(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
Filed by the registrant |x|
Filed by a party other than the registrant | |
Check the appropriate box:
|x| Preliminary proxy statement
| | Definitive proxy statement
| | Definitive additional materials
| | Soliciting material under Rule 14a-12
| | Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)
GRAND TOYS INTERNATIONAL, INC.
(Name of Registrant as Specified in 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 the table below per Exchange Act Rules 14a-
6(i)(1) 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:
(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:
GRAND TOYS INTERNATIONAL, INC.
1710 Route Transcanadienne
Dorval, Quebec, H9P 1H7
CANADA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on September 28, 2000
To the Shareholders:
The Annual Meeting of the Shareholders of Grand Toys International,
Inc. (the "Company") will be held at the Holiday Inn, 6700 Route
Transcanadienne, Dorval, Quebec, CANADA, H9R 1C2, on Thursday,
September 28, 2000, at 11:00 a.m. (Montreal time), for the following
purposes:
1. To elect directors to serve until the 2001 Annual Meeting of
Shareholders or until their successors are elected and shall
qualify (Proposal 1);
2. To consider and act upon a proposal to amend the Amended and
Restated 1993 Stock Option Plan (Proposal 2)
3. To consider and act upon a proposal to ratify the appointment
by the Board of Directors of KPMG LLP as independent
chartered accountants for the Company for the 2000 fiscal
year (Proposal 3); and
4. To transact such other business as may properly be brought
before the Meeting or any adjournment.
Shareholders of record at the close of business on August 18, 2000
are entitled to notice of and to vote at the meeting and any
adjournment thereof.
You are invited to attend the Meeting. It is desired that as many
Shareholders as practicable be represented at the meeting.
Consequently, whether or not you now expect to be present, you are
requested to date and sign the enclosed proxy and return it promptly
to the Company, in the accompanying envelope which requires no
postage if mailed in the United States, in order that your vote can
be recorded. This may save the Company the expense of further proxy
solicitation.
YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED.
By order of the Board of Directors,
Ken Cieply
Secretary
Dated: Dorval, Quebec, Canada
August, 2000
GRAND TOYS INTERNATIONAL, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Grand Toys International, Inc. of
proxies to be voted at our Annual Meeting of Shareholders to be held
on Thursday, September 28, 2000 at 11:00 a.m. (Montreal time) at the
Holiday Inn, 6700 Route Transcanadienne, Dorval, Quebec, CANADA, H9R
1C2. All properly executed proxies in the accompanying form received
by us prior to the meeting will be voted at the meeting. Any proxy
may be revoked at any time before it is exercised by giving notice in
writing to our Secretary, by granting a proxy bearing a later date or
by voting in person.
References to "we", in this Proxy Statement also include Grand Toys
(U.S.) Ltd. ("Grand U.S."), Ark Creations, Inc. ("Ark") our U.S.
subsidiaries and Grand Toys Ltd. ("Grand Canada") and Grand Concepts
Inc. ("Concepts"), our Canadian subsidiaries.
The Board of Directors does not intend to present at the meeting any
matters other than those set forth in this Proxy Statement, nor does
the Board of Directors know of any other matters that may come before
the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the enclosed
proxy to vote the proxy in accordance with their judgment.
As of August 18, 2000, the record date for determination of
shareholders entitled to notice of and to vote at the meeting, there
were 3,234,906 shares of our common stock outstanding which is the
only outstanding class of voting securities outstanding as of the
record date. Each outstanding share is entitled to one vote on all
matters that may come before the meeting. We expect to mail this
Proxy Statement together with a proxy, the Notice of Annual Meeting,
and our Annual Report to our shareholders on or about August 29, 2000.
Any shareholder giving a proxy may revoke it any time prior to its use
at the meeting by giving written notice of revocation to our
Secretary; mere attendance at the meeting without such notice will not
revoke the proxy. Properly executed proxies will be voted in the
manner directed by a shareholder and, if no direction is made, will be
voted in favor of the election of the management nominees for election
as directors and in favor of Proposals 2 and 3. An abstention from
voting on a matter by a shareholder present in person or represented
by proxy at the meeting will not be counted as a vote "for" or
"against" the matter in question, but will be counted for purposes of
determining the presence or absence of a quorum.
If your shares are held in the name of a nominee, and you do not tell
the nominee how to vote your shares (so-called broker nonvotes), the
nominee can vote them as it sees fit only on matters that are
determined to be routine, and not on any other proposal. Broker
nonvotes will be counted as present to determine if a quorum exists
but will not be counted as present and entitled to vote on any
nonroutine proposal. If your shares are held in the name of your
broker, a bank, or other nominee, that party should give you
instructions for voting your shares.
Our By-laws provide that shareholders holding a majority of the shares
of common stock issued and outstanding and entitled to vote thereon
shall constitute a quorum at meetings of shareholders. The
affirmative vote of a majority of the votes of common stock voting
together as a single class present in person or represented by proxy
at the meeting is necessary for the election of directors and approval
of Proposal 2 and Proposal 3.
Only shareholders of record at the close of business on August 18,
2000 will be entitled to vote at the meeting or any adjournment or
adjournments thereof.
It is desirable that as large a proportion as possible of the share-
holders' interests be represented at the meeting. Therefore, even if
you intend to be present at the meeting, you are requested to sign and
return the enclosed proxy to ensure that your stock will be
represented. If you are present at the meeting and desire to do so,
you may withdraw your proxy and vote in person by giving written
notice to our Secretary. Please return your executed proxy promptly.
Except as otherwise indicated, references in this proxy statement to
dollars or "$" are United States dollars.
Principal Shareholders
The following table sets forth certain information regarding
beneficial ownership of our common stock as of August 18, 2000 by (i)
each person (or group of affiliated persons) who is known by us to
own beneficially more than 5% of the outstanding shares of our common
stock, (ii) each of our directors and director nominees, (iii) each
of our executive officers and (iv) all of our executive officers and
directors as a group. Except as indicated in the footnotes to this
table, the persons named in this table have sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by them.
<TABLE>
Name and Number of shares Percent of Class
Address of Beneficial Beneficially owned and Voting Power (1)
<S> <C> <C>
Amgo Investments, Inc. 150,000 (2) 4%
1710 Rte.Transcanadienne,
Dorval,Quebec, Canada H9P 1H7
Siemens Pension Plan 300,000 9%
Freilagerstr 40
Ch 8047 Zuerich,
Switzerland
Stephen Altro 221,750 (3) 6%
1710 Rte. Transcanadienne
Dorval, Quebec, Canada, H9P 1H7
David Mars 340,750 (4) 10%
1710 Rte. Transcanadienne
Dorval, Quebec, Canada H9P 1H7
Elliot L. Bier 2,000 (5) -%
999 Boul. de Maisonneuve Ouest
Montreal, Quebec, Canada H3A 3L4
James B. Rybakoff 57,000 (6) 2%
780 Third Avenue, New York,
NY 10017
All Executive officers 621,500 (7) 18%
and directors
as a group (five persons)
</TABLE>
(1) Computed on the basis of 3,451,406 shares of common stock
and, with respect to those persons holding warrants or options
to purchase common stock exercisable within sixty (60) days,
the number of shares of common stock that are issuable upon
the exercise thereof.
(2) Amgo Investments, Inc. ("Amgo") is controlled by corporations
controlled by David Mars and Stephen Altro.
(3) Includes options to purchase 46,750 shares of common stock
exercisable within sixty (60) days. Mr. Altro's interest in
Amgo is owned of record by 2870304 Canada, Inc., a privately
held corporation controlled by Mr. Altro, of which his wife
and children, the only other shareholders of such corporation,
are minority shareholders. Mr. Altro disclaims beneficial
ownership of 75,000 shares of common stock owned by Amgo and
beneficially owned by Mr. Mars. See "Executive Compensation".
(4) Includes options to purchase 46,750 shares of common stock
exercisable within sixty (60) days. Mr. Mars' interest in
Amgo is owned of record by 2884330 Canada, Inc., a privately
held corporation controlled by Mr. Mars, of which his wife and
children, the only other shareholders of such corporation, are
minority shareholders. Mr. Mars disclaims beneficial
ownership of 75,000 shares of common stock owned by Amgo and
beneficially owned by Mr. Altro. See "Executive
Compensation".
(5) Represents options to purchase 2,000 shares of common stock
exercisable within sixty (60) days. See "Election of
Directors".
(6) Represents options and warrants to purchase 57,000 shares of
common stock exercisable within (60) days. 55,000 of such
warrants are owned of record by Akin Bay Company L.L.C. of
which Mr. Rybakoff is a controlling member. See "Election of
Directors" and "Certain Transactions".
(7) See footnotes (1) (6).
ELECTION OF DIRECTORS
(Proposal 1)
Pursuant to our By-laws, the number of directors constituting the full
Board of Directors is determined from time to time by the Board of
Directors and is currently fixed by the Board at four. At the
meeting, action will be taken to elect a Board consisting of the four
incumbent directors, Stephen Altro, David Mars, Elliot L. Bier and
James B. Rybakoff. All directors will serve until the next Annual
Meeting of Shareholders and until their respective successors shall be
duly elected and shall qualify.
Each of the incumbent directors has consented to be named a nominee in
this Proxy Statement and to serve as a director if elected. It is the
intention of the persons named in the accompanying form of proxy,
unless shareholders otherwise specify by their proxies, to vote for
the election of the nominees named below. The Board of Directors has
no reason to believe that any of the persons named will be unable or
unwilling to serve as a director. Should any of the nominees be
unable or unwilling to serve, it is intended that the proxies will be
voted for the election of a substitute nominee or nominees selected by
the Board of Directors or the Board of Directors may be reduced in
accordance with our By-laws. There are no arrangements or
understandings between any director or executive officer and any other
person pursuant to which he is or was selected as a director or
officer.
Set forth below is the name, age, principal occupation during the past
five years and other information concerning each director and nominee.
Stephen Altro, age 62. Stephen Altro has been our Chairman and a
director since July 20, 1993. He has held similar positions with
Grand Canada, our Canadian operating subsidiary, for over 39 years.
Mr. Altro co-founded Grand Canada with David Mars more than 39 years
ago.
David Mars, age 62. David Mars has been our Vice Chairman since 1995
and a director since July 20, 1993. He has held similar positions
with Grand Canada for over 39 years. Mr. Mars co-founded Grand Canada
with Stephen Altro more than 39 years ago.
Elliot L. Bier, age 50. Elliot L. Bier has been a directors since July
20, 1993. He has been a practicing attorney in Montreal for the last
22 years. He is a senior partner in Adessky Poulin, the Company's
Canadian legal counsel.
James B. Rybakoff, age 33. James B. Rybakoff is the President of Akin
Bay Company, L.L.C., an NASD member investment bank and brokerage
firm, which Mr. Rybakoff co-founded in 1990. From 1992 to 1993 he
served as an associate for Zilkha & Company, an international mergers
and acquisition investment banking and strategic planning firm. Mr.
Rybakoff has been a director since 1996.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
RATIFICATION OF THE ELECTION TO THE BOARD OF ALL NOMINEES NAMED ABOVE.
THE BOARD OF DIRECTORS AND COMMITTEES
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1999, the Board of Directors
held 4 meetings and each of the Directors attended all of the meetings
held.
Audit Committee
The Board of Directors has an Audit Committee which consists of two
directors. Elliot L. Bier and James B. Rybakoff are the current
members of this committee. The Audit Committee (i) recommends to the
Board the conditions, compensation and term of appointment of
independent chartered accountants for the audit of our financial
statements, (ii) reviews our examination reports prepared by
regulatory authorities, and (iii) provides the Board with such
assistance as is necessary with respect to our corporate and reporting
practices. The Audit Committee may also from time to time confer with
the auditors to exchange views relating to the scope and results of
the audit. During the fiscal year ended December 31, 1999, the Audit
Committee did not hold any meetings, but took action by written
consent two times.
Compensation Committee
The Board of Directors has a Compensation Committee which consists of
two directors. Elliot L. Bier and James B. Rybakoff are the current
members of this committee. The Compensation Committee makes
recommendations to the Board of Directors with respect to compensation
arrangements and plans for our senior management, officers and
directors and administers our Stock Option Plan. During the fiscal
year ended December 31, 1999, the Compensation Committee did not hold
any meetings, but took action by written consent two times.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1999, Elliot L. Bier and
James B. Rybakoff served as the members of our Compensation Committee.
None of the members of our Compensation Committee was, during the
fiscal year ended December 31, 1999, one of our officers or employees,
or one of our former officers.
Compensation of Directors
Directors do not get paid any compensation for attendance at
directors' meetings or for attending or participating in any committee
meetings, but are eligible to participate in our Stock Option Plan.
Directors who are also officers are not paid any compensation for
attendance at directors' meetings or for attending or participating in
any committee meetings. Non-employee directors are compensated for
their services and attendance at meetings through the automatic
quarterly grant of 500 options pursuant to our Amended and Restated
1993 Stock Option Plan.
Certain Business Relationships
Mr. Bier is a senior partner in Adessky, Poulin, a Montreal, Quebec
based law firm. The firm of Adessky, Poulin acts as Canadian counsel
and for us and our subsidiaries. During the fiscal year ended
December 31, 1999, we paid Adessky, Poulin an aggregate of $77,220 for
legal fees and related disbursements.
Mr. Rybakoff is a member and a managing director of Akin Bay Company
L.L.C., an NASD member firm ("Akin Bay"). We are a party to an
investment banking agreement with Akin Bay. Pursuant to the terms of
the investment banking agreement, Akin Bay provides investment banking
and other financial advisory services. In addition, we have also paid
Akin Bay to sponsor our research reports. The investment banking
agreement and the agreement to sponsor research reports was approved
by our disinterested directors. We believe that the terms of the
investment banking and sponsored research agreements are substantially
similar to those prevailing at the time for comparable agreements and
transactions with other investment banking firms. During the fiscal
year ended December 31, 1999, we paid Akin Bay a total of $368,120 for
services rendered to us.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Executive Officers
In addition to Messrs. Altro and Mars, Ken Cieply, our Executive Vice
President and Chief Financial Officer, is the only other executive
office of Grand.
Ken Cieply, age 45. Ken Cieply had been with us since September 20,
1999. Prior thereto, Ken Cieply was employed by Gildan Activewear
Inc., as Vice President of Finance and Administration for 5 years.
Key Employees
The following persons, although not executive officers, are regarded
by our management as key employees:
Glennis Carey has been the Director of Marketing for Grand Canada for
19 years. Prior thereto, Ms. Carey worked for Mattel International,
Inc., in marketing for ten years.
Tanya Clarke has been the Controller for Grand Canada since May 1994.
Prior to such time she worked at KPMG as an auditor for three years.
Robert Herbst has been the Director of Operations for Grand Canada
since April 1995. Prior to such time he worked at Grand Canada in
various capacities for 20 years.
Paul Newbold has been the Director of Sales for Grand Canada since
December 1, 1999. Prior to such time he worked at Hallmark (US) in
the similar capacity
Directors are elected annually by the shareholders and hold office
until the next annual meeting and until their respective successors
are elected and qualified. Executive officers are elected by and
serve at the discretion of the Board of Directors. There are no
family relationships among any of our directors and executive
officers.
Each of Messrs. Altro and Mars were executive officers of Grand Group
Inc., our former United States Operating Company ("Grand Group"). On
January 4, 1996, an order for relief under Chapter 7 of the United
States Bankruptcy Code was entered against Grand Group, at which time
a trustee was appointed to supervise its liquidation.
Executive Compensation
The following table shows, as to the President, who is our chief
executive officer, and the three other executive officers other than
the President whose compensation, during the year ended December 31,
1999 exceeded $100,000, information concerning compensation paid for
service to us in all capacities during the fiscal year ended December
31, 1999, as well as total compensation paid to each such individual
for our two previous fiscal years (to the extent that such person was
the President, as the case may be, during any part of such fiscal
year). There were no other executive officers on December 31, 1999.
Summary Compensation Table
<TABLE>
Annual Compensation Long Term
Other Compensation Awards
Name and Annual All Other
Principal Compen- Compensa-
Position Year Salary($) Bonus($) sation($) Options(#) tion($)
<S> <C> <C> <C> <C> <C> <C>
Stephen Altro, 1999 162,000(1) 50,000(1) 46,000(4) 46,750 -
Chairman 1998 156,000(2) - 40,000(5) - -
1997 168,000(3) 105,000(3) 42,000(6) 400,000 -
David Mars, 1999 162,000(1) 50,000(1) 29,000(4) 46,750 -
Vice Chairman 1998 156,000(2) - 26,000(5) - -
1997 162,000(1) 105,000(3) 28,000(6) 400,000 -
Ron Goldenberg, 1999 106,000(1) 37,000(1) 11,000(4) - -
Chief Financial 1998 114,000(2) - 10,000(5) - -
Officer (7) 1997 122,000(3) 70,000(3) 10,000(6) 150,000 -
Ken Cieply, 1999 26,000(1) - 1,000(4) - -
Chief Financial 1998 - - - - -
Officer (8) 1997 - - - - -
</TABLE>
(1) Such amounts are based upon an exchange rate of Canadian $1.49 to
United States $1.00 (the exchange rate on December 31,1999).
(2) Such amounts are based upon an exchange rate of Canadian $1.54 to
United States $1.00 (the exchange rate on December 31, 1998)
(3) Such amounts are based upon an exchange rate of Canadian $1.43 to
United States $1.00 (the exchange rate on December 31, 1997).
(4) Other annual compensation for Mr. Altro consists of $12,000 for car
lease payments, $11,000 for annual country club dues, $23,000 for
life insurance premiums and $2,000 for retirement savings plan. For
Mr. Mars it includes $2,000 for car lease payments, $11,000 for
annual country club dues and $16,000 for life insurance premiums and
$2,000 for retirement savings plan. For Mr. Goldenberg it includes
$5,000 for car lease payments $5,000 for life insurance premiums and
$2,000 for retirement savings plan. For Mr. Cieply it consists of
car lease payments.
(5) Other Annual Compensation for Mr. Altro consists of $11,000 for car
lease payments and $11,000 for annual country club dues, $18,000 for
life insurance premiums and $2,000 for retirement savings plan. For
Mr. Mars it includes $11,000 for country club dues, $15,000 for life
insurance premiums and $2,000 for retirement savings plan. For Mr.
Goldenberg, car lease payments, $2,000 for life insurance premiums
and $2,000 for retirement savings plan.
(6) Other Annual Compensation for Mr. Altro consists of $11,000 for car
lease payments, $11,000 for annual country club dues and $20,000 for
life insurance premiums and $2,000 for retirement savings plan. For
Mr. Mars it includes $11,000 for country club dues, $17,000 for life
insurance premiums and $2,000 for retirement savings plan. For Mr.
Goldenberg, car lease payments, $2,000 for life insurance premiums
and $2,000 for retirement savings plan.
(7) Mr. Goldenberg resigned from his position August 6, 1999.
(8) Mr. Cieply was hired on September 20, 1999.
Option Grants in 1999
The following table sets forth further information regarding the stock
option grants during fiscal 1999 to the officers named in the Summary
Compensation Table above.
<TABLE>
Potential
Realizable Value
% of Total at Assumed Annual
Options Rates of Stock
Granted Exercise or Price Apprecia-
Options to Employees Base price Expira- tion for 10 years
Name Granted(#) in 1999 ($/share) tion Date Option Term
5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Stephen 46,750 50.0 5.69 August 2009 42,075 87,890
Altro
David 46,750 50.0 5.69 August 2009 42,075 87,890
Mars
</TABLE>
All of the Options granted during 1999 were granted independent of our
amended and restated stock option plans.
Option Exercises in 1999 and Year-End Values
The following table sets forth certain information concerning the exercise
of options by each of the officers listed in the Summary Compensation Table
above during fiscal 1999, including the aggregate amount of gains on the
date of exercise. In addition, the table includes the number of shares
covered by both exercisable and unexercisable stock options as of December
31, 1999. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our common stock as
of December 31, 1999, as determined by the closing price of our common stock
on that date as reported by NASDAQ.
<TABLE>
Number of Value of Unexercised
Unexercised In-the-Money Options
Shares Value at Fiscal Year-End at Fiscal Year-End
Acquired On Realized Exercisa- Unexer- Exercisa- Unexer-
Name Exercise (#) $(1) ble cisable ble(2) cisable
<S> <C> <C> <C> <C> <C> <C>
Stephen 610,397 3,411,240 46,750 - - -
Altro
David 610,397 3,411,240 46,750 - - -
Mars
Ron 158,478 505,550 - - - -
Goldenberg
</TABLE>
1) "Value Realized" represents the fair market value of the shares of
common stock underlying the option on the date of exercise less the
aggregate exercise price of the option.
2) Closing stock price on December 31,1999 was $6.50.
Employment Agreements
Stephen Altro
We have entered into an employment agreement with Mr. Altro, expiring
on October 31, 2000. Pursuant to such agreement, Mr. Altro is
employed as Chairman, and has agreed to devote his full time and
efforts to our business. Under the terms of Mr. Altro's employment
agreement, we agreed to pay Mr. Altro a base salary of Canadian
$240,000 (approximately U.S. $162,000 as of December 31, 1999). Such
employment agreement also provides that Mr. Altro will be entitled to
increases in compensation and bonus payments at such time and in the
amounts determined by the Compensation Committee of the Board of
Directors, whose decisions will be based upon a number of factors
including our performance and the performance of Mr. Altro. See
"Board Compensation Committee Report on Executive Compensation". The
employment agreement further provides that Mr. Altro is precluded from
competing with us (i) during the term of his employment by us, or
(ii) for a period of two years after termination of employment by us
if such termination is for cause. The employment agreement also
provides that if within 24 months following a change in our control,
Mr. Altro's employment is terminated, he would be entitled to receive
an amount equal to 2.99 times the average of his annual compensation
(including any bonuses) for the past five years, unless such
termination is for cause. Termination of employment includes
termination by Mr. Altro if within 24 months after such change in
control he determines in good faith that there has occurred an adverse
change with respect to the terms of his employment.
David Mars
We have entered into an employment agreement with Mr. Mars, expiring
on October 31, 2000. Pursuant to such agreement, Mr. Mars is employed
as Vice Chairman, and has agreed to devote his full time and efforts.
Under the terms of Mr. Mars' employment agreement, we agreed to pay
Mr. Mars a base salary of Canadian $240,000 (approximately U.S.
$162,000 as of December 31, 1999). Such employment agreement also
provides that Mr. Mars will be entitled to increases in compensation
and bonus payments at such time and in the amounts determined by the
Compensation Committee of the Board of Directors, whose decisions will
be based upon a number of factors including our performance of the
Company and the performance of Mr. Mars. See "Board Compensation
Committee Report on Executive Compensation". The employment agreement
further provides that Mr. Mars is precluded from competing with us (i)
during the term of his employment by us, or (ii) for a period of two
years after termination of employment by us if such termination is
for cause. The employment agreement also provides that if within 24
months following a change in our control, Mr. Mars' employment is
terminated, he would be entitled to receive an amount equal to 2.99
times the average of his annual compensation (including any bonuses)
for the past five years, unless such termination is for cause.
Termination of employment includes termination by Mr. Mars if within
24 months after such change in control he determines in good faith
that there has occurred an adverse change with respect to the terms of
his employment.
Board Compensation Committee Report on Executive Compensation
General. The Compensation Committee's overall compensation policy
applicable to our executive officers is to provide a compensation
package that is intended to attract and retain qualified executives
for us and to provide them with incentives to achieve our goals and
increase shareholder value. The Compensation Committee implements this
policy through salaries, bonuses, stock options, a retirement savings
plan, and employment agreements and miscellaneous personal benefits.
Salaries. The Compensation Committee's policy is to provide salaries
(i) that are approximately at the median of the salaries paid to
similar executive officers in similar companies, adjusted in the
Compensation Committee's subjective judgment to reflect differences in
duties of the officers and differences in the size and stage of
development of the companies, in order to attract and retain qualified
executives and (ii) that compensate individual employees for their
individual contributions and performance. The Compensation Committee
determines comparable salaries paid by other companies similar to us
through its subjective evaluation of its members' knowledge of
salaries paid by other companies, salary requests of individuals
interviewed by us for open positions and recommendations of
management. The Committee subjectively evaluates this information and
our financial resources and prospects to determine the salary and
severance arrangements for an executive officer. Salaries for fiscal
1999 were determined based on a subjective evaluation of the factors
described above, without giving any specific priority or weighting to
any of the factors.
Bonuses. The Compensation Committee's policy is to recommend bonuses
that compensate executive officers for achieving our goals. In
addition, the Compensation Committee's policy is to pay discretionary
bonuses, determined near the end of the fiscal year, to compensate
executive officers for performance or achievements during the fiscal
year not covered by bonuses paid earlier in the year.
Stock Options. The Compensation Committee's policy is to award stock
options to each of our officers, employees and directors in amounts
reflecting the participant's position and ability to influence our
overall performance, determined based on the Committee's subjective
judgment after reviewing the number of options previously granted to
such person, the number of options granted to persons in similar
positions both with us and at other companies deemed comparable to us
(based on the members' knowledge of options granted by other
companies), the number of options remaining available for grant and
management's recommendations. Options are intended to provide
participants with an increased incentive to make contributions to our
long-term performance and growth, to join the interests of
participants with the interests of our shareholders and to attract and
retain qualified employees. The number of options granted to an
executive in 1999 were granted as an inducement for employment.
The Compensation Committee's policy is to grant options with a term of
ten years to provide a long-term incentive and to fix the exercise
price of the options at the fair market value of the underlying shares
on the date of grant. Such options only provide compensation if the
price of the underlying shares increases. The Committee's policy is
also to provide new executives with options to attract them to us
based on negotiations with new executives, management's
recommendations and the Committee's subjective judgment primarily
after reviewing the number of options granted to similar executives.
Generally, the Compensation Committee reserves the right to pay
compensation to our executives in amounts it deems appropriate
regardless of whether such compensation is deductible for federal
income tax purposes. Options granted to executives in fiscal 1997 are
potentially subject to limits on permitted federal income tax
deductions upon exercise of such options, including under current
treasury regulations concerning the $1,000,000 cap on executive
compensation deductions under Section 162(m) of the Internal Revenue
Code of 1986, as amended. The Committee determined to recommend the
grants of options to executives in July 1997 despite such options
potentially being subject to the $1,000,000 cap on executive
compensation. The Committee determined that such grants were more
important to us than the potential loss of related compensation
deductions upon exercise of the options.
Retirement Savings Plan. We have adopted a group retirement savings
plan for our Canadian employees. We contribute to this plan the
lesser of (a) 50% of the employee's contribution to this plan; (b) 3%
of the employee's gross earnings; or (c) Canadian $3,000 per employee.
During the year ended December 31, 1999, we contributed approximately
$27,000 to the plan.
Employment Agreements and Miscellaneous Personal Benefits. The
Compensation Committee's policy has been to have employment agreements
with each of its executive officers to provide them with specified
minimum positions, periods of employment, salaries, fringe benefits
and severance benefits. These benefits are intended to permit the
executive officer to focus his attention on performing his duties to
us, rather than on the security of his employment, and to provide the
officer with benefits deemed by the Compensation Committee to be
suitable for the executive's office.
By the Compensation Committee
James B. Rybakoff
Elliot L. Bier
Performance Graph
The following graph tracks an assumed investment of $100 on the last
trading day of the calendar year indicated below in our common stock,
the NASDAQ Stock Market and the NASDAQ Non-Financial Stocks sector,
assuming full reinvestment of dividends. Past performance is not
necessarily indicative of future performance.
APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK
OPTION PLAN
(Proposal 2)
Our Board of Directors proposes that you approve an amendment to our
Amended and Restated 1993 Stock Option Plan. The following is a fair
and complete summary of the plan as proposed to be amended. This
summary is qualified in its entirety by reference to the full text of
the plan which appears as Exhibit A to this document.
The Board of Directors has adopted, subject to shareholder approval,
an amendment to the plan increasing the number of shares available for
options under the plan from 300,000 to 600,000. Under the current
terms of the plan, only 237,000 shares remain available for granting
options. The need for additional shares is a result of the Company's
policy of providing an opportunity to its employees to acquire,
through the grant of stock options, the right to share in the success
of the Company. The Company believes that its continued ability to
provide such incentives to the Company's employees, will enable the
Company to attract employees with outstanding abilities and to retain
such employees. This will also assist the Company in continuing its
policy of providing compensation to its employees which is more
closely related to the performance of the Company.
Summary of the Plan
The plan provides for the granting of options that are intended to
qualify either as incentive stock options within the meaning of
section 422 of the Internal Revenue Code or as nonstatutory stock
options that are not intended to meet the requirements of such
section. Under the terms of the plan incentive stock options may be
granted only to key employees of the Company while nonstatutory stock
options may be granted to all employees and non-employee directors of
the Company. All employees and directors of the Company are eligible
to participate in the plan. As of July 31, 2000, all 2 non-employee
directors and approximately 40 employees are eligible to participate
in the plan.
The plan is administered by the Stock Option Committee which has full
discretionary authority, subject to certain restrictions, to determine
the number of shares for which options may be granted, as well as the
individuals to whom, the times at which and the exercise price for
which options will be granted. The plan provides that non-employee
directors will receive automatic grants of nonqualified options to
purchase 500 shares four times each year. In the event of certain
changes in the common stock of the Company, appropriate adjustments
will be made by the Stock Option Committee in the aggregate number of
shares available under the plan and in the number of shares and
exercise price subject to outstanding options.
The exercise price for all incentive stock options granted under the
plan must be at least equal to the fair market value of such shares on
the date of grant, or in the case of incentive stock options granted
to a holder of 10% or more of the Company's common stock, at least
110% of the fair market value of such shares on the date of grant. As
of July 31, 2000, the fair market value of a share of common stock,
determined by the last sale price per share of common stock on such
date, as quoted on the Nasdaq Small-Cap Market, was $2.25.
The maximum exercise period for which incentive stock options may be
granted is ten years (five years in the case of an individual owning
more than 10% of the Company's common stock). The aggregate fair
market value, determined as of the date of grant, of shares with
respect to which incentive stock options are first exercisable by the
holder of the option during any calendar year shall not exceed
$100,000. If such amount exceeds $100,000, the Stock Option Committee
may, when the options are exercised and the shares are transferred to
the optionee, designate those shares which will be treated as
incentive stock options and those which will be treated as
nonstatutory stock options.
Because participation and the types of awards available for grant
under the plan are generally subject to the discretion of the Stock
Option Committee, the benefits or amounts that any participant or
groups of participants may receive under the plan are not currently
determinable. However, as a group, non-employee directors have
received options to purchase a total of 40,500 shares under the plan
to date and a total of 63,000 awards have been granted under the plan
The plan may be amended or terminated at any time by the Board of
Directors, however, any amendment increasing the number of shares of
common stock reserved to the plan must be approved by the affirmative
vote of a majority of the shareholders.
Federal Income Tax Consequences
The following is a general summary of the current federal income tax
treatment of stock options based upon the current provisions of the
Internal Revenue Code and regulations promulgated thereunder.
Nonstatutory Stock Options
Upon the grant of a nonstatutory stock option, the optionee will not
recognize any income for tax purposes. Upon the exercise of a
nonstatutory stock option, the optionee will recognize ordinary income
equal to the excess (if any) of the fair market value of the shares
received at the time of exercise over the exercise price. The Company
will be entitled to a tax deduction at the same time and in the same
amount as the optionee realizes such income. Any amount that an
optionee is required to include in ordinary income will be treated as
compensation income taxable as ordinary income. The optionee will
have the obligation of making provisions acceptable to the Company for
the payment of the withholding taxes upon the exercise of a
nonstatutory stock option. Upon the sale of the shares received
pursuant to the exercise, the optionee will recognize capital gain or
loss measured by the difference between the amount realized on the
sale and the fair market value of the shares at the time of exercise
of the option. Such capital gain or loss will be short-term or
long-term, depending upon the length of time the shares were held by
the optionee.
Incentive Stock Options
Under section 422 of the Internal Revenue Code, an employee does not
recognize income at the time of the grant or exercise of an incentive
stock option, except as provided below.
In order to qualify for the beneficial tax treatment under section 422
of the Internal Revenue Code, an optionee may not dispose of the
common stock acquired upon the exercise of an incentive stock option
within two years of the date of the grant of the option or within one
year after he or she exercises the option. Upon the sale of the
shares in compliance with the holding period rules, the optionee will
recognize capital gain or loss measured by the difference between the
amount realized on the sale and the price paid for the shares. Should
an optionee fail to comply with the holding periods, his or her gain
on the sale of the shares will be treated as ordinary income to the
extent of the excess of the fair market value of the shares at the
time of exercise over the exercise price. The Company will be allowed
a deduction at the time of sale in the amount of the ordinary income
realized by the optionee. The balance of any gain realized will be
treated as long-term or short-term gain, depending upon the length of
time the shares were held by the optionee.
If shares acquired by the exercise of an incentive stock option are
sold prior to satisfying the holding period rules, at a price less
than the fair market value of such shares at exercise, the optionee's
ordinary income (and the Company's deduction) will not exceed the
excess of the amount realized on such sale over the exercise price.
Since the "spread" on exercise of an incentive stock option (i.e., the
excess of the fair market value of the shares at the time of exercise
over the exercise price) constitutes an item of tax preference for
purposes of the alternative minimum tax, under certain circumstances,
the exercise of an incentive stock option will result in a tax at the
time of exercise of the option. However, a credit against regular tax
(but not alternative minimum tax) is allowed in the year of the sale
of the shares for alternative minimum tax attributable to the spread
paid in prior years. Also in determining alternative minimum tax for
the year of sale of the shares acquired upon the exercise of an
incentive stock option, only the excess of the sale price over the
fair market value of the shares on the date of exercise is included in
alternative minimum income.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF THE
COMPANY'S COMMON STOCK REPRESENTED AT THE ANNUAL MEETING OF
SHAREHOLDERS IN PERSON OR BY PROXY AND ENTITLED TO VOTE WILL BE
NECESSARY FOR SHAREHOLDER APPROVAL OF THE AMENDMENT. THE BOARD
RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE AMENDMENT TO THE
AMENDED AND RESTATED 1993 STOCK OPTION PLAN.
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CHARTERED ACCOUNTANTS
(Proposal 3)
Upon the recommendation of the Audit Committee of the Board of
Directors, none of the members of which is one of our officers, the
Board of Directors has selected the firm of KPMG LLP, independent
chartered accountants, as our principal independent auditors for the
year ending December 31, 2000, subject to ratification by the
shareholders. KPMG served as our independent auditors during 1999.
If the appointment of the firm of KPMG is not approved or if that firm
shall decline to act or their engagement is otherwise discontinued,
the Board of Directors will appoint other independent auditors.
Representatives of KPMG are not expected to be present at the meeting.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE RATIFICA-
TION OF THE APPOINTMENT OF KPMG LLP.
OTHER MATTERS
Our 1999 Annual Report is being mailed to shareholders
contemporaneously with this Proxy Statement. We know of no other
matters to be brought before the meeting. If other matters should
properly come before the meeting, proxies will be voted on such
matters in accordance with the best judgment of the persons appointed
by the proxies.
We will bear all costs in connection with the solicitation of proxies
for the meeting. We intend to request brokerage houses, custodians,
nominees and others who hold stock in their names to solicit proxies
from the persons who own stock, and such brokerage houses, custodians,
nominees and others will, at their request, be reimbursed for their
out-of-pocket expenses and reasonable clerical expenses. In addition
to the use of the mails, solicitation may be made by our employees
personally or by mail or telephone to the extent necessary in order to
assure sufficient representation. No outside proxy solicitation firm
is expected to be employed by us in respect of the meeting as of the
date of this Proxy Statement.
Shareholder Proposals for the 2001 Annual meeting
Shareholder proposals for the 2001 Annual meeting must be received by
us at our principal executive offices set forth above not later than
December 28, 2000 in order to be included in our proxy materials.
By order of the Board of Directors
Ken Cieply
Secretary
Dated: August __, 2000
PLEASE COMPLETE, DATE, SIGN AND RETURN YOUR PROXY PROMPTLY
EXHIBIT A
GRAND TOYS INTERNATIONAL, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
1. Purpose of the plan. The Grand Toys International, Inc. Amended and
Restated 1993 Stock Option Plan (the "Plan") is intended to advance
the interests of Grand Toys International, Inc. (the "Company") by
inducing persons of outstanding ability and potential to join and
remain with the Company, by encouraging and enabling employees to
acquire proprietary interests in the Company, and by providing the
participating employees with an additional incentive to promote the
success of the Company. This is accomplished by providing for the
granting of "Options" (which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later
defined), to qualified employees. In addition, the Plan also
provides for the granting of "Nonstatutory Stock Options" to all
non-employee Directors of the Company, as consideration for their
services and for attending meetings of the Board of Directors.
2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of at least two (2) Directors chosen by the
Board of Directors, each of which is a "disinterested person" as
such term is defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Except as
herein specifically provided, the interpretation and construction by
the Committee of any provision of the Plan or of any Option granted
under it shall be final and conclusive. The receipt of Options by
Directors, or any members of the Committee, shall not preclude their
vote on any matters in connection with the administration or
interpretation of the Plan, except as otherwise provided by law.
3. Shares subject to the Plan. The stock subject to grant under the
Plan shall be shares of the Company's common stock, $.001 par value
(the "Common Stock"), whether authorized but unissued or held in the
Company's treasury or shares purchased from shareholders expressly
for use under the Plan. The maximum number of shares of Common
Stock which may be issued pursuant to Options granted under the Plan
shall not exceed one million five hundred thousand (1,500,000)
shares (restated to three hundred thousand (300,000) shares upon the
one to five reverse split of August 4, 1997), subject to adjustment
in accordance with the provisions of Section 13 hereof. The Company
shall at all times while the Plan is in force reserve such number of
shares of Common Stock as will be sufficient to satisfy the
requirements of all outstanding Options granted under the Plan. In
the event any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part,
the unpurchased shares subject thereto shall again be available for
Options under this Plan.
4. Stock Option Agreement. Each Option granted under the Plan shall be
authorized by the Committee and shall be evidenced by a Stock Option
Agreement which shall be executed by the Company and by the person
to whom such Option is granted. The Stock Option Agreement shall
specify the number of shares of Common Stock as to which any Option
is granted, the period during which the Option is exercisable and
the option price per share thereof.
5. Discretionary Grant Participation. The class of persons which shall
be eligible to receive discretionary grants of Options under the
Plan shall be all key employees (including officers) of either the
Company or any subsidiary corporation of the Company. Such persons
shall be entitled to receive (i) Incentive Stock Options, as
described in Section 7 hereafter and (ii) Nonstatutory Stock
Options, as described in Section 8 hereafter. The Committee, in its
sole discretion, but subject to the provisions of the Plan, shall
determine the employees of the Company or its subsidiary
corporations to whom Options shall be granted and the number of
shares to be covered by each Option taking into account the nature
of the employment or services rendered by the individuals being
considered, their annual compensation, their present and potential
contributions to the success of the Company and such other factors
as the Committee may deem relevant.
6. Non-Employee Director Participation. On January 1st, April 1st, July
1st and October 1st of each year during the term of the Plan,
commencing with January 1, 1994, non-employee Directors of the
Company then serving in such capacity, shall each be granted an
Option to purchase 2,500 shares (restated to five hundred (500)
shares upon the one to five reverse split of August 4, 1997) of the
Company's Common Stock. The option price of the shares subject to
such Options shall be the fair market value (as defined in Section 7
(f) hereafter) of the Company's Common Stock on the date such
Options are granted. All of such Options shall be Nonstatutory
Stock Options, as described in Section 8 hereafter. The Options
granted pursuant to this Section 6 shall vest immediately upon grant
and shall be exercisable for a period of ten (10) years.
7. Incentive Stock Options. The Committee may grant Options under the
Plan which are intended to meet the requirements of Section 422 of
the Internal Revenue Code of 1986 (the "Code) (such an Option
referred to herein as an "Incentive Stock Option"), and which are
subject to the following terms and conditions and any other terms
and conditions as may at any time be required by Section 422 of the
Code:
(a) No Incentive Stock Option shall be granted to individuals other
than key employees of the Company or of a subsidiary corporation
of the Company.
(b) Each Incentive Stock Option under the Plan must be granted prior
to June 29, 2003, which is within ten (10) years from the date
the Plan was adopted by the Board of Directors.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value of the
Common Stock at the time such Incentive Stock Option is granted;
provided, however, if an Incentive Stock Option is granted to an
individual who owns, at the time the Incentive Stock Option is
granted, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of a
subsidiary corporation of the Company, the option price of the
shares subject to the Incentive Stock Option shall be at least
one hundred ten percent (110%) of the fair market value of the
Common Stock at the time the Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Plan shall be
exercisable after the expiration of ten (10) years from the date
of its grant. However, if an Incentive Stock Option is granted
to an individual who owns, at the time the Incentive Stock
Option is granted, more than ten (10%) of the total combined
voting power of all classes of stock of the Company or of a
subsidiary corporation such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date
of its grant. Every Incentive Stock Option granted under the
Plan shall be subject to earlier termination as expressly
provided in Section 11 hereof.
(e) For purposes of determining stock ownership under this Section
7, the attribution rules of Section 425 (d) of the Code shall
apply.
(f) For purposes of the Plan, fair market value shall be determined
by the Committee and, if the Common stock is listed on a
national securities exchange or traded on the Over-the-Counter
market, the fair market value shall be the closing price of the
Common Stock on such exchange, or on the Over-the-Counter market
as reported by the National Quotation Bureau, Incorporated, as
the case may be, on the day on which the Option is granted or on
the day on which the Option is granted or on the day on which a
determination of fair market value is required under the Plan,
or, if there is no trading or closing price on that day, the
closing price on the most recent day preceding the day for which
such prices are available.
8. Nonstatutory Stock Options. The Committee may grant Options under
the plan which are not intended to meet the requirements of Section
422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code, but the terms of which
provide that they will not be treated as Incentive Stock Options
(referred to herein as a "Nonstatutory Stock Option"). Nonstatutory
Stock Options which are not intended to meet these requirements
shall be subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any person
eligible to receive an Option under the Plan pursuant to Section
5 hereof, except that no such Option may be granted to any
person who owns stock possessing more than 10% of the total
combined voting power or value of all classes of stock of the
Company or its parent or subsidiary corporation.
(b) Persons eligible to receive Nonstatutory Stock Options pursuant
to Section 6 hereof are granted Options automatically under the
Plan, without any determination by the Committee.
(c) Subject to the price provisions of Section 6 hereof, the option
price of the shares subject to a Nonstatutory Stock Option shall
be determined by the Committee, in its absolute discretion, at
the time of the grant of the Nonstaturory Stock Option.
(d) Subject to the provisions of Section 6 hereof, a Nonstatutory
Stock Option granted under the Plan may be of such duration as
shall be determined by the Committee (not to exceed 10 years),
and shall be subject to earlier termination as expressly
provided in Section 11 hereof.
9. Rights of Option Holders. The holder of any Option granted under
the Plan shall have none of the rights of a shareholder with respect
to the shares covered by his Option until such shares shall be
issued to him upon the exercise of his Option.
10. Transferability. No Option granted under the Plan shall be
transferable by the individual to whom it was granted otherwise than
by Will or the laws of decent and distribution, and, during the
lifetime of such individual, shall not be exercisable by any other
person, but only by him.
11. Termination of Employment or Death.
(a) If the employment of an employee by the Company or any
subsidiary of the Company shall be terminated voluntarily by the
employee or for cause, then his Options shall expire forthwith.
Except as provided in subsections (b) and (c) of this Section
11, if such employment or services shall, terminate for any
other reason, then such Options may be exercised at any time
within three (3) months after such termination, subject to the
provisions of subparagraph (e) of this Section 11. For purposes
of the Plan, the retirement of an individual either pursuant to
a pension or retirement plan adopted by the Company or at the
normal retirement date prescribed from time to time by the
Company shall be deemed to be termination of such individual's
employment other than voluntarily or for cause. For purposes of
this subparagraph, an employee who leaves the employ of the
Company to become an employee of a subsidiary corporation of the
Company or a corporation (or subsidiary or parent corporation of
the corporation) which has assumed the Option of the Company as
a result of a corporate reorganization, etc., shall not be
considered to have terminated his employment.
(b) If the holder of any Options under the Plan dies (i) while
employed by the company or a subsidiary of the Company, or (ii)
within three (3) months after the termination of his employment
or services other than voluntarily by the employee or for cause,
then such Options may, subject to the provisions of subparagraph
(e) of this Section 11, be exercised by the estate of the
employee or by a person who acquired the right to exercise such
Options by bequest or inheritance or by reason of the death of
such employee at any time within one (1) year after such death.
(c) If the holder of any Options under the Plan ceases employment
because of permanent and total disability (with the meaning of
Section 22 (e)(3) of the Code) while employed by the Company or
a subsidiary of the Company, then such Options may, subject to
the provision of subparagraph (e) of this Section 11, be
exercised at any time within one (1) year after his termination
of employment due to this disability.
(d) If the services of a non-employee Director of the Company shall
be terminated by the Company for cause, then his options shall
expire forthwith. If such services shall terminate for any
other reason (including the death or disability of a non-
employee Director), then such Options may be exercised at any
time within three (3) years after such termination, subject to
the provisions of subparagraph (e) of this Section 11. In the
event of the death of non-employee Director, his Options may be
exercised by his estate or by a person who acquired the right to
exercise such Options by bequest or inheritance or by reason of
the death of such non-employee Director at any time within three
(3) years after such death.
(e) An Option may not be exercised pursuant to this Section 11
except to the extent that the holder was entitled to exercise
the Option at the time of termination of employment, termination
of Directorship, or death, and in any event may not be exercised
after the expiration of the Option.
(f) For purposes of this Section 11, the employment relationship of
an employee of the Company or of a subsidiary corporation of the
Company will be treated as continuing intact while he is on
military or sick leave or other bona fide leave of absence (such
as temporary employment by the Government) if such leave does
not exceed ninety (90) days, or, of longer, so long as his right
to reemployment is guaranteed either by statute or by contract.
12. Exercise of Options.
(a) Unless otherwise provided in the Stock Option Agreement, any
Option granted under the Plan shall be exercisable in whole at
any time, or in part from time to time, prior to expiration.
The Committee, in its absolute discretion, may provide in any
Stock Option Agreement that the exercise of any option granted
under the Plan shall be subject (i) to such condition or
conditions as it may impose, including but not limited to, a
condition that the holder thereof remain in the employ or
service of the Company or a subsidiary corporation of the
company for such period or periods of time from the date of
grant of the Option, as the Committee, in its absolute
discretion, shall determination; and (ii) to such limitations as
it may impose, including, but not limited to, a limitation that
the aggregate fair market value of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first
time by any employee during any calendar year (under all plans
of the Company and its parent and subsidiary corporations) shall
not exceed One Hundred Thousand Dollars ($100,000). In
addition, in the event that under any Stock Option Agreement the
aggregate fair market value of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time
by any employee during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) exceeds One
Hundred Thousand Dollars ($100,000) the Committee may, when
shares are transferred upon exercise of such Options, designate
those shares which shall be treated as transferred upon exercise
of an Incentive Stock Option and those shares which shall be
treated as transferred upon exercise of a Nonstatutory Stock
Option.
(b) An Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal
office (attention of the Secretary) of written notice of the
number of shares with respect to which the Option is being
exercised. Such notice shall be accompanied by payment of the
full option price of such shares, and payment of such option
price shall be made by the holder's delivery of his check
payable to the order of the Company; provided, however, that
notwithstanding the foregoing provisions of this Section 12 or
any other terms, provisions or conditions of the Plan, at the
written request of the optionee and upon approval by the Board
of Directors or the Committee, shares acquired pursuant to the
exercise of any Option may be paid for in full at the time of
exercise by the surrender of shares of Common Stock of the
company held by or for the account of the optionee at the time
if exercise to the extent permitted by subsection (c) (5) of
Section 422 of the Code and, with respect to any person who is
subject to the reporting requirements of Section 16 (a) of the
Exchange Act, to the extent permitted by Section 16 (b) of the
Exchange Act and the Rules of the Securities and Exchange
Commission, without liability to the Company. In such case, the
fair market value of the surrendered shares shall be determined
by the Committee as of the date of exercise in the same manner
as such value is determined upon the grant of an Incentive Stock
Option.
13. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter
changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination
of shares, stock dividends or the like, an appropriate
adjustment shall be made by the Committee in the aggregate
number of shares available under the Plan and in the number of
shares and option price per share subject to outstanding
Options. If the Company shall be reorganized, consolidated or
merged with another corporation, or if all of substantially all
of the assets of the Company shall be sold or exchanged, the
holder of an Option shall, at the time of issuance of the stock
under such a corporate event, be entitled to receive upon the
exercise of his Option the same number and kind of shares of
stock or the same amount of property, cash or securities as he
would have been entitled to receive upon the happening of such
corporate event as if he had been, immediately prior to such
event, the holder of the number of shares covered by his Option;
provided, however, that in such event the Committee shall have
the discretionary power to take any action necessary or
appropriate to prevent any Incentive Stock Option granted
hereunder from being disqualified as an "incentive stock option"
under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option
granted hereunder. If fractions of a share would result from
any such adjustment, the adjustment shall be revised to the next
lower whole number of shares.
14. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the shares issuable
upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), the notice of exercise shall be
accompanied by a representation or agreement of the individual
exercising the Option to the Company to the effect that such
shares are being acquired for investment and not with a view to
the resale of distribution thereof or such other documentation
as may be required by the Company unless in the Opinion of
Counsel to the Company such representation, agreement or
documentation is not necessary to comply with the Securities
Act.
(b) The Company shall not be obligated to deliver any Common Stock
until it has been listed on each securities exchange on which
the Common Stock may then be listed or until there has been
qualification under or compliance with such state or federal
laws, rules or regulations as the Company may deem applicable.
The Company shall use reasonable efforts to obtain such listing,
qualifications and compliance.
15. Effectiveness of the Plan. The Plan was originally adopted by
the sole Director of the Company on June 18, 1993. The Plan was
approved by the affirmative vote of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy
at a meeting of shareholders of the Company convened for such
purpose on June 29, 1993.
16. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan)
shall terminate on June 29, 2003, which is within ten (10) years
from the date of its adoption by the Board of Directors, or
sooner as hereinafter provided, and no Option shall be granted
after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of
the outstanding shares of capital stock of the Company present
in person or by proxy at a meeting of shareholders of the
Company convened for such purpose; provided, however, that
Section 6 of the Plan may not be amended more than once every
six (6) months, other than to comply with changes in the Code,
the Employee Retirement Income Security Act, or the rules
thereunder.
(c) The Board of Directors may at any time, on or before the
termination date referred to in Section 16 (a) hereof, terminate
the Plan, or from time to time make such modifications or
amendments to the Plan as it may deem advisable; provided,
however, that the Board of Directors shall not, without approval
by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company present in
person or by proxy at a meeting of shareholders of the Company
convened for such purpose, increase (except as provided by
Section 13 hereof) the maximum number of shares as to which
Incentive Stock Options may be granted, or change the
designation of the employees or class of employees eligible to
receive Options or make any other change which would prevent any
Incentive Stock Option granted hereunder which is intended to be
an "incentive stock option" from disqualifying as such under the
then existing provisions of the Code or any law amendatory
thereof or supplemental thereto.
(d) No termination, modification or amendment of the Plan, may
without the consent of the individual to whom an Option shall
have been previously granted, adversely affect the rights
conferred by such Option.
17. Not a Contract of Employment.. Nothing contained in the Plan or
in any Stock Option Agreement executed pursuant hereto shall be
deemed confer upon any individual to whom an Option is or may be
granted hereunder any right to remain in the employ or service of
the Company or a subsidiary corporation of the Company.
18. Use of Proceeds. The proceeds from the sale of shares pursuant
to Options granted under the Plan shall constitute general funds of
the Company.
19. Indemnification of Board of Directors or Committee. In addition
to such other rights of indemnification as they may have, the
members of the Board of Directors or the Committee, as the case may
be, shall be indemnified by the Company to the extent permitted
under applicable law against all costs and expenses reasonably
incurred by them in connection with any action, suit or proceeding
to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any
rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of
any such action, suit or proceeding, except a judgment based upon a
finding of bad faith. Upon the institution of any such action, suit
or preceding, the member or members of the Board of Directors or the
Committee, as the case may be, shall notify the Company in writing,
giving the Company an opportunity at its own cost to defend the same
before such member or members undertake to defend the same on their
own behalf.
20. Definitions. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same
meanings a set forth in Sections 425 (e) and 425 (f) of Code,
respectively, and the masculine shall include the feminine and the
neuter as the context requires.
21. Governing Law. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the law of
the State of New York.
GRAND TOYS INTERNATIONAL, INC.
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