-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbqvQ/SCXcLbllXnvzaDs/53ElXqdRCdwK3kXG+1ToPT/WWo3q8hpQxx5JUg6NkT vJ2+QCppy/llBDjh8eirpw== 0000891092-00-000322.txt : 20000419 0000891092-00-000322.hdr.sgml : 20000419 ACCESSION NUMBER: 0000891092-00-000322 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000518 FILED AS OF DATE: 20000418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 4 KIDS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000058592 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 132691380 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-07843 FILM NUMBER: 603770 BUSINESS ADDRESS: STREET 1: 1414 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127587666 MAIL ADDRESS: STREET 1: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: LEISURE CONCEPTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LEISURE INDUSTRIES INC DATE OF NAME CHANGE: 19740822 DEF 14A 1 DEFINITIVE PROXY STATEMENT 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 Rule 14a-11(c) or Rule 14a-12 4Kids Entertainment, Inc. ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): |X| No fee required. |_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: |_| Fee paid previously with preliminary materials: |_| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 4KIDS ENTERTAINMENT, INC. 1414 Avenue of the Americas New York, New York 10019 April 18, 2000 Dear Shareholder: You are cordially invited to attend the 4Kids Entertainment, Inc. ("4Kids") Annual Meeting of Shareholders to be held at 11:00 a.m. (New York City time) on May 17, 2000, at the Directors Guild Theater, 110-114 West 57th Street, New York, New York (the "Annual Meeting"). The purposes of the Annual Meeting are to (i) elect directors, (ii) consider and vote upon a proposal to approve the 4Kids Entertainment, Inc. 2000 Stock Option Plan, (iii) consider and vote upon a proposal to approve an amendment to the 4Kids Certificate of Incorporation to increase the number of shares of authorized 4Kids common stock from 20,000,000 shares to 40,000,000 shares, (iv) ratify the appointment of auditors and (v) transact such other business as may properly come before the meeting and any adjournment or postponements thereof. These matters are described in the formal Notice of Annual Meeting of Shareholders and the accompanying Proxy Statement. Your Board of Directors recommends a vote "FOR" each of the listed nominees for Director and "FOR" each of the other proposals. Your vote is very important. We hope you will find it convenient to attend the Annual Meeting in person. Whether or not you are personally able to attend, it is important that your shares be represented at the meeting. Accordingly, you are requested to sign, date and return the enclosed proxy promptly. If you do attend the Annual Meeting you may still revoke your proxy and vote in person. Your cooperation is greatly appreciated. Sincerely, /s/ Alfred R. Kahn --------------------------------------- ALFRED R. KAHN Chairman of the Board of Directors, Chief Executive Officer 4KIDS ENTERTAINMENT, INC. 1414 Avenue of the Americas New York, New York 10019 ---------- NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS ---------- May 17, 2000 NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Shareholders (the "Annual Meeting") of 4Kids Entertainment, Inc., a New York corporation ("4Kids"), will be held at the Directors Guild Theater, 110-114 West 57th Street, New York, New York, on Wednesday, May 17, 2000, at 11:00 a.m. (New York City time) for the purpose of considering and acting upon the following matters as set forth in the accompanying proxy statement: 1. Election of four directors to serve until the next Annual Meeting and until their successors are duly elected and qualified; 2. Approval of a proposal to approve the 4Kids Entertainment, Inc. 2000 Stock Option Plan; 3. Approval of a proposed amendment to the 4Kids Certificate of Incorporation to increase the number of shares of authorized 4Kids common stock from 20,000,000 shares to 40,000,000 shares; 4. Ratification of the appointment of Deloitte & Touche LLP as auditors for 4Kids for the fiscal year ending December 31, 2000; and 5. The transaction of such other business as may properly come before the meeting and any adjournment or postponements thereof. The Board of Directors has fixed the close of business on April 10, 2000 as the record date for the Annual Meeting and only holders of shares of record at that time are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponements thereof. By Order of the Board of Directors, /s/ Alfred R. Kahn --------------------------------------- ALFRED R. KAHN Chairman of the Board of Directors, Chief Executive Officer April 18, 2000 - -------------------------------------------------------------------------------- ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE ENCLOSED FOR YOUR CONVENIENCE. SHAREHOLDERS CAN HELP 4KIDS AVOID UNNECESSARY EXPENSE AND DELAY BY PROMPTLY RETURNING THE ENCLOSED PROXY CARD. THE BUSINESS OF THE MEETING TO BE ACTED UPON BY THE SHAREHOLDERS CANNOT BE TRANSACTED UNLESS ONE-THIRD OF THE OUTSTANDING SHARES OF 4KIDS' COMMON STOCK ARE REPRESENTED AT THE ANNUAL MEETING. - -------------------------------------------------------------------------------- The Annual Meeting proxy statement is dated April 18, 2000, and was first mailed to 4Kids shareholders on or about April 18, 2000. PROXY STATEMENT General This Proxy Statement is being furnished to the shareholders of 4Kids Entertainment, Inc., a New York corporation ("4Kids"), in connection with the Annual Meeting of Shareholders of 4Kids to be held at 11:00 a.m. (New York City time) on May 17, 2000, at the Directors Guild Theater, 110-114 West 57th Street, New York, New York (the "Annual Meeting"). Accompanying this proxy statement ("Proxy Statement") is a notice of such Annual Meeting and a form of proxy solicited by the 4Kids Board of Directors. Audited financial statements of 4Kids for the fiscal year ended December 31, 1999 are contained in the 4Kids Annual Report which has been mailed with this Proxy Statement. Proxies in the accompanying form which are properly executed and duly returned to 4Kids and not revoked prior to the voting at the Annual Meeting will be voted as specified. If no contrary specification is made and if not designated as broker non-votes, the common shares of 4Kids, par value $.01 per share, represented by the enclosed proxy will be voted FOR the election of the nominees for director (Proposal 1), FOR the approval of the 4Kids Entertainment, Inc. 2000 Stock Option Plan (Proposal 2), FOR the approval of the amendment to the 4Kids Certificate of Incorporation (Proposal 3) and FOR the ratification of the appointment of Deloitte & Touche LLP as auditors (Proposal 4). In addition, the common shares represented by the enclosed proxy will be voted by the person named therein, in such person's discretion, with respect to any other business which may properly come before the Annual Meeting or any adjournment or postponements thereof. Any shareholder giving a proxy has the power to revoke it at any time prior to the voting by filing with the Secretary of 4Kids a written notice of revocation or a duly executed proxy bearing a later date or by voting in person at the Annual Meeting. The Board of Directors has fixed the close of business on April 10, 2000, as the record date for the determination of the shareholders entitled to receive notice of, and to vote at, the Annual Meeting. The holders of one-third of the voting power of all issued and outstanding common shares present in person, or represented by proxy, shall constitute a quorum at the Annual Meeting. Assuming the presence of a quorum, the affirmative vote by the holders of a majority of the votes cast at the Annual Meeting is necessary to approve Proposals 2 and 4. The affirmative vote of a majority of the total outstanding common shares of 4Kids is necessary to approve Proposal 3. The affirmative vote by a plurality of the votes cast at the Annual Meeting is required for approval of the election of directors. On April 10, 2000, the record date for the Annual Meeting, 4Kids had 11,858,176 common shares outstanding. Each common share is entitled to one vote on each matter to come before the Annual Meeting. There is no cumulative voting. Votes shall be counted by 4Kids' Transfer Agent. Shares represented by proxies designated as broker non-votes will be counted for purposes of determining a quorum. Broker non-votes occur when a broker nominee (which has voted on one or more matters at a meeting) does not vote on one or more other matters at a meeting because it has not received instructions to so vote from the beneficial owner and does not have discretionary authority to so vote. Shares represented by proxies marked as abstentions will also be treated as present for purposes of determining the outcome of a vote on any matter, but will not serve as a vote "for" or "against" any matter. Shares represented by proxies designated as broker non-votes, however, will not be treated as present for purposes of determining the outcome of a vote on any matter. PROPOSAL 1 - ELECTION OF DIRECTORS The directors are elected annually by the shareholders of 4Kids. The 4Kids By-laws provide that the number of directors shall be no less than three or more than seven unless and until otherwise determined by vote of a majority of the entire Board of Directors. In accordance therewith, a total of four persons have been designated by the Board of Directors as nominees for election at the Annual Meeting and are being presented to the shareholders for election. The directors to be elected at the Annual Meeting shall be determined by a plurality of the votes cast at the Annual Meeting. The four persons named below, who are currently the entire Board of Directors, have been nominated for election to serve until the next Annual Meeting and until their respective successors have been elected and qualified: o Alfred R. Kahn o Joel I. Cohen o Joseph P. Garrity o Jay Emmett 2 The Board of Directors recommends that shareholders vote FOR the director nominees named above, and, unless a shareholder gives instructions on the proxy card to the contrary or a broker non-vote is indicated on the proxy card, the appointees named thereon intend so to vote. All of the nominees have consented to serve as directors if elected. If at the time of the Annual Meeting, any nominee is unable or declines to serve, the proxies may be voted for the election of such other person or persons as the remaining members of the Board of Directors may recommend. MANAGEMENT Directors and Executive Officers The directors and executive officers of 4Kids, as of April 10, 2000, are as follows:
Name Age Position - ---- --- -------- Alfred R. Kahn .................................... 53 Chairman, Chief Executive Officer Joseph P. Garrity ................................. 44 Executive Vice-President, Chief Operating Officer and Chief Financial Officer, Director Joel I. Cohen (1)(2) .............................. 53 Director Jay Emmett (1)(2) ................................. 71 Director Norman Grossfeld .................................. 36 President of 4Kids Productions, Inc. Sheldon Hirsch .................................... 52 Chief Executive Officer of The Summit Media Group, Inc. Thomas Kenney ..................................... 40 President of The Summit Media Group, Inc. Samuel R. Newborn, Esq. ........................... 45 Executive Vice-President, General Counsel
- ---------------- (1) Member of the Audit Committee (2) Member of the Compensation Committee JOEL I. COHEN has been a director since November 1999. Mr. Cohen has been a Managing Director of J.P. Morgan & Co. Incorporated for more than five years. JAY EMMETT has been a director since August 1999. For more than five years, Mr. Emmett has been sitting on the International Board of Directors of the Special Olympics and the Board of Directors of the San Diego Padres. JOSEPH P. GARRITY has been a director since August 1999. Mr. Garrity has been the Chief Financial Officer since joining 4Kids in June 1991. In October 1994 he became Executive Vice President (Chief Operating Officer). For more than five years prior to such time, Mr. Garrity was a Senior Audit Manager for Deloitte & Touche LLP. ALFRED R. KAHN has been Chairman and Chief Executive Officer of 4Kids since March 1991. Mr. Kahn was Vice Chairman of 4Kids from July 1987 until he became Chairman in 1991. NORMAN GROSSFELD has been President of 4Kids Productions, Inc., 4Kids' television and home video production subsidiary, since February 1994. For two years prior to such time he was President of Gold Coast Television Entertainment. Prior to such time he served as Coordinating Director for NBC Sports from 1991 through 1992, and as Producer/Director for Television Programming Enterprises from 1988-1991. SHELDON HIRSCH has been Chief Executive Officer of The Summit Media Group, Inc. ("Summit Media"), 4Kids' media buying, planning and television syndication subsidiary, since November 1992. For three years prior to such time, Mr. Hirsch was President of Sachs Family Entertainment, a television program distribution company. THOMAS KENNEY has been President of Summit Media since February 1993. For five years prior to such time Mr. Kenney served as Senior Vice President - Advertising at Tiger Electronics Inc. SAMUEL R. NEWBORN, Esq. has been Executive Vice-President General Counsel since January 2000. Prior to joining 4Kids, Mr. Newborn was a partner in the law firm of Janklow, Newborn & Ashley for more than five years. 3 Meetings and Committees of the Board of Directors The Board of Directors of 4Kids met four times during the fiscal year which ended on December 31, 1999. None of the directors attended fewer than 75% of the total number of meetings of the Board of Directors and committees on which he serves, since the date of his appointment. 4Kids has an Audit Committee which consists of Mr. Cohen, who serves as the chairman, and Mr. Emmett. The Audit Committee reviews the financial reporting and internal controls of 4Kids and meets with appropriate financial personnel of 4Kids, as well as its independent auditors, in connection with these reviews. The Audit Committee also recommends to the Board of Directors the firm which is to be presented to the shareholders for designation as independent auditors to examine the corporate accounts of 4Kids for the current fiscal year. The Audit Committee met once during fiscal 1999 and once subsequent to December 31, 1999 but before the filing of the 4Kids' Annual Report on Form 10-K. 4Kids also has a Compensation Committee which consists of Mr. Emmett, who serves as the chairman, and Mr. Cohen. The Compensation Committee is responsible for setting and administering the policies which govern annual and long-term compensation for our executives. The Compensation Committee is also empowered to grant Stock Options pursuant to the 4Kids' Stock Option Plans and to administer such Plans. The Compensation Committee met one time during fiscal 1999. 4Kids does not have a nominating committee. COMPENSATION Executive Compensation - Annual Compensation The following table sets forth a summary of annual and long-term compensation paid to 4Kids' Chief Executive Officer and the four most highly compensated executive officers (as defined in Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended) of 4Kids (other than the Chief Executive Officer) whose total annual salary and bonus for the year ended December 31, 1999 was in excess of $100,000 (collectively, the "Named Officers"): SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------------------- Long-Term Compensation Name and Principal Awards Stock Position Year Salary ($)(1)(2) Bonus ($) Options (Shares) - ------------------ ---- ---------------- ------------ ---------------- Alfred R. Kahn, 1999 $395,000 $4,771,917 100,000 Chairman of the Board 1998 395,000 556,917 195,000 1997 395,000 177,563 300,000 Joseph P. Garrity, 1999 $250,000 $ 954,383 20,000 EVP, COO & CFO 1998 250,000 111,383 178,500 1997 215,000 35,512 195,000 Sheldon Hirsch, 1999 $250,000 $ 16,010 -- Chief Executive Officer, 1998 250,000 78,976 105,000 Summit Media 1997 250,000 108,212 165,000 Thomas Kenney, 1999 $250,000 $ 16,010 -- President, 1998 250,000 78,976 105,000 Summit Media 1997 225,000 108,012 165,000 Norman Grossfeld, 1999 $250,000 $ 420,664 10,000 President, 1998 250,000 29,881 30,000 4Kids Productions 1997 225,000 25,000 30,000
- ---------- (1) Does not include amounts paid on behalf of executive officers under the Company's benefit plans. Such benefit plans, which are offered to all full time employees of the Company include, a 401K Plan, major medical insurance, long term disability insurance and life insurance. (2) In accordance with the rules of the SEC, other compensation in the form of perquisites and other personal benefits has been omitted as such perquisites and other personal benefits constituted less than the lesser of $50,000 or 10% of the total annual salary and bonus for each of the executive officers for each fiscal year. 4 The following table sets forth certain information concerning individual grants of stock options made during fiscal 1999 to the Named Officers: OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Individual Grants Term(1) --------------------------------------------------------------- ------------------------ % of Total Number of Options Granted Options to Employees in Exercise or Base Expiration Name Granted Fiscal Year Price ($/Sh)(2) Date 5% 10% - ------------------- ---------- --------------- ---------------- ---------- ---------- ---------- Alfred R. Kahn(3) ....... 100,000 38% $33.2813 12/21/09 $2,093,000 $5,304,000 Joseph Garrity(4) ....... 20,000 8% $33.2813 12/21/04 $ 184,000 $ 406,000 Norman Grossfeld(4) ..... 10,000 4% $33.2813 12/21/04 $ 92,000 $ 203,000
- ---------- (1) 4Kids used such method as it is one of the alternative methods of option valuation suggested by the Securities and Exchange Commission's rules on executive compensation disclosure. 4Kids does not advocate or necessarily agree that such method can properly determine the value of an option. (2) Based upon the fair market value of 4Kids common shares on the date of grant. (3) All such options are currently exercisable. (4) 50% of such options are currently exercisable and 50% are exercisable on the one year anniversary of the date of grant. Option Exercises and Fiscal Year End Option Values The following table sets forth the number of options exercised and dollar value realized for such exercises and fiscal year end value of unexercised options:
Shares Number of Unexercised Value of Unexercised Acquired on Value Realized Options at December In-the-Money Options at Name Exercise (#) ($) 31, 1999(1) December 31, 1999(2) - ------------------- ------------- -------------- --------------------- ----------------------- Alfred R. Kahn ............ 336,200 $9,055,422 1,458,800 $36,163,000 Joseph P. Garrity ......... 158,600 $4,141,589 384,900 $ 9,901,000 Sheldon Hirsch ............ 205,000 $6,959,393 140,000 $ 3,795,000 Thomas Kenney ............. 141,000 $3,020,039 234,000 $ 6,425,000 Norman Grossfeld .......... 141,600 $5,051,492 10,000 $ 0
- ---------- (1) All options of Mr. Kahn and Mr. Hirsch are currently exercisable; 374,900 and 5,000 for Mr. Garrity and Mr. Grossfeld respectively, are currently exercisable. (2) Calculation based upon the average of the high and low prices of 4Kids' common stock on The Nasdaq National Market on December 31, 1999 of $28.375 per share. Compensation of Directors No director of 4Kids receives any cash compensation for his services in such capacity. Currently, 4Kids has two directors who are not employees, Messrs. Cohen and Emmett. Mr. Cohen and Mr. Emmett were each granted options to acquire 10,000 shares of the Company's common stock in December 1999 at an exercise price of $33.2813, the market price of the Company's common stock on that date. In March 2000, 4Kids purchased an aggregate of $25,000,000 of insurance from National Union Fire Insurance Company of Pittsburgh, Royal Specialty Underwriting and Ace USA Group for indemnification of all of its directors and officers at a cost of $242,000. Employment Contracts and Termination of Employment and Change-in-Control Arrangements Mr. Kahn has an employment agreement with 4Kids pursuant to which he receives a fixed salary of $395,000 per year plus an annual bonus equal to 10% of 4Kids' Income Before Income Tax Provision as stated on 4Kids' financial statements in its annual report on Form 10-K. The agreement expires on March 31, 2003. The agreement also provides that for a period of six months after termination of employment, Mr. Kahn will not "compete" with 4Kids. Under the employment agreement, if Mr. Kahn is terminated without cause, he will be entitled to receive a payment equal to 2.99 times his average annual compensation paid by 4Kids (including bonuses, if any) during the five years preceding the date 5 of termination ("Severance Payment"). If a majority of the directors of 4Kids consists of individuals who have not been recommended by Mr. Kahn (a "Change of Control"), Mr. Kahn can terminate the agreement within six months of such Change of Control, in which event he would be entitled to receive the Severance Payment. Mr. Garrity has an employment agreement with 4Kids which currently provides for an annual salary of $250,000 (the "Fixed Salary") plus an annual bonus equal to 2% of 4Kids' Income Before Income Tax Provision as stated on 4Kids' financial statements in its Annual Report on Form 10-K. The agreement expires December 31, 2000. The agreement may be terminated by 4Kids in the event of Mr. Garrity's disability or for cause. If during the term of Mr. Garrity's agreement there shall occur a Change of Control, Mr. Garrity can terminate the agreement within six months of such Change of Control, in which event he would be entitled to receive a payment equal to the Fixed Salary remaining to be paid for the year during which such termination occurs. Mr. Grossfeld has an agreement with 4Kids Productions which currently provides for an annual salary of $250,000 plus an annual bonus ranging from 3% to 10% of 4Kids Productions Income Before Income Tax Provision depending on the source of the revenue to 4Kids Productions. The Agreement expires December 31, 2001. Each of Mr. Hirsch and Mr. Kenney has an employment agreement with Summit Media for the period January 1, 1995 through December 31, 2000. Mr. Hirsch and Mr. Kenney's agreements currently provide for an annual salary of $250,000 (the "Fixed Salary"). Each agreement currently provides for an annual bonus equal to 6% of Summit Media's Income Before Income Tax Provision as stated on Summit Media's books and records. The agreements automatically renew on a year-to-year basis unless terminated by either party at least 90 days prior to December 31, 2000. The respective agreements may be terminated by 4Kids in the event of Mr. Hirsch's or Mr. Kenney's respective disability or for cause. If during the term of the agreements there shall occur a Change of Control, each of Mr. Hirsch or Mr. Kenney can terminate his respective agreement within six months of such Change of Control, in which event he would be entitled to receive a payment equal to the Fixed Salary remaining to be paid for the year during which such termination occurs. Compensation Committee Interlocks and Insider Participation As described in "Election of Directors - Meetings and Committees of the Board of Directors" above, 4Kids has a Compensation Committee, the members of which are Messrs. Cohen and Emmett. Neither of such individuals has ever been an officer or employee of 4Kids or any of its subsidiaries. During fiscal 1999, no executive officer of 4Kids served as a member of the compensation committee or board of directors of another entity, one of whose executive officers served on the Board of Directors of 4Kids. Report of Executive Compensation The Compensation Committee of the Board of Directors is responsible for 4Kids' executive compensation policy. In general, our executive compensation policy seeks to attract and retain high performing executives and to motivate and reward such executives based on overall corporate and individual performance, and the creation of shareholder value. For 1999, the compensation of our executive officers was composed primarily of salaries, bonuses and stock options. Salary ranges for our executive officers are established with reference to the competitive marketplace for equivalent job levels. Each executive officer's base salary is set based on the level and scope of responsibility within 4Kids and individual performance. Salaries are reviewed annually by the Compensation Committee either formally or informally. Stock options are intended to strengthen the mutuality of interest of our executive officers and our shareholders in maximizing long-term shareholder value. The 4Kids Compensation Committee is responsible for granting stock options to the executive officers pursuant to the 4Kids stock option plans. Grants of stock options are made from time to time to the executive officers based on our overall performance and the individual performance of each executive officer. During 1999, stock options to acquire 100,000 shares of 4Kids were granted in December 1999, to Mr. Kahn at an exercise price of $33.2813 per share, the fair market value of the shares on the date of grant. On June 1, 1999 options to acquire 45,000 shares were granted pursuant to the Company's 1999 Stock Option Plan at an exercise price of $10.3125, the fair market value on the date of grant. On December 22, 1999 options to acquire 120,000 shares were granted pursuant to the Company's 1999 Stock Option Plan at an exercise price of $33.2813, the fair market value on the date of grant. Basis for the Compensation of the CEO We have an employment agreement with Mr. Kahn pursuant to which he receives a fixed annual salary of $395,000 and an annual bonus during the term of the agreement, which expires in 2003. We believe that Mr. Kahn's base salary, 6 which has remained unchanged since 1991, is reasonable and no more generous to him than base salaries paid to other similarly situated chief executive officers. In addition to cash compensation, Mr. Kahn is also eligible to receive stock options pursuant to the 4Kids stock option plans. During 1999, stock options to acquire 100,000 shares of 4Kids were granted in December 1999, to Mr. Kahn at an exercise price of $33.2813 per share, the fair market value of the shares on the date of grant. The purpose of such stock option grants was to provide Mr. Kahn with a further inducement to contribute to the long-term growth and development of the business of 4Kids. Consequently, during the term of such options, Mr. Kahn will receive, for no consideration prior to exercise, the opportunity to profit from any rise in the market value of the 4Kids common shares. The closing price for 4Kids common shares on April 10, 2000 was $21.625. Section 162(m) of the Internal Revenue Code of 1986 makes compensation paid to certain executives in amounts in excess of $1 million not deductible unless the compensation is paid under a predetermined objective performance plan meeting certain requirements, or satisfies one of various other exemptions. The Compensation Committee has not adopted a policy that all compensation be deductible under Section 162(m), in order to preserve the Compensation Committee's flexibility to compensate executive officers. Compensation Committee Joel I. Cohen Jay Emmett Performance Graph Set forth below is a line graph comparing the yearly percentage change in the cumulative total return on the 4Kids common shares against the cumulative total return of the Nasdaq U.S. Market Index and the Nasdaq Non-Financial Index for the past five fiscal years. [The following table was represented as a line graph in the printed material.] 4KIDS PERFORMANCE CHART RAW DATA 1999 Year 4Kids Nasdaq S&P 500 ---- ----- ------ ------- 1994 100 100 100 1995 69 141 138 1996 28 174 170 1997 76 213 226 1998 304 300 292 1999 2318 542 354 7 PRINCIPAL SHAREHOLDERS The following table sets forth, as of March 30, 2000, certain information concerning the beneficial ownership of common shares of 4Kids by (i) each person who is known by 4Kids to own beneficially more than five percent of the outstanding common shares of 4Kids, (ii) each of our directors and (iii) all current directors and officers of 4Kids as a group. Except as otherwise indicated, all such persons have both sole voting and investment power over the shares shown as being beneficially owned by them.
Common Shares Beneficially Owned ------------------------------------------ Name and Address of Beneficial Owner(1) Shares Options Total Percent of Class - ---------------------------------------------------- ---------- --------- ------------ ---------------- Alfred R. Kahn...................................... 1,122,000 1,458,800 2,580,800(2) 19% Joseph P. Garrity................................... -- 384,900 384,900 3% Joel Cohen.......................................... 11,000 10,000 21,000 less than 1% Jay Emmett.......................................... 900 12,900 13,800 less than 1% All directors and officers as a group (8 persons)... 1,133,900 2,300,600 3,434,500(3) 24%
- --------------- (1) The address for Messrs. Kahn, Garrity, Cohen and Emmett is 4Kids Entertainment, Inc., 1414 Avenue of the Americas, New York, New York 10019. (2) Includes 1,056,000 shares owned by Mr. Kahn, 6,000 shares owned by Mr. Kahn's wife, 15,000 shares held by Mr. Kahn for the benefit of his minor daughter under the NY/UGMA, currently exercisable options to acquire 1,458,000 shares, and 45,000 shares owned by Mr. Kahn's three adult children with respect to which Mr. Kahn disclaims beneficial ownership. (3) Includes 434,000 shares which four executive officers have the right to acquire pursuant to stock options; 404,000 of such options are currently exercisable. Mr. Kahn has, from time to time, borrowed a total of $711,582 from Lion Holdings, the successor in interest to Tiger Electronics, Inc. in connection with three purchases of a total of 191,426 shares. This loan has been repaid in full as of April 29, 1999. PROPOSAL 2 - PROPOSED 2000 STOCK OPTION PLAN The Board of Directors has determined that it is in the best interests of 4Kids to adopt the 4Kids Entertainment, Inc. 2000 Stock Option Plan (the "2000 Plan") and will submit the 2000 Plan to the shareholders for approval at the Annual Meeting. The 2000 Plan authorizes the issuance not later than December 31, 2010 of options to purchase up to 500,000 of 4Kids' common shares. The 2000 Plan was approved by the Board of Directors at a meeting held on November 16, 1999, subject to shareholder approval. The Board of Directors believes that 4Kids and its shareholders have benefitted from the grant of stock options in the past, and that similar benefits will result from the adoption of the 2000 Plan. It believes that stock options play an important role in providing eligible individuals with an incentive and inducement to contribute fully to the further growth and development of 4Kids and its subsidiaries because of the opportunity to acquire a proprietary interest in 4Kids on an attractive basis. During the term of the 2000 Plan, optionees will receive, for no consideration prior to exercise, the opportunity to profit from any rise in the market value of the 4Kids common shares. This will dilute the equity interest of the other shareholders of 4Kids. The grant and exercise of the options also may affect 4Kids' ability to obtain additional capital during the term of any options. The principal features of the 2000 Plan are summarized below: The 2000 Plan provides for the granting of stock options to purchase shares of 4Kids common shares to certain key employees of 4Kids and its subsidiaries, to non-employee directors and to independent consultants (each an "Optionee"). No employee may be granted stock options to purchase more than 200,000 shares, in the aggregate, in any calendar year. The 2000 Plan provides for the grant of "nonqualified stock options" ("NQOs") and "incentive stock options" ("ISOs"); ISOs will only be granted to employees. 8 The 2000 Plan will be administered by the Compensation Committee appointed by the Board of Directors. The Compensation Committee currently consists of Messrs. Joel Cohen and Jay Emmett, neither of whom are employees of 4Kids. Awards of stock options to non-employee directors will be approved by the entire Board of Directors. Each stock option granted under the 2000 Plan will be evidenced by a written agreement containing such provisions as approved by the Compensation Committee not inconsistent with the 2000 Plan, and which need not be identical in respect of each Optionee. In general, stock options granted under the 2000 Plan will have the following terms: (a) Time for Exercise; Term. All stock options granted under the 2000 Plan will be exercisable at such time or times and in such installments, if any, as the Compensation Committee or the Board of Directors may determine, and will expire no more than ten years from the date of grant (five years in the case of an ISO granted to an employee who is a "10% Shareholder," as defined below). (b) Exercise Price. The exercise price of any NQO granted under the 2000 Plan will not be less than (a) eighty-five percent (85%) of the fair market value of a 4Kids common share on the date of grant or (b) one hundred percent (100%) in the case of an option intended to be exempt from the deduction limitations of Section 162(m) of the Code. The exercise price of an ISO will not be less than (a) one hundred percent (100%) of the fair market value of a 4Kids common share on the date of grant, or (b) one hundred and ten percent (110%) of such fair market value if the ISO is granted to an employee who owns stock possessing more than ten percent of the total voting power of 4Kids, any parent corporation or any subsidiary (a "10% Shareholder"). The exercise price of each stock option must be paid in cash or in stock of 4Kids valued at its then fair market value. The closing price of 4Kids common shares at April 10, 2000 was $21.625. (c) Nontransferability. Options are non-transferable except by will or by the laws of descent and distribution. (d) Ceiling on ISO Grants. The aggregate fair market value (determined at the time any ISO is granted) of the 4Kids common shares with respect to which ISO is granted to an optionee under the 2000 Plan (together with any incentive stock options granted under any other plan of the Company, any parent or any subsidiary) are exercisable for the first time by such optionee during any calendar year cannot exceed $100,000. If such limit is exceeded, the excess over $100,000 will be treated as NQOs. (e) Termination of Option. Stock options granted to employees under the 2000 Plan generally terminate three months after the optionee's employment is terminated, provided that, if such termination is by reason of death or disability, the stock option generally will terminate six months thereafter (or at the end of the option term if earlier). Options granted to non-employee directors under the 2000 Plan generally remain exercisable for one year after such individual ceases to serve as a director (but not beyond the end of the option term). Options granted to independent consultants under 2000 Plan will remain exercisable following a termination of the consultancy to the extent, if any, provided in the stock option agreement evidencing the grant of such option. (f) Adjustments. Each stock option agreement will contain such provisions as the Committee shall determine to be appropriate for the adjustments of the kind and number of shares subject to each outstanding stock option, the exercise price or both in the event of any changes in the outstanding 4Kids common shares by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations or exchanges of shares, or the like. In the event of any such change or changes in the outstanding 4Kids common shares, and as often as the same shall occur, the kind and aggregate number of shares available under the 2000 Plan may be appropriately adjusted by the Compensation Committee, whose determination is binding and conclusive. The Board of Directors has the right to alter, suspend or terminate the 2000 Plan as it may deem advisable, except that it may not without further shareholder approval (a) increase the maximum number of shares subject to the 2000 Plan (except for corporate changes described above); (b) permit the grant of options to anyone other than the employees, non-employee directors and independent consultants; (c) change the manner of determining the minimum exercise prices; or (d) extend the period during which stock options may be granted or exercised. No alteration, suspension or termination of the 2000 Plan may, without the consent of the optionee to whom any stock option has theretofore been granted, terminate such optionee's stock option or adversely affect such optionee's rights thereunder. Notwithstanding anything in the 2000 Plan to the contrary, in the event that the Board of Directors shall at any time declare it advisable to do so in connection with any proposed sale or conveyance of all or substantially all of the property and assets of 4Kids or of any proposed consolidation or merger of 4Kids (unless 4Kids shall be the surviving corporation 9 in such merger), 4Kids may give written notice to each optionee that his or her stock option may be exercised only within thirty (30) days after the date of such notice, and all rights under said stock option which shall not have been so exercised shall terminate at the expiration of such thirty (30) days, provided that the proposed sale, conveyance, consolidation or merger to which such notice shall relate shall be consummated within six months after the date of such notice. If such proposed sale, conveyance, consolidation or merger shall not be consummated within said time period, no unexercised rights under any stock option shall be affected by such notice except that such stock option may not be exercised between the date of expiration of such thirty (30) days and the date of the expiration of such six-month period. FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the Federal income tax treatment of the stock options which may be granted under the 2000 Plan based upon the current provisions of the Internal Revenue Code of 1986, as amended. Nonqualified Stock Options ("NQOs"). The grant of a NQO under the 2000 Plan is not taxable to the option holder at the time of grant. Upon the exercise of a NQO by the option holder, (1) the option holder will recognize taxable ordinary compensation income in an amount equal to the excess of the fair market value of the shares acquired on the date of exercise over the exercise price; (2) 4Kids generally will be entitled to a corresponding deduction; and (3) upon a sale of the shares so acquired, the option holder will have short-term or long-term capital gain or loss, depending on the holding period, in an amount equal to the difference between the amount realized on such sale and the tax basis of the shares sold. In general, the option holder's tax basis in the shares will be equal to their fair market value on the date of exercise, and the holding period of the shares will begin at exercise. Incentive Stock Options ("ISOs"). The grant of an ISO under the 2000 Plan is not taxable to the option holder, and, upon the exercise of an ISO by an option holder during employment or within three months after termination of employment (12 months in the case of total disability), (1) the option holder will not recognize any ordinary compensation income at the time of exercise; (2) the excess of the fair market value of the shares received upon exercise and the exercise price paid will be includible in the option holder's alternative minimum taxable income; (3) no deduction will be allowed to 4Kids in connection with the exercise; and (4) upon a sale of the shares so acquired after the later of (a) one year from the exercise date, or (b) two years from the date of the ISO grant (the "ISO holding period"), any amount realized by the option holder in excess of the exercise price will be taxed as long-term capital gain, and any loss sustained will be a long-term capital loss. In general, an option holder's tax basis in the shares received upon the exercise of an ISO will be equal to the exercise price, and the holding period will begin at exercise. If the option holder disposes of any of the shares received upon the exericse of an ISO before the end of the ISO holding period (a "disqualifying disposition"), (1) the option holder will recognize taxable ordinary compensation income at the time of disposition (and 4Kids will be entitled to a tax deduction) in an amount equal to (a) the lesser of (x) the excess, if any, of the fair market value of the shares received over the exercise price on the date of exercise, or (y) the excess of the amount realized on the disposition over the exercise price; and (2) the option holder will recognize capital gain or loss (long-term or short-term, depending on the holding period) in an amount equal to the difference between (a) the amount realized upon the disposition and (b) the exercise price paid for the shares and the amount of ordinary income, if any, so recognized by the option holder. Whenever under the 2000 Plan shares are to be delivered upon exercise of a stock option, 4Kids shall be entitled to require as a condition of delivery that the option holder remit an amount sufficient to satisfy all Federal, state, and other governmental withholding tax requirements related thereto. The Board of Directors recommends a vote FOR approval of the 2000 Plan as described above at the Annual Meeting and it is intended that proxies not marked to the contrary and not designated as broker non-votes will be so voted. The description of the proposed 2000 Plan set forth above is qualified in its entirety by reference to the text of the 2000 Plan as set forth in Appendix A hereto. 10 PROPOSAL 3 - PROPOSAL TO INCREASE AUTHORIZED COMMON SHARES There is being submitted to the shareholders for approval at the Annual Meeting a proposal to amend the Certificate of Incorporation to increase the authorized common shares of 4Kids, par value $.01, from 20,000,000 shares to 40,000,000 shares. On April 10, 2000, there were 11,858,176, common shares outstanding. At December 31, 1999, 4Kids reserved 2,784,738 common shares for issuance pursuant to options granted or to be granted under its stock option plans. 4Kids has also reserved 500,000 common shares to be issued under the 2000 Plan. At December 31, 1999 4Kids had 5,357,507 authorized and unreserved shares available for issuance. If the proposal to increase the authorized common shares of 4Kids is approved by the shareholders, 4Kids will have 25,357,507 common shares authorized but unreserved. The issuance of additional common shares of 4Kids may dilute the present equity ownership position of 4Kids shareholders. The issuance of additional common shares of 4Kids may, among other things, have a dilutive effect on earnings per share and on the equity and voting power of existing 4Kids shareholders and may adversely affect the market price for 4Kids common shares. Although 4Kids has no current plans to issue any shares to be authorized under this proposal, the increase in capital stock will provide the Board of Directors with the ability to use the 4Kids stock to respond to developments in our business, including possible acquisition transactions and general corporate purposes, including stock splits, stock dividends and the raising of additional capital, at times when the Board of Directors, in its discretion, deems it advantageous to do so. While the increase in authorized common shares will not change substantially the rights of holders of 4Kids common shares, the issuance of shares in future transactions may have a dilutive effect. The Board of Directors could use the additional common shares to discourage an attempt to change control of 4Kids; however, the Board has no present intention of issuing any common shares for such purposes and this proposal is not being recommended in response to any specific effort to obtain control of 4Kids of which we are aware. The Board of Directors recommends a vote FOR approval of the amendment to increase the authorized number of common shares of 4Kids as described above at the Annual Meeting and it is intended that proxies not marked to the contrary and not designated as broker non-votes will be voted in favor of approval of the amendment. In the event that Proposal 3 is not approved by the 4Kids shareholders at the Annual Meeting, the Certificate of Incorporation in effect as of the date hereof will remain in full force and effect. The full text of the proposed resolution amending the Certificate of Incorporation is set forth in Appendix B hereto and the description of the proposed amendment herein is qualified in its entirety by reference to such Appendix B. PROPOSAL 4 - SELECTION OF AUDITORS The 4Kids financial statements for the past several fiscal years were examined by Deloitte & Touche LLP, independent public accountants. On November 16, 1999, the Board of Directors voted to propose and recommend the selection of Deloitte & Touche LLP as independent auditors to examine its financial statements for the fiscal year ending December 31, 2000. Representatives of Deloitte & Touche LLP are expected to be present at the annual meeting of shareholders with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. The Board of Directors recommends a vote FOR ratification of the appointment of Deloitte & Touche LLP as auditors and it is intended that proxies not marked to the contrary and not designated as broker non-votes will be so voted. SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the officers and directors of 4Kids, and persons who own more than ten percent of a registered class of 4Kids' equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These persons are required by regulation to furnish 4Kids with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, 4Kids believes that other than disclosed below, during the fiscal year ended December 31, 1999, 4Kids' officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements. 11 During 1999, each of Messrs. Cohen and Emmett were appointed directors of 4Kids. Neither of them filed a Form 3 when required in connection with their appointment. Mr. Newborn was appointed Executive Vice-President, General Counsel during 1999 and did not file a Form 3 when required in connection with his appointment. During 1999, the 4Kids Compensation Committee extended the expiration dates of stock options belonging to Messrs. Cohen and Emmett. Neither of them filed a Form 4 when required in connection with the extension of the expiration date of their respective stock options. All of the above-mentioned forms were filed late with the Securities and Exchange Commission. During 1999, each of Messrs. Emmett, Hirsch and Grossfeld purchased and sold common shares of 4Kids and exercised stock options granted to them under the 4Kids stock option plans. None of them filed Form 4's when required in connection with their transactions. Mr. Emmett failed to file three Form 4's accounting for eight separate transactions. Mr. Hirsch failed to file one Form 4 accounting for two transactions. Mr. Grossfeld failed to file one Form 4 accounting for ten transactions. All of the above-mentioned transactions were reported on timely filed Form 5's. OTHER MATTERS The Board of Directors does not know of any matters other than those mentioned above to be presented to the meeting. If any other matters do come before the meeting, the persons named in the proxy will exercise their discretion in voting thereon. SHAREHOLDER PROPOSALS Proposals by any shareholders intended to be presented at the 2001 Annual Meeting of Shareholders must be received by the Corporation for inclusion in proxy material relating to such meeting not later than January 17, 2001. EXPENSES All expenses in connection with solicitation of proxies will be borne by 4Kids. Officers and regular employees of 4Kids may solicit proxies by personal interview and telephone and telegraph. Brokerage houses, banks and custodians, nominees and fiduciaries will be reimbursed for out-of-pocket and reasonable expenses incurred in forwarding proxies and proxy statements. Georgeson & Co. has been engaged to assist in the solicitation of proxies, brokers, nominees, fiduciaries and other custodians. 4Kids will pay that firm approximately $6,000 for its services and reimburse its out-of-pocket expenses. By Order of the Board of Directors, /s/ Alfred R. Kahn ----------------------------------- Alfred R. Kahn Chairman of the Board of Directors, Chief Executive Officer New York, New York April 18, 2000 12 Appendix A 4KIDS ENTERTAINMENT, INC. 2000 STOCK OPTION PLAN 1. Purpose of Plan. This 2000 Stock Option Plan (the "Plan") is designed to assist 4Kids Entertainment, Inc. (the "Company") in attracting and retaining the services of employees, Eligible Directors (as hereinafter defined) and such independent consultants as may be designated, and to provide them with an incentive and inducement to contribute fully to the further growth and development of the business of the Company and its subsidiaries. 2. Legal compliance. It is the intent of the Company that all options granted under it shall be either "Incentive Stock Options" ("ISOs"), as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), or non-qualified stock options ("NQOs"); provided, however, ISOs shall be granted only to Employees (as hereinafter defined). An option shall be identified as an ISO or an NQO in writing in the document or documents evidencing the grant of the option. All options that are not so identified as ISOs are intended to be NQOs. It is the further intent of the Plan that it conform in all respects with the requirements of Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"). To the extent that any aspect of the Plan or its administration shall at any time be viewed as inconsistent with the requirements of Rule 16b-3 or, in connection with ISOs, the Code, such aspect shall be deemed to be modified, deleted or changed as necessary to ensure continued compliance with such provisions. 3. Definitions. In addition to other definitions contained elsewhere in the Plan, as used in the following terms have the following meanings unless the context requires a different meaning: "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as the same may from time to time be amended. "Committee" means the committee referred to in Section 5 hereof. "Common Stock" means the Common Stock of the Company, par value $.01 per share. "Designated Beneficiary" means the person designated by an optionee to be entitled on his death to any remaining rights arising out of an option, such designation to be made in accordance with such regulations as the Committee or Board may establish. "Eligible Directors" means (i) a Non-Employee Director as defined in Rule 16b-3(b)(3), or any successor provision promulgated under the Securities Exchange Act of 1934 and (ii) an Outside Director within the meaning of Section 162(m) of the Code, and the Treasury Regulations promulgated thereunder; provided, however, that clause (ii) shall apply only with respect to Stock Options that are intended to qualify as "performance-based compensation" exempt from the limitations contained in Section 162(m) of the Code. "Employee" means any employee of the Company, or of any corporation which is then a "parent corporation" within the meaning of Section 424(e) of the Code (a "Parent") or a "subsidiary corporation," within the meaning of Section 424(f) of the Code (a "Subsidiary"), who is designated by the Board or the Committee as a key employee. "Fair Market Value" means the average of the high and low prices on the over-the-counter market on the last day on which the Company's shares of Common Stock were traded immediately preceding the date an option is granted pursuant to the Plan, as reported by the National Association of Security Dealers Automated Quotation System ("NASDAQ"), or NASDAQ's Successor, or if not reported on NASDAQ, the fair market value of such Common Stock as determined by the Committee or the Board in good faith and based on all relevant factors. "Mature Shares" means shares of Common Stock owned by an optionee which are not subject to any pledge or other security interest and have either been held by the optionee for six months, previously acquired by the optionee on the open market or meet such other requirements as the Committee may determine necessary in order to avoid an accounting earnings charge on account of the use of such shares to pay the purchase price for Stock Options or satisfy a withholding obligation in respect of a Stock Option. "Stock Options" means any stock options granted to an optionee under the Plan. "Stock Option Agreement" means a stock option agreement entered into pursuant to the Plan. "Ten-Percent Shareholder" means an Employee who, at the time an ISO is granted to him, owns (within the meaning of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of the Company, any Parent or any Subsidiary. 4. Stock Options: Stock Subject to Plan; Individual Limit. The stock to be issued upon exercise of Stock Options granted under the Plan shall consist of authorized but unissued shares, or of treasury shares, of Common Stock, as determined from time to time by the Board. The maximum number of shares for which Stock Options may be granted under the Plan is 500,000 shares, subject to adjustment as provided in Section 8 of the Plan; provided, however, that no Employee shall be granted Stock Options with respect to more than 200,000 shares in any year. If any Stock Option granted under the Plan should expire or terminate for any reason whatsoever without having been exercised in full, the unpurchased shares shall become available for new options. 5. Administration. (a) The Plan shall be administered by the Compensation Committee, each of the members of which will be an Eligible Director or, if such Committee is not appointed, then it shall be administered by the Board. Options may be granted by the Board or the Committee. For purposes of the Plan, the Board or its appointed Committee shall be referred to as the "Committee." The Committee, if any, shall be appointed by the Board and shall consist of not less than two members. The Board shall establish the number of members to serve on the Committee, shall fill all vacancies or create new openings on the Committee, and may remove any member of the Committee at any time with or without cause. The Committee shall select its own chairman and shall adopt, alter or repeal such rules and procedures as it may deem proper and shall hold its meetings at such times and places as it may determine. The Committee shall keep minutes of its meetings and of actions taken by it without a meeting. A majority of the Committee present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee without a meeting, shall be the acts of the Committee. (b) Unless otherwise determined by the Board, the Committee shall have full and final authority in its discretion, but subject to the express provisions of the Plan, to: (i) prescribe, amend and rescind rules and regulations relating to the Plan; (ii) interpret the Plan and the respective Stock Options; and (iii) make all other determinations necessary or advisable for administering the Plan. All determinations and interpretations by the Committee or the Board shall be binding and conclusive upon all parties. No member of the Committee or the Board shall be liable for any action or determination made in good faith in respect of the Plan or any Stock Option granted under it. (c) The provisions of this Section 5 shall survive any termination of the Plan. 6. Terms and Exercise of Stock Option. (a) Unless otherwise determined by the Committee each Stock Option shall terminate no later than ten years (or such shorter term as may be fixed by the Committee) after the date on which it shall have been granted; provided, however, that no ISO granted to any Employee who is a Ten-Percent Shareholder shall be made exercisable after the expiration of five years from the date of grant. The date of termination pursuant to this paragraph is hereinafter referred to as the "termination date" of the option. (b) Stock Options shall be exercisable at such time or times and in such installments, if any, as the Committee or Board may determine. In the event any option is exercisable in installments, any shares which may be purchased during any year or other period which are not purchased during such year or other period may be purchased at any time or from time to time during any subsequent year or period during the term of the option unless otherwise provided in the Stock Option Agreement. (c) A Stock Option shall be exercised by written notice to the Secretary or Treasurer of the Company at its then principal office. The notice shall (i) specify the number of shares as to which the Stock Option is being exercised and shall be accompanied by payment in full of the purchase price for such shares; provided, however, that an optionee at his or A-2 her discretion may, in lieu of cash payment to the Company, deliver Mature Shares, valued at fair market value on the date of delivery, as payment for the exercise of any Stock Option or (ii) request that the Company withhold, from the number of shares of Common Stock that may otherwise be obtained upon the exercise of the Stock Option, that number of shares having an aggregate fair market value equal to the Stock Option exercise price. In the event a Stock Option is being exercised, in whole or in part pursuant to Section 6(c) hereof by any person other than the optionee, a notice of election shall be accompanied by proof satisfactory to the Company of the rights of such person to exercise said Stock Option. An optionee shall not, by virtue of the granting of a Stock Option, be entitled to any rights of a shareholder in the Company and such optionee shall not be considered a record holder of shares purchased by him or her until the date on which he or she shall actually be recorded as the holder of such shares upon the stock records of the Company. The Company shall not be required to issue any fractional shares upon exercise of any Stock Option and shall not be required to pay to the person exercising the Stock Option the cash equivalent of any fractional share interest unless so determined by the Committee. (d) In the event an optionee elects to deliver Mature Shares or to request that Common Stock be withheld in accordance with subsection (c) above, upon exercise of a Stock Option granted hereunder, the Company shall be entitled to require as a condition thereto that the optionee remit an amount which the Company deems sufficient to satisfy all Federal, state and other governmental withholding tax requirements related thereto. The Company shall have the right, in lieu of or in addition to the foregoing to withhold such sums from compensation otherwise due to the optionee. 7. Other Stock Options Conditions. (a) Except as expressly permitted by the Committee, no Stock Option shall be transferred by the optionee otherwise than by will or by the laws of descent and distribution or for estate planning purposes. During the lifetime of the optionee the Stock Option shall be exercisable only by such optionee, by his or her legal representative or by a transferee permitted under the terms of the grant of the Stock Option. (b) Unless otherwise determined by the Committee, in the event of the termination of an optionee's employment by the Company at any time for any reason (excluding disability or death), his or her option and all rights thereunder shall be exercisable by the optionee at any time within three months thereafter to the extent such option was exercisable at the time of such termination, but in no event later than the termination date of his or her Stock Option. Notwithstanding the foregoing, unless otherwise determined by the Committee, in the event an optionee is permanently and totally disabled (within the meaning of section 105(d)(4), or any successor section, of the Code), his or her Stock Option and all rights thereunder shall be exercisable by the optionee (or his or her legal representative) to the extent such option was exercisable at the time of such termination, at any time within six (6) months of termination of employment but in no event later than the termination date of his Stock Option. (c) Unless otherwise determined by the Committee, if an optionee shall die while in the employ of the Company his or her Stock Option may be exercised by his or her designated beneficiary or beneficiaries (or if none have been effectively designated, by his or her executor, administrator or the person to whom his or her rights under his or her Stock Option shall pass by will or by the laws of descent and distribution) to the extent such option was exercisable at the time of such termination, at any time within six (6) months after the date of death but not later than the termination date of his or her Stock Option. (d) In the event an Eligible Director ceases to serve as a member of the Board of Directors of the Company at any time for any reason, his option and all rights thereunder shall be exercisable by him at any time within one year thereafter, to the extent such option was exercisable at the time of such termination, but in no event later than the termination date of his option. If an Eligible Director shall die while serving as a director of the Company, his Stock Option may be exercised by his designated beneficiary or beneficiaries (or, if none have been effectively designated, by his executor, administrator or the person to whom his rights under his Stock Option shall pass by his will or by the laws of descent and distribution) to the extent such option was exercisable at the time of such termination, at any time within one year after the date of his death, but not later than the termination date of his Stock Option. (e) Nothing in the plan or in any Stock Option Agreement including an option granted pursuant hereto shall confer on any employee any right to continue in the employ of the Company or prevent or interfere in any way with the right of the Company to terminate his employment at any time, with or without cause. (f) Nothing in the Plan or in any Stock Option granted pursuant hereto shall confer on any Eligible Director any right to continue as a director of the Company. A-3 (g) Each Stock Option granted pursuant to the Plan shall be evidenced by a written Stock Option Agreement duly executed by the Company and the optionee, in such form and containing such provisions as the Committee may from time to time authorize or approve. 8. Adjustments. Stock Option Agreements shall contain such provisions as the Committee shall determine to be appropriate for the adjustment of the kind and number of shares subject to each outstanding Stock Option, or the Stock Option prices, or both, in the event of any changes in the outstanding Common Stock of the Company by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations or exchanges of shares, or the like. In the event of any such change or changes in the outstanding Common Stock, and as often as the same shall occur, the kind and aggregate number of shares available under the Plan may be appropriately adjusted by the Committee, whose determination shall be binding and conclusive. 9. Amendment and Termination. (a) Unless the Plan shall have been otherwise terminated as provided herein, it shall terminate on, and no option shall be granted thereunder, after the tenth anniversary of the adoption of the Plan by the Board. The Board may at any time prior to that date alter, suspend or terminate the Plan as it may deem advisable, except that it may not without further shareholder approval (i) increase the maximum number of shares subject to the Plan (except for changes pursuant to Section 8); (ii) permit the grant of options to anyone other than the Employees, Eligible Directors and consultants; (iii) change the manner of determining the minimum stock exercise prices (except for changes pursuant to Section 8); or (iv) extend the period during which Stock Options may be granted or exercised. Except as otherwise hereinafter provided, no alteration, suspension or termination of the Plan may, without the consent of the optionee to whom any Stock Option shall have theretofore been granted (or the person or persons entitled to exercise such Stock Option under Section 7 of the Plan), terminate such optionee's Stock Option or adversely affect such optionee's rights thereunder. (b) Anything herein to the contrary notwithstanding, in the event that the Board shall at any time declare it advisable to do so in connection with any proposed sale or conveyance of all or substantially all of the property and assets of the Company or of any proposed consolidation or merger of the Company (unless the Company shall be the surviving corporation in such merger), the Company may give written notice to the holder of any Stock Option that his or her Stock Option may be exercised only within thirty (30) days after the date of such notice, and all rights under said Stock Option which shall not have been so exercised shall terminate at the expiration of such thirty (30) days, provided that the proposed sale, conveyance, consolidation or merger to which such notice shall relate shall be consummated within six (6) months after the date of such notice. If such proposed sale, conveyance, consolidation or merger shall not be consummated within said time period, no unexercised rights under any Stock Option shall be affected by such notice except that such Stock Option may not be exercised between the date of expiration of such thirty (30) days and the date of the expiration of such six-month period. 10. Option Exercise Price. The price per share to be paid by the optionee at the time an ISO is exercised shall not be less than one hundred percent (100%) of the Fair Market Value of one share of the optioned Common Stock on the date on which the Option is granted; provided, however, that no ISO may be granted under the Plan to any Employee who is a Ten-Percent Shareholder, unless the exercise price of such ISO is at least equal to one hundred and ten percent (110%) of Fair Market Value on the date of grant. The price per share to be paid by the optionee at the time an NQO is exercised shall not be less than eighty-five percent (85%) of the Fair Market Value on the date on which the NQO is granted, as determined by the Committee; provided, however, that the exercise price of any NQO that is intended to be treated as performance-related compensation for purposes of Section 162(m) of the Code shall not be less than one hundred percent (100%) of the Fair Market Value on the date of grant. 11. Ceiling on ISO Grants. The aggregate Fair Market Value (determined at the time any ISO is granted) of the Common Stock with respect to which an optionee's ISO, together with incentive stock options granted under any other plan of the Company, any Parent or any Subsidiary, are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. If an optionee holds such incentive stock options that become first exercisable (including as a result of acceleration of exercisability under the Plan) in any one year for shares having a Fair Market Value at the date of grant in excess of $100,000, then the most recently granted of such ISOs, to the extent that they are exercisable for shares having an aggregate Fair Market Value in excess of such limit, shall be deemed to be NQOs. A-4 12. Indemnification. Any member of the Committee or the Board who is made, or threatened to be made, a party to any action or proceeding, whether civil or criminal, by reason of the fact that such person is or was a member of the Committee or the Board insofar as it relates to the Plan shall be indemnified by the Company, and the Company may advance such person's related expenses, to the full extent permitted by law and/or the Certificate of Incorporation or By-laws of the Company. 13. Effective Date of the Plan; Termination of the Plan and Stock Options. The Plan shall become effective on the date of adoption by the Board, provided, however, that the Plan shall be subject to approval by the affirmative vote of the holders of a majority of the votes cast at a meeting of shareholders on or before December 31, 2000. If any Stock Options are granted hereunder prior to approval by the shareholders and such approval does not occur, such Stock Options shall be deemed null and void ab intio. 14. Expenses. Except as otherwise provided herein for the payment of Federal, State and other governmental taxes, the Company shall pay all fees and expenses incurred in connection with the Plan and the issuance of the stock hereunder. 15. Government Regulations, Registrations and Listing of Stock. (a) The Plan, and the grant and exercise of Stock Options thereunder, and the Company's obligation to sell and deliver stock under such Stock Options shall be subject to all applicable Federal and State laws, rules and regulations and to such approvals by any regulatory or governmental agency as may, in the opinion of the Company, be necessary or appropriate. (b) The Company may in its discretion require, whether or not a registration statement under the Securities Act of 1933 and the applicable rules and regulations thereunder (collectively the "Act") is then in effect with respect to shares issuable upon exercise of any stock option or the offer and sale of such shares is exempt from the registration provisions of such Act, that as a condition precedent to the exercise of any Stock Option the person exercising the Stock Option give to the Company a written representation and undertaking satisfactory in form and substance to the Company that such person is acquiring the shares for his or her own account for investment and not with a view to the distribution or resale thereof and otherwise establish to the Company's satisfaction that the offer or sale of the shares issuable upon exercise of the Stock Option will not constitute or result in any breach or violation of the Act or any similar act or statute or law or regulation in the event that a registration statement under the Act is not then effective with respect to the Common Shares issued upon the exercise of such stock option; the Company may place upon any stock certificate appropriate legends referring to the restrictions on disposition under the Act. (c) In the event the class of shares issuable upon the exercise of any Stock Option is listed on any national securities exchange or NASDAQ, the Company shall not be required to issue or achieve any certificate for shares upon the exercise of any Stock Option, or to the listing of the shares so issuable on such national securities exchange or NASDAQ and prior to the registration of the same under the Securities Exchange Act of 1934 or any similar act or statute. A-5 (This page has been left blank intentionally) Appendix B CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of 4KIDS ENTERTAINMENT, INC. ------------------------------------------------- Under Section 805 of the Business Corporation Law ------------------------------------------------- Pursuant to the provisions of Section 805 of the Business Corporation Law, the undersigned Chairman and the Executive Vice President and Secretary, respectively, of 4Kids Entertainment, Inc., hereby certify: FIRST: The name of the Corporation is 4Kids Entertainment, Inc. SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State, Albany, New York on April 28, 1970 under the original name of American Leisure Industries, Inc. THIRD: The amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is to increase the number of shares of authorized common stock of the corporation. FOURTH: To accomplish the foregoing amendment, the first sentence of Article FOUR of the Certificate of Incorporation of the Corporation, dealing with the capitalization of the Corporation, is hereby amended to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is forty-three million (43,000,000) shares divided into two classes of which forty million (40,000,000) shares shall be designated as common stock, $.01 par value per share and three million (3,000,000) shares shall be designated as preferred stock, $.01 par value per share." FIFTH: The foregoing amendment of the Certificate of Incorporation of the Corporation was authorized by a vote of the Board of Directors of the Corporation, followed by a vote of the holders of a majority of all outstanding shares of the Corporation entitled to vote on the said amendment of the Certificate of Incorporation. IN WITNESS WHEREOF, we have subscribed this document on the date set forth below and do hereby affirm, under the penalties of perjury, that the statements contained herein have been examined by us and are true and correct. Date: _________ __, 2000 By ___________________________________________ Alfred R. Kahn, Chairman By ___________________________________________ Joseph P. Garrity, Executive Vice President, Secretary B-1 4KIDS ENTERTAINMENT, INC. PROXY Annual Meeting of Shareholders -- May 17, 2000 The undersigned shareholder of 4Kids Entertainment, Inc. hereby appoints Alfred R. Kahn, attorney and proxy of the undersigned, with full power of substitution and resubstitution, to vote, as indicated herein, all the common shares of 4Kids standing in the name of the undersigned at the close of business on April 10, 2000 at the Annual Meeting of Shareholders of 4Kids to be held at the Directors Guild Theater, 110-114 West 57th Street, New York, New York, at 11:00 a.m., local time, on Wednesday, May 17, 2000, and at any and all adjournments or postponements thereof, with all the powers the undersigned would possess if then and there personally present and especially (but without limiting the general authorization and power hereby given) to vote as indicated on the proposals, as more fully described in the Proxy Statement for the meeting. Please mark boxes /x/ in blue or black ink. 1. Election of Directors. FOR all nominees / / WITHHOLD authority only for those nominees whose name(s) I have stricken below / / WITHHOLD authority for ALL nominees / / Nominees for Director are: Alfred R. Kahn, Joseph P. Garrity, Joel I. Cohen and Jay Emmett. 2. Proposal to approve the 4Kids 2000 Stock Option Plan. For / / Against / / Abstain / / 3. Proposal to amend the Certificate of Incorporation to change the authorized common stock to 40,000,000 shares, par value $.01. For / / Against / / Abstain / / 4. Proposal to approve the selection of Deloitte & Touche LLP as 4Kids independent auditors for the fiscal year ending December 31, 2000. For / / Against / / Abstain / / (Continued, and to be signed on reverse side) (Continued from other side) 5. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment or postponements thereof. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE INDICATED. SIGNATURE(S) should be exactly as name or names appear on this proxy. If stock is held jointly, each holder should sign. If signing is by attorney, executor, administrator, trustee or guardian, please give full title. Dated _______________________, 2000 ___________________________________ Signature ___________________________________ Print Name ___________________________________ Signature ___________________________________ Print Name [Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.] [LOGO] 4kids Enertainment, Inc. -----END PRIVACY-ENHANCED MESSAGE-----