<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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 240.14a-11(c) or 240.14a-12
JAKKS PACIFIC, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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
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[ ] Fee paid previously with preliminary materials.
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
JAKKS PACIFIC, INC.
24955 PACIFIC COAST HIGHWAY, #B202
MALIBU, CA 90265
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 30, 1997
The Annual Meeting of Stockholders of JAKKS PACIFIC, INC. (the "Company")
will be held at the Company's New York Showroom, 200 Fifth Avenue, Suite 550,
New York, NY 10010, on July 30, 1997 at 4:00 p.m. local time, to consider and
act upon the following matters:
1. To elect five directors to serve for the ensuing year.
2. To ratify and approve the Company's Second Amended and Restated 1995
Stock Option Plan.
3. To ratify the selection by the Board of Directors of Pannell Kerr
Forster, Certified Public Accountants, A Professional Corporation, as
the Company's independent auditors for the current fiscal year.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record as of the close of business on June 13, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
By Order of the Board of Directors
Stephen G. Berman
Secretary
Malibu, California
June 23, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED.
<PAGE> 3
JAKKS PACIFIC, INC.
24955 PACIFIC COAST HIGHWAY, #B202
MALIBU, CA 90265
------------------------
PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 30, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of JAKKS PACIFIC, INC. (the "Company") for use
at the 1997 Annual Meeting of Stockholders to be held on July 30, 1997, and at
any adjournment of that meeting (the "Annual Meeting"). All proxies will be
voted in accordance with a stockholder's instructions and, if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before it is exercised by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting.
The Company mailed this Proxy Statement to stockholders on or about June
23, 1997, accompanied by the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1996.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 13, 1997, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 4,782,969 shares of the
Company's common stock, $.001 par value per share (the "Common Stock").
Stockholders are entitled to one vote per share.
The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented at the Annual Meeting is required for election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented at the Annual Meeting is required for the
approval of the adoption of the Company's Second Amended and Restated 1995 Stock
Option Plan and the ratification of the selection by the Board of Directors of
Pannell Kerr Forster, Certified Public Accountants, a professional corporation,
as the Company's independent auditors for the current fiscal year. Shares of
Common Stock represented in person or by proxy (including shares which abstain
or do not vote for any reason with respect to one or more of the matters
presented for stockholder approval) will be counted for purposes of determining
whether a quorum is present at the Annual Meeting. Abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
number of shares present and entitled to vote with respect to any particular
matter, but will not be counted as a vote in favor of such matter. Accordingly,
an abstention from voting on a matter has the same legal effect as a vote
against the matter. If a broker or nominee holding stock in "street name"
indicates on the proxy that it does not have discretionary authority to vote as
to a particular matter ("broker non-votes"), those shares will not be considered
as present and entitled to vote with respect to such matter. Accordingly, a
broker non-vote on a matter has no effect on the voting on such matter.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 13, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each current director and nominee for director of the Company, (ii) each
executive officer of the Company named in the Summary Compensation Table set
forth under the caption "Executive Compensation" below, (iii) all directors and
executive officers of the Company as a group and (iv) each person known by the
Company to own beneficially more than five per cent (5%) of the outstanding
shares of Common Stock of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED** OF CLASS**
------------------------------------------------- -------------------- ----------
<S> <C> <C>
Jack Friedman.................................... 1,410,488(1) 29.5%
24955 Pacific Coast Highway
#B202, Malibu, CA 90265
Stephen Berman................................... 216,998(2) 4.5%
24955 Pacific Coast Highway
#B202, Malibu, CA 90265
Michael G. Miller................................ 16,275(3) *
One Blue Hill Plaza
Pearl River, NY 10965
Murray L. Skala.................................. 238,696(4) 5.0%
750 Lexington Avenue
New York, NY 10022
Robert E. Glick.................................. 23,725(5) *
1400 Broadway
New York, NY 10018
Renaissance Capital Growth & Income Fund III,
Inc. and Renaissance US Growth & Income Trust
PLC.............................................. 1,043,478(6) 17.9%
8080 N. Central Expressway
Dallas, TX 75206
All Officers and Directors as a Group............ 1,734,485 35.8%
(six persons)(1)(2)(3)(4)(5)(6)(7)
</TABLE>
- ---------------
* Less than 1% of the Company's outstanding shares.
** The number of Shares of Common Stock beneficially owned by each person or
entity is determined under the rules promulgated by the Securities and
Exchange Commission (the "Commission"). Under such rules, beneficial
ownership includes any shares as to which the person or entity has sole or
shared voting power or investment power. The percentage of the Company's
outstanding shares is calculated by including among the shares owned by such
person any shares which such person or entity has the right to acquire
within 60 days after June 13, 1997. The inclusion herein of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of such shares.
(1) Includes an aggregate of 189,872 shares held by Mr. Skala as trustee under
trusts for the benefit of the children of Mr. Friedman, the Company's
President, Chairman and Chief Executive Officer.
(2) Mr. Berman is the Company's Executive Vice President, Chief Operating
Officer, Secretary and a director.
(3) Represents 16,275 shares which Mr. Miller, a director of the Company, has
the right to acquire pursuant to outstanding stock options.
(4) Includes 27,124 shares owned by Mr. Skala, a director of the Company, 21,700
shares which Mr. Skala has the right to acquire pursuant to outstanding
stock options and an aggregate of 189,872 shares held by Mr. Skala as
trustee under trusts for the benefit of the children of Mr. Friedman.
(5) Includes 16,275 shares which Mr. Glick, a director of the Company, has the
right to acquire pursuant to outstanding stock options.
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(6) Consists of 1,043,478 shares in the aggregate which such two entities have
the right to acquire upon the conversion of an aggregate of $6,000,000 of
convertible debentures owned thereby. Each of these entities owns $3,000,000
of such convertible debentures. The Company believes such two entities are
under common control by a third party.
(7) Includes 2,000 shares beneficially owned by Joel M. Bennett, the Company's
Chief Financial Officer, and 16,625 shares which Mr. Bennett has the right
to acquire pursuant to outstanding stock options.
Messrs. Friedman and Berman may be deemed "founders" of the Company, as such
term is defined under the federal securities laws.
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ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The persons named in the enclosed proxy will vote to elect as directors the
five nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. All of the
nominees have indicated their willingness to serve, if elected, but if any
nominee should be unable to serve, the proxies may be voted for a substitute
nominee designated by management. Each director will be elected to hold office
until the next annual meeting of stockholders or until his or her successor is
elected and qualified. There are no family relationships between or among any
officers or directors of the Company.
NOMINEES
Set forth below for each nominee as a director of the Company is his name
and age, position with the Company, principal occupation and business experience
during the past five years and the date of the commencement of each director's
term as a director.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- ------------------------------------------
<S> <C> <C>
Jack Friedman 57 President, Chairman and Chief Executive
Officer
Stephen G. Berman 32 Executive Vice President, Chief Operating
Officer, Secretary and Director
Michael G. Miller 49 Director
Murray L. Skala 50 Director
Robert E. Glick 52 Director
</TABLE>
Jack Friedman, has been President, Chairman and Chief Executive Officer of
the Company since co-founding it in 1995. From January 1989 until January 1995,
Mr. Friedman was President, Chief Executive Officer and a director of T-HQ,
Inc., a publicly-held company that develops and sells interactive games and
software. From 1970 to 1991, Mr. Friedman held executive positions in various
toy companies, including President and Chief Operating Officer of LJN Toys, Ltd.
("LJN"), a toy and software company. After LJN was acquired by MCA/Universal,
Inc. ("MCA") in 1986, Mr. Friedman continued as President until MCA's sale of
LJN in late 1989.
Stephen G. Berman, has been Executive Vice President, Chief Operating
Officer, Secretary and a director of the Company since co-founding it in 1995.
From October 1991 to August 1995, Mr. Berman was a Vice President and Managing
Director of T-HQ, International, Inc., a subsidiary of T-HQ, Inc. From 1988 to
1991, he was President and an owner of Balanced Approach, Inc., a distributor of
personal fitness products and services.
Michael G. Miller has been a director of the Company since February 1996.
Since 1979, Mr. Miller has been President and a director of JAMI Marketing, a
list brokerage and list management consulting firm, JAMI Data, a database
management consulting firm, and JAMI Direct, a direct mail graphic and creative
design firm. He is also a director of Quintel Entertainment, Inc., a
publicly-held company in the telephone entertainment services business.
Murray L. Skala has been a director of the Company since October 1995.
Since 1976, Mr. Skala has been a partner of the law firm Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, counsel to the Company. Mr. Skala is also a
director of Quintel Entertainment, Inc., and Katz Digital Technologies, Inc., a
publicly-held company in the business of producing digital printing and prepress
services.
Robert E. Glick has been a director of the Company since October 1996. For
more than twenty years, Mr. Glick has been an officer, director and a principal
stockholder in a number of privately held affiliated companies which manufacture
and market women's apparel.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors currently receive
no cash compensation for serving on the Board of Directors other
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than reimbursement of reasonable expenses incurred in attending meetings.
Directors who are not employees of the Company are entitled to receive options
to purchase shares of Common Stock upon their election as a director and
annually while they serve as directors, pursuant to the Company's Amended and
Restated 1995 Stock Option Plan.
In connection with certain financing provided to the Company, effective as
of January 8, 1997, the Company issued convertible debentures to Renaissance
Capital Growth Income Fund III, Inc. and Renaissance US Growth & Income Trust
PLC (together, "Renaissance"). Until such convertible debentures are fully
redeemed or converted, Renaissance has the right to designate one person for
nomination by management as a director of the Company or as an advisor to the
Board. Upon certain events of default under the loan agreement for the
convertible debentures, Renaissance has the right to designate an additional
person as director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee and a Stock
Option Committee (the "Committees"). The Board does not have a Nominating
Committee and performs the functions of a Nominating Committee itself.
Audit Committee. The functions of the Audit Committee are to recommend the
appointment of the Company's independent certified public accountants and to
review the scope and effect of such audits. Messrs. Miller, Glick and Skala are
the current members of the Audit Committee.
Compensation Committee. The functions of the Compensation Committee are to
make recommendations to the Board regarding compensation of management and
certain significant employees and to administer plans and programs relating to
employee benefits, incentives and compensation, other than the Amended and
Restated 1995 Stock Option Plan. Messrs. Friedman, Miller and Skala are the
current members of the Compensation Committee.
Stock Option Committee. The function of the Stock Option Committee is to
determine the recipients of and the size of awards granted under the Company's
Amended and Restated 1995 Stock Option Plan. Messrs. Miller and Glick are the
current members of the Stock Option Committee.
There were nine meetings of the Board of Directors held during 1996. No
meetings were held during 1996 by the Committees.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors. Two of the Company's executive officers,
Jack Friedman and Stephen G. Berman, are also directors of the Company.
Information with regard to such persons is set forth above under the heading
"Nominees."
The remaining executive officer is Mr. Joel Bennett. Mr. Bennett joined the
Company in September 1995 as Chief Financial Officer. From August 1993 to
September 1995, he served in several financial management capacities at Time
Warner Entertainment Company, L.P., including Controller of Warner Brothers
Consumer Products Worldwide Merchandising and Interactive Entertainment. From
June 1991 to August 1993, he was Vice President and Chief Financial Officer of
TTI Technologies, Inc., a direct-mail computer hardware and software
distribution company. Previously, from 1986 to June 1991, Mr. Bennett held
various financial management positions at the Walt Disney Company, including
Senior Manager of Finance for the international television syndication and
production division.
The Company has obtained "key man" life insurance in the amount of
$8,000,000 on the life of Jack Friedman.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has made two loans to Joel M. Bennett, the Company's Chief
Financial Officer, in the amounts of $25,000 and $40,000, respectively. The
$25,000 loan bears interest at the rate of 6.15% and is
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<PAGE> 8
payable at the earlier of August 27, 1997 or the termination of Mr. Bennett's
employment with the Company. The $40,000 loan bears interest at the rate of
6.02% and is payable at the earlier of September 20, 1997 or the termination of
Mr. Bennett's employment.
Mr. Skala, a director of the Company, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP ("Feder Kaszovitz"), counsel
to the Company. The Company paid legal fees to Feder Kaszovitz in the amount of
approximately $270,000 in 1996. Feder Kaszovitz continues to provide services to
the Company during its current fiscal year. Its fees are based primarily on
hourly rates. The Company believes that its relationship with such firm is on
terms no less or more favorable to the Company than could have been obtained
from unaffiliated third parties.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
Company's fiscal years ended December 31, 1996 and 1995 for the Chief Executive
Officer and to each of its executive officers whose compensation exceeded
$100,000 on an annual basis (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(C) (E)
(A) ANNUAL (D) OTHER ANNUAL
NAME AND (B) SALARY BONUS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)
------------------------------------------ ---- ------- ------ ------------
<S> <C> <C> <C> <C>
Jack Friedman............................. 1996 226,000 53,722(3) --
President, Chief 1995(1) 67,000 -- --
Executive Officer and Chairman
Stephen Berman............................ 1996 201,000 53,722(3) --
Chief Operating 1995(2) 41,667 -- --
Officer, President and Secretary
</TABLE>
- ---------------
(1) Mr. Friedman's employment with the Company commenced on September 1, 1995.
(2) Mr. Berman's employment with the Company commenced on September 1, 1995.
(3) Bonuses were earned in 1996, but were paid in February 1997.
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RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
Upon the recommendation of the Audit Committee of the Board of Directors,
none of whose members are officers of the Company, the Board of Directors of the
Company has selected the firm of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation, as the principal independent auditors
of the Company for the fiscal year ending December 31, 1997, subject to
ratification by the stockholders. Pannell Kerr Forster served as the Company's
independent auditors during 1996. If the appointment of the firm of Pannell Kerr
Forster is not approved or if that firm shall decline to act or their employment
is otherwise discontinued, the Board of Directors will appoint other independent
auditors. Representatives of Pannell Kerr Forster are expected to be present at
the Annual Meeting, will have the opportunity to make a brief statement at the
Annual Meeting, if they so desire, and will be available to answer appropriate
questions from Stockholders.
ADOPTION OF THE COMPANY'S
SECOND AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(PROPOSAL NO. 3)
The Board of Directors has unanimously adopted, subject to stockholder
approval, a Second Amended and Restated 1995 Stock Option Plan (the "Second
Amended Plan"), which amends certain aspects of the Amended and Restated 1995
Stock Option Plan (the "First Amended Plan"). If approved by the stockholders of
the Company, the Second Amended Plan would (i) increase the number of shares of
the Company's Common Stock available under the Second Amended Plan to 750,000
shares from the 216,998 shares available under the First Amended Plan, (ii)
increase the number of shares of the Company's Common Stock included in the
options automatically granted to all directors who are not employees of the
Company upon their first becoming a director from 10,850 shares, as provided
under the First Amended Plan, to 25,000 shares and (iii) increase the number of
shares of the Company's Common Stock included in the options automatically
granted to all directors who are not employees of the Company from 5,425 shares
per year, as provided under the First Amended Plan, to 6,250 shares per quarter,
for an aggregate of 25,000 shares per year. The Company believes the increase of
the number of shares subject to such grants will advance the interests of the
Company by inducing persons of outstanding ability and potential to join and
remain with the Company by encouraging and enabling employees and directors to
acquire proprietary interests in the Company, and by providing the participating
employees and directors with an additional incentive to promote the success of
the Company.
The above-described amendments to the Second Amended Plan were unanimously
approved by the Company's Board of Directors on June 12, 1997, subject to
stockholder approval.
The Second Amended Plan is summarized below. The full text of the Second
Amended Plan is set forth in Appendix A to this Proxy Statement, and the
following discussion is qualified by reference thereto.
ADMINISTRATION AND ELIGIBILITY
The Second Amended Plan provides for the grant of stock options to
officers, directors, eligible employees, consultants and advisors of the
Company. The maximum number of shares of Common Stock available for issuance
under the First Amended Plan is 216,998 shares, which the Company proposes to
expand to 750,000 shares under the Second Amended Plan. Under the Second Amended
Plan, the Company may grant incentive stock options or options not intended to
qualify as incentive stock options (together, the "Options").
The Second Amended Plan provides for the granting of (i) Incentive Stock
Options intended to meet the requirements of Section 422 of the Internal Revenue
Code of 1986 (the "Code") to the Company's eligible employees and (ii)
Nonstatutory Stock Options which are not to be treated as incentive stock
options to the Company's directors, eligible employees, consultants or advisors.
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<PAGE> 10
The Second Amended Plan is to be administered by the Board of Directors or
the Stock Option Committee (the "Committee"). Any construction or interpretation
of terms and provisions of the Second Amended Plan by the Board or Committee are
final and conclusive. The class of persons which shall be eligible to receive
discretionary grants of Options under the Second Amended Plan shall be employees
(including officers), consultants or advisors of either the Company or any
subsidiary corporation of the Company. Employees shall be entitled to receive
Incentive Stock Options and Nonstatutory Stock Options. Consultants and advisors
shall be entitled only to receive Nonstatutory Stock Options. The Board or the
Committee, in their sole discretion, but subject to the provisions of the Second
Amended Plan, shall determine the employees, consultants or advisors of the
Company or its subsidiary corporations to whom Options shall be granted and the
number of shares to be covered by each Option taking into account the nature of
the employment or services rendered by the individuals being considered, their
annual compensation, their present and potential contributions to the success of
the Company and such other factors as the Board or Committee may deem relevant.
Under the First Amended Plan, on the date any person first becomes a
Director of the Company and such person is not an employee of the Company, such
person will automatically be granted, without further action by the Board or
Committee, a one-time grant of an option to purchase 10,850 shares of the
Company's Common Stock. Under the Second Amended Plan, the Company is proposing
to increase the amount of shares underlying such one-time option grant to 25,000
shares.
Under the First Amended Plan, on each January 1st during the term of the
First Amended Plan, directors who are not employees of the Company then serving
in such capacity, are each to be automatically granted, without further action
by the Board or Committee, an Option to purchase 5,425 shares of the Company's
Common Stock. Under the Second Amended Plan, the Company is proposing to
increase the amount of such shares to 25,000, to be granted each calendar
quarter in equal installments of 6,250 shares.
Under the Second Amended Plan, directors who are not employees of the
Company may only be granted Nonstatutory Stock Options. Such individuals include
attorneys, accountants, consultants and advisors of the Company who, in addition
to providing services in such capacities, also serve as directors of the
Company.
No Incentive Stock Option granted under the Second Amended Plan shall be
exercisable after the expiration of ten (10) years from the date of its grant.
However, if an Incentive Stock Option is granted to an individual who owns, at
the time the Incentive Stock Option is granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of a
subsidiary corporation of the Company, such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date of its grant.
The exercise price of the Nonstatutory Stock Options granted to directors
who are not employees of the Company shall be the "fair market value" (as
defined pursuant to the Second Amended Plan) of the Company's Common Stock on
the date such options are granted. The exercise price of all other Nonstatutory
Stock Options granted under the Second Amended Plan shall be determined by the
Committee at the time of the grant of the Option.
A Nonstatutory Stock Option granted to directors who are not employees of
the Company shall vest entirely on the date granted and shall be exercisable for
a period of ten (10) years. All other Nonstatutory Stock Options granted under
the Second Amended Plan may be of such duration as shall be determined by the
Board or Committee (not to exceed 10 years).
If the employment of an employee by the Company or any subsidiary of the
Company shall be terminated either voluntarily by the employee or for cause,
then such employee's Options shall immediately expire. If such employment or
services shall terminate for any other reason, then such Options may be
exercised at any time within three (3) months after such termination. The
retirement of an individual either pursuant to a pension or retirement plan
adopted by the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such individual's
employment other than voluntarily or for cause.
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<PAGE> 11
If the holder of any Options under the Second Amended Plan dies (i) while
employed by the Company or a subsidiary of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or for cause, then such Options may be exercised by
the estate of such employee or by a person who acquired the right to exercise
such Options by bequest or inheritance or by reason of the death of such
employee at any time within one (1) year after such death.
If the holder of any Options under the Second Amended Plan ceases
employment because of permanent and total disability (within the meaning of
Section 22(e)(3) of the Code) while employed by the Company or a subsidiary of
the Company, then such Options may be exercised at any time within one (1) year
after his termination of employment due to such disability.
If the services of a director who is not an employee of the Company shall
be terminated by the Company for cause, then his Options shall immediately
expire. If such services shall terminate for any other reason (including the
death or disability of a director who is not an employee of the Company), he
shall resign as a director of the Company or his term shall expire, then such
Options may be exercised at any time within one (1) year after such termination.
In the event of the death of a director who is not an employee of the Company,
his Options may be exercised by his estate or by a person who acquired the right
to exercise such Options by bequest or inheritance or by reason of the death of
such director at any time within one (1) year after such death.
Upon the death of any consultant or advisor to the Company or any of its
subsidiaries, who is granted any Options under the Second Amended Plan, such
Options may be exercised by the estate of such person or by a person who
acquired the right to exercise such Options by bequest or inheritance or by
reason of the death of such person at any time within one (1) year after such
death.
Options granted under the Second Amended Plan may provide for the payment
of the exercise price by the delivery of a check to the order of the Company in
an amount equal to the exercise price, by delivery to the Company of shares of
Common Stock of the Company already owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised, or
by any combination of such methods of payment.
All options are nontransferable other than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
There are approximately 55 employees and 3 directors who are not employees
of the Company who are eligible for participation in the Second Amended Plan.
The Company cannot presently approximate the number of consultants and/or
advisors who will be eligible to receive Options under the Second Amended Plan.
MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends or the
like, an appropriate adjustment shall be made by the Board or Committee in the
aggregate number of shares available under the Second Amended Plan and in the
number of shares and option price per share subject to outstanding Options. If
the Company shall be reorganized, consolidated or merged with another
corporation, or if all or substantially all of the assets of the Company shall
be sold or exchanged, the holder of an Option shall, at the time of issuance of
the stock under such a corporate event, be entitled to receive upon the exercise
of his Option and payment of the exercise price, the same number and kind of
shares of stock or the same amount of property, cash or securities as he would
have been entitled to receive upon the happening of such corporate event as if
he had been, immediately prior to such event, the holder of the number of shares
covered by his Option; provided, however, that in such event the Board or
Committee shall have the discretionary power to take any action necessary or
appropriate to prevent any Incentive Stock Option granted pursuant to the Second
Amended Plan from being disqualified as an "incentive stock option" under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
9
<PAGE> 12
AMENDMENT AND TERMINATION OF THE SECOND AMENDED PLAN
The Second Amended Plan shall terminate on December 1, 2005, which is
within ten (10) years from the date of the adoption of the Company's original
1995 Stock Option Plan by the Board of Directors and stockholders, or sooner as
hereinafter provided, and no Option shall be granted after termination of the
Second Amended Plan.
The Second Amended Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose.
The Board of Directors may at any time, on or before the termination date
of the Second Amended Plan, terminate the Second Amended Plan, or from time to
time make such modifications or amendments to the Second Amended Plan as it may
deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company present in person or by proxy
at a meeting of stockholders of the Company convened for such purpose, increase
the maximum number of shares as to which Incentive Stock Options may be granted,
or change the designation of the employees or other persons, or class of
employees or other persons eligible to receive Options or make any other change
which would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from being disqualified as such under
the then existing provisions of the Code or any law amending or supplementing
the Code.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax treatment of incentive
stock options and non-statutory stock options. The tax consequences recognized
by an optionee may vary; therefore, an optionee should consult his or her tax
advisor for advice concerning any specific transaction.
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option granted under
the Second Amended Plan. The difference between the exercise price and the fair
market value of the stock on the date of exercise will be included in
alternative minimum taxable income for purposes of the alternative minimum tax.
The alternative minimum tax is imposed upon an individual's alternative minimum
taxable income at rates of 26% to 28%, but only to the extent that such tax
exceeds the taxpayer's regular income tax liability for the taxable year.
Generally, if an optionee holds shares acquired upon the exercise of
incentive stock options until the later of (i) two years form the date of grant
of the option and (ii) one year from the date of transfer of the purchased
shares to him or her (the "Statutory Holding Period"), any gain recognized by
the optionee on a sale of such shares will be treated as capital gain. The gain
recognized upon the sale of the stock is the difference between the option price
and the sale price of the stock. The net federal income tax effect on the holder
of incentive stock options is to defer, until the stock is sold, taxation of any
increase in the stock's value from the time of grant to the time of exercise,
and to treat such increase as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period, he or she will realize taxable income at ordinary income tax
rates in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise less the option price, or (ii) the amount
realized on the disposition of the stock less the option price, and the Company
will receive a corresponding business expense deduction. However, special rules
may apply to options held by persons required to file reports under Section 16
of the Securities Exchange Act of 1934. The amount by which the proceeds of the
sale exceeds the fair market value of the shares on the date of exercise will be
treated as long-term capital gain if the shares are held for more than one year
prior to the sale and as short-term capital gain if the shares are held for a
shorter period. If an optionee sells the shares acquired upon exercise of an
option at a price less than the option price, he or she will recognize a capital
loss equal to the difference between the sale price and the option price. The
loss will be long-term capital loss if the shares are held for more than one
year prior to the sale and a short-term capital loss if the shares are held for
a shorter period.
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<PAGE> 13
Non-Statutory Stock Options. No taxable income is recognized by the
optionee upon the grant of a Non-Statutory Option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount by
which the fair market value of the purchased shares on the date of exercise
exceeds the option price. However, special rules may apply to options held by
persons required to file reports under Section 16 of the Securities Exchange Act
of 1934. The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee, subject to Section
162(m) of the Code. Any additional gain or any loss recognized upon the
subsequent disposition of the purchased shares will be a capital gain or loss,
and will be a long-term gain or loss if the shares are held for more than one
year.
NEW PLAN BENEFITS
Because the option grants under the Second Amended Plan are discretionary,
the Company cannot presently determine the benefits to be received by any
particular individual or particular group of individuals for such options under
the Second Amended Plan. The following table, however, sets forth the benefits
(losses) that would have been received in 1996 by the Named Officers, all
executive officers as a group, non-executive directors as a group and
non-executive officer employees as a group, as if the Second Amended Plan had
been in effect during 1996.
<TABLE>
<CAPTION>
THE SECOND AMENDED PLAN(1)
---------------------------------
DOLLAR NUMBER OF
NAME AND POSITION VALUE ($) SHARES
---------------------------------------------- ---------------- ----------
<S> <C> <C>
Jack Friedman................................. * *
Stephen Berman................................ * *
Executive Officer Group....................... * *
Non-Executive Officer Director Group
(3 persons)(2)
January 1, 1996............................. $ 5.00 per share(3) 18,750
April 1, 1996............................... $ 5.00 per share(3) 18,750
July 1, 1996................................ $ 7.00 per share(4) 18,750
October 1, 1996............................. $8.125 per share(4) 18,750
Non-Executive Officer Employee Group.......... * *
</TABLE>
- ---------------
* The Second Amended Plan provides for the automatic granting of Options only
to directors who are not employees of the Company. Such individuals would
receive, subject to stockholder approval of the Second Amended Plan, options
to purchase 6,250 shares of Common Stock on the first day of each calendar
quarter the Second Amended Plan is in effect. Grants of Options under the
Second Amended Plan to all other groups, including executive officers and
non-executive officer employees, may include Incentive Stock Options, the
granting of which are discretionary and not determinable as to amount or
dollar value as of the date of this Proxy Statement.
(1) Subject to shareholder approval of the Second Amended Plan.
(2) The information provided represents the benefits (losses) that would have
been received in 1996 by the Non-Executive Officer Director Group, as if the
Second Amended Plan had been in effect during 1996.
(3) As the shares of Common Stock underlying the Options would have been
unregistered at their time of grant had the Second Amended Plan been in
effect in January and/or April 1996, the dollar value attributed to such
shares for purposes of this table is the exercise price of the Options for
such shares ($5.00).
(4) Represents the closing price of the Company's Common Stock on the date the
Options would have been granted had the Second Amended Plan been in effect
during 1996.
11
<PAGE> 14
BOARD RECOMMENDATION
The Board of Directors believes that the approval of the foregoing three
proposals is in the best interests of the Company and its stockholders and
therefore recommends that the stockholders vote FOR such proposals.
1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its executive offices
in Malibu, California not later than February 1, 1998 for inclusion in the proxy
statement for that meeting.
OTHER MATTERS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented at the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph, facsimile, mail and personal interviews, and the Company reserves the
right to compensate outside agencies for the purpose of soliciting proxies.
Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of shares held in their names and the Company
will reimburse them for out-of-pocket expenses incurred on behalf of the
Company.
By Order of the Board of Directors,
/s/ Stephen G. Berman
--------------------------------------
STEPHEN G. BERMAN, Secretary
June 23, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE ANNUAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS
WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR SHARES PERSONALLY, EVEN THOUGH THEY
HAVE SENT IN THEIR PROXIES.
12
<PAGE> 15
APPENDIX A
JAKKS PACIFIC, INC.
SECOND AMENDED AND RESTATED 1995 STOCK OPTION PLAN
1. Purpose of the Plan. The JAKKS Pacific, Inc. Second Amended and Restated
1995 Stock Option Plan (the "Amended Plan") is intended to advance the interests
of JAKKS Pacific, Inc. (the "Company") by inducing persons of outstanding
ability and potential to join and remain with the Company, by encouraging and
enabling employees to acquire proprietary interests in the Company, and by
providing the participating employees with an additional incentive to promote
the success of the Company. This is accomplished by providing for the granting
of "Options" (which term as used herein includes both "Incentive Stock Options"
and "Nonstatutory Stock Options," as later defined), to qualified employees. In
addition, the Amended Plan also provides for the granting of "Nonstatutory Stock
Options" to all Directors who are not employees of the Company, as consideration
for their services and for attending meetings of the Board of Directors, and
also provides for the granting of "Nonstatutory Stock Options" to consultants
and advisors who provide services to the Company.
2. Administration. The Amended Plan shall be administered by the Board of
Directors (the "Board"), or by a committee (the "Committee") consisting of at
least two (2) Directors chosen by the Board, each of whom is a "Non-Employee
Director," as such term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except as
herein specifically provided, the interpretation and construction by the Board
or Committee of any provision of the Amended Plan or of any Option granted under
it shall be final and conclusive. The receipt of Options by Directors, or any
members of the Committee, shall not preclude their vote on any matters in
connection with the administration or interpretation of the Amended Plan, except
as otherwise provided by law.
3. Shares Subject to the Amended Plan. The stock subject to grant under the
Amended Plan shall be shares of the Company's common stock, $.001 par value (the
"Common Stock"), whether authorized but unissued or held in the Company's
treasury or shares purchased from stockholders expressly for use under the
Amended Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Amended Plan shall not exceed seven
hundred fifty thousand (750,000) shares, subject to adjustment in accordance
with the provisions of Section 13 hereof. The Company shall at all times while
the Amended Plan is in force reserve such number of shares of Common Stock as
will be sufficient to satisfy the requirements of all outstanding Options
granted under the Amended Plan. In the event any Option granted under the
Amended Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options under this Amended Plan.
4. Stock Option Agreement. Each Option granted under the Amended Plan shall
be authorized by the Board or Committee and shall be evidenced by a Certificate
of Stock Option Agreement which shall be executed by the Company. The
Certificate of Stock Option Agreement shall specify the number of shares of
Common Stock as to which any Option is granted, the period during which the
Option is exercisable and the option price per share thereof.
5. Discretionary Grant Participation. The class of persons which shall be
eligible to receive discretionary grants of Options under the Amended Plan shall
be all key employees (including officers) of either the Company or any
subsidiary corporation of the Company and consultants and advisors who provide
services to the Company or any subsidiary of the Company, other than in
connection with the offer or sale of securities in a capital raising
transaction. Employees shall be entitled to receive (i) Incentive Stock Options,
as described in Section 7 hereafter and (ii) Nonstatutory Stock Options, as
described in Section 8 hereafter. Consultants and advisors shall be entitled
only to receive Nonstatutory Stock Options. The Board or Committee, in its sole
discretion, but subject to the provisions of the Amended Plan, shall determine
the employees, consultants or advisors to whom Options shall be granted and the
number of shares to be covered by each Option taking into account the nature of
the employment or services rendered by the individuals being considered, their
annual
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<PAGE> 16
compensation, their present and potential contributions to the success of the
Company and such other factors as the Board or Committee may deem relevant.
6. Participation of Directors Who Are Not Employees of the Company.
(a) As of July 30, 1997, the date of the adoption of the Amended Plan by
the Company's stockholders, on the date any person who is not an employee of the
Company first becomes a Director, such person shall automatically be granted,
without further action by the Board or Committee, an option to purchase 25,000
shares of the Company's Common Stock.
(b) On the first day of each calendar quarter during the term of the
Amended Plan, Directors of the Company who are not employees of the Company then
serving in such capacity, shall each be granted an Option to purchase 6,250
shares of the Company's Common Stock.
(c) The option price of the shares subject to the Options set forth in
Sections 6(a) and 6(b) hereof shall be the fair market value (as defined in
Section 7(f) hereafter) of the Company's Common Stock on the date such Options
are granted. All of such Options shall be Nonstatutory Stock Options, as
described in Section 8 hereafter. The Options granted pursuant to this Section 6
shall vest entirely on the date they are granted and shall be exercisable for a
period of ten (10) years.
(d) Directors who are not employees of the Company include attorneys,
accountants, consultants and advisors of the Company who, in addition to
providing services in such capacity, serve as Directors of the Company.
7. Incentive Stock Options. The Board or Committee may grant Options under
the Amended Plan which are intended to meet the requirements of Section 422 of
the Internal Revenue Code of 1986 (the "Code") (such an Option referred to
herein as an "Incentive Stock Option"), and which are subject to the following
terms and conditions and any other terms and conditions as may at any time be
required by Section 422 of the Code:
(a) No Incentive Stock Option shall be granted to individuals other
than qualified employees of the Company or of a subsidiary corporation of
the Company.
(b) Each Incentive Stock Option under the Amended Plan must be granted
prior to December 1, 2005, which is within ten (10) years from the date the
Company's original 1995 Stock Option Plan (the "Plan") was adopted by the
Board of Directors and shareholders of the Company.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value of the Common Stock at
the time such Incentive Stock Option is granted; provided, however, if an
Incentive Stock Option is granted to an individual who owns, at the time
the Incentive Stock Option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of a
subsidiary corporation of the Company, the option price of the shares
subject to the Incentive Stock Option shall be at least one hundred ten
percent (110%) of the fair market value of the Common Stock at the time the
Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Amended Plan shall be
exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to an individual
who owns, at the time the Incentive Stock Option is granted, more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of a subsidiary corporation, of the Company, such Incentive
Stock Option shall not be exercisable after the expiration of five (5)
years from the date of its grant. Every Incentive Stock Option granted
under the Amended Plan shall be subject to earlier termination as expressly
provided in Section 11 hereof.
(e) For purposes of determining stock ownership under this Section 7,
the attribution rules of Section 425(d) of the Code shall apply.
(f) For purposes of the Amended Plan, fair market value shall be
determined by the Board or Committee and, if the Common Stock is listed on
a national securities exchange or traded on the Over-the-Counter market,
the fair market value shall be the closing price of the Common Stock on
such
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<PAGE> 17
exchange, or on the Over-the-Counter market as reported by the National
Quotation Bureau, Incorporated, as the case may be, on the day on which the
Option is granted or on the day on which a determination of fair market
value is required under the Amended Plan, or, if there is no trading or
closing price on that day, the closing price on the most recent day
preceding the day for which such prices are available.
8. Nonstatutory Stock Options. The Board or Committee may grant Options
under the Amended Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code, but the terms of which provide that
they will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option"). Nonstatutory Stock Options which are not intended
to meet these requirements shall be subject to the following terms and
conditions:
(a) A Nonstatutory Stock Option may be granted to any person eligible
to receive an Option under the Amended Plan pursuant to Section 5 hereof.
(b) Persons eligible to receive Nonstatutory Stock Options pursuant to
Section 6 hereof are granted Options automatically under the Amended Plan,
without any determination by the Board or Committee.
(c) Subject to the price provisions of Section 6 hereof, the option
price of the shares subject to a Nonstatutory Stock Option shall be
determined by the Board or Committee, in its absolute discretion, at the
time of the grant of the Nonstatutory Stock Option.
(d) Subject to the provisions of Section 6 hereof, a Nonstatutory
Stock Option granted under the Amended Plan may be of such duration as
shall be determined by the Board or Committee (not to exceed 10 years), and
shall be subject to earlier termination as expressly provided in Section 11
hereof.
9. Rights of Option Holders. The holder of any Option granted under the
Amended Plan shall have none of the rights of a stockholder with respect to the
shares covered by his Option until such shares shall be issued to him upon the
exercise of his Option.
10. Transferability. No Option granted under the Amended Plan shall be
transferable by the individual to whom it was granted otherwise than by Will or
the laws of decent and distribution, or pursuant to a domestic relations order
as defined by the Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Securities Act, or the rules thereunder and, during
the lifetime of such individual, shall not be exercisable by any other person,
but only by him.
11. Termination of Employment or Death.
(a) If the employment of an employee by the Company or any subsidiary of
the Company shall be terminated voluntarily by the employee or for cause, then
his Options shall expire forthwith. Except as provided in subsections (b) and
(c) of this Section 11, if such employment or services shall, terminate for any
other reason, then such Options may be exercised at any time within three (3)
months after such termination, subject to the provisions of subparagraph (f) of
this Section 11. For purposes of the Amended Plan, the retirement of an
individual either pursuant to a pension or retirement plan adopted by the
Company or at the normal retirement date prescribed from time to time by the
Company shall be deemed to be termination of such individual's employment other
than voluntarily or for cause. For purposes of this subparagraph, an employee
who leaves the employ of the Company to become an employee of a subsidiary
corporation of the Company or a corporation (or subsidiary or parent corporation
of the corporation) which has assumed the Option of the Company as a result of a
corporate reorganization, shall not be considered to have terminated his
employment.
(b) If the holder of any Options under the Amended Plan dies (i) while
employed by the Company or a subsidiary of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or for cause, then such Options may, subject to the
provisions of subparagraph (f) of this Section 11, be exercised by the estate of
the employee or by a person who acquired the right to exercise such Options by
bequest or inheritance or by reason of the death of such employee at any time
within one (1) year after such death.
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<PAGE> 18
(c) If the holder of any Options under the Amended Plan ceases employment
because of permanent and total disability (within the meaning of Section
22(e)(3) of the Code) while employed by the Company or a subsidiary of the
Company, then such Options may, subject to the provision of subparagraph (f) of
this Section 11, be exercised at any time within one (1) year after his
termination of employment due to this disability.
(d) If the services of a Director who is not an employee of the Company
shall be terminated by the Company for cause, then his Options shall expire
forthwith. If such services shall terminate for any other reason (including the
death or disability of such Director), he shall resign as a director of the
Company or his term shall expire, then such Options may be exercised at any time
within one (1) year after such termination, subject to the provisions of
subparagraph (f) of this Section 11. In the event of the death of a Director who
is not an employee of the Company, his Options may be exercised by his estate or
by a person who acquired the right to exercise such Options by bequest or
inheritance or by reason of the death of such Director at any time within one
(1) year after such death.
(e) Upon the death of any consultant or advisor to the Company or any of
its subsidiaries, who is granted any Options hereunder, such Options may,
subject to the provisions of subparagraph (f) of this Section 11, be exercised
by the estate of such person or by a person who acquired the right to exercise
such Options by bequest or inheritance or by reason of the death of such person
at any time within one (1) year after such death.
(f) An Option may not be exercised pursuant to this Section 11 except to
the extent that the holder was entitled to exercise the Option at the time of
termination of employment, termination of Directorship, or death, and in any
event may not be exercised after the expiration of the Option.
(g) For purposes of this Section 11, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other bona
fide leave of absence (such as temporary employment by the Government) if such
leave does not exceed ninety (90) days, or, if longer, so long as his right to
reemployment is guaranteed either by status or by contract.
12. Exercise of Options.
(a) Unless otherwise provided in the Certificate of Stock Option Agreement,
any Option granted under the Amended Plan shall be exercisable in whole at any
time, or in part from time to time, prior to expiration. The Board or Committee,
in its absolute discretion, may provide in any Certificate of Stock Option
Agreement that the exercise of any Option granted under the Amended Plan shall
be subject (i) to such condition or conditions as it may impose, including but
not limited to, a condition that the holder thereof remain in the employ or
service of the Company or a subsidiary corporation of the Company for such
period or periods of time from the date of grant of the Option, as the Board or
Committee, in its absolute discretion, shall determine; and (ii) to such
limitations as it may impose, including, but not limited to, a limitation that
the aggregate fair market value of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any employee
during any calendar year (under all plans of the Company and its parent and
subsidiary corporations) shall not exceed One Hundred Thousand Dollars
($100,000). In addition, in the event that under any Certificate of Stock Option
Agreement the aggregate fair market value of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any employee
during any calendar year (under all plans of the Company and its parent and
subsidiary corporations) exceeds One Hundred Thousand Dollars ($100,000), the
Board or Committee may, when shares are transferred upon exercise of such
Options, designate those shares which shall be treated as transferred upon
exercise of an Incentive Stock Option and those shares which shall be treated as
transferred upon exercise of a Nonstatutory Stock Option.
(b) An Option granted under the Amended Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (attention
of the Secretary) of written notice of the number of shares with respect to
which the Option is being exercised. Such notice shall be accompanied by payment
of the full option price of such shares, and payment of such option price shall
be made by the holder's delivery of his
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<PAGE> 19
check payable to the order of the Company; provided, however, that
notwithstanding the foregoing provisions of this Section 12 or any other terms,
provisions or conditions of the Amended Plan, at the written request of the
optionee and upon approval by the Board of Directors or the Committee, shares
acquired pursuant to the exercise of any Option may be paid for in full at the
time of exercise by the surrender of shares of Common Stock of the Company held
by or for the account of the optionee at the time of exercise to the extent
permitted by subsection (c)(5) of Section 422 of the Code and, with respect to
any person who is subject to the reporting requirements of Section 16(a) of the
Exchange Act, to the extent permitted by Section 16(b) of the Exchange Act and
the Rules of the Securities and Exchange Commission, without liability to the
Company. In such case, the fair market value of the surrendered shares shall be
determined by the Board or Committee as of the date of exercise in the same
manner as such value is determined upon the grant of an Incentive Stock Option.
13. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends or the
like, an appropriate adjustment shall be made by the Committee in the aggregate
number of shares available under the Amended Plan and in the number of shares
and option price per share subject to outstanding Options. If the Company shall
be reorganized, consolidated or merged with another corporation, or if all of
substantially all of the assets of the Company shall be sold or exchanged, the
holder of an Option shall, at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his Option the same
number and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the happening of such
corporate event as if he had been, immediately prior to such event, the holder
of the number of shares covered by his Option; provided, however, that in such
event the Board or Committee shall have the discretionary power to take any
action necessary or appropriate to prevent any Incentive Stock Option granted
hereunder from being disqualified as an "incentive stock option" under the then
existing provisions of the Code or any law amendatory thereof or supplemental
thereto.
(b) Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the Option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next lower whole number of shares.
14. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
notice of exercise shall be accompanied by a representation or agreement of the
individual exercising the Option to the Company to the effect that such shares
are being acquired for investment and not with a view to the resale or
distribution thereof or such other documentation as may be required by the
Company unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with the Securities Act.
(b) The Company shall not be obligated to deliver any Common Stock until it
has been listed on each securities exchange on which the Common Stock may then
be listed or until there has been qualification under or compliance with such
state or federal laws, rules or regulations as the Company may deem applicable.
The Company shall use reasonable efforts to obtain such listing, qualification
and compliance.
15. Effectiveness of the Plan. The Plan was originally adopted by the Board
of Directors on December 1, 1995. The Plan was approved by the affirmative vote
of a majority of the outstanding shares of capital stock of the Company by
written consent dated December 1, 1995. The Amended Plan was approved by the
Board of Directors on June 12, 1997 and adopted by the Stockholders of the
Company on July 30, 1997.
16. Termination, Modification and Amendment.
(a) The Amended Plan (but not Options previously granted under the Amended
Plan) shall terminate on December 1, 2005, which is within ten (10) years from
the date of the adoption of the Plan by the Board of
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<PAGE> 20
Directors, or sooner as hereinafter provided, and no Option shall be granted
after termination of the Amended Plan.
(b) The Amended Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose.
(c) The Board of Directors may at any time, on or before the termination
date referred to in Section 16(a) hereof, terminate the Amended Plan, or from
time to time make such modifications or amendments to the Amended Plan as it may
deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company present in person or by proxy
at a meeting of stockholders of the Company convened for such purpose, increase
(except as provided by Section 13 hereof) the maximum number of shares as to
which Incentive Stock Options may be granted, or change the designation of the
employees or class of employees eligible to receive Options or make any other
change which would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from disqualifying as such under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
(d) No termination, modification or amendment of the Amended Plan, may
without the consent of the individual to whom an Option shall have been
previously granted, adversely affect the rights conferred by such Option.
17. Not a Contract of Employment. Nothing contained in the Amended Plan or
in any Certificate of Stock Option Agreement executed pursuant hereto shall be
deemed to confer upon any individual to whom an Option is or may be granted
hereunder any right to remain in the employ or service of the Company or a
subsidiary corporation of the Company.
18. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Amended Plan shall constitute general funds of the
Company.
19. Indemnification of Board of Directors or Committee. In addition to such
other rights of indemnification as they may have, the members of the Board of
Directors or the Committee, as the case may be, shall be indemnified by the
Company to the extent permitted under applicable law against all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Amended Plan or any
rights granted thereunder and against all amounts paid by them in settlement
thereof or paid by them in satisfaction of a judgment of any such action, suit
or proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, the member or members of the
Board of Directors or the Committee, as the case may be, shall notify the
Company in writing, giving the Company an opportunity at its own cost to defend
the same before such member or members undertake to defend the same on their own
behalf.
20. Definitions. For purposes of the Amended Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings as set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.
21. Governing Law. The Amended Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the law of the State
of Delaware.
A-6
<PAGE> 21
JAKKS PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JULY 30, 1997
Know all men by these presents, that the undersigned hereby constitutes and
appoints Jack Friedman and Stephen G. Berman and each of them, the true and
lawful attorneys, agents and proxies of the undersigned, with full power of
substitution, to represent and vote with respect to all of the shares of the
common stock of JAKKS Pacific, Inc., standing in the name of the undersigned at
the close of business on June 13, 1997, at the Annual Meeting of Stockholders of
the Company to be held on July 30, 1997 at the Company's New York Showroom,
located at 200 Fifth Avenue, Suite 550, New York, New York 10010 and at any and
all adjournments thereof, with all the powers that the undersigned would possess
if personally present, and especially (but without limiting the general
authorization and power hereby given) to vote as follows.
This proxy is solicited by the Board of Directors of the Company.
(Continued and to be signed on the reverse side.)
<PAGE> 22
[X] PLEASE MARK YOUR VOTES AS THIS EXAMPLE
1. Election of Directors [ ] FOR [ ] AGAINST
Nominees are: Jack Friedman, Stephen G. Berman, Michael G. Miller, Murray L.
Skala and Robert E. Glick
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Approval of appointment of Pannel Kerr Forster, Certified Public Accountants,
A Professional Corporation, as the Company's auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the Company's Second Amended and Restated 1995 Stock Option Plan
as to which options may be granted to the Company's employees and others for
750,000 Shares. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion upon such other measures as may properly come before the
meeting, hereby ratifying and confirming all that said proxy may lawfully do
or cause to be done by virtue hereof and hereby revoking all proxies
heretofore given by the undersigned to vote at said meeting or any
adjournment thereof. [ ] FOR [ ] AGAINST [ ] ABSTAIN
The shares represented
by this proxy will be
voted in the manner
indicated, and if no
instructions to the
contrary are indicated,
will be voted FOR all
proposals listed above.
Number of shares owned by
undersigned.
Signature(s): __________
Date: __________________
Signature(s): __________
Date: __________________
IMPORTANT: Please sign
exactly as your name or
names are printed here.
Executors,
administrators, trustees
and other persons signing
in a representative
capacity should give full
title.
