, the Board, in
its sole discretion, determines that it is no longer in the best interests of
the Company and its stockholders.
Commencing on the Effective Date, each Old Common Stock certificate
will be deemed for all corporate purposes to evidence ownership of the reduced
number of shares of Common Stock resulting from the Reverse Stock Split and any
cash which may be payable in lieu of fractional shares. As soon as practicable
after the Effective Date, stockholders will be notified as to the effectiveness
of the Reverse Stock Split and instructed as to how and when to surrender their
certificates representing shares of Old Common Stock in exchange for
certificates representing shares of New Common Stock (and, if applicable, cash
in lieu of fractional shares). The Company intends to use U.S. Stock Transfer
Corporation as its exchange agent in effecting the exchange of certificates
following the effectiveness of the Reverse Stock Split.
On the Effective Date, the interest of each stockholder of record who
owns fewer than three and one-half shares of Common Stock will thereby be
terminated, and he, she or it will have no right to vote as a stockholder or
share in the assets or any future earnings of the Company.
FRACTIONAL SHARES
The Company will not issue fractional shares in connection with the
Reverse Stock Split. Instead, holders of Old Common Stock who would otherwise be
entitled to receive a fractional share of New Common Stock on account of the
Reverse Stock Split shall receive, upon surrender of the stock certificates,
formerly representing shares of the Old Common Stock, in lieu of such fractional
shares, an amount in cash (the "Cash-in-Lieu Amount") equal to the product of
(i) the fractional shares to which a holder would otherwise be entitled,
multiplied by (ii) three and one half times the closing sale price per share of
the Old Common Stock as quoted on the Nasdaq National Market on the business day
prior to the Effective Date. No interest shall be payable on the Cash-in-Lieu
Amount.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended, the
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practices in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
consequences that may apply to special classes of taxpayers (e.g., non-resident
aliens, broker-dealers or insurance companies). Stockholders are urged to
consult their own tax advisors to determine the particular consequences to them.
The receipt of New Common Stock solely in exchange for Old Common Stock
generally will not result in recognition of gain or loss to the stockholders.
The adjusted tax basis of a stockholder's New Common Stock will be the same as
the adjusted tax basis of the shares of Old Common Stock exchanged
Page 22
<PAGE>
therefor, and the holding period of the New Common Stock will include the
holding period of the Old Common Stock exchanged therefor. Generally,
stockholders who receive cash in lieu of fractional shares will be treated as if
they had received such fractional shares and then had them redeemed by the
Company; and such stockholders generally will recognize gain or loss equal to
the difference between the amount of cash received and their basis in such
fractional shares. No gain or loss will be recognized by the Company as a result
of the Reverse Stock Split.
APPRAISAL RIGHTS
No appraisal rights are available under the Delaware General
Corporation Law or under the Company's Certificate of Incorporation or Bylaws
to any stockholder who dissents from the proposal to approve the Reverse Stock
Split Amendment.
VOTE REQUIRED
The Board has unanimously approved the Reverse Stock Split Amendment.
Stockholder approval of the Reverse Stock Split Amendment requires the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote thereon. Abstentions will be counted toward the tabulation of
votes cast on the proposal and will have the same effect as negative votes,
while broker non-votes will not be counted as votes cast for or against the
proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION IN ORDER TO EFFECT THE ONE-FOR-THREE AND
ONE-HALF REVERSE STOCK SPLIT OF SHARES OF THE COMPANY'S COMMON STOCK.
Page 23
<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of November 15, 1999 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 these 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 that person (and
only that person) by reason of these acquisition rights on or before January 14,
2000, 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 Street,
Burbank, California 91505-1046.
<TABLE>
<CAPTION>
Number Percent
of of Class
Name and Address Shares Owned
- -------------------------------------------- ----------- ---------
<S> <C> <C>
Charles Goldwater(1)........................ 171,666 1.39%
Donald W. Iwerks(2)......................... 780,579 6.30
Gary J. Matus(3)............................ 46,484 *
Dag Tellefsen(4)............................ 618,598 4.99
Jon Corfino(5).............................. 25,301 *
Peter Hanelt(6)............................. 24,792 *
Peter Guber................................. 0 *
Paul Schaeffer.............................. 0 *
Daniel Griesmer(7).......................... 75,000 *
Jack Shishido(8)............................ 5,000 *
Jeffrey M. Dahl(9).......................... 12,376 *
Bruce Hinckley(10).......................... 52,474 *
Bruce Beda(11).............................. 39,790 *
Heartland Advisors, Inc.(12)................ 3,394,022 27.39
709 North Milwaukee Street
Milwaukee, WI 53202
Page 24
<PAGE>
Dimensional Fund Advisors, Inc.(13)......... 844,420 6.82
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All executive officers and directors as 1,752,398 14.48
a group (11 persons)(14)....................
- --------------------------
* Less than one percent.
<FN>
(1) Includes 141,666 shares of Common Stock underlying options which are or
will become exercisable on or before January 14, 2000.
(2) Includes 760,970 shares of Common Stock held by the Donald and Betty Iwerks
1995 Family Trust and 19,609 shares of Common Stock underlying options
which are or will become exercisable on or before January 14, 2000. Mr.
Iwerks resigned as Chief Technical Officer of Iwerks effective as of
December 31, 1995. Mr. Iwerks currently serves on the Board and is a
consultant to Iwerks.
(3) Includes 41,484 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000.
(4) Includes 49,409 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000. 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.
(5) Includes 22,301 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000.
(6) Includes 9,792 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000.
(7) Consists of options to purchase shares of Common Stock which are or will
become exercisable on or before January 14, 2000. Mr. Griesmer resigned
from his position with Iwerks in December 1999.
(8) Mr. Shishido resigned from his position with Iwerks in August 1999.
(9) Includes 2,376 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000.
(10) Includes 37,474 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000. Mr. Hinckley resigned
from his positions with Iwerks in February 1999.
(11) Includes 9,790 shares of Common Stock underlying options which are or will
become exercisable on or before January 14, 2000.
(12) Based on information provided by a representative of Heartland Advisors,
Inc. to the Company on October 7, 1999.
(13) Based on information contained in a Schedule 13G dated February 11, 1999.
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<PAGE>
(14) Includes 293,560 shares of Common Stock underlying options which are or
will become exercisable on or before January 14, 2000.
</FN>
</TABLE>
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2000 Annual
meeting of the Company's 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, 2000.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young, LLP, independent public accountants, were selected by
the Board to serve as independent public accountants of the Company for the year
ended June 30, 1999. 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, 2000; and
until the terms of such engagement have been finalized and agreed upon, the
Audit Committee cannot finalize its selection of independent public accountants
for such year. Representatives of Ernst & Young, LLP are expected to be present
at the Annual Meeting, 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, 1999 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/ JEFFREY M. DAHL
Jeffrey M. Dahl
Secretary
4540 West Valerio Street,
Burbank, California 91505-1046
December 17, 1999
Page 26
<PAGE>
ANNEX "A"
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
IWERKS ENTERTAINMENT, INC.
Iwerks Entertainment, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Iwerks Entertainment, Inc., at a
duly called meeting, duly adopted resolutions setting forth a proposed amendment
of the Amended and Restated Certificate of Incorporation, as amended, of said
corporation (the "Certificate"), declaring said amendment to be advisable and
proposing that said amendment be considered by the stockholders of said
corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors declares that it is advisable to
amend and restate Article Fourth, of the Certificate in its entirety as follows:
"FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is 51,000,000 consisting of
(i) 50,000,000 shares of common stock, par value $.001 per share (the
"Common Stock"); and (ii) 1,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock").
Simultaneously with the effective date of the filing of this
amendment to the Corporation's Amended and Restated Certificate of
Incorporation, as amended, (the "Effective Date"), each share of
Common Stock of the Corporation issued and outstanding or held as
treasury shares immediately prior to the Effective Date (the "Old
Common Stock") shall automatically be reclassified and continued (the
"Reverse Split"), without any action on the part of the holder
thereof, as .285714285 of one share of Common Stock. The Corporation
shall not issue fractional shares on account of the Reverse Split.
Holders of Old Common Stock who would otherwise be entitled to a
fraction of a share on account of the Reverse Split shall receive,
upon surrender of the stock certificates formerly representing shares
of the Old Common Stock, in lieu of such fractional share, an amount
in cash (the "Cash-in-Lieu Amount") equal to the product of (i) the
fractional share which a holder would otherwise be entitled to,
multiplied by (ii) 3.5 times the closing sale price per share of the
Old Common Stock as quoted on the Nasdaq National Market on the day
prior to the Effective Date. No interest shall be payable on the
Cash-in-Lieu Amount.
Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of which class
or series shall have such distinctive designation or title as shall be
fixed by the Board of Directors of the Corporation (the "Board of
Directors") prior to the issuance of any shares thereof. Each such
class or series of Preferred Stock shall have such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated
in such resolution or resolutions providing for the issue of such class
or series of Preferred Stock as may be adopted from time to time by the
Board of Directors prior to the issuance of any shares thereof pursuant
to the authority hereby expressly vested in it, all in
A-1
<PAGE>
accordance with the laws of the State of Delaware."
SECOND: That thereafter, the stockholders of said corporation, at a
duly called meeting of the stockholders, voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Iwerks Entertainment, Inc. has caused this
certificate to be signed by Jeffrey M. Dahl, its Chief Financial Officer, this
___ day of _______, ____.
IWERKS ENTERTAINMENT, INC.
By: ________________________________________
Jeffrey M. Dahl, Chief Financial Officer
A-2
<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
Jeffrey M. Dahl, and each of them, as the proxies of the undersigned, each with
full power of substitution, to attend, vote and act for the undersigned at the
Annual Meeting of Stockholders of the Company (the "Meeting"), to be held on
January 13, 2000, 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 I 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. Donald W. Iwerks Mr. Gary J. Matus
2. The approval of the amendment to the Company's Amended and
Restated Certificate of Incorporation, as amended, to effect a
one-for-three and one-half reverse stock split of the shares
of the common stock, par value $.001 per share, of the Company
(the "Reverse Stock Split Amendment").
____ 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 I DIRECTORS NAMED, THE APPROVAL OF THE REVERSE STOCK SPLIT
AMENDMENT, AND AS SAID PROXY SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS MAY
COME BEFORE THE MEETING, UNLESS OTHERWISE DIRECTED.
<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated December 17, 1999 relating to the
Meeting.
Date: ___________, _____
----------------------------------------
----------------------------------------
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.
