PLAY CO. TOYS & ENTERTAINMENT CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 5, 1999
To the Shareholders of
PLAY CO. TOYS & ENTERTAINMENT CORP.
NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of PLAY CO.
TOYS & ENTERTAINMENT CORP. (the "Company") will be held at the offices of the
Company, located at 550 Rancheros Drive, San Marcos, California 92069, on May 5,
1999, at 10:00 a.m. Pacific Standard Time, for the following purposes:
1. To vote on the proposal to elect four (4) directors to the Company's
Board of Directors to hold office for a period of one year or until their
successors are duly elected and qualified;
2. To vote on the proposal to amend the Company's Certificate of
Incorporation to authorize an increase in the number of authorized shares of the
Company's (a) Common Stock, par value $0.01 per share, from fifty-one million
shares currently authorized to one hundred sixty million shares and (b) Series E
Preferred Stock, par value $0.01 per share, from ten million shares currently
authorized to twenty-five million shares; and
3. To transact such other business as properly may be brought before the
meeting or any adjournment thereof.
The close of business on March 12, 1999 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you plan to
attend, please complete, date, and sign the accompanying proxy, and return it
promptly in the enclosed envelope to assure that your shares are represented at
the meeting. If you do attend, you may revoke any prior proxy and vote your
shares in person if you wish to do so. Any prior proxy automatically will be
revoked if you execute the accompanying proxy or if you notify the Secretary of
the Company, in writing, prior to the Annual Meeting of Shareholders.
By order of the Board of Directors
James B. Frakes, Secretary
Dated: April 14, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ENCLOSED PROXY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 5, 1999
This proxy statement and the accompanying form of proxy were mailed on
April 14, 1999 to the shareholders of record (as of March 12, 1999) of Play Co.
Toys & Entertainment Corp. (the "Company"), a Delaware corporation, in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting to be held on May 5, 1999 and at any
adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"), represented by an effective proxy in the accompanying form
will, unless contrary instructions are specified in the proxy, be voted FOR (i)
the proposal to elect four (4) directors to the Company's Board of Directors to
hold office for a period of one year or until their successors are duly elected
and qualified and (ii) the proposal to amend the Company's Certificate of
Incorporation to authorize an increase in the number of authorized shares of the
Company's (a) Common Stock from fifty-one million shares currently authorized to
one hundred sixty million shares and (b) Series E Preferred Stock, par value
$0.01 per share ("Series E Stock"), from ten million shares currently authorized
to twenty-five million shares.
Any such proxy may be revoked at any time before it is voted. A shareholder
may revoke this proxy (i) by notifying the Secretary of the Company either in
writing prior to the Annual Meeting or in person at the Annual Meeting; (ii) by
submitting a proxy bearing a later date; or (iii) by voting in person at the
Annual Meeting. An affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote thereon is required to elect the directors. A shareholder voting through a
proxy who abstains with respect to the election of directors is considered to be
present and entitled to vote on the election of directors at the meeting, and
his abstention is, in effect, a negative vote; however, a shareholder (including
a broker) who does not give authority to a proxy to vote or who withholds
authority to vote on the election of directors shall not be considered present
and entitled to vote on the election of directors. A shareholder voting through
a proxy who abstains with respect to approval of any other matter to come before
the meeting is considered to be present and entitled to vote on that matter and
his abstention is, in effect, a negative vote; however, a shareholder (including
a broker) who does not give authority to a proxy to vote or who withholds
authority to vote on any such matter shall not be considered present and
entitled to vote thereon.
The Company will bear the cost of the solicitation of proxies by the Board
of Directors. The Board of Directors may use the services of its executive
officers and certain directors to solicit proxies from shareholders in person
and by mail, telegram, and telephone. Arrangements may also be made with
brokers, fiduciaries, custodians, and nominees to send proxies, proxy
statements, and other material to the beneficial owners of the Common Stock held
of record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses incurred by them in so doing.
The Company's annual report on Form 10-KSB/A-2 for the fiscal year ended
March 31, 1998 and its quarterly report on Form 10-QSB/A-1 for the nine months
ended December 31, 1998 accompany this proxy statement.
The principal executive offices of the Company are located at 550 Rancheros
Drive, San Marcos, California 92069; the Company's telephone number is (760)
471-4505.
<PAGE>
VOTING SECURITIES AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Common Stock. The
presence, in person or by proxy, of a majority of shares entitled to vote will
constitute a quorum for the meeting. Each share of Common Stock entitles its
holder to one vote on each matter submitted to the shareholders. The close of
business on March 12, 1999 has been fixed as the record date for the
determination of shareholders entitled to notice of, and to vote at, the meeting
and any adjournment thereof. On that date, 5,509,197 shares of Common Stock were
outstanding. Voting of the shares of Common Stock is on a non-cumulative basis.
The following table sets forth information as of March 12, 1999 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended), known by the Company to be the
owner of more than 5% of the outstanding shares of Common Stock, (ii) each of
the Company's officers and directors, and (iii) all officers and directors as a
group. Except to the extent indicated in the footnotes to the following table,
each of the individuals listed below possesses sole voting power with respect to
the shares of Common Stock listed opposite his name.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Common Stock
of Beneficial Owner Beneficially Owned 1 Beneficially Owned 2,3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harold Rashbaum 4,5
c/o Play Co. Toys & Entertainment Corp. -- --
550 Rancheros Drive
San Marcos, CA 92069
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Brady 4
c/o Play Co. Toys & Entertainment Corp. 25,587 *
550 Rancheros Drive
San Marcos, CA 92069
- ------------------------------------------------------------------------------------------------------------------------------------
James B. Frakes 6
c/o Play Co. Toys & Entertainment Corp. 10,000 *
550 Rancheros Drive
San Marcos, CA 92069
- ------------------------------------------------------------------------------------------------------------------------------------
Moses Mika
c/o Play Co. Toys & Entertainment Corp. -- --
550 Rancheros Drive
San Marcos, CA 92069
- ------------------------------------------------------------------------------------------------------------------------------------
United Textiles & Toys Corp. 7
1410 Broadway, Suite 1602 2,489,910 45.2%
New York, NY 10018
- ------------------------------------------------------------------------------------------------------------------------------------
Breaking Waves, Inc. 5
112 West 34th Street 1,400,000 25.4%
New York, New York 10120
- ------------------------------------------------------------------------------------------------------------------------------------
Multimedia Concepts International, Inc.8
1410 Broadway, Suite 1602 -- --
New York, NY 10018
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
ABC Fund, Ltd.9
Riva Caccia -- --
Lugano, Switzerland CH-900
- ------------------------------------------------------------------------------------------------------------------------------------
Europe American Capital Foundation ("EACF")10
Via Cantonale -- --
Lugano, Switzerland CH-900
- ------------------------------------------------------------------------------------------------------------------------------------
Vermongenstreuhand, GMBH11 -- --
Kaiser Street #14
Bregenz, Austria A-6900
- ------------------------------------------------------------------------------------------------------------------------------------
Officers and Directors as a Group 35,587 *
(4 persons)4,5,6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual or entity to acquire them within 60 days, whether by the
exercise of options or warrants, are deemed outstanding in determining the
number of shares beneficially owned by such person or entity.
(2) The "Percent of Common Stock Beneficially Owned" is calculated by
dividing the "Number of Shares Beneficially Owned" by the sum of (i) the total
outstanding shares of Common Stock of the Company, and (ii) the number of shares
of Common Stock that such person or entity has the right to acquire within 60
days, whether by exercise of options or warrants. The "Percent of Common Stock
Beneficially Owned" does not reflect shares beneficially owned by virtue of the
right of any person, other than the person named and affiliates of said person,
to acquire them within 60 days, whether by exercise of options or warrants.
(3) Does not include 35,303,418 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 5,883,903 shares of Series E
Stock outstanding.
(4) Does not include 150,000 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 25,000 shares of Series E Stock
issued as a bonus in March 1998. The shares of Series E Stock vested 100% on
April 1, 1999.
(5) Mr. Rashbaum, the Company's Chairman of the Board, is also the
president and the sole director of Breaking Waves, Inc. ("BWI") which is a
wholly-owned subsidiary of Hollywood Productions, Inc. ("Hollywood"). Mr.
Rashbaum is also the president and a director of Hollywood.
(6) Represents those shares underlying an option which have vested. An
additional 10,000 shares underlying such option shall vest on July 1, 1999, and
the final 10,000 shares underlying such option shall vest on July 1, 2000.
(7) Does not include 1,950,000 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 325,000 shares of Series E
Stock. The president of United Textiles & Toys Corp. ("UTTC"), a publicly traded
company which is the Company's controlling shareholder, is Ilan Arbel who is
also the president, chief executive officer, and a director of Multimedia
Concepts International, Inc. ("MMCI"), a publicly traded company which is the
parent company of UTTC (owning 78.5% of same). MMCI is owned 62.2% by U.S.
Stores Corp., a company of which Mr. Arbel is the president and a director. U.S.
Stores Corp. is owned 100% by American Telecom PLC, a British corporation. By
virtue of its ownership of UTTC, MMCI may be deemed a beneficial holder of the
Company's common stock held by UTTC.
<PAGE>
(8) Does not include 4,818,420 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 803,070 shares of Series E
Stock.
(9) Does not include 9,199,998 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 1,533,333 shares of Series E
Stock.
(10) Does not include 7,035,000 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 1,172,500 shares of Series E
Stock.
(11) Does not include 4,500,000 shares of Common Stock issuable upon the
conversion (any time two years from issuance) of 750,000 shares of Series E
Stock.
MATTERS WHICH SHALL BE CONSIDERED AT THE MEETING AND WITH RESPECT TO WHICH
ACTION WILL BE TAKEN THEREAT:
I. ELECTION OF DIRECTORS
The Board of Directors currently consists of four members elected for a
term of one year or until their successors are duly elected and qualified. Two
such members are inside directors, and the remaining two are outside independent
directors.
An affirmative vote of a plurality of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote
thereon is required to elect the directors. All proxies received by the Board of
Directors will be voted for the election as directors of the nominees listed
below if no direction to the contrary is given. In the event any nominee is
unable to serve, the proxy solicited hereby may be voted, in the discretion of
the proxy, for the election of another person in his stead. The Board of
Directors knows of no reason to anticipate this will occur.
The following table sets forth, as of March 12, 1999, the four nominees for
election as directors of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
Richard Brady 47 Chief Executive Officer, President, and Director
Harold Rashbaum 72 Chairman of the Board
James Frakes 42 Chief Financial Officer, Secretary, and Director
Moses Mika 78 Director
</TABLE>
All directors are elected at an annual meeting of the Company's
shareholders and hold office for a period of one year or until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. Vacancies on the Board of Directors may be filled by the remaining
directors. Officers are appointed annually by, and serve at the discretion of,
the Board of Directors. There are no family relationships between or among any
officers or directors of the Company, except Mr. Rashbaum is the father-in-law
of Ilan Arbel, Mr. Mika's son.
As permitted under the Delaware General Corporation Law, the Company's
Certificate of Incorporation eliminates the personal liability of the directors
to the Company or any of its shareholders for damages caused by breaches of said
directors' fiduciary duties. As a result of such provision, shareholders may be
unable to recover damages against directors for actions which constitute
negligence or gross negligence or are in violation of their fiduciary duties.
This provision in the Company's Certificate of Incorporation may reduce the
likelihood of derivative and other types of shareholder litigation against
directors.
<PAGE>
Richard Brady is a co-founder of the Company and has acted as the Company's
Chief Executive Officer and President since December 1995. Mr. Brady was the
Executive Vice President, Secretary, and a Director from the Company's inception
in 1974 until December 1996. He was re-elected Director of the Company in
January 1998. Mr. Brady has been the President of Toys International, Inc.
("Toys," a wholly-owned subsidiary of the Company) since January 1997 and a
Director thereof since May 1998.
Harold Rashbaum has been the Chairman of the Board of Directors since
September 10, 1996. Mr. Rashbaum was a management consultant to the Company from
July 1995 to September 10, 1996. In May 1998, he was elected as a Director of
Toys. Mr. Rashbaum has been the President, Chief Executive Officer, and a
Director of Hollywood since January 1997. Since September 1996, he has also been
the President, Secretary, and sole Director of BWI (a wholly-owned subsidiary of
Hollywood). From May 1996 to January 1997, Mr. Rashbaum served as Secretary and
Treasurer of Hollywood. Since February 1996, Mr. Rashbaum has also been the
President and a Director of H.B.R. Consultant Sales Corp. ("HBR"), of which his
wife is the sole shareholder. Prior thereto from February 1992 to June 1995, Mr.
Rashbaum was a consultant to 47th Street Photo, Inc., an electronics retailer.
Mr. Rashbaum held this position at the request of the bankruptcy court during
the time 47th Street Photo, Inc. was in Chapter 11. From January 1991 to
February 1992, Mr. Rashbaum was a consultant for National Wholesale Liquidators,
Inc., a major retailer of household goods and housewares.
James Frakes was appointed Chief Financial Officer and Secretary of the
Company in July 1997. In August 1997, he was elected as a Director of the
Company. In January 1998, Mr. Frakes was appointed Secretary and Chief Financial
Officer of Toys. He was elected as a Director thereof in May 1998. In January
1998, Mr. Frakes was elected as a Director of Hollywood. From June 1990 to March
1997, Mr. Frakes was Chief Financial Officer of Urethane Technologies, Inc.
("UTI") and two of its subsidiaries, Polymer Development Laboratories, Inc.
("PDL") and BMC Acquisition, Inc. These were specialty chemical companies, which
focused on the polyurethane segment of the plastics industry. Mr. Frakes was
also Vice President and a Director of UTI during this period. In March 1997,
three unsecured creditors of PDL filed a petition for the involuntary bankruptcy
of PDL. This matter is pending before the United States Bankruptcy Court,
Central District of California. From 1985 to 1990, Mr. Frakes was a manager for
Berkeley International Capital Corporation, an investment banking firm
specializing in later stage venture capital and leveraged buyout transactions.
In 1980, Mr. Frakes obtained a Masters in Business Administration from
University of Southern California. He obtained his Bachelor of Arts degree in
history from Stanford University, from which he graduated with honors in 1978.
Moses Mika was appointed as a Director of the Company in March 1998 and was
elected a Director of Toys in May 1998. Mr. Mika has been retired since 1989.
Significant Employees of the Company
John Hites has been the Vice President of Retail Operations of the Company
(a non-executive officer position) since April 1998. Since 1974, Mr. Hites has
been actively involved in the retail sale of specialty toys and items. From 1976
through 1982, prior to the Company's acquisition of Toys, Mr. Hites was employed
by Toys.
Howard Labow has been the Vice President of Advertising of the Company (a
non-executive officer position) since June 1998. He has been employed by the
Company since 1977.
Donna Hogan has been the Vice President of Merchandising of the Company (a
non-executive officer position) since June 1998. She has been employed by the
Company since 1983.
Board Meetings, Committees and Compensation
During the fiscal year ended March 31, 1998, no meetings of the Board of
Directors were held. Actions were taken on sixteen occasions by unanimous
written consent of the Board of Directors, which consent was obtained in lieu of
meetings. The Company does not pay its directors for attendance at Board of
Directors meetings or committee meetings. The Company's audit committee
comprises two outside directors (Harold Rashbaum and Moses Mika) and one inside
director (James Frakes). No meetings of the audit committee were held in fiscal
1998.
<PAGE>
During fiscal 1998, Harold Rashbaum, the Company's Chairman of the Board,
received an aggregate of $25,000 in compensation from the Company in
consideration of the consulting services he provided therefor. Mr. Rashbaum
received approximately $1,944 per month for the first nine months of the fiscal
year, and commencing in January 1998, his monthly consulting fee was increased
to $2,500. Commencing January 1, 1999, Mr. Rashbaum's consulting fee increased
to $3,500 per month. In March 1998, the Company issued a bonus of 25,000 shares
of Series E Stock, subject to a vesting schedule, to Mr. Rashbaum: these shares
vested 100% on April 1, 1999. Mr. Rashbaum devotes a significant portion of his
time to the Company: among other things, he reviews potential store sites,
assists in strategic planning, reviews all cash outflows, and otherwise works
closely with management in further developing and implementing the Company's
ongoing business strategy.
The affirmative vote of the holders of a majority of the shares of the
Common Stock issued and outstanding on the record date, voting together as a
single class, is required for the approval of this proposal. The directors and
officers of the Company and other principal shareholders owning of record,
beneficially, directly and indirectly, an aggregate of approximately 70.6% of
such shares outstanding on the record date, have agreed to vote in favor of the
election of the four directors nominated herein; therefore, this proposed
election shall be approved at the meeting.
The Board of Directors recommends that you vote "FOR" this election.
Executive Compensation and Related Matters
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to,
earned by, or paid by the Company during the years ended March 31, 1998, 1997,
and 1996 to the named Executive Officer of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Other Annual Restricted Securities LTIP All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation($) Stock Underlying Payouts($) Compensation
Awards ($) Options ($)
/SARs(#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Brady 1998 120,000 -- 8,579 2 46,500(1) -- -- --
President, CEO, 1997 108,000 -- 6,179 2 -- -- -- --
and Director 1996 117,230 -- 7,979 2 -- -- -- --
</TABLE>
(1) Mr. Brady received 25,000 shares of Series E Stock as a bonus in March
1998. These shares vest 100% on April 1, 1999.
(2) Includes an automobile allowance of $7,200 for 1998, $4,800 for 1997,
and $6,600 for 1996 and the payment of life insurance premiums of $1,379 for
each of 1998, 1997, and 1996.
<PAGE>
1994 Stock Option Plan
In 1994, the Company adopted the Company's 1994 Stock Option Plan (the
"SOP"). The Board believes that the SOP is desirable to attract and retain
executives and other key employees of outstanding ability. Under the SOP,
options to purchase an aggregate of not more than 50,000 shares of Common Stock
may be granted from time to time to key employees, officers, directors,
advisors, and independent consultants to the Company and its subsidiaries.
Pursuant to the SOP, the Company granted to James Frakes (Chief Financial
Officer and Secretary), pursuant to his hire, options to purchase 30,000 shares
of Common Stock at an exercise price of $1.15 per share, vesting at the rate of
10,000 shares per annum in July 1998, 1999, and 2000. None of such options have
been exercised.
The Board of Directors is charged with administration of the SOP and is
generally empowered to interpret the plan, prescribe rules and regulations
relating thereto, determine the terms of the option agreements, amend them with
the consent of the Optionee, determine the employees to whom options are to be
granted, and determine the number of shares subject to each option and the
exercise price thereof. The per share exercise price for incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of the
Common Stock on the date the option is granted (110% of fair market value on the
date of grant of an ISO if the Optionee owns more than 10% of the Common Stock
of the Company).
Options will be exercisable for a term (not less than one year) determined
by the Board. Options may be exercised only while the original grantee has a
relationship with the Company or at the sole discretion of the Board, within
ninety days after the original grantee's termination. In the event of
termination due to retirement, the Optionee, with the consent of the Board,
shall have the right to exercise his option at any time during the thirty-six
month period following such retirement. Options may be exercised up to
thirty-six months after the death or total and permanent disability of an
Optionee. In the event of certain basic changes in the Company, including a
change in control of the Company as defined in the SOP, in the discretion of the
Board, each option may become fully and immediately exercisable. ISOs are not
transferable other than by will or by the laws of descent and distribution.
Options may be exercised during the holder's lifetime only by the holder or his
guardian or legal representative.
Options granted pursuant to the SOP may be designated as ISOs with the
attendant tax benefits provided therefor pursuant to Sections 421 and 422A of
the Internal Revenue Code of 1986. Accordingly, the SOP provides that the
aggregate fair market value (determined at the time an ISO is granted) of the
Common Stock subject to ISOs exercisable for the first time by an employee
during any calendar year (under all plans of the Company and its subsidiaries)
may not exceed $100,000. The Board may modify, suspend, or terminate the SOP,
provided, however, that certain material modifications affecting same must be
approved by the shareholders, and any change in the SOP that may adversely
affect an Optionee's rights under an option previously granted under same
requires the consent of the Optionee.
1994 401(k) Employee Stock Option Plan ("ESOP")
In May 1994, the Company adopted corporate resolutions approving a 401(k)
Employee Stock Ownership Plan (the "401(k) ESOP Plan") which covers
substantially all employees of the Company. The 401(k) ESOP Plan was filed on
July 14, 1995 with the Internal Revenue Service and includes provisions for both
employee stock ownership and a 401(k) Plan. The ESOP portion of the plan allows
contributions only by the Company: these can be made annually at the discretion
of the Company's Board of Directors and has been designed to invest primarily in
the Company's stock. The 401(k) portion will be contributed to by the employees
of the Company through payroll deductions. The Company does not intend to match
contributions to the 401(k) portion. Contributions to the ESOP portion may
result in an expense, resulting in a reduction in earnings, and may dilute the
ownership interests of persons who currently own securities of the Company. On
January 26, 1995, Messrs. Brady and Tom Davidson (a founder of the Company and
the Company's former President) and the Company's then parent company
contributed an aggregate of 15,333 (post-July 1997 reverse split) shares of the
Company's Common Stock to the ESOP. In August 1998, pursuant to the ESOP portion
of the plan, the Company issued 5,673 shares of Common Stock to certain former
employees.
<PAGE>
II. AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES THEREUNDER
The Board of Directors has unanimously approved a proposal to amend the
Company's Certificate of Incorporation (as annexed hereto as Appendix "A") to
increase the number of authorized shares of the Company's (a) Common Stock from
fifty-one million shares currently authorized to one hundred sixty million
shares and (b) Series E Stock from ten million shares currently authorized to
twenty-five million shares.
As of March 12, 1999, the Company has issued and outstanding 5,509,197
shares of Common Stock, 5,883,903 shares of Series E Stock, and 2 million Series
E Stock Redeemable Purchase Warrants ("Series E Warrants"). Each holder of a
Series E Warrant may exercise same and purchase one share of Series E Stock at
$5.00 per share until December 29, 2002. Each share of Series E Stock is
convertible, at the option of the holder, two years from the date of issuance,
into six shares of Common Stock. The Company currently has reserved 50,000
shares of Common Stock for issuance under its SOP.
The 2 million outstanding Series E Warrants may be exercised and thus
converted into 2 million shares of Series E Stock, each share of which is then
convertible into six shares of Common Stock. Accordingly, in the event (i) the
Series E Warrants are exercised and the Series E Stock underlying same are
issued and converted (any time two years after issuance) into Common Stock (12
million shares), and (ii) the currently outstanding shares of Series E Stock are
converted (any time after December 29, 1999) into Common Stock (35,303,418
shares), the Company will be required to issue 47,303,418 shares of Common
Stock. In addition, given that the Company has issued a debenture to Frampton
Industries, Ltd. ("Frampton"), an unaffiliated British Virgin Islands Company,
in consideration of a $650,000 loan made by same to the Company, and given that
such debenture bears a 5% interest rate and is convertible into Series E Stock
at a price of $0.10 per share (at Frampton's option), the Company may be
required to issue an additional 6,825,000 shares of Series E Stock pursuant to
the debenture whereupon any time two years after issuance of the Series E Stock,
same are convertible into an aggregate of 40,950,000 shares of Common Stock. See
"Recent Developments."
This Proposal to authorize an increase in the number of authorized shares
of Common Stock and Series E Stock is made to ensure that a sufficient number of
authorized shares of Common Stock and Series E Stock are available in the event
that the Series E Warrants are exercised and the Series E Stock are converted
into shares of Common Stock.
The affirmative vote of the holders of a majority of the shares of the
Common Stock issued and outstanding on the record date, voting together as a
single class, is required for the approval of this proposal. The directors and
officers of the Company and other principal shareholders owning of record,
beneficially, directly and indirectly, an aggregate of approximately 70.6% of
such shares outstanding on the record date, have agreed to vote in favor of
approval of this proposal; therefore, this proposal shall be approved at the
meeting.
The Board of Directors recommends that you vote "FOR" this Proposal.
RECENT DEVELOPMENTS
Since August 1997, the Company's wholly-owned subsidiary, Toys, has opened
nine stores, eight of which were opened during the Company's second and third
quarters of fiscal 1999. Since the Company's second fiscal quarter, Toys has
executed leases for an additional ten stores, all of which stores it plans to
open by the end of calendar year 2000. At present, the Company, Toys, and the
Company's wholly-owned subsidiary Play Co. Toys Canyon Country, Inc. ("Canyon,"
which operates the flagship store opened in October 1996 in Santa Clarita)
operate an aggregate of twenty-five stores throughout Southern California (in
the Los Angeles, Orange, San Diego, Riverside, and San Bernardino Counties) and
in Tempe, Arizona; Las Vegas, Nevada; Dallas, Texas; Auburn Hills, Michigan; and
Chicago, Illinois. (The Company and its two subsidiaries are hereinafter
referred to in the aggregate as the "Company" except where delineation is
required.) The Company is expanding its geographic market, and by the end of
calendar year 2000 expects to open ten new stores in northern California (San
Francisco); Houston, Texas; Charlotte, North Carolina; Atlanta, Georgia; and
Nashville, Tennessee.
<PAGE>
On March 3, 1999, the Company created the first of two dedicated electronic
commerce websites. The site, www.ToysWhyPayRetail.com, which represents a new
trade name for the Company, allows consumers to purchase, at near wholesale
prices, overstocks, special buys, and overruns on mostly name-brand toys
purchased by the Company out of season. The Company plans to offer approximately
1000 items for sale on the website. The Company expects to finalize the creation
of its second electronic commerce website in April 1999 and will focus same on
collectible and imported specialty merchandise such as die-cast cars, dolls,
plush toys, trains, and collectible action figures. In conjunction with this
second website, the Company plans to place computers in several of its retail
locations to allow its customers to place orders on the website for goods
otherwise not sold in such stores.
On February 1, 1999, the Company entered into a two month agreement
(expiring March 31, 1999) with Coffin Communications Group ("Coffin") pursuant
to which Coffin is to provide investor relations services to the Company in
exchange for which Coffin is to receive an aggregate of $5,000. Also on February
1, 1999, the Company entered into a one year agreement (expiring March 31, 2000)
with Typhoon Capital Consultants, LLC ("Typhoon") pursuant to which Typhoon is
to provide financial consulting services and other consulting services
encompassing assistance in the production of a summary business plan and
corporate profile, the creation of an advisory committee to assist the Company
in assessing certain proposed actions, and the marketing of the Company's
websites. In exchange for its services, Typhoon is to be granted options to
purchase an aggregate of 150,000 shares of Common Stock, exercisable at $1.75
per share until their expiration on August 30, 2001.
In January 1999, the Company and Frampton, an unaffiliated British Virgin
Islands company, executed a letter agreement pursuant to which Frampton has
agreed to act as the exclusive placement agent and financial advisor for the
Company in connection with a contemplated proposed offering of convertible
debentures. The agreement is for a term of six months (with a potential two
month extension at Frampton's option) and provides that Frampton shall be
provided an investment banking fee of 8% of the face amount of each debenture
funded.
In November 1998, the Company entered into agreements with (i) ZD Group,
L.L.C. ("ZD"), a related party, and (ii) Frampton to secure additional
financing. ZD is a New York limited liability company, the beneficiary of which
is a member of the family of the Company's Chairman. Pursuant to the ZD
agreement, ZD issued a $700,000 irrevocable standby letter of credit ("L/C") in
favor of FINOVA Capital Corp ("FINOVA"), the Company's working capital lender.
FINOVA then lent a matching $700,000 to the Company in the form of a term loan,
pursuant to a Third Amendment to Loan and Security Agreement executed on
February 11, 1999 by and between the Company and FINOVA. The term loan from
FINOVA expires on August 3, 2000 and bears interest at prime plus one percent.
As consideration for its issuance of the L/C, ZD will receive a profit
percentage after application of corporate overhead from three of the Company's
stores. See "Certain Relationships and Related Transactions."
Pursuant to the Frampton agreement, Frampton has loaned $650,000 in the
form of a convertible, subordinated debenture due December 31, 1999. The
debenture bears a 5% interest rate and is convertible into Series E Stock at a
price of $0.10 per share at Frampton's option. This price represents a 50%
discount from the then current (November 10, 1998) market price reflecting a
discount for the illiquidity of the shares, which do not carry any registration
rights.
In September 1998, the Company and BWI entered into a Sales Agreement
pursuant to which BWI agreed to purchase, during the term of this Agreement, an
aggregate of 1,400,000 shares of the Company's Common Stock, par value $0.01 per
share, at a price equal to a 50% discount to the closing bid price for a share
of Common Stock, as reported by the Over-the-Counter Bulletin Board, on each
date on which BWI submitted to the Company its request to purchase said shares.
BWI's commitment to purchase these securities was subject to the Company's
purchase from BWI of swimwear valued in an amount not less than $400,000.
Pursuant to this agreement, on November 24, 1998, BWI purchased 1.4 million
unregistered shares of the Company's Common Stock in a private transaction. BWI
is a wholly-owned subsidiary of Hollywood, a publicly traded company whose
President is also the President of BWI and the Chairman of the Board of
Directors of the Company. The shares purchased by BWI represent approximately
25.4% of the Company's total Common Stock issued and outstanding after the
transaction. BWI paid $504,000 for the Common Stock, which represented an
approximate price of $0.36 per share: $300,973.50 of the consideration remitted
by BWI was in cash, and the remaining $203,026.50 was provided in BWI swimwear.
The Company had previously carried BWI swimsuits in its stores on a trial basis.
See "Certain Relationships and Related Transactions."
<PAGE>
On July 27, 1998, the Company sold 100,000 shares of Series E Stock to
UTTC, the Company's principal shareholder, for $100,000. In determining the
purchase price paid by UTTC, the trading price of the Series E Stock - along
with the applicable discounts for illiquidity, lack of marketability, and lack
of registration rights - were considered. The trading price of approximately
$2.00 per share was discounted by 50% for the above reasons. See "Certain
Relationships and Related Transactions."
On July 22, 1998, the Company entered into a Lead Generation/Corporate
Relations Agreement with Corporate Relations Group, Inc. ("CRG"), a Florida
corporation not affiliated with the Company, pursuant to which CRG shall provide
investor and public relations services to the Company for a period of five
years. Under the terms of the Agreement, the Company paid $100,000 to CRG upon
execution of the agreement and agreed to issue 50,000 shares of the Company's
Series E Stock as a reimbursement for expenses. In addition, the Company granted
to CRG options to purchase 350,000 shares of Common Stock at an exercise price
of $0.78125 per share and 400,000 shares of Series E Stock at an exercise price
of $2.25 per share. In a related agreement, the Company issued options to four
principals of CRG entitling each to purchase 25,000 shares of Common Stock at an
exercise price of $0.78125 and 75,000 shares of Series E Stock at an exercise
price of $2.25 per share. In connection with these options, the Company recorded
approximately $35,000 in compensation ($10,000 for the Series E Stock options
and $25,000 for the Common Stock options) based on an option pricing model which
considered the volatility of the securities' stock prices, and the short life of
the options, 2/3 of which are exercisable for a two month period and the
remaining 1/3 of which are exercisable for a six month period.
On December 29, 1997, the Company consummated an initial public offering of
750,000 shares of its Series E Stock and 1,500,000 Series E Warrants at $4.00
per share and $0.10 per Warrant, respectively, through West America Securities
Corp. as underwriter, for a total offering of $3,150,000. The Company received
gross proceeds of approximately $2,740,000 from the offering after the payment
of a 10% commission and 3% non accountable expense allowance to the underwriter.
With the closing of the offering, the options to purchase shares of Series E
Stock granted to Europe American Capital Corp. ("EACC," an affiliate), in
accordance with the Company's previous financing through Congress Financial
Corporation (Western) ("Congress"), terminated. See "Certain Relationships and
Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hollywood Productions, Inc.
In February 1999, the Company borrowed $100,000 from Hollywood. The
president of Hollywood is also the Chairman of the Board of the Company.
Pursuant to the loan, the Company issued an unsecured 9% promissory note to
Hollywood which calls for repayment of the note in four equal monthly
installments, comprising principal and interest, commencing March 15, 1999 and
ending June 15, 1999.
Breaking Waves, Inc.
On November 24, 1998, pursuant to a sales agreement entered into by and
between the Company and BWI, BWI purchased 1.4 million unregistered shares of
the Company's Common Stock in a private transaction. The shares purchased by BWI
represent approximately 25.4% of the total Common Stock issued and outstanding
after the transaction. The consideration paid for the stock was $504,000, which
represented an approximate price of $0.36 per share. This price was discounted
50% from the then current market price reflecting a discount for the illiquidity
of the shares, which do not carry any registration rights. $300,973.50 of the
consideration remitted was in cash, and the remaining $203,026.50 was provided
to the Company in the form of BWI product, primarily girls' swimsuits. The
Company had previously carried swimsuits from BWI in its stores on a trial
basis.
<PAGE>
Pursuant to the sales agreement (which has a term of one year which
automatically extends for one year terms unless either of the parties terminates
same), the Company agreed to purchase, during each season during which swimwear
is purchased, a minimum of 250 pieces of merchandise for each of its retail
locations and to provide advertising promotional materials and ads of the
merchandise in all of its brochures, advertisements, catalogs, and all other
promotional materials, merchandising programs, and sales promotion methods, in
all mediums used by same.
On July 15, 1998, the Company borrowed $300,000 from BWI and issued an
unsecured promissory note (at 9% interest per annum) to same in exchange
therefor. The note called for five monthly installments of principal and
interest commencing August 15, 1998 and ending December 30, 1998 and has been
repaid in full.
On March 1, 1998 the Company borrowed $250,000 from BWI and issued an
unsecured promissory note (at 15% interest per annum) to same in exchange
therefor. The note called for ten monthly installments of principal and interest
commencing on March 31, 1998 and ending on December 31, 1998 and has been repaid
in full.
ZD Group, L.L.C.
In November 1998, the Company entered into an agreement with ZD to secure
additional financing. ZD is a New York limited liability company, the
beneficiary of which is a member of the family of the Company's Chairman.
Pursuant to the ZD agreement, ZD issued a $700,000 irrevocable standby L/C in
favor of FINOVA, the Company's working capital lender (which is not an affiliate
of the Company). FINOVA then lent a matching $700,000 to the Company in the form
of a term loan, pursuant to a Fourth Amendment to Loan and Security Agreement
executed on February 11, 1999 by and between the Company and FINOVA. The term
loan from FINOVA expires on August 3, 2000 and bears interest at prime plus one
percent. As consideration for its issuance of the L/C, ZD will receive a profit
percentage after application of corporate overhead from three of the Company's
stores.
United Textiles & Toys Corp.
The Company's parent, UTTC, has guaranteed the Company's loan from FINOVA.
The president of UTTC, Ilan Arbel, in a letter dated May 15, 1998, has
represented, generally, his intent and ability to provide working capital to the
Company, should same be necessary, through September 30, 1999.
On July 27, 1998, the Company sold 100,000 shares of Series E Stock to
UTTC, the Company's principal shareholder, for $100,000. In determining the
purchase price paid by UTTC, the trading price of the Company's Series E Stock -
along with the applicable discounts for illiquidity, lack of marketability, and
lack of registration rights - were considered. The trading price of
approximately $2.00 per share was discounted by 50% for the above reasons.
ABC Fund, Ltd.
In June 1998, the Company and ABC Fund, Ltd. ("ABC," a Belize corporation
and an affiliate of the Company), the holder of a 5% convertible secured
subordinated debenture - dated January 21, 1998 and due August 15, 2000 (the
"Debenture") - offered to amend the terms of the Debenture to enable the
conversion of the principal amount and accrued interest thereon, into shares of
Series E Stock, at a conversion price of $1.00 per share. Management agreed to
convert the Debenture since the conversion of the debt into equity would result
in a strengthened equity position which management believed would provide
confidence to the Company's working capital lender, FINOVA, and trade creditors.
Further, converting the debt to equity eliminated on-going interest expense
requirements as well as the cash flow required to repay the Debenture.
Simultaneously with its offer to amend the Debenture, ABC elected to convert
same as of June 30, 1998, whereby, $1.5 million in principal amount and $33,333
<PAGE>
in accrued interest were converted into 1,533,333 shares of Series E Stock. ABC
did not receive any registration rights regarding the shares. Simultaneously,
ABC terminated the Subordinated Security Agreement between the parties and the
Intercreditor and Subordination Agreement, dated January 21, 1998, by and
between ABC and FINOVA. ABC, or its assigns, retained a right included in the
Debenture, to purchase up to an aggregate of 25% of the outstanding shares of
common stock of Toys. The purchase price per share shall equal the net book
value per share of Toys' common stock as of the date of exercise using generally
accepted accounting principals. The calculation of the number of shares subject
to this right and the purchase price per share shall be as of the date that the
Company receives notification that the right is being exercised. This right
shall extend until August 15, 2000 and shall automatically extend thereafter
until August 15, 2003 unless earlier terminated by ABC or its assignee.
Officers and Directors
The Company leases 40,000 square feet of combined office space (comprising
approximately 3,000 square feet) and warehouse space (comprising approximately
37,000 square feet), at an approximate annual cost of $247,000, from a
partnership of which one of the partners is Richard Brady, the President and a
Director of the Company. The lease expires in April 2000, and the Company
believes that it is on terms no more or less favorable than terms it might
otherwise have negotiated with an unaffiliated party.
In March 1998, the Company issued 25,000 shares of Series E Stock, subject
to one year vesting schedules, to each of Richard Brady, President of the
Company, and Harold Rashbaum, Chairman of the Board of the Company, as bonuses
in recognition of their efforts to further the Company's turnaround toward
profitability. In addition, during fiscal 1998, the Company remitted an
aggregate of $25,000 to Mr. Rashbaum in consideration of the consulting services
he provided therefor. Mr. Rashbaum received approximately $1,944 per month for
the first nine months of the fiscal year, and commencing in January 1998, his
monthly consulting fee was increased to $2,500. Commencing January 1, 1999, Mr.
Rashbaum's consulting fee increased to $3,500 per month. Mr. Rashbaum devotes a
significant portion of his time to the Company: among other things, he reviews
potential store sites, assists in strategic planning, reviews all cash outflows,
and otherwise works closely with management in further developing and
implementing the Company's ongoing business strategy.
Pursuant to the Company's SOP, in July 1997, the Company granted to James
Frakes (Chief Financial Officer and Secretary), pursuant to his hire, options to
purchase 30,000 shares of Common Stock at an exercise price of $1.15 per share,
vesting at the rate of 10,000 shares per annum in July 1998, 1999, and 2000.
None of such options have been exercised.
Multimedia Concepts International, Inc.
In January 1998, in accordance with certain financing provided by FINOVA,
the Company received $3.0 million in standby letters of credit. Of same, $2
million was established by the Company and was secured by a $2 million
certificate of deposit which was acquired with $1.5 million in proceeds from a
subordinated debt arrangement and $500,000 from the proceeds of the Company's
December 1997 public offering of Series E Stock. The remaining $1 million was
provided by MMCI, an affiliate of the Company by virtue of its 78.5% ownership
of UTTC, the Company's parent.
The Company's Current Financing: through FINOVA Capital Corporation
On January 21, 1998, the Company entered into a $7.1 million secured,
revolving Loan and Security Agreement (the "FINOVA Agreement") with FINOVA. The
credit line offered under the FINOVA Agreement replaced the $7 million credit
line the Company previously had with Congress (the "Congress Financing");
neither FINOVA nor Congress is affiliated with the Company. The Company paid off
the Congress loan on February 3, 1998.
<PAGE>
The FINOVA credit line is secured by substantially all of the Company's
assets and expires on August 3, 2000. It accrues interest at a rate of floating
prime plus one and one-half percent. Effective July 30, 1998, the Company and
FINOVA amended the FINOVA Agreement to increase the maximum level of borrowings
under the agreement from $7.1 million to $7.6 million. Effective September 24,
1998, the Company and FINOVA entered into a second amendment to the FINOVA
Agreement to increase the maximum level of borrowings thereunder from $7.6
million to $8.6 million through December 31, 1998. As of January 1, 1999, the
maximum level of borrowings returned to the $7.6 million level. In December
1998, the FINOVA Agreement was amended a third time to reflect FINOVA's taking
of a subordinate position with respect to its lien on only such equipment as has
been leased by the Company from Phoenix Leasing, Inc. As indicated above,
pursuant to the ZD agreement, ZD issued a $700,000 irrevocable standby L/C in
favor of FINOVA which then lent a matching $700,000 to the Company in the form
of a term loan, pursuant to a fourth amendment to the FINOVA Agreement entered
into on February 11, 1999. The term loan from FINOVA expires on August 3, 2000
and bears interest at prime plus one percent. In March 1999, the Company and
FINOVA entered into a Fifth Amendment to Loan and Security Agreement which
stretches the agreed upon decrease in advance rate against the Company's cost
value of its inventory over a five month period.
Under the FINOVA Agreement, the Company is able to borrow against the cost
value of eligible inventory. Since February 1999, pursuant to the Agreement, the
Company's allowed borrowing has increased by $100,000 to $2.5 million against a
combination of $3 million in standby letters of credit in favor of FINOVA and
restricted cash provided by a subordinated loan. $1.5 million of the $3 million
in additional borrowing support from the standby letters of credit was provided
by an institutional investor in the form of a subordinated loan; $1.0 million
was provided in the form of a standby letter of credit issued by MMCI, an
affiliate of the Company by virtue of its 78.5% ownership of UTTC, the Company's
parent; the other $500,000 was provided by the Company.
The Company's Former Financing: through Congress Financial Corporation
(Western)
In February 1996, pursuant to the terms of the Congress Financing, EACC, an
affiliate of the Company, delivered a $2 million L/C to Congress. The Congress
Financing was also guaranteed by UTTC, the majority shareholder of the Company.
As compensation for the issuance of the L/C, the Company granted to EACC
options, subject to shareholder approval, (i) to purchase up to an aggregate of
1,250,000 shares of Common Stock at a purchase price of 25% of the closing bid
price for the Common Stock on the last business day prior to exercise, for a
period of six months from issuance (this option expired unexercised); and (ii)
to purchase up to an aggregate of 20 million shares of the Company's Series E
Stock. From April 1996 to June 1997, EACC exercised its options and purchased an
aggregate of 3,562,070 shares of the Company's Series E Stock for $3,562,070. An
aggregate of 361,500 of such shares were converted into Common Stock. In March
1997, EACC issued an additional $1 million L/C to Congress in order for the
Company to obtain additional financing from Congress. This L/C enabled the
Company to receive additional advances of up to $1 million from Congress. EACC
did not receive any compensation for the issuance of this L/C. With the closing
of the offering, EACC's option to purchase shares of Series E Stock (granted in
accordance with the Congress Financing) terminated. The proceeds of the funds
received from EACC's investment enabled the Company (i) to acquire the assets of
Toys (a three store chain) in January 1997, (ii) to finance the openings of the
Santa Clarita, Arizona Mills, Redondo Beach, Ontario Mills, and Clairemont Mesa
stores, (iii) to redesign four store locations, and (iv) to support the
Company's operations during the Company's business turnaround.
The Company's Parents
Approximately 45.2% of the Company's Common Stock is held by UTTC, the
Company's parent corporation. UTTC, a Delaware public company, is owned 78.5% by
MMCI, also a Delaware public company. MMCI is owned 62.2% by U.S. Stores Corp.,
a private Delaware corporation, which is owned 100% by American Telecom PLC, a
British public corporation.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Haskell & White LLP,
Certified Public Accountants, as independent accountants of the Company for the
fiscal year ending March 31, 1999. Shareholders are not being asked to approve
such selection because such approval is not required. The audit services
provided by Haskell & White LLP consist of examination of financial statements,
services relative to filings with the Securities and Exchange Commission, and
consultation in regard to various accounting matters. Haskell & White LLP is not
expected to be present at the meeting; however, a representative will have the
opportunity to make a statement via telephone and to answer appropriate
questions.
On February 20, 1997, the Board of Directors of the Company authorized the
Company's executive officers to engage Haskell & White LLP as the Company's new
auditing firm (replacing BDO Seidman, LLP) for the year ending March 31, 1997.
Prior to engaging Haskell & White LLP, the Company has not consulted same on any
matters relative to the application of accounting principles on specified
transactions or regarding any matter that was the subject of a disagreement with
BDO Seidman, LLP. The change in accountants was not due to any discrepancies or
disagreements between the Company and its former accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
The former accountants' reports on the Company's financial statements for
the years ended March 31, 1995 and 1996 did not contain any adverse opinions or
disclaimers of opinion; nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles as required by Item 304 (a)(3) of
Regulation S-B promulgated under the Securities Act of 1933, as amended.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
No person ("a Reporting Person") who during the fiscal year ended March 31,
1998 was a director, officer, or beneficial owner of more than ten percent of
the Company's Common Stock or Series E Stock [which are the only classes of
equity securities of the Company registered under ss.12 of the Securities
Exchange Act of 1934], failed to file on a timely basis reports required by
ss.16 of the Act during the most recent fiscal year except as follows: (i)
Richard Brady failed to file Forms 4 and 5; (ii) James B. Frakes failed to file
a Form 5; (iii) Moses Mika failed to file Forms 3 and 5; (iv) Harold Rashbaum
failed to file a Form 3 and 5; (v) EACC failed to file Forms 3, 4, and 5; and
(vi) EACF failed to file Forms 3 and 5. The foregoing is based solely upon a
review by the Company of (i) Forms 3 and 4 during the most recent fiscal year as
furnished to the Company under Rule 16a-3(e) under the Act; (ii) Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and (iii) any representation received by the Company from any
reporting person that no Form 5 is required, except as described herein.
FINANCIAL INFORMATION
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB/A-2 FOR THE FISCAL
YEAR ENDED MARCH 31, 1998 AND THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB/A-1
FOR THE QUARTER ENDED DECEMBER 31, 1998 (EACH WITHOUT THE EXHIBITS FILED
THEREWITH), FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, ACCOMPANY THIS
PROXY STATEMENT.
<PAGE>
III. OTHER BUSINESS
As of the date of this proxy statement, the only business which the Board
of Directors intends to present, and knows that others will present, at the
Annual Meeting is that herein set forth. If any other matter properly is brought
before the Annual Meeting or any adjournments thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgment.
Shareholder Proposals
Proposals of shareholders intended to be presented at the Company's 2000
Annual Meeting of Shareholders must be received by the Company on or prior to
January 5, 2000 to be eligible for inclusion in the Company's proxy statement
and form of proxy to be used in connection with the 2000 Annual Meeting of
Shareholders.
By Order of the Board of Directors,
James B. Frakes
Secretary
April 14, 1999
Whether Or Not You Expect To Attend The Meeting, Please Complete And Return
Your Proxy Promptly In The Enclosed Envelope. No Postage Is Required If It Is
Mailed In The United States Of America.
<PAGE>
Appendix A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PLAY CO. TOYS & ENTERTAINMENT CORP.
Under Section 242 of the Delaware Corporation Law:
The undersigned, for the purpose of amending the Certificate of
Incorporation of Play Co. Toys & Entertainment Corp. (the "Corporation"), does
hereby certify and set forth:
FIRST:
The name of the Corporation is
PLAY CO. TOYS & ENTERTAINMENT CORP.
SECOND:
The Certificate of Incorporation was filed by the Department of State on
June 15, 1994.
THIRD:
The amendment to the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is (i) to increase the number of
authorized shares of Common Stock, par value $0.01 per share, from 51,000,000 to
160,000,000 and (ii) to increase the authorized number of shares of Series E
Preferred Stock, par value $0.01 per share, from 10,000,000 to 25,000,000.
Accordingly, the Certificate of Incorporation of this Corporation is amended by
changing "Article FOURTH," so that, as amended, said Article shall read as
follows:
FOURTH:
A. Authorized Capital Stock. The total number of shares of all classes of
capital stock which this Corporation shall have authority to issue is
(190,500,000) shares consisting of ONE HUNDRED SIXTY MILLION (160,000,000)
shares of Common Stock, par value $0.01 per share (the "Common Stock"), and
THIRTY MILLION FIVE HUNDRED THOUSAND (30,500,000) shares of Preferred Stock, par
value $0.01 per share (the "Preferred Stock") of which TWENTY-FIVE MILLION
(25,000,000) shares are designated "Series E Preferred Stock" and FIVE MILLION
FIVE HUNDRED THOUSAND (5,500,000) shares are designated "Series F Preferred
Stock," the relative rights, preferences, and limitations of which are as set
forth in subparagraph of this Article FOURTH.
B. Series E Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $0.01 per share, shall be the "Series E Preferred Stock." The
number of shares of Series E Preferred Stock authorized hereby shall be
25,000,000 shares.
(ii) Rank. The Series E Preferred Stock shall, with respect to rights
on liquidation, winding up, and dissolution, rank (a) junior to any other
Senior Securities established by the Board of Directors and, if required by
Section (vii), approved by the affirmative vote of the holders of a
majority of the shares of the Series E Preferred Stock, the terms of which
shall specifically provide that such series shall rank prior to the Series
E Preferred Stock; (b) on a parity with any other Parity Securities
established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank on a parity with the
Series E Preferred Stock; and (c) prior to any other Junior Securities of
the Corporation.
<PAGE>
(iii) Dividends. The Series E Preferred Stock shall not have any right
to dividends.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the
holders of the shares of Series E Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount in cash equal
to $1.00 per share for each share outstanding, before any payment
shall be made or any assets distributed to the holders of any of the
Junior Securities, provided, however, that the holders of the
outstanding shares of the Series E Preferred Stock shall not be
entitled to receive such liquidation payment until the liquidation
payments on all outstanding shares of Senior Securities, if any, shall
have been paid in full. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of the outstanding shares of the Series E Preferred Stock or
any other Parity Securities, then the holders of all such shares shall
share ratably in such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to
which the holders of the outstanding shares of Series E Preferred
Stock and the holders of outstanding shares of such other Parity
Securities are entitled were paid in full.
(b) For the purposes of this Article FOURTH, neither the
voluntary sale, conveyance, lease, exchange, nor transfer (for cash,
shares of stock, securities, or their consideration) of all or
substantially all of the property or assets of the Corporation or the
consolidation or merger of the Corporation with one or more other
corporations shall be deemed to be a liquidation, dissolution, or
winding up, voluntary or involuntary, unless such voluntary sale,
conveyance, lease, exchange, or transfer shall be in connection with a
dissolution or winding up of the business of the Corporation.
(v) Redemption. The shares of Series E Preferred Stock are not
redeemable by the Corporation.
(vi) Conversion.
(a) Subject to, and upon compliance with, the provisions of this
Section (vi), the holder of a share of Series E Preferred Stock
designated shall have the right, at such holder's option, at any time
commencing two years from issuance and terminating five years from
issuance, to convert such share into 6 fully paid and non-assessable
shares of Common Stock of the Corporation.
(b) (1) In order to exercise the conversion privilege, the
holders of each share of Series E Preferred Stock to be converted
shall surrender the certificates representing such shares at the
office of the transfer agent for the Series E Preferred Stock,
appointed for such purpose by the Corporation, with the Notice of
Election to Convert on the back of said certificate completed and
signed. Unless the shares of Common Stock issuable on conversion are
to be issued in the same name in which such share of Series E
Preferred Stock is registered, each share surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory
to the Corporation, duly executed by the holder of such holder's duly
authorized attorney and an amount sufficient to pay any transfer or
similar tax.
(2) As promptly as practicable after the surrender of the
certificates for shares of Series E Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this Section (iv).
<PAGE>
(3) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series E Preferred Stock shall
have been surrendered and such notice shall have been received by
the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date, unless the
stock transfer books of the Corporation shall be closed on that
date, in which event such person or persons shall be deemed to
have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer
books are open and such notice is received by the Corporation.
All shares of Common Stock delivered upon conversion of the
Series E Preferred Stock will upon delivery be duly and validly
issued and fully paid and non-assessable, free of all liens and
charges and not subject to any preemptive rights.
(c) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the purposes
of effecting conversions of the Series E Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Series E Preferred Stock not theretofore
converted. For purposes of this subsection (d), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Series E Preferred Stock shall be computed as if
at the time of computation all such outstanding shares were held by a
single holder.
(vii) Voting Rights. The holders of record of shares of the Series E
Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section (vii)(a) or as otherwise provided by
law.
(a) So long as any shares of the Series E Preferred Stock are
outstanding, the Corporation will not, without the affirmative vote or
consent of the holders of at least a majority of the outstanding
shares of the Series E Preferred Stock, voting as a class, vote to
amend the Corporation's Certificate of Incorporation to (i) increase
or decrease the aggregate number of authorized shares of the Series E
Preferred Stock; (ii) increase or decrease the par value of the Series
E Preferred Stock; or (iii) alter the preferences, powers, or rights
of the Series E Preferred Stock so as to affect them adversely.
(b) In exercising the voting rights set forth in this Section
(vii), each share of Series E Preferred Stock shall have one vote per
share.
C. Series F Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $0.01 per share, shall be the "Series F Preferred Stock." The
number of shares of Series F Preferred Stock authorized hereby shall be
5,500,000 shares.
(ii) Rank. The Series F Preferred Stock shall, with respect to rights
on liquidation, winding up, and dissolution, rank (a) junior to any other
Senior Securities established by the Board of Directors, including the
Series E Preferred Stock, and, if required by Section (vii), approved by
the affirmative vote of the holders of a majority of the shares of the
Series F Preferred Stock, the terms of which shall specifically provide
that such series shall rank prior to the Series F Preferred Stock; (b) on a
parity with any other Parity Securities established by the Board of
Directors, the terms of which shall specifically provide that such series
shall rank on a parity with the Series F Preferred Stock; and (c) prior to
any other Junior Securities of the Corporation.
<PAGE>
(iii) Dividends.
(a) The holders of the shares of the Series F Preferred Stock
shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for the payment of
dividends, cumulative dividends at $0.09 per share. The dividend is
payable quarterly, subsequent to the initial payment date declared by
the Board of Directors (the "Series F Dividend Payment Dates"), in
preference to dividends on the Junior Securities. Such dividend shall
be paid to the holder of record by the close of business on the date
thirty business days after the Series F Dividend Payment Dates, which
dividend may be paid in cash or kind, at the discretion of the
Corporation. Each of such dividends shall be fully cumulative and
shall accrue (whether or not declared), without interest, from the
date such dividends are payable as herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior
Securities, no dividend shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on the shares of the
Series F Preferred Stock or any other Parity Securities unless, prior
to or concurrently with such declaration, payment, or setting apart
for payment, all accrued and unpaid dividends on all outstanding
shares of Senior Securities shall have been or are declared and paid
or set apart for payment, without interest. No dividends shall be
declared or paid or set apart for payment on any Parity or Junior
securities for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series F Preferred Stock for all dividend payment periods terminating
on or prior to the date of payment of such full cumulative dividends.
If any dividends are not paid in full, as aforesaid, upon the shares
of the Series F Preferred Stock and any other Parity Securities, the
Corporation distribute the dividend pro rata so that the amount of
dividends declared per share on the Series F Preferred Stock and such
other Parity Securities shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series F Preferred Stock
and such other Parity securities bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series F Preferred Stock or any
other Parity Securities which may be in arrears.
(c) Holders of the shares of the Series F Preferred Stock shall
be entitled to receive the dividends provided for in paragraph
(iii)(a) hereof in preference to and in priority over any dividends of
other Parity Securities and any other Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the
Board of Directors may declare, and the Corporation may pay or set
apart for payment dividends and other distributions on any of the
Junior Securities and may purchase or otherwise redeem any of the
Junior Securities or any warrants, rights, or options exercisable for
or convertible into any of the Junior Securities, and the holders of
shares of the Series F Preferred Stock shall not be entitled to share
therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders
of the shares of Series F Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to $3.00 per share
for each share outstanding, before any payment shall be made or any assets
<PAGE>
distributed to the holders of any of the Junior Securities, provided,
however, that the holders of the outstanding shares of the Series F
Preferred Stock shall not be entitled to receive such liquidation payment
until the liquidation payments on all outstanding shares of Senior
Securities, including the Series E Preferred Stock, shall have been paid in
full. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of the outstanding shares
of the Series F Preferred Stock or any other Parity Securities, then the
holders of all such shares shall share ratably in such distribution of
assets in accordance with the amount which would be payable on such
distribution if the amounts to which the holders of the outstanding shares
of Series F Preferred Stock and the holders of outstanding shares of such
other Parity Securities were paid in full.
(b) For the purposes of this Article FOURTH, neither the voluntary
sale, conveyance, lease, exchange, nor transfer (for cash, shares of stock,
securities, or their consideration) of all or substantially all of the
property or assets of the Corporation or the consolidation or merger of the
Corporation with one or more other corporations shall be deemed to be a
liquidation, dissolution, or winding up, voluntary or involuntary, unless
such voluntary sale, conveyance, lease, exchange, or transfer shall be in
connection with a dissolution or winding up of the business of the
Corporation.
(v) Redemption.
(a) Notice. The Corporation may, at any time commencing one years from
issuance, redeem all of the issued and outstanding shares of the Series F
Preferred Stock for a per share price of $3.00 (the "Redemption Price"),
plus accrued but unpaid dividends, upon the terms set forth below. If the
Corporation desires to redeem the Series F Preferred Stock, it shall
deliver notice (the "Redemption Notice") by regular mail to each holder of
record of the Series F Preferred Stock at the address of each holder as it
appears on the books of the Corporation. Dividends shall cease accruing on
the date of the Redemption Notice.
(b) Delivery of Certificates and Payment. On or before the tenth day
after the date of the Redemption Notice (the "Period"), each holder of the
Series F Preferred Stock shall deliver to the secretary of the Corporation
at its principal office his certificate for the Series F Preferred Stock,
duly endorsed in blank (or accompanied by proper instruments of transfer).
Upon such surrender the holder thereof shall be entitled to receive payment
of the Redemption Price for each share of the Series F Preferred Stock so
surrendered. The Corporation shall make such payment within five days after
the later of (i) the date on which the holder delivered such certificates
or (ii) the last day of the Period.
(vi) Conversion.
(a) Subject to, and upon compliance with, the provisions of this
Section (vi), the holder of a share of Series F Preferred Stock designated
shall have the right, at such holder's option, to convert such share into
two fully paid and non-assessable shares of Common Stock of the
Corporation, at any time commencing six months from issuance.
(b) (1) In order to exercise the conversion privilege, the holders of
each share of Series F Preferred Stock to be converted shall surrender the
certificates representing such shares at the office of the transfer agent
for the Series F Preferred Stock, appointed for such purpose by the
Corporation, with the Notice of Election to Convert on the back of said
certificate completed and signed. Unless the shares of Common Stock
issuable on conversion are to be issued in the same name in which such
share of Series F Preferred Stock is registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such
holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax.
<PAGE>
(2) As promptly as practicable after the surrender of the
certificates for shares of Series F Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such
holder, or on his written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of
such shares in accordance with the provisions of this Section (vi).
(3) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of Series F Preferred Stock shall have been
surrendered and such notice shall have been received by the
Corporation as aforesaid, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby at such
time on such date, unless the stock transfer books of the Corporation
shall be closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such stock
transfer books are open and such notice is received by the
Corporation. All shares of Common Stock delivered upon conversion of
the Series F Preferred Stock will upon delivery be duly and validly
issued and fully paid and non-assessable, free of all liens and
charges and not subject to any preemptive rights.
(c) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the purposes
of effecting conversions of the Series F Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Series F Preferred Stock not theretofore
converted. For purposes of this subsection (d), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Series F Preferred Stock shall be computed as if
at the time of computation all such outstanding shares were held by a
single holder.
(vii) Voting Rights. The holders of record of shares of the Series F
Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section (vii)(a) or as otherwise provided by
law.
(a) So long as any shares of the Series F Preferred Stock are
outstanding, the Corporation will not, without the affirmative vote or
consent of the holders of at least a majority of the outstanding
shares of the Series F Preferred Stock, voting as a class, vote to
amend the Corporation's Certificate of Incorporation to (i) increase
or decrease the aggregate number of authorized shares of the Series F
Preferred Stock; (ii) increase or decrease the par value of the Series
F Preferred Stock; or (iii) alter the preferences, powers, or rights
of the Series F Preferred Stock so as to affect them adversely.
(b) In exercising the voting rights set forth in this Section
(vii), each share of Series F Preferred Stock shall have one vote per
share.
D. Common Stock
(i) Dividends. Subject to the liquidation rights of the Preferred
Stock, the holders of Common Stock shall be entitled to share equally all
dividends declared and paid by the Corporation.
(ii) Voting. The holders of record of Common Stock shall have one
vote, on all matters upon which stockholders of the Corporation may vote,
for each share of the Common Stock held by them.
(iii) Dissolution, Liquidation, Etc. In the event of the dissolution,
liquidation, or winding up of the affairs of the Corporation, after payment
or provision for payment of the debts and other liabilities of the
Corporation and after the payment to the holders of the Preferred Stock as
provided for in this Certificate of Incorporation, the remaining assets of
the Corporation shall be distributed to the holders of the Common Stock.
<PAGE>
FIFTH: The amendment to the Articles of Incorporation of the Corporation
set forth above was adopted by majority consent of the Corporation's
shareholders at the Corporation's annual meeting held on May 5, 1999.
IN WITNESS WHEREOF, the undersigned President of this Corporation has
executed this Certificate of Amendment on this ____day of May, 1999.
PLAY CO. TOYS & ENTERTAINMENT CORP.
By:
Richard Brady, President
By:
James Frakes, Secretary
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
Annual Meeting of Shareholders - May 5, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard Brady and James B. Frakes, and each
of them, proxies, with full power of substitution to each, to vote all shares of
Common Stock of Play Co. Toys & Entertainment Corp. (the "Company") owned by the
undersigned at the Annual Meeting of Shareholders of the Company to be held on
May 5, 1999 and at any adjournments thereof, hereby revoking any proxy
heretofore given. The undersigned instructs such proxies to vote:
I. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C>
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
</TABLE>
(Instruction: To withhold authority for any individual nominee, strike a
line through the nominee's name in the list below)
Harold Rashbaum Richard Brady James B. Frakes Moses Mika
II. To ratify the proposal to amend the Company's Certificate of
Incorporation to authorize an increase in the number of authorized shares of the
Company's (a) Common Stock, par value $0.01 per share, from fifty-one million
shares to one hundred sixty million shares and (b) Series E Preferred Stock, par
value $0.01 per share, from ten million shares to twenty-five million shares.
FOR AGAINST
and to vote upon any other business as may properly come before the meeting or
any adjournment thereof, all as described in the Proxy Statement dated April 14,
1999, receipt of which is hereby acknowledged.
(Continued and to be signed on the reverse side)
<PAGE>
Either of the proxies or his respective substitute who shall be present and
acting shall have and may exercise all the powers hereby granted.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF FOUR
DIRECTORS, UNLESS CONTRARY INSTRUCTIONS ARE GIVEN.
Said proxies will use their discretion with respect to any other matters
which properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN
AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE.
Dated:___________________________, 1999
(Please date and sign exactly as name appears at left. For joint accounts,
each joint owner should sign; executors, administrators, trustees, etc., should
also so indicate when signing.)