SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PLAY-BY-PLAY TOYS & NOVELTIES, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
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PLAY-BY-PLAY TOYS & NOVELTIES, INC.
4400 TEJASCO
SAN ANTONIO, TEXAS 78218-0267
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 11, 1997
To the Shareholders of
Play-By-Play Toys & Novelties, Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
PLAY-BY-Play Toys & Novelties, Inc. (the "Company") will be held at the San
Antonio Airport Hilton and Conference Center, 611 N.W. Loop 410, San Antonio,
Texas 78216 on the 11th day of December, 1997, at 1:00 p.m. (local time) for the
following purposes:
1. "FOR" the election of Directors of the nominees named on the accompanying
Proxy; and
2. "FOR" the ratification of the amendment of the Play By Play Toys & Novelties,
Inc. 1994 Incentive Plan (the "Incentive Plan") by reserving 600,000
additional shares of Common Stock to be potentially issued pursuant
to the terms of the Incentive Plan.
3. "FOR" the ratification of the re-pricing of all options granted to the
officers of the Company prior to December 9, 1996 at an exercise price of
$11.00 per share, with Arturo G. Torres' exercise price being $12.10 per
share.
4. "FOR" the approval of the potential future issuance of shares of Common Stock
upon conversion of 8% Convertible Debenture held by Renaissance Capital
Growth & Income Fund III, Inc., Renaissance Capital Growth & Income Trust PLC
and Banc One Capital Partners II, Ltd.
5. "FOR" the ratification of the selection of Coopers & Lybrand L.L.P. as
independent certified public accountants for the Company for fiscal year
1998.
Only common shareholders of record at the close of business on November 21,
1997 are entitled to notice of and to vote at the annual meeting.
All shareholders are cordially invited to attend the meeting in person.
However, if you are unable to attend in person and wish to have your shares
voted, PLEASE FILL IN, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. Your proxy may be revoked by
appropriate notice to the undersigned at any time prior to the voting thereof.
BY ORDER OF THE BOARD OF DIRECTORS
SAUL GAMORAN
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
San Antonio, Texas
November 22, 1997
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PLAY-BY-PLAY TOYS & NOVELTIES, INC.
4400 TEJASCO
SAN ANTONIO, TEXAS 78218-0267
(210) 829-4666
NOVEMBER 21, 1997
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 11, 1997
This Proxy Statement and the accompanying Proxy and Notice of Annual
Meeting of Shareholders are furnished to holders of common shares, without par
value (the "Common Shares"), of Play-By-Play Toys & Novelties, Inc. (the
"Company") in connection with the solicitation by its Board of Directors (the
"Board") of proxies to be used at the 1997 Annual Meeting of Shareholders of the
Company (the "Annual Meeting") to be held on Thursday, December 11, 1997, at
1:00 p.m. at the San Antonio Airport Hilton and Conference Center, 611 N.W. Loop
410, San Antonio, Texas 78216, and at any postponements or adjournments thereof.
Only those shareholders of record at the close of business on November 21, 1997
will be entitled to receive notice of, and to vote at, the Annual Meeting.
Copies of this Proxy Statement and the accompanying Proxy and Notice of Annual
Meeting of Shareholders are first being mailed to shareholders on or about
November 22, 1997.
All Common Shares represented by each properly executed Proxy received by
the Board pursuant to this solicitation will be voted in accordance with the
shareholder's directions specified on the Proxy. If no directions have been
specified on a Proxy, the Common Shares represented by that Proxy will be voted
as follows:
1. "FOR" the election of Directors of the nominees named on the accompanying
Proxy; and
2. "FOR" the ratification of the amendment of the Play By Play Toys & Novelties,
Inc. 1994 Incentive Plan (the "Incentive Plan") by reserving 600,000
additional shares of Common Stock to be potentially issued pursuant to the
terms of the Incentive Plan.
3. "FOR" the ratification of the re-pricing of all options granted to the
officers of the Company prior to December 9, 1996 at an exercise price of
$11.00 per share, with Arturo G. Torres' exercise price being $12.10 per
share.
4. "FOR" the approval of the potential future issuance of shares of Common Stock
upon conversion of 8% Convertible Debenture held by Renaissance Capital
Growth & Income Fund III, Inc., Renaissance Capital Growth & Income Trust PLC
and Banc One Capital Partners II, Ltd.
5. "FOR" the ratification of the selection of Coopers & Lybrand L.L.P. as
independent certified public accountants for the Company for fiscal year
1998.
Management knows of no other matters that may properly be brought, or
which are likely to be brought, before the Annual Meeting. However, if any other
matters are properly brought before the Annual Meeting, the persons named as
proxies in the accompanying Proxy or their substitutes will vote in accordance
with their best judgment on such matters.
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Without affecting any vote previously taken, a shareholder signing and
returning a Proxy has the power to revoke it at any time prior to its exercise
by giving notice to the Company in writing mailed to Saul Gamoran, Secretary of
the Company, at the Company's executive offices at 4400 Tejasco, San Antonio,
Texas 78218-0267, by executing a subsequent Proxy, or by attending the Annual
Meeting and declaring to the Company such shareholder's intent to vote in
person. Attendance at the Annual Meeting will not, in and of itself, constitute
revocation of a Proxy.
The presence, in person or by proxy, of the holders of a majority of the
Common Shares issued and outstanding on November 21, 1997, is necessary to
constitute a quorum at the Annual Meeting. As of November 21, 1997, the Company
had 4,904,100 Common Shares issued and outstanding.
Under Texas law and the Company's Amended and Restated Bylaws, each
shareholder is entitled to one vote for each Common Share held. Common Shares
represented in person or by proxy but not voted with respect to a proposal are
counted as present. In votes other than for the election of directors, the
effect of abstention or a non-vote is the same as a "no" vote. In the election
of directors, Common Shares as to which the authority to vote is withheld and
the Common Shares represented in person or by proxy but not voted with respect
to the election of directors are not counted toward the election of directors or
toward the election of the individual nominees specified on the proxy.
All costs of solicitation of the proxies will be borne by the Company.
Solicitation will be made by mail. Proxies may be further solicited at no
additional compensation by officers, directors or employees of the Company by
telephone, written communication or in person. Upon request, the Company will
reimburse banks, brokerage firms, and other custodians, nominees and fiduciaries
for expenses reasonably incurred by them in sending proxy materials to the
beneficial owners of Common Shares of the Company. No solicitation will be made
by specially engaged employees or other paid solicitors.
MANAGEMENT
The names of the directors and executive officers of the Company, their
respective ages, positions and director terms are as follows:
DIRECTOR
NAME AGE POSITION TERM
---- --- -------- ----
Arturo G. Torres 61 Chief Executive Officer and Chairman of the Board 1998
Mark A. Gawlik 35 President, Chief Operating Officer and Director 2000
Raymond G. Braun 41 Chief Financial Officer, Treasurer and Director 2000
Saul Gamoran 38 Executive Vice President, General Counsel, 1998
Secretary and Director
Francisco Saez Moya 48 President - Play-By-Play Europe and Director 1999
Ottis W. Byers 52 Director 1999
Tomas Duran 52 Director 2000
Berto Guerra, Jr. 47 Director 1998
Steve K.C. Liao 51 Director 1999
James F. Place 65 Director 2000
ARTURO G. TORRES has been Chief Executive Officer and Chairman of the
Board of the Company since April 1993. Mr. Torres is a nominee to the Board of
Directors for the 1998 annual shareholders' meeting. Prior thereto, Mr. Torres
was the Founder, Chairman of the Board, Chief Executive Officer and President of
Pizza Management, Inc. ("PMI") from its inception in 1972 to its eventual sale
in 1992. PMI was the largest
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(approximately 240 restaurants) private Pizza Hut, Inc. franchisee in the world
with operations in the United States, the Commonwealth of Puerto Rico, Spain and
the United States Virgin Islands. Although Mr. Torres is actively involved in
the management of the Company, he is also involved in various private business
endeavors which include Veladi Ranch, Inc., a registered hereford ranch, and
Veladi Ranch Steak House, Inc., a privately held steak house chain with ten
restaurants open.
MARK A. GAWLIK has been President and a Director of the Company since its
inception in January 1992, and became Chief Operating Officer in April 1993.
From January 1990 until the May 1992 acquisition by the Company, Mr. Gawlik was
Co-General Manager of the Toys and Novelties Division of PMI. From February 1986
through December 1989, Mr. Gawlik was Controller of PMI. From June 1983 through
February 1986, he was employed by Deloitte, Haskins & Sells, San Antonio, Texas,
most recently as Senior Accountant. Mr. Gawlik received a Bachelor of Business
Administration degree in accounting, summa cum laude, from The University of
Texas at Austin in 1984.
RAYMOND G. BRAUN has been Chief Financial Officer, Treasurer and a
Director of the Company since January 1997. Prior to that, Mr. Braun served as
the Company's engagement partner with the independent accounting and advisory
firm of Coopers & Lybrand, L.L.P. Mr. Braun served in various roles at Coopers &
Lybrand since 1980, having joined the firm immediately after graduation. Mr.
Braun received a Bachelor of Business Administration degree in accounting from
The University of Texas at Austin.
SAUL GAMORAN has been Executive Vice President, General Counsel, Secretary
and a Director of the Company since May 1996. Mr. Gamoran is a nominee to the
Board of Directors for the 1998 annual shareholders' meeting. From April 1995
through May 1996, Mr. Gamoran was President of Renaissance Strategies, Ltd., a
consulting firm specializing in consumer products. From June 1988 through March
1995, Mr. Gamoran was Executive Vice President of Ace Novelty Co., Inc. Mr.
Gamoran is a past board member of the Toy Manufacturers of America, a toy
industry trade association. Mr. Gamoran received a Juris Doctor degree from
Northwestern University in 1984 and a Bachelor of Science degree in speech from
Northwestern in 1981.
FRANCISCO SAEZ MOYA has been President of Play By Play Toys & Novelties
Europa, S.A. since April 1995. From May 1992 until April 1995, Mr. Moya was
Vice-President - European Operations of the Company and has served as Director
of the Company since May 1992. Mr. Moya also serves as Administrator of Play By
Play Toys Europe, a position he has held since 1989. From May 1986 through May
1992, he served as Vice President - Spain for the Restaurant Division of PMI.
Mr. Moya is fluent in English, Spanish, Italian, Portuguese and French. Mr. Moya
received a M.H.C.C. degree in Hotel and Catering Management-Accounting from the
College of Further Education of Hastings, England in 1973.
OTTIS W. BYERS has been a Director of the Company since September 1995.
Since February 1995, Mr. Byers has been owner and Vice President of B.N.
Transport, Inc. of Cleveland, Texas. From 1978 through 1994, Mr. Byers owned
Byers Enterprises, which operated three Mexican food restaurants in Texas. Mr.
Byers received a Bachelor of Science degree in history from Sam Houston State
University, Huntsville, Texas, in 1968.
TOMAS DURAN has been a Director of the Company since November 1992. Mr.
Duran has owned an insurance consulting business located in Corpus Christi,
Texas, since August 1992. From 1988 through July 1992, he was Director of
Management and Budget and Senior City Manager for the City of Corpus Christi,
Texas. Mr. Duran served as Trade Representative for the Monterrey, Veracruz and
Mexico City Foreign Trade Mission and served as President of the Texas Public
Employees Labor Relations Association from 1985 through 1986. Mr. Duran studied
engineering at Universidad de Madrid, Madrid, Spain from 1964 through 1965 and
received a Bachelor of Arts degree in international relations from West Texas
State University in 1970.
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BERTO GUERRA, JR. has been a Director of the Company since its inception
in May 1992. Mr. Guerra is a nominee to the Board of Directors for the 1998
annual shareholders' meeting. Mr. Guerra is the Managing Director - Corporate
Development Southwestern Bell Telephone, and has been employed by that company
or another subsidiary since 1978. Mr. Guerra served on President Bush's Hispanic
Alliance on Free Trade from 1989 through 1992 and has served on the College of
Education Foundation Advisory Council of The University of Texas from 1988 to
the present. In April 1995, Mr. Guerra was elected to the Board of Trustees of
The University of Texas-Pan American Foundation. Mr. Guerra received a Bachelor
of Science degree in interdisciplinary management from Southwest Texas State
University in 1984.
STEVE K.C. LIAO has been a Director of the Company since October 1995.
Since 1989, Mr. Liao has also been a real estate investor and property manager
of multi-family properties in Houston, Texas.
JAMES F. PLACE has most recently been a Director of the Company since
March 1996, also served as a Director from October 1994 through January 1996.
Since 1967, Mr. Place has owned and managed various commercial real estate
properties and other investments primarily located in Texas, which has been his
primary business occupation. Mr. Place was a director of PMI from 1976 to June
1992. Mr. Place has been a director of Grand Prix Tours, Inc., a tour operation
for automobile racing events, since January 1988.
There are no family relationships among any of the executive officers or
directors of the Company.
NUMBER, TERM AND COMPENSATION OF DIRECTORS
The Company's Articles of Incorporation divide the Board into three
classes of as equal size as possible, with the terms of each class expiring in
consecutive years so that only one class is elected in any given year.
Successors to directors whose terms have expired are required to be elected by
shareholder vote. Vacancies in unexpired terms and any additional positions
created by Board action are filled by action of the existing Board. The terms of
Messrs. Torres, Gamoran and Guerra will expire at the 1998 annual meeting of
shareholders of the Company; the terms of Messrs. Moya, Byers and Liao will
expire at the 1999 annual meeting of shareholders and the terms of Messrs.
Gawlik, Braun, Duran and Place will expire at the 2000 meeting of shareholders.
The executive officers of the Company are elected annually by the Board
following the annual meeting of shareholders and serve at the discretion of the
Board until their successors are elected and qualified.
Outside members of the Board are compensated $1,000 per meeting for
attending Board meetings, $500 per meeting for attending Board committee
meetings and receive reimbursement for out-of-pocket expenses incurred for
attendance at meetings. During fiscal 1997, total outside directors' fees of
$23,000 were paid in cash. Management directors receive no fees for their
services as a director to fill a vacancy on the Board.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Messrs. Torres, Gamoran and Guerra are the Board's nominees for election
as directors, to serve as Category I directors until the 2001 annual meeting of
shareholders or until their successors are elected and qualified. Information
concerning the nominees is set forth above. Messrs. Torres and Guerra were
previously elected to the Board by the Company's shareholders before the
Company's initial public offering of its Common Stock. Mr. Gamoran was
previously appointed to the Board to fill a vacancy on the Board.
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The Board currently consists of ten members. The Board has determined to
nominate three persons for election. The proxies cannot be voted for a greater
number of persons than the number of nominees named.
If, for any reason, any of the nominees shall become unavailable for
election, the individuals named in the enclosed Proxy may exercise their
discretion to vote for any substitutes proposed by the Board, unless the Board
should decide to reduce the number of directors to be elected at the Annual
Meeting. The affirmative vote of a majority of the votes cast is required for
the election of each nominee for director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES LISTED
HEREIN.
MEETINGS AND CERTAIN COMMITTEES OF THE BOARD
BOARD MEETINGS
The Board held five meetings during the fiscal year ended July 31, 1997.
All directors attended at least 75% of the meetings of the Board and Board
committees of which they are members.
BOARD COMMITTEES
The Company's Board has two standing committees: the Audit Committee and
the Compensation Committee. The functions of the Audit Committee, of which
Messrs. Byers, Duran, Guerra, Liao and Place are members, are to make
recommendations to the Board regarding the engagement of the Company's
independent accountants and to review with management and the independent
accountants the Company's internal controls, financial statements, basic
accounting and financial policies and practices, audit scope and competency of
accounting personnel. The Audit Committee held four meetings during fiscal 1997.
The functions of the Compensation Committee, of which Messrs. Byers, Duran,
Guerra, Place and Liao are members, are to review and recommend to the Board the
compensation, stock options and employment benefits of all officers of the
Company, to administer the Play-By-Play Toys & Novelties, Inc. 1994 Incentive
Plan (the "Incentive Plan"), to fix the terms of other employee benefit
arrangements and to make awards under such arrangements. The Compensation
Committee held three meetings during fiscal 1997. During fiscal 1997, none of
the individuals serving on the Compensation Committee has ever been an officer
or employee of the Company. No executive officer of the Company has served as a
member of the board of directors or the compensation committee of any company
one of whose executive officers include a member of the Board or the
Compensation Committee of the Company, other than Mr. Torres. Mr. Torres is the
Chairman of the Board and Chief Executive Officer of Veladi Ranch Steakhouse,
Inc., a privately held steak house chain with ten restaurants. The Board does
not have a Nominating Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires each director and officer of the Company, and each
person who owns more than 10% of a registered class of the Company's equity
securities to file by specific dates with the United States Securities and
Exchange Commission (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 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. The
Company is required to report in this Proxy Statement any failure of its
directors and officers and beneficial owners of more than 10% of the Company's
Common Stock to file by the relevant due date any of these reports during the
Company's fiscal year.
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To the Company's knowledge, all Section 16(a) filing requirements
applicable to the Company's officers, directors and 10% shareholders were
complied with.
EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
THE EXCHANGE ACT THAT MIGHT INCORPORATE FUTURE FILINGS BY REFERENCE, INCLUDING
THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE
COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS, AND SHALL NOT BE DEEMED SOLICITING MATERIAL OR
FILED UNDER THE SECURITIES ACT OR THE EXCHANGE ACT.
REPORT OF THE COMPENSATION COMMITTEE
THE COMPENSATION COMMITTEE
The Compensation Committee's stated purpose is to review and recommend to
the Board the compensation, stock options and employment benefits of all
officers of the Company, administer the Incentive Plan, fix the terms of other
employee benefit arrangements and make awards under such arrangements. The
Compensation Committee is composed of directors who have never served as
officers of the Company. The following is a summary of policies of the
Compensation Committee that affect the compensation paid to executive officers,
as reflected in the tables and text set forth elsewhere in this Proxy Statement.
GENERAL COMPENSATION POLICY. The Compensation Committee's overall policies
with respect to executive officers is to offer competitive compensation
opportunities for such persons based upon their personal performance, the
financial performance of the Company and their contribution to that performance.
Each executive officer's compensation package is comprised of three elements:
(i) base salary that reflects individual performance and is designed primarily
to be competitive with salary levels in the industry, (ii) stock-based incentive
awards designed to strengthen the mutuality of interests between the executive
officers and the Company's shareholders, and (iii) for executive officers and
certain personnel that perform sales and marketing functions, annual cash
bonuses related to the performance of the Company for such individual's
respective functional area.
FACTORS. Several important factors considered in establishing the
components of each executive officer's compensation package for the 1997 fiscal
year are summarized below. Additional factors were taken into account to a
lesser degree. The Compensation Committee may, in its sole discretion, apply
entirely different factors, such as different measures of financial performance,
for future fiscal years. However, it is presently contemplated that all
compensation decisions will be designed to further the overall compensation
policy described above.
BASE SALARY. The base salary for each executive officer is set on the
basis of personal performance, the salary levels in effect for comparable
positions in similarly situated companies within the toy industry or similarly
sized public companies and internal comparability considerations. However, the
Compensation Committee did not conduct a formal survey of executive officer
salaries at such companies. The Compensation Committee believes that the
Company's most direct competitors for executive talent are not limited to the
companies that the Company would use in a comparison for shareholder returns.
Therefore, the compensation comparison group is not the same as the industry
group index used in the "Performance Graph" section below.
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STOCK-BASED INCENTIVE COMPENSATION. The Company adopted the Play-By-Play
Toys & Novelties, Inc. 1994 Incentive Plan (the "Incentive Plan") in August
1994. The Incentive Plan authorizes the Company to award incentive stock options
and nonqualified stock options to purchase Common Stock and restricted stock to
officers and other employees of the Company. The purpose of the Incentive Plan
is to attract, retain and motivate officers and employees. On June 27, 1996, the
Company registered with the Securities and Exchange Commission the 700,000
shares authorized under the Incentive Plan. On August 29, 1997, the Board of
Directors amended the Incentive Plan to increase the number of shares authorized
to award incentive options and nonqualified stock options by 600,000 shares to
1,300,000 shares. This amendment will be placed on the December 1997 shareholder
meeting agenda for approval. Stock options may be exercised at a purchase price
as recommended by the Compensation Committee and determined by the Board of
Directors, provided that the exercise price per share under the Incentive Plan
shall be an amount not less than 100% of the fair market value on the date the
option is granted or 110% of fair market value for beneficial owners of 10% or
more of the Company's outstanding shares. Thus, the optionee receives a return
only if the market price of the shares appreciates over the option term. The
grants are designed to align the interests of the optionees with those of the
shareholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business, even though certain executive officers of the Company are already
significant shareholders of the Company (see "Principal Shareholders").
Moreover, the long-term vesting schedules encourage a long-term commitment to
the Company by its executive officers and other optionees. The size of the
option grant to each optionee is set at a level that the Compensation Committee
deems appropriate in order to create a meaningful opportunity for stock
ownership based upon the individual's current position with the Company, but
also takes into account the individual's potential for future responsibility and
promotion over the option vesting period, and the individual's performance in
recent periods. The Compensation Committee periodically reviews the number of
shares owned by, or subject to options held by, each executive officer, and
additional awards are considered based upon past performance of the executive
officer.
ANNUAL CASH BONUSES. The Company does not have a formal cash bonus program
for executive officers, although cash bonuses have been paid from time to time
in the past to selected executive officers in recognition of superior individual
performance. The Compensation Committee did not recommend and the Company did
not award any cash bonuses during fiscal 1997.
CHIEF EXECUTIVE OFFICER
In fiscal 1997, Arturo G. Torres, Chairman and Chief Executive Officer of
the Company received total cash payments of $284,635 in salary. In fiscal 1997,
Mr. Torres was also granted options under the Incentive Plan to purchase 60,000
shares of Common Stock. These options are exercisable at an average of $12.10
per share (110% of the market close price on the day of grant). One half vest in
six months from the date of grant and the remaining option shares vest on the
first anniversary. The Compensation Committee notes that the Company under the
strong leadership of Mr. Torres produced significant growth in sales and
earnings during the period. The Compensation Committee considers this level of
compensation appropriate in light of Mr. Torres' leadership of a growth oriented
toy company which has experienced significant increases in fiscal 1997 net sales
and net income of 85.2% and 53.4%, respectively, as compared to fiscal 1996. Mr.
Torres does not have an employment agreement with the Company.
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LIMITATIONS ON DEDUCTIBILITY
The Compensation Committee has reviewed the Company's informal
compensation policies in light of amendments to the Internal Revenue Code
enacted during 1993 that generally limit deductions for compensation paid to
certain executive officers to $1,000,000 per annum (certain performance based
compensation is not subject to that limit). At present levels of compensation,
these amendments do not limit the deductions to which the Company is entitled
and the Compensation Committee has therefore concluded that no changes in the
Company's compensation policies as a result of these amendments are appropriate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Tomas Duran, a director of the Company served on the Compensation
Committee during fiscal year 1997. Mr. Duran is an insurance agent acting on
behalf of the insurance companies that provide health and property insurance to
the Company. In connection with this transaction, Mr. Duran received commissions
from the insurance companies in the amount of $36,000 for the year ended July
31, 1997. In this regard, the Company incurred premiums of approximately
$956,000 for insurance premiums in the year ended July 31, 1997. The Company
believes that the arrangements with and the amounts paid to the insurance
companies are fair and reasonable. This transaction is required to be reported
under Item 404 of Regulation S-K.
SUMMARY
The Compensation Committee believes that the compensation programs of the
Company and the administration of those programs well serve the interests of the
Company's shareholders. These programs allow the Company to attract, retain and
motivate exceptional management talent and to compensate executives in a manner
that reflects their contribution to both the short and long-term performance of
the Company. The Company intends to continue to emphasize programs that it
believes positively affect shareholder value.
PLAY-BY-PLAY TOYS & NOVELTIES, INC. COMPENSATION COMMITTEE
1997 MEMBERS
Ottis W. Byers, Tomas Duran, Berto Guerra, Jr.,
Steve K. C. Liao and James F. Place
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PERFORMANCE GRAPH
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THIS SECTION ENTITLED "PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED BY REFERENCE
INTO ANY FILINGS OR INTO ANY FUTURE FILINGS, AND SHALL NOT BE DEEMED SOLICITING
MATERIAL OR FILED UNDER THE SECURITIES ACT OR THE EXCHANGE ACT.
The following graph compares the cumulative total shareholder return on
the Company's Common Stock from July 19, 1995 (the date the Company became a
public company) until July 31, 1997, with the cumulative total return of the
Standard and Poor's Index and the Peer Group Index (as defined below). The graph
assumes the investment of $100 in the Company's Common Stock and in each of the
indexes on July 19, 1995 and reinvestment of all dividends. The initial public
offering price of the Company's Common Stock was $12.25 per share.
COMPARISON OF CUMULATIVE TOTAL RETURN*
FOR THE PERIOD ENDED JULY 31, 1997
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
PBYP
CUMULATIVE TOTAL RETURN
---------------------------
7/19/95 7/95 7/96 7/97
------- ---- ---- ----
PLAY-BY-PLAY TOYS & NOVELTIES, INC ....... PBYP 100 107 75 124
PEER GROUP ............................... PPEER1 100 105 167 287
S&P 500 .................................. 1500 100 102 119 181
CUMULATIVE TOTAL RETURN* 1997
- - ------------------------ ----
PLAY-BY-PLAY TOYS & NOVELTIES, INC..............................124.00
S&P 500...... ..................................................181.00
PEER GROUP**....................................................287.00
* ANNUAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS. THERE WERE NO DIVIDENDS PAID
BY THE COMPANY DURING THE PERIOD PRESENTED. CUMULATIVE TOTAL RETURN ASSUMES
AN INITIAL INVESTMENT OF $100 ON JULY 19, 1995.
** PEER GROUP INDEX IS COMPOSED OF TOY COMPANIES WITH SIMILAR MARKET
CAPITALIZATION. THESE COMPANIES ARE ACTION PERFORMANCE CO., EMPIRE OF
CAROLINA, INC., EQUITY MARKETING INC., HAPPINESS EXPRESS, INC., JANEX
INTERNATIONAL, INC. AND JUST TOYS, INC.
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
of (i) the Company's Chief Executive Officer, (ii) the highest paid executive
officers of the Company whose annual compensation exceeded $100,000 and (iii)
one former executive officer of the Company (1):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------- --------------------------------------
# SHARES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2) AWARDS (3)(4)(5) COMPENSATION
- - ------------------------------------------ ------ -------- ------- ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arturo G. Torres, ........................ 1997 $284,635 -- -- -- 60,000 --
Chairman of the Board .................. 1996 $196,962 $68,250 -- -- 10,000 --
and Chief Executive Officer ............ 1995 $180,726 -- -- -- 15,000 --
Mark A. Gawlik, .......................... 1997 $190,000 -- -- -- 30,000 --
President and Chief .................... 1996 $152,884 $30,250 -- -- 10,000 --
Operating Officer ...................... 1995 $128,077 -- -- -- 12,000 --
Raymond G. Braun, ........................ 1997 $101,635 -- -- -- 200,000 --
Chief Financial Officer ................ 1996 -- -- -- -- -- --
and Treasurer (6) ...................... 1995 -- -- -- -- -- --
Saul Gamoran, ............................ 1997 $180,008 -- -- -- 30,000 --
Executive Vice President, .............. 1996 $ 31,731 -- -- -- 100,000 --
Secretary and .......................... 1995 -- -- -- -- -- --
General Counsel
Francisco Saez Moya ...................... 1997 $156,057 -- -- -- 30,000 --
President - Play By Play ............... 1996 $125,000 $16,000 -- -- -- --
Toys & Novelties ....................... 1995 -- -- -- -- 12,000 --
Europa, S.A ............................
</TABLE>
(1) Mr. Jay Foreman, former executive officer of the Company, received annual
compensation of $128,077 and $102,615 for fiscal year 1995 and 1996,
respectively. In addition, Mr. Foreman received a bonus of $20,000 in
fiscal year 1996. Mr. Foreman resigned from the Company on February 29,
1996 and ceased consulting with the Company on April 30, 1996.
(2) Certain of the Company's executive officers receive personal benefits in
addition to salary; however, the Company has concluded that the aggregate
amounts of such personal benefits did not exceed the lesser of $50,000 or
10% of annual salary reported for any named executive officer.
(3) All 1995 options were originally granted on April 13, 1995, for the number
of shares indicated. All such options were canceled and re-priced on
December 9, 1996. The options are exercisable according to the original
vesting schedule in five increments of 20% each.
(4) All 1996 options were originally granted on September 29, 1995, except for
Mr. Gamoran's which were granted on May 16, 1996. All such options were
re-priced on December 9, 1996. The options are exercisable according to the
original vesting schedule.
(5) The outstanding options granted pursuant to the Company's 1994 Incentive
Stock Option Plan except for Mr. Braun whom was granted 200,000
non-qualified stock options pursuant to his employment agreement.
(6) Mr. Braun joined the Company on January 2, 1997.
10
<PAGE>
EMPLOYMENT ARRANGEMENTS
Other than an employment agreement with Mr. Gamoran, Mr. Braun and two
other employees the Company does not have employment agreements with any of its
United States employees. In May 1996, the Company entered into an employment
agreement with Mr. Gamoran, which agreement will automatically expire May 1999,
unless it is terminated by the Company or Mr. Gamoran. During the first year of
Mr. Gamoran's employment, the Company will pay Mr. Gamoran an annual base salary
of $150,000 which was increased by the Compensation Committee to $198,000 per
annum effective January 2, 1997. In November 1996, the Company entered into an
employment agreement with Mr. Braun, which agreement will automatically expire
January 2, 2000, unless it is terminated by the Company or Mr. Braun. During the
term of this agreement, the Company will pay Mr. Braun an annual base salary of
$175,000. The Company does have standard national employment contracts with all
of its Spanish employees.
STOCK OPTION GRANT TABLE
The following table sets forth certain information concerning options
granted to the named executive officers during the Company's fiscal year ended
July 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL 1997(1) ($/SHARE) DATE ($/SH) (2)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arturo G. Torres ............ 60,000 14.56% 12.10 12/9/02 $ 1.84
Mark A. Gawlik .............. 30,000 7.28% 11.00 12/9/06 3.66
Raymond G. Braun ............ 200,000 48.54% 8.00 1/1/07 5.81
Saul Gamoran ................ 30,000 7.28% 11.00 12/9/06 3.66
Francisco Saez Moya ......... 30,000 7.28% 11.00 12/9/06 3.66
</TABLE>
(1) Based upon 412,000 options to purchase shares of Common Stock granted in
fiscal 1997
(2) The per share value is based on the Black-Scholes Option pricing model. The
calculation included the following assumptions: estimated volatility of
23.6% (based on historical stock prices of comparable companies); risk-free
interest rate ranging from 5.39% to 6.67% (based on returns available
through U.S. Treasury bonds); no dividend yield; and on expected life of
options of 5 years for 10-year options and expected life of 2.5 years for
5-year options. Option values are dependent on general market conditions
and the performance of the Common Stock. There can be no assurance that the
values in this table will be realized.
11
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, with respect to the executive officers named
in the Summary Compensation Table, information with respect to the aggregate
amount of options exercised during fiscal 1997, any value realized thereon, the
number of unexercised options at the end of fiscal year 1997 (exercisable and
unexercisable) and the value with respect thereto.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($) (1)
ACQUIRED VALUE ---------------------------- -----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXCERCISABLE UNEXCERCISABLE EXCERCISABLE UNEXCERCISABLE
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arturo G. Torres ........................ - - 55,000 30,000 187,000 102,000
Mark A. Gawlik .......................... - - 37,000 15,000 166,500 67,500
Raymond G. Braun ........................ - - 20,000 180,000 150,000 1,350,000
Saul Gamoran ............................ - - 61,667 68,333 277,502 307,499
Francisco Saez Moya ..................... - - 27,000 15,000 121,500 67,500
</TABLE>
(1) Total value of options based on fair market value of $15.50 per share as of
July 31, 1997, the last date reported sale price of the Common Stock as
reported by the Nasdaq National Market on that date.
1994 INCENTIVE PLAN
SCOPE. During fiscal 1995, the Board of Directors and shareholders of the
Company approved the Play By Play Toys & Novelties, Inc. 1994 Incentive Plan
(the "Incentive Plan"). The Incentive Plan authorizes the Company to award
incentive stock options and nonqualified stock options to purchase Common Stock
and restricted stock to officers and other employees of the Company. On June 27,
1996, the Company registered with the Securities and Exchange Commission the
700,000 shares authorized under the Incentive Plan. On August 29, 1997, the
Board of Directors amended the Incentive Plan to increase the number of shares
authorized to award incentive options and nonqualified stock options by 600,000
shares to 1,300,000. This amendment will be placed on the December 1997
shareholder meeting agenda for approval. The purpose of the Incentive Plan is to
attract, retain and motivate officers and employees. If an award made under the
Incentive Plan expires, is canceled or otherwise is terminated, those shares
will be available for future awards under the Incentive Plan. The Incentive Plan
will terminate on August 24, 2004.
ADMINISTRATION. The Incentive Plan is administered by the Company's
Compensation Committee (the "Committee"). Subject to the provisions of the
Incentive Plan, Committee will have authority to select those officers and other
employees of the Company to receive awards, to determine the time or times of
receipt, to determine the types of awards and the number of shares covered by
the awards, and to establish the terms, conditions and provisions of such
awards.
STOCK OPTIONS. Both incentive stock options and nonqualified stock options
(collectively referred to as "Stock Options") may be granted pursuant to the
Incentive Plan. All Stock Options granted under the Incentive Plan will have an
exercise price per share to be determined by the Committee, provided that the
exercise price per share under each Stock Option shall not be less than the fair
market value of a share of Common Stock at the time the Stock Option is granted
(110% of such fair market value in the case of incentive stock options granted
to a shareholder who owns 10% or more of the Company's Common Stock). The
maximum term for all Stock Options granted under the Incentive Plan is ten years
(five years in the case of an incentive stock option granted to a shareholder
who owns 10% or more of the Company's Common Stock). Stock Options are
exercisable at such time and in such installments as the Committee may provide
at the time the Stock Option is granted. During fiscal 1997, the Committee
granted incentive stock options to
12
<PAGE>
purchase 162,000 shares of Common Stock under the Incentive Plan to certain
officers and employees of the Company. At July 31, 1997, 637,800 incentive stock
options were outstanding. The options generally have a four-year vesting period
and are exercisable at prices per share ranging from $9.75 to $15.95. One-fifth
of such options will become exercisable six months after the date of grant and
on each of the first four anniversaries of the date of grant. In the event of a
change in control of the Company, as defined in the Incentive Plan, awards under
the Incentive Plan become exercisable within 60 days of the change in control.
The options exercisable as of July 31, 1997 are 315,300.
On September 29, 1995, the Board modified the terms of the incentive stock
options granted to Messrs. Torres, Gawlik and Moya, such that all options vest
and become exercisable within one year from the date of grant. The exercise
price per share of all such Stock Options is equal to $13.48. On May 16, 1996,
Mr. Gamoran was granted 100,000 options to purchase stock in the Company at
$13.75 per share. Of the 100,000 options granted to Mr. Gamoran, 20,000 of said
options vested immediately, and one-third of the remaining options will become
exercisable on each of the first three anniversaries of the date of grant. Mr.
Gamoran shall have a period of five years from the date of each vesting in which
to exercise these options. All options granted to the officers of the Company
prior to December 9, 1996 were canceled and re-issued at an exercise price of
$11.00 per share, with Mr. Torres' exercise price being $12.10 per share, or
100% and 110%, respectively, of the quoted close price of the Company's Common
Stock on such date. The vesting periods for such options were modified to give
credit for the prior holding periods.
RESTRICTED STOCK. Restricted stock awards are grants of Common Stock made
to officers and employees subject to conditions established by the Committee.
The terms of a restricted stock award, including the restrictions placed on such
shares and the time or times at which such restrictions will lapse, shall be
determined by the Committee at the time the award is made. Unless the Committee
determines otherwise, holders of restricted stock shall have the right to vote
the shares of restricted stock and to receive all dividends thereon. The
Committee may determine at the time of an award of restricted stock that
dividends paid on such shares may be paid to the grantee or deferred. Deferred
dividends (together with any interest accrued thereon) will be paid upon the
lapsing of the restrictions on the shares of restricted stock or forfeited upon
the forfeiture of the shares of restricted stock. The agreements evidencing
awards of restricted stock shall set forth the terms and conditions of such
awards and the effect of a grantee's termination of employment. No restricted
stock shares have been issued pursuant to the Incentive Plan as of July 31,
1997.
TERMINATION AND AMENDMENT. The Incentive Plan may be terminated or amended
by the Board, provided that, in the absence of shareholder approval, no
amendment of the Incentive Plan may materially increase the total number of
shares of Common Stock with respect to which awards may be made under the
Incentive Plan, change the exercise price of a Stock Option, materially modify
the requirements as to eligibility for participation in the Incentive Plan or
materially increase the benefits accruing to participants under the Incentive
Plan. No amendment of the Incentive Plan may adversely alter or impair any Stock
Option or share of restricted stock awarded under the Incentive Plan prior to
such amendment without the consent of the holder thereof.
NON-PLAN OPTIONS
In addition to the Stock Options granted pursuant to the Incentive Plan,
during fiscal 1997, the Company granted nonqualified stock options outside of
the Incentive Plan to purchase 10,000 shares of Common Stock (the "Non-Plan
Options") to each of Messrs. Byers, Duran, Guerra, Liao and Place. The Non-Plan
Options were granted at an exercise price equal to $11.00 or 100% of the closing
sales price of the Common Shares on the date of the grant and expire five years
thereafter. Half of such options vest six months from the date of grant and the
remainder vest twelve months from the date of grant. The Non-Plan Options
exercisable as of July 31, 1997 are 79,400.
13
<PAGE>
On August 29, 1997, the Company granted nonqualified stock options outside
of the Incentive Plan to purchase 20,000 shares of Common Stock to each of
Messrs. Byers, Duran, Guerra, Liao and Place. The Non-Plan Options were granted
at an exercise price equal to $19.00 or 100% of the quoted price of the Common
Stock on the date of grant, and expire five years thereafter. Half of such
options vest six months from the date of grant and the remainder vest twelve
months from the date of grant.
In connection with the employment of Raymond Braun in January 1997,
options to purchase 200,000 shares of Common Stock were granted at a purchase
price of $8.00 per share. These options vest on or after the first day of each
calendar month, commencing February 1, 1997, through and including January 1,
2002, up to one sixtieth (1/60) of the total number of shares. In connection
with these option grants, the Company recognized $82,000 of compensation expense
and recorded $618,000 of unearned compensation in fiscal 1997.
On August 29, 1997, the Compensation Committee granted stock options to
purchase 412,500 shares of Common Stock to certain officers and employees of the
Company at an exercise price of $19.00 per share.
REGISTRATION OF SHARES
On June 27, 1996, the Company registered 700,000 shares of Common Stock
that are the subject of the Incentive Plan and such nonqualified stock options
with the United States Securities and Exchange Commission. On August 29, 1997,
the Board adopted a resolution to proceed with the filing of a registration
statement under the Securities Act of 1933, as amended, in order to register the
additional 600,000 shares that are subject of the Incentive Plan and such
non-qualified stock options as shall be permitted under the appropriate filing.
PROPOSAL NO. 2
RATIFICATION OF THE AMENDMENT OF THE 1994 INCENTIVE PLAN
The Board, on August 29, 1997, adopted a resolution to amend Play By Play
Toys & Novelties, Inc. 1994 Incentive Plan, subject to the approval by the
shareholders at the Annual Meeting. The amendment of the Incentive Plan, by
allocating 600,000 additional shares of the Company's Common Stock is being
submitted to the shareholders for approval as a method to attract and retain
certain employees by permitting them to participate in the ownership of the
Company.
The affirmative vote of a majority of the votes cast on this proposal will
constitute approval of the amendment of the Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT OF
THE INCENTIVE PLAN.
PROPOSAL NO. 3
RATIFICATION OF THE RE-PRICING OF ALL OPTIONS
GRANTED TO OFFICERS OF THE COMPANY
Subject to the approval by shareholders at the Annual Meeting, the Board, on
August 29, 1997, voted that options granted to the officers of the Company prior
to December 9, 1996 be re-priced to the fair market value on the date of
re-pricing, which was $11.00, or 110% of fair market value for beneficial owners
of 10% or more of the Company's outstanding shares of common stock. The number
of shares re-priced was 159,000. The original exercise price of the shares
ranged from $13.475 to $14.58. Such options shall vest as originally granted.
14
<PAGE>
The affirmative vote of a majority of the votes cast on this proposal will
constitute approval of the re-pricing of all options granted to the officers of
the Company prior to December 9, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE RE-PRICING OF
ALL OPTIONS GRANTED TO OFFICERS OF THE COMPANY PRIOR DECEMBER 9, 1996.
PRINCIPAL SHAREHOLDERS
The following table presents certain information regarding the beneficial
ownership of the Company's Common Stock as of October 31, 1997, and adjusted to
give effect to the sale of 3,135,000 shares of Common Stock in the Offering, by
(i) each person the Company knows to be the beneficial owner of 5% or more of
the outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii)
each director of the company and (iv) all executive officers and directors of
the Company as a group. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the Company believes that each
shareholder named in this table has sole investment and voting power with
respect to the shares set forth opposite such shareholder's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES OFFERING
-------------------- BEING ----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ----- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Arturo G. Torres ..... 1,535,990(1) 30.79% 500,000 1,035,990(1) 13.74%
Mark A. Gawlik ....... 230,321 4.65 -- 230,321 3.07
Francisco Saez Moya .. 275,586 5.57 82,200 193,386 2.58
Saul Gamoran ......... 76,667 1.54 -- 76,667 1.02
Raymond Braun ........ 40,930 * -- 40,930 *
Berto Guerra, Jr ..... 53,465 1.09 15,000 38,465 *
James F. Place ....... 39,873 * 5,000 34,873 *
Tomas Duran .......... 18,300 * 10,800 7,500 *
Otis W. Byers ........ 16,000 * 11,000 5,000 *
Steve K. C. Liao ..... 18,500 * 11,000 7,500 *
--------- -------- ---------
All directors and
executive officers
as a group (ten
persons) ............. 2,305,632 635,000 1,670,632
========= ======== =========
</TABLE>
* Less than 1%
(1) Includes 49,200 shares held in trust for the benefit of Mr. Torres' three
minor children (16,400 shares each), for which Mr. Torres is the trustee
and has sole voting and investment power.
The business address of all officers and directors of the Company is 4400
Tejasco, San Antonio, Texas 78218-0267.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHAREHOLDER LOAN
To partially finance the acquisition of Ace, Mr. Torres provided a $3.0
million unsecured demand loan to the Company. During fiscal 1997, the Company
paid Mr. Torres $257,800 in interest expense. The note was repaid in full in
July 1997.
15
<PAGE>
OTHER TRANSACTIONS
On February 19, 1997, Play By Play Europa, S. A., entered into an
agreement with Banco Santander, S.A., Valencia, Spain, to open a $2.0 million
standby letter of credit, which is personally guaranteed with 35,000 shares of
the Company's Chief Executive Officer's personal common stock investment in a
company which is not affiliated with the Company. No remuneration was paid by
the Company to its Chief Executive Officer as consideration for this guarantee.
The letter of credit matured on October 31, 1997 and was renewed for one more
year.
The Company leases a building used as a video arcade located in Odessa,
Texas, from Mr. Torres. Rental expense for such arcade was approximately $7,400
during fiscal 1997. The Company believes that the terms of the lease are fair
and reasonable and are on terms at least as favorable as would be available from
non-affiliated parties.
Mr. Place, a Director of the Company, is a partner in Espinoza's Pizza
Company, Ltd. ("Espinoza") which owns and operates 11 restaurants in which the
Company has placed coin-operated amusement game machines. Espinoza was paid, as
its percentage of revenues attributable to such games, approximately $101,000
during fiscal 1997. The Company believes that the arrangements with and the
amounts paid to Espinoza are fair and reasonable and are on terms at least as
favorable as would be available from non-affiliated parties.
Mr. Torres leases seven land and building packages to Pizza Hut of
America, Inc. ("Pizza Hut") and one land and building package to Espinoza. The
Company has entered into revenue sharing agreements with Pizza Hut and Espinoza
concerning the placement of amusement machines which may benefit Mr. Torres due
to percentage rent provisions in these real property leases. The Company paid
Pizza Hut approximately $700,000 and Espinoza approximately $101,000 during
fiscal 1997, pursuant to the terms of such revenue sharing agreements. The
Company believes the amounts paid to Pizza Hut and Espinoza were fair and
reasonable and were on terms at least as favorable as would be available from
non-affiliated parties.
During fiscal 1996, Play by Play Europa, S.A. subcontracted stuffing
services to a company, Tuexa Export, S.A. ("Tuexa"), whose major shareholder was
Mr. Moya. As of October 8, 1996, Mr. Moya sold his interest in Tuexa Export,
S.A. for a nominal amount. The Company paid Tuexa $100,000 during the period
from August 1, 1996 through October 8, 1996. The Company believes that the
arrangements with and the amount paid to Tuexa Export, S.A. are fair and
reasonable and are on terms at least as favorable as would be available from
non-affiliated parties.
Mr. Duran, a director of the Company, is an insurance agent acting on
behalf of the insurance companies that provide health and property insurance to
the Company. In connection with this transaction, Mr. Duran received commissions
from the insurance companies in the amount of $36,000 for the year ended July
31, 1997. In this regard, the Company incurred premiums of approximately
$956,000 for insurance premiums in the year ended July 31, 1997. The Company
believes that the arrangements with and the amounts paid to the insurance
companies are fair and reasonable.
FUTURE TRANSACTIONS
In the future, all transactions between the Company and its affiliated
entities, executive officers, directors or significant shareholders will be on
terms which will continue to be no less favorable to the Company than the
Company could obtain from non-affiliated parties.
16
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF THE POTENTIAL ISSUANCE OF UP TO 976,219 SHARES
During July 1997, the Company completed a private placement of $15 million
of 8.00% Convertible Debentures (the "Debentures"). The proceeds were used to
retire a $3 million subordinated demand note due to a shareholder, provide $3
million as collateral on two lines of credit with banks in Spain and for general
corporate purposes. The debt is convertible into the Company Common Stock at any
time during the loan period.
The conversion price of the Debentures is $17.00 per share. However, the
Debentures provide for a one-time adjustment following the Company's release of
its 1998 fiscal year-end results, if the average stock price after releasing
earnings is less than $17.00 per share. If the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the fiscal year
ending July 31, 1998 exceed $17,900,000, no adjustment will be made. If that
EBITDA threshold is not met, the conversion price of the Debentures will be
adjusted downward (if applicable) to the greater of (a) 90% of the trading price
of the Company's Common Stock following its announcement of fiscal 1998 earnings
and (b) five times EBITDA per share on a fully diluted basis.
The Debentures also provide that, unless a majority of the Company's
shareholders approve the potential future issuance of shares, the Debentures
will not be convertible into more than 976,219 shares of Common Stock in the
aggregate. Approval of this Proposal No. 4 will remove that limitation on the
number of shares into which the Debentures are convertible. Therefore, approval
of this proposal could, in the event of an adjustment as provided above, entitle
the holders of the Debentures to acquire in excess of 20% of the Company's
outstanding Common Stock as of July 31, 1997.
The Debentures provide that if the shareholders do not approve this
potential future issuance and, as a result, the full amount of the conversion
that otherwise would have been made is limited, then the holders of the
Debentures will have the right to require the Company to repurchase an amount of
the Debentures equal to the economic difference between the actual conversion
price adjustment and the conversion price adjustment that would have been made,
plus interest on that amount calculated at an 18% annual yield. Therefore,
failure to approve this Proposal No. 4 could, in the event an adjustment as
provided above otherwise would have been made, subject the Company to
substantial monetary expense.
Several of the officers and significant shareholders of the Company
(holding, in the aggregate, 38.0% of the Company's outstanding Common Stock)
have agreed with the holders of the Debentures that they will vote in favor of
this Proposal No. 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE POTENTIAL
FUTURE ISSUANCE OF SHARES OF COMMON STOCK UPON CONVERSION OF 8% CONVERTIBLE
DEBENTURES.
PROPOSAL NO. 5
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. has served as the Company's independent
accountants since its appointment for fiscal 1992. The Board, on the unanimous
recommendation of the Audit Committee, has selected Coopers & Lybrand L.L.P as
the Company's independent accountants for the fiscal year ending July 31, 1998,
subject to ratification by the shareholders at the Annual Meeting.
Representatives of Coopers &
17
<PAGE>
Lybrand L.L.P. are expected to be present at the meeting to respond to questions
and will have an opportunity to make a statement if they desire to do so.
All services provided to the Company by Coopers & Lybrand L.L.P. were
approved by the Audit Committee. The Audit Committee also considered the
possible effect on the independence of Coopers & Lybrand L.L.P. by reason of its
rendering such services.
Audit services of Coopers & Lybrand L.L.P. for fiscal 1997 included the
examination of the consolidated financial statements, services related to
filings with the SEC, and the performance of limited reviews of the Company's
unaudited financial information.
The affirmative vote of a majority of the votes cast on this proposal will
constitute ratification of the appointment of Coopers & Lybrand L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR
1998.
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no other
business that will be presented by management for consideration at the Annual
Meeting. If any other business properly comes before the Annual Meeting, the
proxy holders intend to vote the proxies as recommended by the Board.
18
<PAGE>
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1999 annual meeting
of the shareholders must be received by the Company in writing no later than
July 23, 1998. Proposals must be mailed to Play By Play Toys & Novelties, Inc.,
4400 Tejasco, San Antonio, Texas 78218-0267, Attention: Secretary, Saul Gamoran.
19
<PAGE>
ANNUAL REPORT (FORM 10-K)
The Company undertakes, on written request and without charge, to provide
each person from whom the accompanying Proxy is solicited with a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1997, as
filed with the SEC, including the financial statements and schedules. Requests
should be addressed to Play By Play Toys & Novelties, Inc., 4400 Tejasco, San
Antonio, Texas 78218-0267, Attention: Secretary, Saul Gamoran.
By Order of the Board of Directors
Saul Gamoran
Executive Vice President, General
Counsel and Secretary
November 22, 1997
20
<PAGE>
PLAY BY PLAY TOYS & NOVELTIES, INC.
4400 TEJASCO
SAN ANTONIO, TEXAS 78218-0267
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arturo G. Torres, Saul Gamoran and Berto
Guerra, Jr., or any one or more of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and to
vote, as designated below, all the shares of common stock of Play By Play Toys &
Novelties, Inc. (the "Company") held of record by the undersigned on November
21, 1997 at the Annual Meeting of Shareholders to be held on December 11, 1997,
or any adjournments thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary To vote for all nominees listed
below) [ ] below [ ]
(INSTRUCTIONS TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE S NAME IN THE LIST BELOW)
Arturo G. Torres, Saul Gamoran, and Berto Guerra, Jr.
2. Proposal to amend the Play By Play Toys & Novelty, Inc. 1994 Incentive Plan
by reserving 600,000 additional shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve the re-pricing of all options granted to the officers of
the Company prior to December 9, 1996 at an exercise price of $11.00 per
share, with Arturo G. Torres' exercise price being $12.10 per share.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to approve the potential future issuance of shares of Common Stock
upon conversion of 8% Debentures held by Renaissance Capital Growth & Income
Fund III, Inc., Renaissance Capital Growth & Income Trust PLC and Banc One
Capital Partners II, Ltd.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Proposal to ratify the appointment of Coopers & Lybrand L.L.P., certified
public accountants, as the independent auditors for the Company for the
fiscal year ending July 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign full corporate name by President or authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated ________________________________
______________________________________
Signature
______________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
