<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Harvey Entertainment Company
- --------------------------------------------------------------------------------
(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:
Not applicable.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
Not applicable.
- --------------------------------------------------------------------------------
(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):
Not applicable.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not applicable.
- --------------------------------------------------------------------------------
(5) Total fee paid:
Not applicable.
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
Not applicable.
- --------------------------------------------------------------------------------
[ ] 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:
Not applicable.
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
Not applicable.
- --------------------------------------------------------------------------------
(3) Filing Party:
Not applicable
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(4) Date Filed:
Not applicable.
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<PAGE> 2
[THE HARVEY ENTERTAINMENT COMPANY LOGO]
May 18, 1998
Dear Shareholder:
You are cordially invited to attend the annual meeting of holders of Common
Stock of The Harvey Entertainment Company to be held at The Century Plaza Hotel,
2025 Avenue of the Stars, Los Angeles, California, 90067, on Thursday, June 18,
1998, at 10:00 a.m. PST.
At this meeting, Shareholders are being asked to elect three Directors to
the Company's Board of Directors, to approve the Company's Amended and Restated
1997 Stock Option Plan and to ratify management's appointment of independent
auditors for 1998. Please give your attention to the Proxy Statement appearing
on the following pages, which describes these matters in detail.
It is important that your shares be represented at the annual meeting
whether or not you are personally able to attend. YOU ARE THEREFORE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE
AS PROMPTLY AS POSSIBLE.
Thank you for your cooperation.
Sincerely,
/s/ Anthony J. Scotti
Anthony J. Scotti
Interim Chief Executive Officer and Interim President
<PAGE> 3
[THE HARVEY ENTERTAINMENT COMPANY LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF HOLDERS OF COMMON STOCK
TO BE HELD JUNE 18, 1998
Notice is hereby given that the annual meeting of holders of Common Stock
of The Harvey Entertainment Company (the "Company") will be held at The Century
Plaza Hotel, 2025 Avenue of the Stars, Los Angeles, California, 90067, on
Thursday, June 18, 1998, at 10:00 a.m. PST for the following purposes:
(1) Election of three Directors by the shareholders of the Company.
(2) Approval of the Company's Amended and Restated 1997 Stock Option Plan.
(3) Ratification of the selection of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998.
(4) Such other business as may properly come before the meeting or any
adjournment thereof.
The Board of Directors has fixed May 18, 1998 as the record date for
determining the shareholders entitled to receive notice of and to vote at the
meeting.
You are cordially invited to attend the meeting. Whether or not you plan to
attend the meeting, you are urged to promptly complete, date and sign the
enclosed proxy and mail it to the Company in the enclosed envelope, which
requires no postage if mailed in the United States. Return of your proxy does
not deprive you of your right to attend the meeting and to vote your shares in
person.
By Order of the Board of Directors,
/s/ Michael S. Hope
Michael S. Hope
Corporate Secretary
May 18, 1998
Los Angeles, California
<PAGE> 4
THE HARVEY ENTERTAINMENT COMPANY
1999 AVENUE OF THE STARS
SUITE 2050
LOS ANGELES, CALIFORNIA 90067
------------------------
PROXY STATEMENT
------------------------
SOLICITATION
This Proxy Statement is furnished to shareholders of The Harvey
Entertainment Company (the "Company") in connection with the solicitation of
proxies by and on behalf of the Board of Directors of the Company (the "Board")
for use at the annual meeting of holders of Common Stock of the Company (the
"Common Stock") scheduled to be held at The Century Plaza Hotel, 2025 Avenue of
the Stars, Los Angeles, California, 90067, on Thursday, June 18, 1998, 10:00
a.m. PST and at any adjournments thereof. The approximate date on which this
Proxy Statement and the accompanying forms of proxy are first being mailed to
shareholders is May 18, 1998. The Company's principal executive offices are
located at 1999 Avenue of the Stars, 20th Floor, Los Angeles, California 90067.
Proxies, in the forms enclosed, are being solicited by the Board for use at
the annual meeting. The persons named as proxies were selected by the Board and
are employees of the Company or its affiliates. Proxies may be revoked by a
shareholder by written notice (including a properly executed and later dated
proxy) to the Secretary of the Company at any time prior to the voting. In
addition, a shareholder who attends the annual meeting may vote his or her
shares personally and revoke his or her proxy at that time. All shares
represented by valid proxies received pursuant to this solicitation, and not
subsequently revoked, will be voted as provided on the proxy.
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Company. In addition to the use of
the mails, proxies may be solicited by officers, directors and regular employees
of the Company, without extra remuneration, by personal interviews, telephone,
telegraph or otherwise. The Company will also request brokerage firms, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of shares held of record and will reimburse such persons for their reasonable
out-of-pocket expenses.
The Board has fixed the close of business on May 18, 1998 as the record
date (the "Record Date") for the determination of shareholders entitled to
receive notice of and to vote at the annual meeting. Only shareholders of record
at the close of business on the Record Date will be entitled to notice of and to
vote at the annual meeting. The Common Stock is entitled to vote on the election
of three members of the Board, the Company's Amended and Restated 1997 Stock
Option Plan and ratification of the appointment of independent auditors and
other business as may properly come before the meeting or any adjournment
thereof. The holders of a majority of the Common Stock constitute a quorum for
those portions of the meeting where action is required of holders of Common
Stock.
VOTE REQUIRED AND VOTING PROCEDURE
Each holder of Common Stock will be entitled to one vote, in person or by
proxy, for each share standing in his, her or its name on the books of the
Company as of the Record Date for the Meeting on each of the matters duly
presented for vote at the Meeting.
In connection with the solicitation by the Board of proxies for use at the
Meeting, the Board has designated Leonard Breijo and Jin Brown as proxies.
Shares represented by all properly executed proxies will be voted at the Meeting
in accordance with the instructions specified thereon. If no instructions are
specified, the shares represented by any properly executed proxy will be voted
FOR the election of the nominees listed below under "Election of Directors," FOR
approval of the Company's Amended and Restated 1997 Stock Option Plan and FOR
ratification of the selection of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending December 31, 1998.
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<PAGE> 5
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. Approval of each matter specified in the Notice of
Annual Meeting requires the affirmative vote of the holders of a majority, or in
the case of the election of directors a plurality, of the outstanding shares of
Common Stock represented at the Meeting in person or by proxy and entitled to
vote thereat.
In the election of directors, the nominees receiving the highest number of
votes of shares represented in person or by proxy at the Meeting and entitled to
vote on such matter will be elected directors of the Company. Accordingly,
non-voted shares with respect to the election of directors will not affect the
outcome thereof. The approval of the Company's Amended and Restated 1997 Stock
Option Plan and the appointment of Deloitte & Touche LLP as the Company's
auditors for the fiscal year ending December 31, 1998 will be approved only if a
majority of the shares represented in person or by proxy at the Meeting and
entitled to vote thereon casts affirmative votes with respect to such matters.
Thus, with respect to such matters, non-voted shares will have the effect of a
negative vote.
The Board has appointed American Stock Transfer & Trust Company as the
Inspector of Elections for the Meeting. The Inspector of Elections will
determine the number of shares of Common Stock represented, in person or by
proxy, at the Meeting, whether a quorum exists, the authenticity, validity and
effect of proxies and will receive and count the votes. None of the matters to
be voted on at the Meeting will be by ballot unless a shareholder demands
election by ballot at the Meeting and before the voting begins.
ACTION TO BE TAKEN UNDER PROXY
All proxies for shareholders in the accompanying form that are properly
executed and returned will be voted at the meeting and any adjournments thereof
in accordance with any specifications thereon or, if no specifications are made,
will be voted for the election of the three nominees described herein, for the
approval of the Company's Amended and Restated 1997 Stock Option Plan and for
the ratification of the appointment of independent auditors.
All outstanding shares of the Common Stock represented by properly executed
and unrevoked proxies received in the accompanying form in time for the Annual
Meeting will be voted. A shareholder may, with respect to the election of
directors (i) vote for the election of all nominees named herein as directors,
(ii) withhold authority to vote for all such director nominees or (iii) vote for
the election of all such director nominees other than any nominee with respect
to whom the shareholder withholds authority to vote by so indicating on the
proxy. Withholding authority to vote for a director nominee will not prevent
such nominee from being elected. A shareholder may, with respect to each other
matter specified in the notice of meeting (i) vote "for" the matter, (ii) vote
"against" the matter or (iii) "abstain" from voting on the matter. A vote to
abstain from voting on a matter has the legal effect of a vote against such
matter. Shares will be voted as instructed in the accompanying proxy on each
matter submitted to shareholders. If no instructions are given, the shares will
be voted for the election of all nominees named herein as directors, for
approval of the Company's Amended and Restated 1997 Stock Option Plan and for
ratification of the selection of Deloitte & Touche LLP, as independent auditors
of the Company for the fiscal year ending December 31, 1998.
A proxy submitted by a shareholder may indicate that all or a portion of
the shares represented by such proxy are not being voted by such shareholder
with respect to a particular matter. This could occur, for example, when a
broker is not permitted to vote stock held in street name on certain matters in
the absence of instructions from the beneficial owner of the stock. The shares
subject to any such proxy which are not being voted with respect to any
particular matter (the "non-voted shares") will be considered shares not present
and entitled to vote on such matter, although such shares may be considered
present and entitled to vote for other purposes and will count for purposes of
determining the presence of a quorum. (Shares voted to abstain as to a
particular matter will not be considered non-voted shares.) Approval of each
matter specified in the Notice of Annual Meeting requires the affirmative vote
of a majority, or in the case of the election of directors, a plurality, of the
shares of Common Stock present in person or by proxy at the meeting and entitled
to vote on such matter. Accordingly, non-voted shares with respect to such
matters will not effect the determination of whether such matters are approved
or the outcome of the election of directors.
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<PAGE> 6
The Board knows of no matters, other than those stated above, to be
presented and considered at the meeting. If, however, any other matters properly
come before the meeting or any adjournments thereof, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
judgment on any such matters. The persons named in the enclosed proxy may also,
if a quorum is not present, vote such proxy to adjourn the meeting from time to
time.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
It is intended that the persons named in the proxy for shareholders will,
unless otherwise instructed, vote for the election of the three nominees listed
below to serve as Directors until the next annual meeting of shareholders
following their election and until their respective successors are elected and
have qualified. If any nominee, for any reason presently unknown, cannot be a
candidate for election, the shares represented by valid proxies will be voted in
favor of the remaining nominees and may be voted for the election of a
substitute nominee recommended by the Board. Each of the three nominees listed
below has agreed to serve as a Director of the Company if so elected.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION BY SHAREHOLDERS TERMS
- ------------------------------------- ---------------------------------
<S> <C>
Gary M. Gray Until 1999 Annual Meeting
Allan R. Raphael Until 1999 Annual Meeting
Michael S. Doherty Until 1999 Annual Meeting
</TABLE>
The following information with respect to the principal occupation or
employment of each nominee and incumbent Director, the name and principal
business of the corporation or other organization in which such occupation or
employment is carried on, and other affiliations and business experience during
the past five years, has been furnished to the Company by the respective
nominees and incumbent Directors. This information includes a description of
each person's service, if any, with the Company.
INFORMATION CONCERNING CURRENT DIRECTORS AND NOMINEES FOR DIRECTORS
GARY M. GRAY has been a Director of the Company since 1991 and the Chairman
of the Board since March 1998. Mr. Gray is a Managing Director of Milestone
Capital, Inc., a firm based in Houston, Texas which, in concert with affiliated
foreign entities, invests in or acquires control of private companies with
operations in the United States. Prior to locating in Houston in 1997, from 1994
to 1997, Mr. Gray practiced law and provided business consulting services to
foreign clients from offices based in Oklahoma and, from 1991 to 1993, practiced
law in New York. Prior to attending Harvard Law School from 1987 to 1990,
Mr. Gray was involved in various investment and banking activities, principally
in Oklahoma.
ALLAN R. RAPHAEL has been a Director of the Company since March 1995. Mr.
Raphael is a private investor. Mr. Raphael was a Senior Vice President of
Arnhold and S. Bleichroeder, Inc., a New York-based investment banking,
brokerage and asset management firm from 1992 to 1997. At Arnhold and S.
Bleichroeder, Inc., Mr. Raphael was Portfolio Manager for the First Eagle
International Fund and Aquila International Fund. Mr. Raphael rejoined Arnhold
and S. Bleichroeder, Inc. in December 1992, where previously he was employed
from 1980 to 1984 as Director of Research. Prior to December 1992, he served as
a Global Portfolio Manager at Caxton Corporation and Soros Fund Management. Mr.
Raphael graduated from the University of Pennsylvania Wharton School of Finance
in 1965, where he received a B.S. in Economics.
MICHAEL S. DOHERTY has been a Director of the Company since December 1997.
Mr. Doherty is a Managing Director -- Corporate Finance at Cruttendon Roth
Incorporated, a position he has held since October 1996, and a Director of Xycom
Holdings Incorporated, an industrial automation company based in Saline,
Michigan. Prior to joining Cruttendon Roth Incorporated, Mr. Doherty was a Vice
President of Corporate Finance of Arnhold and S. Bleichroeder Inc, a New York-
3
<PAGE> 7
based investment banking, brokerage and asset management firm. Mr. Doherty has
been working in the area of international brokerage and corporate finance for 18
years.
BOARD MEETINGS
During 1997, the Board met five times. Messrs. Raphael and Gray and former
Director Jeffrey A. Montgomery attended all such meetings. One meeting was held
while Mr. Doherty and former Director Gregory M. Yulish were Directors; Mr.
Yulish attended this meeting; Mr. Doherty did not. Messrs. Montgomery and Yulish
resigned as Directors in March 1998, and the Board reduced the size of the Board
from five members to three members in April 1998.
STOCK OPTION AND COMPENSATION COMMITTEE
The Stock Option and Compensation Committee of the Board consists of
Messrs. Raphael, Doherty and Gray. The Stock Option and Compensation Committee,
which determines executive remuneration and grants options, met six times in
1997 and acted by unanimous written consent on three occasions. Messrs. Raphael
and Gray attended each such meeting; Mr. Doherty attended each of the three
meetings occurring after his appointment to the Stock Option and Compensation
Committee.
AUDIT COMMITTEE
The Audit Committee of the Board consists of Messrs. Raphael and Gray. The
Audit Committee met once in 1997 with both members present.
The Company does not have a standing Nominating Committee.
BOARD FEES
Directors of the Company who are neither employees of the Company nor of
the Company's affiliates receive $20,000 in cash each year for serving on the
Board. Such Directors also receive 10,000 stock options under the Company's 1997
Stock Option Plan on May 18 each year. In June of 1997, the Company made a
one-time grant (approved by the Company's shareholders) to each director who was
neither an employee of the Company nor of the Company's affiliates of an option
under the Company's 1997 Stock Option Plan to purchase 20,000 shares of Common
Stock at a price of $7.25 per share. In addition to such fees and options, as
compensation for services as Chairman of the Board, in April 1998 Mr. Gray
received a one-time grant of a fully-vested option under the Company's 1997
Stock Option Plan to purchase 50,000 shares of Common Stock at an exercise price
of $12.6875 per share (the closing price of a share of Common Stock on The
Nasdaq Stock Market's National Market on the grant date).
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<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth, as of April 24, 1998, certain information
regarding the beneficial ownership of the Company's Common Stock by: (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the chief executive officer of the Company during fiscal year
1997, (iv) the other executive officer of the Company during fiscal year 1997,
and (v) the Company's current directors and executive officers as a group:
<TABLE>
<CAPTION>
PERCENT OF
COMMON COMMON
BENEFICIAL OWNER STOCK OWNED STOCK OWNED(9)
---------------- ----------- --------------
<S> <C> <C>
AKAUSA Holdings Limited(1)................................. 1,075,000 25.72%
Ahmad Bin Khalid Al-Saud(1)................................ 1,075,000 25.72%
Jeffrey A. Montgomery...................................... 417,667 9.99%
(former Chief Executive Officer, former President
and former Director)(2)
Gary M. Gray............................................... 97,500 2.33%
(Chairman of the Board)(3)
Allan R. Raphael........................................... 52,500 1.26%
(Director)(4)
Michael S. Doherty......................................... 50,000 1.19%
(Director)(5)
Gregory M. Yulish.......................................... 16,910 0.40%
(former Chief Financial Officer and former
Director)(6)
Universal Studios, Inc.(7)................................. 374,500 8.96%
All Officers and Directors................................. 447,500 10.70%
as a group (7 persons)(8)
</TABLE>
- ---------------
(1) Includes shares held by AKAUSA and Mr. Al-Saud. The United States mailing
address of AKAUSA and the United States address of Mr. Ahmad Bin Khalid
Al-Saud is 3535 N. W. 58th Street, Suite 950, Oklahoma City, Oklahoma 73112.
AKAUSA is a Cayman Islands corporation, 100% of whose stock is owned by Mr.
Ahmad Bin Khalid Al-Saud, a citizen and resident of Saudi Arabia. AKAUSA
owns 475,000 shares; Mr. Al-Saud owns 600,000 shares directly.
(2) The address of Mr. Montgomery is 10380 Wilshire Boulevard, #504, Los
Angeles, CA 90024.
(3) The address of Mr. Gray is c/o Milestone Capital Inc., 1800 West Loop South,
Suite 1075, Houston, Texas 77027. Includes options to purchase 5,000 shares
which became exercisable in May 1994, 2,500 shares which became exercisable
in each of May 1995 and 1996, 7,500 shares which became exercisable in March
1996, 10,000 shares which became exercisable in May 1997, 20,000 shares
which became exercisable in June 1997 and 50,000 shares which became
exercisable in April 1998.
(4) The address of Mr. Raphael is 30 Rockefeller Center, Suite 1907, New York,
New York 10112. Includes options to purchase 2,500 shares which became
exercisable in May 1995 and 1996, 7,500 shares which became exercisable
in March 1996, 10,000 shares which became exercisable in May 1997 and
20,000 shares which became exercisable in June 1997.
(5) The address of Mr. Doherty is c/o Cruttendon Roth Incorporated, 11150 Santa
Monica Boulevard, Suite 750, Los Angeles, California 90025. Includes a
warrant to purchase 50,000 shares which became exercisable in January 1997
as to 25,000 shares and exercisable in March 1998 as to 25,000 shares.
(6) The address of Mr. Yulish is 3902 Peartree Place, Calabasas, California
91302. Includes an option to purchase 16,666 shares which will vest in April
1998.
(7) The address of Universal Studios, Inc. (formerly known as MCA Inc.) is 100
Universal City Plaza, Universal City, California 91608. Universal Studios is
controlled by the Seagram Company Ltd., a
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<PAGE> 9
Canadian Company. The address of the Seagram Company Ltd. is 375 Park Avenue,
New York, New York 10152.
(8) Includes the beneficial ownership of Messrs. Gray, Raphael, Doherty and
Anthony J. Scotti, Michael S. Hope, Charles Day and Don Gold. Mr. Scotti
(current Interim Chief Executive Officer and Interim President) holds
warrants and options to purchase 194,000 shares and Mr. Hope (current
Interim Chief Financial Officer and Secretary) holds warrants and options to
purchase 48,000 shares.
(9) Percent of Common Stock owned calculated using the beneficial owner's Common
Stock owned as the numerator and the total number of shares of Common Stock
outstanding on April 24, 1998 (4,179,351) as the denominator.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into certain relationships and transactions with
related parties. Such relationships and transactions include, without
limitation, the following:
RELATIONSHIP WITH UNIVERSAL STUDIOS
In December 1990, the Company sold Universal Studios a 20% equity interest
in the Company for $3 million and entered into a Registration Agreement and
Memorandum of Distribution Agreement with Universal Studios. In September 1994,
the Company and Universal Studios entered into the television animation
agreement described below. In May 1997, the Company and Universal Studios
amended their relationship as described below.
UNIVERSAL STUDIOS DISTRIBUTION AGREEMENT AND ANIMATION AGREEMENT/MAY 1997
AMENDMENT/
RELATED AGREEMENTS
The Company and Universal Studios entered into a Memorandum of Distribution
Agreement dated as of December 7, 1990, as amended by letters dated April 22,
1993 and September 28, 1993 (the "Universal Studios Distribution Agreement"),
pursuant to which Universal Studios was granted certain limited rights, with no
corresponding obligation, to exploit the Company's characters and products in
(i) theatrical motion pictures, (ii) television, (iii) home video, (iv)
merchandising, and (v) theme parks, and to distribute new pictures in all media.
Under the Universal Studios Distribution Agreement, the Company retained the
right to create and distribute existing and new television, home video and new
media products, subject to Universal Studios' First Negotiation ("FN") rights
and First Negotiation/First Refusal ("FNFR") rights, and also retained certain
limited rights to exploit the Company's characters in theme parks. On September
22, 1994, the Company and Universal Studios entered into an agreement to produce
animated television productions based on the Company's characters (the "PSO
Agreement"). Other than with respect to the Casper animated series, this
agreement expired on September 30, 1995. In May 1997, the Company and Universal
Studios entered into an Amendment to Merchandising Deal which altered the
obligations and rights of the parties with respect to merchandising (the
"Merchandising Amendment") substantially in the form of an October 29, 1996
draft of that agreement previously negotiated (the "Merchandising Amendment
Draft"), a Term Sheet for Universal/Harvey Restated Agreement (the "Term Sheet")
reflecting changes in the Universal Studios Distribution Agreement, and a
Pricing Letter (together with the Merchandising Amendment, the Merchandising
Amendment Draft and the Term Sheet, the "May 1997 Amendment"). In summary,
pursuant to the May 1997 Amendment, the Company reacquired from Universal
Studios (i) control of all merchandising rights with respect to the Company's
characters (except those related to a Casper or Casper Character motion picture
produced and/or released by Universal Studios, as further described below), (ii)
FNFR rights and FN rights in all of the Company's characters other than certain
FNFR rights and FN rights relating to Casper and Casper Characters and (iii)
theme park rights other than those relating to Casper and the Casper Characters.
In exchange for the reacquisition of these rights, the Company provided
Universal Studios with an exclusive release window for the first sequel to the
first Casper movie (and potentially other sequels), a FNFR right with respect to
the first direct-to-video production featuring Casper after the release of the
first Casper sequel and the right to exploit movie merchandising related to
Casper and Casper Characters appearing in permitted
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<PAGE> 10
feature pictures which feature or refer in to the title to Casper or Casper
Characters during merchandising windows associated with such pictures (such
windows are exclusive except that, during a window, the Company may enter into
new licenses with a term beginning after the window ends and pre-existing
licenses between the Company and third parties are not affected by a window).
Theatrical Motion Pictures. Under the Universal Studios Distribution
Agreement, Universal Studios had the sole and exclusive right and license to
develop, produce and distribute theatrical motion pictures based on the Casper,
the Friendly Ghost character. In May 1995, a theatrical motion picture featuring
Casper, the Friendly Ghost was released. To date, the first Casper movie has
grossed approximately $307 million at the box office (of which the Company was
entitled to receive only its contractual share). The Company is entitled to
certain fees, which have already been paid, plus a percentage of gross profits,
if any, derived after initial actual breakeven, and a percentage of the gross
proceeds from merchandising in connection with the Casper Movie, less a
distribution fee and certain costs. Upon commencement of principal photography
of the first Casper movie, Universal Studios became vested with all theatrical
sequel and theatrical remake rights to Casper.
Pursuant to the May 1997 Amendment (currently being reduced to a long form
Amended and Restated Memorandum of Distribution Agreement), Universal retains
the exclusive right to initiate, develop and produce further Casper theatrical
features. The rights fees for the second and subsequent sequels, if produced,
will be negotiated in good faith, and subject to resolution by "baseball"
arbitration. The Company agreed to a theatrical preclusion period ("TPP") around
the theatrical release of the first Casper sequel during which time the Company
may not permit the initial release of any Casper filmed entertainment product.
Universal may qualify for a TPP with regard to subsequent sequels as well.
Universal also has certain rights with respect to non-features and other
pictures in which Casper may make a "guest appearance."
In May 1997, the Company entered into an agreement with Universal Studios
to produce and distribute a motion picture sequel to the first Casper movie to
be produced by Universal Pictures & Amblin Entertainment. The Company received
an advance for the sequel rights and, if a sequel is produced, is contractually
entitled to receive additional advances against a percentage of gross receipts
from all sources of exploitation of the motion picture. As part of the Company's
agreement with Universal Studios, the Company was also paid a non-refundable
advance against the Company's share of its profit participation from the first
Casper movie.
Although Universal Studios' rights to develop and produce theatrical motion
pictures featuring the Company's characters (other than Casper) expired in
December 1995, it has retained a FN right with respect to new pictures in which
the name of one or more Casper Characters (other than Casper) is to appear in
the title of the picture or in which one or more Casper Characters (other than
Casper) are featured which it may exercise should the Company attempt to license
or transfer theatrical motion picture rights or such characters to third
parties. The FN right expires on the earlier of (i) December 7, 2000, or (ii)
the date upon which Universal Studios ceases to own at least five percent (5%)
of the outstanding capital stock of the Company.
Television. Under the May 1997 Amendment, Universal Studios has FNFR rights
for the exploitation of new television product and domestic distribution of the
Company's existing animated film library of product featuring Casper or having
Casper's name in the title. The FNFR rights expire on December 7, 2003, but if
Universal Studios fails to give the Company appropriate notice of an anticipated
release of the first Casper sequel by June 2000 or fails to release the first
Casper sequel by Labor Day 2001, the FNFR rights will expire on December 7,
2000. With respect Universal Studios' rights to the library of product featuring
Casper or having the Casper name in the title only, the expiration date of such
rights also will be shortened to December 7, 2000 if the domestic box office
projection for the first Casper sequel do not exceed $100 million. Under
the May 1997 Amendment, Universal Studios also has FNFR rights for the
exploitation of new television product and domestic distribution of the
Company's existing animated film library of product featuring Casper Characters
(other than Casper) or having a Casper Character name (other than Casper) in the
title. The FNFR rights with respect to the Casper Characters (other than Casper)
expire in June 2001, but if Universal Studios fails to give the Company
appropriate notice of an anticipated release of the first Casper sequel by June
2000 or fails to release the first Casper sequel by Labor Day 2001, the FNFR
rights will expire on December 7, 2000.
7
<PAGE> 11
On September 22, 1994, Universal Studios and the Company formed an
animation productions services organization, known as the Universal/Harvey
Animation Studios, for the purpose of developing and producing television motion
pictures based on the Harvey Classic Characters or other characters. In 1996,
the venture produced 26 30-minute episodes of "Casper" for the Fox Kid's
Television Network. The venture completed production of another 26 episodes
which were delivered to Fox in 1997 and 1998. Fox did not order additional
episodes and lost the right to order additional ones. Universal Studios was
granted merchandising and publishing (except for comic books) agency rights
limited to the animated entertainment produced by the venture. The venture will
not produce any additional animation based on Casper. Under the May 1997
Amendment, if Universal initiates production of a filmed entertainment to which
a TPP does not apply, the Company is precluded from releasing new animated
television product featuring Casper or the Casper Characters for a limited
period of time. Pursuant to the PSO Agreement (as amended by the Term Sheet),
Universal Studios has animated television sequel rights to any Casper Character
starring in television motion pictures produced under the PSO Agreement for a
period of 3 years from the completion of production of the last television
motion picture featuring such character. The PSO Agreement otherwise restricts
the Company's right to produce animated television sequels.
In March, 1995, the Company and Universal Studios entered into an agreement
to co-produce 13 animated Baby Huey shorts, together with Richie Rich bumpers
(which are 30-second animated introductory and concluding sequences), for the
1995/1996 season of "The Baby Huey Show." Pursuant to the agreement and an
amendment thereto, Universal Studios acquired certain distribution, sequel and
other rights to the episodes produced for the 1995/1996 season. (Such rights
have all expired or been repurchased by the Company.)
The exclusivity provisions with respect to TPPs may apply to television
products.
Home Video. Under the Universal Studios Distribution Agreement, Universal
Studios held certain FNFR rights with respect to the Company's worldwide
licensing of (i) home video rights in the Company's library existing on the date
of the Universal Studios Distribution Agreement, (ii) new television products
(subject to the Company's retaining the right under certain circumstances to
transfer home video rights in a new television product to a third party
concurrent with the transfer of television rights), and (iii) characters and
products which the Company intended to exploit initially in the home video
market. Pursuant to the May 1997 Amendment, Universal Studios released all such
rights except the right to produce and release the first feature length Casper
direct-to-video after the next Casper theatrical release. This right expires in
December 2000.
In 1992, Universal Studios and the Company reached an agreement in the home
video market pursuant to which Universal Studios paid the Company an advance,
recoupable against the Company's royalty, for the right to package and
distribute one-half hour videos made from the Company's Classic Film Library.
Pursuant to the May 1997 Amendment, the Company repurchased these rights from
Universal.
The exclusivity provisions with respect to TPPs may apply to home video
products.
Merchandising. Pursuant to the Universal Studios Distribution Agreement,
Universal Studios had the right to act as the exclusive worldwide licensing
agent of the Company with respect to all merchandising exploitation of the
Company's characters. Most of these rights expired in April 1996. Pursuant to
the May 1997 Amendment, Universal Studios' only remaining merchandising rights
are certain rights to exploit movie merchandising related to Casper and Casper
Characters appearing in permitted feature pictures which feature or refer in the
title to Casper or Casper Characters during merchandising windows associated
with such pictures (such windows are exclusive except that, during a window, the
Company may enter into new licenses with a term beginning after the window ends
and pre-existing licenses between the Company and third parties are not affected
by a window).
Theme Parks. Under the May 1997 Amendment, Universal Studios has the
exclusive right to exploit Casper and the Casper Characters and products in
theme parks in the United States, provided, however, that in certain
circumstances the Company has limited rights to exploit Casper and the Casper
Characters and products in Harvey owned theme parks more than 150 miles away
from any Universal Studios' theme park.
8
<PAGE> 12
Additionally, if Universal Studios exploits Casper or the Casper Characters
and/or products in a major attraction in a theme park in the United Kingdom,
France and Japan, Universal Studios shall have exclusive theme park exploitation
rights in that country as long as the character or product is so used there;
thereafter, Universal Studios shall have non-exclusive rights. (Universal
Studios is not currently exploiting Casper or the Casper Characters in theme
parks in the United Kingdom, France or Japan). Universal Studios has non-
exclusive rights to exploit Casper and the Casper Characters and products in
theme parks in the rest of the world. Prior to the May 1997 Amendment, Universal
Studios held these rights with respect to all of the Company's characters. The
Company is negotiating with Universal Studios with respect to certain limited
rights of the Company to use the Casper Characters to stroll throughout theme
parks in the United States.
Security Interest. In order to secure Universal Studios' rights under the
Universal Studios Distribution Agreement, the Company granted to Universal
Studios security interests in the rights it acquired. After the May 1997
Amendment, this security interest continues with respect to the Casper
Characters only.
Lease. The Company entered into a short-term sublease with MCA Records (a
subsidiary of Universal Studios) on September 22, 1996 for 3,000 square feet of
space at its Santa Monica premises for a monthly rental of approximately $7,000
until October 1997 at which time it increased to $7,500 until September 1999.
The lease was initially for a four-month period and has been extended to
September 1999.
REGISTRATION AGREEMENTS
The Company entered into a Registration Rights Agreement dated as of
December 7, 1990, as amended by letter dated as of April 22, 1993, with
Universal Studios and AKAUSA (the "Registration Agreement"). The Registration
Agreement provides that at any time after June 18, 1994, AKAUSA and/or Universal
Studios may request that the Company use its best efforts to register for sale
under the Securities Act their respective shares of the Common Stock. The
Registration Agreement also provides for a second demand registration and for
certain "piggy back" registration rights in the event the Company initiates
another registered stock offering under the Securities Act.
In October 1994, the Company sold 250,000 shares of Common Stock, AKAUSA
sold 200,000 shares of Common Stock and Mr. Montgomery sold 50,000 shares of
Common Stock in a private placement. Purchasers therein were granted
registration rights.
The Company filed a Registration Statement on Form S-3 to register the
shares sold in the 1994 private placement. AKAUSA has also exercised its
piggyback registration rights with respect to the Company's current Form S-3
filing. In addition, Mr. Montgomery requested that the Company register, and the
Company agreed, 175,000 shares of his Common Stock in the Company's current
Registration Statement on Form S-3. None of AKAUSA's stock has been sold under
such Registration Statement. In August 1997, Mr. Montgomery sold 75,000 shares
of Common Stock under such Registration Statement.
EMPLOYMENT AGREEMENTS WITH OFFICERS
The Company has entered into an agreement with Global Media Management
Group, LLC ("Global Media") for the provision of the non-exclusive services of
Messrs. Scotti and Hope as Interim Chief Executive Officer/Interim President and
Interim Chief Financial Officer, respectively. The Company has also entered into
an employment agreement with each of Messrs. Day and Gold (designated as
executive officers in April 1998). The Company was also a party to employment
agreements with Messrs. Montgomery and Yulish, each of which expired without
renewal on April 17, 1998.
Global Media (Anthony Scotti and Michael Hope). In March 1998, the Company
entered into a Management Agreement (the "Global Media Agreement") with Global
Media pursuant to which the Company secured the non-exclusive services of
Anthony J. Scotti and Michael S. Hope, as the Company's Interim Chief Executive
Officer/Interim President and Interim Chief Financial Officer, respectively, and
Leonard Breijo, as the head of the Company's business affairs. The Company
agreed to pay Global Media a fee of $75,000 per month for the services of
Messrs. Scotti and Hope, and an additional $10,000 per month for the services of
Mr. Breijo. In addition, the Company granted Messrs. Scotti, Hope and Breijo
five-year
9
<PAGE> 13
warrants to purchase, in the aggregate, 200,000 shares of Common Stock. The
warrants became exercisable immediately and have an exercise price of $12.75
(the closing price of a share of Common Stock on The Nasdaq Stock Market's
National Market on the date the warrants were issued). The Company also granted
Messrs. Scotti, Hope and Breijo options under the Company's 1997 Stock Option
Plan to purchase, in the aggregate, 50,000 shares of Common Stock. The options
became exercisable immediately and have an exercise price of $12.6875 (the
closing price of a share of Common Stock on The Nasdaq Stock Market's National
Market on the date the options were granted). Under the Global Media Agreement,
the Company agreed to indemnify Global Media against all losses except those
occasioned by Global Media's gross negligence or willful misconduct. The Global
Media Agreement has an initial term of six months.
Charles Day. The Company entered into an employment agreement effective
October 16, 1996 with Charles Day, the Company's Senior Vice President of
Consumer Products, amended as of December 19, 1997, for a term ending September
30, 1998 (the "Day Employment Agreement"). Pursuant to the Day Employment
Agreement, Mr. Day is entitled to an annual salary of $130,000 per year and
certain other benefits including a one-time living allowance of $3,000 during
the first twelve months of the term, insurance benefits, three weeks of paid
vacation, use of an automobile, reimbursement of automobile insurance expenses,
reimbursement of moving expenses at the beginning of the term and reimbursement
of attorney's fees incurred in connection with the negotiation of the Day
Employment Agreement. Pursuant to the Day Employment Agreement, Mr. Day is also
entitled to receive an annual bonus equal to a percentage of pre-tax net profits
from the Company's merchandising activities under Mr. Day's supervision. In
addition, Mr. Day received an option to purchase 15,000 shares at $11.00 per
share (adjusted to $7.25 per share in December 1996) vesting over three years
and an option to purchase 5,000 shares at $11.00 per share vesting over two
years. The Day Employment Agreement also provides that the Company will
indemnify Mr. Day for any loss he incurs by virtue of his position as an
employee of the Company.
Don Gold. In February 1998, the Company entered into an employment
agreement with Don Gold, the Company's Senior Vice President -- Harvey Home
Entertainment for a term ending February 27, 2000, subject to extension, at the
Company's option, for two additional years (the "Gold Employment Agreement").
Pursuant to the Gold Employment Agreement, Mr. Gold is entitled to receive a
salary of $150,000 for the first year of the term, $165,000 for the second year
of the term and, if the term is extended, a salary to be negotiated by the
parties of no less than $181,500 per year. Mr. Gold is also entitled to certain
other benefits, including a one-time signing bonus of $20,000, insurance
benefits, three weeks paid vacation, an automobile allowance of $700 per month,
reimbursement of car insurance and registration expenses and reimbursement of
attorney's fees incurred in negotiated the Gold Employment Agreement, with a
maximum amount of $2,000. The Gold Employment Agreement provides that the
maximum total compensation to Mr. Gold in the first year of the term (including
benefits) will be $300,000; in the second year, $350,000; if the term is
extended, in the third year, $400,000, and, in the fourth year, $450,000. Mr.
Gold is also entitled to annual bonuses equal to a percentage of net profits
from the home entertainment activities under the supervision of Mr. Gold. In
addition, under the Gold Employment Agreement Mr. Gold received an option to
purchase 20,000 shares of the Company's Common Stock, vesting over two years
with an exercise price of $10.25. The Gold Employment Agreement also provides
that the Company will indemnify Mr. Gold for any loss he incurs by virtue of his
position as an employee of the Company.
Jeffrey A. Montgomery. The Company entered into an employment agreement
effective July 10, 1989, amended as of March 2, 1993, and further amended as of
April 17, 1995, with Jeffrey A. Montgomery, the Company's former Chairman,
former President and former Chief Executive Officer for a term ending April 17,
1998 (the "Montgomery Employment Agreement"). On March 20, 1998, the Board of
the Company voted against renewal of the Montgomery Employment Agreement. It
expired on April 17, 1998 and Mr. Montgomery is no longer an officer of the
Company. Pursuant to the Montgomery Employment Agreement, Mr. Montgomery was
entitled to receive a salary of $295,000 a year and certain other benefits for
the term of the agreement, including reimbursement of automobile expenses, four
weeks paid vacation, reimbursement of the direct transportation expenses of Mr.
Montgomery's spouse when she accompanied him on business travel and
reimbursement of club dues. In 1995, Mr. Montgomery's base salary for the year
was reduced to $249,000 and the additional amounts to which he was contractually
entitled were allocated to an
10
<PAGE> 14
unaccountable business expense allowance. Pursuant to the Montgomery Employment
Agreement, Mr. Montgomery could also receive, upon the decision of the
Compensation Committee, an annual bonus of up to 40% of his base compensation.
During the term of the Montgomery Employment Agreement, Mr. Montgomery received
other bonus compensation when the Board determined that such additional
compensation was appropriate. In addition, Mr. Montgomery received an option to
purchase 100,000 shares of Common Stock at $10.00 per share (adjusted to $7.25
per share in December 1996) vesting over three years ( 1/3 of this option
expired without vesting on April 17, 1998) and a fully vested option to purchase
50,000 shares of Common Stock at $7.75 per share on April 17, 1997. Until April
1998, the Company maintained a $2,000,000 whole life insurance policy on Mr.
Montgomery. The Montgomery Employment Agreement also provided that the Company
would indemnify Mr. Montgomery for any loss he incurred by virtue of his
position as an employee of the Company.
Gregory M. Yulish. The Company entered into an employment agreement
effective April 1, 1993 with Gregory M. Yulish, the Company's Executive Vice
President and Chief Financial Officer, amended as of April 17, 1995, for a term
ending April 17, 1998 (the "Yulish Employment Agreement"). On March 20, 1998,
the Board of the Company voted against renewal of the Yulish Employment
Agreement. It expired on April 17, 1998 and Mr. Yulish is no longer an officer
of the Company. Pursuant to the Yulish Employment Agreement, Mr. Yulish was
entitled to a salary of $155,000 per year and certain other benefits for the
term of the agreement, including reimbursement of business and automobile
expenses, health club dues and four weeks of paid vacation (which increased from
three weeks after five years of employment). In 1995, Mr. Yulish's base salary
for the year was reduced to $137,000 and the additional amounts to which he was
contractually entitled were allocated to an unaccountable business expense
allowance. Pursuant to the Yulish Employment Agreement, Mr. Yulish could also
receive, upon the decision of the Compensation Committee, an annual bonus of up
to 30% of his base compensation. During the term of the Yulish Employment
Agreement, Mr. Yulish received other bonus compensation when the Board
determined that such additional compensation was appropriate. In addition, Mr.
Yulish received an option to 50,000 shares of Common Stock at $10.00 per share
(adjusted to $7.25 per share in December 1996) vesting over three years and a
fully vested option to purchase 25,000 shares of Common Stock on April 17, 1997.
The Yulish Employment Agreement also provided that the Company would indemnify
Mr. Yulish for any loss he incurred by virtue of his position as an employee of
the Company. In April 1998, Mr. Yulish and the Company entered into the
Consulting Agreement. See "Termination and Consulting Agreement and Mutual
General Release."
CONSULTING AGREEMENT WITH JANE MCGREGOR
In September 1997, the Company entered into a letter agreement with JEM
Entertainment, Inc., a California corporation ("JEM") jointly owned by former
Director and former Chief Financial Officer Mr. Yulish and Jane E. McGregor (Mr.
Yulish's spouse), for the non-exclusive consulting services of Ms. McGregor. The
letter agreement was superseded by a long form agreement entered into by the
parties in March 1998 (the "Consulting Agreement"). Pursuant to the Consulting
Agreement, Ms. McGregor agreed to provide a variety of non-exclusive services to
the Company, including production, writing, general business, consulting and
management services for a term ending on December 31, 1999. Ms. McGregor's
initial assignment under the Consulting Agreement involved certain television
series which the Company was seeking to develop with, or sell to, television
networks. Ms. McGregor was guaranteed compensation under the Consulting
Agreement of $125,000 per year and was also entitled to additional fees based on
the type of services rendered to the Company. Ms. McGregor was to receive a
percentage of gross profits of any motion picture assigned to her or originated
by her and a "per assignment" fee for producing certain projects. Ms. McGregor
and the Company terminated the Consulting Agreement in April 1998, at which time
the Company and Ms. McGregor exchanged mutual releases of claims arising out of
the Consulting Agreement and its termination. See "Termination and Consulting
Agreement and Mutual General Release."
TERMINATION AND CONSULTING AGREEMENT AND MUTUAL GENERAL RELEASE
Ms. McGregor, JEM and former Chief Financial Officer Gregory M. Yulish and
the Company entered into a Termination and Consulting Agreement and Mutual
General Release (the "Release") dated as of
11
<PAGE> 15
April 17, 1998 whereby Ms. McGregor, JEM and Mr. Yulish confirmed the
termination of their respective agreements with the Company, entered into mutual
general releases, and, in the case of Ms. McGregor and JEM, released all claims
for profit participations or fees with respect to the Company's ongoing
entertainment projects. The Company paid JEM $75,000 for this Release and agreed
to retain Mr. Yulish as a consultant to the Company through October 17, 1998 at
a fee of $100 per hour on an as needed basis. Pursuant to the Release, the
Company allowed Mr. Yulish's option to purchase 16,666 shares of the Common
Stock to vest on April 25, 1998 and removed the price collar from the option.
(The option otherwise would have expired unvested when the Yulish Employment
Agreement expired on April 17, 1998.)
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Anthony J. Scotti............ 58 Interim Chief Executive Officer/Interim President
Michael S. Hope.............. 55 Interim Chief Financial Officer and Corporate Secretary
Charles Day.................. 35 Senior Vice President of Consumer Products
Don Gold..................... 41 Senior Vice President -- Harvey Home Entertainment
Gary M. Gray................. 53 Director, Chairman
Allan R. Raphael............. 54 Director
Michael S. Doherty........... 44 Director
</TABLE>
Each of the directors and executive officers serves in similar positions
for both the Company and its wholly owned subsidiary, Harvey Comics, Inc.
("Harvey"). Directors are currently elected for terms of one year each.
The Company's Bylaws allow the Board to fix the number of directors between
three and five. The number of directors is currently fixed at three, but the
Board may increase the number to four or five at any time without shareholder
consent.
ANTHONY J. SCOTTI has been the Interim Chief Executive Officer and Interim
President of the Company since March 1998. Mr. Scotti is the Chairman of Global
Media and has been a leading executive in the entertainment industry for over 30
years. Prior to joining the Company, Mr. Scotti served as Chairman and Chief
Executive Officer of All American Communications, Inc. ("All American"). Mr.
Scotti recently completed the sale of All American to Pearson PLC. Mr. Scotti
founded Scotti Brothers Entertainment, a recorded music company, and also has
served as Chairman of the Board of LIVE Entertainment Inc. and as a consultant
to Carolco Pictures Inc.
MICHAEL S. HOPE has been the Interim Chief Financial Officer and Corporate
Secretary of the Company since March 1998. Mr. Hope is the President of Global
Media. Prior to joining the Company, Mr. Hope served as Executive Vice President
of Metro-Goldwyn-Mayer Inc. from 1993 to 1997. At MGM, he was responsible for
all financial and administrative functions of the studio, and was jointly
responsible for all businesses outside the areas of film and television
production and distribution. Prior to joining MGM, Mr. Hope was Executive Vice
President, Planning and Operations and Chief Financial Officer for Paramount
Communications Inc.
CHARLES DAY has been the Senior Vice President of Consumer Products of the
Company since October 1996. Prior to joining the Company, Mr. Day served in the
following positions at Copyright Promotions International Ltd. ("CPI"): Joint
Managing Director from 1993 to 1996, Development Director from 1989 to 1993, and
Marketing Executive Food and Drink from 1985 to 1987. During the latter years of
his career at CPI Mr. Day was responsible for budgeting and formulation of
business and marketing plans, acquisition of licensing rights to intellectual
properties and development of entertainment rights.
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<PAGE> 16
DON GOLD has been the Senior Vice President -- Harvey Home Entertainment of
the Company since February 1998. Prior to joining the Company, Mr. Gold was a
Senior Vice President of Sales and Marketing for Trimark Pictures from 1995 to
1998. Prior to joining Trimark Pictures, from 1990 to 1995, Mr. Gold worked for
Strand Home Video. At both Trimark and Strand, Mr. Gold was responsible for
identifying intellectual properties for acquisition and production. Mr. Gold
graduated from California State University Northridge in 1981 with a degree in
political science.
GARY M. GRAY. See "Information Concerning Current Directors and Nominees
for Directors."
ALLAN R. RAPHAEL. See "Information Concerning Current Directors and
Nominees for Directors."
MICHAEL S. DOHERTY. See "Information Concerning Current Directors and
Nominees for Directors."
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") and the National Association of Securities
Dealers, Inc. initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers, directors
and greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and certain other representations that no other
reports were required, during the year ended December 31, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
EXECUTIVE COMPENSATION AND OTHER REMUNERATION
The following table sets forth all cash and non-cash compensation paid to
the chief executive officer and the other two executive officers of the Company
during fiscal year 1997 with respect to services rendered during each of the
last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION COMMON STOCK
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Montgomery,............ 1997 $295,000 $275,000 50,000 $ 82,333(2)
(Former) Chief Executive 1996 $256,487 $250,000(1) N/A $ 93,915(2)
Officer, (Former) President 1995 $229,133 $129,627(3) 100,000 $105,710(2)
and (Former) Chairman
Gregory M. Yulish,................ 1997 $155,000 $200,000 25,000 $ 89,467(2)
(Former) Executive Vice 1996 $137,000 $100,000(1) N/A $ 62,286(2)
President, (Former) Chief 1995 $127,625 $ 21,844 50,000 $ 44,867(2)
Financial Officer and (Former)
Corporate Secretary
</TABLE>
- ---------------
(1) Represents a producer's fee in connection with the 1996 direct-to-video
production of Casper, A Spirited Beginning, Messrs. Montgomery and Yulish
negotiated an agreement pursuant to which Saban Entertainment agreed to bear
all costs of production and to share defined profits, if any, with the
Company.
(2) Represents sums advanced under the Company's defined contribution plan,
which vest over a period of five years, an unaccountable business expense
allowance, benefits under automobile and athletic club plans, and in 1995
the value of a whole life insurance policy transferred to Mr. Montgomery in
connection with his employment agreement.
(3) Includes a $75,000 producer's fee bonus relating to the motion picture
"Richie Rich" released in 1995.
13
<PAGE> 17
OPTION GRANTS IN LAST FISCAL YEAR
In 1997, options to purchase 50,000 shares and 25,000 shares were granted
to Messrs. Montgomery and Yulish, respectively, under the Company's 1997 Stock
Option Plan, pursuant to the terms of the Montgomery Employment Agreement and
Yulish Employment Agreement, respectively.
The following table sets forth certain information regarding option
exercises and option values for Messrs. Montgomery and Yulish.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF SECURITIES
UNDERLYING UNDERLYING
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
12/31/97 12/31/97(1)
SHARES ----------------- -------------------
ACQUIRED ON VALUE EXERCISABLE(#)/ EXERCISABLE($)/
NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE($)
--------------------------- ----------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
Jeffrey A. Montgomery............. -0- -0- 461,667(2)/88,333 $2,044,500/$308,000
(Former) Chief Executive Officer
and (Former) President
Gregory M. Yulish................. 12,500 $143,938 103,334(3)/21,666 $311,250/$30,000
(Former) Executive Vice
President, (Former) Chief
Financial Officer and (Former)
Corporate Secretary
</TABLE>
- ---------------
(1) The Common Stock closed on The Nasdaq Stock Market's National Market on
December 31, 1997 at $10.00 per share.
(2) Includes an option to purchase 66,667 shares of Common Stock exercisable
only if the closing price of the Common Stock on the principal stock
exchange on which it is trading has been no less than $12.00 per share for
the 15 consecutive trading day period prior to the date of exercise. On
December 31, 1997, Mr. Montgomery could not have exercised this option. The
unexercisable total of 88,333 shares includes an option to purchase 33,333
shares of Common Stock, which, as of December 31, 1997, was subject to the
same price collar and scheduled to vest on April 25, 1998. On April 17, 1998
the option expired unvested along with the expiration of the Montgomery
Employment Agreement.
(3) Includes an option to purchase 33,334 shares of Common Stock exercisable
only if the closing price of the Common Stock on the principal stock
exchange on which it is trading has been no less than $12.00 per share for
the 15 consecutive trading day period prior to the date of exercise. On
December 31, 1997, Mr. Yulish could not have exercised this option. The
unexercisable total of 21,666 shares includes an option to purchase 16,666
shares of Common Stock, which, as of December 31, 1997, was subject to the
same price collar and scheduled to vest on April 25, 1998. Pursuant to the
Release, the price collar was removed from this option in April 1998. See
"Employment Agreements with Officers -- Termination and Consulting Agreement
and Mutual General Release."
DIRECTOR COMPENSATION
Directors of the Company who are neither employees of the Company nor of
the Company's affiliates receive $20,000 in cash each year for serving on the
Board. Such Directors also receive 10,000 stock options under the Company's 1997
Stock Option Plan on May 18 each year. In June of 1997, the Company made a
one-time grant (approved by the Company's shareholders) to each director who was
neither an employee of the Company nor of the Company's affiliates of an option
under the Company's 1997 Stock Option Plan to purchase 20,000 shares of Common
Stock at a price of $7.25 per share. In addition to such fees and options, as
compensation for services as Chairman of the Board, in April 1998 Mr. Gray
received a one-time grant of a fully-vested option under the Company's 1997
Stock Option Plan to purchase 50,000 shares of Common Stock
14
<PAGE> 18
at an exercise price of $12.6875 per share (the closing price of a share of
Common Stock on The Nasdaq Stock Market's National Market on the grant date).
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into an agreement with Global Media for the
provision of the non-exclusive services of Messrs. Scotti and Hope as Interim
Chief Executive Officer/Interim President and Interim Chief Financial Officer,
respectively. The Company has also entered into an employment agreement with
each of Messrs. Day and Gold (designated as executive officers in April 1998).
The Company was also party to employment agreements with Messrs. Montgomery and
Yulish, each of which expired without renewal on April 17, 1998. See "Certain
Relationships and Related Transactions -- Employment Agreements with Officers."
PROPOSAL NO. 2
APPROVAL OF THE COMPANY'S AMENDED AND RESTATED 1997 STOCK OPTION PLAN
At a meeting held in April 1998, the Board approved the Company's Amended
and Restated 1997 Stock Option Plan, subject to shareholder approval at this
Meeting. A copy of the Company's Amended and Restated Stock 1997 Option Plan is
attached as Exhibit A to this Proxy Statement. Approval of this Amended and
Restated 1997 Stock Option Plan will require the affirmative vote of a majority
of the shares of Common Stock entitled to vote and represented at this Meeting
in person or by proxy, provided a quorum is present.
A brief description of the amendments to the Company's 1997 Stock Option
Plan follows; this description is qualified by its entirety by the terms of the
Company's Amended and Restated 1997 Stock Option Plan set forth on Exhibit A.
The full description of the Company's 1997 Stock Option Plan was included in the
Company's 1997 Proxy Statement.
The Company's 1997 Stock Option Plan currently provides for the grant of
options to purchase an aggregate of 250,000 shares of the Common Stock. As of
April 24, 1998, only approximately 10,000 shares remain available for the grant
of options under the Company's 1997 Stock Option Plan. The Company's Amended and
Restated 1997 Stock Option Plan increases the aggregate number of shares
available for the grant of options to 450,000. In addition, the Company's
Amended and Restated 1997 Stock Option Plan includes provisions necessary to
qualify options granted under such plan as exempt from the definition of
"applicable employee remuneration" under Internal Revenue Code Section 162(m)
("Section 162(m)"). In the absence of such provisions, the grant of options
under the Company's Amended and Restated 1997 Stock Option Plan might constitute
"applicable employee remuneration" to the recipient employee under Section
162(m). The Company cannot deduct as compensation expense "applicable employee
remuneration" to an employee in excess of $1,000,000.
The aggregate market value of the 200,000 additional shares of Common Stock
underlying options which may be granted pursuant to the Company's Amended and
Restated 1997 Stock Option Plan was approximately $2,662,500 as of April 24,
1998.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL. THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE SHARES VOTING IN PERSON OR BY PROXY AT THE MEETING
(ASSUMING A QUORUM IS PRESENT) IS NECESSARY FOR APPROVAL OF THE COMPANY'S
AMENDED AND RESTATED 1997 STOCK OPTION PLAN.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board recommends that Shareholders vote for the approval of the
appointment of Deloitte & Touche LLP as the Company's independent auditors for
the current fiscal year. Deloitte & Touche LLP served as the Company's
independent auditors for the fiscal year ended December 31, 1997.
Representatives of Deloitte &
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Touche LLP are expected to be present at the meeting with the opportunity to
make a statement if they desire to do so and to respond to appropriate
questions.
A majority vote of the shares entitled to vote represented at the meeting
is necessary for approval.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL. THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE SHARES VOTING IN PERSON OR BY PROXY AT THE MEETING
(ASSUMING A QUORUM IS PRESENT) IS NECESSARY FOR RATIFICATION OF DELOITTE &
TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE 1998 FISCAL YEAR.
OTHER MATTERS
The Board is not aware of any other matter that may properly come before
the meeting. If any matter not mentioned in this Proxy Statement is brought
before the meeting, the persons named in the enclosed form of proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with their judgment.
SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposals intended for
consideration at the 1999 Annual Meeting of Shareholders must be received by the
Company at its principal executive offices on or before December 20, 1998 in
order to be included in the proxy materials for the 1999 Annual Meeting. It is
recommended that shareholders submitting proposals direct them to the Secretary
of the Company and utilize certified mail with return receipt requested.
FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for the Fiscal Year
ended December 31, 1997, exclusive of exhibits, accompanies this proxy
statement. Additional copies will be mailed without charge to any shareholder
entitled to vote at the meeting, upon written request to: Jin Brown, The Harvey
Entertainment Company, 1999 Avenue of the Stars, 20th Floor, Los Angeles,
California 90067.
By Order of the Board of Directors,
Michael S. Hope
Corporate Secretary
May 18, 1998
Los Angeles, California
SHAREHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION
WILL BE APPRECIATED.
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EXHIBIT A
THE HARVEY ENTERTAINMENT COMPANY
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
I. INTRODUCTION
1.1 Effect on Existing 1997 Stock Option Plan; Purposes of the Plan. The
Harvey Entertainment Company Amended and Restated 1997 Stock Option Plan (the
"Plan") amends and restates certain provisions of The Harvey Entertainment
Company 1997 Stock Option Plan (the "Old 1997 Plan"). Until such time that this
Plan is approved by the shareholders pursuant to Section 3.1 herein, all
provisions of the Old 1997 Plan shall remain in full force and effect as
originally approved by the Board of Directors (the "Board") of The Harvey
Entertainment Company (the "Company") and the shareholders. At such time that
the Plan is approved by the shareholders pursuant to Section 3.1 herein, to the
extent that the Plan and the Old 1997 Plan are inconsistent, the Plan shall
supersede the Old 1997 Plan. The purposes of the Plan are (i) to align the
interests of the Company's shareholders and the recipients of options under this
Plan by increasing the proprietary interest of such recipients in the Company's
growth and success, (ii) to advance the interests of the Company by attracting
and retaining officers and other key employees, consultants, independent
contractors, agent and well-qualified persons who are not officers or employees
of the Company ("Non-Employee Directors") for service as directors of the
Company and (iii) to motivate such persons to act in the long-term best
interests of the Company's shareholders.
1.2 Administration. This Plan shall be administered by a committee (the
"Committee") designated by the Board consisting of two or more members of the
Board. Each member of the Committee shall be a "Non-Employee Director" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, if such persons are available, an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Committee shall, subject to the terms of this Plan, select eligible
persons for participation in this Plan (which persons may include members of the
Committee) and shall determine the number of shares of Common Stock subject to
each option granted hereunder, the exercise price of such option, the time and
conditions of exercise of such option and all other terms and conditions of such
option, including, without limitation, the form of the option agreement. The
Committee shall, subject to the terms of this Plan, interpret this Plan and the
application thereof, establish rules and regulations it deems necessary or
desirable for the administration of this Plan and may impose, incidental to the
grant of an option, conditions with respect to the grant, such as limiting
competitive employment or other activities. All such interpretations, rules,
regulations and conditions shall be final, binding and conclusive. The Committee
may, in its sole discretion and for any reason at any time, subject to the
requirements imposed under Section 162(m) of the Code and regulations
promulgated thereunder in the case of an option intended to be qualified
performance-based compensation, take action such that any or all outstanding
options shall become exercisable in part or in full. Each option shall be
evidenced by a written agreement (an "Agreement") between the Company and the
optionee setting forth the terms and conditions of such option.
The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (i) the grant of an option to
any person who is a "covered employee" within the meaning of Section 162(m) of
the Code or who, in the Committee's judgment, is likely to be a covered employee
at any time during the period an option granted hereunder to such employee would
be outstanding or (ii) the selection for participation in this Plan of an
officer or other person subject to Section 16 of the Exchange Act or decisions
concerning the timing, pricing or amount of an option grant to such an officer
or other person.
No member of the Board of Directors or Committee, and neither the Chief
Executive Officer nor other executive officer to whom the Committee delegates
any of its power and authority hereunder, shall be liable for any act, omission,
interpretation, construction or determination made in connection with this Plan
in good faith, and the members of the Board of Directors and the Committee and
the Chief Executive Officer or other
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executive officer shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including attorneys'
fees) arising therefrom to the full extent permitted by law and under any
directors' and officers' liability insurance that may be in effect from time to
time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by all of the members of the Committee without a meeting.
1.3 Eligibility. Participants in this Plan shall consist of such officers,
other key employees, consultants, independent contractors and agents of the
Company, its subsidiaries from time to time and any other entity designated by
the Board or the Committee (individually a "Subsidiary" and collectively the
"Subsidiaries") as the Committee in its sole discretion may select from time to
time. For purposes of this Plan, references to employment shall also mean an
agency or independent contractor relationship and references to employment by
the Company shall also mean employment by a Subsidiary. The Committee's
selection of a person to participate in this Plan at any time shall not require
the Committee to select such person to participate in this Plan at any other
time. Non-employee directors of the Company shall be eligible to participate in
this Plan.
1.4 Shares Available. Subject to adjustment as provided in Section 3.7,
450,000 shares of the common stock of the Company ("Common Stock"), shall be
available for grants of options under this Plan, reduced by the sum of the
aggregate number of shares of Common Stock which become subject to outstanding
options under the Plan. To the extent that shares of Common Stock subject to an
outstanding option are not issued or delivered by reason of the expiration,
termination, cancellation or forfeiture of such option or by reason of the
delivery or withholding of shares of Common Stock to pay all or a portion of the
exercise price of such option, or to satisfy all or a portion of the tax
withholding obligations relating to such option, then such shares of Common
Stock shall again be available under this Plan. Shares of Common Stock shall be
made available from authorized and unissued shares of Common Stock, or
authorized and issued shares of Common Stock reacquired and held as treasury
shares or otherwise or a combination thereof authorized and issued shares of
Common Stock reacquired and held as treasury shares or otherwise.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of shares of Common Stock with
respect to which the options may be granted during any calendar year to any
person under this Plan shall be 100,000, subject to adjustment as provided in
Section 3.7.
II. STOCK OPTIONS
2.1 Grants of Stock Options. The Committee may, in its discretion, grant
options to purchase shares of Common Stock to such eligible persons as may be
selected by the Committee. Each option, or portion thereof, that is not an
incentive stock option, shall be a non-qualified stock option. An incentive
stock option may not be granted to any person who is not an employee of the
Company or any subsidiary (as defined in Section 424 of the Code). An incentive
stock option shall mean an option to purchase shares of Common Stock that meets
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision, which is intended by the Committee to
constitute an incentive stock option. Each incentive stock option shall be
granted within ten years of the effective date of this Plan. To the extent that
the aggregate Fair Market Value (determined as of the date of grant) of shares
of Common Stock with respect to which options designated as incentive stock
options are exercisable for the first time by a participant during any calendar
year (under this Plan or any other plan of the Company, or any parent or
subsidiary as defined in Section 424 of the Code) exceeds the amount (currently
$100,000) established by the Code, such options shall constitute non-qualified
stock options. "Fair Market Value" shall mean the closing transaction price of a
share of Common Stock as reported in the NASDAQ National Market System on the
date as of which such value is being determined or, if there shall be no
reported transactions on such date, on the next preceding date for which a
transaction was reported; provided that if Fair Market Value for any date cannot
be determined as above provided, Fair Market Value shall be determined by the
Committee by whatever means or method as the Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
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2.2 Terms of Stock Options. Options shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of shares of
Common Stock subject to an option and the purchase price per share of
Common Stock purchasable upon exercise of the option shall be determined by
the Committee; provided, however, that the purchase price per share of
Common Stock purchasable upon exercise of a non-qualified stock option
shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant of such option and the purchase price per share
of Common Stock purchasable upon exercise of an incentive stock option
shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant of such option; provided further, that if an
incentive stock option shall be granted to any person who, at the time such
option is granted, owns capital stock possessing more than ten percent of
the total combined voting power of all classes of capital stock of the
Company (or of any parent or subsidiary as defined in Section 424 of the
Code) (a "Ten Percent Holder"), the purchase price per share of Common
Stock shall be the price (currently 110% of Fair Market Value) required by
the Code in order to constitute an incentive stock option.
(b) Option Period and Exercisability. The period during which an
option may be exercised shall be determined by the Committee; provided,
however, that no incentive stock option shall be exercised later than ten
years after its date of grant; provided further, that if an incentive stock
option shall be granted to a Ten Percent Holder, such option shall not be
exercised later than five years after its date of grant. The Committee may,
in its discretion, establish performance measures or other criteria which
shall be satisfied or met as a condition to the grant of an option or to
the exercisability of all or a portion of an option. The Committee shall
determine whether an option shall become exercisable in cumulative or
non-cumulative installments and in part or in full at any time. An
exercisable option, or portion thereof, may be exercised only with respect
to whole shares of Common Stock.
(c) Method of Exercise. An option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of
Common Stock to be purchased and accompanied by payment therefor in full
(or arrangement made for such payment to the Company's satisfaction) either
(A) in cash, (B) by delivery (either actual delivery or by attestation
procedures established by the Company) of previously owned whole shares of
Common Stock (which the optionee has held for at least six months prior to
the delivery of such shares or which the optionee purchased on the open
market and in each case for which the optionee has good title, free and
clear of all liens and encumbrances) having an aggregate Fair Market Value,
determined as of the date of exercise, equal to the aggregate purchase
price payable by reason of such exercise, (C) by authorizing the Company to
withhold whole shares of Common Stock which would otherwise be delivered
upon exercise of the option having an aggregate Fair Market Value,
determined as of the date of exercise, equal to the aggregate purchase
price payable by reason of such exercise, if such exercise does not result
in the recognition of compensation expense to the Company, (D) in cash by a
broker-dealer acceptable to the Company to whom the optionee has submitted
an irrevocable notice of exercise, or (E) a combination of (A), (B) and
(C), in each case to the extent set forth in the Agreement relating to the
option and (ii) by executing such documents as the Company may reasonably
request. The Company shall have sole discretion to disapprove of an
election pursuant to any of clauses (B)-(E). Any fraction of a share of
Common Stock which would be required to pay such purchase price shall be
disregarded and the remaining amount due shall be paid in cash by the
optionee. No certificate representing Common Stock shall be delivered until
the full purchase price therefor has been paid (or arrangement made for
such payment to the Company's satisfaction).
(d) Additional Reload Options. The Committee shall have the authority
to include in any Agreement relating to an option a provision entitling the
optionee to an additional option in the event such optionee exercises the
option represented by such option agreement, in whole or in part, by
delivering previously owned whole shares of Common Stock in payment of the
purchase price in accordance with this Plan and such Agreement. Any such
additional option shall be for a number of shares of Common Stock equal to
the number of delivered shares, shall have a purchase price determined by
the Committee in accordance with this Plan, shall be exercisable on the
terms and subject to the
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conditions established by the Committee at the time of grant of such
additional option, and shall be subject to such other terms and conditions
as the Committee shall determine in accordance with this Plan.
2.3 Termination of Employment
(a) Disability. Subject to paragraph (f) below and unless otherwise
specified in the Agreement relating to an option, if an optionee's employment
with the Company terminates by reason of Disability, each option held by such
optionee shall be exercisable only to the extent that such option is exercisable
on the effective date of such optionee's termination of employment and may
thereafter be exercised by such optionee (or such optionee's legal
representative or similar person) until and including the earliest to occur of
(i) the date which is 12 months (or such other period as set forth in the
Agreement relating to such option) after the effective date of such optionee's
termination of employment and (ii) the expiration date of the term of such
option. For purposes of this Plan, "Disability" shall mean the inability of an
optionee substantially to perform such optionee's duties and responsibilities
for a continuous period of at least six months.
(b) Retirement. Subject to paragraph (f) below and unless otherwise
specified in the Agreement relating to an option, if an optionee's employment
with the Company terminates by reason of retirement on or after age 65 after a
minimum of ten (10) years of employment with the Company each option held by
such optionee shall be exercisable only to the extent that such option is
exercisable on the effective date of such optionee's termination of employment
and may thereafter be exercised by such optionee (or such optionee's legal
representative or similar person) until and including the earliest to occur of
(i) the date which is twelve (12) months (or such other period as set forth in
the Agreement relating to such option) after the effective date of such
optionee's termination of employment and (ii) the expiration date of the term of
such option.
(c) Death. Subject to paragraph (f) below and unless otherwise specified in
the Agreement relating to an option, if an optionee's employment with the
Company terminates by reason of death, each option held by such optionee shall
be exercisable only to the extent that such option is exercisable on the date of
such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person
until and including the earliest to occur of (i) the date which is twelve (12)
months (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term of such
option.
(d) Other Termination. Subject to paragraph (f) below and unless otherwise
specified in the Agreement relating to an option if the employment with the
Company of the holder of an option is terminated by the Company for Cause, each
option held by such holder shall terminate automatically on the effective date
of such holder's termination of employment.
Subject to paragraph (f) below and unless otherwise specified in the
Agreement relating to an option, if an optionee's employment with the Company
terminates for any reason other than Disability, retirement on or after age 65
after a minimum of ten (10) years of employment with the Company or death or
Cause, each option held by such optionee shall be exercisable only to the extent
that such option is exercisable on the effective date of such optionee's
termination of employment and may thereafter be exercised by such optionee (or
such optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months (or such other period as
set forth in the Agreement relating to such option) after the effective date of
such optionee's termination of employment and (ii) the expiration date of the
term of such option; provided that if such optionee's employment is terminated
for Cause, all options held by such optionee shall terminate automatically on
the effective date of such optionee's termination of employment. For purposes of
this Plan, "Cause" shall mean the willful and continued failure to substantially
perform the duties assigned by the Company (other than a failure resulting from
the optionee's Disability), the willful engaging in conduct which is
demonstrably injurious to the Company or any Subsidiary, monetarily or
otherwise, including conduct that, in the reasonable judgment of the Company, no
longer conforms to the standard of the Company's executives, any act of
dishonesty, commission of a felony, or a significant violation of any statutory
or common law duty of loyalty to the Company.
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(e) Death Following Termination of Employment. Subject to paragraph (f)
below and unless otherwise specified in the Agreement relating to an option, if
an optionee dies during the period set forth in Section 2.3(a) following
termination of employment by reason of Disability, or if an optionee dies during
the period set forth in Section 2.3(b) following termination of employment by
reason of retirement on or after age 65 after a minimum of ten (10) years of
employment with the Company, or if an optionee dies during the period set forth
in Section 2.3(d) following termination of employment for any other reason other
than Disability or retirement on or after age 65 after a minimum of ten (10)
years of employment with the Company (or, in each case, such other period as set
forth in the Agreement relating to an option), each option held by such optionee
shall be exercisable only to the extent that such option is exercisable on the
date of such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person
until and including the earliest to occur of (i) the date which is twelve (12)
months (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term of such
option.
(f) Termination of Employment -- Incentive Stock Options. Unless otherwise
specified in the Agreement relating to the option, if the employment with the
Company of a holder of an incentive stock option terminates by reason of
Permanent and Total Disability (as defined in Section 22(e)(3) of the Code),
each incentive stock option held by such optionee shall be exercisable only to
the extent that such option is exercisable on the effective date of such
optionee's termination of employment by reason of Permanent and Total
Disability, and may thereafter be exercised by such optionee (or such optionee's
legal representative or similar person) until and including the earliest to
occur of (i) the date which is one (1) year (or such shorter period as set forth
in the Agreement relating to such option) after the effective date of such
optionee's termination of employment by reason of Permanent and Total Disability
and (ii) the expiration date of the term of such option.
Unless otherwise specified in the Agreement relating to the option, if the
employment with the Company of a holder of an incentive stock option terminates
by reason of death, each incentive stock option held by such optionee shall be
exercisable only to the extent that such option is exercisable on the date of
such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person
until and including the earliest to occur of (i) the date which is one (1) year
(or such shorter period as set forth in the Agreement relating to such option)
after the date of death and (ii) the expiration date of the term of such option.
If the employment with the Company of a holder of an incentive stock option
terminates for any reason other than Permanent and Total Disability or death,
each incentive stock option held by such optionee shall be exercisable only to
the extent such option is exercisable on the effective date of such optionee's
termination of employment, and may thereafter be exercised by such holder (or
such holder's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months after the effective date
of such optionee's termination of employment and (ii) the expiration date of the
term of such option.
If the holder of an incentive stock option dies during the period set forth
in the first paragraph of this Section 2.3(f) following termination of
employment by reason of Permanent and Total Disability (or such shorter period
as set forth in the Agreement relating to such option), or if the holder of an
incentive stock option dies during the period set forth in the third paragraph
of this Section 2.3(f) following termination of employment for any reason other
than Permanent and Total Disability or death, each incentive stock option held
by such optionee shall be exercisable only to the extent such option is
exercisable on the date of the optionee's death and may thereafter be exercised
by the optionee's executor, administrator, legal representative, beneficiary or
similar person until and including the earliest to occur of (i) the date which
is one year (or such shorter period as set forth in the Agreement relating to
such option) after the date of death and (ii) the expiration date of the term of
such option.
III. GENERAL
3.1 Effective Date and Term of the Plan. This Plan shall be submitted to
the shareholders of the Company for approval and, if approved by the affirmative
vote of a majority of the shares of Common Stock
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present in person or represented by proxy at the 1998 annual meeting of
shareholders, shall become effective as of April 22, 1998. No option granted
pursuant to this Plan may be exercised prior to the date of such stockholder
approval. This Plan shall be submitted to the shareholders of the Company for
approval in accordance with Section 162(m). This Plan shall terminate on
December 26, 2006, unless terminated earlier by the Board. Termination of this
Plan shall not affect the terms or conditions of any option granted prior to
termination. In the event that this Plan is not approved by the shareholders of
the Company on or before December 31, 1998, this Plan and any options granted
hereunder shall be null and void.
3.2 Amendments. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) of the Code; provided, however,
that no amendment shall be made without stockholder approval if such amendment
would (a) increase the maximum number of shares of Common Stock available under
this Plan (subject to Section 3.7), (b) effect any change inconsistent with
Section 422 of the Code or (c) extend the term of this Plan; provided, further,
that this Plan shall not be amended in a manner which fails to comply with Rule
16b-3(c)(2)(ii)(B) under Section 16 of the Exchange Act. No amendment may impair
the rights of a holder of an outstanding option without the consent of such
holder.
3.3 Agreement. No option shall be valid until an Agreement is executed by
the Company and the optionee and, upon execution by the Company and the optionee
and delivery of the Agreement to the Company, such option shall be effective as
of the effective date set forth in the Agreement.
3.4 Non-Transferability. No option hereunder shall be transferable other
than (i) by will or the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as otherwise
permitted under Rule 16b-3 under the Exchange Act as set forth in the Agreement
relating to such option. Except to the extent permitted by the foregoing
sentence, each option may be exercised during the optionee's lifetime only by
the optionee or the optionee's legal representative or similar person. Except as
permitted by the second preceding sentence, no option hereunder shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option hereunder, such
option and all rights thereunder shall immediately become null and void.
3.5 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the optionee
of any Federal, state, local or other taxes which may be required to be withheld
or paid in connection with an option hereunder. An Agreement may provide that
(i) the Company shall withhold whole shares of Common Stock which would
otherwise be delivered upon exercise of the option having an aggregate Fair
Market Value determined as of the date the obligation to withhold or pay taxes
arises in connection with the option (the "Tax Date") in the amount necessary to
satisfy any such obligation or (ii) the optionee may satisfy any such obligation
by any of the following means: (A) a cash payment to the Company, (B) delivery
(either actual delivery or by attestation procedures established by the Company)
to the Company of previously owned whole shares of Common Stock (which the
optionee has held for at least six months prior to the delivery of such shares
or which the optionee purchased on the open market and in each case for which
the optionee has good title, free and clear of all liens and encumbrances)
having an aggregate Fair Market Value determined as of the Tax Date, equal to
the amount necessary to satisfy any such obligation, (C) authorizing the Company
to withhold whole shares of Common Stock which would otherwise be delivered upon
exercise of the option having an aggregate Fair Market Value determined as of
the Tax Date, equal to the amount necessary to satisfy any such obligation, (D)
a cash payment by a broker-dealer acceptable to the Company to whom the optionee
has submitted an irrevocable notice of exercise or (E) any combination of (A),
(B) and (C), in each case to the extent set forth in the Agreement relating to
the option; provided, however, that the Company shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(E). An Agreement may
provide for shares of Common Stock to be delivered or withheld having a Fair
Market Value in excess of the minimum amount required to be withheld, but not in
excess of the amount determined by applying the optionee's maximum marginal tax
rate. Any fraction of a share of Common Stock which would be required to satisfy
such an obligation shall be disregarded and the remaining amount due shall be
paid in cash by the optionee.
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3.6 Restrictions on Shares. Each option hereunder shall be subject to the
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the exercise of such option
or the delivery of shares thereunder, such option shall not be exercised and
such shares shall not be delivered unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company. The Company may
require that certificates evidencing shares of Common Stock delivered pursuant
to any option hereunder bear a legend indicating that the sale, transfer or
other disposition thereof by the holder is prohibited except in compliance with
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
3.7 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option, the purchase
price per security, and the number and class of securities subject to each
option shall be appropriately adjusted by the Committee, such adjustments to be
made in the case of outstanding options without an increase in the aggregate
purchase price. The decision of the Committee regarding any such adjustment
shall be final, binding and conclusive. If any adjustment would result in a
fractional security being (a) available under this Plan, such fractional
security shall be disregarded, or (b) subject to an option under this Plan, the
Company shall pay the optionee, in connection with the first exercise of the
option in whole or in part occurring after such adjustment, an amount in cash
determined by multiplying (A) the fraction of such security (rounded to the
nearest hundredth) by (B) the excess, if any, of (x) the Fair Market Value on
the exercise date over (y) the exercise price of the option.
3.8 No Right of Participation or Employment. No person shall have any
right to participate in this Plan. Neither this Plan nor any option granted
hereunder shall confer upon any person any right to continued employment by the
Company, any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
3.9 Rights as Stockholder. No person shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock which are
subject to an option hereunder until such person becomes a stockholder of record
with respect to such shares of Common Stock.
3.10 Designation of Beneficiary. If permitted by the Company, an optionee
may file with the Committee a written designation of one or more persons as such
optionee's beneficiary or beneficiaries (both primary and contingent) in the
event of the optionee's death. To the extent an outstanding option granted
hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to
exercise such option.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the optionee's lifetime on a form prescribed
by the Committee. The spouse of a married optionee domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Committee of a new beneficiary designation
shall cancel all previously filed beneficiary designations.
If an optionee fails to designate a beneficiary, or if all designated
beneficiaries of an optionee predecease the optionee, then each outstanding
option hereunder held by such optionee, to the extent exercisable, may be
exercised by such optionee's executor, administrator, legal representative or
similar person.
3.11 Governing Law. This Plan, each option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of California and construed in
accordance therewith without giving effect to principles of conflicts of laws.
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3.12 Foreign Employees. Without amending this Plan, the Committee may
grant options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the Committee may
make such modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its Subsidiaries operates or has
employees.
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THE HARVEY ENTERTAINMENT COMPANY
ANNUAL MEETING OF SHAREHOLDERS
June 18, 1998
The undersigned Shareholder of The Harvey Entertainment Company (the
"Company") hereby nominates, constitutes and appoints Leonard Breijo and Jin
Brown and each of them, the agent and proxy of the undersigned, each with full
power of substitution, to vote all shares of Common Stock which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company to be
held at The Century Plaza Hotel, 2025 Avenue of the Stars, Los Angeles,
California, 90067, California, on Thursday, June 18, 1998 at 10:00 a.m. PST and
at any and all adjournments thereof, as fully and with the same force and effect
as the undersigned might or could do if personally present thereat, as follows:
1. The Election of Directors. Electing Gary M. Gray, Allan R. Raphael
and Michael S. Doherty to serve on the Board of Directors of the Company until
the next annual meeting following their election and until their successors are
elected and have qualified.
AUTHORITY GIVEN [ ] AUTHORITY WITHHELD [ ]
(INSTRUCTION: TO GRANT AUTHORITY TO VOTE FOR ALL OF THE NOMINEES NAMED
ABOVE CHECK THE "AUTHORITY GIVEN" BOX; TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL
NOMINEE CHECK THE "AUTHORITY GIVEN" BOX AND CROSS OUT THE NAME OF THE INDIVIDUAL
ABOVE; TO WITHHOLD AUTHORITY FOR ALL NOMINEES CHECK THE "AUTHORITY WITHHELD"
BOX.)
2. APPROVAL OF THE COMPANY'S AMENDED AND RESTATED 1997 STOCK OPTION
PLAN. Approving the Company's Amended and Restated 1997 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS. Approving the
selection of Deloitte & Touche LLP to serve as independent auditors of the
Company for the fiscal year ending December 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. OTHER BUSINESS. To transact such other business as may properly
come before the meeting or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "AUTHORITY GIVEN" ON PROPOSAL 1
AND A VOTE OF "FOR" ON PROPOSALS 2 AND 3. THIS PROXY CONFERS AUTHORITY TO AND
SHALL BE VOTED IN ACCORDANCE WITH SUCH RECOMMENDATIONS OF THE BOARD OF DIRECTORS
UNLESS A CONTRARY INSTRUCTION IS INDICATED, IN WHICH CASE THE PROXY SHALL BE
VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS. IN ALL OTHER MATTERS, IF ANY ARE
PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
PLEASE SIGN AND DATE BELOW:
DATED:__________________________________________________________
I do____________ do not___________ expect to attend the meeting.
By:_____________________________________________________________
_
Title:__________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, AND MAY BE
REVOKED PRIOR TO ITS EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN
INSTRUMENT REVOKING THIS PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE OR
BY APPEARING AND VOTING IN PERSON AT THE MEETING.
