<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
(AMENDMENT NO. ____)
/x/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LEWIS GALOOB TOYS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined.):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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- --------------------------------------------------------------------------------
<PAGE>
LEWIS GALOOB TOYS, INC.
500 FORBES BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 4, 1996
------------------------
TO THE HOLDERS OF COMMON STOCK OF LEWIS GALOOB TOYS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lewis
Galoob Toys, Inc. (the 'Corporation') will be held at 1:00 P.M., local time, on
November 4, 1996, at the Embassy Suites Hotel, 250 Gateway Boulevard, South San
Francisco, California 94080, for the following purposes:
1. To elect two (2) directors of the Corporation to hold office until
the 1999 Annual Meeting of Stockholders and one (1) director of the
Corporation to hold office until the 1997 Annual Meeting of Stockholders,
or until the election and qualification of their successors.
2. To consider and vote upon a proposal to amend the Corporation's
Certificate of Incorporation to change the name of the Corporation to
Galoob Toys, Inc.
3. To vote upon a proposal to approve the Corporation's 1996 Long Term
Compensation Plan.
4. To vote upon a proposal to approve the Corporation's 1996 Share
Incentive Plan.
5. To vote upon the ratification of the appointment of Price
Waterhouse LLP as the Corporation's independent accountants for the fiscal
year 1996.
6. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of the Corporation's common stock at the close of
business on September 20, 1996 (the 'Record Date') are entitled to receive
notice of, and to vote at, the Annual Meeting of Stockholders and any
adjournment(s) thereof. Such stockholders may vote in person or by proxy. The
transfer books of the Corporation will not be closed.
Stockholders who find it convenient are cordially invited to attend the
meeting in person. If you are not able to do so and wish that your shares be
voted, you are requested to fill in, sign, date and return the proxy card in the
enclosed envelope. No postage is required if mailed in the United States.
By Order of the Board of Directors,
WILLIAM G. CATRON
Secretary
Dated: October 3, 1996
<PAGE>
LEWIS GALOOB TOYS, INC.
500 FORBES BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 4, 1996
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Lewis Galoob Toys, Inc. (the 'Corporation') of proxies
to be used at the Annual Meeting of Stockholders of the Corporation to be held
at 1:00 P.M., local time, on November 4, 1996, at the Embassy Suites Hotel, 250
Gateway Boulevard, South San Francisco, California 94080, and at any
adjournment(s) thereof.
If the proxy card accompanying this Proxy Statement is properly executed
and returned, the shares of common stock, $.01 par value per share ('Common
Stock'), represented thereby will be voted as instructed on the proxy card, but
if no instructions are given, such shares of Common Stock will be voted (l) for
the election as directors of the three nominees of the Board of Directors named
below, (2) in favor of the proposal to amend the Corporation's Certificate of
Incorporation to change the name of the Corporation to Galoob Toys, Inc., (3) in
favor of the proposal to approve a new long term compensation plan for executive
management of the Corporation (the '1996 Long Term Compensation Plan'), (4) in
favor of a proposal to approve a share incentive plan for key employees of the
Corporation (the '1996 Share Incentive Plan'), (5) in favor of the ratification
of the appointment of Price Waterhouse LLP as the Corporation's independent
accountants for the fiscal year 1996, and (6) in the discretion of the proxies
named on the proxy card on any other proposals to properly come before the
meeting or any adjournment(s) thereof.
Any proxy may be revoked prior to its exercise, but the attendance at the
meeting by any stockholder who has previously given a proxy will not have the
effect of revoking his or her proxy as the case may be, unless such stockholder
delivers written notice of revocation to the secretary of the Annual Meeting of
Stockholders prior to the exercise of the rights specified by the proxy. The
approximate date of mailing of this Proxy Statement and the accompanying proxy
is October 3, 1996.
VOTING
Holders of record of the Corporation's Common Stock on September 20, 1996
(the 'Record Date') will be entitled to vote at the Annual Meeting of
Stockholders or any adjournment(s) thereof. On the Record Date, there were
15,147,151 shares of Common Stock outstanding and entitled to vote and a
majority, or 7,573,576 shares of Common Stock, will constitute a quorum for the
transaction of business by the holders of the Common Stock. Each share of Common
Stock entitles the holder thereof to one vote on all matters to come before the
Annual Meeting of Stockholders or any adjournments thereof.
Nominees for election as directors must receive a plurality of votes cast,
in person or by proxy, by holders of the outstanding Common Stock entitled to
vote at the Annual Meeting of Stockholders to be elected. Abstentions and broker
non-votes will have no effect. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
NOMINEES SET FORTH BELOW.
<PAGE>
The favorable vote of a majority of the outstanding shares of Common Stock
represented in person or by proxy and entitled to vote at the meeting is
necessary to amend the Corporation's Certificate of Incorporation to change the
name of the Corporation to Galoob Toys, Inc. Abstentions and broker non-votes
will have the same effect as votes against the amendment of the Corporation's
Certificate of Incorporation. The favorable vote of a majority of the shares of
Common Stock represented in person or by proxy is necessary to (i) approve the
1996 Long Term Compensation Plan, (ii) approve the 1996 Share Incentive Plan,
and (iii) ratify the appointment of Price Waterhouse LLP as the Corporation's
independent accountants for the 1996 fiscal year. Abstentions will have the same
effect as votes against the proposals in the immediately preceding sentence, and
broker non-votes will be disregarded and will have no effect on the outcome of
the votes for the proposals in the immediately preceding sentence. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS SET FORTH ABOVE.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Corporation's Certificate of Incorporation and By-laws provide for a
Board of Directors elected by the holders of Common Stock, which is divided into
three classes of directors, as nearly equal in number as possible, serving
staggered three-year terms. The Board of Directors is currently comprised of six
members, with the first class consisting of one (1) member, the second class
consisting of three (3) members and the third class consisting of two (2)
members. In accordance with the Corporation's Certificate of Incorporation and
By-laws, and in order to maintain each class of directors as nearly equal in
number as possible, Paul A. Gliebe, Jr. a member of the second class of
directors, whose term of office would have continued until the 1998 Annual
Meeting of Stockholders and the election and qualification of his successor,
agreed to become a member of the first class of directors and to stand for
re-election at the 1996 Annual Meeting of Stockholders. If elected, his term of
office would expire at the 1997 Annual Meeting of Stockholders.
At the forthcoming Annual Meeting of Stockholders, to be held on November
4, 1996, two directors of the third class will be elected for a term expiring at
the 1999 Annual Meeting of Stockholders and one director of the first class will
be elected for a term expiring at the 1997 Annual Meeting of Stockholders. The
Board of Directors has recommended Andrew J. Cavanaugh and S. Lee Kling as the
nominees for election as directors of the third class and Paul A. Gliebe, Jr. as
the nominee for election as a director of the first class. The continuing
director of the first class, Mark Goldman, is serving a term that expires on the
date of the 1997 Annual Meeting of Stockholders. The continuing directors of the
second class, Paul A. Gliebe, Jr., Scott R. Heldfond and Roger Kowalsky, are
serving terms that expire on the date of the 1998 Annual Meeting of
Stockholders. In connection with his agreement to stand for re-election at the
1996 Annual Meeting of Stockholders, Mr. Gliebe has tendered a resignation from
the second class of directors that will automatically become effective
concurrently ipso facto upon his election and qualification as a director of the
first class.
Unless otherwise specified on the accompanying proxy, the shares of Common
Stock voted pursuant thereto will be cast (i) for Andrew J. Cavanaugh and S. Lee
Kling as directors of the third class, to hold office until the 1999 Annual
Meeting of Stockholders and until their respective successors shall be duly
elected and shall have qualified and (ii) Paul A. Gliebe, Jr. as a director of
the first class to hold office until the 1997 Annual Meeting of Stockholders and
until his successor has been duly elected and shall have qualified. If, for any
reason, at the time of election, Mr. Cavanaugh, Mr. Gliebe or Mr. Kling should
be unable or unwilling to accept nomination or election, it is intended that
such proxy will be voted for the election, in his place, of a substitute nominee
recommended by the Board of Directors. However, the Board of Directors has no
reason to believe that Mr. Cavanaugh, Mr. Gliebe, or Mr. Kling will be unable or
unwilling to serve as a director.
2
<PAGE>
Information with respect to the Corporation's directors is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HAS BEEN A
NAME OF AGE AT PRESENTLY YEAR TERM DIRECTOR
DIRECTOR JULY 31, 1996 HELD WITH THE CORPORATION WILL EXPIRE SINCE
- ------------------------------- ------------- ---------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Nominees for the Third Class:
S. Lee Kling................. 67 Director 1999 1991
Andrew J. Cavanaugh.......... 49 Director 1999 1993
Nominee for the First Class:
Paul A. Gliebe, Jr........... 62 Director 1997 1986
Directors Continuing in Office:
Director of the First Class:
Mark Goldman................. 45 President, Chief Executive 1997 1987
Officer and Director
Directors of the Second Class:
Scott R. Heldfond............ 50 Director 1998 1986
Paul A. Gliebe, Jr........... 62 Director 1998 1986
Roger Kowalsky............... 62 Executive Vice President, 1998 1994
Chief Financial Officer
and Director
</TABLE>
Andrew J. Cavanaugh, a director of the Corporation since 1993, serves as a
Senior Vice President--Corporate Human Resources of The Estee Lauder Companies
Inc. He has been affiliated with Estee Lauder in an executive capacity since
1988. Prior to undertaking his current position, Mr. Cavanaugh served as a
Senior Consultant with Coopers & Lybrand, New York City, from 1986 through 1988,
and Senior Vice President Administration of Paramount Pictures Corporation from
1984 through 1986.
Paul A. Gliebe, Jr., a director of the Corporation since 1986, has served
as a Vice President of Smith Barney Inc. since 1974. Smith Barney Inc. has
provided investment-related services to the Corporation in the past and during
the current fiscal year.
Mark Goldman, a director of the Corporation since 1987, has served as
President and Chief Executive Officer of the Corporation since June 1991. From
1987 to June 1991, Mr. Goldman served as Executive Vice President and Chief
Operating Officer of the Corporation. Prior to 1987, Mr. Goldman served in
various executive capacities at Ages Entertainment Software, Inc. (formerly Sega
Enterprises, Inc.) and Mattel, Inc.
Scott R. Heldfond, a director of the Corporation since 1986, has served as
Managing Director of Hales Capital Advisors, LLC, an insurance industry merchant
bank firm, since January 1995. Mr. Heldfond also serves as a consultant to Aon
Risk Services (successor entity to Rollins Hudig Hall and DSI Insurance
Services), an insurance broker. From 1992 to 1994 he was president and CEO of
Rollins Real Estate/Investment and prior thereto was president and CEO of DSI
Insurance Services. The Corporation has retained Aon in the past and during the
current fiscal year.
S. Lee Kling, a director of the Corporation since 1991, has served since
1991 as Chairman of the Board of Kling Rechter & Company, a merchant banking
company which operates in partnership with Barclays Bank PLC. Mr. Kling served
as Chairman of the Board of Landmark Bancshares Corporation, a bank holding
company in St. Louis, Missouri ('Landmark'), until December 1991 when Landmark
merged with Magna Group, Inc.
3
<PAGE>
Mr. Kling had served in such capacity with Landmark since 1974 and had also
served as Chief Executive Officer of Landmark from 1974 through October 1990,
except for the period from May 1978 to January 1979 when he served as Assistant
Special Counselor on Inflation for the White House and Deputy for Ambassador
Robert S. Strauss. Mr. Kling serves on the Boards of Directors of Magna Group,
Inc., Falcon Products, Co., Bernard Chaus Inc., E-Systems, Inc., Top Air
Manufacturing, Inc., National Beverage Corp. and Hanover Direct, Inc.
Roger Kowalsky, a director of the Corporation since April 1994, has served
as Executive Vice President and Chief Financial Officer of the Corporation since
June 1996. From 1989 to 1996, Mr. Kowalsky served as Director of the Vermont
Studio Center, an organization dedicated to visual artists and writers. From
1983 to 1986, Mr. Kowalsky served as Senior Vice President, Finance &
Administration for Yale Materials Handling Corporation. Prior to such time, from
1969 to 1982, Mr. Kowalsky worked at Pullman Inc., rising to Executive Vice
President, Finance & Administration and President of Pullman Trailmobile, a
subsidiary of Pullman Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1995, the Board of Directors held
four (4) meetings. During such period, each of the then-current directors of the
Corporation attended 75% or more of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all committees of the Board of Directors on which such director served.
The Board of Directors has standing executive, audit and compensation
committees.
On July 29, 1996, the Board of Directors of the Corporation unanimously
adopted a resolution that eliminated the finance, the nominating and the public
responsibility committees. The Board of Directors assigned all of the
responsibilities of these committees to the executive committee.
The members of the executive committee are Mark Goldman, who serves as
Chairman, Andrew J. Cavanaugh and S. Lee Kling. The executive committee has the
authority to act in place of the Board of Directors on all matters which would
otherwise come before the Board of Directors except for such matters which are
required by law or by the Corporation's Certificate of Incorporation or By-Laws
to be acted upon exclusively by the Board of Directors. In addition, the
executive committee has the responsibility to nominate persons for election as
directors of the Corporation and to monitor the Corporation's financial
condition and review its credit and other financing arrangements. The executive
committee held one meeting during the fiscal year ended December 31, 1995.
The members of the audit committee are S. Lee Kling, who serves as
Chairman, Scott R. Heldfond and Paul A. Gliebe, Jr. The audit committee's
primary responsibilities are to review the Corporation's financial statements,
to recommend the appointment of the Corporation's independent auditors and to
review the overall scope of the audit. The audit committee held two meetings
during the fiscal year ended December 31, 1995.
The members of the compensation committee are Andrew J. Cavanaugh, who
serves as Chairman, Scott R. Heldfond and S. Lee Kling. The compensation
committee's primary responsibilities are to review the compensation arrangements
relating to senior officers of the Corporation and to administer and make
recommendations to the Board of Directors regarding the bonus plans for the
senior officers of the Corporation. The compensation committee also administers
the Corporation's Amended and Restated 1984 Employee Stock Option Plan (the
'1984 Plan'), 1994 Senior Management Stock Option Plan (the '1994 Plan'), the
1995 Non-Employee Directors' Stock Option Plan and, if approved by stockholders,
the 1996 Share Incentive Plan and the 1996 Long Term Compensation Plan. The
compensation committee held five meetings during the fiscal year ended December
31, 1995.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 30, 1996
with respect to the Common Stock of the Corporation beneficially owned by (a)
all persons known to the Corporation to own beneficially more than 5% of the
Common Stock of the Corporation, (b) all directors and nominees, (c) the Named
Executives (as defined under the caption 'Executive Compensation') and (d) all
executive officers and directors of the Corporation as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2) OWNERSHIP(2)
- --------------------------------------------- ------------ ------------
<S> <C> <C>
American Express Financial Corporation(3).... 1,235,100 8.2%
William G. Catron(4)......................... 127,017 *
Andrew J. Cavanaugh(5)....................... 5,700 *
Paul A. Gliebe, Jr.(5)....................... 6,350 *
Mark D. Goldman(6)........................... 609,041 3.9%
Scott R. Heldfond(5)......................... 7,450 *
Loren H. Hildebrand(7)....................... 110,080 *
Ronald D. Hirschfeld(8)...................... 99,044 *
S. Lee Kling(5).............................. 9,000 *
Roger Kowalsky(5)............................ 6,550 *
Gary J. Niles(9)............................. 193,311 1.3%
Louis R. Novak(9)............................ 178,410 1.2%
All executive officers and directors as a
group (consisting of 16 persons)(10)....... 1,413,604 8.7%
</TABLE>
- ------------------
* Less than 1%.
(1) Unless otherwise indicated, beneficial owner's address is Corporation's
address at 500 Forbes Boulevard, South San Francisco, California 94080.
(2) This table identifies persons having sole voting and/or investment power
with respect to the shares of Common Stock set forth opposite their names
as of August 30, 1996, according to the information furnished to the
Corporation by each of them. A person is deemed to be the beneficial owner
of shares of Common Stock that can be acquired by such person within 60
days from August 30, 1996 upon the exercise of options. Percentage of
Common Stock ownership is based on a total of 15,147,151 shares of Common
Stock outstanding and assumes in each case that the person only, or group
only, exercised his or its rights to purchase all shares of Common Stock
underlying the options.
(3) Address is IDS Tower 10, Minneapolis, MN 55440.
(4) Includes options to purchase 96,191 shares of Common Stock.
(5) Includes options to purchase 4,000 shares of Common Stock.
(6) Includes options to purchase 454,630 shares of Common Stock.
(7) Includes options to purchase 110,080 shares of Common Stock.
(8) Includes options to purchase 66,191 shares of Common Stock.
(9) Includes options to purchase 167,950 shares of Common Stock.
(10) Includes an aggregate of options to purchase 1,105,000 shares of Common
Stock.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table summarizes the compensation paid by the Corporation and
its subsidiaries, as well as certain other compensation paid or accrued, to the
Chief Executive Officer of the Corporation and the other five most highly
compensated executive officers of the Corporation who earned in excess of
$100,000 for the Corporation's fiscal years ended December 31, 1993, 1994 and
1995 (each person appearing in the table is referred to as a 'Named Executive'):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------- LONG TERM
OTHER COMPEN-
ANNUAL SATION ALL OTHER
SALARY BONUS COMPEN- ---------- COMPEN-
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION($) OPTIONS(#) SATION($)
- ------------------------------- ---- ------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goldman ............... 1995 400,000 750,000 0 200,000 3,980(3)
President and Chief 1994 400,000 600,000 0 229,630(2) 3,760(3)
Executive Officer 1993 319,500 0 0 29,630 3,540(3)
Gary J. Niles ................. 1995 300,000 360,000 0 0 1,440(5)
Executive Vice President, 1994 261,055 316,800 0 157,870(4) 1,440(5)
Marketing and Product 1993 212,623 0 0 20,370 1,440(5)
Acquisition
Louis R. Novak ................ 1995 272,803 334,567 0 0 870(7)
Executive Vice President 1994 261,055 316,800 0 157,870(6) 870(7)
and Chief Operating 1993 256,797 0 0 20,370 510(7)
Officer
Loren H. Hildebrand ........... 1995 230,063 282,150 0 0 2,250(9)
Executive Vice President, 1994 159,375 275,000(8) 0 100,000 840(9)
Sales
William G. Catron ............. 1995 236,729 217,745 0 0 870(13)
Executive Vice President, 1994 226,535 206,640 0 86,111(12) 870(13)
General Counsel, Chief 1993 214,813 25,000(10) 27,429(11) 11,111 870(13)
Administrative Officer
and Secretary
Ronald D. Hirschfeld .......... 1995 235,073 216,222 0 0 1,440(14)
Executive Vice President, 1994 223,634 203,425 0 86,111(12) 510(14)
International Sales and 1993 198,021 0 0 11,111 510(14)
Marketing
</TABLE>
- ------------------
(1) Other than as provided in this table, there were no other transactions
among the Named Executives and the Corporation which are required to be
reported in this table.
(2) Represents 229,630 options granted pursuant to the 1994 Plan. Does not
include 129,311 shares of Common Stock granted in connection with the
termination of the 1992 Senior Management Stock Option Plan (the '1992
Plan').
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
(3) This amount represents $3,980 in premiums paid by the Corporation with
respect to term life insurance in 1995, $3,760 in premiums paid by the
Corporation with respect to term life insurance in 1994 and $3,540 in
premiums paid by the Corporation with respect to term life insurance in
1993.
(4) Represents 157,870 options granted pursuant to the 1994 Plan. Does not
include 88,900 shares of Common Stock granted in connection with the
termination of the 1992 Plan.
(5) This amount represents $1,440 in premiums paid by the Corporation with
respect to term life insurance in each of 1993, 1994 and 1995.
(6) Represents 157,870 options granted pursuant to the 1994 Plan. Does not
include 88,900 shares of Common Stock granted in connection with the
termination of the 1992 Plan.
(7) This amount represents $870 in premiums paid by the Corporation with
respect to term life insurance in each of 1994 and 1995, and $510 in
premiums paid by the Corporation with respect to term life insurance in
1993.
(8) This amount includes a $50,000 bonus paid to the Named Executive in
connection with the Named Executive's hiring.
(9) This amount represents $2,250 in premiums paid by the Corporation with
respect to term life insurance in 1995 and $840 in premiums paid by the
Corporation with respect to term life insurance in 1994.
(10) This amount represents a bonus paid to the Named Executive in connection
with the Named Executive's hiring.
(11) This amount includes an automobile allowance (which is provided to all
senior officers of the Corporation) paid by the Corporation in 1993 in the
amount of $14,400 and fees paid by the Corporation to the Corporation's
accountants in the amount of $7,700 in 1993 in connection with the Named
Executive's hiring.
(12) Represents 86,111 options granted pursuant to the 1994 Plan. Does not
include 48,491 shares of Common Stock granted in connection with the
termination of the 1992 Plan.
(13) This amount represents $870 in premiums paid by the Corporation with
respect to term life insurance in each of 1993, 1994 and 1995.
(14) This amount represents $1,440 in premiums paid by the Corporation with
respect to term life insurance in 1995 and $510 paid by the Corporation
with respect to term life insurance premiums paid in 1994 and 1993.
7
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to the Named Executives during the Corporation's last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
---------------------------------------------------- VALUE
SHARES OF % OF TOTAL AT ASSUMED ANNUAL
COMMON OPTIONS RATES OF STOCK
STOCK GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(1)
OPTIONS FISCAL YEAR PRICE EXPIRATION ----------------------
NAME GRANTED(#) (OF 320,000) ($/SH) DATE 5%($)(3) 10%($)(4)
- ------------------------ ---------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goldman......... 200,000(2) 62.5% 6.125 4/18/05 770,396 1,952,335
Gary J. Niles........... 0 N/A N/A N/A N/A N/A
Louis R. Novak.......... 0 N/A N/A N/A N/A N/A
Loren H. Hildebrand..... 0 N/A N/A N/A N/A N/A
William G. Catron....... 0 N/A N/A N/A N/A N/A
Ronald D. Hirschfeld.... 0 N/A N/A N/A N/A N/A
</TABLE>
- ------------------
(1) Potential realizable value is based on the assumed annual growth rates for
each of the grants shown over their option term. The dollar amounts in these
columns are for illustrative purposes only as required by the rules of the
Securities and Exchange Commission and, therefore, are not intended to
forecast future financial performance or possible future appreciation, if
any, in the price of the shares of Common Stock. Prospective investors are
cautioned against drawing any conclusions from the appreciation data shown,
aside from the fact that optionees will realize value from their option
grants only if the price of the shares of Common Stock appreciates, which
would benefit all stockholders commensurately.
(2) Options granted under the 1984 Plan.
(3) The projected stock price would be $9.98 per share.
(4) The projected stock price would be $15.89 per share.
The Corporation does not currently grant stock appreciation rights.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the options
exercised by the Named Executives during the 1995 fiscal year and the
unexercised options held by the Named Executives as of the end of the 1995
fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goldman......... 0 0 244,754 209,876 823,074 1,152,159
Gary J. Niles........... 2,500 7,500 156,080 6,790 442,320 18,673
Louis R. Novak.......... 0 0 151,080 6,790 415,470 18,673
Loren H. Hildebrand..... 0 0 50,000 50,000 300,000 300,000
William G. Catron....... 0 0 82,408 3,703 226,622 10,183
Ronald D. Hirschfeld.... 13,125 44,844 82,408 3,703 226,622 10,183
</TABLE>
- ------------------
(1) The closing sales price of the Common Stock on the New York Stock Exchange
on December 31, 1995 was $11.75 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
On October 27, 1994, the Corporation entered into a severance agreement
(the 'Severance Agreement') with Mark Goldman, effective as of July 13, 1994.
The Severance Agreement sets forth severance benefits which are payable if Mr.
Goldman's employment is terminated for various reasons, including termination by
him of his employment following a change in control of the Corporation, as
follows (the 'Severance Payment'):
(i) If Mr. Goldman is terminated without cause (as defined in the
Severance Agreement) prior to a Change in Control (as defined in the
Severance Agreement), or if Mr. Goldman terminates his employment for good
reason (as defined in the Severance Agreement) prior to a Change in
Control, the Severance Agreement provides that the Corporation shall pay to
Mr. Goldman a lump sum payment equal to (a) two times Mr. Goldman's
annualized current base compensation and (b) the greater of (1) two times
the greater of (x) the incentive compensation bonus (excluding stock
options or shares issued pursuant to a stock option, restricted stock or
similar plan or long-term incentive bonuses) paid to Mr. Goldman for the
previous year's performance or (y) the incentive compensation bonus
(excluding stock options or shares issued pursuant to a stock option,
restricted stock or similar plan or long-term incentive bonuses) that would
be payable to Mr. Goldman if performance relative to plan for the current
year was the same as performance relative to plan year-to-date (such
performance is to be measured by the ratio of year-to-date actual
performance divided by year-to-date plan performance; the index(es) of
performance shall be the same as the most recent annual cash incentive
compensation plan approved by the Board of Directors) (the amount equal to
the greater of the amounts described in clauses (x) and (y) shall be
hereinafter referred to as the 'Annual Bonus'); or (2) five hundred
thousand dollars ($500,000).
(ii) If Mr. Goldman is terminated by the Corporation within
twenty-four (24) months following a Change in Control (as defined in the
Severance Agreement), or if Mr. Goldman terminates his employment for good
reason (as defined in the Severance Agreement) within twenty-four (24)
months following a Change in Control, the Severance Agreement provides that
the Corporation shall pay to Mr. Goldman a lump sum payment equal to (a)
three times Mr. Goldman's annualized current base compensation, (b) the
greater of (1) three times the Annual Bonus or (2) five hundred thousand
dollars ($500,000) and (c) three
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times the car allowance in effect for Mr. Goldman at the time of
termination and a lump sum amount equal to three times the insurance and
maintenance cost incurred for said vehicle during Mr. Goldman's last full
year of employment with the Corporation. Furthermore, the Severance
Agreement provides that the Corporation shall continue to provide Mr.
Goldman with certain fringe benefits for a period of three years following
the date of Mr. Goldman's termination, subject to mitigation by Mr.
Goldman.
(iii) If Mr. Goldman is terminated for cause, or if Mr. Goldman
terminates his employment other than for good reason (as defined in the
Severance Agreement), the Severance Agreement provides that the Corporation
must pay to Mr. Goldman his unpaid compensation for services prior to
termination and the value of any accrued unused vacation pay to the date of
termination.
The maximum Severance Payment that the Corporation would have been required to
make under the Severance Agreement if such amount became payable in the fiscal
year 1995 was approximately $3,515,824. In addition, the Severance Agreement
contains a 'gross-up' provision which provides that, to the extent that any
Severance Payment is subject to certain excise taxes occuring as a result of a
Change in Control, the Corporation would make an additional gross-up payment so
that Mr. Goldman would retain an amount of the Severance Payment equal to the
amount he would have retained had there been no such excise taxes.
Mr. Goldman is employed by the Corporation as its President and Chief
Executive Officer without an employment agreement. The Corporation has purchased
a life insurance policy in a $2,000,000 face amount for Mr. Goldman, who
designated the beneficiary of such insurance policy.
It is currently anticipated that each of the Executive Vice Presidents of
the Corporation will enter into a Severance and Change in Control Agreement (the
'Severance and Change in Control Agreement') with the Corporation, which will
provide, among other things, that if the executive is terminated other than for
Cause (as such term will be defined in the Severance and Change in Control
Agreement) the executive is entitled to continue to receive his salary and
certain benefits (excluding the continuation of any bonus) for a period of up to
twelve (12) months. These severance payments may be reduced in the event that
the executive commences regular full-time employment during such period. If
there is a Change in Control (as such term will be defined in the Severance and
Change in Control Agreement) and the executive's employment is terminated
voluntarily or involuntarily (other than for Cause) prior to the first
anniversary of a Change in Control, the above-described severance package is
replaced with a lump sum payment equal to three (3) times such executive's
annual salary and bonus, plus the continuation of certain benefits for a
thirty-six (36) month period of time. If the executive's employment is
terminated involuntarily (other than for Cause) during the next twelve (12)
months following the first anniversary of the Change in Control, the executive
is entitled to continue to receive his salary and certain benefits (excluding
the continuation of any bonus) for a period of up to twenty-four (24) months.
Any payment or benefit received pursuant to the Severance and Change in Control
Agreement will be reduced to the extent that such payment or benefit would be
subject to certain excise taxes occuring as a result of a Change in Control.
DIRECTOR COMPENSATION
Directors, who are not full-time employees of the Corporation, each
received in fiscal year 1995 an annual director's fee of $15,000 plus $500 for
each meeting of the Board of Directors or any committee thereof attended by such
director. Furthermore, directors who were not full-time employees of the
Corporation received an option immediately exercisable into 2,000 shares of
Common Stock on July 1, 1995 and have received and will receive an option
immediately exercisable into 2,000 shares of Common Stock on January 1 of each
year thereafter until they no longer serve as directors of the Corporation. The
exercise price of such options shall be at the market price on the date such
options are received. All directors are reimbursed by the Corporation for
out-of-pocket expenses incurred by them as directors of the Corporation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 29, 1996, Mark D. Goldman, President, Chief Executive Officer and
Director of the Corporation, borrowed $950,000 from the Corporation in
connection with the purchase of a personal residence and executed a note payable
to the Corporation, which is secured by a second mortgage on such residence. The
note bears no interest unless Mr. Goldman's employment with the Corporation is
terminated, and, at such time, the note will bear interest at one percent per
annum in excess of the Prime Rate charged by Citibank F.S.B. During the term of
Mr. Goldman's employment with the Corporation, in accordance with the Internal
Revenue Code of 1986, as amended (the 'Code'), interest will be imputed at the
applicable federal rate, as determined under the Code. Commencing on September
1, 1996, principal in the amount of $100 shall be paid on the first of each
month by Mr. Goldman to the Corporation. The balance of the principal shall be
paid on the earlier to occur of (i) August 29, 2006 or (ii) one year from the
date Mr. Goldman's employment with the Corporation is terminated.
Louis R. Novak, Executive Vice President and Chief Operating Officer of the
Corporation, borrowed money from the Corporation on July 31, 1995 and April 15,
1996 and on each occasion executed a note payable to the Corporation. The first
note, dated July 31, 1995, is in the principal amount of $57,042 and bears
interest at the rate of 8.75%. The second note, dated April 15, 1996, is in the
principal amount of $60,647 and bears interest at the rate of 8.5%. Mr. Novak
repaid this indebtedness on September 4, 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires the Corporation's officers and directors, and any
persons who own more than ten percent of the Corporation's Common Shares to file
reports of initial ownership of the Corporation's Common Stock and subsequent
changes in that ownership with the Securities and Exchange Commission and the
New York Stock Exchange. Officers, directors and greater than ten-percent
beneficial owners are also required to furnish the Corporation with copies of
all Section 16(a) forms they file. Based solely upon a review of the copies of
the forms furnished to the Corporation, or written representations from certain
reporting persons that no Forms 5 were required, the Corporation believes that
it complied with all Section 16(a) filing requirements during the 1995 fiscal
year.
COMPENSATION COMMITTEE REPORT*
The compensation committee of the Board of Directors (the 'Committee'),
subject to the ratification by the entire Board of Directors, establishes and
reviews the compensation arrangements for the executive officers of the
Corporation, including the Named Executives. The Committee is composed entirely
of directors who are neither officers nor employees of the Corporation.
BACKGROUND, OBJECTIVES AND PHILOSOPHY
The Committee recognizes that the Corporation, under the leadership of its
executive management, has successfully achieved a return to profitability, and
has established a meaningful platform for ongoing business planning. In setting
compensation arrangements for fiscal 1996 and thereafter, the objective of the
Committee has
- ------------------
* The disclosure contained in this section of the Proxy Statement is not
incorporated by reference into any filings by the Corporation under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that
incorporated filings or portions thereof (including this Proxy Statement or
the 'Executive Compensation' section of this Proxy Statement) without specific
reference to the incorporation of this section of the Proxy Statement.
11
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been to focus on compensatory elements which incent year to year profitability
and encourage effective addressment of strategic growth opportunities.
The Committee believes that executive compensation arrangements have three
appropriate focuses:
1) Base salary, set with due regard to competitive practice;
2) An annual incentive plan, to reward successful performance against
year to year profitability goals, and
3) Long term incentives, tied to indicators of strategic success, and
closely allied with stockholder interests.
The Committee believes that year to year results and strategic business
growth are the most important performance measures, and has accordingly assigned
a substantial percentage of total compensation opportunity to the annual and
long term incentive elements.
The annual incentive arrangement is principally based on performance by the
Corporation against year to year targets for earnings available to common
stockholders. The Committee believes that sustained growth in earnings available
to common stockholders is the best intermediate term index of the effectiveness
of the executive group in directing the manifold tasks inherent in managing a
company in a highly competitive and innovation-based business environment. The
Committee has established year to year objectives for earnings available to
stockholders, against which annual incentive awards will be calculated. Bonus
opportunities for individual executive officers are computed as a percentage of
the individual's base salary. A portion of each annual incentive award is
dependent on the achievement of numerate and non-numerate performance goals
established in advance by each such executive and the Chief Executive Officer,
and reviewed by the Committee.
The Committee believes that the attainment of planned for, strategic
business growth is an essential goal of the Corporation, and it views this
aspect of management responsibility as intrinsically allied to an increase in
stockholder value. In prior years, the Committee adopted and the Board of
Directors ratified a program of stock option grants as the principal
compensatory element by which strategic growth and increased stockholder value
were recognized. The Committee continues to view the program of stock option
grants as appropriate, and the Corporation has submitted for stockholder
approval the 1996 Share Incentive Plan, to provide additional option grants for
executive officers and other key Corporation personnel. All grants under this
plan to executive management will contain provisions for the exercisability of
such options upon the later to occur of (a) the achievement of specified
increases in the price of the Common Stock or (b) specified dates. Additionally,
the Committee has approved, subject to stockholder approval, the 1996 Long Term
Compensation Plan for executive management, which is focused on measurable
achievement of strategic growth plans. The Committee has established compound
annual growth in earnings per share over a multi-year period as the performance
measure for this arrangement, since it views sustained increases in earnings per
share as a viable index of sustained business growth and a close surrogate of
increased stockholder value. The Committee has adopted and the Board of
Directors has ratified the proposed 1996 Share Incentive Plan and the 1996 Long
Term Compensation Plan, subject to stockholder approval.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee and Mr. Goldman have agreed that Mr. Goldman's compensation
arrangements shall be determined by the Committee and that Mr. Goldman's annual
incentive will be determined on the basis of the same profit plan used in
determining the annual bonuses for other executive management. However, the
amount of Mr. Goldman's annual bonus will be based solely on the achievement of
corporate objectives. Similarly,
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options under the 1996 Share Incentive Plan will be awarded to Mr. Goldman on
the same basis as the Corporation's other executive management, recognizing his
senior position grade level. In light of the particular corporate-wide
responsibilities of the Chief Executive Officer, the Committee believes that,
more than other executive management, the most substantial portion of Mr.
Goldman's potential compensation should be tied to the appreciation of the share
price of the Corporation's Common Stock.
In setting Mr. Goldman's incentives, the Committee considered his
leadership and responsibility for planning and completing the turnaround program
which culminated in 1994, positioning the Corporation for continued high growth
in 1995 as well as his development and implementation of the Corporation's
current growth strategy. Consistent with the Committee's philosophy, the
potential economic rewards to Mr. Goldman will be realized by him to the extent
that stockholder value is enhanced.
COMPENSATION COMMITTEE
Andrew J. Cavanaugh (Chairman)
Scott R. Heldfond
S. Lee Kling
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Committee are set forth under 'Meetings and Committees
of the Board of Directors,' and their relationship to the Corporation is set
forth under 'Election of Directors.' None of the members of the Committee has
served as a member of the compensation committee of another entity so as to
create any compensation committee interlock. No members of the Committee are
employed by the Corporation.
PERFORMANCE GRAPH**
The graph below tracks an assumed investment of $100 on the last trading
day of the calendar year indicated below in the Corporation's Common Stock, the
S&P 500 Index and the Russell 1000 Consumer Discretionary Economic Sector,
assuming full reinvestment of dividends and no payment of brokerage or other
commissions or fees. Past performance is not necessarily indicative of future
performance.
[PERFORMANCE GRAPH OMITTED PURSUANT TO RULE 304(a) OF REGULATION
S-T. GRAPH IS DESCRIBED IN TABULAR DATA FORM BELOW]
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Lewis Galoob Toys, Inc. .. $100 $160 $125 $375 $230 $470
S&P 500................... 100 126 132 141 139 187
Russell 1000.............. 100 129 136 146 143 192
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** The disclosure contained in this section of the Proxy Statment is not
incorporated by reference into any filings by the Corporation under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that
incorporated filings or portions thereof (including this Proxy Statement or
the 'Executive Compensation' section of this Proxy Statement) without
specific reference to the incorporation of this section of the Proxy
Statement.
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APPROVAL OF THE AMENDMENT TO THE
CORPORATION'S CERTIFICATE OF INCORPORATION
(Proposal No. 2)
On July 29, 1996, the Board of Directors of the Corporation unanimously
adopted a resolution that would amend the Corporation's Certificate of
Incorporation to change the Corporation's name to Galoob Toys, Inc. (the
'Amendment'), subject to the approval of stockholders of the Corporation.
The Board of Directors believes that the name change is consistent with the
manner in which the Corporation is commonly referred to in the toy industry, and
better aligns the corporate name with the Corporation's recognized trademark and
logo, thus enabling the Corporation to better capitalize on the goodwill and
strong presence which has been established in the toy industry for the
Corporation's trademark and logo in recent years.
If approved by stockholders at the 1996 Annual Meeting of Stockholders, the
new name will become effective upon the filing of an amendment to the
Corporation's Certificate of Incorporation with the Secretary of State of the
State of Delaware. The change of corporate name will be accomplished by amending
Article First of the Corporation's Certificate of Incorporation to read as
follows:
'First: The name of the Corporation is Galoob Toys, Inc. (the
'Corporation').'
The change in corporate name will not affect the validity or
transferability of stock certificates presently outstanding and the
Corporation's stockholders will not be required to exchange stock certificates
to reflect the new name. Stockholders should keep the certificates they now
hold, which will continue to be valid, and should not send them to the
Corporation or its transfer agent.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENT IS IN THE BEST INTEREST
OF THE CORPORATION AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE AMENDMENT TO CHANGE THE CORPORATION'S NAME TO GALOOB
TOYS, INC.
APPROVAL OF THE 1996 LONG TERM COMPENSATION PLAN
(Proposal No. 3)
BACKGROUND
The Board of Directors is proposing for stockholder approval the 1996 Long
Term Compensation Plan. In the opinion of the Board of Directors, the future
success of the Corporation depends, in large part, on its ability to attract,
retain and motivate executive management with experience and ability. In that
respect, after a thorough process involving competitive analysis, review of
proprietary and proxy information, and deliberations by the Committee, the
Committee adopted, and the Board of Directors ratified, subject to stockholder
approval, the 1996 Long Term Compensation Plan.
The following description of the 1996 Long Term Compensation Plan is not
intended to be complete and is qualified in its entirety by reference to the
1996 Long Term Compensation Plan, a copy of which is attached as Exhibit A to
this Proxy Statement.
DESCRIPTION
The 1996 Long Term Compensation Plan is intended to enhance stockholder
value over the longer term by providing executive management with meaningful
financial rewards for exceptional corporate performance that results in long
term increases in the Corporation's earnings. The payment of compensation
pursuant to the 1996 Long Term Compensation Plan is dependent on the Corporation
achieving certain cumulative earnings per share goals (as set forth in the 1996
Long Term Compensation Plan) for the period of July 1, 1996 through December 31,
1998 (the 'Performance Period'). In 1995, the Committee began considering the
implementation
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of a long term compensation plan such as the 1996 Long Term Compensation Plan
and considered an earnings per share goal that reflected a compounded 30% annual
growth rate from the Corporation's then forecasted 1995 earnings of $0.60 per
share of Common Stock. However, when the Committee adopted the 1996 Long Term
Compensation Plan in July of 1996, in view of the Corporation's significantly
improved results for the first six months of 1996 and improved future prospects,
the Committee established an earnings per share goal reflecting a compounded 50%
annual growth rate from the Corporation's 1995 actual earnings of $0.60 per
share of Common Stock. Achieving those specified goals will enable members of
executive management to earn an award of up to three (3) times their annual
salary in effect on July 1, 1996 (the 'Targeted Award'). In addition, exceeding
the maximum goal by at least 50% will enable executive management to earn an
award equal to 125% of their Targeted Award. The maximum amount of compensation
that any member of executive management may receive pursuant to the 1996 Long
Term Compensation Plan with respect to the Performance Period is $1.875 million.
Attainment of 100% of the goal will result in a total payment in 1999 of
approximately $6 million which would have been accrued ratably over the
Performance Period. Payments under the 1996 Long Term Compensation Plan are to
be made following written certification by the Committee that the applicable
earnings per share goal has been achieved. If stockholder approval of the 1996
Long Term Compensation Plan is not obtained, no payments shall be made under the
1996 Long Term Compensation Plan. The employees currently eligible to
participate in the 1996 Long Term Compensation Plan are Mark Goldman and each of
the six Executive Vice Presidents of the Corporation (the 'Executive Group').
Stockholder approval of the 1996 Long Term Compensation Plan is being
sought to comply with the performance-based compensation exception to Section
162(m) of the Code. (See 'Approval of the 1996 Share Incentive Plan--Certain
Federal Income Tax Consequences' for a discussion on Section 162(m) of the
Code). Although it is the Committee's intention that amounts paid under the 1996
Long Term Compensation Plan qualify for the performance-based compensation
exception to Section 162(m) of the Code, there can be no assurance that such
amounts will so qualify.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS BELIEVES THAT THE 1996 LONG TERM COMPENSATION PLAN
IS IN THE BEST INTEREST OF THE CORPORATION AND ITS STOCKHOLDERS AND THEREFORE
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1996 LONG TERM
COMPENSATION PLAN.
APPROVAL OF THE 1996 SHARE INCENTIVE PLAN
(Proposal No. 4)
BACKGROUND
The Board of Directors is proposing for stockholder approval the 1996 Share
Incentive Plan (the 'Incentive Plan'). The Incentive Plan is intended to provide
incentives which will attract and retain highly competent persons as key
employees of the Corporation and its subsidiaries, by providing them
opportunities to acquire shares of stock or to receive monetary payments based
on the value of such shares pursuant to the Benefits described herein.
Furthermore, the Incentive Plan is intended to assist in aligning the interests
of the Corporation's key employees with those of its stockholders by, among
other things, granting options to members of the Executive Group with
exercisability criteria based upon the achievement of specific significant
increases in the price of the Corporation's Common Stock.
The Corporation has employed the 1984 Plan and the 1994 Plan for the
purposes of attracting, retaining and motivating key employees. As of August 31,
1996, there were only 32,029 shares of Common Stock remaining available for the
grant of options under the 1984 Plan, which are expected to be exhausted within
the 1997 calendar year, and there were no shares available for the grant of
options under the 1994 Plan. During 1996, the Corporation retained an outside
corporate compensation consultant to reevaluate the Corporation's executive
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compensation policies. After a thorough process involving competitive analyses,
review of proprietary and proxy information, and deliberations by the Committee,
the Committee adopted and the Board of Directors ratified, subject to
stockholder approval, the Incentive Plan on July 29, 1996.
In structuring the Incentive Plan, the Committee sought to provide for a
variety of awards that could be flexibly administered to carry out the purposes
of the Incentive Plan. This authority will permit the Corporation to keep pace
with changing developments in management compensation and make the Corporation
competitive with those companies that offer creative incentives to attract and
keep key employees. The flexibility of the Incentive Plan will allow the
Corporation to respond to changing circumstances such as changes in tax laws,
accounting rules, securities regulations and other rules regarding benefit
plans. Many other companies have addressed these same issues in recent years and
adopted an 'omnibus' type of plan. The Incentive Plan grants the Committee
discretion in establishing the terms and restrictions deemed appropriate for
particular awards as circumstances warrant.
The following summary of the Incentive Plan is not intended to be complete
and is qualified in its entirety by reference to the Incentive Plan, a copy of
which is attached as Exhibit B to this Proxy Statement.
SHARES AVAILABLE
The Incentive Plan makes available for Benefits (as defined below) an
aggregate amount of 1,850,000 shares of Common Stock, subject to certain
adjustments. On July 29, 1996, the Committee designated an aggregate amount of
(i) 1,000,000 shares of Common Stock for members of the Executive Group, which
shares would vest on a stock performance and time basis and (ii) the remaining
850,000 shares of Common Stock for all key employees. During the term of the
Plan, the maximum number of shares of Common Stock with respect to which
Benefits may be granted (or measured) to any individual participant may not
exceed 500,000. Any shares of Common Stock subject to a stock option or stock
appreciation right which for any reason is cancelled or terminated without
having been exercised, and subject to limited exceptions, any shares subject to
stock awards, performance awards or stock units which are forfeited, any shares
subject to performance awards settled in cash or any shares delivered to the
Corporation as part of full payment for the exercise of a stock option or stock
appreciation right shall again be available for Benefits under the Incentive
Plan.
ADMINISTRATION
The Incentive Plan provides for administration by a committee (the
'Administration Committee') appointed by the Board of Directors from among its
members (which will be the Committee), which shall be comprised solely of not
less than two members who shall be (i) 'Non-Employee Directors' within the
meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Exchange Act and (ii) unless otherwise determined by the Board of Directors,
'outside directors' within the meaning of Section 162(m) of the Code. The
Administration Committee is authorized, subject to the provisions of the
Incentive Plan, to establish such rules and regulations as it deems necessary
for the proper administration of the Incentive Plan and to make such
determinations and interpretations and to take such action in connection with
the Incentive Plan and any Benefits granted as it deems necessary or advisable.
Thus, among the Administration Committee's powers are the authority to select
officers and other key employees of the Corporation and its subsidiaries to
receive Benefits, and determine the form, amount and other terms and conditions
of Benefits. The Administration Committee also has the power to modify or waive
restrictions on Benefits, to amend Benefits and to grant extensions and
accelerations of Benefits.
ELIGIBILITY FOR PARTICIPATION
Executive management and key employees of the Corporation or any of its
subsidiaries are eligible to participate in the Incentive Plan. The selection of
participants from eligible key employees is within the discretion of the
Administration Committee. All employees are currently eligible to participate in
the Incentive Plan.
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TYPES OF BENEFITS
The Incentive Plan provides for the grant of any or all of the following
types of benefits: (1) stock options, including incentive stock options and
non-qualified stock options; (2) stock appreciation rights; (3) stock awards,
including restricted stock; (4) performance awards; and (5) stock units
(collectively, 'Benefits'). Benefits may be granted singly, in combination, or
in tandem as determined by the Administration Committee. Stock awards,
performance awards and stock units may, as determined by the Administration
Committee in its discretion, constitute Performance-Based Awards, as described
below.
STOCK OPTIONS
Under the Incentive Plan, the Administration Committee may grant awards in
the form of options to purchase shares of Common Stock. Options may be either
incentive stock options, qualifying for special tax treatment, or non-qualified
options. The Administration Committee will, with regard to each stock option,
determine the number of shares subject to the option, the manner and time of the
option's exercise and vesting, and the exercise price per share of stock subject
to the option; provided, however, that the exercise price shall not be less than
100% of the fair market value of the Common Stock on the date the stock option
is granted. In the case of incentive stock options granted to any holder of
capital stock of the Corporation (or any subsidiary or parent corporation)
representing 10% or more of the voting power of the Corporation (or any
subsidiary or parent corporation), the exercise price shall not be less than
110% of the fair market value of the Common Stock on the date the stock option
is granted. The exercise price may be paid in cash or, in the discretion of the
Administration Committee, by the delivery of shares of Common Stock of the
Corporation then owned by the participant, by the withholding of shares of
Common Stock for which a stock option is exercisable, or by a combination of
these methods. In the discretion of the Administration Committee, payment may
also be made by delivering a properly executed exercise notice to the
Corporation together with a copy of irrevocable instructions to a broker to
deliver promptly to the Corporation the amount of sale or loan proceeds to pay
the exercise price. The Administration Committee may prescribe any other method
of paying the exercise price that it determines to be consistent with applicable
law and the purpose of the Incentive Plan. In determining which methods a
participant may utilize to pay the exercise price, the Administration Committee
may consider such factors as it determines are appropriate.
No options have been granted under the Incentive Plan, and no options will
be granted unless and until stockholders approve the Incentive Plan. On July 29,
1996, the Administration Committee established criteria for the exercisability
of those options intended to be granted to the members of the Executive Group
based upon the achievement of specified increases in the price of Common Stock.
The Administration Committee chose a range of prices from $40 to $50 per share
representing an increase of 60% to 100% over the closing price of $25 per share
on July 29, 1996. The Administration Committee felt that establishing these
targeted increases would provide members of the Executive Group with a high
level of performance motivation which could result in shareholders realizing
significant appreciation. With regard to those options intended to be granted to
members of the Executive Group upon stockholder approval, such options would be
exercisable in three tranches as follows: (i) one-third would be exercisable on
the later to occur of (a) July 29, 1997 or (b) the date on which the
Corporation's Common Stock is selling at a trading price (as defined below) of
at least $40 per share; (ii) one-third would be exercisable on the later to
occur of (a) July 29, 1998 or (b) the date on which the Corporation's Common
Stock is selling at a trading price of at least $45 per share; and (iii)
one-third would be exercisable on the later to occur of (a) July 29, 1999 or
(b) the date on which the Corporation's Common Stock is selling at a trading
price of at least $50 per share. To the extent any of the foregoing stock
options do not previously become exercisable, such options would be fully
exercisable as of July 29, 2002. The 'trading price' of the Common Stock is the
average of the high and low trading prices per share of the Common Stock for the
twenty (20) consecutive trading days preceding such date.
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STOCK APPRECIATION RIGHTS (SARs)
The Incentive Plan authorizes the Administration Committee to grant an SAR
either in tandem with a stock option or independent of a stock option. An SAR is
a right to receive a payment, in cash or Common Stock, equal to the excess of
(x) the fair market value, or other specified valuation (which shall not be
greater than the fair market value), of a specified number of shares of Common
Stock on the date the right is exercised over (y) the fair market value, or
other specified valuation (which shall not be less than fair market value), of
such shares of Common Stock on the date the right is granted, all as determined
by the Administration Committee. Each SAR shall be subject to such terms and
conditions as the Administration Committee shall impose from time to time.
Consistent with past practice under the 1984 Plan and the 1994 Plan, the
Corporation does not currently anticipate that SARs will be issued under the
Incentive Plan.
STOCK AWARDS
The Incentive Plan authorizes the Administration Committee to grant awards
in the form of restricted or unrestricted shares of Common Stock ('Stock
Awards'), which includes mandatory stock bonus incentive compensation and which
may constitute Performance-Based Awards. Such awards will be subject to such
terms, conditions, restrictions, and/or limitations, if any, as the
Administration Committee deems appropriate including, but not by way of
limitation, restrictions on transferability, continued employment and
performance goals established by the Administration Committee over a designated
period of time.
PERFORMANCE AWARDS
The Incentive Plan allows for the grant of performance awards which may
take the form of shares of Common Stock or stock units, or any combination
thereof and which may constitute Performance-Based Awards. Such awards will be
contingent upon the attainment over a period to be determined by the
Administration Committee of certain performance goals. The length of the
performance period, the performance goals to be achieved and the measure of
whether and to what degree such goals have been achieved will be determined by
the Administration Committee. Payment of earned performance awards will be made
in accordance with terms and conditions prescribed or authorized by the
Administration Committee. The participant may elect to defer, or the
Administration Committee may require the deferral of, the receipt of performance
awards upon such terms as the Administration Committee deems appropriate.
STOCK UNITS
The Administration Committee may, in its discretion, grant Stock Units to
participants, which may constitute Performance-Based Awards. A 'Stock Unit'
means a notational account representing one share of Common Stock. The
Administration Committee determines the criteria for the vesting of Stock Units
and whether a participant granted a Stock Unit shall be entitled to Dividend
Equivalent Rights (as defined in the Incentive Plan). Upon vesting of a Stock
Unit, unless the Administration Committee has determined to defer payment with
respect to such unit or a participant has elected to defer payment, shares of
Common Stock representing the Stock Units will be distributed to the participant
unless the Administration Committee, with the consent of the participant,
provides for the payment of the Stock Units in cash, or partly in cash and
partly in shares of Common Stock, equal to the value of the shares of Common
Stock which would otherwise be distributed to the participant.
PERFORMANCE-BASED AWARDS
Certain Benefits granted under the Incentive Plan may be granted in a
manner such that the Benefit qualifies for the performance-based compensation
exemption to Section 162(m) of the Code ('Performance-Based Awards'). As
determined by the Administration Committee in its sole discretion, either the
granting or vesting
19
<PAGE>
of such Performance-Based Awards will be based upon one of more of the following
factors: net sales, pre-tax income before allocation of corporate overhead and
bonus, budget, earnings per share, net income, division, group or corporate
financial goals, return on stockholders' equity, return on assets, attainment of
strategic and operational initiatives, appreciation in and/or maintenance of the
price of the Common Stock or any other publicly-traded securities of the
Corporation, market share, gross profits, earnings before interest and taxes,
earnings before interest, taxes, dividends and amortization, economic
value-added models and comparisons with various stock market indices, reductions
in costs, or any combination of the foregoing.
With respect to Performance-Based Awards, the Administration Committee
shall establish in writing, (x) the objective performance-based goals applicable
to a given period and (y) the individual employees or class of employees to
which such performance-based goals apply no later than 90 days after the
commencement of such period (but in no event after 25% of such period has
elapsed). No Performance-Based Award shall be payable to, or vest with respect
to, as the case may be, any participant for a given fiscal period until the
Administration Committee certifies in writing that the objective performance
goals (and any other material terms) applicable to such period have been
satisfied.
OTHER TERMS OF BENEFITS
The Incentive Plan provides that Benefits shall not be transferable other
than by will or the laws of descent and distribution. The Administration
Committee shall determine the treatment to be afforded to a participant in the
event of termination of employment for any reason including death, disability or
retirement. Notwithstanding the foregoing, other than with respect to incentive
stock options, the Administration Committee may permit the transferability of an
award by a participant to members of the participant's immediate family or
trusts for the benefit of such person or family partnerships.
Upon the grant of any Benefit under the Incentive Plan, the Administration
Committee may, by way of an agreement with the participant, establish such other
terms, conditions, restrictions and/or limitations covering the grant of the
Benefit as are not inconsistent with the Incentive Plan. No Benefit shall be
granted under the Incentive Plan after July 28, 2006. The Board of Directors
reserves the right to amend, suspend or terminate the Incentive Plan at any
time, subject to the rights of participants with respect to any outstanding
Benefits.
The Incentive Plan contains provisions for equitable adjustment of Benefits
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The statements in the following paragraphs of the principal federal income
tax consequences of Benefits under the Incentive Plan are based on statutory
authority and judicial and administrative interpretations, as of the date of
this Proxy Statement, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex and the discussion below
represents only a general summary.
Incentive Stock Options. Incentive stock options ('ISOs') granted under the
Incentive Plan are intended to meet the definitional requirements of Section
422(b) of the Code for 'incentive stock options.'
An employee who receives an ISO does not recognize any taxable income upon
the grant of such ISO. Similarly, the exercise of an ISO generally does not give
rise to federal income tax to the employee, provided that (i) the federal
'alternative minimum tax,' which depends on the employee's particular tax
situation, does not apply and (ii) the employee is employed by the Corporation
from the date of grant of the option until three months prior to the exercise
thereof, except where such employment terminates by reason of disability (where
the three month period is extended to one year) or death (where this requirement
does not apply). If an
20
<PAGE>
employee exercises an ISO after these requisite periods, the ISO will be treated
as an NSO (as defined below) and will be subject to the rules set forth below
under the caption 'Non-Qualified Stock Options and Stock Appreciation Rights.'
Further, if after exercising an ISO, an employee disposes of the Common
Stock so acquired more than two years from the date of grant and more than one
year from the date of transfer of the Common Stock pursuant to the exercise of
such ISO (the 'applicable holding period'), the employee will normally recognize
a long-term capital gain or loss equal to the difference, if any, between the
amount received for the shares and the exercise price. If, however, an employee
does not hold the shares so acquired for the applicable holding period--thereby
making a 'disqualifying disposition'--the employee would realize ordinary income
on the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price and the balance, if any, income would be
long-term capital gain (provided the holding period for the shares exceeded one
year and the employee held such shares as a capital asset at such time).
An employee who exercises an ISO by delivering Common Stock previously
acquired pursuant to the exercise of another ISO is treated as making a
'disqualifying disposition' of such Common Stock if such shares are delivered
before the expiration of their applicable holding period. Upon the exercise of
an ISO with previously acquired shares as to which no disqualifying disposition
occurs, despite some uncertainty, it appears that the employee would not
recognize gain or loss with respect to such previously acquired shares.
The Corporation will not be allowed a federal income tax deduction upon the
grant or exercise of an ISO or the disposition, after the applicable holding
period, of the Common Stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, the Corporation generally will be entitled to a
deduction in an amount equal to the ordinary income included by the employee,
provided that such amount constitutes an ordinary and necessary business expense
to the Corporation and is reasonable and the limitations of Sections 280G and
162(m) of the Code (discussed below) do not apply.
Non-Qualified Stock Options and Stock Appreciation Rights. Non-qualified
stock options ('NSOs') granted under the Incentive Plan are options that do not
qualify as ISOs. An employee who receives an NSO or an SAR will not recognize
any taxable income upon the grant of such NSO or SAR. However, the employee
generally will recognize ordinary income upon exercise of an NSO in an amount
equal to the excess of (i) the fair market value of the shares of Common Stock
at the time of exercise over (ii) the exercise price. Similarly, upon the
receipt of cash or shares pursuant to the exercise of an SAR, the individual
generally will recognize ordinary income in an amount equal to the sum of the
cash and the fair market value of the shares received.
As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (generally for
up to six months following the exercise of an NSO or SAR (i.e., the 'Deferral
Period')) for any individual who is an officer or director of the Corporation or
a beneficial owner of more than ten percent (10%) of any class of equity
securities of the Corporation. Absent a Section 83(b) election (as described
below under 'Other Awards'), recognition of income by the individual will be
deferred until the expiration of the Deferral Period, if any.
The ordinary income recognized with respect to the receipt of shares or
cash upon exercise of a NSO or an SAR will be subject to both wage withholding
and other employment taxes. In addition to the customary methods of satisfying
the withholding tax liabilities that arise upon the exercise of an SAR for
shares or upon the exercise of a NSO, the Corporation may satisfy the liability
in whole or in part by withholding shares of Common Stock from those that
otherwise would be issuable to the individual or by the employee tendering other
shares owned by him or her, valued at their fair market value as of the date
that the tax withholding obligation arises.
A federal income tax deduction generally will be allowed to the Corporation
in an amount equal to the ordinary income included by the individual with
respect to his or her NSO or SAR, provided that such amount
21
<PAGE>
constitutes an ordinary and necessary business expense to the Corporation and is
reasonable and the limitations of Sections 280G and 162(m) of the Code do not
apply.
If an individual exercises an NSO by delivering shares of Common Stock to
the Corporation, other than shares previously acquired pursuant to the exercise
of an ISO which is treated as a 'disqualifying disposition' as described above,
the individual will not recognize gain or loss with respect to the exchange of
such shares, even if their then fair market value is different from the
individual's tax basis. The individual, however, will be taxed as described
above with respect to the exercise of the NSO as if he or she had paid the
exercise price in cash, and the Corporation likewise generally will be entitled
to an equivalent tax deduction.
Other Awards. With respect to other Benefits under the Incentive Plan that
are settled either in cash or in shares of Common Stock that are either
transferable or not subject to a substantial risk of forfeiture (as defined in
the Code and the regulations thereunder), employees generally will recognize
ordinary income equal to the amount of cash or the fair market value of the
Common Stock received.
With respect to Benefits under the Incentive Plan that are settled in
shares of Common Stock that are restricted to transferability or subject to a
substantial risk of forfeiture--absent a written election pursuant to Section
83(b) of the Code filed with the Internal Revenue Service within 30 days after
the date of transfer of such shares pursuant to the award (a 'Section 83(b)
election')--an individual will recognize ordinary income at the earlier of the
time at which (i) the shares become transferable or (ii) the restrictions that
impose a substantial risk of forfeiture of such shares (the 'Restrictions')
lapse, in an amount equal to the excess of the fair market value (on such date)
of such shares over the price paid for the award, if any. If a Section 83(b)
election is made, the individual will recognize ordinary income, as of the
transfer date, in an amount equal to the excess of the fair market value of the
Common Stock as of that date over the price paid for such award, if any.
The ordinary income recognized with respect to the receipt of cash, shares
of Common Stock or other property under the Incentive Plan will be subject to
both wage withholding and other employment taxes.
The Corporation generally will be allowed a deduction for federal income
tax purposes in an amount equal to the ordinary income recognized by the
employee, provided that such amount constitutes an ordinary and necessary
business expense and is reasonable and the limitations of Sections 280G and
162(m) of the Code do not apply.
Dividends and Dividend Equivalents. To the extent Benefits under the
Incentive Plan earn dividend or dividend equivalents, whether paid currently or
credited to an account established under the Incentive Plan, an individual
generally will recognize ordinary income with respect to such dividend or
dividend equivalents.
Change in Control. In general, if the total amount of payments to an
individual that are contingent upon a 'change of control' of the Corporation (as
defined in Section 280G of the Code), including payments under the Incentive
Plan that vest upon a 'change in control,' equals or exceeds three times the
individual's 'base amount' (generally, such individual's average annual
compensation for the five calendar years preceding the change in control), then,
subject to certain exceptions, the payments may be treated as 'parachute
payments' under the Code, in which case a portion of such payments would be
non-deductible to the Corporation and the individual would be subject to a 20%
excise tax on such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year (including any deduction with
respect to the exercise of an NSO or SAR or the disqualifying disposition of
stock purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation provided that such compensation has been approved
by stockholders in a separate vote and certain other requirements are met. The
Corporation believes that
22
<PAGE>
Stock Options, SARs and Performance-Based Awards granted under the Incentive
Plan should qualify for the performance-based compensation exception to Section
162(m).
OTHER INFORMATION
The closing price of a share of Common Stock as reported on the New York
Stock Exchange for October 2, 1996 was $ 27 1/2 per share.
The Incentive Plan is being submitted for stockholder approval in
accordance with the laws of the State of Delaware and to comply with rules of
the Securities and Exchange Commission and the New York Stock Exchange. The
favorable vote of a majority of the shares of Common Stock represented and
entitled to vote at the Annual Meeting is required for approval of the Incentive
Plan. If the Incentive Plan is not approved by the stockholders, the Corporation
will reconsider the alternatives available with respect to the compensation of
officers and key employees.
THE BOARD OF DIRECTORS BELIEVES THAT THE 1996 SHARE INCENTIVE PLAN IS IN
THE BEST INTEREST OF THE CORPORATION AND ITS STOCKHOLDERS AND THEREFORE
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1996 SHARE
INCENTIVE PLAN.
NEW PLAN BENEFITS UNDER THE 1996 LONG TERM COMPENSATION PLAN AND
THE 1996 SHARE INCENTIVE PLAN
Due to the fact that the 1996 Long Term Incentive Plan is based upon the
future performance of the Corporation over the Performance Period, the amounts
that will be received under such plan are not determinable at the present time.
If the 1996 Long Term Incentive Plan were based on the performance of the
Corporation over the two and one-half year period ending December 31, 1995 (the
'Preceding Performance Period'), the amount that would have been awarded under
such plan would have been zero. Notwithstanding the foregoing, the amount that
would have been awarded over the Preceding Performance Period is provided for
illustrative purposes only as required by the rules of the Securities and
Exchange Commission and, therefore, is not intended to forecast future financial
performance of the Corporation or the awards to executive management under the
1996 Long Term Compensation Plan.
No stock options have been granted under the 1996 Share Incentive Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Proposal No. 5)
Upon recommendation of the audit committee, the Board of Directors has
appointed Price Waterhouse LLP as the Corporation's independent accountants for
the fiscal year ending December 31, 1996.
In the event stockholders do not ratify the appointment of Price Waterhouse
LLP as the Corporation's independent accountants for the forthcoming fiscal
year, such appointment will be reconsidered by the audit committee and the Board
of Directors.
A representative of Price Waterhouse LLP will be present at the Annual
Meeting of Stockholders to respond to appropriate questions and to make such
statements as he or she may desire.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE CORPORATION'S
INDEPENDENT ACCOUNTANTS.
23
<PAGE>
OTHER BUSINESS
The Board of Directors of the Corporation knows of no other matters that
may be presented at the Annual Meeting of Stockholders other than as set forth
in the accompanying Notice of Annual Meeting of Stockholders. However, if any
other matters properly come before the meeting, or any adjournment thereof, it
is intended that proxies in the accompanying form will be voted in accordance
with the judgment of the persons named therein.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Any stockholder who wishes to present a proposal for action at the next
annual meeting, and who wishes to have it set forth in the Corporation's 1997
Proxy Statement and identified in the form of proxy proposed by the Corporation,
must notify the Corporation in such a manner that such notice is received by the
Corporation by a reasonable time before the solicitation is made and in such
form as is required by the rules and regulations promulgated by the Securities
and Exchange Commission.
The Corporation's By-laws provide that any stockholder entitled to vote in
the election of directors generally may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is received by the Secretary of the Corporation not later than 90
days prior to such meeting; provided that if less than 100 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
such notice must be received no later than the close of business on the 10th day
following the date on which such notice of the date of such meeting is first
given to stockholders. A copy of the pertinent By-law provision, which sets
forth additional requirements for the form of such notice, is available on
request from William G. Catron, Secretary, Lewis Galoob Toys, Inc., 500 Forbes
Boulevard, South San Francisco, California 94080.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Annual Report to Stockholders of the Corporation for the year ended
December 31, 1995 is being furnished simultaneously herewith. Such report and
the financial statements included therein are not to be considered a part of
this Proxy Statement.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or will be
borne by the Corporation. The Corporation has retained Mackenzie Partners, Inc.
('Solicitation Agent') to assist in the solicitation of proxies. The Corporation
will pay to Solicitation Agent a fee for proxy solicitation services in the
amount of $6,500, plus reasonable out-of-pocket expenses. In addition to
solicitation by mail, solicitations may be made personally, by telephone, by
telegraph or by mail by officers, directors and employees of the Corporation,
without additional remuneration therefor, and arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxies
and proxy material to their principals, and the Corporation may reimburse them
for their reasonable out-of-pocket expenses.
It is important that your shares be represented at the meeting. If you are
unable to be present in person, you are respectfully requested to sign the
enclosed proxy and return it in the enclosed stamped and addressed envelope as
promptly as possible.
By Order of the Board of Directors,
WILLIAM G. CATRON
Secretary
Dated: October 3, 1996
South San Francisco,
California
24
<PAGE>
EXHIBIT A
LEWIS GALOOB TOYS, INC.
1996 LONG TERM COMPENSATION PLAN
1. Purpose. The Lewis Galoob Toys, Inc. 1996 Long Term Compensation Plan
(the 'Plan') has been adopted for the purposes of enhancing shareholder value
over the long term by providing meaningful financial rewards to executive
management for exceptional performance as measured by the achievement of
rigorous long-term goals.
2. Performances Period and Measurement Standard. The Plan shall cover the
financial performance period of July 1, 1996 through December 31, 1998 (the
'Performance Period'). Performance shall be measured by reported earnings per
share for Lewis Galoob Toys, Inc. (the 'Company') during the Performance Period
('Earnings per Share'). Earnings Per Share for this purpose will be 'fully
diluted' or 'diluted' Earnings Per Share, whichever may be applicable under
generally accepted accounting principles for the particular reporting period.
The reported Earnings Per Share amount used for measuring performance under the
Plan shall reflect adjustments due to:
a) any extraordinary gains or losses, as defined under generally
accepted accounting principles ('GAAP');
b) gains or losses resulting from one-time adjustments due to changes
in tax law or GAAP; and
c) any other extraordinary, unusual, or non-recurring gains or losses
which are quantified and identified separately in footnotes to the annual
financial statements or in 'Management's Discussion and Analysis of
Financial Conditions and Results of Operation' appearing in an applicable
annual report to shareholders of the Company.
3. Participation. The Compensation Committee (the 'Committee') of the
Board of Directors shall select and designate in writing those members of
executive management who shall be eligible to participate in the Plan no later
than September 28, 1996. Each person designated a participant shall be notified
in writing of his or her eligibility to participate in the Plan and of the
dollar amount of his or her Target Award Opportunity (as described below).
4. Target Award Opportunities. Each participant shall have a target award
opportunity equal to 300% of his or her annualized salary as of July 1, 1996 (a
'Target Award Opportunity'); provided, however, no participant shall receive an
award in excess of $1.875 million under the Plan with respect to the Performance
Period. The extent, if any, to which this Target Award Opportunity will result
in a monetary payment will depend on the degree of achievement of certain
Earnings Per Share goals during the Performance Period.
5. Earnings Per Share Goal and Payment Schedule. The Earnings Per Share
performance standard for the Plan shall be cumulative Earnings Per Share, as
reported quarterly during the Performance Period. Upon reaching a 75% threshold
level of % of Plan Achievement (set forth below), the % of Target Award
Opportunity Earned (set forth below) shall begin to increase pro rata up to the
next higher % of Target Award Opportunity Earned.
A-1
<PAGE>
The following schedule sets forth the amounts to be paid to Plan participants
upon the Company's achievement of certain cumulative Earnings Per Share during
the Performance Period:
<TABLE>
<CAPTION>
PLAN ACHIEVEMENT
(CUMULATIVE
EARNINGS
PER SHARE FOR % OF
7/1/96 TARGET AWARD
THROUGH % OF PLAN OPPORTUNITY
12/31/98) ACHIEVEMENT EARNED
---------------- ------------ -------------
<S> <C> <C>
$ 6.98 150% 125%
$ 4.65 100 100
$ 3.49 75 50
------ ------------ ------
$ 3.48 less than 90 0
</TABLE>
6. Payment Terms. Prior to the time any payments to Plan Participants are
made pursuant to the Plan and in all events prior to March 30, 1999, the
Committee shall certify the cumulative Earnings Per Share for the Performance
Period in writing and direct the Company to make the appropriate payment, if
any, to each participant and/or to establish a deferred payment account in the
name of a participant, provided such participant has filed a valid deferral
payment election with the Committee no later than June 30, 1998. Each
participant shall be notified by the Company prior to April 1, 1998 of the
conditions governing any deferral accounts and delayed payments, including the
interest or investment return rates terms which shall be available.
7. Termination of Employment.
(a) Termination of employment with the Company for any reason prior to
January 1, 1999 shall result in full forfeiture of a participant's right to any
payment under the Plan, except in the event of a participant's death or
disability or as otherwise determined by the Committee. In the event of
termination of employment due to death or disability of a participant prior to
January 1, 1999, the participant, or the executor or administrator of the estate
of the deceased participant, or the person or persons to whom the deceased
participant's rights hereunder shall pass by will or the laws of descent or
distribution shall be entitled to a pro rata payment, within 30 days of such
termination of employment, based upon the participant's actual period of service
during the Performance Period.
(b) For purposes of this Section 7, the 'pro rata payment amount' shall be
determined by multiplying (x) the product obtained by multiplying the
participant's Target Award Opportunity by (y) the quotient obtained by dividing
(a) the cumulative Earnings Per Share during the Performance Period through the
date of death or disability, as the case may be, by (b) $4.65.
8. Plan Administration.
a) Authority--The Committee shall be responsible for overseeing the
administration of the Plan and accordingly has full power to interpret the Plan
and to adopt such rules and regulations and guides for carrying out the Plan as
it may deem necessary or proper. All decisions shall be made solely in the best
interests of the Company and in keeping with the purposes of the Plan. The
Committee's powers include, but are not limited to, selecting participants,
establishing such additional terms and conditions governing the Plan as it deems
appropriate, adopting any and all modifications, amendments, procedures and
regulations, and making all other determinations as it deems appropriate for the
administration of this Plan. All decisions made by the Committee shall be final
and binding on all persons affected by such decisions.
b) Plan Amendment and Termination--The Committee may amend or terminate the
Plan in its sole discretion.
A-2
<PAGE>
9. Miscellaneous. The following provisions are generally applicable to the
Plan:
a) Non-transferability--No interest in the Plan shall be assignable or
transferable other than by will or by laws of descent and distribution, or by
power of attorney if a participant is deemed incompetent.
b) Tax Withholding--The Company shall have the right to deduct from any
payment made under the Plan a sufficient amount, as may be applicable, to cover
any statutory withholding tax requirements or to take such other action as may
be necessary to satisfy any such tax withholding obligations.
c) Other Plan 'Compensation'--No payments under the Plan shall be deemed a
part of any participant's regular, recurring compensation for purposes of
calculating payments or benefits from any other Company benefit, compensation,
severance or similar plan.
d) No Right to Benefit or to Employment--Except as designated by the
Committee, no person shall have any right to participate under this Plan, and no
participant, by virtue of participation in the Plan shall have a right to be
retained as an employee of the Company.
e) Binding Arbitration--Any dispute or disagreement regarding
participation and a participant's claim under the Plan shall be settled solely
by arbitration in accordance with the applicable rules of the American
Arbitration Association.
f) Unfunded Plan--The Plan shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund or funds. The Plan shall not
establish any fiduciary relationship between the Company and any participant or
beneficiary of a participant. To the extent any person holds any obligation of
the Company by participation in the Plan, such obligation shall merely
constitute a general unsecured liability to the Company and accordingly shall
not confer upon such person any right, title or interest in any assets of the
Company.
g) Effective Date--The Plan shall be effective as of July 29, 1996, the
date on which the Plan was adopted by the Committee (the 'Effective Date'),
provided that the Plan is approved by the stockholders of the Company at an
annual meeting or any special meeting of stockholders of the Company within 12
months of the Effective Date, and such approval of stockholders shall be a
condition to the right of each participant to receive a Target Award Opportunity
hereunder.
A-3
<PAGE>
EXHIBIT B
LEWIS GALOOB TOYS, INC.
1996 SHARE INCENTIVE PLAN
1. Purpose. The Lewis Galoob Toys, Inc. 1996 Share Incentive Plan (the
'Plan') is intended to provide incentives which will attract, retain and
motivate highly competent persons as key employees of Lewis Galoob Toys, Inc.
(the 'Company') and of any subsidiary corporation now existing or hereafter
formed or acquired, by providing them opportunities to acquire shares of the
common stock, par value $.01 per share, of the Company ('Common Stock') or to
receive monetary payments based on the value of such shares pursuant to the
Benefits (as defined below) described herein. Furthermore, the Plan is intended
to assist in aligning the interests of the Company's key employees to those of
its stockholders.
2. Administration.
a) The Plan will be administered by a committee (the 'Committee') appointed
by the Board of Directors of the Company from among its members (which may be
the Compensation Committee), and shall be comprised solely of not less than two
members who shall be (i) 'Non-Employee Directors' within the meaning of Rule
16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange
Act of 1934, as amended (the 'Exchange Act') and (ii) unless otherwise
determined by the Board of Directors, 'outside directors' within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the 'Code').
The Committee is authorized, subject to the provisions of the Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the Plan and to make such determinations and interpretations and to take such
action in connection with the Plan and any Benefits (as defined below) granted
hereunder as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board of the
Directors, no member of the Committee and no employee of the Company shall be
liable for any act or failure to act hereunder, except in circumstances
involving his or her bad faith, gross negligence or willful misconduct, or for
any act or failure to act hereunder by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated. The Company shall indemnify members of the Committee and any
agent of the Committee who is an employee of the Company, against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.
b) The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
3. Participants. Participants will consist of such key employees of the
Company and any subsidiary corporation of the Company as the Committee in its
sole discretion determines to be significantly responsible for the success and
future growth and profitability of the Company and whom the Committee may
designate from time to time to receive Benefits under the Plan. Designation of a
participant in any year shall not require the Committee to designate such person
to receive a Benefit in any other year or, once designated, to receive the same
type or amount of Benefit as granted to the participant in any other year. The
Committee shall consider
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such factors as it deems pertinent in selecting participants and in determining
the type and amount of their respective Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one or
a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards and (e) Stock Units (each as described below, and
collectively, the 'Benefits'). Stock Awards, Performance Awards and Stock Units
may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described in Section 11 below. Benefits shall be
evidenced by agreements (which need not be identical) in such forms as the
Committee may from time to time approve; provided, however, that in the event of
any conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan. The aggregate number of shares
of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 1,850,000 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 12 hereof. The maximum number of shares of Common Stock
with respect to which Benefits may be granted or measured to any individual
participant under the Plan during the term of the Plan shall not exceed 500,000,
provided, however, that the maximum number of shares of Common Stock with
respect to which Stock Options and Stock Appreciation Rights may be granted to
an individual participant under the Plan during the term of the Plan shall not
exceed 500,000 (in each case, subject to adjustments made in accordance with
Section 12 hereof). Other than those shares of Common Stock subject to Benefits
that are cancelled or terminated as a result of the Committee's exercise of its
discretion with respect to Performance-Based Awards as provided for in Section
11, any shares of Common Stock subject to a Stock Option or Stock Appreciation
Right which for any reason is cancelled or terminated without having been
exercised, any shares subject to Stock Awards, Performance Awards or Stock Units
which are forfeited, any shares subject to Performance Awards settled in cash or
any shares delivered to the Company as part of full payment for the exercise of
a Stock Option or Stock Appreciation Right shall again be available for Benefits
under the Plan. The preceding sentence shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Benefits
and shall not apply for purposes of determining the maximum number of shares of
Common Stock subject to Benefits (including the maximum number of shares of
Common Stock subject to Stock Options and Stock Appreciation Rights) that any
individual participant may receive.
6. Stock Options. Stock Options will consist of awards from the Company
that will enable the holder to purchase a specific number of shares of Common
Stock, at set terms and at a fixed purchase price. Stock Options may be
'incentive stock options' ('Incentive Stock Options'), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ('Nonqualified Stock Options'). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock Appreciation Rights). Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the following limitations:
a) Exercise Price. Each Stock Option granted hereunder shall have
such per-share exercise price as the Committee may determine at the date of
grant; provided, however, subject to subsection (d) below, that the
per-share exercise price shall not be less than 100% of the Fair Market
Value (as defined below) of the Common Stock on the date the option is
granted.
b) Payment of Exercise Price. The option exercise price may be paid
in cash or, in the discretion of the Committee determined at the date of
grant, by the delivery of shares of Common Stock of the Company then owned
by the participant, by the withholding of shares of Common Stock for which
a Stock Option is exercisable, or by a combination of these methods. In the
discretion of the Committee determined at the date of grant, payment may
also be made by delivering a properly executed exercise notice to the
Company
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together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the
exercise price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. The
Committee may prescribe any other method of paying the exercise price that
it determines to be consistent with applicable law and the purpose of the
Plan, including, without limitation, in lieu of the exercise of a Stock
Option by delivery of shares of Common Stock of the Company then owned by a
participant, providing the Company with a notarized statement attesting to
the number of shares owned, where, upon verification by the Company, the
Company would issue to the participant only the number of incremental
shares to which the participant is entitled upon exercise of the Stock
Option. In determining which methods a participant may utilize to pay the
exercise price, the Committee may consider such factors as it determines
are appropriate.
c) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee; provided, however, that no Stock
Option shall be exercisable later than ten years after the date it is
granted. All Stock Options shall terminate at such earlier times and upon
such conditions or circumstances as the Committee shall in its discretion
set forth in such option agreement at the date of grant.
d) Limitations on Incentive Stock Options. Incentive Stock Options
may be granted only to participants who are key employees of the Company or
subsidiary corporation of the Company at the date of grant. The aggregate
market value (determined as of the time the option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by a participant during any calendar year (under all
option plans of the Company) shall not exceed $100,000. For purposes of the
preceding sentence, (i) Incentive Stock Options will be taken into account
in the order in which they are granted and (ii) Incentive Stock Options
granted before 1987 shall not be taken into account. Incentive Stock
Options may not be granted to any participant who, at the time of grant,
owns stock possessing (after the application of the attribution rules of
Section 424(d) of the Code) more than 10% of the total combined voting
power of all outstanding classes of stock of the Company or any subsidiary
corporation of the Company, unless the option price is fixed at not less
than 110% of the Fair Market Value of the Common Stock on the date of grant
and the exercise of such option is prohibited by its terms after the
expiration of five years from the date of grant of such option.
Notwithstanding anything to the contrary contained herein, no Incentive
Stock Option may be exercised later than ten years after the date it is
granted.
7. Stock Appreciation Rights. The Committee may, in its discretion, grant
Stock Appreciation Rights to the holders of any Stock Options granted hereunder.
In addition, Stock Appreciation Rights may be granted independently of, and
without relation to, options. A Stock Appreciation Right means a right to
receive a payment, in cash, Common Stock or a combination thereof, in an amount
equal to the excess of (x) the Fair Market Value, or other specified valuation,
of a specified number of shares of Common Stock on the date the right is
exercised over (y) the Fair Market Value, or other specified valuation (which
shall be no less than the Fair Market Value), of such shares of Common Stock on
the date the right is granted, all as determined by the Committee; provided,
however, that if a Stock Appreciation Right is granted retroactively in tandem
with or in substitution for a Stock Option, the designated Fair Market Value in
the award agreement may be the Fair Market Value on the date such Stock Option
was granted. Each Stock Appreciation Right shall be subject to such terms and
conditions as the Committee shall impose from time to time.
8. Stock Awards. The Committee may, in its discretion, grant Stock Awards
(which may include mandatory payment of bonus incentive compensation in stock)
consisting of Common Stock issued or transferred to participants with or without
other payments therefor as additional compensation for services to the Company.
Stock Awards may be subject to such terms and conditions as the Committee
determines appropriate, including, without limitation, restrictions on the sale
or other disposition of such shares, the right of the Company to
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<PAGE>
reacquire such shares for no consideration upon termination of the participant's
employment within specified periods, and may constitute Performance-Based
Awards, as described below. The Committee may require the participant to deliver
a duly signed stock power, endorsed in blank, relating to the Common Stock
covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody or bear restrictive
legends until the restrictions thereon shall have lapsed. The Stock Award shall
specify whether the participant shall have, with respect to the shares of Common
Stock subject to a Stock Award, all of the rights of a holder of shares of
Common Stock of the Company, including the right to receive dividends and to
vote the shares.
9. Performance Awards.
a) Performance Awards may be granted to participants at any time and from
time to time, as shall be determined by the Committee. Performance Awards may,
as determined by the Committee in its sole discretion, constitute
Performance-Based Awards. The Committee shall have complete discretion in
determining the number, amount and timing of awards granted to each participant.
Such Performance Awards may be in the form of shares of Common Stock or Stock
Units. Performance Awards may be awarded as short-term or long-term incentives.
With respect to those Performance Awards that are intended to constitute
Performance-Based Awards, the Committee shall set performance targets at its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Awards that will be paid out to the
participants, and may attach to such Performance Awards one or more
restrictions. Performance targets may be based upon, without limitation,
Company-wide, divisional and/or individual performance.
b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of goals the Committee shall have precluded its
authority to make such adjustments.
c) Payment of earned Performance Awards shall be made in accordance with
terms and conditions prescribed or authorized by the Committee. The participant
may elect to defer, or the Committee may require or permit the deferral of, the
receipt of Performance Awards upon such terms as the Committee deems
appropriate.
10. Stock Units.
a) The Committee may, in its discretion, grant Stock Units to participants
hereunder. Stock Units may, as determined by the Committee in its sole
discretion, constitute Performance-Based Awards. The Committee shall determine
the criteria for the vesting of Stock Units. A Stock Unit granted by the
Committee shall provide payment in shares of Common Stock at such time as the
award agreement shall specify. Shares of Common Stock issued pursuant to this
Section 10 may be issued with or without other payments therefor as may be
required by applicable law or such other consideration as may be determined by
the Committee. The Committee shall determine whether a participant granted a
Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below).
b) Upon vesting of a Stock Unit, unless the Committee has determined to
defer payment with respect to such unit or a Participant has elected to defer
payment under subsection (c) below, shares of Common Stock representing the
Stock Units shall be distributed to the participant unless the Committee, with
the consent of the participant, provides for the payment of the Stock Units in
cash or partly in cash and partly in shares of Common Stock equal to the value
of the shares of Common Stock which would otherwise be distributed to the
participant.
c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such Stock
Unit and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Common Stock pursuant to the agreement of deferral.
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d) A 'Stock Unit' means a notational account representing one share of
Common Stock. A 'Dividend Equivalent Right' means the right to receive the
amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which shall be payable in cash or in the form of additional Stock Units.
11. Performance-Based Awards. Certain Benefits granted under the Plan may
be granted in a manner such that the Benefits qualify for the performance-based
compensation exemption of Section 162(m) of the Code ('Performance-Based
Awards'). As determined by the Committee in its sole discretion, either the
granting or vesting of such Performance-Based Awards are to be based upon one or
more of the following factors: net sales, pretax income before allocation of
corporate overhead and bonus, budget, earnings per share, net income, division,
group or corporate financial goals, return on stockholders' equity, return on
assets, attainment of strategic and operational initiatives, appreciation in
and/or maintenance of the price of the Common Stock or any other publicly-traded
securities of the Company, market share, gross profits, earnings before interest
and taxes, earnings before interest, taxes, dividends and amortization, economic
value-added models and comparisons with various stock market indices, reductions
in costs or any combination of the foregoing. With respect to Performance-Based
Awards, (i) the Committee shall establish in writing (x) the objective
performance-based goals applicable to a given period and (y) the individual
employees or class of employees to which such performance-based goals apply no
later than 90 days after the commencement of such period (but in no event after
25% of such period has elapsed) and (ii) no Performance-Based Awards shall be
payable to or vest with respect to, as the case may be, any participant for a
given period until the Committee certifies in writing that the objective
performance goals (and any other material terms) applicable to such period have
been satisfied. With respect to any Benefits intended to qualify as
Performance-Based Awards, after establishment of a performance goal, the
Committee shall not revise such performance goal or increase the amount of
compensation payable thereunder (as determined in accordance with Section 162(m)
of the Code) upon the attainment of such performance goal. Notwithstanding the
preceding sentence, the Committee may reduce or eliminate the number of shares
of Common Stock or cash granted or the number of shares of Common Stock vested
upon the attainment of such performance goal.
12. Adjustment Provisions; Change in Control.
a) If there shall be any change in the Common Stock of the Company, through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, reverse stock split, split up, spinoff, combination of shares, exchange
of shares, dividend in kind or other like change in capital structure or
distribution (other than normal cash dividends) to stockholders of the Company,
an adjustment shall be made to each outstanding Stock Option and Stock
Appreciation Right such that each such Stock Option and Stock Appreciation Right
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of the Common Stock subject to such Stock
Option or Stock Appreciation Right had such Stock Option or Stock Appreciation
Right been exercised in full immediately prior to such change or distribution,
and such an adjustment shall be made successively each time any such change
shall occur. In addition, in the event of any such change or distribution, in
order to prevent dilution or enlargement of participants' rights under the Plan,
the Committee will have authority to adjust, in an equitable manner, the number
and kind of shares that may be issued under the Plan, the exercisability and
vesting provisions of such Benefits, the number and kind of shares subject to
outstanding Benefits, the exercise price applicable to outstanding Benefits, and
the Fair Market Value of the Common Stock and other value determinations
applicable to outstanding Benefits. Appropriate adjustments may also be made by
the Committee in the terms of any Benefits under the Plan to reflect such
changes or distributions and to modify any other terms of outstanding Benefits
on an equitable basis, including modifications of performance targets and
changes in the length of performance periods. In addition, other than with
respect to Stock Options, Stock Appreciation Rights and other awards intended to
constitute Performance-Based Awards, the Committee is authorized to make
adjustments to the terms and conditions of, and the criteria
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<PAGE>
included in, Benefits in recognition of unusual or nonrecurring events affecting
the Company or the financial statements of the Company, or in response to
changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii)
in no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an incentive stock option for purposes of
Section 422 of the Code.
b) In the event of a Change in Control (as defined below), the Committee,
in its discretion, may take such actions as it deems appropriate with respect to
outstanding Benefits, including, without limitation, accelerating the
exercisability or vesting of such Benefits.
The Committee, in its discretion, may determine that, upon the occurrence
of a Change in Control of the Company, each Stock Option and Stock Appreciation
Right outstanding hereunder shall terminate within a specified number of days
after notice to the holder, and such holder shall receive, with respect to each
share of Common Stock subject to such Stock Option or Stock Appreciation Right,
an amount equal to the excess of the Fair Market Value of such shares of Common
Stock immediately prior to the occurrence of such Change in Control over the
exercise price per share of such Stock Option or Stock Appreciation Right; such
amount to be payable in cash, in one or more kinds of property (including the
property, if any, payable in the transaction) or in a combination thereof, as
the Committee, in its discretion, shall determine.
For purposes of this Section 12(b), a 'Change in Control' of the Company
shall be deemed to have occurred upon any of the following events:
(A) A person or entity or group of persons or entities, acting in
concert, shall become the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 of the Exchange Act) of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power
of the issued and outstanding common stock of the Company (a 'Significant
Owner'), unless such shares are originally issued to such Significant Owner
by the Company; or
(B) The majority of the Company's Board of Directors is no longer
comprised of the incumbent directors who constitute the Board of Directors
on the Effective Date (as hereinafter defined) and any other individual(s)
who becomes a director subsequent to the date of this Agreement whose
initial election or nomination for election as a director, as the case may
be, was approved by at least a majority of the directors who comprised the
incumbent directors as of the date of such election or nomination; or
(C) The Company's Common Stock shall cease to be publicly traded; or
(D) A sale of all or substantially all of the assets of the Company;
or
(E) The Board of Directors shall approve any merger, consolidation, or
like business combination or reorganization of the Company, the
consummation of which would result in the occurrence of any event described
in clause (B) or (C) above, and such transaction shall have been
consummated.
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13. Transferability. Each Benefit granted under the Plan to a participant
shall not be transferable otherwise than by will or the laws of descent and
distribution, and shall be exercisable, during the participant's lifetime, only
by the participant. In the event of the death of a participant, each Stock
Option or Stock Appreciation Right theretofore granted to him or her shall be
exercisable during such period after his or her death as the Committee shall in
its discretion set forth in such option or right at the date of grant and then
only by the executor or administrator of the estate of the deceased participant
or the person or persons to whom the deceased participant's rights under the
Stock Option or Stock Appreciation Right shall pass by will or the laws of
descent and distribution. Notwithstanding the foregoing, at the discretion of
the Committee, an award of a Benefit other than an Incentive Stock Option may
permit the transferability of a Benefit by a participant solely to the
participant's spouse, siblings, parents, children and grandchildren or trusts
for the benefit of such persons or partnerships, corporations, limited liability
companies or other entities owned solely by such persons, including trusts for
such persons, subject to any restriction included in the award of the Benefit.
14. Other Provisions. The award of any Benefit under the Plan may also be
subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines, at the date of
grant, appropriate, including, without limitation, for the installment purchase
of Common Stock under Stock Options, for the installment exercise of Stock
Appreciation Rights, to assist the participant in financing the acquisition of
Common Stock, for the forfeiture of, or restrictions on resale or other
disposition of, Common Stock acquired under any form of Benefit, for the
acceleration of exercisability or vesting of Benefits in the event of a change
in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's employment in addition to those specifically provided for
under the Plan.
15. Fair Market Value. For purposes of this Plan and any Benefits awarded
hereunder, Fair Market Value shall be the closing price of the Company's Common
Stock on the date of calculation (or on the last preceding trading date if
Common Stock was not traded on such date) if the Company's Common Stock is
readily tradeable on a national securities exchange or other market system, and
if the Company's Common Stock is not readily tradeable, Fair Market Value shall
mean the amount determined in good faith by the Committee as the fair market
value of the Common Stock of the Company.
16. Withholding. All payments or distributions of Benefits made pursuant
to the Plan shall be net of any amounts required to be withheld pursuant to
applicable federal, state and local tax withholding requirements. If the Company
proposes or is required to distribute Common Stock pursuant to the Plan, it may
require the recipient to remit to it or to the corporation that employs such
recipient an amount sufficient to satisfy such tax withholding requirements
prior to the delivery of any certificates for such Common Stock. In lieu
thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation to the recipient as the Committee shall prescribe. The
Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award or right holder to pay all
or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Common Stock by electing to
have the Company withhold shares of Common Stock having a Fair Market Value
equal to the amount of tax to be withheld, such tax calculated at rates required
by statute or regulation.
17. Tenure. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a participant under the Plan.
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18. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan. The Plan is not intended to
be subject to the Employee Retirement Income Security Act of 1974, as amended.
19. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
20. Duration, Amendment and Termination. No Benefit shall be granted more
than ten years after the Effective Date; provided, however, that the terms and
conditions applicable to any Benefit granted prior to such date may thereafter
be amended or modified by mutual agreement between the Company and the
participant or such other persons as may then have an interest therein. Also, by
mutual agreement between the Company and a participant hereunder, under this
Plan or under any other present or future plan of the Company, Benefits may be
granted to such participant in substitution and exchange for, and in
cancellation of, any Benefits previously granted such participant under this
Plan, or any other present or future plan of the Company. The Committee may
amend the Plan from time to time or suspend or terminate the Plan at any time.
However, no action authorized by this Section 20 shall reduce the amount of any
existing Benefit or change the terms and conditions thereof without the
participant's consent. No amendment of the Plan shall, without approval of the
stockholders of the Company, (i) increase the total number of shares which may
be issued under the Plan or the maximum number of shares with respect to Stock
Options, Stock Appreciation Rights and other Benefits that may be granted to any
individual under the Plan or (ii) modify the requirements as to eligibility for
Benefits under the Plan; provided, however, that no amendment may be made
without approval of the stockholders of the Company if the amendment will
disqualify any Incentive Stock Options granted hereunder.
21. Governing Law. This Plan, Benefits granted hereunder and actions taken
in connection herewith shall be governed and construed in accordance with the
laws of the State of Delaware (regardless of the law that might otherwise govern
under applicable Delaware principles of conflict of laws).
22. Effective Date. a) The Plan shall be effective as of July 29, 1996,
the date on which the Plan was adopted by the Committee (the 'Effective Date'),
provided that the Plan is approved by the stockholders of the Company at an
annual meeting or any special meeting of stockholders of the Company within 12
months of the Effective Date, and such approval of stockholders shall be a
condition to the right of each participant to receive any Benefits hereunder.
Any Benefits granted under the Plan prior to such approval of stockholders shall
be effective as of the date of grant (unless, with respect to any Benefit, the
Committee specifies otherwise at the time of grant), but no such Benefit may be
exercised or settled and no restrictions relating to any Benefit may lapse prior
to such stockholder approval, and if stockholders fail to approve the Plan as
specified hereunder, any such Benefit shall be cancelled.
b) This Plan shall terminate on July 28, 2006 (unless sooner terminated by
the Committee).
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LEWIS GALOOB TOYS, INC.
ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 4, 1996
The undersigned hereby appoints William G. Catron and H. Alan Gaudie, and
each of them, his/her attorneys and proxies with full power of substitution to
vote and act with respect to all shares of common stock of Lewis Galoob Toys,
Inc. (the 'Corporation') of the undersigned at the Annual Meeting of
Stockholders of the Corporation to be held at 1:00 p.m., local time, on November
4, 1996 or at any adjournment(s) thereof (the 'Meeting'), and instructs them to
vote as indicated on the matters referred to in the Proxy Statement for the
Meeting, receipt of which is hereby acknowledged, with discretionary power to
vote upon such other business as may properly come before the Meeting or any
adjournment(s) thereof.
Receipt of the Notice of Annual Meeting and Proxy Statement is hereby
acknowledged.
Dated: _______________________
______________________________
______________________________
Signature(s) of Stockholder(s)
This Proxy shall be signed exactly as your name(s) appears hereon; if as
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add title as such.
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT
IN THE ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE>
This Proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL PROPOSALS.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE CORPORATION. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE FOLLOWING PROPOSALS:
1. To elect three Directors:
FOR the nominees listed below / / WITHHOLD AUTHORITY / /
to vote for all nominees listed below
Nominees: Andrew J. Cavanaugh, Paul A. Gliebe, Jr., S. Lee Kling
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line below:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
2. To amend the Corporation's Certificate of Incorporation to change the name of
the Corporation to Galoob Toys, Inc.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the Corporation's 1996 Long Term Compensation Plan.
FOR / / AGAINST / / ABSTAIN / /
4. To approve the Corporation's 1996 Share Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
5. To ratify the appointment of Price Waterhouse LLP as the Corporation's
independent accountants for the fiscal year 1996.
FOR / / AGAINST / / ABSTAIN / /
6. To transact such other business as may properly come before the Meeting.
FOR / / AGAINST / / ABSTAIN / /
