<PAGE>
- --------------------------------------------------------------------------------
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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
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):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined.):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE>
GALOOB TOYS, INC.
500 FORBES BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 12, 1997
------------------------
TO THE HOLDERS OF COMMON STOCK OF GALOOB TOYS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Galoob
Toys, Inc. (the 'Corporation') will be held at 10:00 A.M., local time, on
December 12, 1997, at the Embassy Suites Hotel, 250 Gateway Boulevard, South San
Francisco, California 94080, for the following purposes:
1. To elect one (1) director of the Corporation to hold office until
the 2000 Annual Meeting of Stockholders or until the election and
qualification of his successor.
2. To vote upon the ratification of the appointment of Price
Waterhouse LLP as the Corporation's independent accountants for the fiscal
year 1997.
3. 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 November 10, 1997 (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: November 13, 1997
<PAGE>
GALOOB TOYS, INC.
500 FORBES BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 12, 1997
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Galoob Toys, Inc. (the 'Corporation') of proxies to be
used at the Annual Meeting of Stockholders of the Corporation to be held at
10:00 A.M., local time, on December 12, 1997, 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 director of one nominee of the Board of Directors named below,
(2) in favor of the ratification of the appointment of Price Waterhouse LLP as
the Corporation's independent accountants for the 1997 fiscal year, and (3) 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 November 13, 1997.
VOTING
Holders of record of the Corporation's Common Stock on November 10, 1997
(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
18,100,864 shares of Common Stock outstanding and entitled to vote and a
majority, or 9,050,433 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
NOMINEE SET FORTH BELOW.
<PAGE>
The favorable vote of a majority of the shares of Common Stock represented
in person or by proxy is necessary to ratify the appointment of Price Waterhouse
LLP as the Corporation's independent accountants for the 1997 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 THE
PROPOSAL SET FORTH ABOVE.
ELECTION OF DIRECTOR
(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 serving staggered three-year terms. The Board of
Directors is currently comprised of six members, with each class consisting of
two (2) members.
At the forthcoming Annual Meeting of Stockholders, to be held on December
12, 1997, one director of the first class will be elected for a term expiring at
the 2000 Annual Meeting of Stockholders. The Board of Directors has recommended
Mark D. Goldman as the nominee for election as a director of the first class.
Paul A. Gliebe, Jr., currently a member of the first class of directors, has
indicated to the Board of Directors that he does not wish to stand for
re-election at the 1997 Annual Meeting of Stockholders. The Board of Directors
has determined not to fill the vacancy, at this time, which will result from Mr.
Gliebe's decision not to stand for re-election at the 1997 Annual Meeting of
Stockholders, and, accordingly, has fixed the number of directors constituting
the full Board of Directors at five. The continuing directors of the second
class, Scott R. Heldfond and Roger J. Kowalsky, are serving terms that expire on
the date of the 1998 Annual Meeting of Stockholders. The continuing directors of
the third class, Andrew J. Cavanaugh and S. Lee Kling, are serving a term that
expires on the date of the 1999 Annual Meeting of Stockholders.
Unless otherwise specified on the accompanying proxy, the shares of Common
Stock voted pursuant thereto will be cast for Mark D. Goldman as a director of
the first class to hold office until the 2000 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, Mark D. Goldman 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 Mark
D. Goldman 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 SEPTEMBER 30, 1997 HELD WITH THE CORPORATION WILL EXPIRE SINCE
- ------------------------------- --------------------- ----------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Nominee for the First Class:
Mark D. Goldman.............. 46 President, Chief Executive 2000 1987
Officer and Director
Retiring Director of the
First Class:
Paul A. Gliebe, Jr........... 63 Director 1997 1986
Directors of the Second Class:
Scott R. Heldfond............ 51 Director 1998 1986
Roger J. Kowalsky............ 63 Executive Vice President, 1998 1994
Chief Financial Officer and
Director
Directors of the Third Class:
S. Lee Kling................. 68 Director 1999 1991
Andrew J. Cavanaugh.......... 50 Director 1999 1993
</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 D. 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 Company since 1986, has served as
President and Chief Executive Officer of Frank Crystal & Co. of California Inc.,
an insurance brokerage firm since February 1997. Prior to undertaking his
current position, Mr. Heldfond served as Managing Director of Hales Capital
Advisors, LLC, an insurance industry merchant banking firm, since January 1995,
and he also served as a consultant to AON Services (successor entity to Rollins
Hudig Hall and DSI Insurance Services) ('AON'), 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 Company has
retained AON (with which Mr. Heldfond is no longer associated) in the past and
during the current fiscal year.
3
<PAGE>
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
firm 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. 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 J. Kowalsky, a director of the Corporation since 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, 1996, 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.
The members of the executive committee are Mark D. 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 no meetings during the fiscal year ended December 31, 1996.
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, 1996.
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, the 1996 Share Incentive Plan
and the 1996 Long Term Compensation Plan. The compensation committee held four
(4) meetings during the fiscal year ended December 31, 1996.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30, 1997
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>
Public Employees Retirement System of Ohio(3)........................................ 1,600,000 8.8%
Montgomery Asset Management L.P.(4).................................................. 1,073,200 5.9%
William G. Catron(5)................................................................. 126,917 *
Andrew J. Cavanaugh(6)............................................................... 7,700 *
Paul A. Gliebe, Jr.(6)............................................................... 8,350 *
Mark D. Goldman(7)................................................................... 609,041 3.3%
Scott R. Heldfond(6)................................................................. 9,450 *
Ronald D. Hirschfeld(8).............................................................. 69,044 *
S. Lee Kling(6)...................................................................... 11,000 *
Roger J. Kowalsky(9)................................................................. 6,550 *
Gary J. Niles(10).................................................................... 193,311 1.1%
Louis R. Novak(10)................................................................... 178,410 1.0%
All executive officers and directors as a
group (consisting of 13 persons)(11)............................................... 1,287,437 6.7%
</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 September 30, 1997, 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 September 30, 1997 upon the exercise of options. Percentage of
Common Stock ownership is based on a total of 18,100,864 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 277 East Town Street, Columbus, OH 43215.
(4) Address is 101 California Street, San Francisco, CA 94111.
(5) Includes options to purchase 96,191 shares of Common Stock.
(6) Includes options to purchase 6,000 shares of Common Stock.
(7) Includes options to purchase 454,630 shares of Common Stock.
(8) Includes options to purchase 66,191 shares of Common Stock.
(9) Includes options to purchase 4,000 shares of Common Stock.
(10) Includes options to purchase 167,950 shares of Common Stock.
(11) Includes an aggregate of options to purchase 1,017,920 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 four most highly
compensated executive officers of the Corporation who earned in excess of
$100,000 for the Corporation's fiscal years ended December 31, 1994, 1995 and
1996 (each person appearing in the table is referred to as a 'Named Executive'):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG
------------------------------------- TERM
OTHER COMPEN-
ANNUAL SATION ALL OTHER
SALARY BONUS COMPEN- ---------- COMPEN-
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION($) OPTIONS(#) SATION($)(2)
- ------------------------------------------------ ---- ------- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goldman................................. 1996 500,000 937,500 0 36,140 4,660
President and Chief 1995 400,000 750,000 0 200,000 3,980
Executive Officer 1994 400,000 600,000 0 229,630(3) 3,760
Gary J. Niles................................... 1996 320,417 418,750 0 28,130 2,550
Executive Vice President, 1995 300,000 360,000 0 0 1,440
Marketing and Product 1994 261,055 316,800 0 157,870(4) 1,440
Acquisition
Louis R. Novak.................................. 1996 291,169 375,000 0 28,130 870
Executive Vice President 1995 272,803 334,567 0 0 870
and Chief Operating 1994 261,055 316,800 0 157,870(4) 870
Officer
William G. Catron............................... 1996 248,289 316,031 0 24,520 1,440
Executive Vice President, 1995 236,729 217,745 0 0 870
General Counsel, Chief 1994 226,535 206,640 0 86,111(5) 870
Administrative Officer
and Secretary
Ronald D. Hirschfeld............................ 1996 246,552 313,821 0 24,520 870
Executive Vice President, 1995 235,073 216,222 0 0 1,440
International Sales and 1994 223,634 203,425 0 86,111(5) 510
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) These amounts represent premiums paid by the Corporation with respect to
term life insurance.
(3) 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').
(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) 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.
6
<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
----------------------------------------------------
SHARES OF % OF TOTAL
COMMON OPTIONS
STOCK GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE GRANT DATE
OPTIONS FISCAL YEAR PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (OF 380,908) ($/US) DATE ($)(1)
- -------------------------------------------------- ---------- ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Mark D. Goldman................................... 36,140 9.5% 25.00 7/29/06 491,110
Gary J. Niles..................................... 18,050 4.7% 25.00 7/29/06 245,283
10,080 2.7% 21.25 4/29/06 116,431
Louis R. Novak.................................... 18,050 4.7% 25.00 7/29/06 245,283
10,080 2.7% 21.25 4/29/06 116,431
William G. Catron................................. 14,440 3.8% 25.00 7/29/06 196,227
10,080 2.7% 21.25 4/29/06 116,431
Ronald D. Hirschfeld.............................. 14,440 3.8% 25.00 7/29/06 196,227
10,080 2.7% 21.25 4/29/06 116,431
</TABLE>
- ------------------
(1) The Grant Date Present Values were determined using the Black-Schoales
option pricing model. Assumptions used for the model are as follows: an
option term of 4.4 years, stock volatility of 60%, dividend yield of 0%, and
a risk-free rate of return of 6.3%. Options will only have values to the
extent the Common Stock Price exceeds the Exercise Prices above. To fully
realize the aggregate values shown above the Common Stock price must exceed
$36 per share. The Grant Date Present Values do not take into account risk
factors such as non-transferability and limits on exercisability. The
Black-Schoales option pricing model is a commonly utilized model for valuing
options. The model assumes that the possibilities of future stock returns
(dividends plus share price appreciation) resemble a normal 'bell-shaped'
curve. In assessing the Grant Date Present Values indicated in the above
table, it should be kept in mind that no matter what theoretical value is
placed on an option on the date of grant, the ultimate value of the option
is dependent on the market value of the Common Stock at a future date, which
will depend to a large degree on the efforts of the Named Executives to
bring future success to the Company for the benefit of all stockholders.
The Corporation does not currently grant stock appreciation rights.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the options
exercised by the Named Executives during the 1996 fiscal year and the
unexercised options held by the Named Executives as of the end of the 1996
fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Goldman......... 0 0 387,964 102,806 2,473,155 524,995
Gary J. Niles........... 5,000 31,900 167,950 18,050 789,350 0
Louis R. Novak.......... 0 0 167,950 18,050 789,350 0
William G. Catron....... 0 0 96,191 14,440 430,555 0
Ronald D. Hirschfeld.... 30,000 270,000 66,191 14,440 280,555 0
</TABLE>
- ------------------
(1) The closing sales price of the Common Stock on the New York Stock Exchange
on December 31, 1996 was $14.00 per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On October 27, 1994, the Corporation entered into a severance agreement
(the 'Severance Agreement') with Mark D. 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 times the car allowance in effect for Mr.
Goldman at the time of termination and a lump sum amount equal
8
<PAGE>
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 1996 was approximately $4,370,856. 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 occurring 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.
As of January 1, 1997, each of the Executive Vice Presidents of the
Corporation entered into a Severance and Change in Control Agreement (each a
'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 is defined in each 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
twelve (12) months. These severance payments will 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 is defined in each 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 (as described in each Severance and Change in Control
Agreement), 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 a Severance and Change in Control Agreement will be reduced
to the extent that such payment or benefit would be subject to certain excise
taxes occurring 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 1996 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 to purchase 2,000 shares
of Common Stock on January 1, 1996 and will receive an option immediately
exercisable to purchase 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 executive officers and directors,
and any persons who own more than ten percent of the Corporation's Common Stock
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
1996 fiscal year.
COMPENSATION COMMITTEE REPORT1
The compensation committee of the Board of Directors (the 'Committee'),
subject to the approval of the entire Board of Directors, establishes and
reviews the compensation arrangements for the executive officers of the
Corporation, including the officers named in the compensation table contained in
this proxy statement. The Committee is composed entirely of directors who are
neither officers nor employees of the Corporation.
- ------------------
1. 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.
10
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BACKGROUND, OBJECTIVES AND PHILOSOPHY
In fiscal 1996 the Committee set compensation arrangements for executive
officers for that year and the two years thereafter. In taking this action the
Committee focused on compensatory elements which both incent year to year
profitability and encourage management effectively to address 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 shareholder 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 stockholders.
The Committee believes that sustained growth in earnings available to
stockholders is the best intermediate term index of the effectiveness of the
executive group in directing a company in a highly competitive and
innovation-based business environment. As noted, in fiscal 1996, the Committee,
in consultation with the Chief Executive Officer, 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.
Additionally, in order to encourage management to achieve exceptional
corporate performance that results in a long term increase in the Corporation's
earnings, the Committee adopted in 1996, and the stockholders subsequently
approved, a long term incentive arrangement for executive management focused on
measurable achievement of strategic growth plans. The Committee 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 shareholder value.
Finally, the Committee recognizes that a central aspect of management
responsibility is business success which is intrinsically allied to an increase
in stockholder value. In prior years, the Committee utilized a program of stock
option grants, as approved by the stockholders, as an important compensatory
element by which strategic growth and increased stockholder value were
recognized. The Committee continues to view the use of stock option grants as
appropriate for this purpose. At the instance of the Committee, the Corporation
submitted for stockholder approval the 1996 Stock Option Plan, to provide
additional option grants for executive officers and other management personnel.
This submission was subsequently approved by the stockholders, and certain
option grants were made thereunder. Each of the grants made to executive
officers under the 1996 Stock Option Plan contains a vesting provision tied to
an increase in market value of the Corporation's common stock.
11
<PAGE>
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, options under the 1996 Share Incentive Plan
have been awarded to Mr. Goldman on the same basis as the Corporation's other
executive management (including vesting provisions tied to an increase in market
value of the Corporation's common stock), 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. 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 S&P Small Capitalization Index (which includes the
Corporation), assuming full reinvestment of dividends and no payment of
brokerage or other commissions or fees. Past performance is not necessarily
indicative of future performance.
[INSERT CHART INFORMATION HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Galoob Toys, Inc........................................ $100 $ 78 $234 $144 $294 $350
S&P Small Capitalization................................ 100 119 140 132 170 204
S&P 500................................................. 100 104 112 110 148 178
</TABLE>
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** 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.
13
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Proposal No. 2)
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, 1997.
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.
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 1998
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 within 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, 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, 1996 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. 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
14
<PAGE>
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: November 13, 1997
South San Francisco,
California
15
<PAGE>
GALOOB TOYS, INC.
ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 12, 1997
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 Galoob Toys, Inc.
(the 'Corporation') of the undersigned at the Annual Meeting of Stockholders of
the Corporation to be held at 10:00 a.m., Pacific Time, on December 12, 1997 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 represenative
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 one Director:
FOR the nominee listed below / / WITHHOLD AUTHORITY / /
Nominee: Mark D. Goldman
2. To ratify the appointment of Price Waterhouse LLP as the Corporation's
independent accountants for the fiscal year 1997.
FOR / / AGAINST / / ABSTAIN / /
3. To transact such other business as may properly come before the Meeting.
FOR / / AGAINST / / ABSTAIN / /
