<PAGE> 1
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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CHILDREN'S WONDERLAND, 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
CHILDREN'S WONDERLAND, INC.
28310 ROADSIDE DRIVE
SUITE 220
AGOURA, CALIFORNIA 91301
October 15, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting (the
"Annual Meeting") of Stockholders of Children's Wonderland, Inc. (the
"Company"), which will be held at 11:00 a.m. on December 11, 1996, at the Warner
Center Marriott Hotel, 21850 Oxnard St., Woodland Hills, California 91367. All
holders of the Company's outstanding common stock as of October 12, 1996, are
entitled to vote at the Annual Meeting. Enclosed is a copy of the Notice of
Annual Meeting of Stockholders, Proxy Statement and Proxy.
We hope that you will be able to attend the Annual Meeting. Whether or
not you expect to attend, it is important that you complete, sign, date and
return the Proxy in the enclosed envelope in order to make certain that your
shares will be represented at the Annual Meeting.
The Board of Directors and management look forward to greeting those
shareholders who are able to attend.
Sincerely,
/s/ Robert M. Wilson
-------------------------
Robert M. Wilson
Secretary
PRIOR TO THE MEETING
YOU ARE CORDIALLY INVITED TO TOUR THE NEW
CHILDREN'S WONDERLAND FULL-SERVICE INTERGENERATIONAL FACILITY
IN WARNER CENTER
LOCATED AT 5855 DE SOTO AVENUE, WOODLAND HILLS
(CORNER OF CALIFA & DE SOTO)
JUST MINUTES FROM THE HOTEL
TOURS BEGINNING AT 10:00 a.m.
<PAGE> 3
CHILDREN'S WONDERLAND, INC.
28310 ROADSIDE DRIVE
SUITE 220
AGOURA, CALIFORNIA 91301
-----------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 11, 1996
-----------------------------------
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders
(the "Annual Meeting") of Children's Wonderland, Inc., a California corporation
(the "Company"), will be held at 11:00 a.m., on December 11, 1996, at the Warner
Center Marriott Hotel, 21850 Oxnard St., Woodland Hills, California 91367 for
the following purposes:
1. To elect five (5) directors to hold office until the next Annual Meeting of
Stockholders and until their respective successors are elected and
qualified.
2. To approve the Company's 1996 Stock Option Plan and to authorize 400,000
shares of Common Stock for issuance under such plan.
3. To ratify the selection of Deloitte & Touche L.L.P. as the Company's
independent accountants for the Company's fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 12, 1996, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and all adjourned meetings thereof.
By Order of the Board of Directors,
/s/ Robert M. Wilson
------------------------------------
Robert M. Wilson
Secretary
Dated: October 15, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEES AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
CHILDREN'S WONDERLAND, INC.
28310 ROADSIDE DRIVE
SUITE 220
AGOURA, CALIFORNIA 91301
-----------------
Proxy Statement
----------------
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Children's Wonderland, Inc.
("Children's Wonderland" or the "Company") for use at the 1996 Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 11:00 a.m. on December 11,
1996, at the Warner Center Marriott Hotel, 21850 Oxnard St., Woodland Hills,
California 91367 and at any adjournment thereof. When such proxy is properly
executed and returned, the shares it represents will be voted in accordance with
any directions noted thereon. Any shareholder giving a proxy has the power to
revoke it at any time before it is voted by written notice to the Secretary of
the Corporation, by issuance of a subsequent proxy, or by voting at the Annual
Meeting in person. Attendance at the meeting will not, by itself, revoke a
proxy.
At the close of business on October 12, 1996, the record date for
determining stockholders entitled to notice of and to vote at the Annual
Meeting, the Company had issued and outstanding 3,941,668 shares of Common
Stock, no par value ("Common Stock"). Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon. In voting for directors, however, if any stockholder gives notice at
the Annual Meeting prior to voting of an intention to cumulate votes, then each
stockholder has the right to cumulate votes and to give any one or more of the
nominees whose names have been placed in nomination prior to the voting a number
of votes equal to the number of directors to be elected (i.e., five) multiplied
by the number of shares which the stockholder is entitled to vote. Unless the
proxy holders are otherwise instructed, stockholders, by means of the
accompanying proxy, will grant the proxy holders discretionary authority to
cumulate votes.. Only stockholders of record at the close of business on October
12, 1996 are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof.
The enclosed proxy, when properly signed, also confers discretionary
authority with respect to amendments or variations to the matters identified in
the Notice of Annual Meeting and with respect to other matters which may be
properly brought before the Annual Meeting. At the time of printing this Proxy
Statement, the management of the Company is not aware of any other matters to be
presented for action at the Annual Meeting. If, however, other matters which are
not now known to the management should properly come before the Annual Meeting,
the proxies hereby solicited will be exercised on such matters in accordance
with the best judgment of the proxyholders.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be considered shares entitled
to vote in the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved.
The Company will pay the expenses of soliciting proxies for the Annual
Meeting, including the cost of preparing, assembling, and mailing the proxy
solicitation materials. Proxies may be solicited personally, by mail, by telex,
or by telephone, by directors, officers, and regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services. It is anticipated that this proxy statement and
accompanying proxy will be mailed on or about October 18, 1996 to all
stockholders entitled to vote at the Annual Meeting.
1
<PAGE> 5
The matters to be considered and acted upon at the Annual Meeting are
referred to in the preceding notice and are more fully described below.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors are elected at each annual meeting of
the shareholders and hold office until the next annual meeting. Each director,
including a director elected to fill a vacancy shall hold office until the
expiration of the term for which elected, and until a successor has been elected
and qualified.
Management nominates the following for election at the Annual Meeting
of Stockholders: Debby S. Bitticks, Kenneth W. Bitticks, James W. Gott, Michael
L. Laney and Robert M. Wilson. If elected, the nominees will serve as directors
until the Company's annual meeting of stockholders in 1997, and until their
respective successors are elected and qualify. If any of the above mentioned
nominees declines to serve or becomes unavailable for any reason, or if a
vacancy occurs before the election (although management knows of no reason to
anticipate that this will occur), the proxies may be voted for such substitute
nominees as management may designate.
If a quorum is present and voting, the nominees receiving the highest
number of votes will be elected as directors. Abstentions and shares held by
brokers that are present, but not voted because the brokers were prohibited from
exercising discretionary authority, i.e. "broker non-votes," will be counted as
present for purposes of determining if a quorum is present.
The table below sets forth the current directors who constitute the
nominees to be elected at this meeting, and certain information with respect to
age and background.
<TABLE>
<CAPTION>
Name Position with Company Age Director Since
- ---- --------------------- --- --------------
<S> <C> <C> <C>
Debby S. Bitticks Chief Executive Officer and 51 1993
Director
Kenneth W. Bitticks Chairman of the Board 50 1993
James W. Gott Director 37 1996
Michael L. Laney Director 51 1996
Robert M. Wilson President, Chief Financial 52 1995
Officer and Director
</TABLE>
BUSINESS EXPERIENCE
DIRECTORS AND/OR EXECUTIVE OFFICERS: NOMINEES FOR DIRECTORS
DEBBY S. BITTICKS has served as the Chief Executive Officer and a director of
the Company since its formation in September 1993. Ms. Bitticks was the Chief
Executive Officer of D&D Financial Corporation ("D&D") from 1972 until May 1994,
when D&D sold its day care centers to the Company. From 1969 to 1972, Ms.
Bitticks was an Educational Therapist specializing in visual perceptual and
psycholinguistic development and disorders at the
2
<PAGE> 6
West Valley Center for Educational Therapy in California.
KENNETH W. BITTICKS has been a director of the Company since its formation, and
in September 1994 was appointed Chairman of the Board. Mr. Bitticks has been
acting as a consultant to the Company since July 1996. He was the Chief
Executive Officer of Interlink Electronics ("Interlink"), a public company which
manufactures electronic components, from September 1987 through February 1994
and also served as Interlink's Chairman of the Board from June 1990 through
September 1994. Prior to that time, he had been an investor in Interlink and a
consultant to its founder. From 1976 to 1986, Mr. Bitticks was the founder,
President, Chief Executive Officer and a director of Delphi Information Systems,
Inc., a publicly traded computer software company. Mr. Bitticks, a Certified
Public Accountant, founded and managed a computer software development and
marketing group for Haskins & Sells, Certified Public Accountants, from 1968 to
1976. Mr. Bitticks holds a B.S. degree from the University of Southern
California.
JAMES W. GOTT has been a director of the Company since September 1996. Mr. Gott
is active in various youth, health and civic programs, including the Hollenbeck
Youth Center in East Los Angeles, Villa Esperanza (a unique educational facility
for autistic children) in Pasadena, California, and the Cystic Fibrosis
Foundation. Now retired from a baseball career in the major leagues, Mr. Gott is
co-host of Sports Talk - a talk radio program on KABC-AM Los Angeles. From 1982
to 1995, Mr. Gott was a pitcher for the Pittsburgh Pirates (1995, 1987 - 1990),
the Los Angeles Dodgers (1990 - 1994), the San Francisco Giants (1985 - 1987)
and the Toronto Blue Jays (1982 - 1984).
MICHAEL L. LANEY has been a director of the Company since May 1996. Since
January 1994, Mr. Laney has been the Senior Vice President, Operations of the
Feature Animation Division of Warner Bros., a subsidiary of Time-Warner Inc.
From 1992 to January 1994, he served as the Vice President, Operations of the
Feature Animation Division of Walt Disney Pictures and Television, a subsidiary
of The Walt Disney Company. From 1987 to 1992, Mr. Laney served as the Senior
Vice President, Finance/Administration and Chief Financial Officer of Monarch
Mirror Door Company, Inc., a $75 million national manufacturer of mirror
products. Mr. Laney is a Certified Public Accountant and holds a M.B.A. degree
from the University of California, Los Angeles and a B.A. degree in Accounting
from California State University, Northridge.
ROBERT M. WILSON has been the President, Chief Financial Officer, Secretary and
a director of the Company since June 1995. Prior to joining the Company, Mr.
Wilson served in various capacities, including Vice President-Chief
Financial/Operating Officer from February 1992 to May 1995 at Wismer*Martin,
Inc., a publicly traded provider of health care information systems. From 1989
to 1991 he was President, Chief Executive Officer and a director of Caelus,
Inc., a software developer. He was employed from 1987 to 1989 by Interlink as
Chief Financial/Operating Officer and a director. From 1981 to 1986 he was
President and Chief Executive Officer and a director of Collins Systems, Inc., a
provider of information systems to the oil industry. Mr. Wilson is a Certified
Public Accountant and holds a B.S. degree from the University of Southern
California.
Debby S. Bitticks and Kenneth W. Bitticks are married to each other. No other
family relationships exist among the directors and executive officers of the
Company.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 1996, the Board of Directors held two board
meetings and conducted the majority of its affairs through unanimous written
consents. The Board established an Audit Committee and a Compensation Committee
on August 1, 1996. There is no nominating committee and the members of each
committee were nominated by a majority vote of the Board of Directors.
AUDIT COMMITTEE
The Board established an Audit Committee in August 1996 to make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans for and
3
<PAGE> 7
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls and financial
management practices. Kenneth W. Bitticks, James W. Gott and Michael L. Laney
serve as members of the Audit Committee. As the Audit Committee was not formed
during the fiscal year ended June 30, 1996, no meetings were held during the
last fiscal year. The Audit Committee did meet, however, on August 1, 1996 and
September 18, 1996.
COMPENSATION COMMITTEE
The Board established a Compensation Committee in August 1996 to
determine compensation for the Company's executive officers and to administer
the Company's incentive stock option plans. Kenneth W. Bitticks, Michael L.
Laney and Robert M. Wilson serve as members of the Compensation Committee. As
the Compensation Committee was not formed during the fiscal year ended June 30,
1996, no meetings were held during the last fiscal year. The Compensation
Committee did meet, however, on August 1, 1996 and September 18, 1996.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NOMINEE.
PROPOSAL 2
APPROVAL OF THE 1996 STOCK OPTION PLAN
The Board of Directors adopted the Company's 1996 Stock Option Plan in
September 1996 and amended the plan in October 1996 (the "1996 Option Plan")
authorizing the issuance of 400,000 shares of the Company's Common Stock
(attached hereto as Exhibit A).
Stockholders are requested in this Proposal 2 to approve the 1996
Option Plan. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the 1996 Option Plan. Abstentions will be considered
shares entitled to vote in the tabulation of votes cast on proposals presented
to the stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1996 Option Plan are outlined below.
GENERAL
The 1996 Option Plan provides for the grant of both incentive and
non-qualified stock options. Incentive stock options granted under the 1996
Option Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Non-qualified stock options granted under the 1996 Option Plan are not
intended to qualify as incentive stock options under the Code. See "Tax
Information" for a discussion of the tax treatment of incentive and
non-qualified stock options.
PURPOSE
The 1996 Option Plan was adopted to provide a means by which selected
officers, directors and employees of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of employees holding key positions, to secure
and retain the services of persons capable of filling such positions and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
4
<PAGE> 8
ADMINISTRATION
The 1996 Option Plan is administered by the Compensation Committee. The
Committee has the power to construe and interpret the 1996 Option Plan and,
subject to the provisions of the 1996 Option Plan, to determine the persons to
whom and the dates on which options will be granted, the number of shares to be
subject to each option, the time or times during the term of each option within
which all or a portion of such option may be exercised, the exercise price, the
type of consideration to be paid upon exercise of an option and other terms of
the option.
STOCK SUBJECT TO THE 1996 OPTION PLAN
If options granted under the 1996 Option Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the 1996 Option Plan.
ELIGIBILITY
Incentive stock options may be granted only to selected employees
(including officers) of the Company and its affiliates. Non-qualified stock
options may be granted to selected employees (including officers), directors and
consultants.
No incentive stock options may be granted under the 1996 Option Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed 5 years from the date of
grant. The aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which incentive stock options granted
under the 1996 Option Plan are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the 1996 Option Plan. Individual option grants may be more restrictive as
to any or all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1996 Option Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonqualified options under the 1996 Option Plan may
not be less than 85% of the fair market value of the Common Stock subject to the
option on the date of the option grant. The exercise price of options granted
under the 1996 Option Plan must be paid either: (i) in cash at the time the
option is exercised; or (ii) at the discretion of the Board, (a) by delivery of
other Common Stock of the Company, (b) pursuant to a deferred payment
arrangement or (c) in any other form of legal consideration acceptable to the
Board.
OPTION EXERCISE. Options granted under the 1996 Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. The
Board has the power to accelerate the time during which an option may be
exercised.
TERM. The maximum term of options under the 1996 Option Plan is ten
years, except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the 1996 Option Plan generally terminate 30 days after the
optionee ceases to be employed by or serve as a consultant to the Company or any
affiliate of the Company unless the termination of employment or consultancy is
due to such person's death or permanent and total disability (as defined in the
Code), in which case the option may, but need not, provide that it may be
exercised at any time within one year of such termination, but only to the
extent the option was exercisable at the time of such termination. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship.
5
<PAGE> 9
RESTRICTIONS ON TRANSFER
Options granted under the 1996 Option Plan may not be transferred
except by will or by the laws of descent and distribution, and may be exercised
during the lifetime of the person to whom the option is granted only by such
person.
EFFECT OF CERTAIN CORPORATE EVENTS
If any change is made in the stock subject to the 1996 Option Plan or
subject to any option granted under the 1996 Option Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1996 Option Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan,
the maximum number of shares which may be granted to an employee in a particular
calendar year and the class, number of shares and price per share of stock
subject to such outstanding options.
In the event of a merger or consolidation in which the Company is not
the surviving corporation or a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
prior to the merger are converted into other property, then with respect to
options held by persons then performing services as employees, directors or
consultants for the Company or any affiliate of the Company, the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any options outstanding under the 1996 Option
Plan will terminate if not exercised prior to such event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Option Plan at any time.
Unless sooner terminated, the 1996 Option Plan will terminate on September 18,
2006.
The Board may also amend the 1996 Option Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve (12) months before or after its
adoption by the Board if the amendment would: (i) increase the number of shares
reserved for options under the 1996 Option Plan; (ii) modify the requirements as
to eligibility for participation (to the extent such modification requires
stockholder approval in order for the Plan to satisfy Section 422 of the Code);
or (iii) modify the 1996 Option Plan in any other way if such modification
requires stockholder approval in order for the Option Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3 of the Securities Exchange Act of 1934, as amended ("Exchange Act").
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1996 Option
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are
6
<PAGE> 10
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company generally will be entitled (subject to
the requirement of reasonableness and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options granted under
the 1996 Option Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a non-qualified stock option. Upon exercise of a non-qualified
stock option, the optionee will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the option
exercise price. Generally, with respect to employees, the Company is required to
withhold taxes in an amount based on the ordinary income recognized. Subject to
the requirement of reasonableness and the satisfaction of any withholding
obligation, the Company generally will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that: either (a)(i) the option plan contains a
per-employee limitation on the number of shares for which options may be granted
during a specified period, (ii) the per-employee limitation is approved by the
stockholders, (iii) the option is granted by a Compensation Committee comprised
solely of "outside directors" and (iv) the exercise price of the option is no
less than the fair market value of the stock on the date of grant; or (b) the
option is granted by a Compensation Committee comprised solely of "outside
directors" and is granted (or exercisable) only upon the achievement (as
certified in writing by the Compensation Committee) of an objective performance
goal established by the Compensation Committee while the outcome is
substantially uncertain and approved by the stockholders.
For the aforementioned reasons, the Company's 1996 Option Plan provides
for an annual per employee limitation as required under Section 162(m). Because
the Company's Compensation Committee may not be comprised solely of "outside
directors," options granted by the Committee may not qualify as
"performance-based compensation."
OTHER TAX CONSEQUENCES. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the 1996 Option Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable.
7
<PAGE> 11
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche L.L.P. as the
Company's independent accountants for the fiscal year ending June 30, 1997 and
has further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting. Deloitte
& Touche L.L.P. has audited the Company's financial statements since its
inception in 1993. Representatives of Deloitte & Touche L.L.P. will be present
at the Annual Meeting and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Deloitte & Touche L.L.P.
as the Company's independent accountants is not required by the Company's Bylaws
or otherwise. However, the Board is submitting the selection of Deloitte &
Touche L.L.P. to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Board and the
Audit Committee will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board and the Audit Committee in their discretion may
direct the appointment of a different independent accounting firm at any time
during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares
represented and voting at the meeting will be required to ratify the selection
of Deloitte & Touche L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the amount of shares of the Company
owned (as of September 27, 1996 unless otherwise indicated) by the Company's
directors, Chief Executive Officer and its other executive officer. (See
"Executive Compensation - Summary Compensation Table") below), each person known
by the Company to own beneficially more than 5% of the outstanding shares of the
Company's outstanding Common Stock, and all directors and executive officers as
a group. Unless otherwise indicated below, the business address of each
individual is the same as the address of the Company's principal executive
offices.
8
<PAGE> 12
<TABLE>
<CAPTION>
Number of Percentage of Class
Shares of Common Stock
-------------------
Beneficially
Name of Beneficial Owner Owned(1)
- ------------------------- ------------
<S> <C> <C>
Debby S. Bitticks(2) 457,285 11.3%
Kenneth W. Bitticks(3) 457,285 11.3%
James W. Gott(4) 0 0%
Michael L. Laney(5) 0 0%
Robert M. Wilson(6) 70,818 1.8%
Executive Officers and Directors
as a Group;
5 Persons(2)(3)(4)(5)(6)(7) 528,103 12.9%
Elliot R. Wax(8) 218,635 5.4%
c/o Elliot R. Wax & Associates, Inc.
P.O. Box 1485
Studio City, CA 91614
</TABLE>
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission. The table includes shares issuable upon the
exercise of options or warrants that are exercisable within 60 days of the
date of this Proxy Statement. The shares underlying such options or
warrants are deemed to be outstanding for the purpose of computing the
percentage of outstanding stock owned by such persons individually and by
each group of which they are a member, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
(2) Chief Executive Officer and director, includes 197,660 shares of Common
Stock and warrants to purchase 67,800 shares, jointly owned with Kenneth W.
Bitticks, and options granted to Kenneth W. Bitticks to purchase 40,000
shares.
(3) Chairman of the Board, includes options to purchase 40,000 shares, 197,660
shares of Common Stock, and warrants to purchase 67,800 shares, jointly
owned with Debby S. Bitticks and 151,825 shares owned by Debby S. Bitticks.
(4) Director.
(5) Director, c/o Warner Brothers Feature Animation, 500 N. Brand Boulevard,
Suite 1800, Glendale, California 91203.
(6) President, Chief Financial Officer and director, includes options to
purchase 40,000 shares.
(7) Shares which are beneficially owned by both Debby S. Bitticks and Kenneth
W. Bitticks are included only once in the total number of shares and
percentage beneficially owned.
(8) Includes warrants to purchase 100,732 shares, 45,171 of which are held by
Elliot Wax & Associates, Inc. Money Purchase Pension Trust Agreement,
11,535 of which are held by Elliot Wax & Associates, Inc. Money Purchase
Pension Trust Agreement Rollover Account, and 44,026 of which are held by
The Wax Family Trust, all of which Mr. Wax serves as Trustee. Also includes
45,171 shares held by Elliot Wax & Associates, Inc. Money Purchase Pension
Trust Agreement, 11,535 shares held by Elliot Wax & Associates, Inc. Money
Purchase Pension Trust Agreement Rollover Account, and 61,196 shares held
by The Wax Family Trust.
Except as listed above, there is no other stockholder who beneficially
owns more than 5% of the Company's Common Stock.
9
<PAGE> 13
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who beneficially own more than 10% of a registered class of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("Commission").
Such officers, directors, and stockholders are required by Commission
regulations to furnish the Company with copies of all reports that they file.
Based solely upon the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were complied with, except
that Mr. Laney and Mr. Gott each filed a report late.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a fee of $500 for
each meeting of the Board of Directors attended by such director.
Kenneth W. Bitticks currently acts as a consultant to the Company and
has acted as such since July 1996. He received no fees for consulting services
during fiscal 1996.
Non-employee directors of the Company are eligible to receive stock
option grants under the 1996 Option Plan following their initial election to
serve on the Board. Options granted under the 1996 Option Plan to non-employee
directors are not intended by the Company to qualify as incentive stock options
under the Internal Revenue Code.
The 1996 Option Plan provides for a one-time, non discretionary grant
to each non-employee director of an option to purchase 11,000 shares of the
Company's Common Stock, effective upon the initial election of such person for
the first time to serve as a non-employee director of the Company. Each
non-employee director also will receive a grant of an option to purchase 5,000
shares of the Company's Common Stock on the anniversary of his or her election
to the Board. The exercise price for such options is 85% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
Such options vest over four years according to the following schedule:
So long as the optionee continues to serve as a non-employee director of the
Company, 25% of the shares subject to the option will vest on each of the first,
second, third and fourth anniversaries of the date of grant.
If any change is made in the stock subject to the 1996 Option Plan, or
subject to any option granted under the 1996 Option Plan, the 1996 Option Plan
and options outstanding thereunder will be appropriately adjusted as to the
class and maximum number of shares subject to the 1996 Option Plan and the
class, number of shares and price per share of stock subject to such outstanding
options.
During the fiscal year which ended June 30, 1996, upon his election to
the Board in May 1996, Michael L. Laney was granted an option to purchase 11,000
shares of Common Stock pursuant to the 1993 Incentive Stock Option Plan, which
vest over three years, one-third of the total shares on each of the first,
second and third anniversaries of the date of grant. In addition, if Proposal 2
is approved, Mr. Gott will receive an option under the 1996 Option Plan to
purchase 11,000 shares of Common Stock.
10
<PAGE> 14
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table sets forth the compensation earned by or
paid to the Company's Chief Executive Officer and other executive officers whose
total annual salary exceeded $100,000 for the last two completed fiscal years.
No other current executive officer's or other current employee's total salary
and bonus exceeded $100,000 for the years ended June 30, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------- Securities
All Other Underlying
Name and Principal Position Year Salary Bonus Compensation(1) Options
- --------------------------- ---- ------ ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
Debby S. Bitticks........................ 1996 $132,500 -- $ 4,751 --
Chief Executive Officer(2) 1995 $132,500 -- $ 6,000 --
Robert M. Wilson......................... 1996 $ 98,000 $15,000 $25,453 $ 0
President, Chief Financial 1995 $ 57,378 -- $14,547 $ 0
Officer and Secretary(3)
Brian T. Fitzpatrick..................... 1995 $130,000 -- $12,000 --
President, Chief Financial Officer
and Secretary(4)
</TABLE>
(1) In the interest of attracting and retaining qualified personnel, the
Company may, but does not currently, provide its executive officers with
certain perquisites. These include the cost of Company-paid life,
disability and group medical insurance.
(2) The amounts shown as all other compensation consist of an automobile
allowance paid by the Company.
(3) Includes $49,378 payment for services rendered prior to Mr. Wilson becoming
an officer of the Company. Payment of Mr. Wilson's salary commenced in June
1995. His salary on an annual basis (exclusive of any bonus) is $98,000.
Mr. Wilson received a relocation allowance of $40,000 of which $14,547 was
paid in fiscal 1995 and the remaining $25,453 in fiscal 1996 (shown as "All
Other Compensation").
(4) Mr. Fitzpatrick's resigned in June 1995. His salary on an annual basis
(exclusive of any bonus) was $130,000. See "Certain Transactions." The
amounts shown as all other compensation consist of an automobile allowance
paid by the Company.
The following table provides information concerning stock options
granted during the years ended June 30, 1995 and 1996, to the Company's officers
named above.
OPTION GRANTS
<TABLE>
<CAPTION>
Number of % of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Year Granted(1) Fiscal Year Price(2) Date
---- ------------ ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Debby S. Bitticks.................... 1996 -- -- -- --..........
..................................... 1995 -- -- -- --
Robert M. Wilson..................... 1996 -- -- -- --...........
...................................... 1995 40,000 29.4% $1.00 June 1, 2000
Brian T. Fitzpatrick.................. 1995 -- -- -- --...........
</TABLE>
- ----------------------------
(1) All of the shares of Common Stock underlying such option were vested at the
time of grant.
(2) Such exercise price represents the fair market value of the Common Stock,
as determined by the Company to be $1.00 per share as of June 30, 1995.
No options were exercised in fiscal 1995 or fiscal 1996 by any of the
Company's officers named above.
11
<PAGE> 15
The following table sets forth, for each such officer, the number and value of
vested and unvested options held as of June 30, 1996.
OPTION VALUE AT JUNE 30, 1996
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at June 30 Options at June 30
------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Debby S. Bitticks................ -- -- -- --
Robert M. Wilson................. 40,000 -- $310,000 --
</TABLE>
EMPLOYMENT AGREEMENTS
The Company and Debby S. Bitticks have extended her employment
agreement until September 30, 1998 at an initial base salary of $132,500 and a
bonus to be determined by the Board of Directors. The base salary is subject to
review by the Board of Directors, and the Board of Directors is further
authorized to establish an annual bonus to be earned upon accomplishment of
milestones or objectives to be determined by the Board of Directors. In the
event that the Company terminates Ms. Bitticks' employment other than for cause,
the Company will continue to pay Ms. Bitticks her base salary for an additional
twelve months.
The Company and Robert M. Wilson have entered into an employment
agreement until May 31, 1998 at an initial base salary of $98,000 and a bonus to
be determined by the Board of Directors. For the first year of the agreement,
Mr. Wilson received a $40,000 relocation bonus and was authorized to receive up
to $15,000 in bonuses upon completion of certain objectives. The base salary is
subject to review by the Board of Directors, and the Board of Directors is
further authorized to establish an annual bonus to be earned upon accomplishment
of milestones or objectives to be determined by the Board of Directors. In the
event that the Company terminates Mr. Wilson's employment other than for cause,
the Company will continue to pay Mr. Wilson his base salary for an additional
twelve months.
STOCK OPTION PLAN
In December 1993, the Board of Directors adopted the 1993 Incentive
Stock Option Plan and amended such plan in December 1995 (the "1993 Option
Plan"). The 1993 Option Plan provides for grants to key employees, directors,
consultants and agents of the Company. There is no maximum or minimum number of
shares which may be subject to options granted to any one individual under the
1993 Option Plan. Pursuant to the 1993 Option Plan, options to acquire or awards
of restricted stock were granted to key employees and directors and options were
granted to consultants.
Subject to the provisions of the 1993 Option Plan, the Board or a
committee of the Board has the authority to determine the individuals to whom
the stock awards are to be granted, the number of shares to be covered by each
award, the restrictions, if any, on the award, and other terms and conditions.
The Board also adopted the 1996 Option Plan in September 1996 and
amended such plan in October 1996. See Proposal 2 for a description of the 1996
Option Plan.
12
<PAGE> 16
CERTAIN TRANSACTIONS
In May 1994, the Company acquired all of the assets of D&D and its
subsidiaries, including the rights to the "Children's Wonderland" trademark and
logo and the service mark "The Family Resource Center." At that time, Debby S.
Bitticks was the owner of 52% of the outstanding shares of D&D. The aggregate
consideration given by the Company was approximately $673,109, consisting of
105,443 shares of Common Stock at an issue price of approximately $0.02 per
share (for a total issue price of approximately $2,109) and the assumption of
D&D's and its subsidiaries' obligations of approximately $671,000 in
liabilities. All of these assets were acquired subject to security interests
held by Kenneth W. Bitticks or the landlord of the Center located in Oxnard,
California. No appraisal of these assets was made at the time of purchase.
Instead, the consideration paid for these assets was determined by Debby S.
Bitticks based on her understanding of their value and on terms that she
believed in good faith would be acceptable to the shareholders and creditors of
D&D and its subsidiaries and to the shareholders of the Company. No independent
determination was made as to whether such value and terms were no less favorable
to the Company than could be obtained from an unaffiliated third party.
Approximately 24,655 shares were used to pay creditors of D&D and its
subsidiaries in full satisfaction of all outstanding liabilities (other than the
liabilities being assumed by the Company), including approximately $142,500 of
liabilities guaranteed by Debby S. Bitticks. Debby S. Bitticks also had
personally guaranteed the lease obligation for the D&D Centers and was released
from the guaranty under the lease for the Agoura Center upon the completion of
its acquisition by the Company. The remaining approximately 81,008 shares were
issued by the Company to shareholders of D&D and its subsidiaries at an issue
price of approximately $0.02 per share in consideration of their consent to the
sale of D&D Centers. As Debby S. Bitticks was the owner of 52% of the
outstanding shares of D&D, she received approximately 41,760 shares of Common
Stock of the Company for approximately $948 in addition to the 110,065 of Common
Stock which she acquired for $2,500 as a founder of the Company.
Kenneth W. Bitticks has previously advanced funds to the Company, which
totaled $600,000 as of April 30, 1994, pursuant to a credit agreement dated
November 30, 1993. At the request of the Company, pursuant to an amendment to
the credit agreement dated April 25, 1994, Mr. Bitticks converted his $600,000
loan to units which were delivered at the closing of the Company's first private
offering in May 1994. As a result of such conversion and his additional
investment of $16,000, he acquired 135,600 shares and warrants to purchase
67,800 shares. Under the credit agreement with the Company, Mr. Bitticks agreed
to loan up to $500,000 to the Company as needed for working capital purposes
during the two years following the acquisition of the D&D Centers subject only
to the Company not being in default of its obligations thereunder. Such loan
bears interest at the rate of 10% per annum and is secured by a lien on the
Company's assets. The credit agreement was amended in September 1994 to provide
that Mr. Bitticks would invest a total of $110,000 in the Company's convertible
promissory notes private offerings and would loan $75,000 to the Company under a
promissory note which did not have any conversion features, but for which Mr.
Bitticks was issued 4,403 shares of the Company's Common Stock; these amounts
($185,000) reduced his line of credit obligation from $500,000 to $315,000,
$236,000 of which has been borrowed by the Company. Mr. Bitticks also has
guaranteed the Company's obligations under the lease for the Center located in
Newbury Park, California.
In providing financing to the Company with respect to funding leasehold
improvements and the purchase of furniture and fixtures for the Center to be
established in Woodland Hills, California and certain other locations, Orix USA
Corporation required that Kenneth W. Bitticks and Debby S. Bitticks guaranty the
obligations of the Company. They agreed to do so upon the condition that the
Company enter into an indemnity agreement and secure its obligations under the
indemnity agreement by the grant of a security interest in all of the assets,
including the leasehold rights, of the Woodland Hills Center. This loan was
repaid in May 1996.
As a co-founder of the Company, Kenneth W. Bitticks acquired 72,643
shares of Common Stock for an aggregate purchase price of $1,650 (with 14,986 of
those shares subsequently being transferred by him to other investors at no
cost, including 951 shares to Elliot R. Wax, as trustee of a trust, a former
director of the Company). As Chairman of the Board, he was awarded in June 1995
options to purchase 40,000 shares of Common Stock under the Option Plan at an
exercise price of $1.00 per share. See "Executive Compensation -- Stock Option
Plan."
13
<PAGE> 17
As a former shareholder and creditor of D&D, Elliot R. Wax, as trustee
of certain trusts, acquired 11,817 shares of Common Stock in May and October
1994, partially for cash and partially for cancellation of indebtedness. In June
1994, Mr. Wax as such trustee received 951 shares from Mr. Bitticks at no cost.
In addition, Mr. Wax, as such trustee, invested a total of $100,000 in the
Company's convertible promissory notes private offering and loaned an additional
$75,000 to the Company under a convertible promissory note pursuant to which the
trusts also received 4,403 shares of the Company's Common Stock. In exchange for
the contribution of an additional $150,000 and the conversion of the $75,000
promissory note, together with $3,800 of accrued interest, Mr. Wax, as such
trustee, has received 100,732 shares of Common Stock of the Company and warrants
to purchase an additional 100,732 shares of Common Stock at $2.00 per share.
In November 1993, Brian T. Fitzpatrick acquired 74,844 shares of Common
Stock for an aggregate purchase price of $1,700. From September 1993 to June
1995, Mr. Fitzpatrick served as the President, Secretary and a director, and
from October 1994 to April 1995 he served as the acting Chief Financial Officer,
of the Company pursuant to an employment agreement which provided for an annual
salary of $130,000. Pursuant to an agreement entered into with the Company in
June 1995, Mr. Fitzpatrick resigned as an officer, director and employee of the
Company, sold 48,429 shares of Common Stock to certain employees of the Company
for an aggregate sales price of $2,200 and agreed to accept $86,644 in payment
in consideration of all amounts otherwise payable by the Company to him. Such
amount was paid in sixteen semi-monthly installments of $5,416.50, which
payments commenced in July 1995.
Pursuant to the June 1995 agreement between the Company and Mr.
Fitzpatrick, Robert M. Wilson purchased 30,818 shares of Common Stock from Mr.
Fitzpatrick for an aggregate purchase price of $1,400. In June 1995, the Board
of Directors awarded to Robert M. Wilson options to purchase 40,000 shares of
Common Stock under the Option Plan at an exercise price of $1.00 per share.
Prior to becoming an employee of the Company, Mr. Wilson rendered consulting
services to the Company from March 1995 through May 1995, for which he received
$49,378.
FORM 10-KSB REPORT
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-KSB is available without charge to stockholders and may be
obtained by writing to Robert M. Wilson, Chief Financial Officer, Children's
Wonderland, Inc., 28310 Roadside Drive, Suite 220, Agoura, California 91301.
SHAREHOLDER PROPOSALS
Any proposals of security holders which are intended to be presented at
next year's Annual Meeting must be received by the Company at its principal
executive offices on or before June 17, 1997, in order to be considered for
inclusion in the Company's proxy materials relating to that meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's principal accountant selected for the current fiscal year
is Deloitte & Touche, L.L.P., Los Angeles, California ("Deloitte & Touche").
Deloitte & Touche served as the Company's principal accountant for the fiscal
year ended June 30, 1996 as well. Representatives of Deloitte & Touche will be
present at the Annual Meeting of Stockholders on December 11, 1996 and will be
available to answer appropriate questions.
14
<PAGE> 18
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the person named in the proxy to vote such proxy
in accordance with his judgment on such matters.
By Order of the Board of Directors
/s/ Robert M. Wilson
-----------------------------
Robert M. Wilson
Secretary
Agoura, California
October 15, 1996
Please complete, date, and sign the enclosed Proxy and return it promptly in the
enclosed reply envelope. No postage is required if mailed in the United States.
15
<PAGE> 19
EXHIBIT A
1996 STOCK OPTION PLAN
OF CHILDREN'S WONDERLAND, INC.
<PAGE> 20
1996 STOCK OPTION PLAN OF
CHILDREN'S WONDERLAND, INC.
Children's Wonderland, Inc., a corporation organized under the laws of
the State of California (the "Company"), hereby adopts this 1996 Stock Option
Plan (the "Plan"). The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to its Independent Directors,
Employees (as such terms are defined below) and consultants by assisting them to
become owners of capital stock of the Company and thus permitting them to
benefit directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type
of directors, employees and consultants considered essential to the long-range
success of the Company by providing and offering them an opportunity to become
owners of capital stock of the Company under options, including options that are
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended.
ARTICLE I
DEFINITIONS
1.1 General. Whenever the following terms are used in this Plan, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular shall include the plural, where the context so indicates.
1.2 Board. "Board" shall mean the Board of Directors of the Company.
1.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4 Committee. "Committee" shall mean the Compensation Committee of the
Board, appointed as provided in Section 6.1.
1.5 Company. "Company" shall mean Children's Wonderland, Inc. In
addition, "Company" shall mean any corporation assuming or issuing new employee
stock options in substitution for Options outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
1.6 Employee. "Employee" shall mean any employee (as defined in
accordance with the regulations and revenue rulings then applicable under
Section 3401(c) of the Code) of the Company or its subsidiaries, whether such
employee is so employed at the time this Plan is adopted or becomes so employed
subsequent to the adoption of this Plan, and includes employees who are
directors or officers of the Company.
1.7 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.8 Incentive Stock Option. "Incentive Stock Option" shall mean an
Option which qualifies under Section 422 of the Code and which is designated as
an Incentive Stock Option by the Committee.
1.9 Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.10 Non-Qualified Option. "Non-Qualified Option" shall mean an Option
which is not an Incentive Stock Option and which is designated as a
Non-Qualified Option by the Committee.
1.11 Option. "Option" shall mean an option to purchase capital stock of
the Company granted under the Plan. "Options" include both Incentive Stock
Options and Non-Qualified Options.
<PAGE> 21
1.12 Optionee. "Optionee" shall mean an Independent Director, Employee
or consultant to whom an Option is granted under the Plan.
1.13 Plan. "Plan" shall mean this 1996 Stock Option Plan of the
Company.
1.14 Secretary. "Secretary" shall mean the Secretary of the Company.
1.15 Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.16 Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of Optionee, as a consultant to the Company or
a subsidiary, is terminated for any reason, with or without cause, including
without limitation, resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company. The Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Consultancy, including,
but not by way of limitation, the question of whether a Termination of
Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company has an absolute
and unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.17 Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship or directorship between the
Optionee and the Company or its subsidiaries is terminated for any reason, with
or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death or retirement, but excluding (i) terminations
where there is a simultaneous reemployment or continuing employment of an
Optionee by the Company, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence, change in status from an employee to an independent contractor
or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section . Notwithstanding any other provision of this Plan,
the Company has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. The shares of stock subject to Options
shall be shares of the Company's no par value Common Stock. The aggregate number
of such shares which may be issued upon exercise of Options shall not exceed
400,000.
2.2 Annual Dollar Limits on Grants of Incentive Stock Options. The
aggregate fair market value (determined as of the time the option is granted) of
stock with respect to which "Incentive Stock Options" (within the meaning of
Section 422 of the Code) are exercisable for the first time by any Employee in
any calendar year (under the Plan and all other incentive stock option plans of
the Company) shall not exceed $100,000.
2.3 Unexercised Options. If any Option expires or is canceled without
having been fully exercised, the number of shares subject to such Option but as
to which such Option was not exercised prior to its expiration or cancellation
may again be optioned or granted hereunder, subject to the limitations of
Sections 2.1 and 2.2.
2
<PAGE> 22
2.4 Changes in Company's Shares. In case the Company shall (i) pay a
dividend in shares of common stock or make a distribution in shares of common
stock, (ii) subdivide its outstanding shares of common stock, (iii) combine its
outstanding shares of common stock into a smaller number of shares of common
stock, or (iv) issue by reclassification of its shares of common stock, other
securities of the Company (including any such reclassification in connection
with a consolidation or merger in which the Company is the surviving
corporation), the number of shares of common stock purchasable upon exercise of
the Option immediately prior thereto shall be adjusted so that the Optionee
shall be entitled to receive the kind and number of shares of common stock or
other securities of the Company which Optionee would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Option been exercised immediately prior to the happening of such event
or any record date with respect thereto. Such adjustment in the Option shall be
made without change in the total exercise price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) but with any
necessary corresponding adjustment in Option exercise price per share; provided,
however, in the case of Incentive Stock Options, each such adjustment shall be
made in such manner as not to constitute a "modification" within the meaning of
Section 424(h)(3) of the Code. By way of example, if an Option to purchase 100
shares at an exercise price of $2.00 per share had been granted and a 2 for 1
stock split occurred, the number of shares purchasable upon exercise of such
Option would be adjusted to 200 shares and the exercise price for each share
subject to the Option would be reduced to $1.00 per share. An adjustment made
pursuant to this Section 2.4 shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Any such adjustment made by the Committee shall be final and binding on
the Optionee, the Company and all interested parties.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Independent Director, Employee or consultant of
the Company shall be eligible to be granted Options, except as provided in
Sections 3.3 and 6.1. Each Independent Director of the Company shall be eligible
to be granted Options at the times and in the manner set forth in Section
3.4(d).
3.2 Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing subsidiary unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an Employee.
3.4 Granting of Options.
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Determine which individuals are Independent
Directors, Employees or consultants, and select from among
those persons (including those to whom Options have been
previously granted under the Plan) such of them as in its
opinion should be granted Options;
(ii) Determine the number of shares to be subject to
such Options granted to such selected persons, and determine
whether such Options are to be Incentive Stock Options or
Non-Qualified Options; and
(iii) Determine the terms and conditions of such
Options, consistent with the Plan.
(b) Upon the selection of an Independent Director, Employee or
consultant to be granted an Option, the Committee shall instruct the Secretary
to issue such Option and may impose such conditions on the grant of such Option
as it deems appropriate. Without limiting the generality of the preceding
sentence, the Committee may, in its
3
<PAGE> 23
discretion and on such terms as it deems appropriate, require as a condition on
the grant of an Option to an Employee or consultant that the Employee or
consultant surrender for cancellation some or all of the unexercised Options
which have been previously granted to him under this Plan or otherwise. An
Option, the grant of which is conditioned upon such surrender, may have an
option price lower (or higher) than the exercise price of such surrendered
Option or other award, may cover the same (or a lesser or greater) number of
shares as such surrendered Option or other award, may contain such other terms
as the Committee deems appropriate, and shall be exercisable in accordance with
its terms, without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) When a person is initially elected to the Board and is
then an Independent Director, each such new Independent Director automatically
shall be granted an Option to purchase eleven thousand (11,000) shares of Common
Stock (subject to adjustment as provided in Section 2.4) on the date of his or
her election to the Board at an exercise price of 85% of the Fair Market Value
(as defined in Section 4.2(b) herein). On each anniversary of his or her
election to the Board, each Independent Director automatically shall be granted
an Option to purchase five thousand (5,000) shares of Common Stock (subject to
adjustment as provided in Section 2.4) at an exercise price of 85% of the Fair
Market Value on such date. Members of the Board who are Employees who
subsequently retire from the Company and remain on the Board will not receive an
Option grant pursuant to this Section 3.4(d). All the foregoing Option grants
authorized by this Section 3.4(d) are subject to stockholder approval of the
Plan.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
Officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan. Stock Option Agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to qualify such Options as "Incentive Stock Options" under
Section 422 of the Code.
4.2 Option Price.
(a) The price of the shares subject to each Option shall be
set by the Committee; provided, however, that the price per share for an
Incentive Stock Option shall not be less than 100% of the fair market value of
such shares on the date such Option is granted, or 110% of the fair market value
of such shares on the date such Option is granted in the case of an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiary, and that the price per share subject to a Non-Qualified Option shall
not be less than 85% of the fair market value of such shares on the date such
Option is granted.
(b) For purposes of the Plan, the fair market value of a share
of the Company's stock as of a given date ("Fair Market Value") shall be: (i)
the closing price of a share of the Company's stock on the principal exchange on
which shares of the Company's stock are then trading, if any, on such date, or,
if shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if such stock is not traded on an exchange
but is quoted on NASDAQ or a successor quotation system, (1) the last sales
price (if the stock is then listed as a National Market Issue under the NASD
National Market System) or (2) the mean between the closing representative bid
and asked price (in all other cases) for the stock on such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the stock on such
date as determined in good faith by the Committee; or (iv) if the Company's
stock is not publicly traded, the fair market value established by the Committee
acting in good faith.
4
<PAGE> 24
4.3 Option Vesting.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted; provided, however, that (i) no
Option granted to a person subject to Section 16 of the Exchange Act shall be
exercisable until at least six (6) months have elapsed from (but excluding) the
date on which the Option was granted and (ii) the right to exercise shall vest
at a rate of at least 20% per year over five years from the date the Option is
granted. At any time after grant of an Option, the Committee (or the Board) may,
in its sole discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option vests. Notwithstanding the
foregoing, all Options granted to Independent Directors shall become exercisable
in cumulative annual installments of 25% on each of the first, second, third and
fourth anniversaries of the date of Option grant, and the term of each such
Option shall be ten (10) years without variation or acceleration, except as
provided in Section 4.5 and except that the Board may authorize the acceleration
of Options granted to an Independent Director upon the retirement of an
Independent Director.
(b) No portion of an Option which is unexercisable at
Termination of Employment or Termination of Consultancy, as applicable, shall
thereafter become exercisable, except as may be otherwise provided by the
Committee with respect to Options granted to Employees or consultants, in the
Stock Option Agreement or in a resolution adopted following the grant of the
Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.3(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.4 Expiration of Options.
(a) No Incentive Stock Option may be exercised to any extent
by anyone after the first to occur of the following events:
(i) the later of the expiration of ten (10) years
from the date the Option was granted (five (5) years in case
of an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company or any
subsidiary) or the expiration of one year from the date of the
Optionee's death; or
(ii) except in the case of any Optionee who is
disabled (within the meaning of Section 22(e)(3) of the Code),
the expiration of one month from the date of the Optionee's
Termination of Employment for any reason other than such
Optionee's death unless the Optionee dies within said
one-month period; or
(iii) in the case of an Optionee who is disabled
(within the meaning of Section 22(e)(3) of the Code), the
expiration of three months from the date of the Optionee's
Termination of Employment for any reason other than such
Optionee's death unless the Optionee dies within said
three-month period.
(b) Subject to the provisions of Section 4.4(a), the Committee
shall provide, in the terms of each individual Option, when such Option expires
and becomes unexercisable.
4.5 Merger, Consolidation, Acquisition or Change in Control. In the
event of the merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation, or the
acquisition by another corporation or person of all or substantially all of the
Company's assets (collectively, a "Change
5
<PAGE> 25
Transaction"), Optionees shall thereafter be entitled, upon exercise of the
Options, to receive the kind and amount of shares, other securities, cash or
property receivable upon such Change Transaction by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of the
Option immediately prior to such Change Transaction and shall have no other
conversion rights. In any such event, effective provision shall be made in the
certificate or articles of incorporation of the surviving corporation, in any
contract of sale or conveyance, or otherwise, so that so far as appropriate and
as nearly as reasonably may be, the provisions set forth herein for the
protection of the rights of Optionees shall thereafter be made applicable.
Anything provided in this Section 4.5 to the contrary notwithstanding, if upon
the consummation of any such Change Transaction, or within a period of twelve
(12) months thereafter, the Optionee's employment with the Company is
terminated, or the Optionee fails to be re-elected as a director, as the case
may be, then, upon such termination of employment or failure to re-elect
Optionee as a director, as the case may be, the Option shall immediately fully
vest and become exercisable as to all shares of Common Stock covered thereby,
notwithstanding Section 4.3(a) or 4.3(b), and/or any installment provisions of
such Option, and such Option shall be and remain exercisable for a period of
sixty (60) days following such termination of employment or failure to be
re-elected as a director, as the case may be.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Person Eligible to Exercise. During the lifetime of the Optionee,
only he or she or a legal representative thereof may exercise an Option granted
to him or her, or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under Section 4.4, be exercised by his or her personal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
5.2 Partial Exercise. At any time from time to time prior to the time
when any exercisable Option or exercisable portion thereof becomes unexercisable
under Section 4.4, such Option or portion thereof may be exercised in whole or
in part; provided, however that the Company shall not be required to issue
fractional shares and the Committee may, by the terms of the Option, require any
partial exercise to be with respect to a specified minimum number of shares.
5.3 Manner of Exercise. An exercisable Option, or any exercisable
porion thereof, may be exercised solely by delivery to the Secretary or his or
her office of all of the following prior to the time when such Option or such
portion becomes unexercisable under Section 4.4:
(a) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee;
(b) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised. However, at the
discretion of the Committee (or the Board, in the case of Options granted to
Independent Directors), the terms of the Option may (i) allow a delay in payment
up to thirty (30) days from the date the Option, or portion thereof, is
exercised; (ii) allow payment, in whole or in part, through the delivery of
shares of common stock owned by the Optionee, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) subject to the
timing requirements of Section 5.4, allow payment, in whole or in part, through
the surrender of shares of Common Stock then issuable upon exercise of the
Option having a Fair Market Value on the date of Option exercise equal to the
aggregate exercise price of the Option or exercised portion thereof; (iv) allow
payment, in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (v) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board, or (vi) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii), (iv) and (v).
In the case of a promissory note, the Committee or the Board may also prescribe
the form of such note and the security to be given for such note. The Option may
not be exercised, however, by delivery of a promissory note or by a loan from
the Company when or where such loan or other extension of credit is prohibited
by law.
6
<PAGE> 26
(c) Such representations and documents as the Committee, in
its absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance, including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(d) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
5.4 Certain Timing Requirements. At the discretion of the Committee (or
Board, in the case of Options granted to Independent Directors), shares of
common stock issuable to the Optionee upon exercise of the Option may be used to
satisfy the Option exercise price or the tax withholding consequences of such
exercise, in the case of persons subject to Section 16 of the Exchange Act, only
(i) during the period beginning on the third business day following the date of
release of the quarterly or annual summary statement of sales and earnings of
the Company and ending on the twelfth business day following such date or (ii)
pursuant to an irrevocable written election by the Optionee to use shares of
common stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes made at least six (6) months
prior to the payment of such Option price or withholding taxes.
5.5 Conditions to Issuance of Stock Certificates. The shares of stock
issuable and deliverable upon the exercise of an Option, or any portion thereof,
may be either previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of any Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) There is available an exemption from registration or other
qualification of such shares under any state or federal securities laws, or
there has been completed a registration or other qualification of such shares
under any state or federal securities laws or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable;
(b) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(c) The payment to the Company of all amounts which it is
required to withhold under federal, state, or local law in connection with the
exercise of the Option; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience.
5.6 Transfer Restrictions. The Committee, in its absolute discretion,
may impose such restrictions on the transferability of the shares purchasable
upon the exercise of an Option as it deems appropriate. Any such restriction
shall be set forth in the respective Stock Option Agreement and may be referred
to on the certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of stock
acquired by exercise of an Incentive Stock Option, within two years from the
date of granting such Option or one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirements to give prompt
notice of disposition.
5.7 Rights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders. The Company shall provide to each Optionee a copy of the Company's
annual report when released to the Company's stockholders.
7
<PAGE> 27
ARTICLE VI
ADMINISTRATION
6.1 Compensation Committee. The Compensation Committee shall consist of
at least two Independent Directors, appointed by and holding office at the
pleasure of the Board. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board and may be replaced at any time by the
Board. Vacancies in the Committee shall be filled by the Board.
No person shall be eligible to serve on the Compensation Committee
unless he is then a "disinterested person" within the meaning of Rule 16b-3
which has been adopted by the Securities and Exchange Commission under the
Exchange Act, if and as such Rule is then in effect and an "outside director"
for purposes of Section 162(m) of the Code. This paragraph may be waived for
successive six (6) month periods by the Board of Directors.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Options and to adopt or amend such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret, amend
or revoke any such rules. The Committee may accelerate the exercise date of any
Option and determine the right of any person to exercise the rights on behalf of
any Optionee. Notwithstanding the foregoing, the full Board, acting by a
majority of its members in office, shall conduct the general administration of
the Plan with respect to Options granted to Independent Directors. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "Incentive Stock Options"
within the meaning of Section 422 of the Code. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
6.3 Majority Rule. The Committee shall act by a majority of its members
in office. The Committee may act either by vote at a meeting or by a memorandum
or other written instrument signed by a majority of the Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall receive such compensation for their services as members
as may be determined by the Board. All expenses and liabilities incurred by
members of the Committee in connection with the administration of the Plan shall
be borne by the Company. The Committee may, with the approval of the Board,
employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions, or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Optionees, the
Company, and all other interested persons. No member of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or the Options, and all members of the Committee
shall be fully protected by the Company in respect to any such action,
determination, or interpretation.
ARTICLE VII
OTHER PROVISIONS
7.1 Options Not Transferable. Options shall not be transferable except
by testamentary will or the laws of descent and distribution, and shall be
exercisable during an Optionee's lifetime only by the Optionee. Except as
permitted by the preceding sentence, no Option granted under the Plan or any of
the rights and privileges thereby conferred shall be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise),
and no such Option, right or privilege shall be subject to execution,
attachment, or similar process. Upon any attempt to so transfer, assign, pledge,
hypothecate or otherwise dispose of the Option, or of any right or privilege
conferred thereby, contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon such Option, right or privilege, the Option
and such rights and privileges shall immediately become null and void.
8
<PAGE> 28
7.2 Amendment, Suspension or Termination of the Plan. The Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board or the Committee. However, without
approval of the Company's stockholders given within twelve (12) months before or
after the action by the Committee, no action of the Committee may, except as
provided in Section 4.5, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Committee may be taken that would otherwise require stockholder approval as
a matter of applicable law, regulation or rule. Notwithstanding the foregoing,
the provisions of this Plan relating to Option grants to Independent Directors,
including the amount, price and timing thereof, shall not be amended more than
once in any six-month period other than to comport with changes, in the Code,
the Employee Retirement Income Security Act, or the respective rules thereunder.
Neither the amendment, suspension, nor termination of the Plan shall, without
the consent of the holder of the Option, alter or impair any rights or
obligations under any Option theretofore granted. No Option may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Incentive Stock Option be granted under this Plan after the first
to occur of the following events:
(a) The expiration of ten (10) years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten (10) years from the date the Plan is
approved by the Company's stockholders under Section 7.3.
7.3 Approval of Plan by Shareholders. This Plan will be submitted for
the approval of the Company's shareholders within twelve (12) months after the
date of the Board's initial adoption of the Plan. Incentive Stock Options may be
granted prior to such shareholder approval; provided, however, that such
Incentive Stock Options shall not be exercisable prior to the time when the Plan
is approved by the shareholders; provided, further, that if such approval has
not been obtained at the end of said twelve (12)-month period, all Incentive
Stock Options previously granted under the Plan shall thereupon be canceled and
become null and void.
7.4 Tax Withholding. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Optionee of any
sums required by federal, state or local tax law to be withheld with respect to
the issuance, vesting or exercise of any Option. Subject to the timing
requirements of Section 5.4, the Committee (or the Board, in the case of Options
granted to Independent Directors) may in its discretion and in satisfaction of
the foregoing requirement allow such Optionee to elect to have the Company
withhold shares of common stock (or allow the return of shares of common stock)
having a Fair Market Value equal to the sums required to be withheld.
7.5 Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Option
granted under this Plan. The terms and conditions of any such loan shall be set
by the Committee.
7.6 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, any Option
awarded to an Employee or Independent Director who is then subject to Section 16
of the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act that are
requirements for the application of such exemptive rule, and this Plan shall be
deemed amended to the extent necessary to conform to such limitations.
Furthermore, notwithstanding any other provision of this Plan, any Option
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
7.7 Effect of Plan Upon Other Option and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company. Nothing in this Plan shall be construed to limit the
right of the Company (a) to establish any other forms of incentives or
compensation for employees of the Company or (b) to grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation, or
otherwise of the business, stock, or assets of any corporation, firm or
association.
9
<PAGE> 29
7.8 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of common stock
or Options granted or hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Plan or
Options granted hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
7.9 Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.
7.10 Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Children's Wonderland, Inc. as of September 18, 1996 and amended
by the Board of Directors of Children's Wonderland, Inc. as of October 9, 1996.
/s/ Robert M. Wilson
-----------------------------------
Robert M. Wilson, Secretary
10
<PAGE> 30
CHILDREN'S WONDERLAND, INC.
ANNUAL MEETING OF SHAREHOLDERS - DECEMBER 11, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Children's Wonderland, Inc. (the "Company")
hereby appoints Robert M. Wilson and Debby S. Bitticks, with the power to act
without the other and with full power of substitution, and hereby authorizes
them to represent and vote all of the shares of stock of the undersigned in the
Company, as designated herein, with all powers which the undersigned would
possess if present at the annual meeting of shareholders of the Company to be
held on December 11, 1996 at 11:00 a.m. Pacific Standard Time, and at any
adjournment or adjournments thereof.
<TABLE>
<S> <C> <C>
1. Election of Directors / / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for each nominee listed below
</TABLE>
Debby S. Bitticks, Kenneth W. Bitticks, James W. Gott, Michael L. Laney and
Robert M. Wilson
(INSTRUCTION:) To withhold authority to vote for any individual nominee, strike
a line through or otherwise strike the nominee's name in the list
above.
2. PROPOSAL TO APPROVE THE COMPANY'S 1996 STOCK OPTION PLAN AND TO AUTHORIZE
400,000 SHARES OF COMMON STOCK FOR ISSUANCE UNDER SUCH PLAN:
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE, L.L.P. AS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY:
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 & 3.
<PAGE> 31
If there are any amendments or variations to the matters proposed at the meeting
or at any adjournment or adjournments thereof, or if any other business comes
before the meeting, this proxy confers discretionary authority on the proxy
nominees named herein to vote on such amendments, variations or other business.
Dated:, 1996
----------------------------------
Signature
----------------------------------
Signature if held jointly
IMPORTANT: PLEASE SIGN, DATE AND
RETURN THIS PROXY AS SOON AS
POSSIBLE TO CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, 2
BROADWAY, NEW YORK, NEW YORK
10004.
Please sign exactly as name
appears herein. When shares are
held by joint tenants, both should
sign. When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
