SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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|_| Preliminary Proxy Statement
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|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
4Kids Entertainment, Inc.
-------------------------
(Name of Registrant)
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4KIDS ENTERTAINMENT, INC.
1414 Avenue of the Americas
New York, New York 10019
April 23, 2002
Dear Shareholder:
You are cordially invited to attend the 4Kids Entertainment, Inc.
("4Kids") Annual Meeting of Shareholders to be held at 3:00 p.m. (New York City
time) on May 23, 2002, at JP Morgan Chase, 270 Park Avenue, New York, New York,
Conference Room A, 11th Floor (the "Annual Meeting").
The purposes of the Annual Meeting are to (i) elect directors, (ii)
consider and vote upon a proposal to approve the 4Kids Entertainment, Inc. 2002
Stock Option Plan, (iii) ratify the appointment of auditors and (iv) transact
such other business as may properly come before the meeting and any adjournment
or postponements thereof. These matters are described in the formal Notice of
Annual Meeting of Shareholders and the accompanying Proxy Statement.
Your Board of Directors recommends a vote "FOR" each of the listed
nominees for Director and "FOR" each of the other proposals.
Included with the Proxy Statement is a copy of the Company's Annual Report
for the fiscal year 2001. We encourage you to read the Annual Report. It
includes information on the Company's business, markets and products as well as
the Company's audited financial statements.
Your vote is very important. We hope you will find it convenient to attend
the Annual Meeting in person. Whether or not you are personally able to attend,
it is important that your shares be represented at the meeting. Accordingly, you
are requested to sign, date and return the enclosed proxy promptly. If you do
attend the Annual Meeting you may still revoke your proxy and vote in person.
Your cooperation is greatly appreciated.
Sincerely,
/s/ ALFRED R. KAHN
--------------------------------------
ALFRED R. KAHN
Chairman of the Board of Directors and
Chief Executive Officer
4KIDS ENTERTAINMENT, INC.
1414 Avenue of the Americas
New York, New York 10019
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NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
to be held on May 23, 2002
----------
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Shareholders (the
"Annual Meeting") of 4Kids Entertainment, Inc., a New York corporation
("4Kids"), will be held at JP Morgan Chase, 270 Park Avenue, New York, New York,
Conference Room A, 11th Floor, on Thursday, May 23, 2002, at 3:00 p.m. (New York
City time) for the purpose of considering and acting upon the following matters
set forth in the accompanying Proxy Statement:
1. Election of five directors to serve until the next Annual Meeting
and until their successors are duly elected and qualified;
2. Approval of the 4Kids Entertainment, Inc. 2002 Stock Option Plan;
3. Ratification of the appointment of Deloitte & Touche LLP as
auditors for 4Kids for the fiscal year ending December 31, 2002; and
4. The transaction of such other business as may properly come
before the meeting and any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on April 5, 2002 as
the record date for the Annual Meeting and only holders of shares of record at
that time are entitled to notice of, and to vote at, the Annual Meeting and any
adjournment or postponements thereof.
By Order of the Board of Directors,
/s/ ALFRED R. KAHN
--------------------------------------
ALFRED R. KAHN
Chairman of the Board of Directors and
Chief Executive Officer
April 23, 2002
- --------------------------------------------------------------------------------
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE
ENCLOSED FOR YOUR CONVENIENCE. SHAREHOLDERS CAN HELP 4KIDS AVOID
UNNECESSARY EXPENSE AND DELAY BY PROMPTLY RETURNING THE ENCLOSED PROXY
CARD. THE BUSINESS OF THE MEETING TO BE ACTED UPON BY THE SHAREHOLDERS
CANNOT BE TRANSACTED UNLESS ONE-THIRD OF THE OUTSTANDING SHARES OF 4KIDS'
COMMON STOCK ARE REPRESENTED AT THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
PROXY STATEMENT
This Proxy Statement is being furnished to the shareholders of 4Kids
Entertainment, Inc., a New York corporation ("4Kids"), in connection with the
Annual Meeting of Shareholders of 4Kids to be held at 3:00 p.m. (New York City
time) on May 23, 2002, at JP Morgan Chase, 270 Park Avenue, New York, New York,
Conference Room A, 11th Floor, (the "Annual Meeting"). Accompanying this Proxy
Statement ("Proxy Statement") is a notice of such Annual Meeting, a form of
proxy solicited by the 4Kids Board of Directors and the Company's Annual Report
for the fiscal year 2001. This Proxy Statement, the accompanying proxy and the
Company's Annual Report were first mailed to shareholders on or about April 23,
2002. Audited financial statements of 4Kids for the fiscal year ended December
31, 2001 are contained in the Annual Report. The Annual Report to Shareholders
is not incorporated in this Proxy Statement and is not deemed to be a part of
the proxy solicitation material.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Proxies in the accompanying form which are properly executed and duly
returned to 4Kids and not revoked prior to the voting at the Annual Meeting will
be voted as specified. If no contrary specification is made and if not
designated as broker non-votes, the shares of common stock of 4Kids, par value
$.01 per share, represented by the enclosed proxy will be voted FOR the election
of the nominees for director (Proposal 1), FOR the approval of the 4Kids
Entertainment, Inc. 2002 Stock Option Plan (Proposal 2), and FOR the
ratification of the appointment of Deloitte & Touche LLP as auditors (Proposal
3). In addition, the shares of common stock represented by the enclosed proxy
will be voted by the person named therein, in such person's discretion, with
respect to any other business which may properly come before the Annual Meeting
or any adjournment or postponements thereof. Any shareholder giving a proxy has
the power to revoke it at any time prior to the voting by filing with the
Secretary of 4Kids a written notice of revocation or a duly executed proxy
bearing a later date or by voting in person at the Annual Meeting.
The Board of Directors has fixed the close of business on April 5, 2002 as
the record date for the determination of the shareholders entitled to receive
notice of, and to vote at, the Annual Meeting. The holders of one-third of the
voting power of all issued and outstanding shares of common stock present in
person, or represented by proxy, shall constitute a quorum at the Annual
Meeting. Assuming the presence of a quorum, the affirmative vote by the holders
of a majority of the votes cast at the Annual Meeting is necessary to approve
Proposals 2 and 3. The affirmative vote by a plurality of the votes cast at the
Annual Meeting is required for the election of directors.
On April 5, 2002, the record date for the Annual Meeting, 4Kids had
12,580,658 shares of common stock outstanding. Each share of common stock is
entitled to one vote on each matter to come before the Annual Meeting. There is
no cumulative voting. Votes shall be counted by 4Kids' Transfer Agent.
Shares represented by proxies designated as broker non-votes will be
counted for purposes of determining a quorum. Broker non-votes occur when a
broker nominee (which has voted on one or more matters at a meeting) does not
vote on one or more other matters at a meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to so vote. Shares represented by proxies marked as
abstentions will also be treated as present for purposes of determining the
outcome of a vote on any matter, but will not serve as a vote "for" or "against"
any matter. Shares represented by proxies designated as broker non-votes,
however, will not be treated as present for purposes of determining the outcome
of a vote on any matter.
Expenses
All expenses in connection with solicitation of proxies will be borne by
4Kids. Officers and regular employees of 4Kids may solicit proxies by personal
interview, telephone and telegraph. Brokerage houses, banks and custodians,
nominees and fiduciaries will be reimbursed for out-of-pocket and reasonable
expenses incurred in forwarding proxies and proxy statements. Georgeson & Co.
has been engaged to assist in the solicitation of proxies, brokers, nominees,
fiduciaries and other custodians. 4Kids will pay Georgeson & Co. approximately
$6,500 for its services and reimburse its out-of-pocket expenses.
2
PROPOSAL 1 -- ELECTION OF DIRECTORS
The directors are elected annually by the shareholders of 4Kids. 4Kids'
By-laws provide that the number of directors shall be no less than three or more
than seven unless and until otherwise determined by vote of a majority of the
entire Board of Directors. In accordance therewith, a total of five persons have
been designated by the Board of Directors as nominees and are being presented to
the shareholders for election at the Annual Meeting. The directors to be elected
at the Annual Meeting shall be determined by a plurality of the votes cast at
the Annual Meeting.
The five persons named below, who currently constitute the entire Board of
Directors, have been nominated for election to serve until the next Annual
Meeting and until their respective successors have been elected and qualified:
o Joel I. Cohen o Joseph P. Garrity o Alfred R. Kahn
o Jay Emmett o Steven M. Grossman
The Board of Directors recommends that shareholders vote FOR the director
nominees named above, and, unless a shareholder gives instructions on the proxy
card to the contrary or a broker non-vote is indicated on the proxy card, the
appointees named thereon intend so to vote. All of the nominees have consented
to serve as directors if elected. If, at the time of the Annual Meeting, any
nominee is unable or declines to serve, the proxies may be voted for the
election of such other person or persons as the remaining members of the Board
of Directors may recommend.
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of 4Kids, as of April 5, 2002, are as
follows:
Name Age Position
- ----- ---- -------
Joel I. Cohen (1)(2)(3) 55 Director
Jay Emmett (1)(2)(3) 73 Director
Joseph P. Garrity 46 Director, Executive Vice President,
Chief Operating Officer and Chief
Financial Officer
Norman Grossfeld 38 President of 4Kids Productions, Inc.
Steven M. Grossman (1)(3) 41 Director
Sheldon Hirsch 54 Chief Executive Officer of The Summit
Media Group, Inc.
Alfred R. Kahn 55 Chairman of the Board of Directors
and Chief Executive Officer
Thomas Kenney 43 Executive Vice President
Samuel R. Newborn, Esq. 47 Executive Vice President and General
Counsel
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Joel I. Cohen has been a director since November 1999. Mr. Cohen has been
a Managing Director of Rockefeller & Co., Inc. since 2001. For more than six
years prior to such time, Mr. Cohen was a Managing Director of J.P. Morgan Chase
& Co. Incorporated.
Jay Emmett has been a director since August 1999. For more than six years,
Mr. Emmett has been a member of the International Board of Directors of the
Special Olympics and the Board of Directors of the San Diego Padres.
3
Joseph P. Garrity has been a director since August 1999. Mr. Garrity has
been the Chief Financial Officer since joining 4Kids in June 1991. In October
1994 he became Executive Vice President (Chief Operating Officer). For more than
six years prior to such time, Mr. Garrity was a Senior Audit Manager for
Deloitte & Touche LLP.
Steven M. Grossman has been a director since June of 2001. Mr. Grossman
has been Executive Vice President, Chief Financial Officer and Treasurer of
R.A.B. Holdings, Inc. since its inception in 1996 and Executive Vice President,
Chief Financial Officer and Treasurer of R.A.B. Enterprises, Inc. since its
inception in 1998. Mr. Grossman has been a director and Executive Vice President
- - Finance and Administration of Millbrook Distribution Services Inc. since 1997
and has been a member of the Board of Managers and the Executive Vice President,
Chief Financial Officer and Treasurer of the B. Manischewitz Company, LLC since
1998. Mr. Grossman has also been Executive Vice President and Chief Financial
Officer of RABCO Luxury Holdings LLC and each of its subsidiaries since 1998 and
Chief Financial Officer of P&E Properties Inc. since 1994. Prior to such time,
Mr. Grossman was Executive Vice President and Chief Financial Officer of Western
Publishing Group, Inc. from June 1994 to May 1996.
Norman Grossfeld has been President of 4Kids Productions, Inc., 4Kids'
television, film and home video production subsidiary, since February 1994. For
two years prior to such time, he was President of Gold Coast Television
Entertainment. Prior to such time, Mr. Grossfeld served as Coordinating Director
for NBC Sports from 1991 through 1992, and as Producer/Director for Television
Programming Enterprises from 1988 to 1991.
Sheldon Hirsch has been Chief Executive Officer of The Summit Media Group,
Inc. ("Summit Media"), 4Kids' media buying, planning and television distribution
subsidiary, since November 1992. For three years prior to such time, Mr. Hirsch
was President of Sachs Family Entertainment, a television program distribution
company.
Alfred R. Kahn has been Chairman of the Board of Directors and Chief
Executive Officer of 4Kids since March 1991. Mr. Kahn was Vice Chairman of the
Board of Directors of 4Kids from July 1987 until he became Chairman of the Board
of Directors in 1991.
Thomas Kenney has been Executive Vice President of 4Kids since January
2001. From February 1993 to January 2001, he was President of Summit Media. For
five years prior to such time, Mr. Kenney served as Senior Vice President -
Advertising of Tiger Electronics Inc.
Samuel R. Newborn, Esq. has been Executive Vice President and General
Counsel since January 2000. Prior to joining 4Kids, Mr. Newborn was a partner in
the law firm of Janklow, Newborn & Ashley for more than five years.
Meetings and Committees of the Board of Directors
The Board of Directors of 4Kids met four times during the fiscal year
which ended on December 31, 2001. None of the directors attended fewer than 75%
of the total number of meetings of the Board of Directors and committees on
which he serves since the date of his appointment.
4Kids has an Audit Committee which consists of Mr. Cohen, who serves as
the chairman, Mr. Emmett and Mr. Grossman. The Audit Committee reviews the
financial reporting and internal controls of 4Kids and meets with appropriate
financial personnel of 4Kids, as well as its independent auditors, in connection
with these reviews. The Audit Committee also recommends to the Board of
Directors the firm which is to be presented to the shareholders for designation
as independent auditors to examine the corporate accounts of 4Kids for the
current fiscal year. The Audit Committee met five times during fiscal 2001 and
one time subsequent to December 31, 2001 but before the filing of the 4Kids'
Annual Report on Form 10-K.
4Kids also has a Compensation Committee which consists of Mr. Emmett, who
serves as the chairman, and Mr. Cohen. The Compensation Committee is responsible
for setting and administering the policies which govern annual and long-term
compensation for our executives. The Compensation Committee is also empowered to
grant stock options pursuant to the 4Kids' stock option plans and to administer
such plans. The Compensation Committee met two times during fiscal 2001 and one
time subsequent to December 31, 2001 but before the filing of 4Kids' Annual
Report on Form 10-K.
4
4Kids has a Nominating Committee which consists of Mr. Emmett, who serves
as the chairman, Mr. Cohen and Mr. Grossman. The Nominating Committee did not
meet in 2001. The Committee's function is to recommend candidates for election
to the Board of Directors. The Nominating Committee does not solicit director
nominations but will consider recommendations by shareholders sent to the
Secretary of 4Kids Entertainment, Inc. at 1414 Avenue of the Americas, New York,
New York 10019. No formal procedures are required to be followed by shareholders
in submitting such recommendations.
COMPENSATION
Executive Compensation -- Annual Compensation
The following table sets forth a summary of annual and long-term
compensation during the fiscal years ended December 31, 2001, 2000 and 1999 paid
to 4Kids' chief executive officer and the four most highly compensated executive
officers (as defined in Rule 3b-7 promulgated under the Securities Exchange Act
of 1934, as amended) of 4Kids (other than the chief executive officer) whose
total annual salary and bonus for the year ended December 31, 2001 was in excess
of $100,000 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and ----------------------------------------------- Stock Options
Principal Position Year Salary ($)(1)(2) Bonus ($) (Shares)
- ---------------- ------ ---------------- --------- -------------
Alfred R. Kahn ........................ 2001 $395,000 $ 370,000 150,000
Chairman of the Board of 2000 395,000 7,560,729 --
Directors and Chief Executive 1999 395,000 4,771,917 100,000
Officer
Joseph P. Garrity ..................... 2001 250,000 -- 50,000
Executive Vice President, 2000 250,000 1,512,145 --
Chief Operating Officer and 1999 250,000 954,383 20,000
Chief Financial Officer
Samuel R. Newborn Esq. ................ 2001 250,000 250,000 50,000
Executive Vice President and 2000 250,000 378,037 50,000
General Counsel 1999 -- -- --
Thomas Kenney ......................... 2001 250,000 -- 50,000
Executive Vice President 2000 250,000 400,000 --
1999 250,000 16,010 --
Norman Grossfeld ...................... 2001 250,000 667,143 50,000
President, 4Kids Productions 2000 250,000 786,113 --
1999 250,000 420,664 10,000
- ----------
(1) Does not include amounts paid on behalf of executive officers under the
Company's benefit plans. Such benefit plans, which are offered to all full
time employees of the Company include, a 401K Plan, major medical
insurance, long term disability insurance and life insurance.
(2) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted as such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for each of the
executive officers for each fiscal year.
5
The following table sets forth certain information concerning individual
grants of stock options made during the fiscal year ended December 31, 2001 to
the Named Officers:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term(1)
----------------------------------------------------- --------------------
% of Total Exercise
Number of Options Granted or Base
Options to Employees in Price Expiration
Name Granted(3) Fiscal Year ($/Sh)(2) Date 5% 10%
------ ---------- --------------- --------- ---------- --------- ---------
Alfred R. Kahn ........... 150,000 20% $8.9375 1/02/11 $843,000 $2,137,000
Joseph P. Garrity ........ 50,000 7% 8.9375 1/02/06 123,000 273,000
Samuel Newborn ........... 50,000 7% 8.9375 1/02/06 123,000 273,000
Norman Grossfeld ......... 50,000 7% 8.9375 1/02/06 123,000 273,000
Thomas Kenney ............ 50,000 7% 8.9375 1/02/06 123,000 273,000
- ----------
(1) 4Kids used such method as it is one of the alternative methods of option
valuation suggested by the Securities and Exchange Commission's rules on
executive compensation disclosure. 4Kids does not advocate or necessarily
agree that such method can properly determine the value of an option.
(2) Based upon the fair market value of 4Kids' common stock on the date of
grant.
(3) The option grant to Mr. Kahn was 100% vested on the date of grant, all
other options are exercisable 50% on the date of grant and 50% on the one
year anniversary of the date of such grant.
OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth the number of options exercised and dollar
value realized for such exercises and fiscal year end value of unexercised
options:
Number of
Unexercised Value of Unexer-
Shares Value Options at cised In-the-Money
Acquired on Realized December 31, Options at
Name Exercise (#) ($) 2001(1) December 31, 2001(2)
----- ------------ --------- ------------ --------------------
Alfred R. Kahn .................... -- -- 1,608,800 $26,488,000
Thomas Kenney ..................... 165,000 $3,311,619 89,000 1,234,000
Joseph P. Garrity ................. 136,400 2,558,738 248,500 3,802,000
Norman Grossfeld .................. -- -- 60,000 555,000
Samuel R. Newborn, Esq. ........... -- -- 100,000 555,000
- ----------
(1) As of December 31, 2001, all options are currently exercisable except for
25,000 options for each of Messrs. Kenney, Garrity, Grossfeld and Newborn.
(2) Calculation based upon the closing price of 4Kids' common stock on The New
York Stock Exchange on December 31, 2001 of $20.03 per share.
Compensation of Directors
No director of 4Kids receives any cash compensation for his services in
such capacity. Currently, 4Kids has three directors, Messrs. Cohen, Emmett and
Grossman, who are not employees, each of whom are eligible to receive options
under the Company's stock option plans. During the fiscal year ended December
31, 2001, 15,000 options were granted to each of Messrs. Cohen, Emmett and
Grossman. The options granted to Messrs. Cohen and Emmett have an exercise price
of $8.9375 and the options granted to Mr. Grossman have an exercise price of
$17.25. All such exercise prices were based on the fair market value on the date
of grant. All directors are reimbursed for their out-of-pocket expenses incurred
in connection with their service as directors.
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Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Mr. Kahn has an employment agreement with 4Kids pursuant to which he
receives a fixed salary of $395,000 per year (increasing to $700,000 in 2002)
and is entitled to receive an annual bonus equal to 10% of 4Kids' Income Before
Income Tax Provision and before calculation of bonus compensation of employees
as stated in 4Kids' financial statements included in its Annual Report on Form
10-K. Mr. Kahn's agreement expires on March 31, 2007. On the first day of April
each year, the agreement automatically extends for an additional year. For the
fiscal year ending December 31, 2001, Mr. Kahn voluntarily reduced the amount of
his bonus compensation to $370,000, a reduction of approximately $1,809,000 from
the amount he would otherwise have been entitled to receive for 2001 under his
employment agreement. For the fiscal year ending December 31, 2002, Mr. Kahn
intends to voluntarily reduce the amount of bonus compensation he would
otherwise be entitled to and to recommend to the Compensation Committee that it
consider using the difference between the annual bonus Mr. Kahn is entitled to
receive for fiscal 2002 under his employment agreement and the reduced amount he
actually receives in such year to support a general bonus pool from which annual
bonuses to certain executive officers are paid at the discretion of the
Compensation Committee. The agreement also provides that for a period of six
months after termination of employment, Mr. Kahn will not "compete" with 4Kids.
Under the employment agreement, if Mr. Kahn is terminated without cause, he will
be entitled to receive a payment equal to 2.99 times his average annual
compensation paid by 4Kids (including bonuses, if any) during the five years
preceding the date of termination ("Severance Payment"). If, at any time, a
majority of the directors of 4Kids consists of individuals who have not been
recommended by Mr. Kahn (a "Change of Control"), Mr. Kahn can terminate the
agreement within six months of such Change of Control, in which event he would
be entitled to receive the Severance Payment.
Mr. Garrity has an employment agreement with 4Kids which for 2001 provided
for an annual salary of $250,000 (increasing to $350,000 in 2002) (the "Fixed
Salary") plus an annual bonus to be awarded at the discretion of the Chief
Executive Officer and the Compensation Committee of the Board of Directors.
Effective January 1, 2002, the minimum amount of the annual bonus will be
$150,000, which minimum amount will be reduced by half of the amount of any net
proceeds realized by Mr. Garrity from the exercise of stock options granted
during the fiscal year. The minimum amount will also be reduced to the extent of
one half of the difference between the market price on December 31 of the fiscal
year of the shares of common stock of 4Kids underlying any unexercised stock
options granted to Mr. Garrity during the fiscal year and the aggregate exercise
price of such stock options. Mr. Garrity's agreement expires on December 31,
2006. The agreement may be terminated by 4Kids in the event of Mr. Garrity's
disability or for cause. If during the term of Mr. Garrity's agreement a change
of control occurs (as defined in the agreement), Mr. Garrity can terminate the
agreement within six months of such change of control, in which event he would
be entitled to receive a payment equal to 2.99 times his average annual
compensation paid by 4Kids (including bonuses) during the three years preceding
the date such termination occurs.
Mr. Grossfeld has an employment agreement with 4Kids which provides for an
annual salary of $250,000 plus an annual bonus ranging from 3% to 10% of 4Kids
Productions Income Before Income Tax Provision depending on the source of the
revenue to 4Kids Productions. Mr. Grossfeld's agreement expires on December 31,
2002.
Mr. Kenney has an employment agreement with 4Kids which provides for an
annual salary of $250,000, increasing to $350,000 beginning in 2002, and an
annual bonus to be awarded at the discretion of the Chief Executive Officer and
the Compensation Committee of the Board of Directors. Mr. Kenney's agreement
expires on December 31, 2003. The agreement may be terminated by 4Kids in the
event of Mr. Kenney's disability or for cause. If during the term of the
agreement there shall occur a change of control (as defined in the agreement),
Mr. Kenney can terminate his agreement within six months of such change of
control, in which event he would be entitled to receive a payment equal to his
fixed salary remaining to be paid for the year during which such termination
occurs.
Mr. Newborn has an employment agreement with 4Kids which currently
provides for an annual salary of $350,000 plus an annual bonus to be awarded at
the discretion of the Chief Executive Officer and the Compensation Committee of
the Board of Directors. Effective January 1, 2002, the minimum amount of the
annual bonus will be $150,000, which minimum amount will be reduced by half of
the amount of any net proceeds realized by Mr. Newborn from the exercise of
stock options granted during the fiscal year. The minimum amount will also be
reduced to the extent of one half of the difference between the market price on
December 31 of the
7
fiscal year of the shares of common stock of 4Kids underlying any unexercised
stock options granted to Mr. Newborn during the fiscal year and the aggregate
exercise price of such stock options. Mr. Newborn's agreement expires on
December 31, 2006. The agreement may be terminated by 4Kids in the event of Mr.
Newborn's disability or for cause. If during the term of Mr. Newborn's agreement
a change of control occurs (as defined in the agreement), Mr. Newborn can
terminate the agreement within six months of such change of control, in which
event he would be entitled to receive a payment equal to 2.99 times his average
annual compensation paid by 4Kids (including bonuses) during the three years
preceding the date such termination occurs. Mr. Newborn's prior agreement
provided for an annual salary of $250,000 plus an annual bonus equal to the
greater of (i) 1/2% of 4Kids' Income Before Income Tax Provision and before
calculation of bonus compensation of employees as stated in 4Kids' financial
statements in its Annual Report on Form 10-K or (ii) $250,000.
Compensation Committee Interlocks and Insider Participation
As described in "Election of Directors - Meetings and Committees of the
Board of Directors" above, 4Kids has a Compensation Committee, the members of
which are Messrs. Emmett and Cohen. Neither of such individuals has ever been an
officer or employee of 4Kids or any of its subsidiaries. During fiscal 2001, no
executive officer of 4Kids served as a member of the compensation committee or
board of directors of another entity, one of whose executive officers served on
the Board of Directors of 4Kids.
Report of Compensation Committee of Board of Directors
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings with the Securities and Exchange Commission, in
whole or in part, the following report shall not be deemed to be incorporated by
reference into any such filing.
Membership and Role of the Compensation Committee
4Kids has a Compensation Committee which consists of Mr. Emmett, who
serves as the chairman, and Mr. Cohen. The Compensation Committee of the Board
of Directors is responsible for 4Kids' executive compensation policy. In
general, the goal of our executive compensation policy is to attract and retain
high-performing executives and to motivate and reward such executives based on
overall corporate and individual performance, and the creation of shareholder
value.
Components
For 2001, the compensation of our executive officers was composed
primarily of salaries, bonuses and stock options. Salary ranges for our
executive officers are established with reference to the competitive marketplace
for equivalent job levels. Each executive officer's base salary is set based on
the level and scope of responsibility within 4Kids and individual performance.
Salaries are reviewed annually by the Compensation Committee either formally or
informally.
Stock options are intended to strengthen the mutuality of interest of our
executive officers and our shareholders in maximizing long-term shareholder
value. The 4Kids Compensation Committee is responsible for granting stock
options to the executive officers as well as other eligible employees pursuant
to the 4Kids' stock option plans. Grants of stock options are made from time to
time to the executive officers based on our overall performance and the
individual performance of each executive officer. On January 2, 2001, options to
acquire 150,000 shares were granted to Mr. Kahn pursuant to the Company's 2000
Stock Option Plan at an exercise price of $8.9625, the fair market value on the
date of grant. Additionally, options to acquire 50,000 shares were granted to
each of the Named Officers at an exercise price of $8.9625, the fair market
value on the date of such grant.
Basis for the Compensation of the CEO
The Company has an employment agreement with Mr. Kahn pursuant to which he
receives a fixed annual salary of $395,000 (increasing to $700,000 in 2002) and
an annual bonus during the term of the agreement. Mr. Kahn's employment
agreement expires in 2007. We believe that Mr. Kahn's base salary, which had
remained
8
unchanged since 1991, is reasonable and no more generous to him than base
salaries paid to other similarly situated chief executive officers. Please see
"Employment Contracts and Termination of Employment and Change-in-Control
Agreements" for a more detailed discussion as to the compensation paid to Mr.
Kahn.
In addition to cash compensation, Mr. Kahn is also eligible to receive
stock options pursuant to the 4Kids' stock option plans. The purpose of any such
stock option grants is to provide Mr. Kahn with a further inducement to
contribute to the long-term growth and development of the business of 4Kids.
Consequently, during the term of any such options, Mr. Kahn will receive, for no
consideration prior to exercise, the opportunity to profit from any rise in the
market value of the 4Kids' common stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended, makes
compensation paid to certain executives in amounts in excess of $1 million not
deductible unless the compensation is paid under a predetermined objective
performance plan meeting certain requirements, or satisfies one of various other
exemptions. The Compensation Committee has not adopted a policy that all
compensation be deductible under Section 162(m), in order to preserve the
Compensation Committee's flexibility to compensate executive officers.
Compensation Committee
Jay Emmett
Joel Cohen
Report of the Audit Committee of the Board of Directors
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings with the Securities and Exchange Commission, in
whole or in part, the following report shall not be deemed to be incorporated by
reference into any such filing.
Membership and Role of the Audit Committee
4Kids has an Audit Committee which consists of Mr. Cohen, who serves as
the chairman, Mr. Emmett and Mr. Grossman. Each member of the Audit Committee is
independent as defined under the New York Stock Exchange's listing standards.
The Audit Committee operates under a written charter adopted by the Board of
Directors.
The Audit Committee reviews the financial reporting and internal controls
of 4Kids and meets with appropriate financial personnel of 4Kids, as well as its
independent auditors, in connection with these reviews. The Audit Committee also
recommends to the Board of Directors the firm which is to be presented to the
shareholders for designation as independent auditors to examine the corporate
accounts of 4Kids for the current fiscal year.
Review of the Company's Audited Financial Statements for the Fiscal Year ended
December 31, 2001
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2001 with the
Company's management. The Audit Committee has discussed with Deloitte & Touche
LLP, the Company's independent public accountants, the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committee).
The Audit Committee has also received the written disclosures and the
letter from Deloitte & Touche LLP required by Independence Standards Board No. 1
(Independent Discussion with Audit Committees) and the Audit Committee has
discussed with Deloitte & Touche LLP the latter's independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 for filing with the Securities and Exchange
Commission.
Audit Committee
Joel I. Cohen
Jay Emmett
Steven M. Grossman
9
Performance Graph
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total return on the shares of 4Kids' common stock against the
cumulative total return of the S&P 600 Index and the Russell 2000 Index for the
past five fiscal years.
[The following information was depicted as a bar chart in the printed material]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
4kids 100 275 1,101 8,408 2,684 6,015
S&P 600 100 125 122 136 151 160
Russell 2000 100 122 119 145 140 144
Certain Transactions Involving Management
From January 1, 2001 to the present, there have been no transactions, or
currently proposed transactions, between the Company or any of its subsidiaries
and any executive officer, director, 5% beneficial owner of the Company's common
stock, or member of the immediate family of the foregoing persons in which one
of the foregoing individuals or entities had an interest of more than $60,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the officers and directors of
4Kids, and persons who own more than ten percent of a registered class of 4Kids'
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. These persons are required by regulation
to furnish 4Kids with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
4Kids believes that, other than disclosed below, during the fiscal year ended
December 31, 2001, 4Kids' officers, directors and greater than ten percent
beneficial owners complied with all applicable Section 16(a) filing
requirements.
During 2001, each of Messrs. Hirsch, Garrity, and Kenney purchased and
sold common stock of 4Kids and exercised stock options granted to them under the
4Kids stock option plans. All of them filed Form 4's when required in connection
with their transactions, except that: (i) on October 12, 2001, Mr. Hirsch filed
a Form 4 due on October 10, 2001 to report his exercise of stock options and the
sale of the shares of common stock acquired upon such exercise and (ii) on
October 15, 2001, Mr. Kenney filed a Form 4 due on October 10, 2001 to report
his exercise of stock options and the sale of the shares of common stock
acquired upon such exercise.
10
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 10, 2002, certain information
concerning the beneficial ownership of the shares of common stock of 4Kids by
(i) each person who is known by 4Kids to own beneficially more than five percent
of the outstanding shares of common stock of 4Kids, (ii) each of our directors
and (iii) all current directors and officers of 4Kids as a group. Except as
otherwise indicated, all such persons have both sole voting and investment power
over the shares shown as being beneficially owned by them.
Share of Common Stock
Beneficially Owned
--------------------------------------
Name and Address of Beneficial Owner(1) Shares Options Total Percent of Class
- --------------------------------------- --------- --------- --------- ----------------
U.S. BancorpAsset Management Inc.(2) ........ 724,560 -- 724,560 5.8%
Joel I. Cohen ............................... 11,000(3) 30,000 46,000 less than 1%
Jay Emmett .................................. 5,300 25,000 35,300 less than 1%
Joseph P. Garrity ........................... 47,500 268,500 336,000 2.5%
Steven M. Grossman .......................... 1,000 20,000 26,000 less than 1%
Alfred R. Kahn .............................. 1,122,000 1,748,800 2,870,800(4) 20.0%
All directors and officers as a group
(9 persons) .............................. 1,186,800 2,501,300 3,803,100 24.5%
- ----------
(1) The address for Messrs. Kahn, Garrity, Cohen, Grossman and Emmett is 4Kids
Entertainment, Inc., 1414 Avenue of the Americas, New York, New York
10019.
(2) Share ownership information is based on information contained in a
Schedule 13G filed with the Securities and Exchange Commission on February
13, 2002. The address of the holder is 800 Nicollet Mall, Minneapolis, MN
55402. The holder is a subsidiary of U.S. Bancorp.
(3) The 11,000 shares of common stock are owned jointly with Mr. Cohen's wife.
(4) Includes 1,056,000 shares owned by Mr. Kahn, 6,000 shares owned by Mr.
Kahn's wife, 15,000 shares held by Mr. Kahn for the benefit of his minor
daughter under the NY/UGMA, 45,000 shares owned by Mr. Kahn's three adult
children with respect to which Mr. Kahn disclaims beneficial ownership and
currently exercisable options to acquire 1,748,800 shares.
PROPOSAL 2 -- PROPOSED 2002 STOCK OPTION PLAN
The Board of Directors has determined that it is in the best interests of
4Kids to adopt the 4Kids Entertainment, Inc. 2002 Stock Option Plan (the "2002
Plan"), and will submit the 2002 Plan to the shareholders for approval at the
Annual Meeting. The 2002 Plan authorizes the issuance not later than December
31, 2012 of options to purchase up to 600,000 shares of 4Kids' common stock. The
2002 Plan was approved by the Board of Directors at a meeting held on March 25,
2002, subject to shareholder approval.
The Board of Directors believes that 4Kids and its shareholders have
benefitted from the grant of stock options in the past, and that similar
benefits will result from the adoption of the 2002 Plan. It believes that stock
options play an important role in providing eligible individuals with an
incentive and inducement to contribute fully to the further growth and
development of 4Kids and its subsidiaries because of the opportunity to acquire
a proprietary interest in 4Kids on an attractive basis. During the term of the
2002 Plan, optionees will receive, for no consideration prior to exercise, the
opportunity to profit from any rise in the market value of the shares of 4Kids'
common stock. Exercise of the options will dilute the equity interest of the
other shareholders of 4Kids. The grant and exercise of the options also may
affect 4Kids' ability to obtain additional capital during the term of any
options.
The principal features of the 2002 Plan are summarized below:
The 2002 Plan provides for the granting of stock options to purchase
shares of 4Kids' common stock to certain key employees of 4Kids and its
subsidiaries, to non-employee directors and to independent consultants (each, an
"Optionee"). No employee may be granted stock options to purchase more than
200,000 shares, in the aggregate, in any calendar year. The 2002 Plan provides
for the grant of "nonqualified stock options" ("NQOs") and "incentive stock
options" ("ISOs"); ISOs will only be granted to employees.
11
The 2002 Plan will be administered by the Compensation Committee appointed
by the Board of Directors. The Compensation Committee currently consists of
Messrs. Joel Cohen and Jay Emmett, neither of whom are employees of 4Kids.
Awards of stock options to non-employee directors will be approved by the entire
Board of Directors.
Each stock option granted under the 2002 Plan will be evidenced by a
written agreement containing such provisions as approved by the Compensation
Committee not inconsistent with the 2002 Plan, and which need not be identical
in respect of each Optionee. In general, stock options granted under the 2002
Plan will have the following terms:
(1) Time for Exercise; Term. All stock options granted under the
2002 Plan will be exercisable at such time or times and in such
installments, if any, as the Compensation Committee or the Board of
Directors may determine, and will expire no more than ten years from the
date of grant (five years in the case of an ISO granted to an employee who
is a "10% Shareholder," as defined below).
(2) Exercise Price. The exercise price of any NQO granted under the
2002 Plan will not be less than (a) eighty-five percent (85%) of the fair
market value of a share of 4Kids' common stock on the date of grant or (b)
one hundred percent (100%) of the fair market value in the case of an
option intended to be exempt from the deduction limitations of Section
162(m) of the Code. The exercise price of an ISO will not be less than (a)
one hundred percent (100%) of the fair market value of a share of 4Kids'
common stock on the date of grant, or (b) one hundred and ten percent
(110%) of such fair market value if the ISO is granted to an employee who
owns stock possessing more than ten percent of the total voting power of
4Kids, any parent corporation or any subsidiary (a "10% Shareholder"). The
exercise price of each stock option must be paid in cash or in stock of
4Kids valued at its then fair market value. The closing price of 4Kids'
common stock on The New York Stock Exchange on April 10, 2002 was $17.22.
(3) Nontransferability. Options are non-transferable except (i) by
will or by the laws of the descent and distribution, (ii) for estate
planning purposes, or (iii) as a charitable contribution to an exempt
organization as such term is defined in Section 501(c)(3) of the Internal
Revenue Code of 1986.
(4) Ceiling on ISO Grants. To the extent the aggregate fair market
value (determined at the time any ISO is granted) of common stock for
which ISOs are exercisable for the first time by any Optionee during any
calendar year under the 2002 Plan (together with any incentive stock
options granted under any other plan of the Company, any parent or any
subsidiary) exceeds $100,000, such excess ISOs shall be treated as NQOs.
(5) Termination of Option. Stock options granted to employees under
the 2002 Plan generally terminate three months after the Optionee's
employment is terminated, provided that, if such termination is by reason
of death or disability, the stock option generally will terminate six
months thereafter (or at the end of the option term if earlier). Options
granted to non-employee directors under the 2002 Plan generally remain
exercisable for one year after such individual ceases to serve as a
director (but not beyond the end of the option term). Options granted to
independent consultants under the 2002 Plan will remain exercisable
following a termination of the consultancy to the extent, if any, provided
in the stock option agreement evidencing the grant of such option (but not
beyond the end of the option term).
(6) Adjustments. Each stock option agreement will contain such
provisions as the Committee shall determine to be appropriate for the
adjustments of the kind and number of shares subject to each outstanding
stock option, the exercise price, or both, in the event of any changes in
the number of outstanding shares of 4Kids' common stock by reason of stock
dividends, stock splits, recapitalizations, reorganizations, mergers,
consolidations, combinations or exchanges of shares, or the like. In the
event of any such change or changes in the number of outstanding shares of
4Kids' common stock, and as often as the same shall occur, the kind and
aggregate number of shares available under the 2002 Plan may be
appropriately adjusted by the Compensation Committee, whose determination
is binding and conclusive.
The Board of Directors has the right to alter, suspend or terminate the
2002 Plan as it may deem advisable, except that it may not without further
shareholder approval (a) increase the maximum number of shares subject to the
2002 Plan (except for corporate changes described above); (b) permit the grant
of options to anyone other than 4Kids' employees, non-employee directors and
independent consultants; (c) change the manner of determining the minimum
exercise prices; or (d) extend the period during which stock options may be
granted or exercised. No
12
alteration, suspension or termination of the 2002 Plan may, without the consent
of the Optionee to whom any stock option has theretofore been granted, terminate
such Optionee's stock option or adversely affect such Optionee's rights
thereunder.
Notwithstanding anything in the 2002 Plan to the contrary, in the event
that the Board of Directors shall at any time declare it advisable to do so in
connection with any proposed sale or conveyance of all or substantially all of
the property and assets of 4Kids or of any proposed consolidation or merger of
4Kids (unless 4Kids shall be the surviving corporation in such merger), 4Kids
may give written notice to each Optionee that his or her stock option may be
exercised only within thirty (30) days after the date of such notice, and all
rights under said stock option which shall not have been so exercised shall
terminate at the expiration of such thirty (30) days, provided that the proposed
sale, conveyance, consolidation or merger to which such notice shall relate
shall be consummated within six months after the date of such notice. If such
proposed sale, conveyance, consolidation or merger shall not be consummated
within said time period, no unexercised rights under any stock option shall be
affected by such notice except that such stock option may not be exercised
between the date of expiration of such thirty (30) days and the date of the
expiration of such six-month period.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the Federal income tax treatment of the
stock options which may be granted under the 2002 Plan based upon the current
provisions of the Internal Revenue Code of 1986, as amended.
Nonqualified Stock Options ("NQOs"). The grant of a NQO under the 2002
Plan is not taxable to the option holder at the time of grant. Upon the exercise
of a NQO by the option holder, (1) the option holder will recognize taxable
ordinary compensation income in an amount equal to the excess of the fair market
value of the shares acquired on the date of exercise over the exercise price;
(2) 4Kids generally will be entitled to a corresponding deduction; and (3) upon
a sale of the shares so acquired, the option holder will have short-term or
long-term capital gain or loss, depending on the holding period, in an amount
equal to the difference between the amount realized on such sale and the tax
basis of the shares sold. In general, the option holder's tax basis in the
shares will be equal to their fair market value on the date of exercise, and the
holding period of the shares will begin at exercise.
Incentive Stock Options ("ISOs"). The grant of an ISO under the 2002 Plan
is not taxable to the option holder, and, upon the exercise of an ISO by an
option holder during employment or within three months after termination of
employment (12 months in the case of total disability), (1) the option holder
will not recognize any ordinary compensation income at the time of exercise; (2)
the excess of the fair market value of the shares received upon exercise and the
exercise price paid will be includible in the option holder's alternative
minimum taxable income; (3) no deduction will be allowed to 4Kids in connection
with the exercise; and (4) upon a sale of the shares so acquired after the later
of (a) one year from the exercise date, or (b) two years from the date of the
ISO grant (the "ISO holding period"), any amount realized by the option holder
in excess of the exercise price will be taxed as long-term capital gain, and any
loss sustained will be a long-term capital loss. In general, an option holder's
tax basis in the shares received upon the exercise of an ISO will be equal to
the exercise price, and the holding period will begin at exercise.
If the option holder disposes of any of the shares received upon the
exercise of an ISO before the end of the ISO holding period (a "disqualifying
disposition"), (1) the option holder generally will recognize taxable ordinary
compensation income at the time of disposition (and 4Kids will be entitled to a
tax deduction) in an amount equal to (a) the lesser of (x) the excess, if any,
of the fair market value of the shares received over the exercise price on the
date of exercise, or (y) the excess of the amount realized on the disposition
over the exercise price; and (2) the option holder will recognize capital gain
or loss (long-term or short-term, depending on the holding period) in an amount
equal to the difference between (a) the amount realized upon the disposition and
(b) the exercise price paid for the shares and the amount of ordinary income, if
any, so recognized by the option holder.
Whenever under the 2002 Plan shares are to be delivered upon exercise of a
stock option, 4Kids shall be entitled to require as a condition of delivery that
the option holder remit an amount sufficient to satisfy all Federal, state, and
other governmental withholding tax requirements related thereto.
13
The Board of Directors recommends a vote FOR approval of the 2002 Plan as
described above at the Annual Meeting and it is intended that proxies not marked
to the contrary and not designated as broker non-votes will be so voted. The
description of the proposed 2002 Plan set forth above is qualified in its
entirety by reference to the text of the 2002 Plan as set forth in Exhibit A
hereto.
PROPOSAL 3 -- SELECTION OF AUDITORS
The 4Kids financial statements for the past several fiscal years have been
examined by Deloitte & Touche LLP, independent public accountants. On March 25,
2002, the Board of Directors voted to propose and recommend the selection of
Deloitte & Touche LLP as independent auditors to examine its financial
statements for the fiscal year ending December 31, 2002.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed for professional services rendered by Deloitte &
Touche LLP for the audit of the Company's financial statements for the fiscal
year ended December 31, 2001, and the review of the financial statements
included in the Company's Forms 10-Q for such fiscal year were $205,000.
Financial Information Systems Design and Implementation Fees
Deloitte & Touche LLP did not provide the Company any financial
information systems design and implementation services as such term is defined
in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X for the fiscal year ended
December 31, 2001.
All Other Fees
The aggregate fees billed for services rendered by Deloitte & Touche LLP,
other than for audit services and financial information systems design and
implementation services, for the fiscal year ended December 31, 2001 were
$88,625.
General
The Audit Committee of the Company's Board of Directors has considered
whether the provision of services by Deloitte & Touche LLP covered by "Financial
Information Systems Design and Implementation Fees" and "All Other Fees" above
is compatible with maintaining Deloitte & Touche's independence.
None of the hours expended on Deloitte & Touche's engagement to audit the
Company's financial statements for the fiscal year ended December 31, 2001 was
attributed to work performed by persons other than Deloitte & Touche's
full-time, permanent employees.
The Board of Directors recommends a vote FOR ratification of the
appointment of Deloitte & Touche LLP as auditors and it is intended that proxies
not marked to the contrary and not designated as broker non-votes will be so
voted.
14
OTHER MATTERS
The Board of Directors does not know of any matters other than those
mentioned above to be presented to the meeting. If any other matters do come
before the meeting, the persons named in the proxy will exercise their
discretion in voting thereon.
SHAREHOLDER PROPOSALS
Proposals by any shareholders intended to be presented at the 2003 Annual
Meeting of Shareholders must be received by the Company for inclusion in proxy
material relating to such meeting not later than January 1, 2003.
By Order of the Board of Directors,
/s/ ALFRED R. KAHN
ALFRED R. KAHN
Chairman of the Board of Directors and
Chief Executive Officer
New York, New York
April 23, 2002
15
Exhibit A
4KIDS ENTERTAINMENT, INC.
2002 STOCK OPTION PLAN
1. Purpose of Plan. This 2002 Stock Option Plan (the "Plan") is designed
to assist 4Kids Entertainment, Inc. (the "Company") in attracting and retaining
the services of employees, Eligible Directors (as hereinafter defined) and such
independent consultants as may be designated, and to provide them with an
incentive and inducement to contribute fully to the further growth and
development of the business of the Company and its subsidiaries.
2. Legal compliance. It is the intent of the Company that all options
granted under it shall be either "Incentive Stock Options" ("ISOs"), as such
term is defined in Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), or non-qualified stock options ("NQOs"); provided, however, ISOs shall
be granted only to Employees (as hereinafter defined). An option shall be
identified as an ISO or an NQO in writing in the document or documents
evidencing the grant of the option. All options that are not so identified as
ISOs are intended to be NQOs. It is the further intent of the Plan that it
conform in all respects with the requirements of Rule 16b-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"). To the extent that any aspect of the Plan or its administration
shall at any time be viewed as inconsistent with the requirements of Rule 16b-3
or, in connection with ISOs, the Code, such aspect shall be deemed to be
modified, deleted or changed as necessary to ensure continued compliance with
such provisions.
3. Definitions. In addition to other definitions contained elsewhere in
the Plan, as used in the following terms have the following meanings unless the
context requires a different meaning:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as the same may from
time to time be amended.
"Committee" means the committee referred to in Section 5 hereof.
"Common Stock" means the Common Stock of the Company, par value $.01
per share.
"Designated Beneficiary" means the person designated by an optionee
to be entitled on his death to any remaining rights arising out of an
option, such designation to be made in accordance with such regulations as
the Committee or Board may establish.
"Eligible Directors" means (i) a Non-Employee Director as defined in
Rule 16b-3(b)(3), or any successor provision promulgated under the
Securities Exchange Act of 1934 and (ii) an Outside Director within the
meaning of Section 162(m) of the Code, and the Treasury Regulations
promulgated thereunder; provided, however, that clause (ii) shall apply
only with respect to Stock Options that are intended to qualify as
"performance-based compensation" exempt from the limitations contained in
Section 162(m) of the Code.
"Employee" means any employee of the Company, or of any corporation
which is then a "parent corporation" within the meaning of Section 424(e)
of the Code (a "parent") or a "subsidiary corporation," within the meaning
of Section 424(f) of the Code (a "subsidiary"), who is designated by the
Board or the Committee as a key employee.
"Fair Market Value" means the average of the high and low prices on
the over-the-counter market on the last day on which the Company's shares
of Common Stock were traded immediately preceding the date an option is
granted pursuant to the Plan, as reported by the National Association of
Security Dealers Automated Quotation System ("NASDAQ"), or NASDAQ's
Successor, or if not reported on NASDAQ, the fair market value of such
Common Stock as determined by the Committee or the Board in good faith and
based on all relevant factors.
"Mature Shares" means shares of Common Stock owned by an optionee
which are not subject to any pledge or other security interest and have
either been held by the optionee for six months, previously acquired by
the optionee on the open market or meet such other requirements as the
Committee may determine necessary in order to avoid an accounting earnings
charge on account of the use of such shares to pay the purchase price for
Stock Options or satisfy a withholding obligation in respect of a Stock
Option.
A-1
"Stock Options" means any stock options granted to an optionee under
the Plan.
"Stock Option Agreement" means a stock option agreement entered into
pursuant to the Plan.
"Ten-Percent Shareholder" means an Employee who, at the time an ISO
is granted to him, owns (within the meaning of Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power of the Company, any Parent or any Subsidiary.
4. Stock Options: Stock Subject to Plan; Individual Limit. The stock to be
issued upon exercise of Stock Options granted under the Plan shall consist of
authorized but unissued shares, or of treasury shares, of Common Stock, as
determined from time to time by the Board. The maximum number of shares for
which Stock Options may be granted under the Plan is 600,000 shares, subject to
adjustment as provided in Section 8 of the Plan; provided, however, that no
Employee shall be granted Stock Options with respect to more than 200,000 shares
in any year. If any Stock Option granted under the Plan should expire or
terminate for any reason whatsoever without having been exercised in full, the
unpurchased shares shall become available for new options.
5. Administration.
(a) The Plan shall be administered by the Compensation Committee, each of
the members of which will be an Eligible Director or, if such Committee is not
appointed, then it shall be administered by the Board. Options may be granted by
the Board or the Committee. For purposes of the Plan, the Board or its appointed
Committee shall be referred to as the "Committee." The Committee, if any, shall
be appointed by the Board and shall consist of not less than two members. The
Board shall establish the number of members to serve on the Committee, shall
fill all vacancies or create new openings on the Committee, and may remove any
member of the Committee at any time with or without cause. The Committee shall
select its own chairman and shall adopt, alter or repeal such rules and
procedures as it may deem proper and shall hold its meetings at such times and
places as it may determine. The Committee shall keep minutes of its meetings and
of actions taken by it without a meeting. A majority of the Committee present at
any meeting at which a quorum is present, or acts approved in writing by all
members of the Committee without a meeting, shall be the acts of the Committee.
(b) Unless otherwise determined by the Board, the Committee shall have
full and final authority in its discretion, but subject to the express
provisions of the Plan, to:
ii(i) prescribe, amend and rescind rules and regulations relating to
the Plan;
i(ii) interpret the Plan and the respective Stock Options; and
(iii) make all other determinations necessary or advisable for
administering the Plan. All determinations and interpretations by the
Committee or the Board shall be binding and conclusive upon all parties.
No member of the Committee or the Board shall be liable for any action or
determination made in good faith in respect of the Plan or any Stock
Option granted under it.
(c) The provisions of this Section 5 shall survive any termination of the
Plan.
6. Terms and Exercise of Stock Option.
(a) Unless otherwise determined by the Committee each Stock Option shall
terminate no later than ten years (or such shorter term as may be fixed by the
Committee) after the date on which it shall have been granted; provided,
however, that no ISO granted to any Employee who is a Ten-Percent Shareholder
shall be made exercisable after the expiration of five years from the date of
grant. The date of termination pursuant to this paragraph is hereinafter
referred to as the "termination date" of the option.
(b) Stock Options shall be exercisable at such time or times and in such
installments, if any, as the Committee or Board may determine. In the event any
option is exercisable in installments, any shares which may be purchased during
any year or other period which are not purchased during such year or other
period may be purchased at any time or from time to time during any subsequent
year or period during the term of the option unless otherwise provided in the
Stock Option Agreement.
(c) A Stock Option shall be exercised by written notice to the Secretary
or Treasurer of the Company at its then principal office. The notice shall (i)
specify the number of shares as to which the Stock Option is being exercised and
shall be accompanied by payment in full of the purchase price for such shares;
provided, however, that an
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optionee at his or her discretion may, in lieu of cash payment to the Company,
deliver Mature Shares, valued at Fair Market Value on the date of delivery, as
payment for the exercise of any Stock Option or (ii) request that the Company
withhold, from the number of shares of Common Stock that may otherwise be
obtained upon the exercise of the Stock Option, that number of shares having an
aggregate fair market value equal to the Stock Option exercise price. In the
event a Stock Option is being exercised, in whole or in part pursuant to Section
6(c) hereof by any person other than the optionee, a notice of election shall be
accompanied by proof satisfactory to the Company of the rights of such person to
exercise said Stock Option. An optionee shall not, by virtue of the granting of
a Stock Option, be entitled to any rights of a shareholder in the Company and
such optionee shall not be considered a record holder of shares purchased by him
or her until the date on which he or she shall actually be recorded as the
holder of such shares upon the stock records of the Company. The Company shall
not be required to issue any fractional shares upon exercise of any Stock Option
and shall not be required to pay to the person exercising the Stock Option the
cash equivalent of any fractional share interest unless so determined by the
Committee.
(d) In the event an optionee elects to deliver Mature Shares or to request
that Common Stock be withheld in accordance with subsection (c) above, upon
exercise of a Stock Option granted hereunder, the Company shall be entitled to
require as a condition thereto that the optionee remit an amount which the
Company deems sufficient to satisfy all Federal, state and other governmental
withholding tax requirements related thereto. The Company shall have the right,
in lieu of or in addition to the foregoing to withhold such sums from
compensation otherwise due to the optionee.
7. Other Stock Options Conditions.
(a) Except as expressly permitted by the Committee, no Stock Option shall
be transferred by the optionee otherwise than (i) by will or by the laws of
descent and distribution, (ii) for estate planning purposes, or (iii) as a
charitable contribution to an exempt organization as such term is defined in
Section 501(c)(3) of the Code. During the lifetime of the optionee the Stock
Option shall be exercisable only by such optionee, by the optionee's legal
representative or by a transferee permitted under the terms of the grant of the
Stock Option.
(b) Unless otherwise determined by the Committee, in the event of the
termination of an optionee's employment by the Company at any time for any
reason (excluding disability or death), the optionee's option and all rights
thereunder shall be exercisable by the optionee at any time within three months
thereafter to the extent such option was exercisable at the time of such
termination, but in no event later than the termination date of the optionee's
Stock Option. Notwithstanding the foregoing, unless otherwise determined by the
Committee, in the event an optionee is permanently and totally disabled (within
the meaning of Section 105(d)(4), or any successor section, of the Code), the
optionee's Stock Option and all rights thereunder shall be exercisable by the
optionee (or the optionee's legal representative) to the extent such option was
exercisable at the time of such termination, at any time within six (6) months
of termination of employment but in no event later than the termination date of
his Stock Option.
(c) Unless otherwise determined by the Committee, if an optionee shall die
while in the employ of the Company the optionee's Stock Option may be exercised
by the optionee's designated beneficiary or beneficiaries (or if none have been
effectively designated, by the optionee's executor, administrator or the person
to whom the optionee's rights under the optionee's Stock Option shall pass by
will or by the laws of descent and distribution) to the extent such Stock Option
was exercisable at the time of such termination, at any time within six (6)
months after the date of death but not later than the termination date of the
optionee's Stock Option.
(d) In the event an Eligible Director ceases to serve as a member of the
Board of Directors of the Company at any time for any reason, his Stock Option
and all rights thereunder shall be exercisable by him at any time within one
year thereafter, to the extent such Stock Option was exercisable at the time of
such termination, but in no event later than the termination date of his Stock
Option. If an Eligible Director shall die while serving as a director of the
Company, his Stock Option may be exercised by his designated beneficiary or
beneficiaries (or, if none have been effectively designated, by his executor,
administrator or the person to whom his rights under his Stock Option shall pass
by his will or by the laws of descent and distribution) to the extent such Stock
Option was exercisable at the time of such termination, at any time within one
year after the date of his death, but not later than the termination date of his
Stock Option.
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(e) Nothing in the Plan or in any Stock Option Agreement relating to an
option granted pursuant hereto shall confer on any employee any right to
continue in the employ of the Company or prevent or interfere in any way with
the right of the Company to terminate his employment at any time, with or
without cause.
(f) Nothing in the Plan or in any Stock Option Agreement relating to an
option granted pursuant hereto shall confer on any Eligible Director any right
to continue as a director of the Company.
(g) Each Stock Option granted pursuant to the Plan shall be evidenced by a
written Stock Option Agreement duly executed by the Company and the optionee, in
such form and containing such provisions as the Committee may from time to time
authorize or approve.
8. Adjustments. Stock Option Agreements shall contain such provisions as
the Committee shall determine to be appropriate for the adjustment of the kind
and number of shares subject to each outstanding Stock Option, or the Stock
Option prices, or both, in the event of any changes in the outstanding Common
Stock of the Company by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations or
exchanges of shares, or the like. In the event of any such change or changes in
the outstanding Common Stock, and as often as the same shall occur, the kind and
aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee, whose determination shall be binding and conclusive.
9. Amendment and Termination.
(a) Unless the Plan shall have been otherwise terminated as provided
herein, it shall terminate on, and no option shall be granted thereunder, after
the tenth anniversary of the adoption of the Plan by the Board. The Board may at
any time prior to that date alter, suspend or terminate the Plan as it may deem
advisable, except that it may not without further shareholder approval (i)
increase the maximum number of shares subject to the Plan (except for changes
pursuant to Section 8); (ii) permit the grant of Stock Options to anyone other
than the Employees, Eligible Directors and consultants; (iii) change the manner
of determining the minimum exercise prices (except for changes pursuant to
Section 8); or (iv) extend the period during which Stock Options may be granted
or exercised. Except as otherwise hereinafter provided, no alteration,
suspension or termination of the Plan may, without the consent of the optionee
to whom any Stock Option shall have theretofore been granted (or the person or
persons entitled to exercise such Stock Option under Section 7 of the Plan),
terminate such optionee's Stock Option or adversely affect such optionee's
rights thereunder.
(b) Anything herein to the contrary notwithstanding, in the event that the
Board shall at any time declare it advisable to do so in connection with any
proposed sale or conveyance of all or substantially all of the property and
assets of the Company or of any proposed consolidation or merger of the Company
(unless the Company shall be the surviving corporation in such merger), the
Company may give written notice to the holder of any Stock Option that the
optionee's Stock Option may be exercised only within thirty (30) days after the
date of such notice, and all rights under said Stock Option which shall not have
been so exercised shall terminate at the expiration of such thirty (30) days,
provided that the proposed sale, conveyance, consolidation or merger to which
such notice shall relate shall be consummated within six (6) months after the
date of such notice. If such proposed sale, conveyance, consolidation or merger
shall not be consummated within said time period, no unexercised rights under
any Stock Option shall be affected by such notice except that such Stock Option
may not be exercised between the date of expiration of such thirty (30) days and
the date of the expiration of such six-month period.
10. Option Exercise Price. The price per share to be paid by the optionee
at the time an ISO is exercised shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of the optioned Common Stock on the
date on which the Option is granted; provided, however, that no ISO may be
granted under the Plan to any Employee who is a Ten-Percent Shareholder, unless
the exercise price of such ISO is at least equal to one hundred and ten percent
(110%) of Fair Market Value on the date of grant. The price per share to be paid
by the optionee at the time an NQO is exercised shall not be less than
eighty-five percent (85%) of the Fair Market Value on the date on which the NQO
is granted, as determined by the Committee; provided, however, that the exercise
price of any NQO that is intended to be treated as performance-related
compensation for purposes of Section 162(m) of the Code shall not be less than
one hundred percent (100%) of the Fair Market Value on the date of grant.
11. Ceiling on ISO Grants. To the extent the aggregate Fair Market Value
(determined at the time any ISO is granted) of Common Stock for which ISOs are
exercisable for the first time by any optionee during any calendar year under
the Plan (together with any incentive stock options granted under any other plan
of the Company, any parent or any subsidiary) exceeds $100,000, such excess ISOs
shall be treated as NQOs.
A-4
12. Indemnification. Any member of the Committee or the Board who is made,
or threatened to be made, a party to any action or proceeding, whether civil or
criminal, by reason of the fact that such person is or was a member of the
Committee or the Board insofar as it relates to the Plan shall be indemnified by
the Company, and the Company may advance such person's related expenses, to the
full extent permitted by law and/or the Certificate of Incorporation or By-laws
of the Company.
13. Effective Date of the Plan; Termination of the Plan and Stock Options.
The Plan shall become effective on the date of adoption by the Board, provided,
however, that the Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the votes cast at a meeting of shareholders on or
before December 31, 2002. If any Stock Options are granted hereunder prior to
approval by the shareholders and such approval does not occur, such Stock
Options shall be deemed null and void ab initio.
14. Expenses. Except as otherwise provided herein for the payment of
Federal, State and other governmental taxes, the Company shall pay all fees and
expenses incurred in connection with the Plan and the issuance of the stock
hereunder.
15. Government Regulations, Registrations and Listing of Stock.
(a) The Plan, and the grant and exercise of Stock Options thereunder, and
the Company's obligation to sell and deliver stock under such Stock Options
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any regulatory or governmental agency as may, in the
opinion of the Company, be necessary or appropriate.
(b) The Company may in its discretion require, whether or not a
registration statement under the Securities Act of 1933 and the applicable rules
and regulations thereunder (collectively the "Act") is then in effect with
respect to shares issuable upon exercise of any Stock Option or the offer and
sale of such shares is exempt from the registration provisions of such Act, that
as a condition precedent to the exercise of any Stock Option the person
exercising the Stock Option give to the Company a written representation and
undertaking satisfactory in form and substance to the Company that such person
is acquiring the shares for such person's own account for investment and not
with a view to the distribution or resale thereof and otherwise establish to the
Company's satisfaction that the offer or sale of the shares issuable upon
exercise of the Stock Option will not constitute or result in any breach or
violation of the Act or any similar act or statute or law or regulation in the
event that a registration statement under the Act is not then effective with
respect to the Common Stock issued upon the exercise of such Stock Option; the
Company may place upon any stock certificate appropriate legends referring to
the restrictions on disposition under the Act.
(c) In the event the class of shares issuable upon the exercise of any
Stock Option is listed on any national securities exchange or NASDAQ, the
Company shall not be required to issue or achieve any certificate for shares
upon the exercise of any Stock Option, or to the listing of the shares so
issuable on such national securities exchange or NASDAQ and prior to the
registration of the same under the Securities Exchange Act of 1934 or any
similar act or statute.
A-5
4KIDS ENTERTAINMENT, INC.
PROXY
Annual Meeting of Shareholders--may 23, 2002.
The undersigned shareholder of 4Kids Entertainment, Inc. hereby appoints
Alfred R. Kahn, attorney and proxy of the undersigned, with full power of
substitution and resubstitution, to vote, as indicated herein, all the shares of
common stock of 4Kids standing in the name of the undersigned at the close of
business on April 5, 2002 at the Annual Meeting of Shareholders of 4Kids to be
held at JP Morgan Chase, 270 Park Avenue, New York, New York, Conference Room A,
11th Floor at 3:00 p.m., local time, on May 23, 2002, and at any and all
adjournments or postponements thereof, with all the powers the undersigned would
possess if then and there personally present and especially (but without
limiting the general authorization and power hereby given) to vote as indicated
on the proposals, as more fully described in the Proxy Statement for the
meeting.
Please mark boxes [o] or [X] in blue or black ink.
1. Election of Directors.
FOR all nominees [ ]
WITHHOLD authority only for those nominees
whose name(s) I have stricken below [ ]
WITHHOLD authority for ALL nominees [ ]
Nominees for Director are: Joel I. Cohen, Jay Emmett, Joseph P. Garrity
Steven M. Grossman and Alfred R. Kahn.
2. Proposal to approve the 4Kids 2002 Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
3. Proposal to approve the ratification of the appointment of Deloitte &
Touche LLP as 4Kids independent auditors for the fiscal year ending December 31,
2002.
For [ ] Against [ ] Abstain [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
(Continued, and to be signed on reverse side)
(Continued from other side)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR
THE ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS
OTHERWISE INDICATED.
SIGNATURE(S) should be exactly as
name or names appear on this proxy.
If stock is held jointly, each holder
should sign. If signing is by
attorney, executor, administrator,
trustee or guardian, please give full
title.
Dated _________________________, 2002
_____________________________________
Signature
_____________________________________
Print Name
_____________________________________
Signature
_____________________________________
Print Name
[Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.]