<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
COINSTAR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1. Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2. Aggregate number of securities to which 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.
6. Amount Previously Paid:
-----------------------------------------------------------------------
7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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<PAGE>
COINSTAR, INC.
1800 114TH AVENUE S.E.
BELLEVUE, WA 98004
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
------------------------
TO THE STOCKHOLDERS OF COINSTAR, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of COINSTAR,
INC., a Delaware corporation (the "Company"), will be held on Thursday at 10:00
a.m. local time at the Company's offices located at 1800 114th Avenue S.E.,
Bellevue, Washington 98004. For the following purposes:
1. To elect two directors to hold office until the 2001 Annual Meeting of
Stockholders.
2. To ratify the selection of Deloitte & Touche LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 27, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ MARK P. TANOURY
MARK P. TANOURY
SECRETARY
Menlo Park, California
April 30, 1998
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
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
COINSTAR, INC.
1800 114TH AVENUE S.E.
BELLEVUE, WA 98004
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1998
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Coinstar, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on June 4, 1998, at 10:00 a.m. local time
(the "Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at the Company's offices located at 1800 114th
Avenue S.E., Bellevue, Washington 98004. The Company intends to mail this proxy
statement and accompanying proxy card on or about April 30, 1998, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 27,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 27, 1998 the Company had outstanding and entitled to
vote 15,108,931 shares of 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 at the Annual Meeting.
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 counted towards 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.
1
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 1800 114th
Avenue S.E., Bellevue, Washington 98004, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than December 22, 1998 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) shall serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1998. One of the nominees
for election to this class, Mr. Molbak, is currently a director of the Company
who was previously elected by the stockholders. Mr. Ruckelshaus is currently a
director of the Company and was appointed to that position by the Board of
Directors in November 1997 to fill a vacancy created when the Board increased
the authorized size of the Board to six members. If elected at the Annual
Meeting, each of the nominees would serve until the 2001 annual meeting and
until his successor is elected and has qualified, or until such director's
earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the two nominees named below. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
JENS H. MOLBAK
Jens H. Molbak, age 35, the Company's Chief Executive Officer and Chairman
of the Board, founded the Company in 1990. Prior to that he served two years as
an analyst at Morgan Stanley & Co., Inc., an investment bank. Mr. Molbak earned
his M.B.A. from Stanford University Graduate School of Business and his B.A.
from Yale University.
2
<PAGE>
WILLIAM D. RUCKELSHAUS
William D. Ruckelshaus, age 65, has been a director of the Company since
November 1997. He also serves as the Chairman of the Board of Browning-Ferris
Industries, Inc., a national disposal company. Currently he is the U.S. Envoy to
the Pacific Salmon Treaty appointed by President Clinton. Since January 1996 he
has been a principal of Madrona Investment Group, L.L.C., a private investment
company. From 1985 to 1988, he was a partner at Perkins Coie LLP, a law firm.
Prior to that, he was appointed by former President Reagan and unanimously
confirmed by the U.S. Senate in May 1983 as the fifth Environmental Protection
Agency (the "EPA") Administrator. In 1976, he joined Weyerhaeuser Company, a
timber company, where he served as Senior Vice President for Law and Corporate
affairs until 1983. Mr. Ruckelshaus earned his J.D. from Harvard University and
his B.A. in Business Administration from Princeton University.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
DAVID E. STITT
David E. Stitt, age 41, has been a director of the Company since 1995. He
has served as Managing Partner, Banyan Private Equity Management, a private
investment firm, since February 1998. From 1985 to February 1998, he was an
employee of Vencap, Inc. (formerly, Vencap Equities Alberta Ltd.), a venture
capital firm, most recently as a Vice President. Previously for seven years, he
was Vice President of Sales and Marketing for Westmills Carpet Ltd., a regional
carpet manufacturer located in western Canada.
RONALD A. WEINSTEIN
Ronald A. Weinstein, age 57, has been a director of the Company since 1992.
From 1984 to July 1991, he was a principal of Sloan Capital Companies, a private
investment firm. From February 1989 until April 1991, Mr. Weinstein served as
Executive Vice President of Merchandising at Egghead, Inc. Mr. Weinstein serves
as Chairman of B&B Auto Parts, Inc., an auto parts retailer.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
GEORGE H. CLUTE
George H. Clute, age 48, has been a director of the Company since 1995. Mr.
Clute, a founding general partner of Rainier Venture Partners and Olympic
Venture Partners, has been a general partner of those venture capital funds
since 1982. Mr. Clute serves on the boards of Nth Degree Software Corp., a
privately held software development company, Sequel Technology Corp., a
privately held internet software development company, the Western Association of
Venture Capitalists and the Washington Software & Digital Media Alliance. He
also sits on the Executive Industry Board for the Fred Hutchinson Cancer
Research Center. He earned his M.B.A. and A.B. from the University of
California, Los Angeles.
LARRY A. HODGES
Larry A. Hodges, age 49, has been a director of the Company since December
1995. Mr. Hodges has served as the President and Chief Executive Officer of Mrs.
Field's Cookies, a retail cookie/bakery chain, since April 1994. Mr. Hodges also
serves as a director of Ameristar Casinos, Inc., a casino gaming company. Prior
to that Mr. Hodges was hired in 1992 by Prudential Insurance Company
("Prudential") to manage a distressed asset of Prudential, Food Barn Stores,
Inc., a supermarket chain ("Food Barn"). In 1993, Food Barn filed for bankruptcy
protection in federal court and was subsequently sold. Prior to that, Mr. Hodges
served in various capacities at American Stores Company, a food and drug
retailer, for 25
3
<PAGE>
years, including serving as President of two subsidiaries. Mr. Hodges earned his
B.A. from California State University, San Bernardino.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997 the Board of Directors held
eleven meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with the audit and
financial controls. The Audit Committee is composed of three non-employee
directors: Messrs. Clute, Stitt and Weinstein. It met two times during such
fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Messrs. Hodges, Stitt and Weinstein. The Compensation Committee did
not meet separately during the year as compensation issues were dealt with
during regularly scheduled Board meetings.
During the fiscal year ended December 31, 1997, all directors attended at
least 75% of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which they were a director or
committee member, respectively.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Deloitte & Touche
LLP has audited the Company's financial statements since its inception in 1991.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors 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 present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
4
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of December 31, 1997 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
------------------------------
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED TOTAL
- ----------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Benaroya Capital Company, L.L.C.................................................... 1,051,260 7.0%
1001 Fourth Avenue, Suite 4700
Seattle, WA 98154
Vencap, Inc.(2).................................................................... 1,053,231 7.0
1980 Manulife Place
10180-101 Street
Edmonton, Alberta T5J3S4
CIBC Wood Gundy Ventures, Inc...................................................... 971,132 6.5
425 Lexington Avenue, 2nd Floor
New York, NY 10017
Acorn Ventures, Inc.(3)............................................................ 1,000,000 6.3
11400 SE 6th Street, Suite 120
Bellevue, WA 98004
EOS Partners SBIC, L.P............................................................. 784,470 5.2
320 Park Avenue
New York, NY 10022
Entities affiliated with Olympic Venture Partners(4)............................... 775,540 5.1
2420 Carillon Point
Kirkland, WA 98033
Jens H. Molbak(5).................................................................. 744,082 4.9
Rod W. Brooks(6)................................................................... 137,300 *
Kirk A. Collamer(7)................................................................ 50,000 *
Aaron R. Finch(8).................................................................. 186,960 1.2
Daniel A. Gerrity(9)............................................................... 120,000 *
George H. Clute(10)................................................................ 785,540 5.2
Larry A. Hodges(11)................................................................ 18,127 *
David E. Stitt(12)................................................................. 1,063,232 7.1
William D. Ruckelshaus(13)......................................................... 15,000 *
Ronald A. Weinstein(14)............................................................ 258,379 1.7
All directors and executive officers as a group (10 persons)(15)................... 3,378,620 21.8
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
December 31, 1997 are deemed
5
<PAGE>
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person (unless
such shares are otherwise assumed to be outstanding). Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 15,034,629 shares of Common
Stock outstanding as of December 31, 1997.
(2) Mr. Stitt, a director of the Company, was a Vice President of Vencap, Inc.
(formerly, Vencap Equities Alberta Ltd.) until February 1998. Mr. Stitt
disclaims beneficial ownership of the shares except to the extent of his pro
rata ownership therein.
(3) Includes 900,000 shares that may be acquired upon the exercise of certain
warrants issued in connection with a prior Preferred Stock financing. Fifty
percent (50%) of the shares issued upon the exercise of such warrants are
subject to a repurchase option in favor of the Company in the event that the
Company has not attained a specified valuation on certain dates.
(4) Includes 738,498 shares beneficially owned by Olympic Venture Partners III,
L.P. ("OVP III"). Also includes 37,042 shares beneficially owned by OVP III.
Mr. Clute, a director of the Company, is a general partner of the General
Partner of OVP III and OVP III Entrepreneurs Fund. Mr. Clute disclaims
beneficial ownership of the shares except to the extent of his pro rata
ownership therein.
(5) Includes 75,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, but a portion of such shares are
subject to repurchase by the Company through April 2000 or February 2001.
Also includes 75,000 shares held by Mt. Shuksan Investments LLC ("Shuksan")
and 73,000 shares held by Penny Partners L.P. ("Penny"). Mr. Molbak shares
voting and investment power over the shares held by Shuksan and Penny and
disclaims beneficial ownership of such shares except to the extent of his
ownership interest therein.
(6) Includes 110,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, but a portion of such shares are
subject to repurchase by the Company through June 1999, April 2000 or
February 2001.
(7) Includes 50,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, but such shares are subject to
repurchase by the Company through February 2001.
(8) Includes 46,250 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, but a portion of such shares are
subject to repurchase by the Company through March 1999, April 2000 or
February 2001.
(9) Includes 96,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, but a portion of such shares are
subject to repurchase by the Company through March 1999, April 2000 or
February 2001.
(10) Includes 738,498 shares beneficially owned by OVP III. Also includes 37,042
shares beneficially owned by OVP III Entrepreneurs Fund, an affiliate of OVP
III. Mr. Clute, a director of the Company, is a general partner of the
General Partner of OVP III and OVP III Entrepreneurs Fund. Mr. Clute
disclaims beneficial ownership of the shares except to the extent of his pro
rata ownership therein. Also includes 10,000 shares issuable upon the
exercise of options exercisable within 60 days of December 31, 1997.
(11) Includes 18,127 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(12) Mr. Stitt, a director of the Company, was a Vice President of Vencap, Inc.
until February 1998. Mr. Stitt disclaims beneficial ownership of the shares
except to the extent of his pro rata ownership
6
<PAGE>
therein. Also includes 10,000 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1997.
(13) Includes 10,000 shares issuable upon exercise of an option exercisable
within 60 days of December 31, 1997.
(14) Includes 21,428 shares issuable upon exercise of options exercisable within
60 days of December 31, 1997. Includes 90,400 shares beneficially owned by
the Weinstein Family Partnership. Mr. Weinstein is a general partner of the
Weinstein Family Partnership.
(15) Includes 446,805 shares subject to stock options exercisable within 60 days
of December 31, 1997.
SECTION 16((a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that an
initial report of ownership was filed late by Mr. Ruckelshaus.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof. The members of the
Board of Directors are, however, eligible for reimbursement for their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for automatic grants of options to purchase
shares of Common Stock to eligible non-employee directors of the Company. The
maximum number of shares of Common Stock that may be issued pursuant to options
granted under the Directors' Plan is 100,000. Options granted under the
Directors' Plan are intended by the Company not to qualify as incentive stock
options under the Internal Revenue Code as amended (the "Code"). See "1997
Non-Employee Directors' Stock Option Plan."
During the last fiscal year and prior to the Company's adoption of the
Directors' Plan, the Company granted, under the Company's 1997 Equity Incentive
Plan, options to purchase 10,000 shares of the Company's Common Stock to each of
Messrs. Clute, Hodges, Stitt and Weinstein, each at exercise price of $10.00,
determined in good faith by Board to be the fair market value of such stock on
the date of grant. See "1997 Equity Incentive Plan." During the last fiscal
year, the Company granted options covering 10,000 shares to Mr. Ruckelshaus, at
an exercise price per share of $8.50 under the Directors' Plan. The fair market
value of such Common Stock on the date of grant was $8.50 per share (based on
the closing sales price reported on the Nasdaq National Market System for the
date of grant). As of December 31, 1997, no options had been exercised under the
Directors' Plan.
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee. See "Certain Relationships and Related Transactions"
for a description of transactions between the Company and entities affiliated
with members of the Compensation Committee.
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1996 and
1997, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------------
COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ------------------------------------------- --------- ---------- ----------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Jens H. Molbak(2).......................... 1997 $ 129,166 -- 50,000 --
President, Chief Executive 1996 97,081 -- 25,000 --
Officer and Director
Rod W. Brooks.............................. 1997 193,170 -- 30,000 --
Vice President of Sales 1996 153,730 -- 25,000 --
and Marketing
Kirk A. Collamer(3)........................ 1997 120,961 -- 50,000 --
Vice President and 1996 -- -- -- --
Chief Financial Officer
Aaron R. Finch(4).......................... 1997 130,000 -- 30,000 --
Vice President of Operations 1996 100,636 -- 15,000 --
Daniel A. Gerrity(2)....................... 1997 149,166 -- 30,000 --
Vice President 1996 126,309 15,000 30,000 --
and Chief Technical Officer
</TABLE>
- ------------------------
(1) As permitted by rules established by the Commission, no amounts are shown
with respect to certain perquisites where such amounts do not exceed the
lesser of 10% of the sum of the amount in the salary and bonus columns or
$50,000.
(2) On April 15, 1998, the Company announced the appointment of Mr. Gerrity as
President and Chief Operating Officer. In connection with this appointment,
Mr. Molbak will serve as Chief Executive Officer and Chairman of the Board.
(3) Mr. Collamer was hired as Vice President and Chief Financial Officer in
February 1997.
(4) Mr. Finch informed the Company that he will resign his position as Vice
President of Operations in April 1998.
8
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1997 Equity
Incentive Plan (the "Equity Incentive Plan"). As of December 31, 1997, options
to purchase a total of 838,504 shares were outstanding under the Equity
Incentive Plan and options to purchase 1,795,584 shares remained available for
grant thereunder.
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENTAGE VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED IN EXERCISE OPTION TERM($)(3)
GRANTED FISCAL 1997 PRICE EXPIRATION ----------------------
NAME (#)(1) (%)(#)(2) ($/SH) DATE 5% 10%
- ------------------------------------------ ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jens H. Molbak............................ 50,000 11.26% $ 10.00 2/26/07 $ 315,000 $ 796,500
Rod W. Brooks............................. 30,000 6.75 10.00 2/26/07 189,000 447,900
Kirk A. Collamer.......................... 50,000 11.26 10.00 2/26/07 315,000 796,500
Aaron R. Finch............................ 30,000 6.75 10.00 2/26/07 189,000 447,900
Daniel A. Gerrity......................... 30,000 6.75 10.00 2/26/07 189,000 447,900
</TABLE>
- ------------------------
(1) Options generally have a term of 10 years and are immediately exercisable
but shares purchased thereunder are subject to repurchase by the Company in
the event service is terminated at the rate of 100% until the first
anniversary of the date of grant, 50% upon the second anniversary of the
date of grant, decreasing by 2.08333% of the shares upon completion of each
full month thereafter; such that the shares are released from such
repurchase option in February 2001.
(2) Based on an aggregate of 444,000 shares subject to options granted to
employees of the Company in the fiscal year ended December 31, 1997,
including the Named Executive Officers.
(3) The potential realizable value calculated based on the term of the option at
the time of grant (10 years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Commission and does not
represent the Company's prediction of its stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock and no gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
SHARES AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(2)
EXERCISE REALIZED ------------------------------ ------------------------------
(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- --------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Jens H. Molbak...................... -- -- 75,000 -- $ 210,625 --
Rod W. Brooks....................... 20,000 $ 22,000 110,000 -- 690,500 --
Kirk A. Collamer.................... -- -- 50,000 -- -- --
Aaron R. Finch...................... 80,250 91,275 46,250 -- 139,531 --
Daniel A. Gerrity................... 24,000 28,275 96,000 -- 566,850 --
</TABLE>
- ------------------------
(1) Based on the difference between the deemed fair market value on the date of
exercise and the exercise price.
(2) Based on the difference of the fair market value as of December 31, 1997
($9.125 per share) and the exercise price.
1997 EQUITY INCENTIVE PLAN
GENERAL
The Equity Incentive Plan provides for the grant of (i) incentive and
nonstatutory stock options (ii) stock bonuses, and (iii) rights to purchase
restricted stock (collectively, "Stock Awards"). Incentive stock options granted
under the Equity Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonstatutory stock
options granted under the Equity Incentive Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information" for
a discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
In March 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the Equity Incentive Plan as an amendment and restatement
of the Company's 1992 Stock Option Plan, as amended. The Equity Incentive Plan
provides a means by which selected officers 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.
ADMINISTRATION
The Equity Incentive Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the Equity Incentive
Plan and, subject to the provisions of the Equity Incentive Plan, to determine
the persons to whom and the dates on which Stock Awards will be granted; whether
a Stock Award will be an incentive stock option, a nonstatutory stock option, a
stock bonus, a right to purchase restricted stock or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the number of shares to be subject to each Stock Award,
the time or times and when a person shall be permitted to receive stock pursuant
to the Stock Award. The Board of Directors is authorized to delegate
administration of the Equity Incentive Plan to a committee composed of one or
more members of the Board. The Board has delegated administration of the Equity
Incentive Plan to the Compensation Committee of the Board. As used herein with
respect to the Equity Incentive Plan, the "Board" refers to the Compensation
Committee as well as to the Board of Directors itself.
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<PAGE>
ELIGIBILITY
Incentive stock options may be granted under the Equity Incentive Plan only
to selected key employees (including officers and directors who are employees)
of the Company and its affiliates. Selected employees (including officers),
directors and consultants are eligible to receive Stock Awards other than
incentive stock options under the Equity Incentive Plan.
No incentive stock option may be granted under the Equity Incentive 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 incentive stock option exercise price
is at least 110% of the fair market value of the stock subject to the incentive
stock option on the date of grant, and the term of the incentive stock option
does not exceed five years from the date of grant. For incentive stock options
granted under the Equity Incentive Plan after 1986, the aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which such options 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.
STOCK SUBJECT TO THE EQUITY INCENTIVE PLAN
The Company has reserved a total of 2,900,000 shares of Common Stock for
issuance under the Equity Incentive Plan. As of December 31, 1997, 265,912
shares of Common Stock have been issued upon exercise of options granted under
the Equity Incentive Plan, options to purchase 838,504 shares of Common Stock at
a weighted average exercise price of $5.38 per share were outstanding and
1,795,584 shares remained available for future grants of Stock Awards. If any
Stock Award granted under the Equity Incentive Plan expires or otherwise
terminates without being exercised, the Common Stock not purchased pursuant to
such Stock Awards again becomes available for issuance under the Equity
Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Equity Incentive 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 Equity Incentive 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 nonstatutory options under the Equity
Incentive 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. However, if options
were granted with exercise prices below market value, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m). See "Federal Income Tax Information." At December 31, 1997, the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market System was $9.125 per share.
In the event of a decline in the value of the Company' s Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the Equity Incentive Plan is deemed to be canceled and a new
option granted. Both the option deemed to be canceled and the new option deemed
to be granted will be counted against the Equity Incentive Plan share
limitation.
The exercise price of options granted under the Equity Incentive Plan must
be paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
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<PAGE>
OPTION EXERCISE. Options granted under the Equity Incentive Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. Shares
covered by options granted in the future under the Equity Incentive Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the Equity Incentive Plan may permit exercise prior to vesting, but in such
event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of or discontinue
service to the Company before vesting. To the extent provided by the terms of an
option, an optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
TERM. The maximum term of options under the Equity Incentive Plan is 10
years, except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the Equity Incentive Plan terminate three months after
termination of the optionee's employment or relationship as a consultant or
director of the Company or any affiliate of the Company, unless (a) such
termination is due to such person's permanent and total disability (as defined
in the Code), in which case the option may, but need not, provided that it may
be exercised at any time within one year of such termination; (b) the optionee
dies while employed by or serving as a consultant or director of the Company or
any affiliate of the Company, or within three months after termination of such
relationship, in which case the option may, but need not, provided that it may
be exercised (to the extent the option was exercisable at the time of the
optionee's death) within twelve months of the optionee's death by the person or
persons to whom the rights to such option pass by will or by the laws of descent
and distribution; or (c) the option by its terms specifically provides
otherwise. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The following is a description of the permissible terms of stock bonuses and
restricted stock purchase agreements under the Equity Incentive Plan. The terms
and conditions of stock bonus or restricted stock purchase agreements may change
from time to time, and the terms and conditions of separate agreements need not
be identical, but each stock bonus or restricted stock purchase agreement
includes the substance of each of the following provisions as appropriate:
PURCHASE PRICE. The purchase price under each restricted stock purchase
agreement is such amount as the Board may determine and designate in such
agreement, but in no event may the purchase price be less than eighty-five
percent (85%) of the stock's fair market value on the date such award is made.
Notwithstanding the foregoing, the Board may determine that eligible
participants in the Equity Incentive Plan may be awarded stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company for its benefit.
CONSIDERATION. The purchase price of stock acquired pursuant to a stock
purchase agreement must be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Committee, according to a deferred
payment or other arrangement with the person to whom the stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Notwithstanding the foregoing, the Board may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
VESTING. Shares of stock sold or awarded under the Plan may, but need not,
be subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
12
<PAGE>
TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In
the event a participant's continuous status as an employee, director or
consultant terminates, the Company may repurchase or other re-acquire any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Equity Incentive Plan or
subject to any Stock Award granted under the Equity Incentive 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 Equity Incentive Plan and Stock Awards 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 during a calendar year, and the class, number of shares and price per
share of stock subject to such outstanding Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Equity Incentive Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
type of merger or other corporate reorganization, to the extent permitted by
law, any surviving corporation will be required to either assume Stock Awards
outstanding under the Equity Incentive Plan or substitute similar Stock Awards
for those outstanding under such plan, or such outstanding Stock Awards will
continue in full force and effect. In the event that any surviving corporation
declines to assume or continue Stock Awards outstanding under the Equity
Incentive Plan, or to substitute similar Stock Awards, then, with respect to
Stock Awards held by persons then performing services as employees, directors or
consultants, the time during which such Stock Awards may be exercised will be
accelerated if so determined by the Board and the Stock Awards terminated if not
exercised during such time. The acceleration of a Stock Award in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover, with
respect to Stock Awards held by persons then performing services as employees,
directors or consultants, provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Equity Incentive Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Equity Incentive Plan will terminate on March 27, 2007.
The Board may also amend the Equity Incentive 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 months before or after its adoption by
the Board if the amendment would: (a) 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, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the Equity Incentive Plan for stockholder
approval, including, but not limited to, amendments intended to satisfy the
requirements of Section 162(m) of the Code regarding the exclusion of
performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
13
<PAGE>
RESTRICTIONS ON TRANSFER
Under the Equity Incentive Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution and during the lifetime of the optionee, may be exercised only by
the optionee. A nonstatutory stock option may not be transferred except by will
or by the laws of descent and distribution or pursuant to a "qualified domestic
relations order," unless otherwise specified in the option agreement. In any
case, the optionee may designate in writing a third party who may exercise the
option in the event of the optionee's death. In addition, shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Equity Incentive
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 (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) 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, mid-term or short-term depending
on how long the stock was held. Long-term and mid-term capital gains currently
are generally subject to lower tax rates than ordinary income. The maximum
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate is effectively 39.6% at the present time. 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.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Equity Incentive 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 nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally 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 from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally 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,
mid or short-term depending on how long the stock
14
<PAGE>
was held. 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.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Equity Incentive Plan generally have the following federal
income tax consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the recipient. Upon disposition of the stock, the recipient 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, if any, plus any amount
recognized as ordinary income upon acquisition (or vesting) of the stock. Such
gain or loss will be long, mid or short-term depending on how long the stock was
held from the date ordinary income is measured. Slightly different rules may
apply to persons who acquire stock subject to forfeiture.
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 Awards, 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 awards will qualify as performance-based
compensation, provided that (i) the stock award 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 award is granted by a compensation committee composed
solely of "outside directors"; and (iv) the exercise price of the award is no
less than the fair market value of the stock on the date of grant. Stock bonuses
qualify as performance-based compensation under the Treasury regulations only
if: (i) the award is granted by a compensation committee comprised solely of
"outside directors"; (ii) the award is granted (or exercisable) only upon the
achievement of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain; (iii) the
compensation committee certifies in writing prior to the granting (or
exercisability) of the award that the performance goal has been satisfied; and
(iv) prior to the granting (or exercisability) of the award, stockholders have
approved the material terms of the award (including the class of employees
eligible for such award, the business criteria on which the performance goal is
based, and the maximum amount (or formula used to calculate the amount) payable
upon attainment of the performance goal).
EMPLOYEE STOCK PURCHASE PLAN
GENERAL
In March 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the Employee Stock Purchase Plan (the "Purchase Plan").
The Purchase Plan provides a means by which employees of the Company (and any
parent or subsidiary of the Company) may purchase Common Stock of the Company at
a discount through accumulated payroll deductions. The maximum number of shares
of Common Stock that may be issued under the Purchase Plan is 200,000.
15
<PAGE>
PURPOSE
The purpose of the Purchase Plan is to provide incentives for such persons
eligible to participate thereunder to exert maximum efforts for the success of
the Company. As of December 31, 1997, approximately 207 of the Company's
approximately 273 employees are eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board has the power to delegate
administration of such plan to a committee of not less than two Board members.
The Board may abolish any such committee at any time and revest in the Board the
administration of the Purchase Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The offering period for any offering
may be no more than 27 months. The initial offering period commenced on the date
of effectiveness of the Company's initial public offering and shall end on July
31, 1999. Thereafter, an offering shall begin on August 1 every two (2) years,
beginning with calendar year 1999, and shall end on the day prior to the second
anniversary of its offering date.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for such period preceding the first day of the offering period as determined by
the Board (which period shall not equal or exceed two years). The Board may
provide in any offering that officers of the Company who are "highly
compensated" as defined in the Code are not eligible to be granted rights under
the Purchase Plan.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering to
the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 15% of such
employees' earnings during the purchase period.
16
<PAGE>
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan shall not be less than the lower of (a) 85% of the fair market
value of a share of Common Stock on the date of commencement of the offering or
on the first date of eligibility or (b) 85% of the fair market value of a share
of Common Stock on the purchase date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during the purchase period, a participant may
reduce or terminate his or her payroll deductions. A participant may not
increase or begin such payroll deductions after the beginning of any purchase
period, except, if the Board provides, in the case of an employee who first
becomes eligible to participate as of a date specified during the purchase
period. All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make any additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board specifies a maximum number of shares any
employee may be granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by all participants.
If the aggregate number of shares to be purchased upon exercise of rights
granted in the offering would exceed the maximum aggregate number, the Board
would make a pro rata allocation of shares available in a uniform and equitable
manner. Unless the employee's participation is discontinued, his right to
purchase shares is exercised automatically at the end of the purchase period at
the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an agreement
authorizing payroll deductions, the participant may withdraw from a given
offering by terminating his or her payroll deductions and by delivering to the
Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be
elected at any time prior to the end of the applicable offering period, subject
to any specified limitations in the offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
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<PAGE>
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time in its
discretion. Unless terminated earlier, the Purchase Plan will terminate at such
time that all of the shares subject to the Purchase Plan's reserve has been
issued under the terms of the Purchase Plan.
The Board may amend the Purchase Plan at any time in its discretion. Any
amendment of the Purchase Plan must be approved by the stockholders within 12
months of its adoption by the Board if the amendment would (i) increase the
number of shares of Common Stock reserved for issuance under the Purchase Plan,
(ii) modify the requirements relating to eligibility for participation in the
Purchase Plan, or (iii) modify any other provision of the Purchase Plan in a
manner that would materially increase the benefits accruing to participants
under the Purchase Plan, if such approval is required in order to comply with
the requirements of Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase Plan will not
be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event. Stock Subject to
Purchase Plan
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under such plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for favorable
federal income tax treatment associated with rights granted under an employee
stock purchase plan which qualifies under provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchase shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a long-term, mid-term or short-term capital gain or loss depending on how
long the stock was held. Capital gains currently are generally subject to lower
tax rates than ordinary income. The maximum capital gains rate for federal
income tax purposes is 20% while the maximum ordinary rate is effectively 39.6%
at the present time.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the
18
<PAGE>
participant. The balance of any gain will be treated as capital gain. Even if
the stock is later disposed of for less than its fair market value on the
exercise date, the same amount of ordinary income is attributed to the
participant, and a capital loss is recognized equal to the difference between
the sales price and the fair market value of the stock on such exercise date.
Any capital gain or loss will be long, mid or short-term depending on how long
the stock has been held.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Purchase Plan. The Company is entitled to
a deduction to the extent amounts are taxed as ordinary income to a participant
(subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation).
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
GENERAL
In March 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the Directors' Plan. The Directors' Plan provides for the
automatic grant of nonstatutory stock options to purchase shares of Common Stock
to Non-Employee Directors (as defined below) of the Company. The maximum number
of shares of Common Stock that may be issued pursuant to options granted under
the Directors' Plan is 100,000. As of December 31, 1997, 50,000 options to
purchase shares were granted under the Directors' Plan. Options granted under
the Directors' Plan are not intended to qualify as incentive stock options, as
defined under Section 422 of the Code.
PURPOSE
The purpose of the Directors' Plan is to attract and retain the services of
persons capable of serving as Non-Employee Directors on the Board of Directors
and to provide incentives for such persons to exert maximum efforts to promote
the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration. The Board of Directors is
authorized to delegate administration of the Directors' Plan to a committee
composed of one or more two members of the Board. The Board of Directors does
not presently contemplate delegating administration of the Directors' Plan to
any committee of the Board of Directors.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
Non-Employee Directors of the Company. A "Non-Employee Director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or any affiliate.
Option grants under the Directors' Plan are non-discretionary. Each person
who, after the effectiveness of the Company's Registration Statement filed in
connection with the Company's initial public offering, for the first time
becomes a Non-Employee Director shall be automatically granted upon the date of
his or her initial election to be a Non-Employee Director by the Board or
stockholders of the Company, an option to purchase 10,000 shares of Common
Stock. In addition, on the date of the annual meeting of stockholders each year,
each Non-Employee Eligible Director shall be automatically granted an option to
purchase 5,000 shares of Common Stock If, however, the Non-Employee Director has
not served for 12 months prior to such date, then the number of shares subject
to that Non-Employee Director's option shall be pro rated based on the number of
days such Non-Employee Director served as such during the preceding 12 months.
19
<PAGE>
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
FULLY VESTED. The option shall be fully vested and exercisable at all
times.
EXERCISE PRICE; PAYMENT. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock subject to such options on the date of grant. The exercise price of
options granted under the Directors' Plan may be paid in cash or by delivery of
shares of Common Stock of the Company that have been held for the period
required to avoid a charge to the earnings of the Company. Any shares so
surrendered shall be valued at their fair market value on the date of exercise.
TRANSFERABILITY; TERM. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution or pursuant to a "qualified domestic relations order." During the
lifetime of an optionee, an option may be exercised only by the optionee or
transferee pursuant to such order. No option granted under the Directors' Plan
is exercisable by any person after the expiration of ten years from the date the
option is granted.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' 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
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan
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 immediately
preceding the merger were converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, or any other capital
reorganization after which less than 50% of the outstanding voting shares of the
new or continuing corporation are owned by stockholders of the Company
immediately before such transactions, then to the extent permitted by applicable
law, the time during which such options may be exercised shall be accelerated,
and the options terminated if not exercised prior to such event.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the Directors' Plan
at any time or from time to time; provided, however, that the Board may not
amend the Directors' Plan with respect to the amount, price or timing of grants
more often than once every six months. No amendment will be effective unless
approved by the stockholders of the Company within twelve months before or after
its adoption by the Board if the amendment would: (i) increase the number of
shares reserved for options under the Directors' Plan; (ii) modify the
requirements as to eligibility for participation in the Directors' Plan (to the
extent such modification requires stockholder approval in order for the
Directors' Plan to comply with the requirements of Rule 16b-3; or (iii) modify
the Directors' Plan in any other way if such modification requires stockholder
approval in order for the Directors' Plan to meet the requirements of Rule
16b-3. Unless sooner terminated, the Directors' Plan will terminate on March 27,
1997.
20
<PAGE>
FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally 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. Because the
optionee is a director of the Company, under existing laws, the date of taxation
(and the date of measurement of taxable ordinary income) may in some instances
be deferred unless the optionee files an election under Section 83(b) of the
Code. The filing of Section 83(b) election with respect to the exercise of an
option may affect the time of taxation and the amount of income recognized at
each such time. 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 such option. Such gain or loss will be long-term,
mid-term or short-term depending on how long the stock was held.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors. The Committee is responsible for
setting and administering the policies which govern executive compensation.
COMPENSATION PHILOSOPHY
The Board's executive compensation program strongly links management pay
with the Company's annual and long-term performance. The program is intended to
attract, motivate and retain senior management by providing compensation
opportunities that are consistent with Company performance. The program provides
for (i) base salaries which reflect such factors as level of responsibility,
individual performance, internal fairness and external competitiveness, (ii)
annual incentive bonus awards which are payable upon the Company's achievement
of annual financial and strategic objectives approved by the Board, and (iii)
long-term incentive opportunities, generally in the form of stock options which
strengthen the mutuality of interest between management and the Company's
stockholders.
The following is a discussion of each of the elements of the Company's
executive compensation program including a description of the decisions and
actions taken by the Committee with respect to compensation in fiscal 1997 for
the Chief Executive Officer and all executive officers as a group.
- ------------------------
(1) The material in this report and under the caption "Performance Measurement
Comparison" are not "soliciting material," are not deemed filed with the SEC
and are not to be incorporated by reference in in any filing of the Company
under the Securities Act of 1933, as amended, or the Exchange Act whether
made before or after the date of this Proxy Statement and irrespective of
any general incorporation language herein.
21
<PAGE>
MANAGEMENT COMPENSATION PROGRAM
Compensation paid to the Company's executive officers for fiscal year 1997
(as reflected in the foregoing tables with respect to the Named Executive
Officers) consisted of the following elements: base salary and stock options
granted under the Equity Incentive Plan.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices. Annual adjustments in base salaries
typically are made effective at the beginning of the calendar year for which
they are intended to apply and therefore reflect in large part the prior year's
business performance and individual achievements.
ANNUAL BONUS. The Compensation Committee annually recommends the payment of
bonuses, in cash or stock, to the Company's employees, including its executive
officers, to provide an incentive to these persons to be productive over the
course of each fiscal year. These bonuses are based upon a plan approved by the
Board of Directors and includes certain corporate performance objectives
relating to the Company's earnings and individual performance objectives. The
size of the bonus to each executive officer is a percentage of base salary and
determined solely on the Company achieving or exceeding its earnings objectives.
LONG-TERM INCENTIVES. The Company believes that a key component to the
compensation of its executive officers should be through stock options. Stock
options utilized by the Company for this purpose have been designed to provide
an incentive to these employees by allowing them to directly participate in any
increase in the long-term value of the Company. This incentive is intended to
reward, motivate and retain the services of executive employees. The Company has
historically rewarded its executive employees through the grant of Incentive
Stock Options and Nonstatutory Stock Options.
Incentive Stock Options and Nonstatutory Stock Options are allocated to both
executive and non-executive employees on an annual basis by either the
Compensation Committee or the Board of Directors. The Company's Equity Incentive
Plan provides for the grant of up to 2,900,000 shares of the Company's Common
Stock, of which as of December 31, 1997, 265,912 shares have been issued upon
exercise of options, options to purchase 838,504 shares were outstanding and
1,795,584 shares remained available for future grant. Stock options are
typically granted with exercise prices equal to the prevailing market value of
the Company's Common Stock on the date of grant, have 10-year terms and are
subject to vesting periods established from time to time by the Committee.
The Compensation Committee employs no particular set of mechanical criteria
in awarding stock options. Rather, it evaluates a series of factors including:
(i) the overall performance of the Company for the fiscal year in question; (ii)
the performance of the individual in question; (iii) the anticipated
contribution by the individual to the Company on an overall basis; (iv) the
historical level of compensation of the individual; (v) the level of
compensation of similarly situated executives in the Company's industry; and
(vi) that level of combination of cash compensation and stock options that would
be required from a competitive point of view to retain the services of a valued
executive officer.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1997, Mr. Jens H. Molbak, served as President, Chief Executive
Officer and a director of the Company and, as such, was eligible to participate
in the same executive compensation plans as were available to other executive
officers of the Company. Based on the performance of the Company in the prior
fiscal year and the Committee's assessment of Mr. Molbak's ongoing personal
performance in the position of Chief Executive Officer, Mr. Molbak received a
salary increase during fiscal 1997. Among the factors considered by the
Committee in its consideration of Mr. Molbak's performance were the continued
expansion of the Company's Coinstar network, the continued success of the
Company's sales and marketing efforts and the successful completion of the
Company's initial public offering.
22
<PAGE>
Mr. Molbak was granted stock options under the Equity Incentive Plan for
50,000 shares of Common Stock on February 27, 1997, at the option price of
$10.00 per share. This option was based on the continuing success through
internally generated growth of the Company. He is eligible to receive additional
option grants in the future at the discretion of the Committee.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and Mr. Molbak's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation for a particular time period.
COMPENSATION COMMITTEE
Larry A. Hodges
David E. Stitt
Ronald A. Weinstein
23
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on July 3, 1997 (the date on which the Company's Common Stock was
first traded as the Nasdaq National Market) for (i) the Company's Common Stock,
(ii) the Nasdaq Stock Market Index and (iii) the Russell 2000 Index ("Russell
2000"). All values assume reinvestment of the full amount of all dividends and
are calculated as of December 31, of 1997:
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG COINSTAR, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COINSTAR, INC. NASDAQ STOCK MARKET (U.S.) RUSSELL 2000
<S> <C> <C> <C>
7/03/97 100 100 100
7/31/97 95 111 105
8/31/97 113 100 107
9/30/97 124 117 115
10/31/97 96 111 110
11/30/97 92 111 109
12/31/97 87 111 110
</TABLE>
<TABLE>
<CAPTION>
7/3/97 7/31/97 8/31/97 9/30/97 10/31/97 11/30/97 12/31/97
<S> <C> <C> <C> <C> <C> <C> <C>
Coinstar, Inc. $ 100.00 $ 95.24 $ 113.10 $ 123.81 $ 95.83 $ 91.67 $ 86.90
NASDAQ STOCK MARKET (U.S.) 100.00 110.56 100.39 116.92 110.87 111.42 109.67
RUSSELL 2000 100.00 104.65 107.05 114.88 109.84 109.13 111.04
</TABLE>
* $100 invested on 7/03/97 in stock or on 8/30/97 in index--including
reinvestment of dividends. Fiscal year ending December 31.
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
24
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the Company's inception in February 1991, the Company issued, in
private placement transactions, shares of its Preferred Stock as follows: (i)
649,775 shares of Series A Preferred Stock at $1.00 per share in March and
November 1992, (ii) 895,506 shares of Series B Preferred Stock at $4.00 per
share along with warrants to purchase 43,752 shares of Series B Preferred Stock
for $4.00 per share in the June and September 1993, (iii) 4,567,016 shares of
Series C Preferred Stock at $3.25 per share along with warrants to purchase
1,419,369 shares of Series C Preferred Stock for $3.00 to $4.00 per share in
February 1995, (iv) 2,500,000 shares of Series D Preferred Stock for $4.00 per
share along with warrants to purchase 705,891 shares of Series D Preferred Stock
for $4.25 per share in December 1995, and (v) 100,000 shares of Series E-1
Preferred Stock for $6.00 per share along with warrants to purchase 350,000
shares of Series E-2 Preferred Stock for $0.60 per share and warrants to
purchase 550,000 shares of Series E-3 Preferred Stock for $0.39 per share in
August 1996. The warrants provide that the purchase price paid for each warrant
be credited toward the exercise price for that warrant, resulting in effective
exercise prices for the warrants to purchase the Series E-2 Preferred Stock and
Series E-3 Preferred Stock or $11.40 and $15.61 per share, respectively. The
connection with the Company's initial public offering, the Preferred Stock
converted into Common Stock on a one-to-one basis, except for the Series B
Preferred Stock, which converted at a rate of 1.142857 to one. The following
table sets forth the shares of Preferred Stock purchased by each of the
Company's directors, executive officers and key employees, five percent
stockholders and their respective affiliates:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK AND STOCK AND STOCK AND STOCK AND STOCK AND
INVESTOR WARRANTS WARRANTS WARRANTS WARRANTS WARRANTS
- ----------------------------------------------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Benaroya Capital Company, L.L.C...................... -- -- -- 1,154,118 --
Vencap, Inc.(1)...................................... -- -- 900,000 192,353 --
CIBC Woody Gundy Ventures, Inc....................... -- -- 800,001 265,087 --
Eos Partners SBIC, L.P............................... -- -- 700,001 160,294 --
Entities affiliated with Olympic Venture Partners
III, L.P.(2)........................................ -- -- 630,000 168,309 --
Roanoke Investors, L.P............................... -- -- 400,000 256,471 --
Acorn Ventures, Inc.................................. -- -- -- -- 1,000,000
Rod W. Brooks(3)..................................... -- -- -- 8,015 --
Aaron R. Finch(4).................................... -- 50,000 -- 9,618 --
Ronald Weinstein(5).................................. 60,000 53,907 100,278 36,833 --
</TABLE>
- ------------------------
(1) Mr. Stitt, a director of the Company, was a Vice President of Vencap, Inc.
until February 1998. Mr. Stitt disclaims beneficial ownership of such shares
except to the extent of his pro rata ownership interest therein.
(2) Mr. Clute, a director of the Company, is a general partner of the general
partner of the entities affiliated with Olympic Venture Partners III, L.P.
Mr. Clute disclaims beneficial ownership of such shares except to the extent
of his pro rata ownership interest therein.
(3) Mr. Brooks is the Vice President of Sales and Marketing of the Company.
(4) Mr. Finch informed the Company that he will resign his position as Vice
President of Operations of the Company in April 1998.
(5) Mr. Weinstein is a director of the Company. Includes shares beneficially
owned by the Weinstein Family Partnership, of which Mr. Weinstein is a
general partner.
In January 1994, the Board of Directors granted to each of Gary Hudson,
Stephen Sander and Ronald Weinstein an option to purchase 10,000 shares of the
Company's Series B Preferred Stock and granted to
25
<PAGE>
Victor Alhadeff an option to purchase 5,000 shares of the Company's Series B
Preferred Stock. Each such option has an exercise price of $4.00 per share and
was fully vested on the date of grant. At that time, such individuals were
members of the Company's Board of Directors. In connection with the Company's
initial public offering, the Series B Preferred Stock converted into Common
Stock at the rate of 1.142857 to one.
As of December 31, 1997, the Company had approximately 145 Coinstar units
installed in QFC, including Hughes Markets, Inc., its subsidiary ("QFC-Hughes"),
grocery stores. During 1997, the Coinstar units installed in QFC-Hughes were
responsible for approximately 6.8% of the Company's revenue. Mr. Weinstein, a
director of the Company, was also a director of QFC.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
26
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ MARK P. TANOURY
MARK P. TANOURY
Secretary
April 30, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, COINSTAR, INC.,
1800 114TH AVENUE S.E., BELLEVUE, WASHINGTON 98004.
27
<PAGE>
COINSTAR, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
The undersigned hereby appoints JENS H. MOLBAK and KIRK A. COLLAMER, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Coinstar, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Coinstar, Inc. to be held at the Company's offices located at 1800 114th Avenue,
S.E., Bellevue, Washington 98004 on Thursday, June 4, 1998 at 10:00 a.m., (local
time), and at any and all postponements, continuations and adjournments thereof,
with all powers that the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two directors to hold office until the 2001 Annual Meeting
of Stockholders.
FOR all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW)./ / TO VOTE FOR ALL NOMINEES LISTED
BELOW./ /
NOMINEES: JENS H. MOLBAK AND WILLIAM D. RUCKELSHAUS
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.
Please vote, date and promptly return this proxy in the enclosed return
envelope which is postage prepaid if mailed in the United States.
Dated _______________________, 1998
___________________________________
___________________________________
Signature(s)
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and
have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in
partnership name by authorized
person.
