<PAGE>
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. [ ])
Check the appropriate box:
[ ] Revised Preliminary information statement
[ ] Confidential, for use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
Sound Source Interactive, Inc.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
...............................................................................
(2) Aggregate number of securities to which transaction applies:
...............................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
...............................................................................
(4) Proposed maximum aggregate value of transaction:
...............................................................................
(5) Total fee paid:
...............................................................................
[_] Fee paid previously with preliminary materials:
...............................................................................
<PAGE>
[_] 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
previously paid. 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:
...............................................................................
2
<PAGE>
SOUND SOURCE INTERACTIVE, INC.
26115 MUREAU, SUITE B
CALABASAS, CA 91302
NOTICE OF THE TAKING OF CORPORATE ACTION
WITHOUT A MEETING BY WRITTEN CONSENT
Notice is hereby given that the holders of at least 51% of the outstanding
stock of Sound Source Interactive, Inc., a Delaware corporation (the "Company"),
shall, on or about March 3, 1998, elect four additional Directors to the
Company's Board of Directors by the taking of corporate action in lieu of a
special meeting of stockholders.
The accompanying information statement is furnished pursuant to Section
14(c) of the Securities Exchange Act of 1934.
By Order of the Board of Directors,
/s/ Ulrich E. Gottschling
-------------------------------------------
Ulrich E. Gottschling
President, Chief Operating Officer,
Chief Financial Officer, Secretary
and Treasurer
3
<PAGE>
SOUND SOURCE INTERACTIVE, INC.
26115 MUREAU, SUITE B
CALABASAS, CA 91302
INFORMATION STATEMENT
This Information Statement is furnished in connection with the taking of
corporate action without a meeting by less than unanimous written consent of
stockholders. On or about March 3, 1998, the holders of at least 51% of the
outstanding stock of Sound Source Interactive, Inc., a Delaware corporation (the
"Company") intend to elect four additional Directors to the Company's Board of
Directors by less than unanimous written consent in lieu of taking such action
at a special meeting of stockholders. Please be advised, therefore, that this
is only an Information Statement. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY. The form of Consent is attached hereto for
your information.
This Information Statement is first being sent or given to stockholders on
March 3, 1998. Record holders of the Common Stock at the close of business on
February 23, 1998 are entitled to receive a copy of this Information Statement.
Each stockholder is entitled to one vote for each share of Common Stock held.
On February 23, 1998, there were 4,540,199 shares of Common Stock outstanding.
ELECTION OF DIRECTORS
GENERAL INFORMATION
The Bylaws of the Company provide that the Company is authorized to have up
to eleven directors, and that stockholders may elect directors by unanimous
written consent. The Company would like to add four directors to its current
board of directors of four, bringing the total number of directors to eight.
The Company intends to call for a vote to confirm this majority shareholders
action by consent at its Annual Meeting of Shareholders scheduled for April 27,
1998. Directors are elected to serve a one-year term. The Directors being
confirmed at the Annual Meeting will serve until the Company's next annual
meeting of stockholders, or until their successors have been duly elected and
qualified.
INFORMATION REGARDING NOMINEES
All nominees have consented to serve if elected, but if any becomes unable
to serve, the persons named as proxies may exercise their discretion to vote for
a substitute nominee. The name, age, business experience and offices held by
each director nominee are as follows:
WAYNE M. ROGERS. Mr. Rogers received his Bachelor of Arts degree from
Princeton University after which he served in the Armed Forces for three years.
In addition to his activities as a well-known actor, he had been involved in
investment activities for over thirty years. Currently, Mr. Rogers is the
General Partner of Balanced Value Fund, which is a partnership that advises and
invests in middle market companies with sales of $10 million to $50 million as
well as serving as an advisor on the board of several different publicly held
companies. He is a founder of Plaza Bank of Commerce and serves on its advisory
board. He is also a General Partner of several partnerships devoted to the
development and management of real estate. Most recently, Mr. Rogers acquired a
chain of 62 convenience stores in the Southeast. Mr. Rogers has been National
Chairman of Easter Seals, a member of the Executive Committee of the Arthritis
Foundation, Juvenile Diabetes Foundation, Trustees of the Webb School and the
Kenan Institute of Private
4
<PAGE>
Enterprise, an affiliate of the School of Business Administration of the
University of North Carolina, Chapel Hill.
JOHN T. WHOLIHAN. John Wholihan has been Dean of the College of Business
Administration at Loyola Marymount University since 1984. Prior to coming to
L.M.U., his administrative experience included five years as Associate Dean at
Bradley University, also serving several years as Director of the MBA Program
and Director of the Small Business Institute. During this period, he also
taught in the areas of Strategic Management and International Business. He was
a Fulbright Scholar in Brazil in 1977. John prepared for his career with a
bachelors degree from the University of Notre Dame, MBA from Indiana University,
and Ph.D. from The American University. His works have been published in
several journals and texts. He is a member of several academic associations and
honor societies including the Academy of Management, Small Business Institute
Directors Association, Beta Gamma Sigma and Alpha Sigma Nu. He is current
president of the Western Association of Collegiate Schools of Business. He is
past president of the Association of Jesuit Colleges and Universities - Business
Deans. He was the founding President of the International Association of Jesuit
Business Schools. He is a member of the Rotary Club of Los Angeles, Financial
Executives Institute, and the Jonathan Club. He has served on the Board of
Directors of small companies and currently is on the Board of Trustees of the
Turner Funds. He is the immediate past Chairman of the Board of Notre Dame
Academy in Los Angeles.
ALLAN R. LYONS. Allan R. Lyons joined Piaker & Lyons in 1964 after several
years with a major CPA firm in New York City, admitted as an executive in 1968.
Chairman of the firm's personal financial planning committee and executive
committee. Mr. Lyons is a Certified Public Accountant with the State of New
York. He received his Bachelor of Arts in Accounting at Harpur College
(Binghamton University). He received his Master of Business Administration in
Accounting at Ohio State University. Mr. Lyons is affiliated with the American
Institute of CPAs (including Personal Financial Planning and Tax Divisions), the
New York State Society of CPAs (former President of Binghampton Chapter), and
the International Association for Financial Planning. He serves on the Board of
Advisors of the School of Management at Binghampton University, as Treasurer and
Trustee of United Health Services, and on the Endowment Committee of the United
Jewish Appeal of Broome County, Harpur Forum. Mr. Lyons has been the
Comptroller and Finance Director for the Town of Vestal from 1970 to the
present.
ROBERT G. KALIK. Robert G. Kalik is partner in the law firm of Nateman &
Kalik, LLP, where he counsels clients in international business matters. His
work includes multinational strategic planning, corporate financing, and
executive management. Prior to forming Nateman & Kalik, Mr. Kalik spent ten
years as a partner with the international law firm of McDermott, Will & Emery.
In 1992 Mr. Kalik was one of several partners who established the firm's
Vilnius, Lithuania office. He has written articles and lectured widely on
international matters. Mr. Kalik received his bachelor's degree from Syracuse
University in 1975, and his law degree in 1979 from the Benjamin N. Cardozo
School of Law of the Yeshiva University. In 1994, Mr. Kalik was issued 33,467
options to purchase common stock of the Company at an exercise price of $0.06
issued under the Company's 1992 Stock Option Plan. In February 1998, Mr. Kalik
exercised an option to purchase 25,100 shares of Common Stock of the Company,
but, as of the date hereof, has not sold those shares. Mr. Kalik retains 8,367
options to purchase Common Stock of the Company at an exercise price of $0.06
which become exercisable on June 30, 1998. Mr. Kalik has, from time, provided
legal services and advice to the Company and its Chief Executive Officer.
There is no family relationship between any of the directors of officers of
the Company.
5
<PAGE>
THE BOARD OF DIRECTORS, ITS COMMITTEES, AND COMPENSATION
BOARD AND COMMITTEE MEETINGS
In 1997, there were nine meetings held by the Board of Directors. Board
committees met as follows during 1997: the Audit Committee, two times, and the
Compensation Committee, two times. The total combined attendance for all Board
and Committee meetings was 97%. All directors attended at least 88% of the
meetings of the Board and of the Committees on which they served.
BOARD COMMITTEES
The Board of Directors has appointed two standing committees: the Audit
Committee and the Compensation Committee. Each of these committees was
established in July, 1996.
The Audit Committee consists of Dr. Ronald W. Hart and Mark A. James. Its
purpose is to recommend the appointment of an independent auditor for the
Company, review the scope of the audit, examine the auditor's reports, make
appropriate recommendations to the Board of Directors as a result of such review
and examination and make inquiries into the effectiveness of the financial and
accounting functions and controls of the Company.
The Compensation Committee consists of Dr. Ronald W. Hart and Mark A.
James. It is responsible for reviewing and setting the compensation of
executive officers of the Company and for administering the Company's stock
option plans.
RELATIONSHIPS WITH OUTSIDE FIRMS
Mark A. James is a director of the Company and in 1997 was a member of the
law firm of James, Driggs & Walch, which performed legal services for the
Company during 1997 and is expected to perform such services for the Company
during 1998.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth information
concerning compensation of the Company's Chairman of the Board and Chief
Executive Officer and each of the Company's other executive officers who
received compensation from the Company in excess of $100,000 for the fiscal year
ended June 30, 1997 (the "Named Executives"). The persons identified below were
the Company's only executive officers during fiscal year 1997.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SUMMARY ANNUAL
COMPENSATION LONG-TERM COMPENSATION
----------------------- -------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) STOCK OPTIONS ALL OTHER
--------------------------- ---- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Vincent J. Bitetti, Chairman of the 1997 $205,077 $ 14,029 0 $19,872
Board and Chief Executive Officer 1996 187,500 31,874 0 19,018
1995 150,000 75,000 0 6,200
Ulrich Gottschling, President, Chief
Operating Officer, Chief Financial 1997 126,295 8,602 0 9,145
Officer, Treasurer and Secretary 1996 80,134 1,500 200,000 5,909
Eric Winston, Former President and 1997 140,000 0 0 17,040
Chief Operating Officer (3) 1996 168,750 31,874 0 21,141
1995 150,000 150,000 75,000 9,600
</TABLE>
- --------------------
(1) The bonuses accrued for fiscal year 1995 were fully paid in December 1995.
(2) The amounts in this column consist of the following: (a) personal use of
Company car: Mr. Bitetti -- $9,130 (1997), $9,576 (1996), $4,800 (1995),
Mr. Winston -- $12,000 (1997), $9,302 (1996), $4,800 (1995), Mr.
Gottschling -- $4,600 (1997), $2,500 (1996); (B) life insurance premiums:
Mr. Bitetti - $5,370 (1997), $4,311 (1996), $1,400 (1995), Mr. Winston --
$0 (1997), $4,750 (1996); and (c) medical insurance premiums: Mr. Bitetti
-- $5,372 (1997), $5,131 (1996), $0 (1995), Mr. Winston -- $5,040 (1997),
$7,089 (1996), $4,800 (1995), Mr. Gottschling -- $4,545 (1997), $3,409
(1996).
(3) Mr. Winston terminated his employment with the Company effective November
1, 1996.
OPTION GRANTS. The Company did not grant any options to any of the Named
Executives during its fiscal year ended June 30, 1997.
OPTION EXERCISES AND HOLDINGS. The following table sets forth information
concerning each exercise of a stock option during the fiscal year ended June 30,
1997 by each of the Named Executives and the number and value of unexercised
options granted by the Company held by each of the Named Executives on June 30,
1997.
7
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES VALUE OF UNEXERCISED IN-
NAME SHARES VALUE REALIZED (1) UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
----- ACQUIRED ON ----------------- OPTIONS AT 6/30/97 6/30/97 (2)
EXERCISE --------------------- -------------------------
----------- EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C> <C> <C>
Vincent J. Bitetti 0 $ 0 0/0 $ 0/0
Ulrich E. Gottschling 0 0 200,000/0 0/0
Eric Winston (3) 10,000 39,600 282,838/0 230,513/0
</TABLE>
- ---------------------------------
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) Market value of the shares covered by in-the-money options on June 30,
1997, less the option exercise price.
(3) Does not include a presently Exercisable option held by Mr. Winston to
purchase 100,000 shares of Common Stock from Mr. Bitetti at $2.00 per
share.
COMPENSATION OF DIRECTORS; THE 1995 STOCK OPTION PLAN
The Company pays each director who is not an employee of the Company a
director's fee of $15,000 per year, and reimburse them for out-of-pocket
expenses incurred in connection with their attendance at meetings. In addition,
the 1995 Stock Option Plan provides for the grant of stock options to
nonemployee directors of the Company without any action on the part of the Board
of Directors or the Compensation Committee, upon the terms and conditions set
forth in the 1995 Stock Option Plan. Each nonemployee director shall
automatically receive nonqualified stock options to acquire 10,000 shares of
Common Stock upon appointment as a director, and shall receive nonqualified
options to acquire an additional 10,000 shares of Common Stock for each
additional year that the nonemployee director continues to serve on the Board of
Directors. Each option granted to a nonemployee director shall vest and become
Exercisable as to 50 percent of the shares of Common Stock subject to the option
on the first anniversary date of the grant and as to the remaining 50 percent on
the second anniversary date of the grant, and will expire on the earlier of ten
years from the date the option was granted, upon expiration of the 1995 Stock
Option Plan, or three weeks after the optionee ceases to be a director of the
Company. The exercise price of such options shall be equal to 100 percent of the
fair market value of the Common Stock subject to the option on the date on which
such options are granted. Each option shall be subject to the other provisions
of the 1995 Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Vincent J.
Bitetti, Chairman of the Board and Chief Executive Officer, for a term ending on
September 15, 1998. Pursuant to that employment agreement, commencing September
15, 1995, Mr. Bitetti was entitled to receive annual base compensation of
$200,000. The employment agreement was amended to provide that effective July
2, 1996, Mr. Bitetti's base compensation was reduced to $160,000 per annum,
subject to an increase by $40,000 per annum at such time as the Company realized
net sales (gross sales less returns and allowances) of $1,500,000 or more for
any three consecutive calendar months. During the three months ended December
31, 1996, the Company realized net sales in excess of $1,500,000, and
accordingly, Mr.
8
<PAGE>
Bitetti's compensation was reinstated to $200,000 per annum. Mr. Bitetti's
annual base compensation also is subject to escalation annually in accordance
with the Consumer Price Index (the "CPI") effective May 1, 1997 and 1998. In
addition, Mr. Bitetti's employment agreement entitles him to receive bonuses
based on three criteria: attainment of specified gross revenues, attainment of
specified gross profits, and attainment of specified pre-tax profitability. If
the Company acquires any new businesses in the future, the related revenues and
profits will not be taken into account in determining entitlements to these
bonuses.
The employment agreement would have entitled Mr. Bitetti to receive a bonus
in the following amounts if the following gross revenues had been attained for
the fiscal year ending June 30, 1997:
<TABLE>
<CAPTION>
GROSS REVENUES CUMULATIVE CASH BONUS
- ---------------------------- ---------------------
<S> <C>
$ 12,000,000 $ 25,000
16,000,000 75,000
24,000,000 125,000
</TABLE>
The gross revenue attainment levels required to receive each bonus level for
each subsequent fiscal year will be increased by 60 percent annually.
The employment agreement would have entitled Mr. Bitetti to receive a bonus
in the following amounts if the following levels of gross profits (defined as
annual sales revenue less all costs of sales as determined by the Company's
independent public accountants) had been attained for the fiscal year ending
June 30, 1997:
<TABLE>
<CAPTION>
GROSS PROFITS CUMULATIVE CASH BONUS
- ------------------------- ---------------------
<S> <C>
$ 3,200,000 $ 50,000
3,600,000 75,000
4,000,000 100,000
</TABLE>
The gross profit levels required to receive each bonus level for each subsequent
fiscal year will be increased by 60 percent annually.
The employment agreement entitles Mr. Bitetti to the following amounts if
the following levels of pre-tax profitability (defined as annual earnings before
interest, taxes, depreciation and amortization divided by gross revenues) are
attained for any fiscal year during the term of Mr. Bitetti's employment
agreement:
<TABLE>
<CAPTION>
PROFITABILITY CUMULATIVE CASH BONUS
- ---------------- ---------------------
<S> <C>
10% $ 50,000
15% $100,000
</TABLE>
None of the three foregoing bonus milestones were attained for fiscal 1997,
and accordingly, no bonus amounts were due to Mr. Bitetti for fiscal 1997.
Pursuant to his employment agreement, Mr. Bitetti is entitled to certain
other fringe benefits including use of a Company automobile or automobile
allowance, $5,000,000 in life insurance coverage (provided that in no event will
the Company be required to pay a premium for such insurance in excess
9
<PAGE>
of $7,500 per year) and the right to participate in the Company's customary
benefit plans. Mr. Bitetti's employment agreement further provides that
following the voluntary or involuntary termination of his employment by the
Company, Mr. Bitetti is entitled to two demand registration rights with respect
to the Common Stock held by or issuable to him. These registration rights will
only become effective upon the voluntary or involuntary termination of Mr.
Bitetti's employment with the Company. Mr. Bitetti has agreed not to sell any
shares of his Common Stock during the 18-month period beginning July 2, 1996
(except for 20,000 shares sold by Mr. Bitetti pursuant to that offering) except
with the consent of the underwriters of the Company's initial public offering.
Mr. Bitetti's employment agreement further provides that if the Company employs
a new Chief Executive Officer, Mr. Bitetti's salary may not be less than that of
such new Chief Executive Officer, up to a maximum of $300,000.
The Company entered into an employment agreement with Ulrich E.
Gottschling, as Chief Financial Officer, Treasurer and Secretary, for a term
ending October 9, 1997. The employment agreement entitled Mr. Gottschling to
receive annual cash compensation of $110,000. Pursuant to his employment
agreement, on October 9, 1995 Mr. Gottschling also was granted options to
purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share.
On April 30, 1996, Mr. Gottschling agreed to the termination of his existing
100,000 share option in consideration for the Company's agreement to grant to
him a new 200,000 share option pursuant to the Company's 1992 Stock Option Plan.
The Company granted this option to Mr. Gottschling on April 30, 1996. The
option was exercisable upon the date of its grant as to 100,000 shares at a
purchase price of $3.40 per share, and became exercisable as to an additional
100,000 shares on September 30, 1997 at a purchase price of $4.00 per share. On
December 27, 1997, all employee stock options, including those held by Mr.
Gottschling, were repriced to an exercise price of $1.18 per share.
Mr. Gottschling's employment agreement further provides that following the
voluntary or involuntary termination of his employment by the Company, Mr.
Gottschling is entitled to a single demand registration right with respect to
the Common Stock held by or issuable to him pursuant to his employment
agreement. This registration right has been satisfied as a result of the
registration of all Common Stock underlying options issued pursuant to the 1992
Stock Option Plan.
Effective February 1, 1997, Mr. Gottschling was appointed as President and
Chief Operating Officer in addition to his then existing positions as Chief
Financial Officer, Treasurer and Secretary. Simultaneously, the Company and Mr.
Gottschling entered into amended employment agreement, for a two-year term
expiring January 31, 1999. Pursuant to the amended employment agreement, Mr.
Gottschling is entitled to receive annual base compensation of $150,000. Mr.
Gottschling's annual base compensation also is subject to escalation annually in
accordance with the CPI. In addition, Mr. Gottschling's employment agreement
entitles him to receive bonuses based on the same three criteria as Mr.
Bitetti's aforementioned agreement, with one exception: Mr. Gottschling's bonus
amounts are at 80% of those of Mr. Bitetti. None of the bonus milestones were
attained for fiscal 1997, and accordingly, no bonus amounts were due to Mr.
Gottschling.
Pursuant to his amended employment agreement, Mr. Gottschling is entitled
to certain other fringe benefits including use of a Company automobile or
automobile allowance and the right to participate in the Company's customary
benefit plans. Mr. Gottschling's employment agreement further provides that
following the voluntary or involuntary termination of his employment by the
Company, Mr. Gottschling is entitled to two demand registration rights with
respect to the Common Stock held by or issuable to him. These registration
rights will only become effective upon the voluntary or involuntary termination
of Mr. Gottschling's employment with the Company. Mr. Gottschling has agreed
not to sell any shares of his
10
<PAGE>
Common Stock during the 18-month period beginning July 2, 1996, except with the
consent of the underwriters of the Company's initial public offering.
The Company entered into an employment agreement with Eric H. Winston, the
Company's former President and Chief Operating Officer, for a term ending on
September 15, 1998. Pursuant to that employment agreement, commencing September
15, 1995, Mr. Winston was entitled to receive annual base compensation of
$175,000. The employment agreement was amended to provide that effective July
2, 1996, Mr. Winston's base compensation was reduced to $140,000 per annum,
subject to an increase of $35,000 per annum at such time as the Company realizes
net sales of $1,500,000 or more for any three consecutive calendar months. This
employment agreement makes Mr. Winston's salary also subject to escalation
annually in accordance with the CPI. Mr. Winston's employment agreement
entitles him to receive annual bonuses based on the same three criteria, and
payable in accordance with the same provisions, described above with respect to
Mr. Bitetti's employment agreement. Mr. Winston is also entitled to the same
fringe benefits as Mr. Bitetti.
On October 25, 1996, the Company entered into a Separation and Release
Agreement with Mr. Winston. Such agreement became effective on November 1,
1996. Upon the effectiveness of that agreement, Mr. Winston ceased to be an
officer, employee and director of the Company, but remains entitled to receive
salary compensation at the rate of $140,000 per annum, an automobile allowance
at the rate of $12,000 per annum and certain other benefits as provided in the
agreement through September 15, 1998.
Pursuant to a prior employment agreement, the Company has granted Mr.
Winston options to purchase 292,838 shares of Common Stock at an exercise price
of $0.06 per share. Mr. Winston's employment agreement further provides that
following the voluntary or involuntary termination of his employment by the
Company, Mr. Winston is entitled to two demand registration rights with respect
to the Common Stock held by or issuable to him. The registration rights became
effective upon the termination of Mr. Winston's employment with the Company.
Mr. Bitetti has separately granted Mr. Winston a presently exercisable option to
acquire 100,000 shares of Common Stock at a purchase price of $2.00 per share.
Mr. Winston has agreed not to sell more than 10,000 shares of his Common Stock
during the 18-month period beginning July 2, 1996 except with the consent of the
underwriters of the Company's initial public offering. In February 1998, Mr.
Winston exercised the option to acquire 100,000 shares of Common Stock at a
purchase price of $2.00 per share and sold 61,500 of those shares.
Pursuant to his employment agreement, Mr. Winston has granted Mr. Bitetti a
right of first refusal as to all Common Stock that Mr. Winston may from time to
time acquire. Such first refusal right provides that before Mr. Winston offers
to sell any such Common Stock to any third party, he must first offer to sell
such shares to Mr. Bitetti on no less favorable terms than proposed to be
offered to the third party. If Mr. Bitetti rejects such offer, Mr. Winston is
free to sell to the third party on terms no less favorable than offered to Mr.
Bitetti.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date hereof, certain information
regarding the ownership of the Common Stock of the Company by (i) each person
who is known to the Company to own, of record or beneficially, more than five
percent of the Common Stock, (ii) each of the Company's directors and director
nominees and (iii) all directors and executive officers as a group. Where the
persons listed have the right to acquire additional shares of Common Stock
through the exercise of options or warrants within 60 days, such additional
shares are deemed to be outstanding for the purpose of computing the
11
<PAGE>
percentage of outstanding shares owned by such persons, but are not deemed to be
outstanding for the purpose of computing the percentage ownership interests of
any other person. Unless otherwise indicated, each of the stockholders shown in
the table below has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER SHARES PERCENT(1)
- ------------------- ------------ -------------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
<S> <C> <C>
Vincent J. Bitetti(1) 1,234,634 27.2%
26115 Mureau Road, Suite B,
Calabasas, California 91302
Ulrich E. Gottschling (2) 205,000 4.3%
26115 Mureau Road, Suite B,
Calabasas, California 91302
Robert G. Kalik(3) 33,467 *
26115 Mureau Road, Suite B
Calabasas, California 91302
Ronald W. Hart(4) 5,000 *
2200 Andover Square, #804
Little Rock, Arkansas 72227
Mark A. James(4) 5,000 *
3404 Costa Verde Drive
Las Vegas, Nevada 89102
Ernest T. Klinger(4) 5,000 *
30165 Avenida Esplendida
Rancho Palos Verdes, California 90275
All directors, director nominees
and executive officers as a
group (five persons) 1,488,110 31.2%
</TABLE>
<TABLE>
<CAPTION>
OTHER BENEFICIAL OWNERS
- -----------------------
<S> <C> <C>
Louis A. Habash(5) 4,856,657 51.9%
5075 Spyglass Hill Drive
Las Vegas, NV 89122
Eric H. Winston(6) 321,338 6.8%
5567 Springhill Court
Westlake Village, CA 91362
</TABLE>
- ---------------------------------
* Less than 1%
(1) Includes 100,000 shares of Common Stock which Mr. Winston is entitled to
acquire from Mr. Bitetti pursuant to a presently exercisable option. Does
not include up to 282,838 shares that may be acquired by Mr. Winston from
the Company pursuant to the options described in (6) below, as to all of
which Mr. Bitetti has a right of first refusal.
12
<PAGE>
(2) Includes 200,000 shares of Common Stock issuable to Mr. Gottschling under
presently exercisable options.
(3) Includes 8,367 Shares of Common Stock issuable upon exercise of options
exercisable beginning on June 30, 1998.
(4) Includes 5,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
(5) Includes 40,000 shares of Common Stock and 4,816,657 shares of Common Stock
issuable upon exercise of presently exercisable redeemable warrants. All
such Common Stock and redeemable warrants are owned of record by ASSI, Inc.,
of which Mr. Habash is the sole beneficial owner.
(6) Includes 182,838 shares of Common Stock issuable under stock options granted
by the Company to Mr. Winston, which are presently exercisable. Also
includes 100,000 shares of Common Stock which Mr. Winston is entitled to
acquire from Mr. Bitetti pursuant to a presently exercisable option.
VOTING AGREEMENTS
The Company has granted ASSI, Inc. and the underwriters for its initial
public offering, The Boston Group, L.P. and Joseph Stevens & Company, L.P., each
the right to nominate from time to time one director of the Company or to have
an individual designated thereby attend all Board meetings as a nonvoting
advisor. Dr. Ronald W. Hart is the nominee of Joseph Stevens & Company, L.P.
The Boston Group first nominated Ernest Klinger to the Board, but Mr. Klinger
resigned from the Board. The Boston Group's new director nominee is Samuel L.
Poole. Mark A. James is the director nominee of ASSI, Inc. The Board will
request ratification of these nominations at its annual shareholders meeting
currently scheduled for April 27, 1998.
Vincent J. Bitetti and Eric H. Winston have entered into voting agreements
with each of ASSI, Inc., The Boston Group, L.P. and Joseph Stevens & Co., L.P.
Pursuant to these agreements, Messrs. Bitetti and Winston have agreed to vote
all of their Common Stock for the director nominees of ASSI, Inc., The Boston
Group, L.P. and Joseph Stevens & Co., L.P. In addition, ASSI, Inc. has agreed
to vote all of its shares of Common Stock for two directors nominated by Mr.
Bitetti as long as he holds at least 20 percent of the outstanding Common Stock,
and for one director nominated by Mr. Bitetti for as long as he holds at least
ten percent but less than 20 percent of the outstanding Common Stock. Vincent
J. Bitetti has designated himself and Ulrich E. Gottschling as his nominees for
such purpose. The voting agreements with ASSI, Inc. will terminate when Messrs.
Bitetti and Winston together cease to owe at least ten percent of the
outstanding Common Stock.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In April 1995, Vincent J. Bitetti, for nominal consideration, granted Eric
H. Winston, the Company's former President and Chief Operating Officer, an
option to purchase 100,000 shares of the Common Stock owned by Mr. Bitetti at an
exercise price of $2.00 per share, such price determined to be the fair market
value by management.
The Company conducted a private offering (the "Private Placement") during
September and October 1995, pursuant to which it sold 52.5 units (the "Units")
at a price of $100,000 per Unit. Each Unit consisted of $95,000 principal
amount of the Company's 10% Secured Promissory Notes due 1996 (the "Notes") and
warrants to purchase 100,000 shares of Common Stock (the "Private Warrants").
ASSI, Inc. purchased a total of 11 Units pursuant to such Private Placement,
comprising $1,045,000 in principal amount of Notes and Private Warrants to
purchase 1,100,000 shares of Common Stock. Upon the completion of the Company's
initial public offering on July 8, 1996, all of the Notes were repaid in full.
The
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Company paid ASSI, Inc. $1,122,588 in satisfaction of the Notes held by it. In
addition, the Private Warrants were converted to redeemable warrants, as more
fully described below.
Contemporaneously with the Private Placement, Vincent J. Bitetti, the
Company's Chairman of the Board and Chief Executive Officer, privately sold
107,500 shares of Common Stock for total cash consideration of $537,500. ASSI,
Inc. purchased 40,000 of such shares for total cash consideration of $200,000.
The Company entered into a Consulting Agreement with ASSI, Inc. dated April
30, 1996. Pursuant to that agreement, ASSI, Inc. agreed to provide certain
consulting services to the Company, including advising the Company regarding
executive recruiting. In consideration of the services to be provided by ASSI,
Inc. pursuant to the Consulting Agreement, on April 30, 1996, the Company issued
to ASSI, Inc. warrants to purchase 2,000,000 shares of Common Stock at an
exercise price of $4.40 per share. Pursuant to the Consulting Agreement, the
Company also agreed to certain changes to the terms of the Private Warrants held
by ASSI, Inc. as described below.
On May 30, 1996, the Company entered into a Note Purchase Agreement with
ASSI, Inc. pursuant to which ASSI, Inc. loaned the Company $500,000 (the "ASSI
Convertible Loan"). The ASSI Convertible Loan bore interest at the rate of
eight percent per annum. The principal of and all accrued interest on the ASSI
Convertible Loan was due in full on the earlier of September 1, 1996 or the
closing date of the Company's initial public offering, which occurred on July 8,
1996. Upon the closing of the Company's initial public offering, ASSI, Inc.
exercised its option to convert all of the ASSI Convertible Loan into warrants
to purchase Common Stock at a conversion price of $.25 per warrant. Warrants to
purchase a total of 2,016,657 shares of Common Stock were issued upon the
conversion of the ASSI Convertible Loan.
Upon the completion of the Company's initial public offering on July 8,
1996, the terms of all of the warrants held by ASSI, Inc. became substantially
the same as those of the redeemable warrants issued by the Company in the
initial public offering except that (i) they became exercisable October 1, 1996,
(ii) they are not mandatorily redeemable by the Company and (iii) they are
subject to separate registration rights, including one demand registration right
and unlimited piggy-back registration rights for as long as they are held by
ASSI, Inc. or one of its affiliates. Upon a transfer of the ASSI warrants to
any nonaffiliate of ASSI, Inc., the terms of such transferred ASSI warrants will
become identical to those of the Company's redeemable warrants. The demand
registration rights will expire on August 31, 2001. Until and unless exercised,
the holders of the ASSI warrants will have no voting, dividend or other rights
as stockholders of the Company.
In January 1998, the Company's lawsuit against Acclaim Entertainment, Inc.
settled in favor of the Company for $1.5 million. The two law firms which
represented the Company in this lawsuit received one-third of this settlement
($500,000 collectively and $250,000 singularly) plus expenses. The Company was
represented in this lawsuit by James, Driggs, & Walch where Mark A. James, a
director of the Company, is a partner, and Hewitt & McGuire, which firm also
represents Louis A. Habash, beneficial owner of 52.6% of the Company's
outstanding Common Stock.(1)
- ---------------------------------
(1) Includes 40,000 shares of Common Stock and 4,816,657 shares of Common Stock
issuable upon exercise of presently exercisable redeemable warrants. All
such Common Stock and redeemable warrants are owned of record by ASSI,
Inc., of which Mr. Habash is the sole beneficial owner.
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INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee,
composed of independent members of the Board, has appointed Deloitte & Touche
LLP as independent auditors of the Company with respect to its operations for
fiscal 1998, and has further directed that management submit such appointment
for ratification by the holders of the Common Stock at the Annual Meeting of
Stockholders scheduled for April 27, 1998. In taking this action, the members
of the Board and the Audit Committee considered carefully Deloitte & Touche
LLP's reputation in providing accounting services to other companies in the
software industry, its independence with respect to the services to be
performed, its general reputation for adherence to professional auditing
standards and the performance of Deloitte & Touche LLP during the audit of the
Company's consolidated financial statements for fiscal 1997. Representatives of
the firm will be present at the Annual Meeting to make a statement if they
desire to do so and to answer appropriate questions that may be asked by
stockholders.
On August 27, 1997, management of the Company, as directed by the Board of
Directors, engaged the accounting firm of Deloitte & Touche LLP as its
independent auditors and dismissed the firm of Corbin & Wertz, which was the
Company's independent auditors. The decision to change independent auditors was
recommended by the Company's Audit Committee and approved by the Company's Board
of Directors. In connection with the audits for the two fiscal years ended June
30, 1996 and 1995, respectively, and the subsequent period through the date of
their dismissal, there were no disagreements between the Company and Corbin &
Wertz on any matters of accounting principles, financial statement disclosure,
auditing scope or procedure or any reportable events. Corbin & Wertz's report
on the Company's financial statements for fiscal year 1996 contained no adverse
opinion or disclaimer of opinion. Corbin & Wertz's report on the Company's
financial statement for fiscal year 1995 contained an uncertainty paragraph
regarding the Company's ability to continue as a going concern.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. The Board, however, is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate practice.
Therefore, there will be presented at the Annual Meeting a proposal for the
ratification of this appointment, which the Board of Directors believes is
advisable and in the best interests of the stockholders.
By Order of the Board of Directors,
/s/ Ulrich E. Gottschling
-------------------------------------------
Ulrich E. Gottschling
President, Chief Operating Officer,
Chief Financial Officer, Secretary
and Treasurer
A copy of Sound Source's Annual Report on Form 10-K for the year ended June
30, 1997, which has been filed with the SEC pursuant to the Exchange Act, may be
obtained without charge upon written request to Ulrich Gottschling, President,
Chief Operating Officer, Chief Financial Officer, Secretary and Treasurer, Sound
Source Interactive, Inc., 26115 Mureau Road, Suite B, Calabasas, California,
91302 or from the Internet at WWW.SEC.GOV from the SEC's Edgar database.
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[FORM OF CONSENT]
CONSENT ACTION IN WRITING OF
THE MAJORITY SHAREHOLDERS OF
SOUND SOURCE INTERACTIVE, INC.
a Delaware Corporation
IN LIEU OF MEETING
The undersigned majority shareholders of Sound Source Interactive, Inc.
(the "Company"), acting pursuant to Section 228 of the Delaware General
Corporation Law and the Company's Bylaws, hereby consent to take the following
actions.
ELECTION OF NEW DIRECTORS
- -------------------------
The following individuals are hereby nominated for election to the Company's
Board of Directors.
[INSTRUCTIONS TO SHAREHOLDERS: If you would like to vote for the election of
each nominee to the Company's Board of Directors, please mark the box underneath
the nominee's biography which states: "I hereby vote to elect this nominee to
the Company's Board of Directors." If you wish to withhold your vote for any
particular nominee or wish to abstain from voting on this issue, please mark the
box underneath the nominee's biography which states: "I hereby withhold my vote
for this nominee." If neither box is checked, your vote, either for, against,
or abstaining, cannot be counted, so kindly check one box or the other,
indicating your preference.]
WAYNE M. ROGERS. Mr. Rogers received his Bachelor of Arts degree from
Princeton University after which he served in the Armed Forces for three years.
In addition to his activities as a well-known actor, he had been involved in
investment activities for over thirty years. Currently, Mr. Rogers is the
General Partner of Balanced Value Fund, which is a partnership that advises and
invests in middle market companies with sales of $10 million to $50 million as
well as serving as an advisor on the board of several different publicly held
companies. He is a founder of Plaza Bank of Commerce and serves on its advisory
board. He is also a General Partner of several partnerships devoted to the
development and management of real estate. Most recently, Mr. Rogers acquired a
chain of 62 convenience stores in the Southeast. Mr. Rogers has been National
Chairman of Easter Seals, a member of the Executive Committee of the Arthritis
Foundation, Juvenile Diabetes Foundation, Trustees of the Webb School and the
Kenan Institute of Private Enterprise, an affiliate of the School of Business
Administration of the University of North Carolina, Chapel Hill.
[_] I hereby vote to elect this nominee to the Company's Board of Directors.
[_] I hereby withhold my vote for this nominee.
JOHN T. WHOLIHAN. John Wholihan has been Dean of the College of Business
Administration at Loyola Marymount University since 1984. Prior to coming to
L.M.U., his administrative experience included five years as Associate Dean at
Bradley University, also serving several years as Director of the MBA Program
and Director of the Small Business Institute. During this period, he also taught
in the areas of Strategic Management and International Business. He was a
Fulbright Scholar in Brazil in 1977. John prepared for his career with a
bachelors degree from the University of Notre Dame, MBA from Indiana University,
and Ph.D. from The American University. His works have been published in several
journals
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and texts. He is a member of several academic associations and honor societies
including the Academy of Management, Small Business Institute Directors
Association, Beta Gamma Sigma and Alpha Sigma Nu. He is current president of the
Western Association of Collegiate Schools of Business. He is past president of
the Association of Jesuit Colleges and Universities - Business Deans. He was the
founding President of the International Association of Jesuit Business Schools.
He is a member of the Rotary Club of Los Angeles, Financial Executives
Institute, and the Jonathan Club. He has served on the Board of Directors of
small companies and currently is on the Board of Trustees of the Turner Funds.
He is the immediate past Chairman of the Board of Notre Dame Academy in Los
Angeles.
[_] I hereby vote to elect this nominee to the Company's Board of Directors.
[_] I hereby withhold my vote for this nominee.
ALLAN R. LYONS. Allan R. Lyons joined Piaker & Lyons in 1964 after several
years with a major CPA firm in New York City, admitted as an executive in 1968.
Chairman of the firm's personal financial planning committee and executive
committee. Mr. Lyons is a Certified Public Accountant with the State of New
York. He received his Bachelor of Arts in Accounting at Harpur College
(Binghamton University). He received his Master of Business Administration in
Accounting at Ohio State University. Mr. Lyons is affiliated with the American
Institute of CPAs (including Personal Financial Planning and Tax Divisions), the
New York State Society of CPAs (former President of Binghampton Chapter), and
the International Association for Financial Planning. He serves on the Board of
Advisors of the School of Management at Binghampton University, as Treasurer and
Trustee of United Health Services, and on the Endowment Committee of the United
Jewish Appeal of Broome County, Harpur Forum. Mr. Lyons has been the Comptroller
and Finance Director for the Town of Vestal from 1970 to the present.
[_] I hereby vote to elect this nominee to the Company's Board of Directors
[_] I hereby withhold my vote for this nominee.
ROBERT G. KALIK. Robert G. Kalik is partner in the law firm of Nateman &
Kalik, LLP, where he counsels clients in international business matters. His
work includes multinational strategic planning, corporate financing, and
executive management. Prior to forming Nateman & Kalik, Mr. Kalik spent ten
years as a partner with the international law firm of McDermott, Will & Emery.
In 1992 Mr. Kalik was one of several partners who established the firm's
Vilnius, Lithuania office. He has written articles and lectured widely on
international matters. Mr. Kalik received his bachelor's degree from Syracuse
University in 1975, and his law degree in 1979 from the Benjamin N. Cardozo
School of Law of the Yeshiva University. Mr. Kalik owns 33,467 options to
purchase common stock of the Company at an exercise price of $0.06 issued under
the Company's 1992 Stock Option Plan and has, from time, provided legal services
and advice to the Company and its Chief Executive Officer.
[_] I hereby vote to elect this nominee to the Company's Board of Directors.
[_] I hereby withhold my vote for this nominee.
NOW, THEREFORE, if a majority of the shares vote to elect these individuals
to the Board of Directors, BE IT RESOLVED that Messrs. Kalik, Lyons, Rogers, and
Wholihan are hereby elected to the Company's Board of Directors, their
appointments to begin immediately.
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EFFECTIVENESS OF THIS CONSENT
- -----------------------------
This Consent shall be effective for no longer than sixty (60) days from the
date of the first signature below. The Company intends to call for a vote to
ratify this majority shareholders action by consent at its Annual Meeting of
Shareholders scheduled for April 27, 1998.
REVOCABILITY OF THIS CONSENT
- ----------------------------
This consent is fully revocable by a writing received by the Company prior to
the time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary of the Company. Such
revocation is effective upon its receipt by the Secretary of the Company. If you
wish to revoke this consent after you have signed it, please mail, fax, or send
by overnight delivery, your revocation in writing to:
Mr. Ulrich E. Gottschling, Secretary
Sound Source Interactive, Inc.
26115 Mureau Road, Suite B
Calabasas, CA 91302
Facsimile: 818/878-0007
FURTHER ACTION
- --------------
RESOLVED, that the Officers and Directors of the Company are authorized to
take such further action as they may deem necessary or appropriate to carry out
the purpose and intent of the foregoing resolutions.
FACSIMILE SIGNATURES
- --------------------
RESOLVED, that facsimile signatures of the shareholders on this Consent shall
be deemed to be original signatures for all intents and purposes.
CERTIFICATION
- -------------
The undersigned hereby consent to this action and the resolutions set forth
above and direct and authorize that a copy of this Consent Action in Writing by
the Majority Stockholders be placed by the Company's Secretary with the minutes
of the proceedings of the Stockholders in the official records of the Company.
SHAREHOLDER SIGNATURE:
- -------------------------------------------------------------------------------
Print Name:________________________ Date Signed: Number of Shares Held:
Sign Name: ________________________ ________________ ___________________
- -------------------------------------------------------------------------------
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