<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
YES! ENTERTAINMENT CORPORATION
-----------------------------------------------------
(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 ActRule 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.
(6) Amount Previously Paid:
(7) Form, Schedule or Registration Statement No.:
(8) Filing Party:
(9) Date Filed:
<PAGE>
[LOGO OF YES! ENTERTAINMENT CORPORATION]
YES! ENTERTAINMENT CORPORATION
3875 HOPYARD ROAD, SUITE 375
PLEASANTON, CALIFORNIA 94588
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 1998
TO THE STOCKHOLDERS OF YES! ENTERTAINMENT CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of YES!
Entertainment Corporation, a Delaware corporation (the "Company"), will be
held on Friday, December 18, 1998 at 10:00 a.m. local time at The Four Points
Hotel Sheraton, 5115 Hopyard Road, Pleasanton, California 94588 for the
following purpose:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of shares of Common Stock authorized for issuance
from 48,000,000 shares to 125,000,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on November 11, 1998,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ MARK C. SHEPHERD
MARK C. SHEPHERD
Secretary
Pleasanton, California
November 17, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER,
BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO
THE MEETING A LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR
BENEFICIAL OWNERSHIP OF THE SHARES. ADDITIONALLY, IN ORDER TO VOTE AT THE
MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
YES! ENTERTAINMENT CORPORATION
3875 HOPYARD ROAD, SUITE 375
PLEASANTON, CALIFORNIA 94588
---------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 18, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of YES!
Entertainment Corporation, a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on December 18, 1998, at 10:00
a.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held on such date at The Four
Points Hotel Sheraton, 5115 Hopyard Road, Pleasanton, California 94588. The
Company intends to mail this proxy statement and accompanying proxy card on or
about November 17, 1998, to all stockholders entitled to vote at the Annual
Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company or, at the Company's request, D.F. King & Co., Inc., but D.F. King &
Co., Inc. will be paid its customary fee, estimated to be about $40,000, if it
renders solicitation services. No additional compensation will be paid to
directors, officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
November 11, 1998 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on November 11, 1998, the Company had
outstanding and entitled to vote shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting. All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except with respect to Proposal 2,
broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether a matter has been approved. With respect to
Proposal 2, abstention and broker non-votes will have the same effect as
negative votes.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 3875
Hopyard Road, Suite 375, Pleasanton, California 94588, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 1999 annual
meeting of stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of
the Securities and Exchange Commission is July 14, 1999. However, if the
Company does not hold its 1999 annual meeting of stockholders within 30 days
of this year's annual meeting of stockholders, the deadline for submitting
stockholder proposals is a reasonable time before the Company begins to print
and mail its proxy materials.
Pursuant to the Company's Bylaws, proposals of stockholders that are
intended to be presented at the Company's 1999 Annual Meeting of Stockholders
must be received by the Company not later than (i) 60 days prior to the date
of such annual meeting or (ii) if notice of such meeting is given by the
Company less than 70 days in advance of the meeting date, by the close of
business on the tenth day following the date such notice is given, in order to
be included in the proxy statement and proxy relating to that Annual Meeting.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the six Board positions presently authorized in
the Company's Bylaws. Mr. Esmond T. Goei is not standing for re-election as a
director of the Company. The Company has not yet identified a nominee for the
sixth Board position. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Mr.
Kingsborough is currently a director of the Company, having been elected by
the stockholders, and Messrs. Nemetz, Shepherd, Chasanoff and Wissman are
currently directors of the Company, having been appointed by the Board.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to
believe that any nominee will be unable to serve.
Directors are elected by a plurality of the votes present and in person or
represented by proxy and entitled to vote.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
POSITION HELD WITH THE COMPANY/
NAME AGE PRINCIPAL OCCUPATION
-------------------------------- --- ----------------------------------------------
<C> <C> <S>
Mr. Stuart J. 33 Director of the Company, Senior Vice President
Chasanoff(1)(2)(3)............. and General Counsel of HW Partners, L.P.
Mr. Donald D. Kingsborough(3)... 51 Director of the Company, Vice President of
Business Development of the Company
Mr. Gary L. Nemetz(1)(2)(3)..... 45 Chairman of the Board of Directors, General
Partner of Transition Capital Management
Company, General Partner of DCC Growth Fund,
LLP, President of Admiral Capital Corporation
Mr. Mark C. Shepherd(3)......... 43 Director, Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer
of the Company
Mr. Barrett N. Wissman(1)(2).... 36 Director of the Company and Managing Director
of the general partner of HW Partners, L.P.
</TABLE>
- -------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Mr. Chasanoff has served as a director of the Company since September 1998.
Mr. Chasanoff is a Senior Vice President and General Counsel of HW Partners,
L.P., the investment advisor of Infinity Investors Limited, Infinity Emerging
Opportunities Limited and Glacier Capital Limited. Mr. Chasanoff joined HW
Partners, L.P. in 1996 and focuses on transactions involving investment
companies, corporate mergers and acquisitions, and private placements. From
May 1989 through February 1994, and again from October 1995 through April
1996, Mr. Chasanoff was a corporate attorney in the New York office of White &
Case, LLP, with a practice concentrating on mergers and acquisitions,
securities offerings, corporate reorganizations and financial
3
<PAGE>
services. From March 1994 through October 1995, Mr. Chasanoff served as in-
house counsel at PepsiCo., Inc. for two years, with a focus on financing
transactions and mergers and acquisitions. Mr. Chasanoff is a 1990 cum laude
graduate of Fordham University School of Law, and a 1987 graduate of the
University of Virginia.
Mr. Kingsborough founded the Company in September 1992 and has served as
Chairman of the Board and Chief Executive Officer from September 1992 until
September 1998 and as Vice President of Business Development from September
1998 to the present. From May 1989 to November 1992, Mr. Kingsborough was
Chief Executive Officer of Intelligy Corporation, a developer of educational
and child development products, including software. In February 1985, Mr.
Kingsborough founded Worlds of Wonder, Inc., and served as its Chief Executive
Officer until April 1988.
Mr. Nemetz served as a director of the Company from March 1995 to June 1997
and was again appointed to the Board in May 1998. He became Chairman of the
Board of the Company in September 1998. Mr. Nemetz is a general partner of
Transition Capital Management Company and has been President of Admiral
Capital Corp., a private investment management firm, since 1984. Since 1984,
Mr. Nemetz has also conducted a management consulting business and law
practice through G.L. Nemetz, a Professional Corporation. Mr. Nemetz is a
Certified Public Accountant (inactive status) and serves as a director of Can
Lines, Inc. and NHancement Technologies, Inc. (a Nasdaq SmallCap Market
company). Mr. Nemetz is a General Partner with DCC Growth Fund, LLP.
Mr. Shepherd has served as Chief Executive Officer since September 1998,
Chief Operating Officer of the Company since October 1997 and as Chief
Financial Officer of the Company since April 1998. He was appointed to the
Board of Directors in September 1998. From 1992 to 1995 he served as Senior
Vice President and Chief Financial Officer for Galoob Toys, Inc., a toy
company. Prior to joining the Company, Mr. Shepherd was most recently the
Senior Vice President-Finance for Einstein/Noah Bagel Corp. a 500 store bagel
retailer.
Mr. Wissman has served as a director of the Company since September 1998.
Mr. Wissman is a Managing Director of the general partner of HW Partners,
L.P., the investment advisor of Infinity Investors Limited, Infinity Emerging
Opportunities Limited and Glacier Capital Limited. He attended St. Mark's
School of Texas and graduated cum laude with high honors in 1981. Mr. Wissman
then attended Yale University and graduated cum laude in 1985 with a double
degree in economics and political science. Mr. Wissman has since received a
Master of Arts degree in music at Southern Methodist University of Dallas.
After graduating from Yale, Mr. Wissman joined Lazard Freres & Company in New
York City, where he worked from 1985 to 1987. During this time, Mr. Wissman
worked in the international mergers and acquisitions and the international
project finance departments. In 1987, Mr. Wissman returned to Dallas where he
assumed the capacity of the Chief Executive Officer of Athena Products
Corporation, a Texas corporation, and its subsidiaries and affiliates
(collectively, the "Athena Group"). Mr. Wissman and his family collectively
own a majority interest in the Athena Group. These businesses manufacture and
market chemicals, fertilizers and household consumer products in both domestic
and international markets. His duties as Chief Executive Officer of the Athena
Group included overseeing the administration, finance, marketing and
production departments. In the first half of 1993, Mr. Wissman divested
certain assets of the Athena Group and also licensed several of the Athena
Group's manufacturing processes and trademarks. Mr. Wissman gained his
investment management experience while successfully managing and trading his
family's portfolio of domestic and international equities, derivatives, bonds
and currencies. During his tenure with the Athena Group, Mr. Wissman also
managed the corporation's investment portfolios and cash flow. Mr. Wissman
also serves as a director of IBS Interactive, Inc., a public company that
provides a broad range of computer networking, programming, applications
development and Internet services primarily to businesses and organizations.
4
<PAGE>
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors held
11 meetings. The Board has an Audit Committee, a Compensation Committee and a
Nominating Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board the independent auditors to be retained,
and receives and considers the accountants' comments as to controls, adequacy
of staff and management performance and procedures in connection with audit
and financial controls. The Audit Committee is composed of three nonemployee
directors, Messrs. Nemetz, Chasanoff and Wissman. Mr. Nemetz is the Chairman
of the Audit Committee. It met two times during 1997.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board
may delegate. The Compensation Committee is composed of three nonemployee
directors, Messrs. Nemetz, Chasanoff and Wissman. Mr. Chasanoff is the
Chairman of the Compensation Committee. It met four times during 1997.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof and nominates specific individuals to be elected as officers of the
Company by the Board of Directors. No procedure has been established for
the consideration of nominees recommended by stockholders. The Nominating
Committee is composed of four directors: Messrs. Nemetz, Kingsborough,
Chasanoff and Shepherd. Mr. Nemetz is the Chairman of the Nominating
Committee. It did not meet during 1997.
During 1997, each Board member attended 75% or more of the aggregate of the
meetings of the Board and of the committees on which he served, held during
the period for which he was a director or committee member, respectively.
EXECUTIVE OFFICERS
The names of the Company's executive officers who are not also directors of
the Company and certain information about each of them are set forth below:
Sharon Duncan, age 46, has served as Executive Vice President, International
of the Company since July 1996. From January 1990 to January 1992, she was
Director of International Sales and Marketing for Galoob Toys, Inc., a toy
company. She was promoted to Vice President, International Sales and Marketing
for Galoob in January of 1992 and held that position through June 1996.
William Radin, age 67, has served as Executive Vice President, Operations of
the Company since July 1994. Mr. Radin served as Senior Vice President, R&D of
the Company from June 1993 to July 1994. From January 1990 to December 1992,
he was Vice President and Managing Director of Galco, the Hong Kong division
of Lewis Galoob Toys, Inc., a toy manufacturer, and from December 1992 to
April 1993, he was Managing Director of Arco, Ltd., the Hong Kong division of
Mattel, Inc., a toy manufacturer. From June 1983 to December 1990, Mr. Radin
was Vice President and Managing Director for Tonka Kenner Parker Far East, a
toy manufacturer.
5
<PAGE>
PROPOSAL 2
INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's stockholders are being requested to approve an amendment to
the Company's Certificate of Incorporation (the "Amendment") to increase the
number of shares of Common Stock authorized for issuance from 48,000,000
shares to 125,000,000 shares. Such additional shares would be available for
issuance upon (i) conversion of the Company's Series B Convertible Preferred
Stock ("Series B Preferred"), Series C Convertible Preferred Stock ("Series C
Preferred") and 5% Convertible Debentures ("Debentures"), (ii) exercise of
warrants to purchase 300,000 shares of the Company's Common Stock (the
"Warrants"), and (iii) such other transactions as shall be approved by the
Board of Directors. The Company currently does not have a sufficient number of
authorized and unissued shares available for issuance upon conversion of the
outstanding Series B Preferred, Series C Preferred and Debentures, and the
exercise of the Warrants. These securities were issued in the financings
described below. Although at present the Company has no other plans to issue
the additional shares of Common Stock, it desires to have such shares
available to provide additional flexibility to use its capital stock for
business and financial purposes in the future. The additional shares may be
used, without further stockholder approval, for various purposes including,
without limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other
companies and expanding the Company's business or product lines through the
acquisition of other businesses or products.
THE FINANCINGS
On March 18, 1997, pursuant to the Amended and Restated Convertible
Debenture and Convertible Preferred Stock Purchase Agreement (the "March
Agreement") by and among the Company, Infinity Investors Limited ("Infinity")
and Fairway Capital Limited ("Fairway"), the Company issued and sold to
Infinity and Fairway Debentures in an aggregate principal amount of
$1,566,667, and 85,000 shares of Series A Preferred Stock in exchange for
outstanding debentures. Prior to that time, the Company had also issued to
Infinity, Fairway and Brown Simpson, LLC, collectively, the Warrants to
purchase 300,000 shares of Common Stock. The Company received an aggregate of
approximately $10,000,000 in connection with the transactions which were
amended by the March Agreement. Such funds were used for general working
capital purposes. Pursuant to the Amended and Restated Securities Purchase
Agreement, dated as of July 25, 1997 (the "Purchase Agreement"), by and among
the Company, Infinity, Fairway (which has since transferred its securities and
rights and obligations under the Purchase Agreement to Glacier Capital Limited
("Glacier")) and Cappello & Laffer Capital Group ("Cappello," which has since
transferred its securities and rights and obligations under that agreement to
three individuals affiliated with Cappello (the "Cappello Individuals")),
which amended and restated the March Agreement in its entirety, the Debentures
and Series A Preferred Stock purchased pursuant to the March Agreement were
exchanged for Debentures in an aggregate principal amount of $1,956,021 and
390,846 shares of Series B Preferred. Of the total securities issued, 54,368
shares of Series B Preferred and $182,997.74 aggregate principal amount of the
Debentures were subsequently converted into an aggregate of 1,665,094 shares
of the Company's Common Stock.
Pursuant to the Securities Exchange Agreement dated as of September 2, 1998
(the "Exchange Agreement") by and among the Company, Infinity, Glacier and
Infinity Emerging Opportunities Limited ("Emerging," which acquired certain
Debentures from Infinity), Infinity, Emerging and Glacier exchanged the
Debentures and Series B Preferred held by such parties for Debentures in an
aggregate principal amount of $1,835,921 and 348,670 shares of Series C
Preferred.
The purchasers of securities pursuant to the Purchase Agreement and the
Exchange Agreement consist of a limited number of accredited investors, and
such financings were made in reliance on Regulation D
6
<PAGE>
promulgated under the Act which offers an exemption from registration
requirements under the Act. The Company did not pay any compensation to any
party in connection with the sale and issuance of securities pursuant to the
Purchase Agreement and the Exchange Agreement.
As a result of the above transactions and subsequent conversions, transfers,
dividends and interest on, and sales of such securities, the following
entities own the following amounts of such securities as of September 30,
1998:
<TABLE>
<CAPTION>
SHARES OF SHARES OF PRINCIPAL
SERIES B SERIES C AMOUNT OF
INVESTOR STOCK STOCK DEBENTURES WARRANTS
-------- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
Infinity Investors Limited......... 0 315,042 $1,553,953 202,500
Glacier Capital Limited............ 0 35,394 190,461 22,500
Infinity Emerging Opportunities
Limited........................... 0 0 101,136 0
Cappello Individuals............... 9,621 0 475,153 0
OTA Limited Partnership............ 0 0 0 75,000
</TABLE>
Not all of these securities can be converted into Common Stock unless the
stockholder approval being solicited in this Proposal 2 is obtained. If all of
the Series B Preferred, Series C Preferred, Debentures and Warrants were
converted and exercised, the following investors would have received the
following numbers of shares of the Company's Common Stock, assuming the
conversion/exercise date was October 23, 1998 and sufficient authorized but
unissued shares were available for issuance:
<TABLE>
<CAPTION>
SHARES OF
INVESTOR COMMON STOCK
-------- ------------
<S> <C>
Infinity Investors Limited...................................... 51,443,068
Glacier Capital Limited......................................... 5,885,906
Infinity Emerging Opportunities Limited......................... 550,670
Cappello Individuals............................................ 4,100,009
OTA Limited Partnership......................................... 75,000
----------
Total......................................................... 62,054,656
</TABLE>
There are currently only approximately 29,500,000 authorized but unissued
shares of Common Stock available for issuance upon conversion of these
securities. As of the Record Date the Company had outstanding [ ] shares of
its Common Stock.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OF THE COMPANY. THE SECURITIES REFERRED TO IN THIS
PROXY STATEMENT HAVE NOT BEEN REGISTERED FOR SALE BY THE COMPANY UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS
AND MAY NOT BE OFFERED OR SOLD ABSENT SUCH REGISTRATION UNDER THE ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF.
RELATIONSHIP OF CERTAIN PURCHASERS TO DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
Mr. Barrett N. Wissman, a director of the Company, is a Managing Director of
the general partner of HW Partners, L.P., the investment adviser of Infinity,
Glacier and Emerging, and Mr. Stuart J. Chasanoff, a director of the Company,
is a Senior Vice President and General Counsel of HW Partners, L.P. Infinity,
Glacier
7
<PAGE>
and Emerging owned, collectively, as of September 30, 1998, 350,436 shares of
Series C Preferred, $1,845,550 aggregate principal amount of Debentures, and
Warrants to purchase 225,000 shares of Common Stock. See "The Financings"
above and "Certain Transactions" below.
DESCRIPTION OF THE SECURITIES
The Company's Certificate of Incorporation authorizes the issuance of
48,000,000 shares of Common Stock, par value $.001 per share, and 2,000,000
shares of Preferred Stock, par value $.001 per share. Of the authorized shares
of Preferred Stock, 85,000 have been designated Series A Convertible Preferred
Stock, 540,000 have been designated as Series B Preferred, and 540,000 have
been designated as Series C Preferred. All outstanding shares of Series A
Convertible Preferred Stock were exchanged for shares of Series B Preferred
pursuant to the Purchase Agreement.
Holders of Series B Preferred are entitled to receive, when and as declared
by the Company's Board of Directors, cumulative dividends at the rate of $1.28
per share per annum (as adjusted for stock dividends, combinations, splits,
recapitalizations and the like), payable in shares of Series B Preferred. On
May 1, 1997, such dividends began accruing on a daily basis. Upon any
liquidation, dissolution, or winding up of the Company, holders of Series B
Preferred shall be entitled to receive out of the assets of the Company an
amount equal to $25.00 per share (as adjusted for stock dividends,
combinations, splits, recapitalizations and the like), before any distribution
or payment shall be made to the holders of any junior securities. At the
option of the holder, the Series B Preferred is convertible into Common Stock
at a conversion rate per share equal to $25.00 divided by 81.25% of the lowest
trading price of the Common Stock over the last 30 trading days prior to
conversion (subject to certain antidilution adjustments). All shares of Series
B Preferred outstanding on April 30, 2002 shall be automatically converted
into Common Stock at such conversion rate. If the Company has not obtained
stockholder approval of the issuance of Common Stock upon conversion of the
Series B Preferred, the Series C Preferred, the 5% Debentures and upon
exercise of the Warrants ("Stockholder Approval") on the date that it receives
notice of conversion from a holder of Series B Preferred and the conversion of
such securities is limited by the rules of the Nasdaq National Market (the
"Nasdaq Rules"), which prohibit the issuance of the shares of Common Stock in
excess of 20% of the Company's outstanding Common Stock without stockholder
approval (which approval has not been obtained), such holder may require the
Company to redeem the shares of Series B Preferred as to which conversion is
limited by such rules at a price per share calculated based upon a percentage
of the liquidation preference. The Nasdaq Rules only apply so long as the
Company's Common Stock is listed on the Nasdaq National Market. Pursuant to
the Purchase Agreement, if the Common Stock is suspended or delisted from the
Nasdaq National Market (other than as a result of the suspension of trading in
securities on such market generally or temporary suspensions pending the
release of material information and other than a suspension of trading if the
Common Stock is quoted on the Nasdaq SmallCap Market within one business day
after such suspension or delisting), at the option of each holder of Series B
Preferred, the Company must repay, redeem or repurchase, as applicable, all of
the Debentures owned by such holder at a prepayment penalty, all of the shares
of Series B Preferred owned by such holder at a price per share based upon a
percentage of the liquidation preference, all of the Warrants owned by such
holder at a price based upon the market price of the Common Stock and all of
the shares of Common Stock issued to such holder upon conversion of the Series
B Preferred and the Debentures and upon exercise of the Warrants. The Company
has the right, exercisable upon five trading days notice to the holders of the
Series B Preferred, to redeem all of the outstanding shares of Series B
Preferred at a price per share calculated based upon a percentage of the
liquidation preference. There is no restriction on the redemption of shares of
Series B Preferred based upon arrearage in the payment of dividends. For so
long as any shares of Series B Preferred remain outstanding, the Company shall
not, without the affirmative vote of the holders of a majority of the shares
of Series B Preferred then outstanding, (i) alter or change adversely the
powers, preferences or rights of the Series B Preferred or (ii) authorize or
create any class of stock ranking as to dividends or distribution of assets
upon a liquidation senior to, prior to or pari passu with the Series B
8
<PAGE>
Preferred. Pursuant to the Amended and Restated Registration Rights Agreement
dated July 25, 1997 (the "Registration Rights Agreement"), the holders of
Series B Preferred have certain registration rights.
Holders of Series C Preferred are entitled to receive, when and as declared
by the Company's Board of Directors, cumulative dividends at the rate of $1.28
per share per annum (as adjusted for stock dividends, combinations, splits,
recapitalizations and the like), payable in shares of Series C Preferred,
commencing on September 30, 1998. Upon any liquidation, dissolution, or
winding up of the Company, the holders of Series C Preferred shall be entitled
to receive out of the assets of the Company, an amount equal to $25.00 per
share (as adjusted for stock dividends, combinations, splits,
recapitalizations and the like), before any distribution or payment shall be
made to the holders of any junior securities. At the option of the holder, the
Series C Preferred is convertible into Common Stock at a conversion rate per
share equal to $25.00 divided by 81.25% of the lowest trading price of the
Common Stock over the last 30 trading days prior to conversion (subject to
certain antidilution adjustments). The provisions referred to above with
respect to the redemption of the Series B Preferred and the Nasdaq Rules apply
equally to the Series C Preferred. Pursuant to the Exchange Agreement, if the
Common Stock is suspended or delisted from the Nasdaq National Market (other
than as a result of the suspension of trading in securities on such market
generally or temporary suspensions pending the release of material information
and other than a suspension of trading if the Common Stock is quoted on the
Nasdaq SmallCap Market within one business day after such suspension or
delisting), at the option of each holder of Series C Preferred, the Company
must repay, redeem or repurchase, as applicable, all of the Debentures owned
by such holder at a prepayment penalty, all of the shares of Series C
Preferred owned by such holder at a price per share based upon a percentage of
the liquidation preference, all of the Warrants owned by such holder at a
price based upon the market price of the Common Stock and all of the shares of
Common Stock issued to such holder upon conversion of the Series C Preferred
and the Debentures and upon exercise of the Warrants. The Company has the
right, exercisable upon 15 trading days notice to the holders of the Series C
Preferred, to redeem all of the shares of a holder of Series C Preferred at a
price per share calculated based upon a percentage of the liquidation
preference; provided, however, that the Company cannot redeem shares of Series
C Preferred from a holder without simultaneously repaying any and all
indebtedness owed by the Company to such holder. In addition, if the Company
has not obtained stockholder approval requested by this Proposal 2 by December
21, 1998, unless the holders of a majority of the Series C Preferred notify
the Company that such securities shall not be redeemed, the Company shall
redeem all of the shares of Series C Preferred then outstanding at a price per
share calculated based upon a percentage of the liquidation preference. There
is no restriction on the redemption of shares of Series C Preferred based upon
arrearage in the payment of dividends. For so long as at least 25% of the
shares of Series C Preferred remain outstanding, holders of Series C Preferred
have the right to elect two members of the Company's Board of Directors. In
addition, for so long as any shares of Series C Preferred remain outstanding,
the Company shall not, without the affirmative vote of the holders of a
majority of the shares of Series C Preferred then outstanding, (i) alter or
change adversely the powers, preferences or rights of the Series C Preferred;
(ii) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a liquidation senior to, or pari passu with the
Series C Preferred; or (iii) enter into any merger, recapitalization,
consolidation or similar transaction that would result in the change of any of
the terms of the Series C Preferred. Further, without the consent and approval
of the two directors elected by the Series C Preferred, the Company shall not
(i) incur more than $100,000 in additional indebtedness (excluding trade debt
incurred in the ordinary course of business); (ii) permit to exist liens on
its assets other than existing liens or liens securing certain outstanding
obligations of the Company; (iii) use any of the proceeds of certain
financings for any purpose other than working capital in connection with the
operation of the Company's present business operations; (iv) enter into any
agreement to merge with or otherwise combine its assets or operations with any
other entity or sell any material assets outside the ordinary course of
business; (v) commence an action for relief under any provision of the United
States Bankruptcy Code or any similar statutory scheme; (vi) pay any material
additional or special
9
<PAGE>
compensation to any of its officers that is not currently required under any
existing agreements with its officers; (vii) enter into any material
transaction with any insider or affiliate; or (viii) issue any shares of stock
in the Company other than in satisfaction of existing options, warrants,
conversion rights, or existing obligations under the Company's employee
benefit plans. Pursuant to the Registration Rights Agreement, the holders of
Series C Preferred have certain registration rights.
As of September 30, 1998, Debentures in an aggregate amount of $2,316,260
were outstanding. The Debentures mature on April 20, 2002 and interest accrues
upon the unpaid balance thereof at the rate of 5% per annum. The Debentures
are convertible into Common Stock at a conversion rate of the dollar amount
being converted divided by 81.25% of the of the lowest trading price of the
Common Stock over the last 30 trading days prior to conversion (subject to
certain antidilution adjustments). If the Company has not obtained Stockholder
Approval on the date that it receives notice of conversion from a holder of
Debentures and the conversion of such securities is limited by the Nasdaq
Rules, or if the Company's Common Stock is no longer listed on the Nasdaq
National Market, the Company shall be required at the option of the holders to
repay the outstanding principal balance of such Debentures at a prepayment
penalty. In addition, if the stockholder approval requested by this Proposal 2
is not obtained by December 21, 1998, then the Company will be required at the
option of the holders to redeem the Debentures at a premium. The Company shall
have the right to prepay the Debentures at any time, subject to a prepayment
penalty. The holders of Debentures shall have certain acceleration rights upon
the following events of default: (i) any default in payment of interest or
principal when due; (ii) any breach by the Company of the terms of the
Debentures, the Purchase Agreement, the Registration Rights Agreement or the
Certificates of Designation of the Series B Preferred and Series C Preferred
not remedied within five business days following notice of breach ; (iii)
commencement of a case under the United States Bankruptcy Code regarding the
Company or any of its subsidiaries; (iv) failure by the Company to pay
interest and principal due pursuant to certain material obligations; (v) sale
by the Company of substantially all of its assets or the occurrence of a
change in control of the Company; (vi) redemption or repurchase by the Company
of more than 10,000 shares of Common Stock; and (vii) entry of material
litigation judgments against the Company. The Company is not required by the
terms of the Debentures to furnish evidence of the absence of default or of
its compliance with such terms.
On or before March 18, 2002, the Warrants are exercisable for 300,000 shares
of Common Stock at an exercise price of 125% of the lowest average of per
share market values of the Common Stock over a five-day trading period during
the 60 trading days prior to exercise (subject to certain antidilution
adjustments), and are subject to repurchase at a premium if the Company's
Common Stock ceases to be listed on the Nasdaq National Market.
Under the terms of the Exchange Agreement, Infinity, Glacier and Emerging
have agreed not to convert the Series C Preferred and Debentures they own, or
exercise the Warrants they own, until February 11, 1999. This obligation not
to convert or exercise these securities will terminate if this Proposal 2 is
not adopted by the stockholders of the Company.
Payments under the Series B Stock, the Series C Stock and the Debentures are
subordinated to the rights of the Company's senior lender under the Company's
credit facility with such lender.
The Company anticipates that its Common Stock will be delisted from the
Nasdaq National Market prior to the Annual Meeting of Stockholders.
Stockholders should monitor the continued listing of the Company's Common
Stock and take this into consideration in voting on this Proposal 2.
10
<PAGE>
VOTE REQUIRED
On November 11, 1998, the record date, there were issued and outstanding
shares of Common Stock entitled to vote on Proposal 2. The
affirmative vote of the holders of a majority of such shares is required to
approve Proposal 2. Of the shares of Common Stock entitled to vote on Proposal
2, approximately 797,479 were held by Messrs. Kingsborough and Nemetz, who
have signed irrevocable proxies to vote such shares in favor of Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
11
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board in their discretion
may direct the appointment of different independent auditors at any time
during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
12
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of October 16, 1998 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company
as a group; and (iv) all those known by the Company to be beneficial owners of
more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
---------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
- -------------------------------------------- ---------------- ----------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Sandler Capital Management (2).............. 1,118,459 6.5%
767 Fifth Avenue
New York, NY 10153
Andyla Yasa................................. 1,389,502 8.2%
c/o P.T. Amanda Granitkusuma
Chase Plaza Tower, 4th Floor
Jln. Jend. Sudirman kav.21
Jakarta 12910 Indonesia
Pitt & Company (3).......................... 1,059,523 6.3%
c/o Bankers Trust Company
P.O. Box 2444
Church Street Station
New York, NY 10008
DIRECTORS
Donald D. Kingsborough (4).................. 572,429 3.3%
Gary L. Nemetz (5).......................... 225,050 1.3%
Mark C. Shepherd (6)........................ 111,004 *
Stuart J. Chasanoff (7)..................... 0 *
Barrett N. Wissman (8)...................... 0 *
NAMED OFFICERS
Mark Bradlee (9)............................ 1,424 *
Sharon Duncan (10).......................... 39,715 *
Sol Kershner (11)........................... 1,487 *
William Radin (12).......................... 117,768 *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A 1,029,162 5.9%
GROUP (9 persons) (13).....................
</TABLE>
13
<PAGE>
- -------
*Less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and filings made with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13(d), 13(f) or 13(g) of the
Securities Exchange Act of 1934, as amended. Unless otherwise indicated
in the footnotes to this table and subject to community property laws
where applicable, the Company believes that each of the stockholders
named in this table has sole voting and investment power with respect to
the shares indicated as beneficially owned. Applicable percentages are
based on 16,813,998 shares outstanding on October 16, 1998, adjusted as
required by rules promulgated by the SEC.
(2) Includes 180,807, 61,518, 24,341, 330,857, 148,885, and 71,685 shares
held by 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Sandler Mezzanine Partners, L.P., Sandler Mezzanine T-E
Partners, L.P., and Sandler Mezzanine Foreign Partners, L.P.,
respectively. Also includes 133,333, 133,333, 20,224, 4,381, and
9,099 shares, respectively, subject to warrants exercisable within 60
days of October 16, 1998.
(3) The Company believes that Pitt & Company is the transferee of shares
purchased and previously held by Capital Cities Capital, Inc.
(4) Includes (i) 375,184 shares subject to options exercisable within 60 days
of October 16, 1998 and (ii) 4,595 shares subject to warrants exercisable
within 60 days of October 16, 1998. Excludes 24,000 shares held in trust
for Mr. Kingsborough's children, as to which Mr. Kingsborough disclaims
beneficial ownership.
(5) Includes 65,685 and 114,546 shares held by Gary Nemetz, as Trustee, and
Admiral Capital Corporation, as Trustee, respectively. Also includes
22,792, 16,666 and 5,361 shares held by Admiral Capital Corporation, as
Trustee, Gary Nemetz, as Trustee, and Transition Capital Management
Company, as Trustee, respectively, which are subject to warrants
exercisable within 60 days of October 16, 1998. Mr. Nemetz, who owns or
controls the partnership interests in Transition Capital Management
Company, with which Admiral Capital Corporation is affiliated, may be
deemed to share voting and dispositive power with regard to shares held
by Transition Capital Management Company and its affiliates. Mr. Nemetz
disclaims beneficial ownership of these securities, except to the extent
of his equity ownership therein.
(6) Includes 109,375 shares subject to options exercisable within 60 days of
October 16, 1998. Also includes 1,629 shares vested within 60 days of
October 16, 1998 under the Company's 401(k) plan.
(7) Does not include as of September 30, 1998 an aggregate of 350,436 shares
of Series C Convertible Preferred Stock and 5% Convertible Debentures in
an aggregate principal amount of $1,845,550 held by Infinity Investors
Limited, Infinity Emerging Opportunities Limited and Glacier Capital
Limited. Such securities are convertible into Common Stock under certain
circumstances as more fully described in Proposal 2. Mr. Chasanoff is a
Senior Vice President and General Counsel of HW Partners, L.P., the
investment adviser of Infinity Investors Limited, Infinity Emerging
Opportunities Limited and Glacier Capital Limited.
(8) Does not include as of September 30, 1998 an aggregate of 350,436 shares
of Series C Convertible Preferred Stock and 5% Convertible Debentures in
an aggregate principal amount of $1,845,550 held by Infinity Investors
Limited, Infinity Emerging Opportunities Limited and Glacier Capital
Limited. Such securities are convertible into Common Stock under certain
circumstances as more fully described in Proposal 2. Mr. Wissman is a
Managing Director of the General Partner of HW Partners, L.P., the
investment adviser of Infinity Investors Limited, Infinity Emerging
Opportunities Limited and Glacier Capital Limited.
(9) Mr. Bradlee was Executive Vice President, Sales of the Company until
October 15, 1997; he is no longer an officer of the Company.
(10) Includes 34,166 shares subject to options exercisable within 60 days of
October 16, 1998. Also includes 5,549 shares vested within 60 days of
October 16, 1998 under the Company's 401(k) plan.
(11) Mr. Kershner was Chief Financial Officer and Chief Operating Officer of
the Company until October 13, 1997. He is no longer an officer of the
Company.
(12) Includes 107,768 shares subject to options exercisable within 60 days of
October 16, 1998. Also includes 9,796 shares vested within 60 days of
October 16, 1998 under the Company's 401(k) plan.
(13) Includes 484,559 shares subject to options exercisable within 60 days of
October 16, 1998 and 49,414 shares subject to warrants exercisable within
60 days of October 16, 1998.
14
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
15
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company receives a quarterly retainer of
$2,000. In the fiscal year ended December 31, 1997, the total compensation
paid to nonemployee directors was $42,000. The members of the Board of
Directors are also eligible for reimbursement for their expenses incurred in
connection with attendance at Board meetings in accordance with Company
policy. In addition, since April 27, 1998 Mr. Nemetz has received $5,000.00
per month under a consulting agreement with the Company and not in connection
with his position as a director.
Each nonemployee director of the Company also receives stock option grants
pursuant to the 1995 Director Stock Option Plan (the "Director Plan"). Only
nonemployee directors of the Company or affiliates of such directors (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) are
eligible to receive options pursuant to the Director Plan.
Options granted pursuant to the Director Plan are intended by the Company
not to qualify as incentive stock options under the Code. Options granted
pursuant to the Director Plan are non-discretionary. On the date of the first
meeting of the Board of Directors in which an individual participates as a
director, such individual is automatically granted an option to purchase
15,000 shares of Common Stock (an "Initial Option"). On July 31 of each year
(or the next business day should such date be a legal holiday), each member of
the Company's Board of Directors who is not an employee of the Company and has
served as a nonemployee director for at least six months or, where specified
by the nonemployee director, an affiliate of such director, is automatically
granted pursuant to the Director Plan, without further action by the Company,
the Board of Directors or the stockholders of the Company, an option to
purchase 7,500 shares of Common Stock (a "Director Option"). No other options
may be granted at any time under the Director Plan. The exercise price of
options granted to nonemployee directors and employee directors under the
Director Plan is 100% and 110%, respectively, of the fair market value of the
Common Stock subject to the option on the date of the option grant. Shares
subject to Initial Options vest at the rate of 1/48 per month and 25% of the
shares subject to Director Options vest 12 months after the date of grant,
with the balance of the shares vesting ratably thereafter at 1/48 per month.
The term of options granted under the Director Plan is ten years. In the event
of a merger of the Company with or into another corporation or a
consolidation, acquisition of assets or other change in control transaction
involving the Company, each option either will continue in effect, if the
Company is the surviving entity, or will be assumed or an equivalent option
will be substituted by the successor corporation, if the Company is not the
surviving entity.
During the last fiscal year, the Company granted options covering 7,500
shares to each nonemployee director of the Company at an exercise price per
share of $4.00; however, such options have not yet been issued. The fair
market value of such Common Stock on the date of grant was $4.00 per share
(based on the closing sales price reported in the National Market System for
the date of grant). As of October 16, 1998, no options had been exercised
under the Director Plan.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the years ended December 31, 1997, 1996 and
1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive
officers at December 31, 1997, including two former executive officers who
departed from the Company during fiscal year 1997 (the "Named Executive
Officers"):
16
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#)(1) COMPENSATION ($)
- --------------------------- ---- ------- ------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Donald D. Kingsborough
(2)...................... 1997 516,200 -- 300,000 7,180 (3)
Vice President of Busi-
ness Development 1996 457,450 33,645 300,000 7,176 (3)(4)
1995 275,500 -- 225,000 1,099 (3)(5)
William Radin............. 1997 257,800 -- 80,000 --
Executive Vice President,
Operations 1996 257,800 27,694 80,000 --
1995 216,067 -- 85,062 761 (3)
Sharon Duncan............. 1997 210,000 -- 95,000 --
Executive Vice President,
International 1996 100,000 -- 75,000 --
1995 -- -- -- --
FORMER OFFICERS:
Sol Kershner (7).......... 1997 337,000 -- -- --
1997 304,500 30,480 175,000 439 (3)
1997 156,672 -- 125,000 --
Mark Bradlee (8).......... 1997 165,933 -- -- 33,333 (6)
1996 209,600 18,598 25,000 --
1995 173,100 -- 55,000 --
</TABLE>
- -------
(1) All 1997 option grants represent options issued in 1996 which were
subsequently canceled, repriced and reissued in 1997. In addition to the
repriced options, Ms. Duncan received options to purchase 20,000 shares in
1997.
(2) Mr. Kingsborough served as President and Chief Executive Officer of the
Company until September 1998, when he became Vice President of Business
Development of the Company.
(3) Represents premiums paid on life insurance.
(4) Does not include approximately $1,490 representing Mr. Kingsborough's
share of royalties earned in 1996 by Shoot the Moon Products, Inc.
("STM").
(5) Does not represent approximately $50,250 representing Mr. Kingsborough's
share of royalties earned in 1995 by STM.
(6) Represents severance pay.
(7) Mr. Kershner was Chief Financial Officer and Chief Operating Officer of
the Company until October 13, 1997; he is no longer an employee of the
Company.
(8) Mr. Bradlee was Executive Vice President, Sales of the Company until
October 15, 1997; he is no longer an employee of the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers pursuant to its 1992
Stock Option Plan (the "1992 Plan") and its 1995 Stock Option Plan (the "1995
Plan," with the 1992 Plan, the "Plans"). As of December 31, 1997, options to
purchase a total of 2,630,838 shares were outstanding under the Plans and
options to purchase 406,826 shares remained available for grant thereunder.
17
<PAGE>
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at
year end by, the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (4)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED (1) YEAR (2) ($/SH) DATE (3) 5% ($) 10% ($)
- ------------------------ ----------- ---------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald D. Kingsborough.. 300,000 17.72% $5.00 8/07/07 943,355 2,390,610
William Radin........... 80,000 4.73% $3.75 8/07/07 188,667 478,122
Sharon Duncan........... 75,000 4.43% $3.75 8/07/07 176,875 448,239
20,000 1.18% $6.00 2/12/07 191,249 75,467
FORMER OFFICERS:
Sol Kershner (5)........ -- -- -- -- -- --
Mark Bradlee (6)........ -- -- -- -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- -------
(1) Options in this table are either incentive stock options or nonstatutory
stock options, were granted pursuant to the Company's 1992 Stock Option
Plan (the "1992 Plan") or the 1995 Stock Option Plan (the "1995 Plan"),
and have exercise prices equal to the fair market value on the date of
grant. Options granted pursuant to the 1992 Plan have five or ten year
terms, and options granted pursuant to the 1995 Plan have ten year terms.
All such options vest over a four year period at the rate of one-fourth of
the shares at the end of one year from the date of grant (or the first day
of employment for new employees) and 1/48th per month thereafter.
(2) Based on options to purchase 1,692,700 shares of Common Stock granted to
employees, including executive officers, for the fiscal year ended
December 31, 1997.
(3) Options may terminate prior to the expiration date upon the termination of
the optionee's status as an employee or consultant, the optionee's death
or disability or, under certain circumstances, upon an acquisition of the
Company.
(4) The potential realizable value is based on the term of the option at the
date of grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term, and that the option is exercised
and sold on the last day of the option term for the appreciated stock
price. Actual gains, if any, are dependent upon the actual future
performance of the Company's Common Stock. There can be no assurance that
the amounts reflected in this table will be achieved.
(5) Mr. Kershner was Chief Financial Officer and Chief Operating Officer of
the Company until October 13, 1997; he is no longer an employee of the
Company.
(6) Mr. Bradlee was Executive Vice President, Sales of the Company until
October 15, 1997; he is no longer an employee of the Company.
18
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
AT FY-END (#) FY-END ($)
------------------- -------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) (1) UNEXERCISABLE (2) UNEXERCISABLE (3)
- ------------------------ --------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Donald D. Kingborough... -- -- 223,621/396,876 --
William Radin........... -- -- 61,623/115,105 2,291/0
Sharon Duncan........... -- -- 0/95,000 --
FORMER OFFICERS:
Sol Kershner (4)........ -- -- 141,666/158,334 --
Mark Bradlee (5)........ -- -- 27,916/0 --
</TABLE>
- -------
(1) Represents the fair market value of the Company's Common Stock on the date
of exercise (based on the closing sales price reported on the Nasdaq
National Market or the actual sales price if the shares were sold by the
optionee) less the exercise price, and does not necessarily indicate that
the shares were sold by the optionee.
(2) Includes both in-the-money and out-of-the-money options.
(3) Fair market value of the Company's Common Stock at December 31, 1997 ($1-
27/32, based on the closing sales price reported on the Nasdaq National
Market), less the exercise price.
(4) Mr. Kershner was Chief Financial Officer and Chief Operating Officer of the
Company until October 13, 1997; he is no longer an employee of the Company.
(5) Mr. Bradlee was Executive Vice President, Sales of the Company until
October 15, 1997; he is no longer an employee of the Company.
19
<PAGE>
The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer since June 8, 1995, the date of the Company's initial public
offering.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE
SECURITIES OF THE STOCK AT EXERCISE PRICE LENGTH OF ORIGINAL
UNDERLYING TIME OF AT TIME OF OPTION TERM
OPTIONS REPRICING OR REPRICING OR NEW EXERCISE REMAINING AT DATE
REPRICED OR AMENDMENT AMENDMENT PRICE OF REPRICING OR
NAME AND POSITION DATE AMENDED (#) ($) ($) ($) AMENDMENT
- ----------------- ------- ----------- --------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Donald D. Kingsborough.. 8/07/97 300,000 $3.875 $ 13.875 $5.00 9 yrs. 3 mos.
President and Chief
Executive Officer
William Radin........... 8/07/97 80,000 $3.875 $ 13.875 $3.75 9 yrs. 3 mos.
Executive
Vice President,
Operations
Sharon Duncan........... 8/07/97 75,000 $3.875 $10.6875 $3.75 9 yrs.
Executive
Vice President,
International
FORMER OFFICERS:
Sol Kershner (1)........ -- -- -- -- -- --
Mark Bradlee (2)........ -- -- -- -- -- --
</TABLE>
- -------
(1) Mr. Kershner was Chief Financial Officer and Chief Operating Officer of
the Company until October 13, 1997; he is no longer an employee of the
Company.
(2) Mr. Bradlee was Executive Vice President, Sales of the Company until
October 15, 1997; he is no longer an employee of the Company.
20
<PAGE>
EMPLOYMENT AGREEMENTS
Employment Agreement with Donald D. Kingsborough. The Company entered into
an employment agreement with Mr. Kingsborough effective as of June 7, 1995,
for an initial term of three years. The agreement automatically renewed for a
one-year period on June 7, 1998 and will renew for a one-year period on each
anniversary thereof. The Company may terminate Mr. Kingsborough's employment
at the end of any such one-year period upon 180 days notice prior to the end
of such term. Mr. Kingsborough's salary is $500,000 per year and he is not
eligible to receive bonuses.
Employment Agreement with Sol Kershner. The Company entered into an
employment agreement with Mr. Kershner effective June 10, 1995. Mr. Kershner
retired from the Company on December 31, 1997 and, therefore, such agreement
is no longer in effect.
Employment Agreement with William Radin. In November 1995, the Company
entered into an employment agreement with William Radin, Executive Vice
President, Operations effective as of July 4, 1995. The Agreement
automatically renews for a one year period on July 1, 1997 and on each
anniversary thereof. During the renewal period, the Company may terminate Mr.
Radin's employment upon 30 days prior notice.
Employment Agreement with Mark C. Shepherd. The Company has entered into an
employment agreement with Mr. Shepherd effective as of September 16, 1997. The
agreement provides that if Mr. Shepherd is terminated without cause he will
receive twelve months severance. Mr. Shepherd's base salary is $250,000 per
year, increasing in the second year to at least $275,000 and $300,000 in the
third year.
21
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON REPRICING OF OPTIONS
On August 7, 1997, the Compensation Committee (the "Committee") considered
the options held by the Company's executive officers and employees and the
fact that a broad decline in the price of the Company's Common Stock had
resulted in a substantial number of stock options granted pursuant to the
Company's 1995 Stock Option Plan having exercise prices well above the recent
historical trading prices for the Common Stock.
The Committee believed that the Company's future success would depend in
large part on its ability to retain its key employees, and that the loss of
key employees could have a significant adverse impact on the Company's
business. The Committee also believed that unless an adjustment was made in
option prices, existing employees holding options would perceive a substantial
inequity in comparison to new employees granted stock options with exercise
prices set at the current, lower fair market value of the Company's Common
Stock and that employee morale would suffer as a result. The Committee
concluded that it was important and cost effective to provide equity
incentives to employees and executive officers to improve the Company's
performance and value to its stockholders. The Committee recognized that
cancellation of existing options with exercise prices higher than fair market
value and issuance of new options with exercise prices at fair market value
would provide additional incentives for employees because of the increased
potential for appreciation.
Considering these factors, the Committee determined that it was in the best
interests of the Company and its stockholders to restore the incentives for
employees and executive officers to remain with the Company and to exert their
maximum efforts on behalf of the Company by granting replacement options under
the 1995 Plan for those options with exercise prices above current trading
prices, with restarted vesting and exercise prices reflective of the current
market value of the Common Stock. Accordingly, the Committee approved an offer
to certain employees of the Company, including executive officers, whom the
Board considered separately, of the right to cancel certain existing options
and receive new options. Such new options have an exercise price of $3.75 per
share, except those options issued to Mr. Kingsborough, which have an exercise
price of $5.00 per share. All replacement options will terminate no later than
ten years from the date of initial grant.
Stuart J. Chasanoff*
Barrett N. Wissman*
Gary L. Nemetz
- -------
* Joined the Compensation Committee in September 1998.
22
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") establishes policies and programs which determine the
compensation of the Company's executive officers, makes recommendations to the
Board on general compensation matters, and administers the Company's stock
option plans. The Committee currently consists of Messrs. Chasanoff, Wissman
and Nemetz, nonemployee members of the Board of Directors.
Compensation Philosophy and Policies
The Committee's philosophy is to attract, retain and motivate key personnel
through programs designed to maintain the Company's competitive position in
its market. The Committee aims to motivate key employees with a combination of
cash bonuses and equity incentives which reward superior performance and align
the interests of employees to the interests of the Company's stockholders.
The Committee's policy is to establish a total compensation program at the
beginning of each year that enhances the Company's ability to meet its annual
financial and strategic goals. The Company seeks to foster teamwork and to
motivate high performance through a bonus program which depends upon
achievement of corporate performance objectives. The Company intends to
structure its compensation arrangements to qualify for deductibility under
Section 162(m) of the Internal Revenue Code.
Elements of Compensation
Compensation for officers and key employees includes both cash and equity
elements. Cash compensation consists of base salary, cash bonuses and
participation in the company-wide 1997 Profit Sharing Plan. Base salary is
based on competitive factors and the historic salary structure for various
levels of responsibility, expertise and experience within the Company.
Officers and non-salesperson employees are eligible for cash bonuses under the
1997 Profit Sharing Plan, allocated as a percentage of base salary earned
during fiscal 1997. The 1997 Profit Sharing Plan established a minimum level
of operating income to be achieved by the Company for the year before any
payments would be made. Because the Company did not achieve the financial
targets specified therein, no cash bonuses were awarded under the 1997 Profit
Sharing Plan for fiscal 1997.
Ownership of the Company's Common Stock is a key element of executive
compensation. Officers and other employees of the Company are eligible to
participate in the 1992 Stock Option Plan (the "1992 Plan"), adopted prior to
the Company's initial public offering in 1995, and the 1995 Stock Option Plan
(the "1995 Plan"), adopted in July 1995 and amended to increase the number of
shares reserved for issuance thereunder in October 1995. The 1992 Plan and
1995 Plan (collectively, the "Plans") permit the Board of Directors or any
committee delegated by the Board to grant stock options to executive officers
of the Company.
In determining the size of a stock option grant to a new officer or other
key employee, the Committee takes into account equity participation by
comparable employees within the Company, practices of industry competitors and
other relevant factors. Additional options may be granted to current employees
to reward exceptional performance or to provide additional unvested equity
incentives. Options granted under the Plans generally become exercisable over
four years at a rate of one-fourth of the shares subject to the options at the
end of one year from the date of grant and 1/48 of the shares per month
thereafter.
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees. In February
1996, the Company amended its 401(k) Plan to enable the Company to match
employee contributions to the 401(k) Plan with shares of the Company's Common
Stock.
23
<PAGE>
1997 Executive Compensation
Prior to the Company's initial public offering in June 1995, the Board of
Directors, consistent with the Company's status as a privately held
corporation, took primary responsibility for establishing and administering
the Company's executive compensation policies. In June 1996, the Committee
assumed this role. The Company's compensation program for executive officers
for fiscal 1997 included base salary, bonus and option grants under the Plans.
Because the Company did not achieve the financial targets specified therein,
no cash bonuses were awarded to non-sales executive officers under the 1997
Profit Sharing Plan.
Chief Executive Officer Compensation for 1997
Donald Kingsborough founded the Company in September 1992 and has served as
Chairman of the Board and Chief Executive Officer from September 1992 until
September 1998, and as Vice President of Business Development from September
1998 to the present. Mr. Kingsborough's compensation package for fiscal year
1997 was based upon reference to external competitive pay practices and an
independent review of Mr. Kingsborough's performance. Competitive pay practice
data evaluated by the Committee was derived from information compiled
regarding a group of other toy companies. The base salary established by the
Committee for Mr. Kingsborough fell within the range of base salaries of these
companies. In February 1996, the Compensation Committee increased Mr.
Kingsborough's compensation package, including an increase in annual base
salary to $382,500 per annum (paid retroactively to January 1, 1996) and an
increase in monthly automobile allowance to $1,300 and payment of life
insurance premium of $598 per month. In July 1996, the Committee increased
Mr. Kingsborough's base salary to $500,000 per annum, retroactive to July 1,
1996. No salary increases have been granted since July 1996.
Summary
The Committee sets policy and administers the Company's cash and equity
incentive programs for the purpose of attracting and retaining highly skilled
executives who will promote the Company's business goals and giving them the
incentive to achieve goals which will build long-term stock value.
Stuart J. Chasanoff*
Barrett N. Wissman*
Gary L. Nemetz
- -------
* Joined the Compensation Committee in September 1998.
24
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON
The following graph compares the Company's cumulative total shareholder
return with those of the S&P 500 Index and a Toy Company Index, comprised of
Hasbro, Inc., Lewis Galoob Toys, Inc., Mattel, Inc. and Toy Biz, Inc. The
graph assumes that $100 was invested (i) on June 8, 1995 (the first trading
date of the Company's Common Stock pursuant to its initial public offering) in
the Company's Common Stock and (ii) on June 8, 1995 in the S&P 500 Index and
the Toy Company Index, including reinvestment of dividends. Note that historic
stock price performance is not necessarily indicative of future stock price
performance.
COMPARISON OF 31 MONTH CUMULATIVE TOTAL RETURN*
AMONG YES! ENTERTAINMENT, THE S&P 500 INDEX AND A PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period YES! S&P
(Fiscal Year Covered) ENTERTAINMENT 500 INDEX PEER GROUP
- ------------------- ------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 6/8/95 $100 $100 $100
FYE 12/31/95 $132 $117 $114
FYE 12/31/96 $128 $144 $132
FYE 12/31/97 $ 37 $192 $169
</TABLE>
___________
*$100 INVESTED ON 6/08/95 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
- -------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
(2) The Toy Company Index is calculated using an equal-dollar weighing
methodology.
25
<PAGE>
CERTAIN TRANSACTIONS
Interest in Royalties From Shoot The Moon Products, Inc. In January 1993,
the Company entered into a license agreement with Shoot the Moon Products,
Inc. ("STM") pursuant to which the Company pays royalties to STM for the use
of the technology incorporated in one of the Company's products, T.V. Teddy.
Prior to founding the Company, Mr. Kingsborough was a shareholder of STM. In
consideration of Mr. Kingsborough's contribution to the capital of STM of all
of his STM shares, STM entered into an agreement with Mr. Kingsborough
pursuant to which he is entitled to receive 15% of the royalties received by
STM for three products, including T.V. Teddy. The amount paid to Mr.
Kingsborough is based upon royalties paid on sales of T.V. Teddy hardware, and
exclude sales of the encoded videotapes. Through December 31, 1997, a total of
$725,106 in royalties related to sales of T.V. Teddy hardware has accrued
under the Company's license with STM, of which approximately $109,740 has been
paid or is due Mr. Kingsborough from STM.
Mr. Barrett N. Wissman, a director of the Company, is a Managing Director of
the general partner of HW Partners, L.P., the investment adviser of Infinity,
and Mr. Stuart J. Chasanoff, a director of the Company, is a Senior Vice
President and General Counsel of HW Partners, L.P. Infinity purchased
Debentures in an aggregate principal amount of $1,717,482, and 343,252 shares
of Series B Preferred, pursuant to the Purchase Agreement and, together with
Glacier and Emerging, for which HW Partners, L.P. also serves as investment
adviser, exchanged an aggregate principal amount of $1,835,921 of Debentures
and 348,690 shares of Series B Preferred outstanding (after dividends and
interest paid and after partial conversions of such securities) into the like
principal amount of Debentures and number of shares of Series C Preferred
pursuant to the Exchange Agreement.
On September 2, 1998, and in connection with the transactions which occurred
in connection with the Exchange Agreement, (i) the Company, Infinity, Glacier
and Emerging entered into a general release of all of their claims they may
have against one another, (ii) Messrs. Kingsborough and Nemetz gave
irrevocable proxies to Mr. Chasanoff to vote their shares in favor of
Proposals 2 and 3, and (iii) Infinity extended a $3,050,000 loan to the
Company, due June 30, 1999, at an interest rate of 12% per annum.
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority
of disinterested directors.
26
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to
the Company's 1997 Annual Report on Form 10-K as amended by Form 10-K/A, both
of which are being mailed concurrently with this Proxy Statement. The
Company's unaudited consolidated financial statements, management's discussion
and analysis of financial condition and results of operations, and certain
supplementary financial information for the nine months ended September 30,
1998, are incorporated by reference to pages [ ] through [ ] of the Company's
Quarterly Report on Form 10-Q.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the mailing
date of this Proxy Statement and prior to December 18, 1998, the date of the
Annual Meeting, shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents. Any statement
contained in this Proxy Statement or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
as modified or superseded, to constitute a part of this Proxy Statement.
A copy of each of the reports referenced above may be obtained without
charge upon written request or oral request to the Secretary, YES!
Entertainment Corporation, 3875 Hopyard Road, Suite 375, Pleasanton,
California 94588, telephone (925) 463-5525. Such reports will be mailed by
first class mail or other equally prompt means within one business day of
receipt of such request.
27
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ MARK C. SHEPHERD
Mark C. Shepherd
Secretary
November 17, 1998
28
<PAGE>
4480-PS-98
<PAGE>
YES! ENTERTAINMENT CORPORATION
Dear Stockholder,
Please take note of the important information enclosed with this proxy card.
There are a number of issues related to the management and operations of your
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then, sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders on
December 18, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
YES! Entertainment Corporation
<PAGE>
PROXY
YES! ENTERTAINMENT CORPORATION
3875 HOPYARD ROAD, SUITE 375
PLEASANTON, CA 94588
ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 18, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoint(s) Mark Shepherd
and John Kirly as Proxies, with full power of substitution to each, to vote
for and on behalf of the undersigned at the 1998 Annual Meeting of
Stockholders of YES! Entertainment Corporation to be held at The Four Points
Hotel Sheraton, 5115 Hopyard Road, Pleasanton, CA 84588 on Monday, December
18, 1998, at 10:00 a.m., and any adjournment or adjournments thereof. the
undersigned hereby directs the said proxies to vote in accordance with their
judgment on any matters which may properly come before the Annual Meeting, all
as indicated in the Notice of Annual Meeting, receipt of which is hereby
acknowledged, and to act on the following matters set forth in such notice as
specified by the undersigned.
- ----------------- -----------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------------- -----------------
<PAGE>
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2 AND 3.
1. Election of Directors.
Nominees: Gary L. Nemetz, Donald D. Kingsborough,
Mark C. Shepherd, Stuart J. Chasanoff and Barrett N. Wissman
FOR [_] [_] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[_]
--------------------------------------
For all nominees except as noted above
2. Approval of an amendment to the Company's Certificate of Incorporation to
increase the number of shares of Common Stock authorized for issuance from
48,000,000 shares to 125,000,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Ratification of Ernst & Young LLP as independent auditors of the Company for
its fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting or at any adjournment(s)
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
PLEASE VOTE, DATE AND SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
Signature: __________ Date: ___________ Signature: __________ Date: ___________
