<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section240.14a-11(c) or
Section240.14a-12
EDUCATIONAL INSIGHTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
(310) 884-2000
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 26, 1998
------------------------
To the Shareholders of
EDUCATIONAL INSIGHTS, INC.:
You are cordially invited to attend the Annual Meeting of Shareholders of
Educational Insights, Inc., a California corporation (the "Company"), which will
be held at the Company's Corporate Offices, 16941 Keegan Avenue, Carson,
California, at 10:00 a.m., California time, on Friday, June 26, 1998, to
consider and act upon the following matters, all as more fully described in the
accompanying Proxy Statement which is incorporated herein by this reference:
1. To elect a board of five directors to serve until the next annual
meeting of the Company's shareholders and until their successors have
been elected and qualify;
2. To ratify the selection of Deloitte & Touche LLP as the Company's
independent public accountants for fiscal year 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record of the Company's common stock at the close of
business on May 8, 1998, the record date fixed by the Board of Directors, are
entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY SHAREHOLDER
GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
JAY CUTLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Carson, California
May 18, 1998
<PAGE>
EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
(310) 884-2000
------------------------
PROXY STATEMENT
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO SHAREHOLDERS:
MAY 18, 1998
---------------------
The following information is in connection with the solicitation of proxies
for the Annual Meeting of Shareholders of Educational Insights, Inc., a
California corporation (the "Company"), to be held at the Company's Corporate
Offices, 16941 Keegan Avenue, Carson, California, at 10:00 a.m., California
time, on Friday, June 26, 1998, and adjournments thereof (the "Meeting"), for
the purposes stated in the Notice of Annual Meeting of Shareholders preceding
this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
shareholder, and, in each case, is solicited on behalf of the Board of Directors
of the Company for use at the Meeting. The entire cost of soliciting these
proxies will be borne by the Company. The Company may pay persons holding shares
in their names or the names of their nominees for the benefit of others, such as
brokerage firms, banks, depositaries, and other fiduciaries, for costs incurred
in forwarding soliciting materials to their principals. Members of the
Management of the Company may also solicit some shareholders in person, or by
telephone, telegraph or telecopy, following solicitation by this Proxy
Statement, but will not be separately compensated for such solicitation
services.
Proxies duly executed and returned by shareholders and received by the
Company before the Meeting will be voted FOR the election of all five of the
nominee-directors specified herein and FOR the ratification of the selection of
Deloitte & Touche LLP as the Company's independent public accountants for fiscal
year 1998, unless a contrary choice is specified in the proxy. Where a
specification is indicated as provided in the proxy, the shares represented by
the proxy will be voted and cast in accordance with the specification made. As
to other matters, if any, to be voted upon, the persons designated as proxies
will take such actions as they, in their discretion, may deem advisable. The
persons named as proxies were selected by the Board of Directors of the Company
and each of them is a director of the Company.
Under the Company's bylaws and California law, shares represented by proxies
that reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Any shares not voted (whether by
abstention, broker non-vote or otherwise) will have no impact in the election of
directors, except to the extent that the failure to vote for an individual
results in another individual receiving a larger proportion of votes. Any shares
represented at the Meeting but not voted (whether by abstention, broker non-vote
or otherwise) with respect to the proposal to ratify the selection of Deloitte &
Touche LLP will have no effect on the vote for such proposal except to the
extent the number of abstentions causes the number of shares voted in favor of
the proposal not to equal or exceed a majority of the quorum required for the
Meeting (in which case the proposal would not be approved).
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder giving
a proxy has a right to revoke it at any time by either (a) a later-dated proxy,
(b) a written revocation sent to and received by the Secretary of the Company
prior to the Meeting, or (c) attendance at the Meeting and voting in person.
1
<PAGE>
VOTING SECURITIES AND CERTAIN SHAREHOLDERS
The Company has outstanding only common stock, of which 7,040,000 shares
were outstanding as of the close of business on May 8, 1998 (the "Record Date").
Only shareholders of record on the books of the Company at the close of business
on the Record Date will be entitled to vote at the Meeting. Each share of common
stock is entitled to one vote.
Representation at the Meeting by the holders of a majority of the
outstanding common stock of the Company, either by personal attendance or by
proxy, will constitute a quorum.
The following table sets forth information as to the beneficial ownership of
the Company's common stock by all directors and the persons identified in the
Summary Compensation Table, as well as by directors and executive officers of
the Company as a group and, to the best of the Company's knowledge, beneficial
owners of 5% or more of the Company's common stock. Except as indicated below,
the information in the following table is based on ownership of the Company's
common stock as of the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- -------------------- ----------------------------------------------------------------- ------------ -----------
<S> <C> <C> <C>
DIRECTORS:
Common Stock Burton Cutler.................................................... 2,340,000(3) 33.24%
Common Stock Jay Cutler....................................................... 1,192,870(4) 16.94%
Common Stock G. Reid Calcott.................................................. 60,770(5) *
Common Stock Gerald Bronstein................................................. 12,500(6) *
Common Stock Courtney V. Moe.................................................. 22,500(7) *
NON-DIRECTOR EXECUTIVE OFFICERS:
Common Stock James B. Whitney................................................. 39,044(8) *
Common Stock Dennis J. Graham................................................. 29,637(9) *
Common Stock All directors and executive officers as a group (7 persons)...... 3,697,321 51.76%
5% SHAREHOLDERS:
Common Stock Burton Cutler ................................................... 2,340,000(3) 33.24%
Diana P. Cutler
16941 Keegan Avenue
Carson, CA 90746
Common Stock Jay Cutler ...................................................... 1,192,870(4) 16.94%
Karen Duncan Cutler
16941 Keegan Avenue
Carson, CA 90746
Common Stock Carol Joan Csapo ................................................ 600,000 8.52%
438 N. Hidalgo
Alhambra, CA 90801
Common Stock Peter A. Moncado ................................................ 600,000(10) 8.52%
Corey Cutler Moncado
207 Sunspring Court
Pleasant Hill, CA 94523
Common Stock AWM Investment Company, Inc. .................................... 438,000(11) 6.09%
153 East 53rd Street
51st Floor
New York, NY 10022
</TABLE>
- ------------------------
(1) Except as otherwise indicated and subject to applicable community property
and similar laws, the Company assumes that each named person has the sole
voting and investment power with respect to such person's shares (other
than shares subject to options). The amount of beneficially owned shares
2
<PAGE>
includes, with respect to each named person or group, the number of shares
of common stock, if any, which the shareholder has the right to acquire
within 60 days of the Record Date.
(2) Percent of class is based on the number of shares outstanding on the Record
Date plus, with respect to each named person or group, the number of shares
of common stock, if any, which the shareholder has the right to acquire
within 60 days of such date. Ownership of less than one percent is
indicated by an asterisk.
(3) Shares are held by Burton Cutler and Diana P. Cutler as Trustees of the
Cutler Family Living Trust, which Trustees have the power to own, hold,
vote, sell, transfer, encumber and receive distributions with respect to
such shares.
(4) Shares are held by Jay Cutler and Karen Duncan Cutler as Trustees of the
Cutler Family Trust, which Trustees have the power to own, hold, vote,
sell, transfer, encumber and receive distributions with respect to such
shares.
(5) Includes 32,770 shares which are issuable upon exercise of outstanding
options.
(6) Includes 2,500 shares which are issuable upon exercise of outstanding
options.
(7) Includes 2,500 shares which are issuable upon exercise of outstanding
options.
(8) Includes 35,544 shares which are issuable upon exercise of outstanding
options.
(9) Includes 29,437 shares which are issuable upon exercise of outstanding
options.
(10) Shares are held by Peter A. Moncado and Corey Cutler Moncado as Trustees of
the Peter Anthony Moncado and Corey Cutler Moncado Family Trust dated
December 2, 1994, which Trustees have the power to own, hold, vote, sell,
transfer, encumber and receive distributions with respect to such shares.
(11) Number of shares is based on information contained in a Form 13G filed by
the named shareholder with the Securities and Exchange Commission in
February 1998 with respect to such shareholder's stock ownership as of
December 31, 1997.
The Company knows of no contractual arrangements which may at a subsequent
date result in a change of control of the Company.
NOMINATION AND ELECTION OF DIRECTORS
The Company's directors are to be elected at each annual meeting of
shareholders. At this Meeting, five directors are to be elected to serve until
the next annual meeting of shareholders and until their successors are elected
and qualify. The nominees for election as directors at this Meeting set forth in
the table below are all recommended by the Board of Directors of the Company.
All of the nominated directors were elected by the shareholders.
In the event that any of the nominees for director should become unable to
serve if elected, it is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee(s) as may be
recommended by the Company's existing Board of Directors.
The five nominee-directors receiving the highest number of votes cast at the
Meeting will be elected as the Company's directors to serve until the next
annual meeting of shareholders and until their successors are elected and
qualify. Subject to certain exceptions specified below, shareholders of record
on the Record Date are entitled to cumulate their votes in the election of the
Company's directors (i.e., they are entitled to the number of votes determined
by multiplying the number of shares held by them times the number of directors
to be elected) and may cast all of their votes so determined for one person, or
spread their votes among two or more persons as they see fit. No shareholder
shall be entitled to cumulate votes for a given candidate for director unless
such candidate's name has been placed in nomination prior to the
3
<PAGE>
vote and the shareholder has given notice at the Meeting, prior to the voting,
of the shareholder's intention to cumulate his or her votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination. Discretionary authority to cumulate votes is hereby
solicited by the Board of Directors.
The following table sets forth certain information concerning the nominees
for election as directors (all of such nominees being continuing members of the
Company's present Board of Directors):
<TABLE>
<CAPTION>
NOMINEE(1) PRINCIPAL OCCUPATION AGE
- ------------------------------------ ------------------------------------------------------------ ---
<S> <C> <C>
Burton Cutler(2).................... Chairman of the Board 71
Jay Cutler.......................... President and Chief Executive Officer 46
G. Reid Calcott(3).................. Vice Chairman, Chief Operating and Financial Officer 59
Gerald Bronstein(2)(3).............. Chairman of the Board of Bomaine Corporation 70
Courtney V. Moe(2)(3)............... Private Investor 64
</TABLE>
- ------------------------
(1) The Company does not have a nominating committee of the Board of Directors.
The nominees for election as directors at the Meeting were selected by the
Board of Directors of the Company.
(2) Member of the compensation committee of the Board of Directors of the
Company, currently consisting of three directors, which held one meeting
during the last fiscal year of the Company. The compensation committee was
created in July 1994 and reviews the performance of the chief executive
officer of the Company and reviews the compensation programs for other key
employees, including salary and cash bonus levels and option grants under
the Educational Insights, Inc. Stock Awards Plan.
(3) Member of the audit committee of the Board of Directors of the Company,
currently consisting of three directors, one of whom is an employee of the
Company. During the last fiscal year of the Company there were no separate
meetings held. Any Audit Committee matters were discussed as part of the
Board of Directors meetings whenever necessary. The audit committee was
created in July 1994 and reviews, acts on, and reports to the Board of
Directors with respect to various auditing and accounting matters, including
the selection of the Company's independent public accountants, the scope of
the annual audits, the nature of nonaudit services, and fees to be paid to
the independent public accountants, the performance of the Company's
independent public accountants, and the accounting practices of the Company.
Burton Cutler is one of the founders of the Company and has been Chairman of
the Board of Directors since the Company's inception in 1962. Mr. Cutler also
served as the Company's principal executive officer from its formation until
1992. Since 1991, Mr. Cutler has been providing part-time services to the
Company and expects to continue that degree of effort into the foreseeable
future.
Jay Cutler has been employed by the Company since 1975, became a director in
1982, and began serving as President of the Company in 1991. In 1992 he also
become Chief Executive Officer. Prior to 1991, Mr. Cutler served as the
Company's Vice President, Production, and was responsible for overseeing and
controlling the development, introduction and production of the Company's
products. Jay Cutler is the son of Burton Cutler.
G. Reid Calcott was appointed as Chief Operating Officer of the Company in
1996. Prior to that Mr. Calcott had been appointed Chief Financial Officer in
1993 and was elected as a director effective January 1, 1994. From 1988 until
1993, Mr. Calcott served as a general management consultant to the Company. Mr.
Calcott owns and monitors the business operations of California Quality
Plastics, Inc., a producer of plastic products, and provides consulting services
to and owns an interest in Robertson American of Mississippi, Inc., a ceramic
casting company. In addition to devoting substantially all of his time to
serving as a director and the Chief Operating Officer of the Company, Mr.
Calcott is an officer and director of each of these two corporations.
4
<PAGE>
Gerald Bronstein was elected as a director of the Company on July 15, 1994.
For more than the last five years, Mr. Bronstein has been a major shareholder
and served as Chairman of the Board of Bomaine Corporation, a manufacturer of
home furnishings.
Courtney V. Moe was elected as a Director of the Company on July 15, 1994.
For more than the last five years, Mr. Moe has served on various boards, some of
them on companies in which he has been an investor. Prior to that, he founded
and subsequently sold Mobex Corporation, a manufacturing company.
There were six meetings of the Board of Directors of the Company during the
last fiscal year of the Company. Each of the directors of the Company attended
75% or more of the aggregate of the total number of meetings of the Board of
Directors held during the period in which he was a director and the total number
of meetings held by all committees of the Board of Directors on which he served
during such period.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $1,000 for each
formal meeting of the Board of Directors. Directors who are employees of the
Company receive no additional compensation for serving on the Board of
Directors. Directors are entitled to reimbursement for out-of-pocket expenses in
connection with attendance at Board and committee meetings. See "Compensation
Committee Interlocks and Insider Participation" for information regarding
certain transactions between the Company and members of the Board of Directors.
Further, directors who are not employees of the Company are eligible to
receive options for shares of the Company's common stock pursuant to the
Director's Stock Option Plan No. 1 ("the Plan"). The Plan, which is a
non-qualified stock option plan, was approved by unanimous written consent of
the Board of Directors of the Company on February 14, 1997. The Plan is
administered by the Directors Award Committee, a duly constituted committee of
the Board of Directors of the Company, consisting of two members, Jay Cutler and
G. Reid Calcott, who serve as Plan Administrator. Options granted under the Plan
have an exercise price equal to 100% of the fair market value of the shares of
the common stock on the date of grant and have a term ending five years after
the date of grant or three months after the date the Director ceases to be a
Director of the Company, whichever is earlier. Pursuant to the Plan, 2,500
shares of the Company's common stock covered by stock options were granted to
each of Gerald Bronstein and Courtney V. Moe in 1997. Said shares were granted
with an exercise price of $2.00 per share which was deemed to be the fair market
value on the grant date. All stock options granted under the Plan are
immediately exercisable.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth information concerning compensation of the
principal executive officer of the Company and the three other executive
officers of the Company for each of the last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION(1) STOCK
--------------------- OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTS(2) COMPENSATION(3)
- ---------------------------------------- --------- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Jay Cutler.............................. 1997 $ 150,000 $ 2,879
President & CEO 1996 150,000 1,479
1995 150,000 1,421
James B. Whitney........................ 1997 150,648 2,880
Vice President, Marketing 1996 151,239 5,000 1,397
1995 147,850 1,397
Dennis J. Graham........................ 1997 124,750 $ 6,000 2,678
Vice President, Business 1996 129,548 5,000 1,266
Development 1995 123,672 1,134
G. Reid Calcott......................... 1997 130,000 12,000 2,542
Chief Operating & Financial 1996 116,000 15,000 827
Officer 1995 104,000 1,250
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits did not in the aggregate equal or
exceed the lesser of $50,000 for any named individual or 10 percent of the
total of annual salary and bonus reported in this table for such person.
(2) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the
Educational Insights, Inc. Stock Awards Plan.
(3) The amounts shown in this column represent (i) the Company's matching
contributions to the Educational Insights, Inc. Savings and Retirement Plan
for Jay Cutler, James Whitney, Dennis Graham, and G. Reid Calcott in the
amounts of $1,187, $1,188, $1,188 and $1,187, respectively, in 1997, $1,269,
$1,187, $1,056 and $634, respectively, in 1996, and $1,211, $1,187, $924 and
$1,040, respectively, in 1995 (ii) group term life insurance premiums paid
in 1997 for Jay Cutler, James Whitney, Dennis Graham and G. Reid Calcott in
the amount of $206 per person, in each of 1996 and 1995 for Jay Cutler,
James Whitney and Dennis Graham in the amount of $210 per person and for G.
Reid Calcott in the amount of $193 in 1996, and (iii) Company contributions
to the Educational Insights, Inc. Profit Sharing Plan and Trust, a qualified
defined contribution/deferred compensation plan covering substantially all
of its employees, who are eligible to participate after one year of service.
Company contributions for Jay Cutler, James Whitney, Dennis Graham and G.
Reid Calcott amounted to $1,486, $1,486, $1,284, and $1,149, respectively,
in 1997. There were no Company contributions in 1996 or 1995. The exact
amounts of the Company's contribution to the defined contribution/deferred
compensation plan for the named employees do not include any reallocation of
forfeitures under such plan for 1997 as such amounts would not be
significant.
In January 1998, the Board of Directors approved a severance package for key
employees that stipulates certain conditions whereby said employees receive
a predetermined severance payment presuming the employee is not terminated
for cause and is in otherwise good standing at the time of termination.
6
<PAGE>
OPTION GRANTS/REPRICING DURING FISCAL 1997
There were no grants of stock options pursuant to the Educational Insights,
Inc. Corporation Stock Awards Plan during the fiscal year ended December 31,
1997, to any of the officers identified in the Summary Compensation Table.
However, on June 6, 1997, the exercise price of all unexercised stock options
granted prior to that date were repriced based on approval by the Compensation
Committee.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
MARKET PRICE AT EXERCISE PRICE AT NEW
DATE OF NUMBER OF STOCK TIME OF TIME OF EXERCISE
NAME AND POSITION REPRICING OPTIONS REPRICED REPRICING REPRICING(1) PRICE(2)
- ---------------------------------- ----------- ----------------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Jay Cutler ....................... -- -- -- -- --
President & CEO
James B. Whitney ................. 6/7/97 5,000 1.75 1.87 1.75
Vice President, Marketing 6/7/97 10,000 1.75 3.31 1.75
6/7/97 27,210 1.75 3.31 1.75
Dennis J. Graham ................. 6/7/97 5,000 1.75 1.87 1.75
Vice President, 6/7/97 7,500 1.75 3.31 1.75
Business Development 6/7/97 22,770 1.75 3.31 1.75
G. Reid Calcott .................. 6/7/97 15,000 1.75 1.87 1.75
Chief Financial Officer 6/7/97 7,500 1.75 3.31 1.75
6/7/97 22,770 1.75 3.31 1.75
<CAPTION>
LENGTH OF ORIGINAL
OPTION TERM
NAME AND POSITION REMAINING(3)
- ---------------------------------- -----------------------
<S> <C>
Jay Cutler ....................... --
President & CEO
James B. Whitney ................. 9
Vice President, Marketing 7
6
Dennis J. Graham ................. 9
Vice President, 7
Business Development 6
G. Reid Calcott .................. 9
Chief Financial Officer 7
6
</TABLE>
- ------------------------
(1) The original exercise price of each option was the market price of the
common stock of the Company on the date of the original grant.
(2) The new exercise price of each amended option is the market price of the
common stock of the Company on the effective date of repricing.
(3) The amount of time remaining before the amended stock option would have
expired. This will remain the same for the ameded stock option.
OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options which
were exercised during, or held at the end of, the fiscal year ended December 31,
1997 by the officers named in the Summary Compensation Table:
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(1) AT FISCAL YEAR END(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay Cutler...............
James B. Whitney......... 35,544 6,666 $ 31,101 $ 5,833
Dennis J. Graham......... 29,437 5,833 25,757 5,104
G. Reid Calcott.......... 32,770 12,500 28,674 10,937
</TABLE>
- ------------------------
(1) Shares of common stock.
7
<PAGE>
(2) Valued based on the closing price of the Company's Common Stock of $2.625
per share on December 31, 1997 and the applicable exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Company are Burton
Cutler, Gerald Bronstein, and Courtney V. Moe. Each of the members of the
Compensation Committee has served in such capacity since the date of creation of
the Compensation Committee in July 1994. No member of the Compensation Committee
is now, or was at any time during the last completed fiscal year of the Company,
an officer or employee of the Company. During the 1997, 1996 and 1995 fiscal
years, no executive officer of the Company served as a member of the
compensation committee (or its equivalent) or as a director of any entity whose
executive officers served on either the Compensation Committee or the Board of
Directors of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a tax indemnity agreement with each shareholder of
the Company at the close of business on April 14, 1994, which shareholders
include Burton and Diana P. Cutler, Jay Cutler and Karen Duncan Cutler as
Trustees of the Cutler Family Trust, Peter A. Moncado and Corey Cutler Moncado
as Trustees of the Peter Anthony Moncado and Corey Cutler Moncado Family Trust
dated December 2, 1994, and Carol Joan Csapo, pursuant to which the Company
agreed to indemnify such shareholders and the shareholders agreed to indemnify
the Company against certain income tax consequences which may occur if a taxing
authority unexpectedly adjusts the allocations of Company income between tax
periods prior to the termination of the Company's S Corporation election and tax
periods after such event.
The Company's Tennessee distribution facility (the "Tennessee Facility") is
owned by Karen Duncan Cutler and Jay Cutler, the Company's President, and leased
to the Company pursuant to the terms of an Industrial Real Estate Lease dated
April 21, 1992 (the "Tennessee Lease"). The Tennessee Lease is for an initial
term of ten years and terminates on April 20, 2002. Base rental payments for the
Tennessee Facility are $20,000 per month until April 1995, $17,500 per month
until April 1999 and $14,000 per month for the remainder of the Tennessee Lease
term. In addition to the base rent, the Company is responsible for paying
property taxes, insurance and maintenance expenses for the leased premises. The
Tennessee Facility was expanded by approximately 42,000 square feet in 1995.
This expansion was financed by Jay and Karen Cutler, as owners of the property.
Upon completion of the expansion of the Tennessee Facility in mid-1995, payments
under the Tennessee Lease were increased by $7,820 per month to amortize the
costs of the expansion over the term of the Tennessee Lease. Total rent payments
with respect to the Tennessee Lease were $304,000, $304,000 and $271,617 in
1997, 1996, and 1995, respectively. The Company believes that the terms of the
Tennessee Lease are at least as favorable as those that would have been
available to the Company in a third-party transaction.
Pursuant to the terms of an Agreement of Unconditional Guaranty, dated April
21, 1992, the Company has guaranteed the obligations of Jay Cutler and Karen
Duncan Cutler incurred in connection with the acquisition of the Tennessee
Facility. These obligations bear interest at a rate of 8% per annum. The initial
aggregate principal amount of such obligations was $1,000,000.
Stanley Cutler, an electronic engineer and the brother of Burton Cutler,
assisted in the design and development of certain of the Company's electronic
learning aids, most significantly the Company's GeoSafari line of products. In
order to compensate Mr. Cutler for his electronic engineering and designing
services and in exchange for his assignment of any and all of his patent rights
to the Company products developed by him (including the patents to the GeoSafari
game board and teaching apparatus), Mr. Cutler and the Company entered into a
Royalty Agreement, dated May 12, 1993, and expiring December 31, 2010. Under the
terms of the Royalty Agreement, the Company is required to pay a royalty equal
to 1% of
8
<PAGE>
the Company's net sales of certain products. Effective January 1, 1994, royalty
payments are capped at $150,000 annually. The Company guaranteed annual
royalties of $150,000 per year for calendar years 1994 and 1995. Total royalty
payments for the years ended December 31, 1997, 1996 and 1995 totaled $79,000,
$99,120 and $150,000, respectively. The May 12, 1993 Royalty Agreement
superseded a number of prior agreements between the Company and Stanley Cutler
as to royalties for products developed with his assistance. The Company believes
that the terms of the Royalty Agreement with Stanley Cutler are at least as
favorable as those that would have been available to the Company in a
third-party transaction. Stanley Cutler also provides certain consulting
services relating to the Company's new product development activities. Beginning
in 1996, compensation for said services is at an annual amount of $50,000;
however, payments for said services commenced in 1997 and amounted to $87,500.
Prior to 1997, the Company paid the premiums on certain life insurance
policies on the lives of Diana P. Cutler and Burton Cutler providing aggregate
death protection on a second-to-die basis of approximately $4.2 million.
Payments with respect to the policies on the life of Mr. Cutler and Mrs. Cutler
totaled $75,312 and $60,144 in 1996 and 1995, respectively. These policies were
cancelled in 1997 and the cash surrender value was utilized to substantively
offset the premiums that the Company had paid previously.
In 1996, Burton Cutler was paid $63,663 for services as a part-time employee
of the Company until his resignation as an employee in June 1996.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of Regulation S-K. Notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that might incorporate future filings,
including this Proxy Statement, in whole or in part, this report and the graph
which follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
The Compensation Committee reviews the performance of the Chief Executive
Officer of the Company, makes recommendations to the Board of Directors as to
the compensation of the Chief Executive Officer and the executive officers of
the Company and reviews the compensation programs for other key employees,
including salary and cash bonus levels, and stock option awards under the Stock
Awards Plan.
COMPENSATION POLICIES AND PHILOSOPHY. The Company's executive compensation
policies are designed to attract, retain and reward executive officers who
contribute to the Company's success, to provide economic incentives for
executive officers to achieve the Company's business objectives by linking the
executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and shareholder value, to
reward individual performance and to be cost effective from the standpoint of
the Company's shareholders. The Company uses a combination of base salary, cash
bonuses and stock option awards to achieve the aforementioned objectives.
In carrying out these objectives, the Compensation Committee considers a
number of factors which include the types of compensation paid to executive
officers in similar positions by comparable companies. In addition, the
Compensation Committee evaluates corporate performance by looking at factors
such as performance relative to business conditions, and the success of the
Company in meeting its financial objectives. The Compensation Committee also
reviews the individual performance of the Chief Executive Officer and, as
appropriate, approves the recommendations of the Chief Executive Officer
relating to the performance of other executive officers and their ability to
perform their given tasks, knowledge of their jobs, and their ability to work
with others toward the achievement of the Company's goals.
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<PAGE>
COMPONENTS OF COMPENSATION. Executive officer salaries are established in
relation to a range of salaries for comparable positions among other companies
of comparable size and complexity based on information generated in the process
of the Company's recruiting and human resources activities, with the exception
of the Chief Executive Officer's salary which is set in relationship to the top
three executive officers reporting to the Chief Executive Officer. The Company
seeks to pay its executive officers salaries that are commensurate with the
qualifications, duties and responsibilities and that are competitive in the
marketplace. In making its annual salary recommendations, the Compensation
Committee looks at the Company's financial position and performance and the
overall contribution of the executive officers as a group during the prior
fiscal year in helping to meet the Company's financial and business objectives.
The Compensation Committee recommends and approves the Chief Executive Officer's
annual salary and makes recommendations on a range of salary changes for other
executive officers as a group.
Executive officer annual cash bonuses are used to provide executive officers
with financial incentives to meet annual performance targets of the Company or
its operating divisions. Performance targets and bonus recommendations for
executives other than principal executive officers are proposed by the
management of the Company's principal operating departments, reviewed and, when
appropriate, revised by the Compensation Committee and approved by the Board of
Directors.
The Compensation Committee believes that equity ownership by executive
officers provides incentives to build shareholder value and align the interests
of executive offers with the shareholders. The Compensation Committee typically
recommends stock option grants on an annual basis to the executive officers and
other key employees under the Awards Plan, subject to applicable vesting
periods. The Compensation Committee believes that these grants provide
incentives for executive officers to remain with the Company. Stock options
generally have value only if the price of the Company's common stock increases
over the exercise or grant price. The size of the option grants is usually based
upon factors such as comparable equity compensation offered by other companies,
the seniority of the executive officer and the contribution that the executive
officer is expected to make to the Company. In determining the size of the
periodic grants, the Compensation Committee also considers prior grants to the
executive officer and his or her expected contributions during the succeeding
fiscal year.
COMPENSATION OF THE PRINCIPAL EXECUTIVE OFFICER. The Compensation Committee
reviews the performance of the principal executive officer of the Company, as
well as other executive officers of the Company and its subsidiaries, annually.
As the principal executive officer of the Company, Jay Cutler's compensation was
determined on a consideration of the various factors discussed above, including
the performance of the Company and the individual performance of Mr. Cutler.
Respectfully submitted,
Compensation Committee:
Courtney V. Moe
Gerald Bronstein
Burton Cutler
10
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total shareholder return on the
Company's common stock with the cumulative total return on the Nasdaq U.S. Stock
Market Index and a peer group of nine corporations in the same or similar
line-of-business as the Company for the period from the date of effectiveness of
the Company's initial public offering (April 15, 1994) and ended December 31,
1997.
COMPARISON OF CUMULATIVE TOTAL RETURN*
EDUCATIONAL INSIGHTS, INC. COMMON STOCK, NASDAQ U.S. STOCK MARKET INDEX AND
EDUCATIONAL INSIGHTS, INC. PEER GROUP**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EDUCATIONAL INSIGHTS NASDAQ U.S. PEER GROUP ONLY
<S> <C> <C> <C>
4/94 $100.00 $100.00 $100.00
1994 $53.75 $103.38 $96.15
1995 $27.50 $146.21 $106.68
1996 $22.50 $179.83 $135.92
1997 $21.56 $220.67 $173.54
</TABLE>
* Assumes that the value of the investment in the Company's common stock and
each index was $100 on April 15, 1994.
** Peer group consists of the following corporations selected by the Company in
good faith: American Educational Products, Houghton Mifflin Co., Just Toys
Inc., 4 Kids Entertainment, Inc. (formerly known as Leisure Concepts, Inc.),
Lewis Galoob Toys, Inc., Ohio Art Co., Steck-Vaughn Publishing Corp.,
Waverly, Inc., and Golden Books Family Entertainment, Inc. (formerly known
as Western Publishing Group, Inc.). Each of the component corporations of
the peer group was weighted according to the respective corporation's stock
market capitalization at the beginning of the period for which a return is
indicated.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Deloitte & Touche LLP serves the Company as its
independent public accountants at the direction of the Board of Directors of the
Company. One or more representatives of Deloitte & Touche LLP are expected to be
present at the Meeting and will have an opportunity to make a statement, if they
desire to do so, and to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
selection of Deloitte & Touche LLP as the independent public accountants for the
Company for fiscal year 1998. This matter is not required to be submitted for
shareholder approval, but the Board of Directors has elected to seek
ratification of its selection of the independent public accountants by the
affirmative vote of a majority of the shares represented and voting at the
Meeting.
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission and the National Association of Securities Dealers
concerning their holdings of, and transactions in, securities of the Company.
Copies of these filings must be furnished to the Company.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors, the
Company believes that during the 1997 fiscal year its officers, directors and
greater than 10% shareholders complied with all applicable Section 16(a) filing
requirements.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for action at the Meeting should
submit their proposals in writing to the Secretary of the Company at the address
of the Company set forth on the first page of this Proxy Statement. Proposals
must be received by the Secretary no later than January 20, 1999, for inclusion
in next year's proxy statement and proxy card.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1997, including audited consolidated financial statements, has been
mailed to the shareholders concurrently herewith, but such report is not
incorporated in this Proxy Statement and is not deemed to be a part of the proxy
solicitation material.
OTHER MATTERS
The Management of the Company does not know of any other matters which are
to be presented for action at the Meeting. Should any other matters come before
the Meeting or any adjournment thereof, the persons named in the enclosed proxy
will have the discretionary authority to vote all proxies received with respect
to such matters in accordance with their collective judgment.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished
without charge to any person from whom the accompanying proxy is solicited upon
written request to Investor Relations, Educational Insights, Inc., 16941 Keegan
Avenue, Carson, California 90746. If Exhibit copies are requested, a copying
charge of $.30 per page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
Jay Cutler
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Carson, California
May 18, 1998
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO 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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<PAGE>
EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Burton Cutler and G. Reid Calcott as Proxies,
each with the power to appoint his substitute, and hereby authorizes them or
either of them to represent and to vote as designated below, all the shares
of common stock of Educational Insights, Inc. held of record by the
undersigned on May 8, 1998, at the Annual Meeting of Shareholders to be held
on June 26, 1998, or any adjournment thereof.
<PAGE>
Please mark your votes as indicated in this example /X/
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
1. Election of Directors. / / / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK
THE BOX NEXT TO THE NOMINEE'S NAME BELOW):
/ / Burton Cutler / / Gerald Bronstein / / Jay Cutler
/ / Courtney V. Moe / / G. Reid Calcott
FOR AGAINST ABSTAIN
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS / / / / / /
In their discretion, the Proxies are authorized
to vote upon such other business as may properly
come before the meeting / / / / / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
Dated: __________________________, 1998
_______________________________________
Signature
_______________________________________
(Signature if held jointly)
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
PLEASE READ, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
