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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section
240.14a-12
NATURAL WONDERS, 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)(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 (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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[Logo]
NATURAL WONDERS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1998
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to
attend the Annual Meeting of Stockholders of Natural Wonders, Inc., a
Delaware corporation (the "Company"), to be held on June 10, 1998 at 9:00
a.m. at the principal offices of the Company, located at 4209 Technology
Drive, Fremont, California 94538, for the following purposes:
1. To elect two (2) Class II directors to hold office until the 2001 Annual
Meeting of Stockholders and until their respective successors are elected
and qualified.
2. To approve amendments to the Natural Wonders, Inc. 1993 Amended and
Restated Omnibus Stock Option Plan (the "Stock Plan") (i) to increase the
maximum aggregate number of shares of Common Stock that may be issued under
the Stock Plan from 2,000,000 shares to 2,500,000 shares, (ii) to increase
the limit on the number of shares of Common Stock underlying options
granted to one optionee within any fiscal year from 100,000 shares to
200,000 shares, and (iii) to increase the limit on the number of shares of
Common Stock underlying options granted in the form of a one-time grant to
a newly-hired employee from 200,000 shares to 700,000 shares.
3. To approve an amendment to the Natural Wonders, Inc. 1993 Outside Directors
Stock Option Plan (the "Directors Plan") to increase the maximum number of
shares of Common Stock of the Company which may be issued under the
Directors Plan from 150,000 shares to 250,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending January 30, 1999.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on April 29, 1998 are
entitled to notice of, and to vote at, this meeting and any continuation or
adjournments thereof.
By Order of the Board of Directors
PEARSON C. CUMMIN III
CHAIRMAN
Fremont, California
May 18, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
VOTING RIGHTS ............................................................ 1
NOMINATION AND ELECTION OF DIRECTORS ..................................... 2
Meetings of the Board of Directors and Committees...................... 3
Compensation of Directors.............................................. 4
PROPOSAL TO AMEND THE 1993 OMNIBUS STOCK PLAN............................. 5
Summary of 1993 Omnibus Stock Plan as amended.......................... 5
Summary of United States Federal Income Tax Consequences of Stock
Options.............................................................. 9
PROPOSAL TO AMEND THE 1993 OUTSIDE DIRECTORS STOCK PLAN................... 12
Summary of 1993 Outside Directors Stock Plan as amended................ 12
Summary of United States Federal Income Tax Consequences of Stock
Options.............................................................. 13
APPOINTMENT OF INDEPENDENT AUDITORS....................................... 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 15
EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 18
EXECUTIVE OFFICER COMPENSATION AND OTHER MATTERS.......................... 20
Compensation of Executive Officers..................................... 20
Stock Options Granted in Fiscal 1997................................... 22
Option Exercises and Fiscal 1997 Year-End Values....................... 23
Employment Contracts and Change of Control Arrangements................ 24
Compliance with Section 16(a) of the Securities Exchange Act of 1934... 24
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION............ 25
Overview and Policies for Fiscal Year 1997............................. 25
Chief Executive Officer Compensation................................... 26
Deductibility of Executive Compensation................................ 26
COMPARISON OF STOCKHOLDER RETURN.......................................... 28
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING.............. 29
TRANSACTION OF OTHER BUSINESS............................................. 29
</TABLE>
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PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
NATURAL WONDERS, INC.
4209 TECHNOLOGY DRIVE
FREMONT, CALIFORNIA 94538
(510) 252-9600
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Natural Wonders, Inc., a Delaware
corporation (the "Company"), of Proxies for use at the Annual Meeting of
Stockholders to be held on June 10, 1998, or any adjournment thereof (the
"Annual Meeting"), for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. This Proxy Statement and accompanying Proxy
are first being sent to stockholders on approximately May 18, 1998. The cost
of the solicitation of Proxies will be borne by the Company. The Board may
use the services of the Company's directors, officers and others to solicit
Proxies, personally or by telephone. The Board may also arrange with
brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of the stock held of record by
such persons and the Company may reimburse them for their reasonable
out-of-pocket expenses incurred in so doing. The Annual Report for the fiscal
year ended January 31, 1998 ("Fiscal 1997"), including financial statements,
is being mailed to stockholders concurrently with the mailing of this Proxy
Statement.
VOTING RIGHTS
The voting securities of the Company entitled to vote at the Annual
Meeting consist of shares of Common Stock. Only stockholders of record at the
close of business on April 29, 1998 are entitled to notice of and to vote at
the Annual Meeting. On that date, there were 8,087,476 shares of the
Company's Common Stock outstanding. Each share of Common Stock is entitled to
one vote. The Company's Bylaws provide that a majority of all of the shares
of the stock entitled to vote, whether present in person or by Proxy, shall
constitute a quorum for the transaction of business at the meeting. If an
executed Proxy is submitted without any instruction for the voting of such
Proxy, the Proxy will be voted in favor of the proposals described.
All shares represented by valid Proxies received prior to the Annual
Meeting will be voted and, where a stockholder specifies by means of the
Proxy a choice with respect to any matter to be acted upon, the shares will
be voted in accordance with the specifications so made. A stockholder who
signs and returns a Proxy will have the power to revoke it at any time before
it is voted. A Proxy may be revoked by filing with the President of the
Company a written revocation or duly executed Proxy bearing a later date, or
by appearing at the Annual Meeting and electing to vote in person.
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than February 10, 1999.
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PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
classes, with the classes serving for staggered three year terms. Currently,
there is one director in Class III (and one vacancy), and two directors each
in Class I and Class II. Two Class II directors are to be elected at the
Annual Meeting, whose term will then expire at the Annual Meeting of
Stockholders in 2001. The term of each Class I director will expire at the
Annual Meeting of Stockholders in 2000. The term of each Class III director
will expire at the Annual Meeting of Stockholders in 1999.
The Board's two nominees for election as Class II directors at the
Annual Meeting are Peter G. Hanelt and Julius Jensen III, the current Class
II members of the Board of Directors. If elected, the nominees will serve as
directors until the earlier to occur of (i) the Company's Annual Meeting of
Stockholders in 2001 or (ii) their resignation or the vacancy of their office
as a result of death, removal, or other cause in accordance with the Bylaws
of the Company. The Board knows of no reason why any nominee should be unable
or unwilling to serve. However, if any nominee should for any reason be
unable or unwilling to serve, the Proxies will be voted for such substitute
nominee as Management may designate. Proxies may not be voted for more than
two nominees.
THE BOARD RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN. If a
quorum is present and voting, the nominees for Class II director receiving
the highest number of votes will be elected as Class II directors.
Abstentions and broker non-votes will be counted as present for purposes of
determining if a quorum is present. Abstentions will have the same effect as
a negative vote. Broker non-votes will have no effect on the vote.
The name of the Class II nominees for directors and certain information
about them are set forth below. The names of directors and certain
information about the Class I and Class III directors with unexpired terms
are also set forth below.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE
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<S> <C> <C> <C>
NOMINEES FOR CLASS II DIRECTORS:
Peter G. Hanelt Interim President, Interim Chief Executive 52 1997
Officer, Chief Operating Officer, Chief
Financial Officer and Director
Julius Jensen III Director 64 1996
CONTINUING CLASS I DIRECTORS WHOSE TERMS WILL EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2000:
Peter L. Harris Director 54 1997
David H. Folkman Director 63 1998
CONTINUING CLASS III DIRECTOR WHOSE TERMS WILL EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 1999:
Pearson C. Cummin III Director and Chairman of the Board 55 1988
</TABLE>
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PEARSON C. CUMMIN III has served as Chairman of the Board since March
1997 and a director of the Company since July 1988. Mr. Cummin has served as
a general partner of Consumer Venture Partners, a venture capital investment
firm since January 1986. Mr. Cummin is a director of Pacific Sunwear of
California, Inc. and of Boston Beer Company, Inc.
PETER G. HANELT has served as a director of the Company since March 1997
and as the Chief Operating Officer and Chief Financial Officer of the Company
since February 1998. Additionally, Mr. Hanelt was appointed Interim President
and Interim Chief Executive Officer effective May 1, 1998. In 1997, Mr.
Hanelt served as a Retail and Wholesale Consumer Products Consultant. Mr.
Hanelt served as Chief Operating Officer and Chief Financial Officer of
Esprit De Corp, an apparel manufacturer, wholesaler and retailer, from
October 1993 to February 1997, and as President, Retail Division of Esprit De
Corp. from August 1995 to April 1996. Also, Mr. Hanelt served as Vice
President, Finance and Operations of Saint Francis Memorial Hospital, a
private teaching hospital from September 1992 to October 1993, and Acting
Chief Operating Officer and Chief Financial Officer of Post Tool, Inc., a
retailer of power and hand tools, from August 1990 to September 1992. Mr.
Hanelt is a director of the Shoe Pavilion, Inc.
DAVID H. FOLKMAN has served as a director of the Company since February
1998. Mr. Folkman has served as Principal of Regent Pacific Management Corp.,
a retail consulting firm, since January 1991. Additionally, Mr. Folkman
served as Chief Executive Officer and President of Esprit De Corp., an
apparel manufacturer, wholesaler and retailer, from March 1993 to July 1995.
Previous to this, Mr. Folkman served as General Partner of U.S. Venture
Partner from April 1987 to December 1990 and as Chief Executive Officer and
President of The Emporium from March 1982 to March 1987. Mr. Folkman is a
director of the Shoe Pavilion, Inc.
PETER L. HARRIS has served as a director of the Company since January
1997. Mr. Harris has served as Chairman, Chief Executive Officer and
President of Expressly Portraits, a family portrait studio chain, since
August 1995. Previously, Mr. Harris served as Chairman and Chief Executive
Officer of Accolade, Inc., a publisher of interactive entertainment software,
from May 1994 to August 1995. He has also served as President of Phoenix
Retailing since July 1992, as President and Chief Executive Officer of FAO
Schwarz from August 1985 to July 1992 and as President of Gemco Department
Stores from February 1980 to September 1984. Mr. Harris is a director of
Hollywood Park, Inc., On-Sale, Inc. and Pacific Sunwear of California, Inc.
JULIUS JENSEN III has served as a director of the Company since February
1996. Mr. Jensen has served as a general partner of Copley Venture Partners,
a venture capital investment firm since April 1982. Mr. Jensen is a director
of Pacific Sunwear of California, Inc.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During Fiscal 1997, the Board of Directors held four meetings. The Board
of Directors has two standing committees: the Audit Committee and the
Compensation Committee. The Company does not have a nominating committee of
the Board. No director attended fewer than 75% of the board meetings or of
the Committee meetings upon which such director served.
The members of the Audit Committee are Pearson C. Cummin III, Peter G.
Hanelt and Julius Jensen III. The functions of the Audit Committee include
(i) recommending the independent auditors to the Board, (ii) reviewing and
approving the planned scope of the annual audit, proposed fee arrangements
and the results of the annual audit, (iii) reviewing the annual and quarterly
financial reports with the auditors and management and (iv) setting the scope
and reviewing the results of the internal audit function. Two face-to-face
meetings of the Audit Committee were held in Fiscal 1997. In addition, the
Audit Committee convened quarterly telephone meetings.
The members of the Compensation Committee are Pearson C. Cummin III, Julius
Jensen III and Peter
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L. Harris. The function of the Compensation Committee is to make
recommendations concerning salary and incentive compensation for officers and
employees of the Company. One meeting of the Compensation Committee was held
in Fiscal 1997.
COMPENSATION OF DIRECTORS
Two of the Company's directors, Pearson C. Cummin III and Julius Jensen
III, did not receive any cash compensation for their services as members of
the Board of Directors during Fiscal 1997. Three of the Company's directors,
Peter G. Hanelt, Peter L. Harris, and David H. Folkman, have compensation
agreements for their services as members of the Board of Directors whereby
they are paid $3,000 per fiscal quarter, plus $500 per in person committee
meeting they attend. As a result, total cash compensation for Mr. Hanelt and
Mr. Harris was $12,500 each. Inasmuch as Mr. Folkman was appointed to the
Board of Directors of the Company in February 1998, no compensation was paid
to him during Fiscal 1997. The Company also reimburses its Directors for
expenses incurred in attending each Board and Committee meeting. In Fiscal
1997, Mr. Hanelt also received consulting fees totaling $18,392, including
expenses, for services performed related to the Company's distribution system
and the implementation of the Company's new computer software system.
The Company's 1993 Outside Directors Stock Option Plan (the "Directors
Plan") provides that upon initial election to the Board, each new
non-employee director will receive a one-time grant of an option to purchase
12,000 shares of the Company's Common Stock. The Directors Plan also provides
for subsequent grants to each non-employee director, on each anniversary date
of the initial grant, of an option to purchase 4,000 shares of Common Stock.
The exercise price of all options granted to directors has been at fair
market value at the date of grant, and the options vest over three years.
See "Proposal Three" of this Proxy Statement for more detail regarding
the Directors Plan.
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PROPOSAL TWO
AMENDMENT TO THE AMENDED AND RESTATED NATURAL WONDERS, INC.
1993 OMNIBUS STOCK PLAN
(ITEM 2 ON THE PROXY CARD)
The Company's Board of Directors and the stockholders have previously
adopted and approved the Amended and Restated Natural Wonders, Inc. 1993
Omnibus Stock Option Plan (the "Stock Plan"), under which 1,710,000 shares of
the Company's common stock initially were reserved for issuance upon exercise
of options granted by the Company (the "Option Shares"). In June 1997, the
maximum aggregate number of Option Shares that may be issued under the Stock
Plan was increased to 2,000,000. As of April 29, 1998, options to purchase a
total of 1,567,450 shares of the Common Stock of the Company had already been
granted, and currently there are only 432,550 Option Shares reserved for
issuance that have not yet been granted.
Due to the limited number of Option Shares remaining, in May 1998 the
Board adopted, subject to stockholder approval, the amendments to the Stock
Plan which are the subject of this Proposal Two. These amendments would: (i)
increase the maximum aggregate number of Option Shares that may be issued
under the Stock Plan from 2,000,000 shares to 2,500,000 shares, (ii) increase
the limit on the number of shares of Common Stock underlying options granted
to one optionee within any fiscal year from 100,000 shares to 200,000 shares,
and (iii) increase the limit on the number of shares of Common Stock
underlying options granted in the form of a one time grant to a newly-hired
employee from 200,000 shares to 700,000 shares.
At the Annual Meeting, the stockholders are being asked to approve and
ratify the foregoing amendments to the Stock Plan . The Board believes that
an increase in the Option Shares from 2,000,000 shares to 2,500,000 shares is
important because it will provide the Company with the flexibility to grant
stock options that the Company believes will be required to attract and
retain quality senior management, and to facilitate the future growth of the
Company.
The Board also believes that it is in the best interest of the Company
to increase the limit on the number of Option Shares issuable to any one
optionee in a given year from 100,000 to 200,000, and to increase the limit
on the number of Option Shares issuable in the form of a one time grant to
any new employee from 200,000 to 700,000. The Board believes that these
increases are necessary to enable the Company to provide adequate incentives
to new senior management it plans to hire in the coming year, in particular a
new Chief Executive Officer and Chief Financial Officer.
SUMMARY OF THE STOCK PLAN
The following summary of the Stock Plan is qualified in its entirety by
the specific language of the Stock Plan, a copy of which is available to any
stockholder upon request.
GENERAL. The Stock Plan permits the grant of incentive or nonqualified
stock options and awards of restricted stock, performance shares, performance
units, stock appreciation rights or phantom stock to eligible employees and
consultants of the Company. Appropriate adjustments will be made to the
shares subject to the Stock Plan and to any outstanding option or award in
the event of any stock dividend, stock split, reverse stock split,
recapitalization, merger, consolidation, exchange of shares, combination,
reclassification or similar change in the Company's capital structure. To the
extent that any outstanding option or award expires or terminates, or shares
subject to repurchase by the Company are repurchased, the shares subject to
the expired or terminated portion of such option or award or such repurchased
shares are returned to the Stock Plan and become available for future grants.
ADMINISTRATION. The Stock Plan is administered by the Board or a duly
appointed committee of the Board. With respect to the participation of
individuals who are subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Stock Plan must be administered in
compliance with the
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requirements of Rule 16b-3 under the Exchange Act. Subject to the provisions
of the Stock Plan, the Board or the committee determines the persons to whom
grants of options or other awards are to be made, the number of shares to be
covered by each option or award, the terms of vesting and all other terms and
conditions of the options and other awards. The Board or committee will
interpret the Stock Plan and options and awards granted under the plan, and
all determinations of the Board or committee will be final and binding on all
persons having an interest in the Stock Plan or any option or award.
ELIGIBILITY. All employees (including officers and directors who are
also employees) and consultants or other independent contractors of the
Company or any parent or subsidiary corporations of the Company are eligible
to participate in the Stock Plan. In addition, options and other awards may
also be granted to prospective employees, consultants or other independent
contractors in connection with written offers of employment or engagement.
As of March 31, 1998, approximately 2,300 persons were eligible to
participate in the Stock Plan.
STOCK OPTIONS. The Company intends that compensation related to options
granted under the Stock Plan qualify for the "performance-based compensation"
exemption under Section 162(m) of the Code. To qualify for such exemption,
the Stock Plan limits the number of shares for which options may be granted
to any employee within any fiscal year to a maximum of 100,000, provided that
a new employee may receive an additional one-time grant of an option for up
to a maximum of 200,000 shares. In May 1998, the Board amended the Stock
Plan, subject to stockholder approval, to increase these maximum limits to
200,000 and 700,000, respectively. These limits will be adjusted, as
appropriate, for stock splits or other changes in the capitalization of the
Company,
Options granted under the Stock Plan may be "incentive stock options"
within the meaning of Section 422 of the Code or nonqualified stock options.
Each option is evidenced by a written agreement between the Company and the
optionee specifying the number of shares subject to the option and the other
terms and conditions of the option, consistent with the requirements of the
Stock Plan. The exercise price of an incentive stock option must be no less
than 100%, and the exercise price of a nonqualified stock option must be no
less than 85%, of the fair market value of a share of the Company's Common
Stock on the date of grant. However, any incentive stock option granted to a
person who owns stock possessing more than 10% of the voting power of the
Company's outstanding stock must have an exercise price of no less than 110%
of the fair market value of a share of the Company's Common Stock on the date
of grant. On March 31, 1998, the closing sale price per share of the
Company's Common Stock, as reported on the Nasdaq National Market, was
$4.125. Generally, options may be exercised by payment of the exercise price
in cash, by check or in cash equivalent, by tender of shares of the Company's
Common Stock owned by the optionee having a fair market value not less than
the exercise price, by a recourse promissory note in a form approved by the
Company by the assignment of the proceeds of a sale of some or all of the
shares of Common Stock being acquired upon the exercise of the option, or by
any combination of these. However, the Board or committee may restrict the
forms of payment permitted in connection with any option grant
Options granted under the Stock Plan will become exercisable at such
times as specified by the Board or committee either in the original grant or
by subsequent amendment of an option, and generally become exercisable in
installments subject to continued employment with the Company. Unless
otherwise determined by the Board in granting an option, options granted
under the Stock Plan have a term of ten years. Options are nontransferable by
the optionee other than by will or by the laws of descent and distribution,
and are exercisable during the optionee's lifetime only by the optionee.
RESTRICTED STOCK. Each award of restricted stock under the Stock Plan is
evidenced by a written agreement between the Company and the participant
specifying the number of shares subject to the award and the other terms and
conditions of the award, consistent with the requirements of the Stock Plan.
No monetary payment is required in connection with an award of restricted
stock. Restricted stock is subject to restrictions on
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transfer by the participant during a period established by the Board. Until
the termination of the applicable period of restriction, no restricted stock
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated other than by will or by the laws of descent and distribution.
All rights with respect to restricted stock may be exercised only by the
participant during his or her lifetime.
PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board or committee may
award performance shares or performance units (together, "performance
awards") under the Stock Plan pursuant to which participants may receive
shares of the Company's Common Stock without monetary payment therefor,
cash, or a combination of both if and to the extent that performance goals
established by the Board are attained during a performance period. The
participant is not required to make any monetary payment to receive a
performance award. Performance goals represent one or more threshold levels
of attainment of one or more measures of business performance as specified in
the written award agreement between the participant and the Company. The
Board or committee must establish the performance goals applicable to a
performance award prior to the start of the performance period for such
award, or such later date as permitted under Section 162(m) of the Code. The
Board or committee may base the performance goals on one or more of the
following measures of business performance: revenue, operating income,
pre-tax profit, net income, gross margin, operating margin, earnings per
share, return on stockholder equity, return on capital, return on assets,
cash flow, and debt reduction. Such terms will have the same meaning as used
in the Company's financial statements, or, if not used therein, the meaning
applied pursuant to generally accepted accounting principles. The measures of
business performance may be absolute or relative to a standard selected by
the Board or committee. Attainment of the performance goals will be measured
on a consolidated, divisional or other business unit basis, as determined by
the Board or committee, before the effect of changes in accounting standards,
restructuring charges, and similar extraordinary items, determined according
to criteria established by the Board.
Performance awards may be granted by the Board in the form of
performance shares or performance units. Performance shares and performance
units are bookkeeping units denominated in shares of stock or dollar amounts,
respectively, which represent a right to receive the value of the units upon
the attainment of the applicable performance goals within the performance
period. Each performance share has an initial value equal to the fair market
value of a share of Common Stock on the date of the award, while each
performance unit has an initial value of $100. The ultimate value of a
performance award depends on the extent to which the pre-established
performance goals are achieved and, in the case of performance shares, the
change in the value of the Common Stock during the performance period.
The Board or committee will specify in a written agreement between the
participant and the Company evidencing each performance award the number of
performance shares or performance units awarded, the applicable performance
goals and performance period and all other terms and conditions of the award,
consistent with the requirements of the Stock Plan. However, subject to
appropriate adjustment for stock splits or other changes in the Company's
capital structure, no award of performance shares may permit a participant to
receive more than 25,000 shares of Common Stock for each full fiscal year
contained in the applicable performance period, and no award of performance
units may permit a participant to receive more than $500,000 for each full
fiscal year contained in the applicable performance period.
Following completion of the performance period for a performance award,
the Board or committee must certify in writing the extent to which the
performance goals have been attained. The participant will then be entitled
to receive payment of the value of the performance shares or performance
units actually earned in cash, shares of stock, or in any combination thereof
in a lump sum or in installments as determined by the Board, or if the Board
permits, as determined by the participant. All rights under a performance
award are exercisable only by the participant and may not be sold;
transferred, pledged; assigned, or otherwise alienated or hypothecated except
by will or the laws of descent and distribution. The Company intends that
compensation related to performance awards under the Stock Plan qualify for
the "performance-based compensation" exemption under Section 162(m) of the
Code.
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STOCK APPRECIATION RIGHTS. The Board or committee may award stock
appreciation rights ("SARs") under the Stock Plan either alone
("Freestanding SARs") or in tandem with stock options granted under the plan
("Tandem SAR"). Each SAR is a right to receive payment equal to the
appreciation in the market value of a stated number of shares of Common Stock
from the SAR's exercise price to the market value on the date of the SAR's
exercise.
A Tandem SAR may be granted either at the time of grant of the related
option or at any time thereafter in the case of a nonqualified stack option.
A Tandem SAR is exercisable to the extent its related option is exercisable,
and its exercise price is the same as the exercise price of the related
option. Upon the exercise of a Tandem SAR, the related option is canceled for
the number of shares covered by the exercise of the SAR. Similarly, a Tandem
SAR is canceled for the same number of shares for which its related option is
exercised.
A Freestanding SAR is exercisable at such times and subject to such
terms and conditions as the Board or committee establishes, and its exercise
price will be no less than the fair market value of the Common Stock on the
date of grant. Freestanding SARs may not be exercisable for a term of more
than ten years.
Payment upon the exercise of an SAR may be made in cash, shares of
stock, or in any combination thereof in a lump sum or in; installments as
determined by the Board, or if the Board permits, as determined by the
participant. The Company intends that compensation related to SARs granted
under the Stock Plan qualify for the "performance based compensation"
exemption under Section 162(m) of the Code. To qualify for such exemption,
the Stock Plan limits the number of shares for which SARs may be granted to
any employee within any fiscal year to a maximum of 100,000, provided that a
new employee may receive an additional one-time grant of an SAR for up to a
maximum of 200,000 shares. These limits are subject to appropriate adjustment
for stock splits or other changes in the capitalization of the Company. All
rights under an SAR are exercisable only by the participant and may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
except by will or the laws of descent and distribution.
PHANTOM STOCK. The Board or committee may grant phantom stock awards
under the Stock Plan and will not require any monetary payment therefor. Each
unit of phantom stock awarded under the Stock Plan represents the right to
receive payment equal to the value of the unit at the time of settlement of
such award. As specified by the Board or committee in a written agreement
between the participant and the Company, the value of a unit of phantom stock
may be either the fair market value of a share of Common Stock or the
appreciation in the market value of a share of Common Stock from the date of
award to its settlement date. The Board or committee will determine and set
forth in the agreement the terms, conditions, restrictions and/or performance
goals governing the settlement of the phantom stock award.
Upon the settlement of a phantom stock award, the Company will pay to
the participant the value of each phantom stock unit in cash, shares of
stock, or any combination thereof in a lump sum or in installments as
determined by the Board, or if the Board permits, as determined by the
participant. The Company intends that compensation related to SARs granted
under the Stock Plan qualify for the "performance-based compensation"
exemption under Section 162(m) of the Code to the extent permitted under
regulations promulgated pursuant to Section 162(m). The Stock Plan limits the
number of phantom stock units which may be granted to any employee within any
fiscal year to a maximum of 100,000 provided that a new employee may receive
an additional one-time grant for up to a maximum of 200,000 phantom stock
units. These limits are subject to appropriate adjustment for stock splits or
other changes in the capitalization of the Company. All rights under a
phantom stock award are exercisable only by the participant and may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
except by will or the laws of descent and distribution.
RIGHTS AS A STOCKHOLDER. A participant will have no rights as a stock
holder with respect to an option or award under the Stock Plan until shares of
Common Stock are issued to the participant. Participants awarded
8
<PAGE>
restricted stock may vote such shares and will be entitled to any dividends
paid with respect to such shares. However, the Board may provide that such
dividends will be accumulated and paid only to the extent that the shares
become nonforfeitable. In the discretion of the Board, participants awarded
performance shares or phantom stock may be paid dividend equivalents, which
may be accumulated and paid to the extent that such awards are paid. In
addition, the Board may provide for payment of dividend equivalents in the
event that the issuance of stock upon the exercise of any option or payment
of any award is delayed or deferred.
TRANSFER OF CONTROL. A "Transfer Control" will be deemed to occur upon
any of the following events in which the stockholders of the Company do not
retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company or its successor: (i) the direct
or indirect sale or exchange by the stockholders of the Company of all or
substantially all of the stock of the Company, or (ii) a merger in which the
Company is a party. A Transfer of Control will also occur in the event of the
sale, exchange or transfer of all or substantially all of the assets of the
Company other than to one or more corporations at least a majority of the
voting stock of which is beneficially owned by the stockholders of the
Company or a liquidation or dissolution of the Company. In the event of a
Transfer of Control of the Company, the Board may arrange with the surviving,
continuing, successor, or purchasing corporation or parent corporation
thereof (the "Acquiring Corporation") either to assume the Company's rights
and obligations under or substitute substantially equivalent rights for
outstanding options, stock appreciation rights, restricted stock and phantom
stock. If the Acquiring Corporation does not assume or substitute new rights
for such outstanding options and awards, any unexercisable and/or unvested
portions of the outstanding stock options, stock appreciation rights,
restricted stock and phantom stock will become immediately exercisable and/or
fully vested, as the case may be. Alternatively, the Board may grant stock
options, stock appreciation rights, restricted stock or phantom stock awards
providing that such options and awards will automatically become immediately
exercisable and/or fully vested upon any Transfer of Control. Upon any
Transfer of Control, all holders of outstanding performance shares and
performance units for which the performance period has not ended prior to the
Transfer of Control will be paid immediately prior to the Transfer of Control
the target amount that would have been earned had the performance goals
applicable to the award been attained at the 100% level, pro rated on the
basis of the portion of the performance period elapsed prior to the Transfer
of Control.
TERMINATION OR AMENDMENT. All options and awards must be granted, if at
all, prior to April 27, 2005. The Board or committee may terminate or amend
the Stock Plan at any time, but, without stockholder approval, the Board of
Directors may not amend the Stock Plan to increase the total number of
shares of Common Stock covered by the Stock Plan or to change the class of
persons eligible to participate in the Stock Plan.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law with respect
to participation in the Stock Plan and does not attempt to describe all
possible federal or other tax consequences of such participation.
Furthermore, the tax consequences of options are complex and subject to
change, and a taxpayer's particular situation may be such that some variation
of the described rules is applicable.
INCENTIVE STOCK OPTIONS. Options designated as incentive stock options
are intended to fall within the provisions of Section 422 of the Code. An
optionee recognizes no taxable income as the result of the grant or exercise
of such an option.
For optionees who do not dispose of their shares for two years following
the date the option was granted nor within one year following the transfer of
the shares upon exercise of the option, the gain on sale of the shares (which
is the difference between the sale price and the purchase price of the
shares) will be taxed as long-term capital gain. If an optionee satisfies
such holding periods upon a sale of the shares, the Company will not be
entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years
9
<PAGE>
after the date of grant or within one year from the date of exercise (a
"disqualifying disposition"), the difference between the fair market value of
the shares on the date of exercise and the option exercise price (not to
exceed the gain realized on the sale if the disposition is a transaction with
respect to which a loss, if sustained, would be recognized) will be taxed as
ordinary income at the time of disposition. Any gain in excess of that amount
will be a capital gain. If a loss is recognized, there will be no ordinary
income; and such loss will be a capital loss. A capital gain or loss will be
long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disposition of the shares
should be deductible by the Company for federal income tax purposes, except
to the extent such deduction is limited by Section 162(m) of the Code, as
described above.
The difference between the option exercise price and the fair market
value of the shares on the determination date of an incentive stock option
(which is generally the date of exercise) is an adjustment in computing the
optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if such tax exceeds the regular tax for
the year. Special rules may apply with respect to certain subsequent sales of
the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
NONQUALIFIED STOCK OPTIONS. Options not designated as incentive stock
options Will be nonqualified stock options. Nonqualified stock options have
no special tax status. An optionee generally recognizes no taxable income as
the result of the grant of such an option.
Upon the exercise of a nonqualified stock option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
exercise price and the fair market value of the shares on the determination
date (which is generally the date of exercise). If the optionee is an
employee, such ordinary income generally is subject to withholding of income
and employment taxes. The "determination date" is the date on which the
option is exercised unless the shares are not vested and/or the sale of the
shares at a profit would subject the optionee to suit under Section 16(b) of
the Exchange Act, in which case the determination date is the later of (i)
the date on which the shares vest, or (ii) the date the sale of the shares at
a profit would no longer subject the optionee to suit under Section 16(b) of
the Exchange Act. (Section 16(b) of the Exchange Act generally is applicable
only to officers, directors and beneficial owners of more than 10% of the
Common Stock of the Company.) If the determination date is after the exercise
date, the optionee may elect, pursuant to Section 83(b) of the Code, to have
the exercise date be the determination date by filing an election with the
Internal Revenue Service not later than 30 days after the date the option is
exercised. Upon the sale of stock acquired by the exercise of a nonqualified
stock option, any gain or loss, based on the difference between the sale
price and the fair market value on the date of recognition of income, will be
taxed as capital gain or loss. A capital gain or loss will be long-term if
the optionee's holding period is more than 12 months from the determination
date. No tax deduction is available to the Company with respect to the grant
of a nonqualified option or the sale of the stock acquired pursuant to such
option. The Company should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonqualified option, except to the extent such deduction is limited by
Section 162(m) of the Code, as described above.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NUMBER TWO. The affirmative
vote of a majority of the votes cast at the Annual Meeting at which a quorum
representing a majority of all outstanding shares of common stock of the
Company is present and voting, either in person or by Proxy, is required for
approval of this proposal. Abstentions and broker non-votes will be counted
as present for purposes of determining if a quorum is present. Abstentions
will have the same effect as a negative vote. Broker non-votes will have no
effect on the vote.
The Board of Directors believes that the amendments of the Stock Plan
(i) to increase the maximum aggregate number of shares of Common Stock
issuable under the Stock Plan by 500,000 shares from 2,000,000
10
<PAGE>
to 2,500,000 shares, (ii) to increase the limit on the number of shares of
Common Stock underlying options granted to one optionee within any fiscal
year from 100,000 shares to 200,000 shares, and (iii) to increase the limit
on the number of shares of Common Stock underlying options granted in the
form of a one-time grant to a newly-hired employee from 200,000 shares to
700,000 shares, are in the best interests of the stockholders and the Company
for the reasons stated above.
11
<PAGE>
PROPOSAL THREE
AMENDMENT TO THE NATURAL WONDERS, INC.
1993 OUTSIDE DIRECTORS STOCK OPTION PLAN
(ITEM 3 ON THE PROXY CARD)
The Company's Board of Directors and the stockholders have previously
adopted and approved the 1993 Outside Directors Stock Option Plan (the
"Directors Plan"), under which 150,000 shares of the Company's common stock
have been reserved for issuance upon exercise of options granted by the
Company (the "Directors Shares"). As of April 29, 1998, options to purchase a
total of 93,334 shares of the Common Stock of the Company have already been
granted under the Directors Plan. Due to the limited number of Directors
Shares remaining, in May 1998 the Board adopted, subject to stockholder
approval, an amendment to the Directors Plan to increase the maximum number
of shares of Common Stock of the Company which may be issued under the
Directors Plan from 150,000 shares to 250,000 shares.
At the Annual Meeting, the stockholders are being asked to approve and
ratify the foregoing amendment to the Directors Plan. The Board believes that
an increase in the maximum number of shares of Common Stock of the Company
which may be issued under the Directors Plan from 150,000 shares to 250,000
shares is important so as to provide the Company with the flexibility to
grant stock options that the Company believes will be required to attract and
retain quality outside directors and to facilitate the future growth of the
Company.
SUMMARY OF THE DIRECTORS PLAN
The following summary of the Directors Plan is qualified in its entirety
by the specific language of the Directors Plan, a copy of which is available
to any stockholder upon request.
GENERAL. The Directors Plan provides for the granting of non-qualified
stock options to non-employee directors of the Company. All options under the
Plan must be granted, if at all, within ten years from June 8, 1998, the
effective date of the Directors Plan. Appropriate adjustments will be made to
the shares subject to the Directors Plan and to any outstanding option or
award in the event of any stock dividend, stock split, reverse stock split,
recapitalization, merger, consolidation, exchange of shares, combination,
reclassification or similar change in the Company's capital structure.
ADMINISTRATION. The Directors Plan is administered by the Board or a
duly appointed committee of the Board. The Board or committee will interpret
the Directors Plan and options and awards granted under the plan, and all
determinations of the Board or committee will be final and binding on all
persons having an interest in the Directors Plan or any option or award.
ELIGIBILITY. Options may be granted under the Directors Plan only to
directors of the Company who are not employees of the Company and/or any
subsidiary corporations of the Company. All options granted under the
Directors Plan shall be nonqualified stock options.
OPTIONS. Under the Directors Plan, upon being elected to the Board, each
non-employee director automatically receives an option to purchase 12,000
shares of the Company's Common Stock at an exercise price equal to the fair
market value on the date of the grant. The fair market value is determined by
the average of the high and low prices of a sale of a share of the Company's
Common Stock on the NASDAQ System. On each one-year anniversary of such
director's election to the Board, provided the director continues to serve as
a director on such anniversary date, an option to purchase 4,000 shares will
be granted at the fair market value on that date. Any option granted under
the Plan is exercisable for a term of ten years. During the lifetime of a
non-employee director, an option granted to a director is exercisable only by
such director.
TRANSFER OF CONTROL. A "Transfer Control" will be deemed to occur upon any
of the following events:
12
<PAGE>
(i) the direct or indirect sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Company, or (ii) a
merger of the Company in which the stockholders of the Company do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company or its successor: (iii) the direct or indirect
sale or exchange by the stockholders of the Company of all or substantially
all of the stock of the Company. In the event of a Transfer of Control of the
Company, any unexercisable portion of an option becomes immediately
exercisable on a date prior to the Transfer of Control.
TERMINATION OR AMENDMENT. The Board, or a duly appointed committee of
the Board, may terminate or amend the Directors Plan at any time, provided,
however, that without approval of the Company's stockholders, the Board may
not: (i) increase the total number of shares covered by the Directors Plan;
or (ii) expand the class of persons eligible to receive nonqualified stock
options.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
For a summary of the tax consequences of the options granted under the
Directors Plan, see the discussion on nonqualified stock options under
"Proposal Two; Summary of United States Federal Income Tax Consequences of
Stock Options."
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NUMBER THREE. The affirmative
vote of a majority of the votes cast at the Annual Meeting at which a quorum
representing a majority of all outstanding shares of common stock of the
Company is present and voting, either in person or by Proxy, is required for
approval of this proposal. Abstentions and broker non-votes will be counted
as present for purposes of determining if a quorum is present. Abstentions
will have the same effect as a negative vote. Broker non votes will have no
effect on the vote.
The Board of Directors believes that the amendment to the Directors Plan
to increase the maximum number of shares of Common Stock of the Company which
may be issued under the Directors Plan from 150,000 shares to 250,000 shares
is in the best interests of the stockholders and the Company for the reasons
stated above.
13
<PAGE>
PROPOSAL FOUR
APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP to serve as independent
auditors to audit the financial statements of the Company for the fiscal year
ending January 30, 1999. Deloitte & Touche LLP has acted in such capacity
since its appointment for fiscal 1988. Representatives of Deloitte & Touche
LLP will be present at the Annual Meeting, will be given the opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NUMBER FOUR. In the event
that ratification by the stockholders of the appointment of Deloitte & Touche
LLP as the Company's independent auditors is not obtained, the Board will
reconsider such appointment.
The affirmative vote of a majority of the votes cast at the Annual
Meeting, at which a quorum representing a majority of all outstanding shares
of Common Stock of the Company is present and voting, either in person or by
Proxy, is required for approval of this proposal. Abstentions and broker
non-votes will be counted as present for purposes of determining if a quorum
is present. Abstentions will have the same effect as a negative vote. Broker
non-votes will have no effect on the vote.
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
owner ship of the Company's Common Stock as of March 31, 1998, by (i) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock of the Company,
(ii) each of the Company's directors, (iii) the Named Executive Officers (as
defined below), and (iv) all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Amount Percent of
Name of Beneficial Owner or Group of Beneficial Common Stock
and Nature of Beneficial Ownership(1) Ownership Outstanding
- ------------------------------------- ------------- ------------
<S> <C> <C>
Consumer Venture Partners I, L.P.(2) 1,170,720 14.5%
Three Pickwick Plaza
Greenwich, CT 06830
Robert S. Rubenstein(3) 878,704 10.9%
2341 El Camino Real
Redwood City, CA 94063
Centennial Associates, L.P(4) 680,100 8.4%
900 Third Avenue
New York, NY 10022
Norwest Equity Partners IV(5) 410,058 5.1%
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Copley Partners 2, L.P.(6) 409,074 5.1%
Federal Reserve Plaza
600 Atlantic Plaza, 13th Floor
Boston, MA 02110
Grace & White(7) 555,900 6.9%
515 Madison Ave, Suite 1700
New York, NY 10022
Pearson C. Cummin III(8) 1,190,721 14.7%
Peter G. Hanelt(9) 12,400 *
David H. Folkman(10) 20,000 *
Peter L. Harris(11) 4,000 *
Julius Jensen III(12) 447,507 5.5%
Kathleen M. Chatfield(13) 131,633 1.6%
Karen A. Daley(14) 6,251 *
15
<PAGE>
Teresa L. Rutherford(15) 10,688 *
Judith A. Soares(16) 6,167 *
Michael Sontag -- --
Michael J. Waide 19,199 *
All directors and executive officers 1,848,566 22.4%
as a group (11 persons) (17)
</TABLE>
- ----------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable. The table is based upon information
supplied by the directors, officers and principal stockholders.
(2) According to a Schedule 13G filed with the Securities and Exchange
Commission, (the "SEC"), dated February 11, 1998, Consumer Venture
Partners I, L.P. has shared voting and investment power for all of such
shares with Consumer Venture Associates, L.P., Consumer Venture
Partners II, L.P., Consumer Venture Associates II, L.P.,
Christopher P. Kirchen and Pearson C. Cummin, III. Mr. Cummin,
a director of the Company, is a general partner of Consumer Venture
Associates, L.P., the sole general partner of Consumer Venture
Partners I, L.P., and a general partner of Consumer Venture
Associates II, L.P., the sole general partner of Consumer Venture Partners
II, L.P. See footnote 8.
(3) Includes 44,400 shares held in trust for the benefit of Mr. Rubenstein's
children and 3,000 shares held by Mr. Rubenstein's wife for herself and as
custodian for her children. Mr. Rubenstein disclaims beneficial ownership
of such shares.
(4) According to a Schedule 13D, as amended, filed with the SEC dated March 20,
1996 and information supplied by Centennial subsequent to that date.
(5) According to a Schedule 13G filed with the SEC dated February 3, 1998,
Norwest Equity Partners IV has shared voting and investment power with
respect to such shares with its affiliates Itasca Partners, Robert F.
Zicarelli and Daniel J. Haggerty.
(6) According to a Schedule 13G filed with the SEC dated February 10, 1994,
Copley Partners 2, L.P. has shared voting and investment power with respect
to all of such shares. Mr. Jensen, a director of the Company, is a general
partner of Copley Partners 2, L.P. See footnote 11.
(7) According to written information provided to the Company, Grace & White,
Inc. holds sole voting power with respect to 25,000 of the shares, but
holds no voting power (whether sole, shared or otherwise) with respect to
the additional 530,900 shares of which it is beneficial owner. The Company
has been informed, but has not independently verified, that Grace & White,
Inc. is an Investment Advisor registered under Section 203 of the
Investment Advisors Act of 1940.
(8) Includes 20,001 shares subject to stock options which are exercisable
within 60 days of March 31, 1998,
16
<PAGE>
and 1,170,720 shares beneficially owned by Consumer Venture Partners I,
L.P. and Consumer Venture Partners II, L.P. In his capacity as a general
partner of Consumer Venture Associates, L.P., the sole general partner
of Consumer Venture Partners, I, L.P., and as a general partner of
Consumer Venture Associates II, L.P., the sole general partner of
Consumer Venture Partners II, L.P., Mr. Cummin has shared voting and
investment power with respect to all such 1,170,720 shares and may be
deemed to beneficially own such shares. Mr. Cummin disclaims beneficial
ownership of such shares. See footnote 2.
(9) Includes 4,000 shares subject to stock options exercisable within 60 days
of March 31, 1998 and 900 shares held by Peter G. Hanelt, an Accountancy
Corporation.
(10) All of such 20,000 shares are held by the Folkman Living Trust dated June
12, 1990, of which Mr. Folkman and his wife are co-trustees.
(11) All of such 4,000 shares are subject to stock options, which are
exercisable within 60 days of March 31, 1998.
(12) Includes 9,334 shares subject to stock options, which are
exercisable within 60 days of March 31, 1998. Also includes 20,000
shares held by Mr. Jensen's wife, and 409,074 shares beneficially owned
by Copley Partners 2, L.P., of which Mr. Jensen is a general partner. In
his capacity as a general partner of Copley Partners 2, L.P., Mr. Jensen
has shared voting and investment power with respect to all 409,074
shares and may be deemed to beneficially own such shares. Mr. Jensen
disclaims beneficial ownership of such shares. See footnote 7.
(13) Includes 114,833 shares subject to stock options, which are exercisable
within 60 days of March 31, 1998.
(14) All of such 6,251 shares subject to stock options, which are exercisable
within 60 days of March 31, 1998.
(15) All of such 10,688 shares are subject to stock options, which are
exercisable within 60 days of March 31, 1998.
(16) All of such 6,167 shares are subject to stock options, which are
exercisable within 60 days of March 31, 1998.
(17) Includes 175,274 shares subject to stock options, which are exercisable
within 60 days of March 31, 1998.
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of May 8, 1998 are as
follows:
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
Peter G. Hanelt 52 Interim President, Interim Chief Executive Officer,
Chief Operating Officer, Chief Financial
Officer and Director
Sheila S. Arnold 43 Senior Vice President, General Merchandising
Manager
Roxanne P. Kurkjian 50 Vice President, Merchandising Administration
And Planning
Peter W. Rusnak 32 Vice President, Real Estate
Teresa L. Rutherford 42 Vice President, Merchandising and Product
Development
William J. Soncini 43 Vice President, Operations
</TABLE>
PETER G. HANELT has served as a director of the Company since March 1997
and as the Chief Operating Officer and Chief Financial Officer of the Company
since February 1998. Additionally, Mr. Hanelt was appointed Interim President
and Interim Chief Executive Officer effective May 1, 1998. In 1997, Mr. Hanelt
served as a Retail and Wholesale Consumer Products Consultant. Mr. Hanelt served
as Chief Operating Officer and Chief Financial Officer of Esprit De Corp, an
apparel manufacturer, wholesaler and retailer, from October 1993 to February
1997, and as President, Retail Division of Esprit De Corp. from August 1995 to
April 1996. Also, Mr. Hanelt served as Vice President, Finance and Operations of
Saint Francis Memorial Hospital, a private teaching hospital from September 1992
to October 1993, and Acting Chief Operating Officer and Chief Financial Officer
of Post Tool, Inc., a retailer of power and hand tools, from August 1990 to
September 1992. Mr. Hanelt is a director of the Shoe Pavilion, Inc.
SHEILA S. ARNOLD has served as Senior Vice President, General Merchandising
Manager since October 1997. Prior to joining the Company, she served as Senior
Vice President, Merchandising and Marketing of Sunglass Hut International, Inc.,
a publicly traded specialty retailer of eyewear, from July 1994 to March 1997,
and as President of Merchandising of Macy's West, a division of R.H. Macy and
Company, a national department store chain, from February 1992 to March 1994.
ROXANNE P. KURKJIAN has served as Vice President, Merchandising
Administration and Planning since December 1997 and as Senior Merchandise
Planner from July 1997 to December 1997. Prior to joining the Company, she
served as Vice President, Merchandising and Vice President, Planning and
Distribution for The Nature Company, a national specialty retailer of nature and
science products, from October 1996 to May 1997, and August 1995 to October
1996, respectively. From April 1991 to August 1995, she was the Director of
Merchandise Planning for Imaginarium, a national specialty retailer of
educational toys.
PETER W. RUSNAK has served as Vice President, Real Estate since August
1997. Prior to joining the Company, he was a Partner of Rusnak Schaaf
Associates, a retail real estate consulting firm, from July 1994 to July 1997,
and from April 1992 to June 1994 he was a Consultant for Whipple Schaaf
Assoicates, a retail real estate consulting firm.
18
<PAGE>
TERESA L. RUTHERFORD has served as Vice President, Merchandising and
Product Development since March 1998, Vice President, Product Development from
March 1997 to March 1998, Director of Sourcing and Product Development from
September 1995 to March 1997, and Product Manager from June 1994 to September
1995. Prior to joining the Company, she served as Merchandise Manager for DFS
Merchandising, an international duty-free retailer, from January 1992 to June
1994.
WILLIAM J. SONCINI has served as Vice President, Operations since December
1997. Prior to joining the Company, he served as Vice President of Stores for
Lil' Things, a superstore chain of high quality children's products, from
January 1995 to April 1997, and as Territorial Vice President of Paul Harris
Stores, Inc., a specialty retailer of women's apparel, from October 1994 to
January 1995. From January 1992 to October 1994, he was the Zone Vice President
of Kay-Bee Toy and Hobby, a national retailer of children's toys.
19
<PAGE>
EXECUTIVE OFFICER COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation paid or accrued by the
Company during the last three years to (i) the Chief Executive Officer of the
Company during Fiscal 1997, (ii) the other executive officers of the Company as
of January 31, 1998 whose total salary and bonus for the fiscal year ended
January 31, 1998 exceeded $100,000, and (iii) two former executives who were no
longer serving as an executive officer at January 31, 1998 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ----------------------------
Awards
----------------------------
Other Annual Restricted Securities
Name and Principal Position Compensation Stock Awards Underlying All Other(2)
During Fiscal 1997 Year Salary ($) Bonus ($) ($)(1) ($) Options (#) Compensation
- ---------------------------- -------- ----------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kathleen M. Chatfield(3) 1997 360,000 -- -- -- 65,000 368,577(4)
President and Chief 1996 325,000 132,031 -- -- 100,000 147
Executive Officer 1995 279,134 -- -- -- 50,000 142
Karen A. Daley(5) 1997 132,000 -- -- 5,000 66,065(6)
Vice President, 1996 122,000 19,063 -- -- 15,000 60
Human Resources 1995 115,316 -- -- -- 5,000 58
Teresa L. Rutherford(7) 1997 141, 442 -- -- -- 10,000 69
Vice President,
Merchandising and
Product Development
Judith A. Soares(8) 1997 138,846 -- -- -- 10,000 68
Vice President,
Information Systems
Michael Sontag(9) 1997 120,413 -- -- -- 25,000 323,774(10)
Former Senior Vice 1996 76,923 30,000(11) -- -- 75,000 17,154(12)
President, General
Merchandise Manager
Michael J. Waide(13) 1997 201,016 -- -- -- 25,000 98
Former Senior 1996 220,000 68,750 -- -- 50,000 108
Vice President, 1995 89,154 33,250(14) -- -- 50,000 45
Finance, Chief
Financial Officer and
Secretary
</TABLE>
- ------------------------
(1) Unless otherwise specified, the total amount of personal benefits paid to
any executive officer during the fiscal year was less than the lesser of
(i) $50,000 and (ii) 10% of such executive officer's total reported salary
and bonus.
20
<PAGE>
(2) Except as separately noted, the amount included under "All Other
Compensation" represents the value of term life insurance and long-term
disability premiums paid by the Company for the benefit of each named
officer.
(3) Ms. Chatfield resigned effective May 1, 1998.
(4) Includes, in addition to the amounts reflected in note 2 above, severance
in the amount of $368,430 (including the estimated value of certain
benefits of $8,430) which will be paid in sixty biweekly payments
commencing on May 1, 1998. See "Employment Contracts and Change of Control
Arrangements" on page 24.
(5) Ms. Daley was promoted to an executive officer in April 1995, and resigned
effective May 1, 1998.
(6) Includes, in addition to the amounts reflected in note 2 above, severance
in the amount of $66,000 which will be paid in thirteen biweekly payments
commencing on May 1, 1998. See "Employment Contracts and Change of Control
Arrangements" on page 24.
(7) Ms. Rutherford was promoted to an executive officer in March 1997.
(8) Ms. Soares was promoted to an executive officer in April 1997, and resigned
effective May 1, 1998.
(9) Mr. Sontag was hired as an executive officer in October 1996 and was
separated from the Company in June 1997. See "Employment Contracts and
Change of Control Arrangements" on page 24.
(10) Includes, in addition to the amounts reflected in note 2, above, severance
in the amount of $275,000 and relocation expenses in the amount of $48,715.
(11) Represents performance bonus in connection with employment agreement.
(12) Represents relocation expenses paid in connection with Mr. Sontag's hiring
in 1996.
(13) Mr. Waide was hired as an executive officer in August 1995, and resigned
effective December 20, 1997.
(14) Represents performance bonus in connection with employment agreement.
21
<PAGE>
STOCK OPTIONS GRANTED IN FISCAL 1997
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during Fiscal 1997 to the
Named Executive Officers:
OPTION GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Exercise Appreciation for
Options Employees or Base Option Term(1)
Granted in Fiscal Price Expiration ---------------------
Name (#)(2) Year ($/Sh)(3) Date 5% 10%
- ---------------------- ----------- ----------- ------------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Kathleen M. Chatfield 65,000 20.9407% 4.7500 02/20/07 194,171 492,068
Karen A. Daley 5,000 1.6108% 4.7500 02/20/07 14,936 37,851
Teresa Rutherford 10,000 3.2216% 5.1875 03/03/07 32,624 82,675
Judith Soares 10,000 3.2216% 4.0000 03/20/07 25,156 63,750
Michael Sontag 25,000 8.0541% 4.7500 02/20/07 74,681 189,257
Michael J. Waide 25,000 8.0541% 4.7500 02/20/07 74,681 189,257
</TABLE>
- --------------------------
(1) The "Potential Realizable Value" is based on the term of the option at the
time of grant, and potential gains are net of exercise price, but before
taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only, in accordance with the Securities and Exchange
Commission's rules. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through out the
vesting period. The amounts reflected in this table may not necessarily be
achieved.
(2) All options were granted under the Company's 1993 Amended and Restated
Omnibus Stock Plan (the "Stock Plan") and vest over a five year period at
the rate of one-fifth on the first anniversary of the date of grant and
1/60th per month thereafter for each full month of the optionee's
continuous employment with the Company.
(3) All options granted in Fiscal 1997 have an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant.
22
<PAGE>
OPTION EXERCISES AND FISCAL 1997 YEAR-END VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in Fiscal 1997, and
unexercised options held as of January 31, 1998, by the Named Executive
Officers:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at 1/31/98 at 1/31/98(1)
------------------------------ -----------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable(2) Unexercisable Exercisable(2) Unexercisable
- -------------- ----------- -------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kathleen M Chatfield -- -- 118,583 171,417 $111,745 $149,193
Karen A. Daley -- -- 12,500 17,500 $ 14,828 $ 20,797
Teresa Rutherford -- -- 7,104 21,646 $ 3,414 $ 5,492
Judith Soares -- -- 3,167 16,833 -- $ 3,438
Michael Sontag -- -- -- -- -- --
Michael J Waide 42,499 138,955 -- -- -- --
</TABLE>
(1) Based on the value of $4.34 per share, which was the closing price of the
Company's Common Stock on January 31, 1998. The value shown is for all out
standing in-the-money options regardless of vesting restrictions.
(2) Options vest over a five-year period at the rate of one-fifth on the first
anniversary of the date of grant and 1/60th per month thereafter for each
full month of the optionee's continuous employment with the Company.
23
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company's Director Plan provides that in the event of a "Transfer of
Control" of the Company (as defined in the Plan), all outstanding options
granted under the Directors' Plan would immediately vest and be exercisable
prior to the Transfer of Control. Options which are not exercised as of the date
of the Transfer of Control would be terminated.
The Company entered into an oral consulting arrangement with Peter G.
Hanelt as of January 22, 1998, whereby Mr. Hanelt serves as Chief Financial
Officer and Chief Operating Officer of the Company. In accordance with this
arrangement, Mr. Hanelt receives $1,500 per day on which he works, which
generally has ranged from four to five days a week. Mr. Hanelt receives no
additional compensation as Interim President and Interim Chief Executive
Officer.
The Company entered into a written employment agreement with Kathleen
Chatfield as of September 15, 1997, whereby Ms. Chatfield served as President
and Chief Executive Officer of the Company. Pursuant to this agreement, Ms.
Chatfield's employment with the Company was for no specified term and was
terminable by her or by the Company at any time with or without cause, subject
to the payment of certain benefits upon termination. The agreement further
provided that Ms. Chatfield would receive additional benefits if she remained
with the Company through May 1, 1998. Ms. Chatfield resigned effective May 1,
1998, and, in accordance with the terms of her employment agreement, she is
entitled to receive an amount equal to her final annual base salary, which will
be paid in sixty biweekly payments commencing on May 1, 1998, plus reimbursement
for employee benefits for a period of twelve months.
The Company entered into a written employment agreement with Karen Daley as
of September 15, 1997, whereby Ms. Daley served as Vice President, Human
Resources of the Company. Pursuant to this agreement, Ms. Daley's employment
with the Company was for a term of twelve months and was terminable by her or by
the Company at any time with or without cause, subject to the payment of certain
benefits upon termination. The agreement further provided that Ms. Daley would
receive additional benefits if she remained with the Company through May 1,
1998. Ms. Daley resigned effective May 1, 1998, and, in accordance with the
terms of her employment agreement, she is entitled to receive an amount equal to
one-half of her final annual base salary, which will be paid in thirteen
biweekly payments commencing on May 1, 1998.
The Company also had written employment agreements with its Senior Vice
President, Finance, Michael J. Waide, and its Senior Vice President, General
Merchandise Manager, Michael Sontag. Each of these agreements was
terminable-at-will by either party. Mr. Sontag resigned in July 1997, and, in
accordance with the terms of his employment agreement, was paid a severance
equal to one year's salary. Mr. Waide voluntarily resigned his position with the
Company effective December 1997, and, in accordance with the terms of his
employment agreement, received no termination benefits. There are no employment
agreements with Named Executive Officers that provide for their continuing
service.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms filed by such
persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% stockholders were satisfied.
24
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for establishing and administering the Company's policies and
practices and it approves all elements of compensation for executive officers
and certain other senior management. The Committee also is responsible for
evaluating the performance of executive officers and senior management. All
members of the Committee are outside directors who are not eligible to
participate in any of the compensation programs that the Committee oversees.
OVERALL OBJECTIVES AND PROGRAMS
The objective of the Company's executive compensation program is to provide
compensation that will attract and retain executives, to provide incentives to
enhance the profitability and growth of the Company, to motivate each executive
toward the achievement of the Company's short and long-term financial and other
goals, and to recognize the contributions of individuals as well as overall
business results.
In order to achieve this objective, the primary focus of the Compensation
Committee has been on the competitiveness of each of the key elements of
executive compensation -- base salary, annual bonus plan and stock option grants
- -- and the compensation package as a whole. Overall executive compensation is
dependent not only upon quantitative factors directly related to the Company's
short-term financial performance, but also qualitative factors that strengthen
the Company's ability to enhance profitable growth over the long term, such as
demonstrated leadership ability, management development, and anticipating and
responding to changing market and economic conditions.
BASE SALARY
The Committee reviews and approves base salary levels of executive officers
annually, normally at the beginning of the fiscal year. Target levels are based
on the level of responsibility, scope and complexity of the executive's position
relative to other senior management positions internally, and the need to
provide, when combined with the annual bonus, overall direct compensation at or
above the average rates paid by comparably sized-companies. Salary increases are
based upon periodic reevaluations of these factors and the performance of the
executive in meeting individually assigned objectives.
Early in Fiscal 1997, the Committee reviewed the base salaries of the
executive officers and adjusted those salaries based on an informal
assessment of the competitive marketplace, the job performance of the
respective individual and any changes in the scope of the duties and
responsibilities assigned to each particular position. Although no specific
formula was utilized in determining base salary levels, continued turnover of
executive officers in the retail industry generally provides the Committee
with a clear barometer of the competitive marketplace. The salary levels of
new executive officers generally can be determined by the realities of this
marketplace. As new senior management is hired, the Committee believes that
the salary levels of other executive officers should be adjusted to reflect
the scope and complexity of the existing executive's position relative to
that of new senior management.
ANNUAL BONUS
The Committee believes that a significant portion of the total annual
compensation of each executive officer should be contingent on the performance
of the Company. Accordingly, the Committee has implemented an annual
non-discretionary incentive bonus plan which provides executive officers and
other employees with the opportunity to earn annual bonuses. The objective of
this plan is to attract, retain, motivate and reward employees by directly
linking the amount of any cash bonus to purely objective short-
25
<PAGE>
term financial performance of the Company. To the end, each year the
Committee establishes a maximum bonus pool based on budgeted financial goals
relating to annual increases in comparable store sales and pre-tax net income
and establishes threshold and maximum pay-out levels that may be earned based
upon the achievement by the Company of those goals. These goals and the
amount of the bonus pool are reviewed and adjusted annually. In Fiscal 1997,
the Company did not achieve the threshold financial goals and, in accordance
with the bonus plan, no bonuses were paid out to executive officers.
EMPLOYEE EQUITY OWNERSHIP
The Committee believes that the third key element of executive
compensation -- employee equity ownership -- is highly motivating and provides
a major incentive to employees in building stockholder value. Accordingly,
stock options are granted to executive officers to provide long-term
incentives for the achievement of the Company's strategic business plan,
mission and values and to align the interests of executive officers with
those of the stockholders. The Committee determines the size of any stock
option to be granted on a basis consistent with the overall objectives and
criteria outlined above, taking into consideration the particular executive's
performance and level of responsibility within the Company, and the value to
the Company of providing such executive with additional motivation toward
achieving the Company's short and long-term financial and other goals. The
Committee also considers previous grants of stock options and restricted
stock and compares the number of options previously granted with those
granted to other executive officers, taking into account each individual's
level of responsibility, the expected future value of such individual to the
organization, and the relationship between the additional incentive and the
likelihood of the attainment of individual objectives. Based upon the
criteria enumerated above, all of the executive officers of the Company were
granted options in Fiscal 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION
Ms. Chatfield served as the Chief Executive Officer of the Company from
February 1995 until her resignation effective May 1, 1998. Like that of the
other executive officers of the Company, Ms. Chatfield's compensation was
established in accordance with the foregoing guidelines applicable to all
executive officers. Ms. Chatfield's base salary for Fiscal 1997 was established
by the Committee, after consideration of a number of factors, in an attempt to
bring her base salary within the range of the average salaries of CEO's of
comparably-sized companies and to compensate her for her long-term contributions
to the Company, such as demonstrated leadership ability, management development
skills and ability to anticipate and respond to changing market and economic
conditions. In Fiscal 1997, Ms. Chatfield was eligible to receive an incentive
bonus in an amount ranging from 65% to 130% of her current base salary, subject
to the Company's achievement of specific short-term financial goals. In Fiscal
1997, the Company did not meet the threshold payout levels under the bonus plan
and, in accordance with the terms thereof, Ms. Chatfield did not receive a
bonus. In February 1997, after applying the guidelines outlined above, the Board
granted to Ms. Chatfield an option to purchase 65,000 shares of the Common Stock
of the Company at an exercise price of $4.75, which was fair market value of the
stock on the grant date. The terms of Ms. Chatfield's employment agreement are
described in the section entitled "Employment Contracts and Change of Control
Arrangements."
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code denies a deduction to any publicly held
corporation for certain compensation paid to certain executive employees in a
taxable year to the extent that the compensation exceeds $1,000,000. However,
certain performance-based compensation is not included in calculating the
$1,000,000 threshold. Stock options may qualify for this exclusion if the plan
under which they are granted meets certain conditions. The Stock Plan currently
contains limitations on the number of shares underlying options that may be
granted to an optionee within any fiscal year, and, to the extent appropriate,
the Company intends to take the necessary steps to conform its compensation
practices to comply with the $1,000,000 compensation
26
<PAGE>
deduction limit under Section 162(m) of the Code. The Committee does not
believe that other components of the Company's compensation are likely to
exceed $1,000,000 annually for any executive officer in the foreseeable
future and, therefore, has concluded that no further action with respect to
qualifying such compensation for deductibility is necessary at this time. In
the future, the Committee will reconsider this decision in the event that the
individual compensation of any of the Company's executive officers approaches
the $1,000,000 level.
THE COMPENSATION COMMITTEE
PEARSON C. CUMMIN III
JULIUS JENSEN III
PETER L. HARRIS
27
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the cumulative total return on
the Company's Common Stock with the cumulative total return of the CRSP Total
Return Index for The Nasdaq Stock Market (U.S. Companies) ("Nasdaq Market
Index") and the CRSP Total Return Industry Index for Nasdaq Retail Trade Stocks
("Retail Index") for the five year period ending on January 31, 1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NATURAL WONDERS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ RETAIL TRADE INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Natural Wonders, Inc. $100.00 $ 34.12 $ 19.41 $ 13.53 $ 24.71 $ 20.59
Nasdaq Stock Market - US $100.00 $114.41 $110.26 $156.76 $203.28 $240.23
Nasdaq Retail $100.00 $106.68 $ 95.63 $107.96 $132.60 $155.04
</TABLE>
(1) Assumes an initial investment of $100.00 on January 30, 1993. The total
return for the Company's stock and for each index assumes the reinvestment
of dividends, although no cash dividends have ever been declared on the
Company's Common Stock. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.
28
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of the Company (i) must be received by the Company at
its offices at 4209 Technology Drive, Fremont, California 94538 no later than
February 10, 1999, and (ii) must satisfy the conditions established by the SEC
for stock holder proposals to be included in the Company's Proxy Statement for
that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
intends to present or knows that others will present at the Annual Meeting is as
set forth above. If any other matter or matters are properly brought before the
Annual Meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of Proxy to vote the Proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
PEARSON C. CUMMIN III
CHAIRMAN
Dated: May 18, 1998
29
<PAGE>
NTW94 6
DETACH HERE
PROXY
NATURAL WONDERS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned hereby appoints Pearson C. Cummin III as the undersigned's
true and lawful agent and proxy, with full power to represent the undersigned
and to vote all the shares of the stock of Natural Wonders, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at the principal offices of the Company located at 4209
Technology Drive, Fremont, California 94538, on Wednesday, June 10, 1998 at
9:00 a.m. local time, and at any adjournment thereof (1) as hereinafter
specified upon the proposals listed on the reverse side and as more
particularly described in the Company's Proxy Statement and (2) in his
discretion upon such other matters as may properly come before the meeting.
The undersigned hereby acknowledges receipt of: (1) Notice of Annual
Meeting of Stockholders of the Company, (2) accompanying Proxy Statement, and
(3) Annual Report of the Company for the fiscal year ended January 31, 1998.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------ -------------
<PAGE>
DETACH HERE
NTW94 6
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
1. To elect two (2) Class II directors, each to hold office until the 2001
Annual Meeting of Stockholders and until their respective successors are
elected and qualified.
Nominees: Peter G. Hanelt and Julius Jensen III
FOR WITHHELD
/ / / /
MARK HERE
/ / --------------------------------------- FOR ADDRESS / /
For both nominees except as noted above CHANGE AND
NOTE BELOW
2. To approve amendments to the Natural Wonders, Inc.
1993 Amended and Restated Omnibus Stock Option Plan FOR AGAINST ABSTAIN
(the "Stock Plan") (i) to increase the maximum / / / / / /
aggregate number of shares of Common Stock that may
be issued under the Stock Plan from 2,000,000 shares
to 2,500,000 shares, (ii) to increase the limit on the number of shares of
Common Stock underlying options granted to one optionee within any fiscal
year from 100,000 shares to 200,000 shares, and (iii) to increase the limit
on the number of shares of Common Stock underlying options granted in the
form of a one-time grant to a newly-hired employee from 200,000 shares to
700,000 shares.
3. To approve an amendment to the Natural Wonders, Inc. FOR AGAINST ABSTAIN
1993 Outside Directors Stock Option Plan (the / / / / / /
"Directors Plan") to increase the maximum number of
shares of Common Stock of the Company which may be
issued under the Directors Plan from 150,000 shares to 250,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP FOR AGAINST ABSTAIN
as the independent auditors of the Company for the / / / / / /
fiscal year ending January 30, 1999.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK
MAY BE REPRESENTED AT THE MEETING.
Sign exactly as each name appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. If signing as an attorney, executor, administrator, trustee,
guardian or other fiduciary, please provide your full title. If shares of
stock are held of record by a partnership or limited liability company,
please have an authorized person sign in the partnership or limited liability
company name. Please date the Proxy.
THANK YOU FOR YOUR VOTE.
Signature:__________ Date:__________ Signature:__________ Date:__________
