UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission file number
July 31, 2000 0-26374
PLAY BY PLAY TOYS & NOVELTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 74-2623760
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4400 Tejasco
San Antonio, Texas 78218
(Address of principal executive offices and zip code)
(210) 829-4666
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. ( )
As of November 6, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant (based upon the last reported sale price of
the Common Stock of the registrant as quoted on the National Market System of
the National Association of Securities Dealers Automated Quotation System) was
$5,610,080. (For purposes of calculating the preceding amount only, all
directors, executive officers and shareholders holding 5% or greater of the
registrant's Common Stock are assumed to be affiliates). The number of shares of
Common Stock of the registrant outstanding as of November 6, 2000 was 7,395,000.
<PAGE>
TABLE OF CONTENTS
PAGE
This Report on Form 10-K/A is being filed to report information
previously omitted on the Company's Report on Form 10-K for the fiscal year
ended July 31, 2000, pursuant to G(3) of the General Instructions to Form 10-K.
PART III .................................................................. 1
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY .............. 1
ITEM 11. EXECUTIVE COMPENSATION ....................................... 3
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ............................................... 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ......... 10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Certain background information regarding the current directors is set
forth below. 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, Diaz, and Guerra will expire at the 2000 meeting of
shareholders, and the terms of Messrs. Byers, Neitz and Liao will expire at the
2001 annual meeting of shareholders. The terms of Messrs. Braun, Borroso and
Peretz will expire at the 2002 annual meeting of shareholders of the Company.
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.
ARTURO G. TORRES, age 64, 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 2000 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 (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.
RAYMOND G. BRAUN, age 44, has been President and Chief Operating Officer
since February 1999. Prior thereto Mr. Braun served as the Chief Financial
Officer, Treasurer and 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.
JAMES L. DOW II, age 46, has been Senior Vice President, General Counsel
and Secretary of the Company since August 2000. Prior thereto, from August 1998
through July 2000 Mr. Dow served as Senior Vice President of Administration,
Legal Affairs and Assistant Secretary of Carreker Corporation. From July 1995
through July 1998, Mr. Dow served as Director, Executive Vice President of
Operations, Legal Affairs and Chief Financial Officer of Intergo Communications,
Inc. From March 1991 though June 1995, Mr. Dow served as Vice President, General
Counsel and Secretary of Elcor Corporation. And from November 1984 to February
1991, Mr. Dow served as Deputy General Counsel and Assistant Secretary of
Electronic Data Systems, Inc. Mr. Dow received a Bachelor of Science Degree in
Political Science and Economics from the University of Arizona, Tucson, Arizona
in 1977 and a Juris Doctorate Degree of Law from Pepperdine University, Malibu,
California, in 1980.
JOE M. GUERRA, age 38, has been Chief Financial Officer of the Company
since February 1999 and was appointed as Secretary and Treasurer of the Company
in October 1999. In September of 2000, Mr. Guerra was appointed Assistant
Secretary after resigning his position as Secretary. From February 1998 to
February 1999, Mr. Guerra served as the Company's Controller. From August 1996
to January 1998, Mr. Guerra was the Chief Financial Officer of a San Antonio
based company that operated restaurants. From November 1994 to July 1996, Mr.
Guerra served as the Chief Financial Officer of the Company. Mr. Guerra, whom is
a Certified Public Accountant, received a Bachelor of Business Administration
degree in accounting from St. Mary's University, San Antonio, Texas, in 1984.
MARK L. HAUG, age 44, has been Senior Vice President of Merchandise &
Hardgoods, Product Development and Creative Services for the Company since
February 1999 and from June 1996 to February 1999 served as Vice President of
Merchandise Hardlines and Product Development. From March 1990 through December
1994, Mr. Haug served as Import and Product Development Manager for Acme Premium
Co. Acme merged with Ace Novelty Co. in December 1994 where Mr. Haug maintained
the position of Merchandise and Product Development Manager. He held this
position until the Company acquired Ace Novelty in June 1996. Mr. Haug served as
Vice President of Merchandising for Toy King, a retail toy chain based in
Orlando, Florida from October 1987 to March 1990. Prior to that Mr. Haug served
as Department Manager, Assistant Store Operations Manager, Assistant Buyer,
Hardlines Import Coordinator, and Boys' Toys/Sporting Goods Buyer for Venture
Stores from 1974 to October 1987.
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MANUEL FERNANDEZ-BARROSO, age 66, has been President of Caribe Marketing &
Sales Co., Inc. ("Caribe"), the Company's Latin American subsidiary, since March
1999. Mr. Barroso was appointed as Director of the Company by the Company's
Board of Directors in March 1999. Prior thereto, Mr. Barroso was the Founder and
President of Caribe from its inception to its acquisition by the Company in
March 1999. Caribe is headquartered in San Juan, Puerto Rico and prior to its
acquisition, was the Company's distributor in Puerto Rico for the preceding two
years, and was a distributor for other manufacturers throughout Puerto Rico and
Central American for more than 15 years.
OTTIS W. BYERS, age 56, has been a Director of the Company since September
1995. Since May 1998, Mr. Byers has been the owner of Circle CB Transport, Inc.
of Crockett, Texas. Since 1990, Mr. Byers has owned 4-B Ranch in Crockett,
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.
GUARIONE M. DIAZ, age 60, was elected to the Company's Board of Directors
in January 2000. Mr. Diaz is a nominee to the Board of Directors for the 2000
Annual Shareholders' Meeting. Mr. Diaz is currently President and Executive
Director of the Cuban American National Council, Inc., a private nonprofit
organization. Mr. Diaz has served on the Board of Directors of the National
Council of La Raza and the National Hispanic Leadership Agenda. More recently,
Mr. Diaz served on the Florida Commission on Education Reform and
Accountability, the National Hispana Leadership Institute and the U.S. Census
Advisory Committee on Race and Ethnic Populations. In 1994, Mr. Diaz was
appointed as United States Ombudsman/Civilian Liaison at the U.S. Naval base in
Guantanamo, Cuba. Mr. Diaz holds a Masters Degree from Columbia University and a
B.A. from St. Francis College in New York City.
HOWARD G. PERETZ, age 61, was appointed by the Board of Directors of the
Company as Director of the Company in June of 2000 filling the vacant seat
previously held by Mr. Tomas Duran who resigned in February of 2000. Mr. Peretz
also serves as a consultant to the Company since October 1999. From January 1981
through September 2000, Mr. Peretz provided independent consulting services for
client companies engaged in the toy marketplace in the primary areas of
strategic planning, marketing, advertising, and product development.
HERIBERTO "BERTO" GUERRA, JR., age 50, has been a Director of the Company
since its inception in May 1992. Mr. Guerra is the Executive Vice President,
External Affairs for Southwestern Bell Telephone, and has been employed by that
company or an affiliate since 1978. Mr. Guerra is a nominee to the Board of
Directors for the 2000 Annual Shareholders' Meeting. 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. Mr. Guerra is the Chairman of San Antonio
Hispanic Chamber of Commerce. 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, age 54, has been a Director of the Company since October
1995. Since 1989, Mr. Liao has been a real estate investor and property manager
of multi-family properties in Houston, Texas.
RICHARD R. NEITZ, age 51, has been President of the Company's Retail
Division since October 1999 and was appointed as Director of the Company in
October 1999 by the Company's Board of Directors. From 1992 to September 1999,
Mr. Neitz was President, Chief Operating Officer and Director of DSI Toys Inc.,
formerly Diversified Specialists, Inc. Prior to that, Mr. Neitz was Senior Vice
President, Marketing and Product Development of Diversified Specialists. Mr.
Neitz is a member of the Board of Directors of the Toy Manufacturers of America
("TMA") and serves as the Chairman of its Membership Committee.
There are no family relationships among any of the executive officers or
directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and officers of the Company, and persons who beneficially own more
than 10 percent of the Common Stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of the Common Stock. Directors,
officers and more than 10 percent stockholders are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, during fiscal 2000 all Section 16(a) filing requirements
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applicable to the Company's officers, directors and 10% shareholders were
complied with, except for one late filing each as to Arturo G. Torres concerning
three transactions, Guarione M. Diaz concerning one transaction, Manuel F.
Barroso concerning one transaction, Richard R. Neitz concerning one transaction,
Saul Gamoran (former Executive Vice President, Secretary and General Counsel)
concerning one transaction, Howard G. Peretz concerning one transaction and
James Weisfield (former Senior Vice President and General Counsel) concerning
one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to annual
and long-term compensation paid or awarded to the Company's current chief
executive officer and of the other four most highly-paid executive officers of
the Company whose annual compensation exceeded $100,000 (together, the "Named
Executive Officers") for or with respect to the fiscal years ended December 31,
2000, 1999, and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------ --------------------------------
# SHARES
OTHER RESTRICTED UNDERLYING
NAME AND FISCAL ------------------- ANNUAL STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) AWARDS (2)(3) COMPENSATION
------------------------------------- ------ -------- -------- ---------------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arturo G. Torres, ................... 2000 $425,000 -- -- -- -- --
Chairman of the Board ............ 1999 $425,000 -- -- -- -- --
and Chief Executive Officer ...... 1998 $368,154 $200,000 -- -- 200,000 --
Raymond G. Braun, ................... 2000 $225,000 -- -- -- -- --
President and .................... 1999 $225,000 -- -- -- -- --
Chief Operating Officer .......... 1998 $200,577 -- -- -- 70,000 --
Mark L. Haug, ....................... 2000 $200,000 4,250 -- -- -- --
Senior Vice President of ......... 1999 $180,000 15,000 -- -- -- --
Merchandise & Hardgoods, ......... 1998 $168,000 20,000 -- -- -- --
Product Development and
Creative Services
Richard R. Neitz, ................... 2000 $182,692 -- -- -- 100,000 --
President of ..................... 1999 $ -- -- -- -- -- --
Retail Division (4) .............. 1998 $ -- -- -- -- -- --
Manuel F. Barroso, .................. 2000 $160,000 3,500 $ 36,252 -- 10,000 --
President of Caribe .............. 1999 $ 53,333 -- $ 12,084 -- -- --
Marketing & Sales Co., Inc. (5) .. 1998 $ -- -- -- -- -- --
</TABLE>
(1) 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, except for
Mr. Barroso who received $10,800 and $3,600 in automobile allowance in
fiscal 2000 and 1999, respectively, and $25,452 and $8,484 in premiums
paid by the Company in 2000 and 1999, respectively, for an individual life
insurance policy.
(2) The outstanding options were granted pursuant to the Company's Incentive
Plan except for Mr. Neitz whom was granted 100,000 non-qualified stock
options pursuant to his employment agreement.
(3) Options granted on August 29, 1997 were granted outside the Incentive Plan
at an exercise price of $19.00 and options granted on December 11, 1997
were granted pursuant to the Company's Incentive Plan at an exercise price
of $18.9375. These options were terminated via Board Resolution and signed
termination agreements on January 26, 2000.
(4) Mr. Neitz joined the Company on October 4, 1999.
(5) Mr. Barroso joined the Company on March 30, 1999 when the Company acquired
Caribe Marketing & Sales Co., Inc.
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<PAGE>
EMPLOYMENT ARRANGEMENTS
Other than employment agreements with Mr. Braun and Mr. Neitz, the Company
does not have employment agreements with any of its United States employees. In
November 1996, the Company entered into an employment agreement with Mr. Braun,
which agreement expired on January 2, 2000. Currently, Mr. Braun and the Company
are negotiating the terms for renewal of the employment agreement. The Company
does have standard national employment contracts with all of its Spanish
employees.
STOCK OPTION GRANTS
The following table sets forth certain information concerning options
granted to the named executive officers during the Company's fiscal year ended
July 31, 2000:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL 2000 (1) ($/SHARE) DATE ($/SH) (2)
---------------------------- ----------- --------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Richard R. Neitz ........... 100,000 37.66% $ 3.875 10/4/04 $ 1.67
Manuel Fernandez-Barroso ... 10,000 3.77% $ 3.375 1/26/05 $ 3.19
</TABLE>
(1) Based upon 265,500 options to purchase shares of Common Stock granted in
fiscal 2000
(2) The per share value is based on the Black-Scholes Option pricing model.
The calculation included the following assumptions: estimated volatility
of 166.5% based on historical stock prices of comparable companies);
risk-free interest rate ranging from 4.64% to 6.67% (based on returns
available through U.S. Treasury bonds); no dividend yield; and an expected
life of options ranging from 5 to 12 years. 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.
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 2000, any value realized
thereon, the number of unexercised options at the end of fiscal year 2000
(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 ($) (1)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXCERCISABLE EXERCISABLE UNEXCERCISABLE
--------------------------- --------------- ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Arturo G. Torres .......... -- -- 70,000 -- -- --
Raymond G. Braun .......... -- -- 140,000 60,000 -- --
Mark L. Haug .............. -- -- 21,000 10,000 -- --
Richard R. Neitz .......... -- -- -- 100,000 -- --
Manuel F. Barroso ......... -- -- 2,000 8,000 -- --
</TABLE>
(1) Total value of options based on fair market value of $1.50 per share as of
July 31, 2000, the sale price of the Common Stock as reported by the
Nasdaq National Market system on that date.
1994 INCENTIVE PLAN
SCOPE. During fiscal 1995, the Board of Directors and shareholders of the
Company approved the Incentive Plan. The Incentive Plan authorizes the Company
to award incentive stock options and non-qualified
4
<PAGE>
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 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
non-qualified stock options by 600,000 shares to 1,300,000. This amendment was
approved at the December 1997 shareholders' meeting. On March 17, 1998, the
Company registered with the Securities and Exchange Commission the additional
600,000 shares. 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, the 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 non-qualified 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 2000, the Committee
granted incentive stock options to purchase 140,500 shares of Common Stock under
the Incentive Plan to certain officers and employees of the Company. At July 31,
2000, 412,800 incentive stock options were outstanding. The options generally
have a four-year vesting period and are exercisable at prices per share ranging
from $1.6875 to $19.00. 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. Options to purchase 229,000
shares of Common Stock were exercisable as of July 31, 2000.
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,
2000.
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 connection with the employment of Raymond Braun in January 1997,
non-qualified stock 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,
5
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2002. In connection with these option grants, the Company recognized $140,000 of
compensation expense and has a balance of $198,333 of unearned compensation in
fiscal 2000.
REGISTRATION OF SHARES
On June 27, 1996, the Company registered 700,000 shares of Common Stock
that are issuable pursuant to the Incentive Plan or as non-qualified stock
options with the United States Securities and Exchange Commission. On March 17,
1998, the Company registered 600,000 additional shares that are issuable
pursuant to the Incentive Plan or as non-qualified stock options with the United
States Securities and Exchange Commission.
RESTRICTION ON ISSUANCE OF STOCK OPTIONS BY CONVERTIBLE DEBENTURE AGREEMENT
The First Amendment to the Convertible Loan Agreement entered into on October
22, 1999, limits the Company's ability to issue stock options to employees to
the amount of options held by employees, in the aggregate, as of the date of the
amendment.
COMPENSATION OF DIRECTORS
The Company had entered into a Convertible Loan Agreement ("Convertible
Loan Agreement") dated July 3, 1997, pursuant to which the Company issued $15
million of convertible subordinated notes. On October 22, 1999, the Company and
the holders of the convertible subordinated notes entered into a First Amendment
to the Convertible Loan Agreement ("First Amendment"). The First Amendment
permits two representatives designated by the holders of the convertible
debentures ("Lender Representatives") to attend as observers all meetings of its
board of directors and comment on matters discussed at such meetings.
Additionally, if the Company fails to pay in full all outstanding principal and
accrued interest on the convertible debentures on December 31, 2000, the Company
shall cause those persons designated by the holders of a majority of the
outstanding principal amount of the debentures ("Lender Directors") to be
appointed as members of the Board of Directors, until the debentures are paid in
full, one or more directors, up to a number that is the greater of (i) three and
(ii) a proportion of the full Board of Directors as equal as possible to the
percentage of the holders' ownership of Common Stock on an as-converted basis.
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 2000, total outside directors' fees of
$21,000 were paid in cash. Management directors receive no fees for their
services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Ottis W. Byers, Guarione M.
Diaz, Berto Guerra, Jr., and Steve K. C. Liao, all of whom are non-employee
directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In accordance with the rules of the Commission the following report of the
Compensation Committee of the Board of Directors and the information herein
under "Performance Graph" shall not be deemed to be "soliciting material" or to
be "filed" with the Commission, and such information shall not be deemed to be
incorporated by reference into any statements or reports filed by the Company
with the Commission that do not specifically incorporate such information by
reference, notwithstanding the incorporation by reference of the Company's Proxy
Statement into any such statements or reports.
REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION
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 Report on Form
10-K/A.
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<PAGE>
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 2000 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.
STOCK-BASED INCENTIVE COMPENSATION. The Company adopted the Incentive Plan
in August 1994. The Incentive Plan authorizes the Company to award incentive
stock options and non-qualified 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 SEC 700,000 shares authorized
under the Incentive Plan. On December 11, 1997, the shareholders approved an
increase in the number of shares authorized to award incentive options and
non-qualified stock options by 600,000 shares to 1,300,000 shares. On March 17,
1998, the Company registered with the SEC the additional 600,000 shares. 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. Cash bonuses of $4,250 and $3,500 were paid to Mark L. Haug and
Manuel F. Barroso, respectively, during fiscal 2000.
CHIEF EXECUTIVE OFFICER
In fiscal 2000, Arturo G. Torres, Chairman and Chief Executive Officer of
the Company, received total cash payments of $425,000 in salary. Mr. Torres does
not have an employment agreement with the Company.
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<PAGE>
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.
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.
PLAYoBYoPLAY TOYS & NOVELTIES, INC. COMPENSATION COMMITTEE
2000 MEMBERS
Ottis W. Byers, Guarione M. Diaz, Berto Guerra, Jr.,
and Steve K. C. Liao
8
<PAGE>
PERFORMANCE GRAPH
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, 2000, 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 on July 19, 1995 was $12.25 per
share.
COMPARISON OF CUMULATIVE TOTAL RETURN*
FOR THE PERIOD ENDED JULY 31, 2000
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
7/95 7/96 7/97 7/98 7/99 7/00
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PLAY BY PLAY TOYS & NOVELTIES, INC 100.00 70.09 115.89 74.77 19.63 11.21
S & P 500 ......................... 100.00 116.57 177.35 211.55 254.29 277.12
PEER GROUP ........................ 100.00 81.53 34.25 10.59 9.17 5.32
</TABLE>
CUMULATIVE TOTAL RETURN* JULY 31, 2000
----------------------------------- -------------
Play-By-Play Toys & Novelties, Inc. ............................ 11.21
S&P 500 ........................................................ 277.12
Peer Group** ................................................... 5.32
* 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 DSI Toys Inc., Empire of Carolina
Inc., Grand Toys Intl. Inc., Just Toys, Inc., and Toymax International,
Inc.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as of July 31, 2000
regarding the beneficial ownership of the Company's Common Stock 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>
NUMBER
SHARES
BENEFICIALLY
Name OWNED PERCENTAGE
-----------------------------------------------------------------------------------
<S> <C> <C>
Arturo G. Torres ............................. 1,852,990 (1)(2)(3) 24.82%
Raymond G. Braun ............................. 141,930 (2) 1.88%
Manuel F. Barroso ............................ 82,000 1.11%
Berto Guerra, Jr ............................. 40,665 (2)(3) *
Steve K. C. Liao ............................. 22,500 (2) *
Mark L. Haug ................................. 21,000 *
Ottis W. Byers ............................... 20,000 (2) *
Joe M. Guerra ................................ 8,570 (2) *
Guarione M. Diaz ............................. 5,000 *
Richard R. Neitz ............................. 5,000 *
James L. Dow ................................. 0 *
Howard G. Peretz ............................. 0 *
------------
All directors and executive
officers as a group (twelve persons) ........ 2,199,655 26.23%
============
</TABLE>
* Less than 1%
(1) Includes 49,200 shares held in trust for the benefit of Mr. Torres' three
children (16,400 shares each), for which Mr. Torres is the trustee and has
sole voting and investment power.
(2) At the Board meeting on 1/26/00, the Board voted to terminate options
granted to directors and officers on 8/29/97, 12/11/97 and 2/6/98. The
total number of voluntarily terminated options was 260,000 from 8/29/97,
70,000 from 12/11/97 and 45,000 from 2/6/98.
(3) Options granted on 4/13/95 expired on 4/13/00.
The business address of all officers and directors of the Company is 4400
Tejasco, San Antonio, Texas 78218-0267.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr. Torres leases seven land and building packages to third parties with
whom the Company has revenue sharing agreements concerning the placement of
amusement machines, which may benefit Mr. Torres due to percentage rent
provisions in these real property leases. The Company paid such third parties
approximately $501,880 during fiscal 2000, pursuant to the terms of such revenue
sharing agreements. The Company believes the amounts paid to such third parties
were fair and reasonable and were on terms at least as favorable as would be
available from non-affiliated parties.
The Company has a 51% ownership in its Los Angeles, California facility.
In October 1999, Mr. Torres purchased the remaining 49% interest in this
facility from a third party, and has leased it to the Company since that date.
In connection with this lease, the Company paid rents totaling $157,500 to Mr.
Torres during fiscal year 2000.
On March 20, 2000, the Company obtained a loan in the principal amount of
$2.5 million from Mr. Torres. The loan provided for interest at 8% per annum and
was secured by a first lien on the Company's 1999 Federal
10
<PAGE>
income tax refund of approximately $2.8 million. The tax refund was received and
the loan from Mr. Torres plus a nominal amount of accrued interest was repaid
shortly thereafter.
Mr. Peretz is affiliated with a company from which the Company has secured
two product licensing agreements, and also acts as a consultant to the Company
in sales, licensing and product development matters. The product licensing
agreements call for the payment of minimum guaranteed royalties, as well as
royalties based on sales of the licensed items over the licensing periods. The
Company made advance payments on the license agreements totaling $10,000 in
fiscal 2000. The Company paid consulting fees to Mr. Peretz totaling $87,125
during fiscal year 2000.
From April 1999 through August 2000, the Company leased its San Juan,
Puerto Rico facility from Mr. Barroso. In connection with this lease, the
Company paid rents totaling $60,000 to Mr. Barroso during fiscal year 2000. The
Company moved to a new facility in Puerto Rico in August 2000.
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PLAY BY PLAY TOYS & NOVELTIES, INC.
Date: November 21, 2000 By: /S/ JOE M. GUERRA
Joe M. Guerra
Chief Financial Officer and Treasurer
12
