SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
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:
[X] Preliminary Proxy Statement [ ] Confidential; for use
[ ] Definitive Proxy Statement of the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule
[ ] Soliciting Material Pursuant to 14a-6(e)(2))
Rule 14a-11 or Rule 14a-12
4KIDS ENTERTAINMENT, INC.
------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
PRELIMINARY COPY -- FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
4KIDS ENTERTAINMENT, INC.
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
To the Shareholders of
4KIDS ENTERTAINMENT, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
of 4KIDS ENTERTAINMENT, INC. (the "Company"), a New York corporation, will be
held at the St. Moritz Hotel, 50 Central Park South, New York, New York 10019,
on Wednesday, April 30, 1997 at 11:00 a.m., local time, for the following
purposes:
1. To elect three directors to serve,
subject to the provisions of the
By-laws, until the next Annual
Meeting of Shareholders and until
their respective successors have
been duly elected and qualified;
2. To consider and act upon a proposal
to approve the Company's 1997 Stock
Option Plan;
3. To consider and act upon a proposal
to approve the selection of
Deloitte & Touche as the Company's
independent auditors for the fiscal
year ending December 31, 1997;
4. To transact such other business as
may properly come before the
meeting or any adjournment or
adjournments thereof.
The Board of Directors has fixed the close of business on
March 25, 1997 as the record date for the meeting and only
holders of shares of record at that time will be entitled to notice of and to
vote at the Annual Meeting of Shareholders or any adjournment or adjournments
thereof.
By order of the Board of Directors.
ALFRED R. KAHN
Chairman of the Board
New York, New York
March 31, 1997
IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS REQUESTED THAT YOU INDICATE
YOUR VOTE ON THE ISSUES INCLUDED ON THE ENCLOSED PROXY AND DATE, SIGN AND MAIL
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES.
- 3 -
PRELIMINARY COPY -- FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
4KIDS ENTERTAINMENT, INC.
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
P R O X Y S T A T E M E N T
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
March 31, 1997
The enclosed proxy is solicited by the Board of Directors of
4Kids Entertainment, Inc., a New York corporation (the "Company") in connection
with the Annual Meeting of Shareholders to be held at the St. Moritz Hotel, 50
Central Park South, New York, New York 10019 on Wednesday, April 30, 1997, at
11:00 a.m., local time, and any adjournments thereof, for the purposes set forth
in the accompanying Notice of Meeting. Unless instructed to the contrary on the
proxy, it is the intention of the persons named in the proxy to vote the proxies
in favor of (i) the election as directors of the three nominees listed below to
serve until the next annual meeting of shareholders; (ii) approval of the
Company's 1997 Stock Option Plan; and (iii) approval of the selection of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
ending December 31, 1997. The record date with respect to this solicitation is
the close of business on March 25, 1997 and only
shareholders of record at that time will be entitled to vote at the meeting. The
principal executive office of the Company is 1414 Avenue of the Americas, New
York, New York 10019, and its telephone number is (212) 758-7666. The shares
represented by all validly executed proxies received in time to be taken to the
meeting, and not previously revoked, will be voted at the meeting. The proxy may
be revoked by the shareholder at any time prior to its being voted. This proxy
statement and the accompanying proxy were mailed to you on or about March 31,
1997.
OUTSTANDING SHARES
The number of outstanding shares entitled to vote at the
meeting is 2,944,831 common shares, par value $.01 per share, each of which is
entitled to one vote. The presence in person or by proxy at the Annual Meeting
of the holders of one-third of such shares shall constitute a quorum. There is
no cumulative voting. Assuming the presence of a quorum at the Annual Meeting,
the affirmative vote of a majority of the common shares present at the meeting
and entitled to vote on each matter is required for the approval of the election
as directors of the three nominees listed below. The affirmative vote of the
holders of a majority of the total outstanding common shares is necessary to
approve the Company's 1997 Stock Option Plan. Votes shall be counted by one or
more employees of the Company's Transfer Agent who shall serve as the inspectors
of election. The inspectors of election will canvas the shareholders present in
person at the meeting, count their votes and count the votes represented by
proxies presented. Abstentions and broker nonvotes are counted
- 2 -
for purposes of determining the number of shares represented at the meeting, but
are deemed not to have voted on the proposal. Broker nonvotes occur when a
broker nominee (which has voted on one or more matters at the meeting) does not
vote on one or more other matters at the meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to so vote.
ELECTION OF DIRECTORS
The three persons named below, who are currently the entire
Board of Directors, have been nominated for election to serve until the next
Annual Meeting of Shareholders and until their respective successors have been
elected and qualified.
Unless specified to be voted otherwise, each proxy will be
voted for the election of the nominees named below. 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 any other person who shall be nominated by the present Board of Directors to
fill the vacancy.
Number
of Shares
Name Beneficially Percent
and Positions with Director Owned as of of
Age the Company Since March 14, 1997 Class
---- -------------- -------- -------------- ------
Alfred R. Chairman of the 1987 874,000(1) 25.4%
Kahn, 50 Board (Chief
Executive
Officer)
and Director
Randy O. Director 1991 1,524,000(2) 40.7%
Rissman, 49
Gerald Director 1991 300,000(3) 9.3%
Rissman, 76
- 3 -
(1) Includes 352,000 shares owned by Mr. Kahn, 2,000 shares owned by Mr.
Kahn's wife, 5,000 shares held by Mr. Kahn for the benefit of his minor
daughter under the NY/UGMA, currently exercisable options to acquire
500,000 shares, and 15,000 shares owned by Mr. Kahn's three adult
children with respect to which Mr. Kahn disclaims beneficial ownership.
(2) Includes (i) Mr. Kahn's currently exercisable options to
acquire 500,000 shares (see footnote (1) above), over which
Mr. Randy Rissman would have the sole power to vote if
exercised by Mr. Kahn, pursuant to an Irrevocable Proxy
dated as of March 11, 1991 (the "Irrevocable Proxy"),
(ii) 350,000 shares owned by Tiger Electronics Inc.
("Tiger"), which Mr. Randy Rissman, as President and
controlling shareholder of Tiger, has the right to direct
the voting and disposition of, (iii) 374,000 shares owned by
Mr. Kahn which Mr. Randy Rissman has the sole power to vote
pursuant to the Irrevocable Proxy and (iv) currently
exercisable options to acquire 300,000 shares, over which
Mr. Randy Rissman would have sole voting and dispositive
power if exercised.
(3) Mr. Gerald Rissman has the right to acquire the number of shares shown
pursuant to currently exercisable stock options.
Mr. Alfred R. Kahn has been Chairman (Chief Executive
Officer) of the Company since March 1991. Mr. Kahn was Vice
Chairman of the Company from July 1987 until he became Chairman.
- 4 -
Mr. Randy Rissman has been the president of Tiger, a
manufacturer and distributor of toys and related items, for the past 15 years.
Mr. Gerald Rissman is employed by Tiger to perform various
executive functions. He also serves as a consultant in the electronics industry.
Mr. Randy Rissman is Mr. Gerald Rissman's son.
Tiger, Mr. Kahn and Mr. Randy Rissman have agreed to
use their best efforts to cause the Board of Directors to consist of three
persons, two recommended by Tiger and one recommended by Mr. Kahn. If Tiger
sells any of its shares of the Company's Common Stock, Tiger, Mr. Kahn and Mr.
Randy Rissman will use their best efforts to cause a majority of the Board of
Directors to consist of persons recommended by Mr. Kahn.
Meetings and Committees of the Board of Directors.
The Board of Directors of the Company met four times during
the fiscal year which ended on December 31, 1996. 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.
The Company has an Audit Committee consisting of Messrs. Randy
Rissman and Gerald Rissman. The Audit Committee reviews the financial reporting
and internal controls of the Company and meets with appropriate financial
personnel of the Company, as well as its independent auditors, in connection
with these reviews. The Audit Committee also recommends to the Board the firm
which is to be presented to the shareholders for
- 5 -
designation as independent auditors to examine the corporate accounts of the
Company for the current fiscal year. Although the Audit Committee did not
formally meet during fiscal 1996, Messrs. Randy Rissman and Gerald Rissman
informally discussed these matters during the course of the fiscal year. The
Company also has a Compensation Committee, the current members of which are
Messrs. Randy Rissman and Gerald Rissman. Subject to existing contractual
obligations, the Compensation Committee is responsible for setting and
administering the policies which govern annual and long-term compensation for
the Company's executives. The Compensation Committee is also empowered to grant
Stock Options pursuant to the Company's Stock Option Plans and to administer
such Plans. Although the Compensation Committee did not formally meet during
fiscal 1996, Messrs. Randy Rissman and Gerald Rissman informally discussed
compensation issues during fiscal 1996.
The Company does not have a nominating committee.
Other Executive Officers.
In addition to Mr. Kahn, the Company has four other executive
officers, Joseph P. Garrity, Sheldon Hirsch, Thomas Kenney and Norman Grossfeld.
Mr. Garrity has been the Chief Financial Officer since joining the Company in
June 1991. In October 1994 he became Executive Vice President (Chief Operating
Officer) For more than five years prior to such time, Mr. Garrity was a Senior
Audit Manager for Deloitte & Touche LLP. Sheldon Hirsch has been Chief Executive
Officer of The Summit Media Group, Inc. ("Summit Media"), the Company's media
buying,
- 6 -
planning and television syndication subsidiary, since November 1992. For three
years prior to such time, Mr. Hirsch was President of Sachs Family
Entertainment, a television program distribution company. Thomas Kenney has been
President of Summit Media since February 1993. For five years prior to such time
Mr. Kenney served as Senior Vice President - Advertising at Tiger Electronics
Inc. Norman Grossfeld has been President of 4Kids Productions, Inc., the
Company's television and home video production subsidiary, since February 1994.
For two years prior to such time he was President of Gold Television
Entertainment. Prior to such time he served as Coordinating Director for NBC
Sports from 1991 through 1992, and as Producer/Director for Television
Programming Enterprises from 1988-1991.
COMPENSATION OF DIRECTORS AND OFFICERS The
following table sets forth compensation paid to the
Company's Chief Executive Officer and the three most highly compensated
executive officers for the three fiscal years ended December 31, 1996:
- 7 -
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Award
Name and Stock Options
Principal Position Year Salary ($) Bonus ($) (Shares)
- ------------------ ---- ---------- --------- ---------
1996 $395,000 -0- 100,000
Alfred R. Kahn 1995 395,000 -0- 100,000
Chairman of the Board 1994 395,000 40,408 100,000
1996 250,000 46,462 10,000
Sheldon Hirsch, Chief 1995 235,000 6,750 25,000
Executive Officer, 1994 165,000 42,916 -0-
Summit Media
Thomas Kenney, President 1996 225,000 46,462 10,000
Summit Media 1995 200,000 6,750 25,000
1994 135,000 42,916 -0-
Norman Grossfeld, President 1996 200,000 50,000 10,000
4Kids Productions 1995 150,000 50,000 20,000
1994 150,000 50,000 -0-
- ------------------
The following table sets forth information concerning the
grants of stock options made during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term (1)
% of Total Exercise
Number of Options Granted or Base
Options to Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) (2) Date 5% 10%
- ---- -------- ------------- ---------- ------ ----- ----
Alfred R. Kahn 100,000 (3) 38% $2.3125 1/01/06 $145,000 $369,000
Sheldon Hirsch 10,000 4 2.375 6/04/01 7,000 14,000
Thomas Kenney 10,000 4 2.375 6/04/01 7,000 14,000
Norman Grossfeld 10,000 4 2.375 6/04/01 7,000 14,000
(1) The Company 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. The Company does not advocate or necessarily
- 8 -
agree that such method can properly determine the value of
an option.
(2) Based upon the fair market value of the Company's Common
Stock on the date of grant.
(3) All such options are currently exercisable.
None of the named executive officers exercised their
options to acquire shares during fiscal 1996. The following table sets forth
information concerning the fiscal year end value of unexercised options:
Value of Unexercised In-
Number of Unexercised Options at the-Money Options at
Name December 31, 1996 (1) December 31, 1996 (2)
- ---- ----------------------- ----------------------
Alfred R. Kahn 600,000 $-0-
Sheldon Hirsch 45,000 -0-
Norman Grossfeld 30,000 -0-
Thomas Kenney 45,000 -0-
- --------------
(1) All options are currently exercisable.
(2) Calculation based upon the average of the high and low
prices of the Company's Common Stock on Nasdaq on
December 31, 1996 of $1.0625 per share.
Compensation of Directors.
No director of the Company receives any cash compensation for
his services as such. Currently, the Company has two directors who are not
employees, Messrs. Randy Rissman and Gerald Rissman (the "Non-Employee
Directors"). Pursuant to the Company's 1994 Stock Option Plan, on January 1,
1996 the Non- Employee Directors were each granted options to purchase 50,000
shares at a purchase price of $2.3125 and on January 22, 1997 the Non-Employee
Directors were each granted options to purchase 50,000 shares at a purchase
price of $1.375. All such options were granted at the fair market value on the
date of grant, are
- 9 -
currently exercisable in full and terminate ten years from the
date of grant.
In March 1996, the Company purchased an aggregate of
$5,000,000 of insurance from National Union Fire Insurance Company of Pittsburgh
for indemnification of all of its directors and officers at a cost of $57,915.
Employment Contracts and Termination of
Employment and Change-in-Control Arrangements
Mr. Kahn has an employment agreement with the Company pursuant
to which he receives a fixed salary of $395,000 per year plus an annual bonus
equal to 10% of the Company's Income Before Income Tax Provision as stated on
the Company's financial statements in its annual report on Form 10-K. The
agreement expires on March 31, 2003. The agreement also provides that for a
period of six months after termination of employment, Mr. Kahn will not
"compete" with the Company. 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 the Company (including bonuses, if
any) during the five years preceding the date of termination ("Severance
Payment"). If a majority of the directors of the Company consists of individuals
who have not been recommended by either Tiger or 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.
- 10 -
Mr. Garrity has an employment agreement with the Company which
currently provides for an annual salary of $215,000 (the "Fixed Salary") plus an
annual bonus equal to 2% of the Company's Income Before Income Tax Provision as
stated on the Company's financial statements in it's Annual Report on Form 10-
K. The agreement expires December 31, 2000. The agreement may be terminated by
the Company in the event of Mr. Garrity's disability or for cause. If during the
term of Mr. Garrity's agreement there shall occur a Change of Control, 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 the Fixed
Salary remaining to be paid for the year during which such termination occurs.
Mr. Grossfeld has an agreement with 4Kids Productions which
currently provides for an annual salary of $200,000 (the "Fixed Salary") plus an
annual bonus equal to 10% of 4Kids Productions Income Before Income Tax
Provision as stated on 4Kids Productions books and records, with an annual
advance against
bonus of $50,000.
Each of Mr. Hirsch and Mr. Kenney has an employment
agreement with Summit Media for the period January 1, 1995
through December 31, 2000. Mr. Hirsch's agreement currently
provides for an annual salary of $250,000 while Mr. Kenney's
currently provides for an annual salary of $225,000 (the "Fixed
Salary"). Each agreement currently provides for an annual bonus
equal to 6% of Summit Media's Income Before Income Tax Provision
as stated on Summit Media's books and records. The agreements
- 11 -
automatically renew on a year-to-year basis unless terminated by either party at
least 90 days prior to December 31, 2000. The respective agreements may be
terminated by the Company in the event of either of Mr. Hirsch's or Mr. Kenney's
respective disability or for cause. If during the term of the agreements there
shall occur a Change of Control, each of Mr. Hirsch and Mr. Kenney can terminate
his respective agreement within six months of such Change of Control, in which
event he would be entitled to receive a payment equal to the Fixed Salary
remaining to be paid for the year during which such termination occurs.
Compensation Committee Interlocks and Insider Participation.
As described in "Election of Directors - Meetings and
Committees of the Board of Directors" above, the Company has a Compensation
Committee, the current members of which are Messrs. Randy Rissman and Gerald
Rissman. Neither of such individuals has ever been an officer or employee of the
Company or any of its subsidiaries. See "Certain Relationships and Related
Transactions" below. During fiscal 1995, no executive officers of the Company
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 the Company.
Report on Executive Compensation.
Subject to existing contractual obligations, the Compensation
Committee of the Board of Directors is responsible for the Company's executive
compensation policy. In general, the Company's executive compensation policy is
to attract and retain high performing executives and to motivate and reward such
- 12 -
executives based on overall corporate and individual performance,
and the creation of shareholder value.
For 1996, the compensation of the Company's executive officers
was composed primarily of salaries and stock options. Salary ranges for the
Company's 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 the Company 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 executive officers and the Company's shareholders in maximizing
long-term shareholder value. The Company's Compensation Committee is responsible
for granting stock options to the executive officers pursuant to the Company's
stock option plans. Grants of stock options are made from time to time to the
executive officers based on the Company's overall performance and the individual
performance of each executive officer. In addition, pursuant to the Company's
1994 Stock Option Plan and 1985 Stock Option Plan (each of which was approved by
the Company's shareholders at the 1994 and 1985 Annual Meetings of Shareholders,
respectively), stock options to acquire 100,000 shares of the Company were
granted in January 1996 and January 1997 to Mr. Kahn at an exercise prices of
$2.3125 and $1.375 per share, respectively, the fair market value of the shares
on the date of grant.
- 13 -
Basis for the Compensation of the CEO.
The Company has an employment agreement with Mr. Kahn pursuant
to which he receives a fixed salary of $395,000 per year and an annual during
the term of the agreement, which expires in 2003. The Company believes that Mr.
Kahn's base salary, which has remained unchanged since 1991, is reasonable and
no more generous to him than base salaries paid to other similarly situated
chief executive officers.
In addition to cash compensation, Mr. Kahn is also eligible to
receive stock options pursuant to the Company's stock option plans. On January
1, 1996, Mr. Kahn was granted an option to purchase 100,000 shares at an
exercise price of $2.3125 and on January 22, 1997 Mr. Kahn was granted an option
to purchase 100,000 shares at an exercise price of $1.375. The purpose of such
stock option grants was to provide Mr. Kahn with a further inducement to
contribute to the long-term growth and development of the business of the
Company. Consequently, during the terms of 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 Company's common stock. However, it should be noted
that the market price for the Company's common stock on March 17, 1997 was
$1.50.
Compensation Committee
Randy O. Rissman
Gerald Rissman
- 14 -
Performance Graph.
Set forth below is a line graph comparing the yearly
percentage change in the cumulative total return on the Company's common stock
against the cumulative total return of the Nasdaq U.S. Market Index and the
Nasdaq Non-Financial Index for the past five fiscal years.
[GRAPH APPEARS BELOW]
4Kids PERFORMANCE CHART RAW DATA
1996
4Kids NASDAQ NONFIN
1991 100.000 100.000 100.000
1992 173.817 116.378 109.394
1993 310.651 133.595 126.300
1994 107.249 130.587 121.444
1995 73.964 184.674 169.244
1996 29.586 227.164 205.629
- 15 -
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 17, 1997, certain
information concerning stock ownership of the Company by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding common
shares of the Company, (ii) each of the Company's directors and (iii) all
current directors and officers of the Company 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.
Percent
Number of Shares of
Name and Address (1) Beneficially Owned Class
Randy Rissman 1,524,000 (2) 40.7%
Alfred R. Kahn 874,000 (2) 25.4%
Tiger Electronics Inc. 350,000 11.9%
Gerald Rissman 300,000 9.3%
Various Reporting 154,224 5.2%
Persons (3)
All directors and 2,209,000 (4) 49.9%
officers as a group
(7 persons)
(1) The address for Messrs. Randy Rissman and Gerald Rissman,
and Tiger, is 980 Woodlands Parkway, Vernon Hills, Illinois
60061; and the address for Mr. Kahn is 1414 Avenue of the
Americas, New York, New York 10019.
(2) See notes (2) through (4) to table under "Election of
Directors" herein.
- 16 -
(3) According to Amendment No. 3 to Schedule 13D filed in
November, 1996 (the "Schedule 13D"), EGS Associates, L.P.,
EGS Partners, LLC, BEV Partners, L.P., Jonas Partners, L.P.,
William Ehrman, Frederic Greenberg, Frederick Ketcher, James
McLaren and Jonas Gerstl (collectively, the "Reporting
Persons") have various interests in the shares shown. The
address of the principal business and principal office of
the Reporting Persons is 300 Park Avenue, New York, New York
10022. According to the Schedule 13D, the purpose of the
acquisition of the shares shown by the Reporting Persons is
for investment. In addition, the Schedule 13D states that
there are no contracts, arrangements, understandings or
relationships (legal or otherwise) among the Reporting
Persons or between the Reporting Persons and any other
person with respect to any securities of the Company.
(4) Includes 385,000 shares which four executive officers have the right to
acquire pursuant to stock options, 215,000 of such options are
currently exercisable.
Mr. Kahn has, from time to time, borrowed a total of $711,582
from Tiger in connection with three purchases of a total of 191,426 shares. As
of March 17, 1997, the outstanding principal balance of such loans was
approximately $340,000. The loans are partially due in 1997 with the balance due
in April, 1999 and bear interest on part at the rate of 8% per annum and on the
balance at 1% over prime rate, payable annually. Mr. Kahn has agreed that he
will use 40% of his annual performance
- 17 -
bonuses, if any, toward the repayment of his indebtedness to
Tiger.
Tiger, Mr. Randy Rissman and Mr. Kahn are parties to an
agreement which provides that neither Tiger nor Mr. Kahn nor any of their
respective affiliates, shall directly or indirectly acquire any other shares of
the Company without the consent of Mr. Kahn or Tiger, as the case may be. In the
event Tiger desires to sell any of its shares, it shall first provide Mr. Kahn
an opportunity to purchase the shares subject to such offer on the same terms
and conditions. In the event Mr. Kahn desires to sell any of his shares, he must
provide Tiger the right to sell a proportional number of shares on the same
terms and conditions. In the event Mr. Kahn shall terminate his employment with
the Company, Tiger shall have the right to buy all of Mr. Kahn's shares at the
lower of a specified price or the market value prior to such termination, unless
Mr. Kahn shall concurrently sell his shares as set forth above.
PROPOSED 1997 STOCK OPTION PLAN
There is being submitted to the shareholders for approval at
the Annual Meeting, the 4Kids Entertainment, Inc. 1997 Stock Option Plan (the
"1997 Plan") which authorizes the issuance not later than December 31, 2007 of
options to purchase up to 145,000 of the Company's common shares. The 1997 Plan
was approved by the Board of Directors at a meeting held on November 19, 1996
subject to shareholder approval.
- 18 -
The Board of Directors believes that the Company 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 1997 Plan. It is
believed that stock options play an important role in providing eligible
employees with an incentive and inducement to contribute fully to the further
growth and development of the Company and its subsidiaries because of the
opportunity to acquire a proprietary interest in the Company on an attractive
basis.
All stock options granted under the 1997 Plan will be
exercisable at such time or times and in such installments, if any, as the
Company's Compensation Committee or the Board of Directors may determine and
expire no more than ten years from the date of grant. The exercise price of the
stock option will be the fair market value of the Company's common shares on the
date of grant and must be paid in cash or in stock of the Company valued at its
then fair market value. The market value of the Company's shares at March 17,
1997 was $1.50. Options are non-transferable except by will or by the laws of
descent and distribution. Each option to be granted under the 1997 Plan will be
evidenced by an agreement subject to the terms and conditions set forth above.
Options granted under the 1997 Plan terminate three months
after the optionee's relationship with the Company is terminated except if
termination is by reason of death or disability. In such event the option
terminates six months after
- 19 -
the optionee's death or termination of employment by reason of
disability.
Upon the issuance of any shares pursuant to the exercise of a
stock option granted under the 1997 Plan, the Company may pay an optionee a
supplemental cash award, the primary purpose of which is to assist the optionee
in paying any income tax which may be payable upon the exercise of such stock
option. This award will be the smaller of (i) 65% of the difference between the
aggregate fair market value of the shares issued on the exercise and the option
price paid by the optionee or (ii) 90% of the option exercise price paid by the
optionee.
The Board of Directors has a limited right to modify or amend
the 1997 Plan which does not include the right to increase the number of shares
which is available for the grant of options.
During the term of the 1997 Plan, eligible employees of the
Company will receive, for no consideration prior to exercise, the opportunity to
profit from any rise in the market value of the common stock. This will dilute
the equity interest of the other shareholders of the Company. The grant and
exercise of the options also may affect the Company's ability to obtain
additional capital during the term of any options.
The 1997 Plan will be administered by the Compensation
Committee appointed by the Board of Directors. The Compensation Committee
currently consists of Messrs. Randy O. Rissman and Gerald Rissman, neither of
whom are employees of the Company.
- 20 -
The Board of Directors is recommending the adoption of the
1997 Plan. The description of the proposed 1997 Plan set forth above is
qualified in its entirety by reference to the text of the 1997 Plan as set forth
in Exhibit A.
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 1997 Plan based upon the
current provisions of the Internal Revenue Code.
An option holder who exercises a stock option will generally
realize compensation taxable as ordinary income in an amount equal to the
difference between the option price and the fair market value of the shares on
the date of exercise, and the Company will be entitled to a deduction from
income in the same amount. The option holder's basis in such shares will be
their fair market value on the date of exercise, and when he disposes of the
shares he will recognize capital gain or loss, either long-term or short-term,
depending on the holding period of the shares.
The exercise of an option by the exchange of common shares
already owned by the optionee generally will not result in any taxable gain or
loss on the unrealized appreciation of the shares so used. The Internal Revenue
Service has ruled that (i) a number of shares of the stock received equal to the
number of shares surrendered will have the same basis as the shares surrendered
and (ii) the remaining shares received will have a
- 21 -
basis equal to their fair market value on the date of exercise (the sum of the
option price and the compensation income recognized upon exercise). For purposes
of determining whether shares have been held for the long-term capital gain
holding period, the holding period of shares received will generally include the
holding period of shares surrendered only if the shares received have the same
basis, in whole or in part, in the employee's hands as the shares surrendered.
Whenever under the 1997 Plan shares are to be delivered upon
exercise of a stock option, the Company 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.
SELECTION OF AUDITORS
The Company's financial statements for the past several fiscal
years were examined by Deloitte & Touche LLP, independent public accountants. On
November 19, 1996, 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, 1997.
Representatives of Deloitte & Touche LLP are expected to be
present at the annual meeting of shareholders with the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
- 22 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, the Company provided to Tiger representation
for licensing of properties, product development and design services and media
buying, planning and syndication services. In connection with these activities,
the Company realized approximately $2,039,000 of net revenue from Tiger in
fiscal 1996.
In connection with its media buying activities, the Company
incurs obligations to television stations for advertising time purchased on
behalf of Tiger. Consequently, the Company had an account receivable from Tiger
of approximately $13,157,000 at December 31, 1996.
The agreements under which the Company provides certain
services to Tiger are on substantially similar terms and conditions as other
agreements the Company has with clients for which it provides similar services.
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 1998 Annual Meeting of Shareholders must be received by
- 23 -
the Corporation for inclusion in proxy material relating to such meeting not
later than January 15, 1998.
EXPENSES
All expenses in connection with solicitation of proxies will
be borne by the Company. Officers and regular employees of the Company may
solicit proxies by personal interview and telephone and telegraph. Brokerage
houses, banks and other 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. The Company
will pay that firm approximately $6,000 for its services and reimburse its
out-of-pocket expenses.
By Order of the Board of Directors,
Alfred R. Kahn
Chairman of the Board
- 24 -
EXHIBIT A
4KIDS ENTERTAINMENT, INC.
1997 STOCK OPTION PLAN
1. Purpose of Plan. This 1997 Stock Option Plan (the "Plan") is designed to
assist 4KIDS ENTERTAINMENT, INC. (the "Company") in retaining the services of
Eligible Employees (as hereinafter defined) and to provide Eligible Employees
with an incentive and inducement to contribute fully to the further growth and
development of the business of the Company and its subsidiaries. The Stock
Options (as hereinafter defined) are not intended to be Incentive Stock Options
pursuant to Section 422 of the Code (as hereinafter defined). No Stock Options
may be granted under the Plan to any of the directors of the Company.
2. Definitions. In addition to other definitions
contained elsewhere in the Plan, as used in the Plan the
following terms have the following meanings unless the context
otherwise indicates or requires:
"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 4 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.
"Disinterested Person" means "disinterested person" as defined in Rule
16b-3(c)(i), or any successor provision, promulgated under the Securities
Exchange Act of 1934.
"Eligible Employees" means employees of the Company to whom options may be
granted as shall be conclusively determined by the Committee or the Board in
accordance with Section 4 hereof.
"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.
"Stock Options" means any stock options granted to Eligible Employees under the
Plan.
"Stock Option Agreement" means a stock option agreement entered into pursuant to
the Plan.
3. Stock Options; Stock Subject to Plan. 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 145,000 shares, subject to adjustment as provided in
Section 8. If any Stock Option granted under the Plan shall expire or terminate
for any reason whatsoever without having been exercised in full, the unpurchased
shares shall become available for new options.
4. Administration.
(a) The Plan shall be administered by a Compensation
Committee or, if such Committee not be appointed, by the Board.
If the Board administers the Plan, all of the directors acting in
this regard must be Disinterested Persons. For purposes of the
A-2
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, each of whom is a Disinterested Person.
The Board shall fill all vacancies on the Committee and may remove any member of
the Committee at any time with or without cause, provided that the Board
replaces such member with a Disinterested Person. 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 (i) determine Eligible Employees to whom, and
the time or times at which, options shall be granted and the number of shares
subject to each option; (ii) prescribe, amend and rescind rules and regulations
relating to the Plan; (iii) interpret the Plan and the respective Stock Options;
and (iv) make all other determinations necessary or advisable for administering
the Plan. Determination by the Committee or the Board as to who are Eligible
Employees shall be conclusive. More than one option may be granted to an
Eligible Employee. All determinations and
A-3
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 4 shall survive any
termination of the Plan.
5. Options to be Granted. Stock Options with respect
to 145,000 shares shall be available for grant to Eligible
Employees (in accordance with Section 4 of the Plan) at a
purchase price equal to the fair market value on the date of
grant.
6. Terms and Exercise of Stock Option.
(a) Each Stock Option granted to an Eligible Employee shall
terminate no later than ten years after the date on which it shall have been
granted, but the Committee or the Board in its discretion may prescribe a
shorter period for any individual option or options. The date of termination
pursuant to this paragraph is referred to hereinafter as the "termination date
of the option".
(b) Stock Options granted to Eligible Employees 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
A-4
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 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 optionee at his discretion may, in lieu
of cash payment (i) deliver Common Stock already owed by him, 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 7(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 he shall not be considered a record
holder of shares purchased by him until the date on which he 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
A-5
exercising the Stock Option the cash equivalent of any fractional share interest
unless so determined by the Committee.
(d) The Company shall be entitled to require as a condition to
the exercise of a Stock Option granted hereunder 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.
(e) Upon the issuance of any shares pursuant to the exercise
of a Stock Option, the Company may pay an optionee a supplemental cash award,
the primary purpose of which is to assist the optionee in paying any income tax
which may be payable upon the exercise of such Stock Option. This award shall be
the lesser of (i) 65% of the difference between the aggregate fair market value
of the shares issued on the exercise and the option price paid by the optionee
or (ii) 90% of the Stock Option exercise price paid by the optionee.
7. Other Stock Option Conditions.
(a) No Stock Option shall be transferred by the optionee
otherwise than by will or by the laws of descent and distribution. During the
lifetime of the optionee the Stock Option shall be exercisable only by him or by
his legal representative.
(b) In the event of the termination of an optionee's
employment by the Company at any time for any reason (excluding
A-6
disability or death), his option and all rights thereunder shall be exercisable
by the optionee at any time within three (3) months thereafter but in no event
later than the termination date of his Stock Option. Notwithstanding the
foregoing, 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), his
Stock Option and all rights thereunder shall be exercisable by him (or his legal
representative) at any time within six (6) months of his termination of
employment, but in no event later than the termination date of his Stock Option.
(c) If an optionee shall die while in the employ 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) at any time within six
(6) months after the date of his death, but not later than the termination date
of his Stock Option.
(d) Nothing in the Plan or in any option granted pursuant
hereto shall confer on an Eligible 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.
(e) 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
A-7
containing such provisions as the Committee may from time to time
authorize or approve.
8. Adjustments. The 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, and 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 December 31, 2007. 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 options to anyone other than Eligible Employees, (iii)
change the manner of determining the minimum Stock Option prices (except for
changes pursuant to Section 8) or (iv) extend the period during which Stock
Options
A-8
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(c)
of the Plan), terminate his Stock Option or adversely affect his 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 his Stock Option may be exercised only within thirty (30) days after
the date of such notice but not thereafter, 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
(6) months.
A-9
10. 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 he 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 his related expenses, to the
fullest extent permitted by law and/or the Certificate of Incorporation of
the Company.
11. Effective Date of the Plan. 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 the majority of
Common Stock of the Company on or before December 31, 1997.
12. 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.
13. 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 be required.
(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
A-10
the "Act") is then in effect with respect to shares issued 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 he is acquiring the shares for his 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 any rules
or regulations thereunder. In the event that a Registration Statement under the
Act is not then in effect with respect to the Common Shares issued upon the
exercise of such Stock Option, the Company may place upon any stock certificate
an appropriate legend 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 deliver any certificate
for shares upon the exercise of any Stock Option prior 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-11
PRELIMINARY COPY -- FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
4KIDS ENTERTAINMENT, INC.
PROXY
Annual Meeting of Shareholders - Wednesday, April 30, 1997.
The undersigned shareholder of 4Kids Entertainment, Inc. (the
"Company") hereby appoints Alfred R. Kahn and Randy O. Rissman, and each of
them, the attorneys and proxies of the undersigned, with full power of
substitution, to vote, as indicated herein, all the common shares of the Company
standing in the name of the undersigned at the close of business on March 25,
1997 at the Annual Meeting of Shareholders of the Company to be held at the St.
Moritz Hotel, 50 Central Park South, New York, New York 10019 at 11:00 a.m.,
local time, on Wednesday, April 30, 1997, and at any and all adjournments
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 fill in the reverse side and return promptly in the enclosed envelope.)
****************************************************************************
APPENDIX
****************************************************************************
PLEASE MARK BOXES / / 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 written
below / /
WITHHOLD authority for ALL nominees / /
Nominees for Director are: Alfred R. Kahn, Randy O. Rissman and
Gerald Rissman.
2. Proposal to approve the Company's 1997 Stock Option Plan.
For / / Against / / Abstain / /
3. Proposal to approve the selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
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.
- 2 -
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
[Sign, Date and Return proxy. If stock is held jointly,
the Proxy Card Promptly each holder should sign. If
Using the Enclosed signing is by attorney, executor,
Envelope.] administrator, trustee or guardian,
please give full title.
Dated , 1997
Signature
Signature
- 3 -