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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28104
JAKKS PACIFIC, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 95-4527222
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22761 PACIFIC COAST HIGHWAY 90265
MALIBU, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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ISSUER'S TELEPHONE NUMBER: (310) 456-7799
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NAME OF EACH
EXCHANGE ON WHICH
TITLE OF CLASS REGISTERED
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Securities registered under None
Section 12(b) of the Exchange Act:
Securities registered under Common Stock,
Section 12(g) of the Exchange Act: $.001 par value
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $41,944,921.
The aggregate market value of the voting and non-voting common equity (the
only such common equity being Common Stock, $.001 par value) held by
non-affiliates (computed by reference to the closing sale price of the Common
Stock on April 13, 1998): $36,237,354.
The number of shares outstanding of the issuer's Common Stock (being the
only class of common equity) is 5,882,092 (as of 4/13/98).
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format:
Yes: [ ] No: [X]
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JAKKS PACIFIC, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
ITEMS IN FORM 10-KSB
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Facing page
PART I
ITEM 1. Description of Business...................................................... 2
ITEM 2. Description of Property...................................................... 9
ITEM 3. Legal Proceedings............................................................ 9
ITEM 4. Submission of Matters to a Vote of Security Holders.......................... 9
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters..................... 9
ITEM 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................. 10
ITEM 7. Financial Statements......................................................... 15
ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 32
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act.......................................... 32
ITEM 10. Executive Compensation....................................................... 33
ITEM 11. Security Ownership of Certain Beneficial Owners and Management............... 35
ITEM 12. Certain Relationships and Related Transactions............................... 36
ITEM 13. Exhibits and Reports on Form 8-K............................................. 37
Signatures.............................................................................. 42
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ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
JAKKS Pacific, Inc. (the "Company") designs, develops and markets licensed and
brand name toys, including action figures, dolls and die-cast vehicles. The
Company's product lines are designed to appeal to a broad segment of consumers
by providing basic, brand name items at a low price. With its recent
acquisition of the Remco and Child Guidance trademarks, the Company will be
expanding its die-cast vehicle product line and will be adding a new line of
pre-school age child development toys. Through acquisitions and new product
introductions, the Company increased net sales and net income from $12.1 million
and $1.2 million, respectively, for 1996, to $41.9 million and $2.8 million,
respectively, for 1997.
The Company has been able to identify and acquire previously underperforming
brands and licenses of toy products, expand and develop those brands and
licenses by the introduction of new items and product lines, and market those
brands and licensed products through its existing channels of distribution. For
example, the Company acquired the license for its WWF line of toy and
collectible action figures and since its introduction during the second quarter
of 1996, the Company has expanded the WWF line by adding new characters, new
features, varied sizes and accessories. The Company also acquired Road
Champs, a designer and marketer of the Road Champs line of collectible and toy
die-cast vehicles in February 1997 and the Company believes that the acquisition
of the Remco line of toy die-cast vehicles will complement the Road Champs line
and allow the Company to significantly enhance selling efficiency by leveraging
the Company's existing distribution channels.
The Company sells its products primarily to domestic retail chain stores,
department stores, toy specialty stores and wholesalers. In addition, the
Company sells its line of Road Champs vehicles to independent hobby shops and
specialty retailers. During 1997, the Company's five largest customers were
Toys 'R Us, Wal Mart, Kay-Bee Toys, Kmart and Target, which in aggregate
represented approximately 61.7% of the Company's net sales.
INDUSTRY OVERVIEW
According to the Toy Manufacturers of America, Inc. ("TMA"), an industry trade
group, total domestic shipments of toys, excluding video games and accessories,
were approximately $15.2 billion in 1997. According to the TMA, the United
States is the world's largest toy market, followed by Japan and Western Europe.
The three largest U.S. toy companies in 1997 were Mattel, Inc. ("Mattel"),
Hasbro, Inc. ("Hasbro") and Tyco Toys, Inc. ("Tyco") (which merged into Mattel
in March 1997). In recent years, the toy industry has experienced a period of
consolidation, both at the retail and manufacturing level. However, many
smaller companies continue to compete in the design and development of new
toys, the procurement of licenses, the improvement and expansion of previously
introduced products and product lines and the marketing and distribution of toy
products.
Many factors influence the success of a given toy or product line, including
product design, play value, pricing, marketing, in-store exposure and product
availability. While the success of some toy categories vary from year to year,
other toy categories consistently perform well. Toys which form the backbone
of the toy business are generally referred to as "evergreens," "core" or
"staple" toys. Toys with relatively successful but short life cycles are
generally referred to as "fad" items. Along with providing opportunities for
fun and learning, toys traditionally mirror technological progress, changes in
social attitudes and current customs and values from the adult world. Many of
the toys which garner the most attention reflect the latest technological
advances, incorporate characters made popular in other mediums or are
innovative extensions of core toy products.
Toy production is a labor-intensive process requiring molding and shaping or
cutting and sewing, coloring, painting or detailing, assembling, inspecting,
packaging, shipping and warehousing. The substantial majority of the toys sold
in the U.S. are manufactured, either in whole or in part, overseas where labor
rates are comparatively lower than in the U.S. The largest foreign
manufacturing market is the People's Republic of China, followed by Japan and
Taiwan. Most foreign production is performed by independent contractors which
use tools, molds and designs provided by U.S. toy companies and which
manufacture products under exclusive contracts. While foreign manufacturing
operations generally have relatively inexpensive labor costs, such operations
require greater lead times than domestic manufacturing operations and also
result in greater shipping costs, particularly for larger toys. The design,
production and sales of toy products in the U.S. are subject to various
regulations.
Toy manufacturers sell their products either directly to retailers or to
wholesalers who carry the product lines of many manufacturers. There are
thousands of retail outlets in the United States which sell toys and games.
These outlets include mass merchandisers, small, independent toy stores, gift
and novelty shops, warehouse clubs and mail order catalogues. Despite the broad
number of toy outlets, retail toy sales have become increasingly generated by a
small number of large chains, such as Toys 'R Us, Wal Mart, Kay-Bee Toys, Kmart
and Target. These chains generally feature a large selection of toys, some at
discount prices, and seek to maintain lean inventories to reduce their own
inventory risk. This concentration has tended to favor larger manufacturers
which are able to offer these retail chains broader product offerings, higher
levels of advertising and marketing support, and consistent product support
through
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electronic data interchange and just-in-time delivery programs. The Company
believes that the leading toy retailers desire to have a greater number of toy
suppliers which offer a variety of quality, branded product lines and which
have the financial strength to support the retailers' product distribution
requirements.
While toys are sold year round, toy industry retail sales are heavily weighted
toward calendar third and fourth quarters, when many toys are purchased as
holiday gifts. Each calendar year begins with a major international toy fair
held in Hong Kong in the first week in January, and during the January/February
period, additional toy fairs are held throughout the United States and Europe.
The toy fairs allow manufacturers to display their current lines and begin the
process of generating purchase orders for the important holiday season. Due to
the seasonality and long lead times required for foreign production, retailer
buying activity tends to significantly lead production and shipment.
The Company's product lines principally fall into three categories within the
toy industry. According to the TMA, for the calendar years ended December 31,
1993, 1994, 1995, 1996 and 1997, these categories had approximate domestic
manufacturers' shipments as follows:
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1993 1994 1995 1996 1997
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Action figures and accessories . . . . . . . . $641,000 $867,000 $716,000 $790,000 $1,002,000
Vehicles (excludes electric trains) . . . . . . 237,000 282,000 261,000 313,000 415,000
Pre-school . . . . . . . . . . . . . . . . . . 1,103,000 1,157,000 1,329,000 1,384,000 1,378,000
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STRATEGY
The Company's objective is to leverage its relationship with retail outlets,
toy manufacturers and toy designers into a leadership position among toy
companies. To accomplish these objectives the Company has developed the
following strategy:
Develop Evergreen Products. The Company seeks to develop and build upon toy
products which it believes are everyday product lines. The Company believes
that certain toy categories, including vehicles, action figures, and child
development toys, maintain a broad consumer appeal and are fundamental products
of the toy industry. As a result, the Company develops toys which it believes
historically have generated more consistent sales from year to year and have
been less sensitive to toy fads and trends.
Utilize Established Brand Names. The Company believes that utilizing licenses
and brand names allows the Company to establish recognizable products
characterized by a longer product life than is typical in the toy industry. The
Company currently markets products pursuant to licensing and trademark
agreements which allow it to use such names as Ford, Chevrolet, Jeep, Kawasaki,
Yamaha, Pepsi, Goodyear, Hershey, and the World Wrestling Federation ("WWF"). In
addition, the Company owns the trademarks for the Child Guidance (pre-school age
child development toys) and Road Champs and Remco (toy and collectible vehicles)
product lines. The Company intends to continue to expand its product offerings
under its existing brand names and to seek to develop licensing agreements
whereby products may be offered under new brand names.
Pursue Strategic Acquisitions. The Company actively pursues strategic
acquisitions of unique businesses, product lines or trademarks that management
believes have an inherent broad based consumer appeal and can be sold through
the Company's existing distribution channels or through new complementary
distribution channels. In particular, the Company seeks to acquire brands
which it believes have recognizable names but may have been under-marketed in
the recent past. The Company believes that this strategy allows it to increase
its sales while leveraging the combined companies' operating expenses.
Maintain Limited Corporate Infrastructure. The Company maintains operating
practices, including outsourcing product manufacturing, manufacturing against
orders backed by letters of credit and utilizing commissioned independent sales
representatives, that enhance its flexibility and efficiency and reduce its
fixed cost structure. The Company's management believes that the variable
nature of the Company's production and sales effort allows it to respond
quickly to changing market conditions and to allocate resources efficiently.
The Company believes that its current infrastructure can accommodate
significant further business expansion without a corresponding increase in
fixed operating costs.
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Pursue International Expansion. During 1997, approximately 8.9% of the
Company's net sales were to international customers. The Company believes that
markets outside of the United States present significant opportunities and are
generally less competitive than the United States market. As a result, the
Company intends to increase its international sales, primarily in Europe
through existing and new retail channels and the use of new commissioned sales
representatives.
There can be no assurance that the Company will be able to implement all or any
part of its growth strategy or, if the Company is able to implement such
strategy, that it will be successful.
ACQUISITIONS
Remco/Child Guidance Acquisition. In October 1997, the Company purchased from
Azrak-Hamway International, Inc. ("AHI") all of AHI's world-wide rights to the
Remco, Child Guidance and certain other related trademarks, trade rights and
intellectual property (the "Trademarks") for an aggregate purchase price of
$13.4 million, of which $10.6 million was paid at the closing, $1.2 million is
to be paid in five equal quarterly installments from December 31, 1997 to
December 31, 1998, $0.3 million related to legal and accounting fees and $1.3
million related to reserves for liabilities. The obligation to pay the deferred
portion of the purchase price is represented by a note bearing interest at the
rate of 10% per annum (the "Note"). In addition, the Company entered into a
Manufacturing and Supply Agreement with AHI, pursuant to which AHI will, during
a 30-month period ending in April 2000, make available to the Company AHI's
tools, dies, molds, forms and other manufacturing equipment (the "Tools") for
the manufacture of products sold under the Trademarks (the "Products"), and
manufacture or arrange for the manufacture of Products upon request of the
Company or, if the Company does not agree with AHI as to the price or other
terms under which AHI would be willing to supply Products to the Company, the
Company may arrange for alternative sources to manufacture and supply Products,
in which event, AHI is obligated to make the Tools available to such other
sources. In consideration therefor, the Company is to pay $1.4 million to AHI
in ten quarterly installments, the first four of which are in the amount of
$110,000 and the remaining six of which are in the amount of $160,000, subject
to certain adjustments, and pay for any Products supplied by AHI under such
agreement at AHI's cost. Certain of the Company's obligations to AHI, including
the Note are secured by a security interest in the Trademarks in favor of AHI.
Road Champs Acquisition. In February 1997, the Company, through a wholly-owned
subsidiary, purchased all of the shares of Road Champs, Inc., a Pennsylvania
corporation ("RC Inc."), which owns all of the shares of Road Champs Ltd., a
Hong Kong corporation ("RC Ltd."), and the operating assets of Die Cast
Associates, Inc., a related Florida corporation (collectively, the "Road Champs
Companies"). As part of such acquisition, the Company purchased, among other
things, the Road Champs inventory, product lines, tools and molds and
trademarks. The net purchase price was approximately $11.7 million. Payments of
approximately $4.7 million in cash and $1.5 million through the issuance of
198,020 shares of Common Stock were made at the closing. The deferred portion
of the purchase price has been paid in full. All outstanding payments were
secured by a pledge of the shares of stock of RC Inc. and RC Ltd. and a security
interest in the Road Champs Companies' assets which is subordinate to the
security interest given by the Company to Renaissance Capital Growth & Income
Fund III, Inc. and Renaissance US Growth & Income Trust PLC (collectively,
"Renaissance") to secure payment of the Company's 9% Convertible Debentures.
Justin Acquisition. In October 1995, the Company acquired substantially all of
the operating assets constituting the toy business of Justin. As part of such
acquisition, the Company purchased, among other things, Justin's inventory,
product lines, tools and molds, and certain of Justin's trademarks. The Company
paid cash consideration of $1,210,435 to Justin, assumed certain of Justin's
liabilities to its creditors in the amount of $718,634, and issued 89,600
shares of the Common Stock to Justin. The Company further agreed to pay to
Justin percentage payments amounting to 5% of net sales derived from the
acquired product lines through December 31, 1997 and 2.5% of net sales derived
from such products during 1998 and 1999, with minimum annual payments of
$250,000 required for 1995 and 1996. Such percentage payments based on sales in
1995 and 1996 amounted to $264,917 and slightly less than the $250,000 minimum
required, respectively. The Company prepaid $500,000 of such future royalty
payments at the Closing which are to be applied against 100% of percentage
payments from January 1 to June 30 of 1997, 1998 and 1999, and against 50% of
percentage payments for July 1 to December 31 of 1997, 1998 and 1999. The
business operations of Justin are accounted for as operations of the Company as
of July 1, 1995, which is the date when the Company assumed operating control
over Justin's business operations.
PRODUCTS
ACTION FIGURES AND ACCESSORIES
The Company has a license with Titan Sports, Inc. ("Titan"), pursuant to which
the Company has the exclusive right to develop and market various products
including 6" action figures of the popular WWF professional wrestlers in the
United States and Canada. These 6" figures feature moveable body parts and
real-life action sounds. A WWF microphone with action background sounds is
available with these figures. This product line, which retails for approximately
$5.99 for the individual figures, was introduced by the Company in the second
quarter of 1996. A second and third series of the action figures were released
in the third and fourth quarters of 1996, respectively, along with a wrestling
ring play set in the fourth quarter of 1996. The Company has expanded its
current WWF products in 1997, including seven new series of wrestler figure
assortments, and sets of 3" figures with a wrestling ring and a new amplified
microphone. Furthermore, the Company is expanding its WWF product line by
introducing lines of 7" figures, large soft body figures, and figures with
special features.
VEHICLES
. Road Champs
The Road Champs product line consists of die cast new and classic cars, trucks,
motorcycles, emergency and service vehicles (including police cars, fire trucks
and ambulances), buses and aircraft (including propeller planes, jets and
helicopters). As a part of the Road Champs Acquisition, the Company acquired
the right to produce the Road Champs line of collectible vehicle replicas from
Ford, Chevrolet, Jeep, Kawasaki and Yamaha, as well as the right to use certain
corporate names on the die cast vehicles, such as Pepsi, Goodyear and Hershey.
Management believes that these licenses increase the perceived value of the
products. These products are currently retailing individually from
approximately $2.99 to $7.99 and in play sets from $9.99 to $24.99.
. Remco
The Remco product line is comprised of a diverse group of inexpensive, high
play-value, die-cast, steel and plastic toy cars and trucks, ranging in size
from approximately 5" to 18", some featuring sound, light and/or voice. These
products are currently retailing individually from $2.49 to $10.99 and in play
sets from $6.99 to 14.99.
CHILD GUIDANCE PRE-SCHOOL TOYS
The Child Guidance product line consists of electronic pre-school toys featuring
lights, action, sound and/or music in various forms, including animals, dolls
and vehicles among others. The products are sold in "try me" packaging whereby
consumers are able to activate the electronic function on the products prior to
purchasing the item. The products are approved by and, accordingly, carry the
Good Housekeeping Seal of Approval, which the Company believes increases the
perceived value of the products. These products are currently retailing from
approximately $5.99 to $12.99.
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OTHER PRODUCTS
. Fashion/Mini Dolls
The Company produces various lines of proprietary fashion dolls and accessories
for children between the ages of three and ten. The product line includes 11
1/2" fashion dolls outfitted to correspond with particular holidays or events
such as Christmas and birthdays and the Starr Model Agency line comprised of 6
1/2" fashion dolls which come in various themed outfits such as "Midnight
Jewel" and "Prized Pets," as well as accessories which include mobile play
sets, carrying cases and a sport utility vehicle. In 1997, the Company added
to its doll lines by producing additional Starr Model Agency Playsets, as well
as dolls based on children's classic fairy tales and holidays and other
theme-based play sets.
. Turbo Touch Racer
The Company has entered into a license agreement with Wow Wee International
("Wow Wee") to market and distribute a radio controlled car known as Turbo
Touch Racer. The car is controlled by a special glove worn by the user as
opposed to the traditional hand-held transmitter. These toy vehicles
currently sell at retail prices ranging from $19.95 to $34.95. The Company
launched these products in the Summer of 1997.
LICENSE AGREEMENTS
License Agreements. The Company has entered into a license with Titan for the
use of certain WWF properties and characters of professional wrestlers who
perform in WWF live events broadcast on free and cable television, including
pay-per-view television specials. The Company has the exclusive right to market
those action figures and is currently marketing figures in 7", 6" and 3" sizes
in the United States and Canada and recently acquired the exclusive right to
market the same products in Europe, Africa and Australia. The line also includes
related products and accessories. These licenses both expire on December 31,
2002. The Company has agreed to pay Titan royalties with certain minimum
guarantees.
Turbo Touch Racer products are sold by the Company under an exclusive license
agreement with Wow Wee. The Company has the rights to market and sell the Turbo
Touch Racer toy vehicles in the United States. The agreement expires on June 30,
1998 unless renewed by the Company for additional twelve month terms. Under that
agreement, the Company is obligated to buy specified amounts of the products
from Wow Wee and also pay Wow Wee royalties with certain minimum guarantees.
However, the Company may cancel the agreement by payment of the guaranteed
royalties.
The Company's Road Champs Acquisition included numerous licenses for the use of
certain well-known corporate names, marks and logos on its Road Champs product
line. Under such licenses, the Company acquired the right to produce a line of
collectible vehicle replicas of certain well-known vehicle marks from
companies such as Ford, Chevrolet, Jeep, Kawasaki and Yamaha, as well as the
right to use certain highly recognizable corporate names, such as Pepsi,
Goodyear and Hershey on other of the die cast vehicles. Under the terms of such
licenses, which expire on various dates ranging through May 10, 2001 (many of
which include automatic annual extensions without affirmative action taken by
either party), the Company pays the licensor a royalty based on the Company's
sales of each product bearing such licensed name. The Company is required to
pay royalties on certain of the products; the royalties on such products
generally range from 1% to 10% of sales.
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MARKETING AND DISTRIBUTION
The Company sells primarily all of its products to domestic retail chain stores,
department stores, toy specialty stores and wholesalers. The Road Champs
products are also sold to smaller hobby shops and specialty retailers.
Historically, the Company's five largest customers have been Toys 'R Us, Wal
Mart, Kay-Bee Toys, Kmart and Target. For the years ended December 31, 1997 and
1996, these customers, in the aggregate, accounted for approximately 61.7% of
the Company's sales and 47.5% of the Company's sales on a pro forma basis when
combined with Road Champs for 1996. Other than purchase orders, the Company does
not have written agreements with its customers, but generally sells products
pursuant to letters of credit or, in certain cases, on open account with payment
terms typically varying from 30 to 90 days. The termination by one or more of
the customers named above of its relationship with the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. Notwithstanding common industry practice, the Company, in
accordance with its long-standing policy, has not sold any products on
consignment. However, it may sell on consignment, on a case-by-case negotiated
basis, in the future.
In order to minimize inventory on hand, the Company typically obtains orders
for its products from its customers and then arranges for the manufacture of
the specific ordered products, although approximately half of the Road Champs
product orders are filled from the Company's warehouse in New Jersey, which
maintains an inventory for sale.
Six of the Company's employees are engaged full-time in sales and marketing
efforts, principally in the domestic market. In addition, the Company retains
a number of independent sales representatives to sell and promote its products,
both domestically and internationally.
The Company generally budgets approximately 3% of its gross revenues for the
advertising of its products, most of which is in conjunction with retailers in
the form of cooperative advertising. The Company, together with retailers,
sometimes tests the consumer acceptance of new products in selected markets
before committing resources to production. In addition, the Company also
advertises its products in trade and consumer magazines and other publications,
as well as marketing its products at major and regional toy trade shows. In
1997, the Company engaged an advertising agency to produce television
commercials for its radio controlled vehicle line. If management concludes that
sales of a particular product would support the high cost, it may use television
commercials to advertise certain of its products.
PRODUCT DEVELOPMENT
The Company's products are generally acquired by the Company from others or
developed for the Company by non-affiliated third-parties. If the Company
accepts and develops a third-party's concept for a new toy, it generally pays a
royalty on the toys developed from such concept that are sold, and may, on an
individual basis, guarantee a minimum royalty. Royalties payable to such
developers generally range from 1% to 6% of the wholesale sales price for each
unit of a product sold by the Company. The Company believes that utilizing
experienced third-party inventors gives it access to a wide range of
development talent. The Company currently works with numerous toy inventors
and designers for the development of new and existing products.
PRODUCT SAFETY
The Company's products are designed, manufactured, packaged and labeled to
conform with the safety requirements of the Consumer Product Safety Commission.
Safety testing of the Company's products is performed at the manufacturers'
facilities by engineers employed by the Company or independent third-party
contractors engaged by the Company, and is designed to meet safety regulations
imposed by federal and state governmental authorities. The Company also monitors
quality assurance procedures for its products for safety purposes. The Company
carries product liability insurance coverage with a limit of $2 million per
occurrence. The Company has never received a product liability claim.
MANUFACTURING AND SUPPLIES
The Company contracts with third party manufacturers in the Far East,
principally within the People's Republic of China, to manufacture its products.
The Company's senior management negotiates the majority of its manufacturing
contracts without using agents. The Company maintains an office in Hong Kong
to enhance the Company's product development and purchasing capabilities, to
aid in the management of quality control and shipping schedules and to expand
its vendor base in the Far East. The Far East is
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the largest and most widely used manufacturing center of toys in the world.
Decisions related to the choice of manufacturer are based on quality of
merchandise, the ability of a manufacturer to meet the Company's timing
requirements for delivery and price. The Company is not a party to long-term
contractual or other arrangements with any manufacturer and often uses more
than one manufacturer to produce a single product. The majority of the
Company's manufacturing is arranged directly by the Company with the
manufacturing facilities and all manufacturing services for the Company are
paid for by either letters of credit or open account with such manufacturer.
The Company is continuously developing new tooling and molds to produce its
figures and die-cast products. The Company's engineering staff works closely
with outside tool makers to design and create new tooling. Depending on the
size and complexity of the model, tools can cost from $20,000 to $120,000.
The Company owns or has the right to use all necessary tools and provides them
to manufacturers during production. Tools are returned to the Company when a
product is no longer in production and are typically stored for future use.
The Company has entered into a Manufacturing and Supply Agreement with AHI,
pursuant to which AHI will, during a 30-month period ending in April 2000, make
the Tools available to the Company for the manufacture of Products, and
manufacture or arrange for the manufacture of Products upon request of the
Company or, if the Company does not agree with AHI as to the price or other
terms under which AHI would be willing to supply Products to the Company, the
Company may arrange for alternative sources to manufacture and supply Products,
in which event, AHI is obligated to make the Tools available to such other
sources. In consideration therefor, the Company is required to pay $1.4 million
to AHI in ten quarterly installments, the first four of which are in the amount
of $110,000 and the remaining six of which are in the amount of $160,000,
subject to certain adjustments, and pay for any Products supplied by AHI under
such agreement at AHI's cost.
The principal raw materials used in the production and sale of the Company's
toy products are plastics, plush, printed fabrics, zinc alloy, paper products
and electronic components. These materials are generally purchased by
manufacturers who deliver completed
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products to the Company. The Company believes that an adequate supply of
materials used in the manufacture of its products is readily available at
reasonable prices from a variety of sources.
In 1997, the Company outsourced toy production to approximately twelve
manufacturers. While the Company believes that it is not dependent on any single
manufacturer in the Far East, the Company could be materially, adversely
affected by political or economic disruptions affecting the business or
operations of third party manufacturers located in the Far East.
TRADEMARKS AND COPYRIGHTS
Most of the Company's products are produced and sold under trademarks owned by
or licensed to the Company, many of which were acquired by the Company as part
of the Justin Acquisition, Road Champs Acquisition and Child Guidance/Remco
Acquisition. The Company typically registers its properties, and seeks
protection under the trademark, copyright and patent laws of the United States
and other countries where its products are produced or sold.
The Company's most familiar trademarks and brand names include:
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Owned Licensed
<S> <C>
Child Guidance World Wrestling Federation
Remco Good Housekeeping Seal of Approval
Road Champs
</TABLE>
COMPETITION
Competition in the toy industry is intense. Competition is based on consumer
preferences, quality and price. In recent years, the toy industry has
experienced rapid consolidation driven, in part, by the desire of industry
competitors to offer a range of products across a broader variety of
categories. Many of the Company's competitors have greater financial resources,
stronger name recognition, larger sales, marketing and product development
departments and greater economies of scale that may cause their products to be
more competitively priced. Competition extends to the procurement of character
and product licenses, as well as to the marketing and distribution of products,
including obtaining adequate shelf space in retail stores.
The Company's principal competitors are Mattel, Inc. and Hasbro, Inc. which,
the Company believes, are the dominant companies in the industry. The Company
also competes with smaller domestic and foreign toy manufacturers, importers
and marketers.
SEASONALITY AND BACKLOG
Sales of toy products are seasonal, with a majority of retail sales occurring
during the period from September through December. Approximately 68.3% of the
Company's sales in 1997 were made in the third and fourth quarters. Generally,
the first quarter is the period of lowest shipments and revenues in the toy
industry and therefore the least profitable due to certain fixed costs. Due to
these fluctuations, the results of operations for any quarterly period may vary
significantly. The Company's results of operations may also fluctuate as a
result of factors such as the timing of new products (and expenses incurred in
connection therewith) of the Company or its competitors, the advertising
activities of its competitors and the emergence of new market entrants. The
Company believes that most of the Company's products have low retail prices
and, as a result, such products may be less subject to seasonal fluctuations.
The Company generally ships products to customers within three to six months of
the date an order is received resulting in backlogs. However, because customer
orders may be canceled at any time without penalty, the Company believes that
backlog may not accurately indicate sales for any future period.
GOVERNMENT AND INDUSTRY REGULATION
The Company's operations are subject to various laws, including the Federal
Hazardous Substances Act, the Consumer Product Safety Act, the Flammable
Fabrics Act and the rules and regulations promulgated thereunder. Such laws
are administered by the Consumer Product Safety Commission, which has the
authority to exclude from the market products that are found to be hazardous
and can require a manufacturer to repurchase such products under certain
circumstances. There can be no assurance that defects in the Company's
products will not be alleged or found. Any such allegations or findings could
result in product liability claims, loss of revenue, diversion of resources,
damage to the Company's reputation, or increased warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
EMPLOYEES
As of December 31, 1997, the Company had 63 full-time employees, including three
executive officers. Thirty-six of the Company's employees are located in the
United States, while the remaining 27 are located in Hong Kong. The Company
believes that it has good relationships with its employees. None of the
Company's employees are represented by a union.
ENVIRONMENTAL ISSUES
The Company is subject to legal and financial obligations under environmental,
health and safety laws in the United States and in other jurisdictions where
the Company operates which have such laws. The Company is not currently aware
of any material environmental liabilities associated with any of its
operations. The Company does not believe that any environmental obligations
will have a material adverse impact on the financial condition of the Company.
8
<PAGE> 10
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 5,000 square feet of space at 22761
Pacific Coast Highway, #226, Malibu, California, all of which is currently used
for the Company's principal executive offices. The lease for such premises
expires on August 31, 2002. The current base rent is $10,000 per month. The
Company also leases, pursuant to a lease expiring on April 20, 2003,
approximately 2,100 square feet of showroom and office space at the Toy Center
South, 200 Fifth Avenue, New York, New York, at a current rental of $5,539 per
month. The Company leases two additional locations in the United States acquired
as a part of the Road Champs Acquisition. One such facility is approximately
2,000 square feet and is used as a showroom at the Toy Center North, 1107
Broadway, New York, New York, at a current rent of $4,959 per month. Such lease
expires on April 30, 2001. The other facility of approximately 51,000 square
feet of warehouse and office space, is at 7 Patton Drive, West Caldwell, New
Jersey, has a current monthly rent of $21,235 and expires on May 31, 2000 or
upon six-month prior notice by either party. The Company provided such notice
and will vacate the facility by May 31, 1998. The office will relocate to a
leased facility located at 1600 Route 22, Union, New Jersey. Such facility
consists of approximately 3,415 square feet of office space. The lease provides
for a base monthly rent of $4,852 and a term of one year commencing June 1,
1998.
The Company also leases office space in Hong Kong which is used for the
Company's sourcing operations. The property is located at the Peninsula Center,
67 Mody Road, Tsimshatsui East, Kowloon, Hong Kong. The lease provides for a
monthly rent of the U.S. dollar equivalent of $8,700, consists of approximately
3,200 square feet and expires on March 14, 2000. The Company believes that its
facilities in the United States and Hong Kong will be adequate for its
reasonably foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Since April 14, 1997, the Company's Common Stock has been trading on the
Nasdaq National Market System under the symbol "JAKK." From May 1, 1996 to April
13, 1997, the Common Stock traded on the Nasdaq SmallCap Market. The following
table sets forth the high and low closing sales prices of the Company's Common
Stock in each of the following quarters.
<TABLE>
<CAPTION>
1996 HIGH LOW
--------------------------------------------------------- ---- ---
<S> <C> <C>
Second quarter (from May 1).............................. 9 6 1/2
Third quarter............................................ 8 3/4 6 1/4
Fourth quarter........................................... 9 7 1/4
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
--------------------------------------------------------- ---- ---
<S> <C> <C>
First quarter............................................ 8 3/4 7 1/8
Second quarter .......................................... 8 1/4 4 1/2
Third quarter............................................ 10 13/16 5 3/4
Fourth quarter........................................... 11 1/8 7 5/8
</TABLE>
9
<PAGE> 11
SECURITY HOLDERS
To the best knowledge of the Company, at March 27, 1998, there were 91
record holders of the Company's Common Stock. The Company believes there are
numerous beneficial owners of the Company's Common Stock whose shares are held
in "street name." To the best knowledge of the Company, the number of beneficial
owners as of December 31, 1997 was 1,525.
DIVIDENDS
The Company has not paid, and has no current plans to pay, dividends on its
Common Stock. The payment of dividends on the Common Stock (other than dividends
payable in shares of Common Stock) is prohibited (i) under the Loan Agreement
relating to the Company's 9% Convertible Debentures and (ii) for so long as
shares of the Company's 4% Redeemable Convertible Preferred Stock remained
outstanding, until all accumulated dividends accruing at the rate of 4% per
annum on the Company's 4% Redeemable Convertible Preferred Stock are paid in
full. All such shares were converted into Common Stock on March 30, 1998. The
Company intends to retain earnings, if any, for use in its business to finance
the operation and expansion of its business.
SALES OF UNREGISTERED SECURITIES
Dated December 31, 1996, but effective January 8, 1997, the Company issued
$6,000,000 in aggregate, of 9% seven-year convertible debentures ("Debentures")
to Renaissance. Net proceeds to the Company after payment of a 6% brokerage
commission to Joseph Charles & Associates, Inc. and fees to Renaissance and its
attorneys were $568,000. The debentures are convertible into 1,043,478 shares
of the Company's Common Stock at a conversion price of $5.75 per share, which is
subject to adjustment if the Company issues shares of its stock at a price less
than such conversion price. The indebtedness must be repaid in part each month
beginning December 1999, in the amount of 1% of the then unpaid balance and in
full at December 31, 2003. The Company has the right to prepay all or part of
such indebtedness in certain events at 120% of their original $6,000,000 face
value.
In 1997, the Company sold warrants at a price of $0.001 per share to: (i)
Joseph Charles & Associates, Inc. to purchase an aggregate of 150,000 shares of
the Company's Common Stock at an exercise price of $7.50 per share in
connection with the placement of the Debentures, and (ii) Cruttenden Roth Inc.
to purchase an aggregate of 60,000 shares of the Company's Common Stock at a
price of $7.475 per share, in connection with a public offering of the
Company's Common Stock.
In 1997, the Company granted (i) options under its Second Amended and
Restated 1995 Stock Option Plan to 11 persons (8 employees, including 3
executive officers, and 3 non-employee directors) to purchase an aggregate of
405,025 shares of the Company's Common Stock at exercise prices ranging from
$8.00 to $10.725 per share and (ii) options outside the 1995 Stock Option Plan
to two consultants to purchase an aggregate of 60,000 shares of the Company's
Common Stock at an exercise price of $6.875 per share.
On October 24, 1997, the Company issued 3,525 shares of its 4% Redeemable
Convertible Preferred Stock in a private placement to 10 investors at a price of
$2,000 per share. Net proceeds to the Company after legal, placement and closing
fees were approximately $6.8 million. Holders of the preferred stock are
entitled to receive cumulative cash dividends at an annual rate of $80 per share
payable as and when declared by the Company's Board of Directors. Commencing on
January 1, 1998 each share of preferred stock may be converted, at the option of
the holder, into 266-2/3 shares of Common Stock. At any time on or after April
1, 1998, (a) the preferred stock will be redeemable by the Company at a
redemption price of $2,000 per share, plus the amount accrued but unpaid
dividends thereon, on 30 days prior written notice. In addition, the preferred
stock is convertible into Common Stock at the option of the Company if the
closing price of the Common Stock equals or exceeds $8.50 per share for ten
consecutive trading days within a period of 30 trading days beginning on or
after March 1, 1998 and ending on the fifth day prior to the day of giving
notice of conversion ("Reference Period") at a conversion price equal to the
average market price over the Reference Period, but in no event less than $7.50
per share. All such shares were converted into Common Stock on March 30, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto which appear elsewhere in
this Report.
OVERVIEW
The Company was founded in early 1995 to develop, manufacture and market
toys and related products for children. The Company commenced business
operations as of July 1, 1995, when it assumed operating control over the toy
business of Justin Products Limited ("Justin") and has included the results of
Justin's operations in its consolidated financial statements from the effective
date of such acquisition (the "Justin
10
<PAGE> 12
Acquisition"). The Justin product lines accounted for substantially all of the
Company's sales for the period from April 1, 1995 (Inception) to December 31,
1995.
In 1996, the Company expanded its product lines to include products based
on licensed characters and properties such as WWF action figures and Power
Rangers ZEO mini vehicles. Presently, the Company's products include (i) toys
and action figures featuring licensed characters, including action figures based
on characters from the WWF, (ii) die cast collectible and toy vehicles marketed
under the name Road Champs, (iii) fashion dolls with related accessories, (iv)
electronic toys designed for children and (v) new lines of radio controlled and
battery-operated vehicles.
In October 1997, the Company acquired the Child Guidance and Remco
trademarks, under which the Company expects to market pre-school toys and metal
trucks, respectively. Such lines contributed nominally in 1997, but are
expected to contribute more significantly to operations in 1998.
The toys sold by the Company are currently primarily produced by
non-affiliated manufacturers located in China on letter of credit basis or on
open account and are shipped F.O.B. Hong Kong. These methods allow the Company
to keep certain operating costs down and reduce working capital requirements.
However, through the Company's Road Champs division, a portion of the Company's
sales are made on a domestic basis, for which the Company holds certain
inventory in its New Jersey facility. To date, substantially all of the
Company's sales have been to domestic customers. The Company intends to expand
distribution of its products internationally.
The Company's products are generally acquired from others or developed for
the Company by non-affiliated third parties, thus minimizing operating costs.
Royalties payable to such developers generally range from 1% to 6% of the
wholesale sales price for each unit of a product sold by the Company.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of net sales. As indicated, the
data is based on twelve month results for each year presented. The 1995 data
reflects the pro forma combined results of Justin and the Company as though the
Justin Acquisition was effective January 1, 1995, and the 1996 and 1997 data
relates exclusively to the Company's operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
PRO FORMA ACTUAL ACTUAL
1995 1996 1997
--------- ------ ------
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 68.2 60.0 61.7
----- ----- -----
Gross profit........................................ 31.8 40.0 38.3
Selling, general and administrative expenses........ 24.0 30.0 28.4
----- ----- -----
Income from operations.............................. 7.8 10.0 9.9
Other income (expense).............................. 0.2 -- (0.8)
Interest, net....................................... (0.1) 1.1 (0.9)
----- ----- -----
Income before income taxes.......................... 7.9 11.1 8.2
Provision for income taxes.......................... 1.6 1.3 1.6
----- ----- -----
Net income........................................ 6.3% 9.8% 6.6%
===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales. Net sales were $41.9 million in 1997, an increase of $29.8
million, or 248% over $12.1 million in 1996. The significant growth in net
sales was due primarily to the continuing growth of the WWF action figure
product line with its expanded product offerings and frequent character
releases, as well as to the contribution made by Road Champs' sales of die-cast
toy and collectible vehicles, which have been included from the effective day
of the acquisition, February 1, 1997. The Company's holiday doll line performed
comparably with the prior year and its new line of radio controlled vehicle
made modest contributions to net sales in 1997.
Gross Profit. Gross profits were $16.1 million, or 38.3% of net sales, in
1997. This represents an increase of approximately 233% over gross profits of
$4.8 million, or 40.0% of net sales, in 1996. The overall increase in gross
profit is attributable to the significant increase in net sales. The decline in
the gross profit margin of 1.7% of net sales is due in part to the changing
product mix, which includes products, such as Road Champs and radio controlled
vehicles, with lower margins than some of the Company's other products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $11.9 million in 1997 and $3.6 million in 1996,
constituting 28.4% and 30.0% of net sales, respectively. The overall
significant increase of $8.3 million in such costs is due in large part to the
costs associated with the infrastructure added in connection with the Road
Champs Acquisition, with its sales, administration and warehousing operations
in the United States and Hong Kong. The Company has since combined the
operations in Hong Kong with that of its existing operations and may achieve
other efficiencies in its operations. As expected, selling, general and
administrative expenses decreased as a percentage of net sales due in part to
the fixed nature of certain of these expenses. The overall dollar increase was
also due to the significant increase in net sales with its proportionate impact
on variable selling costs such as freight and shipping related expenses, sales
commission and travel expenses, among others. Additionally, the Company
produced television commercials in support of several of its products including
WWF action figures and radio controlled vehicles. From time to time, the
Company may increase its advertising efforts, including the use of more
expensive advertising media such as television if the Company deems it
appropriate for particular products. Such advertising costs may be substantial,
and there is no certainty as to the effectiveness of such advertising or
whether any resultant sales would be sufficient to cover such costs.
Interest, net. The Company had significantly higher interest-bearing
obligations in 1997 than in 1996 with its convertible debentures and seller
note issued to partially fund and as part of the Road Champs Acquisition. In
addition, the Company had lower average cash balances during 1997 than in 1996
due to significant cash payments made and the working capital employed in
connection with the Road Champs Acquisition.
Provision for Income Taxes. Provision for income taxes include state and
foreign income taxes in 1997 and also include a tax benefit generated by
operating losses for Federal and state purposes in 1996. The Company's earnings
were subject to effective tax rates of 18.8% and 12.2% in 1997 and 1996,
respectively, benefiting from a flat 16.5% Hong Kong Corporation Tax on its
income arising in, or derived from, Hong Kong. At December 31, 1997, the
Company had Federal and state net operating loss carryforwards of $727,000 and
$306,000, respectively, available to offset future taxable income. The
carryforwards generally expire through 2012 and may be subject to annual
limitations as a result of changes in the Company's ownership. There can be no
assurances that changes in ownership in future periods or any future losses
will not significantly limit the Company's use of the net operating loss
carryforwards. In addition, no valuation allowance for its deferred tax assets,
amounting to approximately $258,000 at December 31, 1997, has been provided for
since, in the opinion of management, realization of the future benefit is
probable. In making this determination, management considered all available
evidence, both positive and negative, as well as the weight and importance
given to such evidence.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. Net sales were $12.1 million in 1996, an increase of $4.2
million, or 52%, over $7.9 million in 1995. The strong growth in net sales was
due primarily to the introduction of new products including WWF action figures
and Power Rangers ZEO mini vehicles, in addition to the continuing sales of the
Company's other product lines, including fashion dolls and accessories.
Gross Profit. Gross profits were $4.8 million, or 40.0% of net sales, in
1996. This represented an increase of approximately 148% over gross profits of
$1.9 million, or 31.8% of net sales, in 1995. This increase was due primarily to
increasing sales of new products featuring licensed characters and properties
with higher after-royalty margins.
11
<PAGE> 13
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.6 million in 1996 and $1.9 million in 1995,
constituting 30.0% and 24.0% of net sales, respectively. The increase as a
percentage of net sales was due to the increase in such expenses in support of
the Company's growth including staffing and infrastructure, as well as expenses
incurred in connection with the placement of the Convertible Debentures and the
Road Champs Acquisition. The Company expects that such fixed costs should
decrease as a percentage of net sales as sales volume increases. The overall
dollar increase in 1996 over 1995 was due mainly to the increase in variable
selling expenses, staffing and infrastructure additions in support of the
Company's growth, the placement of the Convertible Debentures and the Road
Champs Acquisition. The increase in variable selling expenses, such as freight
and shipping related expenses, sales commissions and travel expenses, were
attributable to significant increases in net sales. Major accounts are serviced
internally, thereby minimizing sales commissions; however, this benefit is
partially offset by increased travel required by the Company to cover those
accounts. Selling expenses are expected to increase as net sales increase due to
the variable nature of such expenses. From time to time, the Company may
increase its advertising efforts, including the use of more expensive
advertising media such as television if the Company deems it appropriate for
particular products. Such advertising costs may be substantial, and there is no
certainty as to the effectiveness of such advertising or whether any resultant
sales would be sufficient to cover such costs.
Interest, Net. The Company maintained significantly higher average cash
balances during 1996 than in 1995 resulting in significantly higher interest
income, though offset by interest expense consisting mainly of the interest
incurred on the bridge financing conducted by the Company prior to the Company's
initial public offering in May 1996 and the discount amortization on the Justin
Acquisition payable.
Provision for Income Taxes. Provision for income taxes in 1996 included
foreign income taxes offset by the tax benefit generated by operating losses for
Federal and state tax purposes. In 1995, the provision included Federal, state
and foreign income taxes. The Company's earnings have benefited from a favorable
overall effective tax rate of 12.2% in 1996 and 20.3% in 1995 as a substantial
portion of the Company's earnings were subject to the Hong Kong Corporation Tax,
a flat 16.5%, on its income arising in, or derived from, Hong Kong. At December
31, 1996, the Company had Federal and state net operating loss carryforwards of
$360,000 and $180,000, respectively, available to offset future taxable income.
This carryforward generally begins to expire in 2011 and may be subject to
annual limitations as a result of changes in the Company's ownership. There can
be no assurance that changes in ownership in future periods or any future losses
will not significantly limit the Company's use of the net operating loss
carryforward. In addition, no valuation allowance for its deferred tax assets,
amounting to approximately $146,000 at December 31, 1996, has been provided for
since, in the opinion of management, realization of the future benefit is
probable. In making this determination, management considered all available
evidence, both positive and negative, as well as the weight and importance given
to such evidence.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company has experienced significant quarterly fluctuations in operating
results and anticipates such fluctuations in the future. The operating results
for any quarter are not necessarily indicative of results for any future period.
The first quarter for the Company is typically expected to be the least
profitable as a result of lower net sales but substantially similar fixed
operating expenses. The Company's first quarter performance is thus expected to
be consistent with the toy industry, in general, where many companies may
experience only moderate profits and many others may even experience losses.
The following tables present the unaudited quarterly results for the
Company and the Company pro forma with Justin for the years indicated. The
seasonality of the business is reflected in this quarterly presentation.
12
<PAGE> 14
<TABLE>
<CAPTION>
1995
PRO FORMA(1) 1996 1997
------------------------------- ------------------------------- -----------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
---- ------ ------ ------ ---- ------ ------ ------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $219 $1,634 $3,769 $2,309 $835 $2,382 $4,458 $4,377 $5,235 $8,059 $15,919 $12,732
Gross profit........... 72 501 989 958 418 839 1,804 1,760 1,911 3,203 6,620 4,336
Income (loss) before
income taxes......... (91) 163 436 115 (42) 195 730 460 124 604 1,908 793
Net income (loss)...... (76) 136 359 78 20 202 628 330 203 457 1,455 671
</TABLE>
<TABLE>
<CAPTION>
(IN PERCENTAGES OF NET SALES)
1995
PRO FORMA(1) 1996 1997
------------------------------- -------------------------------- --------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........... 32.9 30.7 26.2 41.5 50.1 35.2 40.5 40.2 36.5 39.7 41.6 34.1
Income (loss) before
income taxes......... (41.6) 10.0 11.6 5.0 (5.0) 8.2 16.4 10.5 2.4 7.5 12.0 6.2
Net income (loss)...... (34.7) 8.3 9.5 3.3 2.4 8.5 14.1 7.5 3.9 5.7 9.1 5.3
</TABLE>
- ---------------
(1) Pro forma results include Justin's results as though the acquisition took
place as of January 1, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had working capital of $3.4 million,
as compared to $7.8 million as of December 31, 1996. Such decrease was primarily
attributable to the significant disbursements of cash consideration in
connection with the Road Champs and Child Guidance/Remco Acquisitions in
February 1997 and October 1997, respectively, though offset by the net proceeds
received from the issuance of the 9% convertible debentures and the 4%
convertible preferred stock.
Operating activities provided net cash of $3.2 million in 1997 as compared
to having used $0.5 million in 1996. Net cash was provided primarily by net
income and non-cash charges, though offset in part, by changes in operating
assets and liabilities. At December 31, 1997, the Company had cash and cash
equivalents of $2.5 million.
The Company's investing activities have used net cash of $24.4 million in
1997, as compared to $1.3 million in 1996, consisting primarily of the purchase
of trademarks in connection with the acquisitions of Road Champs and Child
Guidance/Remco and goodwill in connection with the acquisition of Road Champs,
as well as molds and tooling used in the manufacture of the Company's products.
In 1996, the Company's investing activities used cash principally for the
purchase of molds and tooling. As part of the Company's strategy to develop and
market new products, the Company has entered into various character and product
licenses with royalties of 1% to 10% payable on net sales of such products. As
of January 1, 1998, these agreements require future aggregate minimum guarantees
of $2.0 million, exclusive of $0.3 million in advances already paid.
The Company's financing activities have provided net cash of $17.4 million
in 1997, consisting of the issuance of the 4% Convertible Preferred Stock in
October 1997, which provided $6.8 million, net of offering costs, the placement
of the 9% convertible debentures in January 1997, which provided $5.5 million,
net of offering costs, and various notes and other debt issued in connection
with the Company's acquisitions in 1997, less approximately $5.2 million in debt
repaid.
13
<PAGE> 15
In January 1997, the Company received net proceeds of approximately $5.5
million, net of issuance costs, from the issuance of $6.0 million in convertible
debentures which are convertible into 1,043,478 shares of Common Stock at a
conversion price of $5.75 per share, subject to anti-dilution provisions. Such
debentures bear interest at 9% per annum, payable monthly, and are due in
December 2003.
In February 1997, the Company acquired Road Champs for approximately $11.7
million. Consideration paid at closing was approximately $4.7 million in cash
plus the issuance of $1.5 million (198,020 shares) of Common Stock. The balance
of the cash consideration ($5.5 million) was payable during the twelve-month
period ending in February 1998. This acquisition provided the Company with
immediate significant growth in the mini vehicle product category with Road
Champs product line of die cast collectible and toy vehicles. Assets included in
the purchase were molds and tooling, office and warehouse equipment and other
operating assets, as well as license agreements, trade name and goodwill.
In October 1997, the Company acquired the Child Guidance and Remco
trademarks for approximately $13.4 million. Consideration paid at closing was
$10.6 million in cash plus the issuance of a note payable in the amount of $1.2
million, which is payable in five quarterly installments ending December 31,
1998 and bears interest at 10% per annum. In addition, the Company incurred
legal and accounting fees of approximately $0.3 million and reserves of $1.3
million. This acquisition provided the Company with immediate expanded growth in
the toy vehicle category, which complements the collectible and toy nature of
the Road Champs line. In addition, the Child Guidance enabled the Company to
enter the pre-school toy category with a quality name. The acquisition was
funded in part by the issuance of the Company's 4% convertible preferred stock,
which were converted to the Company's common stock on March 30, 1998. Also in
connection with this acquisition, the Company entered into a manufacturing and
supply agreement whereby the seller of the trademarks will provide the tools and
other manufacturing resources for the production of products under the
trademarks. Such agreement provides for payments to the seller of four quarterly
payments of $110,000 followed by six quarterly payments of $160,000 commencing
on December 31, 1997.
In October, 1997, the Company entered into a credit facility agreement
with Norwest Bank Minnesota, N.A. which provides the Company's Hong Kong
subsidiaries with a working capital line of credit and letters of credit for
the purchase of products and the operation of the subsidiaries. The facility
has an overall limit of $5.0 million, but is subject other limitations based on
advance rates on letters of credit and open accounts receivable. As of December
31, 1997, aggregate advances under the facility amounted to approximately $0.1
million.
On April 1, 1998, the Company received $4.8 million in net proceeds from
the issuance of shares of its 7% Convertible Preferred Stock to two investors
in a private placement, which are convertible into 558,659 shares of the
Company's Common Stock at a conversion price of $8.95 per share. The use of
proceeds is for working capital and general corporate purposes.
Many computer systems process dates in application software and data files
based on two digits for the year of a transaction rather than a full four
digits. These systems are unable to properly process dates in the year 2000.
The Company has developed plans to address the impact of replacing or modifying
its key financial information and operational systems to deal with this issue.
Several new information technologies have been and are being installed to
achieve further productivity and cost improvements. These systems will be
year 2000 compliant. The Company believes that all systems necessary to
manage the business effectively will be replaced, modified or upgraded before
the year 2000. Because of the system replacement and business reeingineering
expenditures currently underway, the Company believes the costs to modify
current systems to be year 2000 compliant will not be significant to the
Company's financial results.
The Company believes that its cash flow from operations, cash on hand and
the net proceeds from the issuance of the 7% Convertible Preferred Stock,
together with the availability on the Norwest facility, will be sufficient to
meet working capital and capital expenditure requirements and provide the
Company with adequate liquidity to meet its anticipated operating needs for the
foreseeable future. Although operating activities are expected to provide cash,
to the extent the Company grows significantly in the future, its operating and
investing activities may use cash and, consequently, such growth may require the
Company to obtain additional sources of financing. There can be no assurance
that any necessary additional financing will be available to the Company on
commercially reasonable terms, if at all.
EXCHANGE RATES
The Company sells substantially all of its products in U.S. dollars and
pays for substantially all of the manufacturing costs in either U.S. or Hong
Kong dollars. Operating expenses of the Hong Kong office are paid in Hong Kong
dollars. The exchange rate of the Hong Kong dollar to the U.S. dollar has been
fixed by the Hong Kong government since 1983 at HK$7.80 to US$1.00 and,
accordingly, has not represented a currency exchange risk to the U.S. dollar. No
assurance can be made that the exchange rate between the United States and Hong
Kong currencies will continue to be fixed or that exchange rate fluctuations
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued a new standard, SFAS No.
128, "Earnings per Share," which is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. This
statement establishes simplified standards for computing and presenting
earnings per share (EPS). It requires dual presentation of basic and diluted
EPS on the face of the income statement of entities with complex capital
structures and disclosures of the calculation of each EPS amount.
ITEM 7. FINANCIAL STATEMENTS
The financial statements begin on the following page.
14
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Stockholders
JAKKS Pacific, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of JAKKS
Pacific, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of JAKKS
Pacific, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
PANNELL KERR FORSTER
Certified Public Accountants
A Professional Corporation
February 12, 1998, except for note 17,
for which the date is April 1, 1998
15
<PAGE> 17
JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 2,535,925 $ 6,355,260
Accounts receivable, net of allowance for doubtful
accounts of $51,153 and nil for 1997 and 1996,
respectively............................................ 8,735,528 2,420,470
Inventory................................................. 1,948,250 140,105
Deferred product development costs........................ 807,603 515,870
Prepaid expenses and other................................ 632,315 450,107
Advanced royalty payments................................. 252,603 276,000
Due from officers......................................... 15,112 120,030
----------- -----------
Total current assets............................... 14,927,336 10,277,842
Property and equipment
Office furniture and equipment............................ 217,786 121,305
Molds and tooling......................................... 3,647,638 1,350,949
Leasehold improvements.................................... 90,432 4,808
----------- -----------
Total.............................................. 3,955,856 1,477,062
Less accumulated depreciation and amortization............ 1,099,207 277,265
----------- -----------
Net property and equipment......................... 2,856,649 1,199,797
Deferred offering and acquisition costs..................... 626,713 85,301
Intangibles and deposits, net............................... 318,511 91,776
Deferred income taxes....................................... -- 7,531
Goodwill, net............................................... 10,695,488 2,537,697
Trademarks, net............................................. 14,180,118 --
----------- -----------
Total assets....................................... $43,604,815 $14,199,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 4,266,456 $ 1,610,987
Accrued expenses.......................................... 2,467,246 205,087
Reserve for returns and allowances........................ 1,860,821 175,000
Current portion of debt................................... 2,361,076 190,008
Income taxes payable...................................... 603,614 272,605
----------- -----------
Total current liabilities.......................... 11,559,213 2,453,687
Long-term portion of debt................................... 6,000,000 --
Deferred income taxes....................................... 86,896 --
----------- -----------
Total liabilities.................................. 17,646,109 2,453,687
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value; 25,000,000 shares
authorized; issued and outstanding 4,942,094 and
3,984,949 shares, respectively.......................... 4,942 3,985
Convertible preferred stock, $.001 par value; 5,000 shares
authorized; issued and outstanding 3,525 and nil,
respectively............................................ 4 --
Additional paid-in capital................................ 21,693,061 10,321,295
Retained earnings......................................... 4,402,636 1,616,140
----------- -----------
26,100,643 11,941,420
Less unearned compensation from grant of options.......... 141,937 195,163
----------- -----------
Total stockholders' equity......................... 25,958,706 11,746,257
----------- -----------
Total liabilities and stockholders' equity......... $43,604,815 $14,199,944
=========== ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 18
JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales................................................... $41,944,921 $12,052,016
Cost of sales............................................... 25,874,784 7,231,296
----------- -----------
Gross profit................................................ 16,070,137 4,820,720
Selling, general and administrative expenses................ 11,895,260 3,611,471
----------- -----------
Income from operations...................................... 4,174,877 1,209,249
Interest expense............................................ 687,341 63,171
Other (income) expense...................................... 58,091 (196,966)
----------- -----------
Income before provision for income taxes.................... 3,429,445 1,343,044
Provision for income taxes.................................. 642,949 163,275
----------- -----------
Net income.................................................. $ 2,786,496 $ 1,179,769
=========== ===========
Basic earnings per share.................................... $ .60 $ .36
=========== ===========
Diluted earnings per share.................................. $ .52 $ .34
=========== ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 19
JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
UNEARNED
CONVERTIBLE PAR COMPENSATION
COMMON PREFERRED VALUE ADDITIONAL FROM TOTAL
SHARES SHARES PER STOCK PAID-IN RETAINED GRANT STOCKHOLDERS'
OUTSTANDING OUTSTANDING SHARE AMOUNT CAPITAL EARNINGS OF OPTIONS EQUITY
----------- ----------- ----- ------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995..................... 2,000,000 -- $.001 $2,000 $ 1,624,238 $ 436,371 $(212,905) $ 1,849,704
Issuance of common stock
for cash................. 1,502,000 -- .001 1,502 7,652,761 -- -- 7,654,263
Issuance of common stock
from bridge financing
conversion............... 469,300 -- .001 469 1,044,310 -- -- 1,044,779
Issuance of common stock in
partial consideration for
purchase of toy business
assets................... 13,649 -- .001 14 (14) -- -- --
Earned compensation from
grant of options......... -- -- -- -- -- -- 17,742 17,742
Net income................. -- -- -- -- -- 1,179,769 -- 1,179,769
--------- ----- ----- ------ ----------- ---------- --------- -----------
Balance, December 31,
1996..................... 3,984,949 -- .001 3,985 10,321,295 1,616,140 (195,163) 11,746,257
Issuance of common stock
for cash................. 690,000 -- .001 690 2,921,063 -- -- 2,921,753
Exercise of options........ 69,125 -- .001 69 132,555 -- -- 132,624
Issuance of common stock in
partial consideration for
purchase of toy
business................. 198,020 -- .001 198 1,499,802 -- -- 1,500,000
Issuance of convertible
preferred stock for
cash..................... -- 3,525 .001 4 6,818,346 -- -- 6,818,350
Earned compensation from
grant of options......... -- -- -- -- -- -- 53,226 53,226
Net income................. -- -- -- -- -- 2,786,496 -- 2,786,496
--------- ----- ----- ------ ----------- ---------- --------- -----------
Balance, December 31,
1997..................... 4,942,094 3,525 $.001 $4,946 $21,693,061 $4,402,636 $(141,937) $25,958,706
========= ===== ===== ====== =========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 20
JAKKS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,786,496 $ 1,179,769
------------ -----------
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization........................... 1,605,226 338,032
Earned compensation from stock option grants............ 53,226 17,742
Loss on disposal of property and equipment.............. 328,139 --
Changes in operating assets and liabilities
Accounts receivable.................................. (6,315,058) (1,844,981)
Inventory............................................ (1,808,145) (53,977)
Prepaid expenses and other........................... (450,545) (973,076)
Accounts payable..................................... 2,655,469 899,929
Accrued expenses..................................... 2,262,159 27,049
Income taxes payable................................. 331,009 191,622
Reserve for returns and allowances................... 1,685,621 (285,513)
Deferred income taxes................................ 94,427 (40,186)
------------ -----------
Total adjustments.................................. 441,528 (1,723,359)
------------ -----------
Net cash provided (used) by operating activities... 3,228,024 (543,590)
------------ -----------
Cash flows from investing activities:
Deferred costs............................................ -- (85,300)
Property and equipment.................................... (2,934,935) (1,058,654)
Due from officers......................................... 104,918 (120,030)
Other assets.............................................. (241,572) (49,129)
Trademarks................................................ (14,352,556) --
Cash paid in excess of cost over toy business assets
acquired (goodwill)..................................... (7,006,753) --
------------ -----------
Net cash used by investing activities.............. (24,430,898) (1,313,113)
------------ -----------
Cash flows from financing activities:
Proceeds from sale of common stock........................ 2,946,603 7,669,263
Proceeds from convertible preferred stock, net............ 6,818,350 --
Proceeds from debt........................................ 13,413,659 1,104,694
Repayments of note payable to officer..................... -- (382,816)
Proceeds from stock options exercised..................... 132,624 --
Repayments of debt........................................ (5,245,665) (260,930)
Deferred financing costs.................................. (682,032) --
------------ -----------
Net cash provided by financing activities.......... 17,383,539 8,130,211
------------ -----------
Net increase (decrease) in cash and cash equivalents........ (3,819,335) 6,273,508
Cash and cash equivalents, beginning of year................ 6,355,260 81,752
------------ -----------
Cash and cash equivalents, end of year...................... $ 2,535,925 $ 6,355,260
============ ===========
Cash paid during the period for:
Interest.................................................. $ 648,187 $ 49,638
============ ===========
Income taxes.............................................. $ 217,213 $ 11,839
============ ===========
</TABLE>
See note 16 for additional supplemental information to consolidated statements
of cash flows.
See notes to consolidated financial statements.
19
<PAGE> 21
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- PRINCIPAL INDUSTRY
JAKKS Pacific, Inc. (the "Company"), a Delaware corporation, is engaged in
the development and marketing of toys and children's electronics products, some
of which are based on highly-recognized entertainment properties and character
licenses. The Company commenced operations in July 1995 through the purchase of
substantially all of the assets of a Hong Kong toy company. The Company is
marketing its product lines domestically and internationally.
The Company was incorporated under the laws of the State of Delaware in
January 1995.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include accounts of the Company and
its wholly-owned subsidiaries. In consolidation, all significant intercompany
balances and transactions are eliminated.
Cash and cash equivalents
The Company considers all highly liquid assets, having an original maturity
of less than three months, to be cash equivalents. The Company maintains its
cash in bank deposits which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the dates of the financial
statements, and the reported amounts of revenue and expenses during the
reporting periods. Actual future results could differ from those estimates.
Revenue recognition
Revenue of the Company's products is recognized upon shipment to its
customers. The Company provides an allowance for estimated markdowns and
defective returns at the time of sales.
Deferred product development costs
The Company defers certain costs related to the preliminary activities
associated with the manufacture of its products, which the Company has
determined have future economic benefit. These costs are then expensed in the
period in which the initial shipment of the related product is made. Management
periodically reviews and revises, when necessary, its estimate of the future
benefit of these costs, and expenses them if it is deemed there no longer is a
future benefit.
Deferred offering, financing and acquisition costs
During 1997, financing costs were incurred in obtaining a line of credit
facility. The deferred financing costs are being amortized over the term of the
credit facility.
During 1996, costs incurred for a follow-on-offering, debenture notes
offering, and certain acquisition costs were deferred. The deferred acquisition
costs were reclassified to investment costs upon completion of
20
<PAGE> 22
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
the Road Champs, Inc. acquisition. The debenture notes deferred offering costs
are being amortized over the term of the notes, or will be written off upon
conversion (note 8).
In 1995, offering costs incurred directly related to the issuance of
convertible promissory notes pursuant to its private offering and costs incurred
directly related to its public offering were capitalized. The Company completed
the private offering and public offering in February and May 1996, respectively,
and offset these deferred offering costs against the respective proceeds
received.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market.
Fair value of financial instruments
The Company's cash and cash equivalents, accounts receivable and notes
payable represent financial instruments. The carrying value of the these
financial instruments is a reasonable approximation of fair value.
Property and equipment
Property and equipment are stated at cost and are being depreciated using
the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Personal computers................ 5 years
Office equipment.................. 5 years
Furniture and fixtures............ 5 years
Molds and tooling................. 3 -- 4 years
Leasehold improvements............ Shorter of length of lease or 10 years
</TABLE>
Advertising
Production costs of commercials and programming are charged to operations
in the year during which the production is first aired. The costs of other
advertising, promotion and marketing programs are charged to operations in the
year incurred. Advertising expense for the years ended December 31, 1997 and
1996 was approximately $1,304,000 and $22,000, respectively.
Income taxes
The Company does not file a consolidated return with its foreign
subsidiaries. The Company files Federal and state returns and its foreign
subsidiaries file Hong Kong returns. Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized as deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
21
<PAGE> 23
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Translation of foreign currencies
Monetary assets and liabilities denominated in Hong Kong dollars are
translated into United States dollars at the rates of exchange ruling at the
balance sheet date. Transactions during the period are translated at the rates
ruling at the dates of the transactions.
Profits and losses resulting from the above translation policy are
recognized in the consolidated statement of operations.
Goodwill
Goodwill represents the excess purchase price paid over the fair market
value of the assets of acquired toy companies. Goodwill is being amortized over
30 years on a straight-line basis. Accumulated amortization at December 31, 1997
and 1996, totaled $482,263 and $133,301, respectively.
The carrying value of goodwill is based on management's current assessment
of recoverability. Management evaluates recoverability using both objective and
subjective factors. Objective factors include management's best estimates of
projected future earnings and cash flows and analysis of recent sales and
earnings trends. Subjective factors include competitive analysis and the
Company's strategic focus.
Intangible assets
Intangible assets consist of organizational costs, product technology
rights and trademarks. Intangible assets are amortized on a straight-line basis,
over five to thirty years, the estimated economic lives of the related assets.
Accumulated amortization as of December 31, 1997 and 1996 was $192,606 and
$10,834, respectively.
Reserve for Returns and Allowances
The Company provides allowances for estimated sales returns and allowances
at the time of sales.
Reverse stock split
The Company effected a reverse split of its common stock in 1996 of
approximately one-for-1.843333. All common stock and common stock equivalent
shares and per share amounts have been adjusted retroactively to give effect to
the reverse stock split.
Earnings per share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement, which is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods, establishes simplified standards for computing and presenting earnings
per share (EPS). It requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
disclosures of the calculation of each EPS amount.
22
<PAGE> 24
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income available to common
stockholders.................. 2,786,496 4,621,369 $.60 $1,179,769 3,284,432 $.36
---- ---------
Effect of dilutive securities
Options and warrants............ -- 274,336 -- 219,335
9% convertible debentures....... 363,286 1,023,411 -- --
4% convertible preferred
stock......................... -- 175,904 -- --
---------- --------- ---------- ---------
Diluted EPS
Income available to common
stockholders plus assumed
conversions................... $3,149,782 6,095,020 $.52 $1,179,769 3,503,767 $.34
========== ========= ==== ========== ========= ====
</TABLE>
NOTE 3 -- ACQUISITIONS
Effective July 1, 1995, the Company acquired substantially all of the
assets constituting the toy business of Justin Products Limited, a Hong Kong
Corporation (JPL). Total consideration paid of $2,965,353 consisted of cash,
assumption of liabilities and the issuance of 89,600 shares of the Company's
common stock.
Other consideration included percentage payments equal to 5% of the net
sales of the acquired product lines during each of the calendar years 1995,
1996, and 1997, with minimums of $250,000 for each of 1997 and 1996, and 2.5% of
the net sales of the acquired product lines during each of the calendar years
1998 and 1999. Such percentage payments are subject to offset against $500,000
in cash consideration paid. The 1996 minimum percentage payment has been
discounted at 10% and is presented at net as a long-term liability (note 8).
Percentage payments for the year ended December 31, 1997 and 1996 amounted to
$2,816 and $250,000, respectively.
The assets acquired from JPL were as follows:
<TABLE>
<S> <C>
Furniture and fixtures................................... $ 47,500
Office equipment......................................... 12,500
Molds.................................................... 250,000
Goodwill................................................. 2,655,353
----------
Total assets acquired.......................... $2,965,353
==========
</TABLE>
On February 6, 1997, the Company acquired all of the stock of Road Champs,
Inc. (RCI) and all of the operating assets of an affiliated company for
$11,723,924. Consideration paid at closing was $4,719,413 in cash plus the
issuance of $1,500,000 (198,020 shares) of the Company's common stock. The
balance of the adjusted purchase price of $3,079,026 is to be paid in three
equal installments, with the third installment payable one year after the
closing of the transactions, all of which bear interest at a rate of 7% per
annum. In addition, the payment for inventory of $2,188,778, without interest,
is payable within 30 days of shipment to customers and the balance was payable
no later than August 6, 1997, and a payment of $1,009,225 was due on May 6,
1997. Professional fees totaling $236,707 were incurred as part of the
acquisition costs. Outstanding balances will be secured by all acquired shares
and assets, however, they will be subordinated to the debentures notes payable
due December 31, 2003 (note 8).
23
<PAGE> 25
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The assets acquired and liabilities assumed from Road Champs, Inc. were as
follows:
<TABLE>
<S> <C>
Inventory, net of reserve of $200,000................... $ 1,956,358
Prepaids................................................ 226,881
Property and equipment.................................. 694,788
Deposits................................................ 105,461
Trademarks.............................................. 1,000,000
Goodwill................................................ 8,506,753
Liabilities assumed..................................... (766,317)
-----------
Total assets acquired......................... $11,723,924
===========
</TABLE>
The following unaudited pro forma information represents the Company's
consolidated results of operations as if the acquisition of RCI had occurred on
January 1, 1996 and after giving effect to certain adjustments including the
elimination of other income and expense items not attributable to on-going
operations, interest and depreciation expense, and related tax effects. Such pro
forma information does not purport to be indicative of operating results that
would have been reported had the acquisition of RCI occurred on January 1, 1996
or future operating results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales......................................... $42,562,160 $27,562,627
=========== ===========
Net income........................................ $ 2,587,951 $ 2,490,352
=========== ===========
Basic earnings per share.......................... $ .55 $ .72
=========== ===========
Diluted earnings per share........................ $ .48 $ .53
=========== ===========
</TABLE>
On October 24, 1997, the Company acquired the right, title and interest in
and to the Remco and Child Guidance (R&CG) trademarks, and all registrations and
applications for registration thereof, throughout the world. Total costs of the
trademarks included:
<TABLE>
<S> <C>
Cash.................................................... $10,600,000
Promissory note......................................... 1,200,000
Liabilities assumed..................................... 1,350,000
Professional service fees............................... 202,556
-----------
$13,352,556
===========
</TABLE>
The total purchase price paid the seller was the cash and promissory note
for a total of $11,800,000. The liabilities assumed include a reserve for
returns and allowances of $750,000, and a reserve of $600,000, that represents
the Company's contributions to the sellers settlement with its Hong Kong
representative agent for early termination of its service contract, due to sale
of trademarks. Costs incurred in professional service fees of $202,556 is
attributed to executing the acquisition of the trademarks. The Company also
entered into a firm price commitment, manufacturing and supply agreement with
seller (note 12).
NOTE 4 -- CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentration of credit
risk are cash equivalents and trade receivables. Cash equivalents consist
principally of short-term money market funds. These instruments are short-term
in nature and bear minimal risk. To date, the Company has not experienced losses
on these instruments.
24
<PAGE> 26
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The Company performs on-going credit evaluations of its customers financial
condition but does not require collateral to support customer receivables. Most
goods are sold on irrevocable letter of credit basis.
Included in the Company's consolidated balance sheets at December 31, 1997
and 1996, are the Company's operating net assets, most of which are located in
facilities in Hong Kong and China and which total $8,948,131 and $3,531,379, for
1997 and 1996, respectively.
NOTE 5 -- DUE FROM OFFICERS
Due from officers represents balances of $15,112, and of $65,000 and
$55,030, at December 31, 1997 and 1996, respectively, due from two of the
Company's officers. The $15,112 and $55,030 for 1997 and 1996, respectively, are
due on demand and bear no interest. The amount of $65,000 is for two notes
receivable, $25,000 and $40,000 that were due on the earlier of August 27 and
September 20, 1997, respectively, or immediately upon the termination of the
officer's employment with the Company for any reason; the notes receivable
carried interest of approximately 6% per annum.
NOTE 6 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Bonuses.............................................. $ 254,737 $107,444
Trademarks acquisition reserve....................... 600,000 --
Interest expense..................................... 37,607 18,564
Royalties and commissions............................ 1,130,512 78,060
Hong Kong subsidiaries accruals...................... 384,747 --
Other................................................ 59,643 1,019
---------- --------
$2,467,246 $205,087
========== ========
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
A director of the Company is a partner in the law firm that acts as counsel
to the Company. The Company paid legal fees to the law firm in the amount of
approximately $151,000 in 1997, and $270,000 in 1996. Also see note 5 for other
related party transactions.
25
<PAGE> 27
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Convertible debenture loans, interest on the principal
amounts outstanding at 9% per annum with the first monthly
installment payable on February 1, 1997. If not sooner
redeemed or converted into common stock, the debenture
shall mature on December 31, 2003. Commencing on December
31, 1999, mandatory monthly principal redemption
installments are to be made in the amount of $10 per
$1,000 of the then remaining principal amount of the
debenture. Such debentures are convertible into 1,043,478
shares of the Company's common stock at $5.75 per share.
The debentures are secured by all outstanding shares of
the Company's wholly-owned subsidiaries, and substantially
all operating assets of the Company (note 2).............. $6,000,000 $ --
Note payable, due in five quarterly principal installments
of $240,000 starting December 31, 1997, with interest at
10% per annum. The note is secured by the Child
Guidance/Remco trademarks................................. 1,200,000 --
Note payable, due in three principal payments with the final
installment due February 6, 1998, with interest at 7% per
annum. The note is secured by RCI assets.................. 1,046,376 --
Line of credit facility (note 12)........................... 114,700 --
Asset purchase obligation, net of amount representing
interest of $1,547........................................ -- 190,008
---------- --------
8,361,076 190,008
Less current portion........................................ 2,361,076 190,008
---------- --------
Long-term portion of debt................................... $6,000,000 $ --
========== ========
</TABLE>
NOTE 9 -- INCOME TAXES
The provision for income taxes differs from the expense that would result
from applying Federal statutory rates to income before taxes because of the
inclusion of a provision for state income taxes and the income of the Company's
foreign subsidiaries is taxed at a rate of 16.5% applicable in Hong Kong. In
addition, the provision includes deferred income taxes resulting from
adjustments in the amount of temporary differences.
Temporary differences arise primarily from differences in timing in the
deduction of state income taxes and the use of the straight-line method of
depreciation for financial reporting purposes and accelerated methods of
depreciation for tax purposes.
The Company does not file a consolidated return with its foreign
subsidiaries. The Company files Federal and state returns and its foreign
subsidiaries file Hong Kong returns. Income taxes reflected in the accompanying
consolidated statements of operations is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Federal................................................. $ -- $ --
State and local......................................... 26,000 1,350
Hong Kong............................................... 522,522 277,994
-------- ---------
548,522 279,344
Deferred................................................ 94,427 (116,069)
-------- ---------
$642,949 $ 163,275
======== =========
</TABLE>
26
<PAGE> 28
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
As of December 31, 1997, the Company has Federal and state net operating
loss carryovers of approximately $727,000 and $306,000, respectively, available
to offset future taxable income. The carryovers expire through 2012.
<TABLE>
<S> <C> <C>
Deferred tax assets resulting from deductible temporary
differences from loss carryforwards, noncurrent........ $258,239 $145,692
Deferred tax liabilities resulting from taxable temporary
differences, noncurrent................................ (345,135) (138,161)
-------- --------
$(86,896) $ 7,531
======== ========
</TABLE>
The Company's management concluded that a deferred tax asset valuation
allowance as of December 31, 1997, was not necessary.
A reconciliation of the statutory United States Federal income tax rate to
the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory income tax rate................................... 35% 35%
State and local income taxes, net of Federal income tax
effect.................................................... 1 1
Effect of net operating loss carryovers..................... (35) (40)
Income taxes on foreign earnings at rates other than the
United States statutory rate not subject to United States
income taxes.............................................. 18 16
--- ---
19% 12%
=== ===
</TABLE>
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Domestic............................................ $ 16,216 $ (360,040)
Foreign............................................. 3,413,229 1,703,084
---------- ----------
$3,429,445 $1,343,044
========== ==========
</TABLE>
NOTE 10 -- LEASES
The Company leases office facilities and certain equipment under operating
leases. The following is a schedule of minimum lease payments. Rent expense for
the years ended December 31, 1997 and 1996 totalled $582,766 and $182,690,
respectively.
<TABLE>
<S> <C>
1998............................. $ 417,158
1999............................. 257,652
2000............................. 255,752
2001............................. 207,816
2002............................. 147,980
Thereafter....................... 22,660
----------
$1,309,018
==========
</TABLE>
NOTE 11 -- COMMON STOCK AND PREFERRED STOCK
All references to the number of shares of the Company's common stock and
per share amounts have been retroactively restated on the accompanying
consolidated financial statements to reflect the effect of the approximately
one-for-1.843333 reverse stock split.
27
<PAGE> 29
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The Company has 25,005,000 authorized shares of stock consisting of
25,000,000 shares of $.001 par value common stock and 5,000 shares of $.001 par
value preferred stock.
During 1997, the Company issued 690,000 shares of its common stock in a
public offering. The Company also issued 198,020 shares as partial payment of
the RCI acquisition (note 3).
During 1997, in a private placement, the Company issued 3,525 shares of its
4% Redeemable Convertible Preferred Stock, at a purchase price of $2,000 per
share. Holders of the preferred stock are entitled to receive cumulative cash
dividends at an annual rate of $80 per share payable as and when declared by the
Company's Board of Directors. Commencing on January 1, 1998, each share of
preferred stock may be converted, at the option of the holder, into 266 2/3
shares of common stock. At any time on or after April 1, 1998, the preferred
stock will be redeemable by the Company at a redemption price of $2,000 per
share, plus the amount accrued but unpaid dividends thereon, on 30 days prior
written notice. In addition, the preferred stock is convertible into common
stock at the option of the Company if the closing price of the common stock
equals or exceeds $8.50 per share for ten consecutive trading days within a
period of 30 trading days beginning after March 1, 1998 and ending on the fifth
day prior to the day of giving notice of conversion (the "Reference Period") at
a conversion price equal to the average market price over the Reference Period,
but in no event less than $7.50 per share.
During 1995, the Company issued JPL 75,951 shares of common stock and an
additional 13,649 shares in connection with the Company's public offering
pursuant to the asset purchase agreement (note 3), and has also issued 27,124
shares, valued at $8,333, to the Company's legal counsel for services rendered.
NOTE 12 -- COMMITMENTS
The Company entered into various license agreements whereby the Company may
use certain characters and properties in conjunction with its products. Such
license agreements call for royalties to be paid at 5 to 10% of net sales with
minimum guarantees and advance payments. Additionally, under one such license,
the Company has committed to spend 12.5% of related net sales, not to exceed
$1,000,000, on advertising per year.
Future minimum royalty guarantees are as follows:
<TABLE>
<S> <C>
1998............................. $1,182,166
1999............................. 859,107
----------
Total............................ $2,041,273
==========
</TABLE>
The Company entered into a firm commitment, manufacturing and supply
agreement, in connection with the acquisition of the R&CG trademarks purchased
in 1997 (note 3). The agreement was entered into with the seller of the
trademarks, to obtain from the seller tools and other manufacturing resources of
the seller for the manufacture of products, upon request by the Company. The
manufacturing and supply agreement has created a firm commitment to the Company
for a minimum of $1,400,000. A minimum payment of $110,000 on the agreement is
due on December 31, 1997, with three additional payments of $110,000 to follow
and six $160,000 payments, thereafter, through March 31, 2000, which is also the
date on which the term of the agreement terminates.
The Company and its subsidiaries are acting as joint and several guarantors
to a $5,000,000 conditional, secured, revolving, short-term trade facility
available to the Company's Hong Kong wholly-owned subsidiaries. Proceeds on the
credit facility are to finance working capital needs and operations, in the
normal course of business. At December 31, 1997, there was an unused amount
available on the line of credit of $4,885,300, and an outstanding balance of
$114,700. Outstanding balances carry interest rates equal to the bank's base
rate of interest plus 1% per annum for advances of open accounts receivable, and
the banks base rate of interest plus 1/2% for advances received under
negotiation of export letters of credit. At December 31, 1997, the credit
28
<PAGE> 30
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
facility carried interest rates of 9.5% and 9%, respectively. Outstanding
balances are collateralized by all assets of the borrower and accounts
receivable and inventory of guarantors. The credit facility expires May 31,
1999, unless terminated sooner (note 8).
NOTE 13 -- STOCK OPTION PLAN AND WARRANTS
Under the Company's amended and restated 1995 stock option plan, the
Company has reserved 216,998 shares of the Company's common stock for issuance
under the Plan. Under the amended and restated 1995 stock option plan, employees
(including officers), nonemployee directors and independent consultants may be
granted options to purchase shares of common stock. Prior to the adoption of the
Plan in 1995, options for 276,500 shares have been granted at an exercise price
of $2.00 per share. The Company has recorded deferred compensation costs and a
related increase in paid-in capital of $212,905 for the difference between the
grant price and the deemed fair market value of the common stock of $2.77 per
share at the date of grant. Such compensation costs will be recognized on a
straight-line basis over the vesting period of the options, which is 25% per
year commencing twelve months after the grant date of such options. In 1997 and
1996, the fair value of each employee option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used: risk-free rate of interest of 6%; dividends yield of 0%; and
expected lives of 5 years.
Under a second amendment to the Plan, approved in 1997, the number of the
Company's common stock available increased to 750,000 shares from 216,998
shares.
As of December 31, 1997 and 1996, 219,500 and 91,523 shares were available
for future grant, respectively. Additional shares may become available to the
extent that options presently outstanding under the Plan terminate or expire
unexercised.
Stock option activity pursuant to the second amended and restated 1995 Plan
is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1995........................... 10,850 $4.50
Granted................................................ 114,625 6.70
Exercised.............................................. -- --
Canceled............................................... -- --
------- -----
Outstanding, December 31, 1996........................... 125,475 6.51
Granted................................................ 405,025 9.92
Exercised.............................................. -- --
Canceled............................................... -- --
------- -----
Outstanding, December 31, 1997........................... 530,500 $9.12
======= =====
</TABLE>
29
<PAGE> 31
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Stock option activity outside of the second amended and restated 1995 Plan
is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1995........................... 276,500 $2.00
Granted................................................ 75,000 7.54
Exercised.............................................. -- --
Canceled............................................... -- --
------- -----
Outstanding, December 31, 1996........................... 351,500 3.18
Granted................................................ 60,000 6.88
Exercised.............................................. (69,125) 2.00
Canceled............................................... -- --
------- -----
Outstanding, December 31, 1997........................... 342,375 $4.07
======= =====
</TABLE>
The weighted average fair value of options granted to employees in 1997 and
1996 was $5.01 and $2.30 per share, respectively.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER AVERAGE EXERCISE NUMBER EXERCISE
OPTION PRICE RANGE OF SHARES LIFE PRICE OF SHARES PRICE
- ------------------ --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$2.00 -- $10.725 872,825 4.5 years $7.14 306,292 $5.94
</TABLE>
Had the compensation cost for the Company's Plan been determined on a basis
consistent with SFAS No. 123, the Company's net income and earnings per share
for 1997 and 1996 would approximate the pro forma amounts below, which are not
indicative of future amounts:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SFAS No. 123 charge........................... -- $ 132,895 -- $ 18,172
Net income.................................... $2,786,496 2,653,601 $1,179,769 1,161,597
Basic earnings per share...................... 0.60 0.57 0.36 0.35
Diluted earnings per share.................... 0.52 0.50 0.34 0.33
</TABLE>
In addition, as of December 31, 1997, 360,000 shares were reserved for
issuance upon exercise of warrants granted in connection with the Company's
Initial Public Offering, follow-on public offering and private placement of
convertible debentures exercisable at share prices ranging from $7.475 to $9.375
per share.
NOTE 14 -- PROFIT SHARING PLAN
Effective January 1, 1997, the Company adopted a 401(k) profit sharing plan
and trust (Plan). The Plan is for the exclusive benefit of eligible employees
and beneficiaries. Under the Plan, employees may choose to reduce their
compensation and have those amounts contributed to the Plan on their behalf.
Contributions made to the Plan will be held and invested by the Plan's trustee.
The Company will act as the Plan's administrator. The Plan year begins on
January 1st and ends on December 31st. Employees' will be eligible to
participate in the Plan as of the effective date. Otherwise, employees will be
eligible to participate in the Plan after they have completed one year of
service. The Company will make matching contributions equal to 50% of the amount
of salary reduction deferred. However, in applying the matching percent, only
salary reductions up to 10% of compensation will be considered. The Company may
also make discretionary contributions to the
30
<PAGE> 32
JAKKS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Plan each year. A participant may elect to defer up to 15% of their compensation
each year. However, deferrals in any taxable year may not exceed a dollar limit
which is set by law. The limit for 1997 was $9,500. Vesting in the Plan is based
on years of service, vesting schedule is as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENT VESTED
---------------- --------------
<S> <C>
1......................... 20%
2......................... 40
3......................... 60
4......................... 80
5......................... 100
</TABLE>
Participants are always 100% vested in their salary reduction amounts
contributed to the Plan.
The Company has the right to amend and terminate the Plan at any time. As
of December 31, 1997, the Plan has not been "qualified" by the provisions of the
Internal Revenue Code, and for the year then ended, the Company had contributed
$29,735 in matching contributions to the Plan.
NOTE 15 -- MAJOR CUSTOMERS
Sales to major customers were approximately as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------- -------------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ----------
<S> <C> <C> <C>
$14,689,000.............. 35.0% $3,398,000............... 28.2%
3,422,000.............. 8.2 1,679,000................ 13.9
3,199,000.............. 7.6 1,008,000................ 8.4
2,658,000.............. 6.3 847,000.................. 7.0
1,925,000.............. 4.6 509,000.................. 4.2
- ------------ ------- ----------- -------
$25,893,000.............. 61.7% $7,441,000............... 61.7%
- ------------ ------- ----------- -------
</TABLE>
NOTE 16 -- SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
In 1997, 198,020 shares of common stock valued at $1,500,000 were issued in
connection with the acquisition of RCI (note 3).
469,300 shares of common stock were issued in 1996 pursuant to the
conversion of bridge financing promissory notes which provided net proceeds of
$1,044,779.
Shares of common stock were issued as partial consideration for toy
business assets acquired totalling $560,000 in 1995. The excess of cost over toy
business assets acquired (goodwill) is reflected in the consolidated statement
of cash flows net of the stock issued.
27,124 shares of common stock valued at $8,333 were issued in consideration
for legal services in connection with the Company's organizational start-up
during 1995.
NOTE 17 -- SUBSEQUENT EVENTS
On March 30, 1998, the 3,525 shares outstanding of 4% convertible preferred
stock were converted into 939,998 shares of the Company's common stock.
On April 1, 1998, the Company sold 1,000 shares of 7% cumulative
convertible preferred stock to two investors for $4,874,000, net of costs. The
shares are initially convertible into common stock at $8.95 per share, or
$58,659 shares.
31
<PAGE> 33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------------------------- --- ---------------------------------------------------
<S> <C> <C>
Jack Friedman............. 58 Chairman, Chief Executive Officer and President
Stephen G. Berman......... 33 Chief Operating Officer, Executive Vice President,
Secretary and Director
Joel M. Bennett........... 36 Chief Financial Officer
Michael G. Miller......... 50 Director
Murray L. Skala........... 51 Director
Robert E. Glick........... 52 Director
</TABLE>
Jack Friedman has been Chairman, Chief Executive Officer and President of
the Company since co-founding it in 1995. From January 1989 until January 1995,
Mr. Friedman was Chief Executive, President, Officer and a director of T-HQ,
Inc., a publicly-held company that develops and sells interactive games and
software. From 1970 to 1989, Mr. Friedman was 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 Chief Operating Officer, Executive Vice
President, 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.
Joel M. 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 Bros. Consumer Products Worldwide Merchandising and
Interactive Entertainment. From June 1991 to August 1993, Mr. Bennett was Vice
President and Chief Financial Officer of TTI Technologies, Inc., a direct-mail
computer hardware and software distribution company. 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.
Michael G. Miller has been a director of the Company since February 1996.
Since 1979, Mr. Miller has been President and a director of several
privately-held affiliated companies: 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.
32
<PAGE> 34
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 other 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. Officers are elected annually by the Board and serve at the
discretion of the Board.
Until the 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee and a Stock
Option Committee. 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 employees
and to administer plans and programs relating to employee benefits, incentives
and compensation, other than the 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
Stock Option Plan. Messrs. Miller and Glick are the current members of the Stock
Option Committee. Both Stock Option Committee members are non-employee
directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best of the Company's knowledge, all Forms 3, 4 or 5 required to be
filed during the fiscal year ended December 31, 1997 were filed on a timely
basis.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
Company's fiscal years ending December 31, 1997, 1996 and 1995 to its Chief
Executive Officer and to each of its executive officers whose compensation
exceeded $100,000 on an annual basis (collectively, the "Named Officers").
33
<PAGE> 35
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM AWARDS
----------------------------------- ----------------------
(e)
OTHER (f)
ANNUAL RESTRICTED
(a) (c) (d) COMPEN- STOCK (g)
NAME AND (b) SALARY BONUS SATION AWARDS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($)
- ----------------------------------- -------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack Friedman...................... 1997 296,000 130,224 -- -- 125,000
Chairman, 1996 226,000 53,722(4) -- -- --
Chief Executive Officer and 1995(1) 67,000 -- -- -- --
President
Stephen G. Berman.................. 1997 271,000 130,224 -- -- 125,000
Chief Operating Officer, 1996 201,000 53,722(4) -- -- --
Executive Vice President 1995(2) 41,667 -- -- -- --
and Secretary
Joel M. Bennett.................... 1997 110,000 -- -- -- 30,000
Chief Financial Officer 1996 85,000 10,200(4) -- -- --
1995 21,346 -- -- -- 66,500
</TABLE>
- ---------------
(1) Mr. Friedman's employment with the Company commenced on September 1, 1995.
See "Employment Agreements."
(2) Mr. Berman's employment with the Company commenced on September 1, 1995. See
"Employment Agreements."
(3) Mr. Bennett's employment with the Company commenced on September 18, 1995.
(4) Bonuses were earned in 1996 but were paid during 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Friedman
expiring on December 31, 2001. Pursuant to this agreement, Mr. Friedman is
employed as Chief Executive Officer and President. The employment agreement
provides for employment on a full-time basis and contains a provision that Mr.
Friedman will not compete or engage in a business competitive with the current
or anticipated business of the Company during the term of the agreement and for
a period of one year thereafter, if his employment was terminated prior to
December 31, 1997 voluntarily or by the Company for cause, as such term is
defined in the employment agreement. Pursuant to such agreement, the Company
agreed to pay Mr. Friedman a base salary of $296,000 per annum until December
31, 1997, with increases of $25,000 per annum thereafter and an annual bonus
equal to 4% of the Company's pre-tax earnings.
The Company has entered into an employment agreement with Mr. Berman
expiring on December 31, 2001. Pursuant to this agreement, Mr. Berman is
employed as Chief Operating Officer, Executive Vice President, and Secretary.
The employment agreement provides for employment on a full-time basis and
contains a provision that Mr. Berman will not compete or engage in a business
competitive with the current or anticipated business of the Company during the
term of the agreement and for a period of one year thereafter, if his employment
was terminated prior to December 31, 1997 voluntarily or by the Company for
cause, as such term is defined in the employment agreement. Pursuant to such
agreement, the Company agreed to pay Mr. Berman a base salary of $271,000 per
annum until December 31, 1997, with increases of $25,000 per annum thereafter
and an annual bonus equal to 4% of the Company's pre-tax earnings.
Effective as of January 1, 1998 the Company entered into new employment
agreements with Mr. Friedman and Mr. Berman that superseded the previous
agreements. The new agreements provide for the continued employment of Mr.
Friedman and Mr. Berman, respectively, on substantially the same employment
terms and conditions as the previous agreements, except that (a) the term of
employment of each was extended until December 31, 2004, (b) the base salary of
Mr. Friedman was increased to $446,000 per annum and the base salary of Mr.
Berman was increased to $421,000 per annum, which base salaries are subject to
annual increases in an amount determined by the Company's Board of Directors,
but in no event less than $25,000, (c) each is entitled to receive an annual
bonus equal to 4% of the Company's annual pre-tax earnings, if such pre-tax
earnings equal or exceed $2,000,000, and (d) each is entitled to certain
severance payments in the event of his termination upon a "Change in Control"
(as defined) of the Company or certain other specified events.
The Company has obtained a key-man life insurance policy in the amount of
$8,000,000 on Mr. Friedman's life.
34
<PAGE> 36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 13, 1998,
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 Named
Officer, (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 the Company's Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND OF
NATURE OF OUTSTANDING
NAME AND ADDRESS BENEFICIAL SHARES
OF BENEFICIAL OWNER OWNERSHIP OWNED
- ------------------------------------------------------------------ -------------- ----------
<S> <C> <C>
Jack Friedman..................................................... 1,208,488(1) 20.5
22761 Pacific Coast Highway
Malibu, California 90265
Stephen Berman.................................................... 179,498 3.1
22761 Pacific Coast Highway
Malibu, California 90265
Joel M. Bennett................................................... 17,625(2) *
22761 Pacific Coast Highway
Malibu, California 90265
Murray L. Skala................................................... 214,446(3) 3.6
750 Lexington Avenue
New York, New York 10022
Michael G. Miller................................................. 35,025(4) *
One Blue Hill Plaza
Pearl River, New York 10965
Robert E. Glick................................................... 42,025(5) *
1400 Broadway
New York, New York 10018
Renaissance Capital Growth & Income Fund III, Inc. ............... 856,934(6) 12.8
8080 N. Central Expressway
Dallas, Texas 75206
Renaissance US Growth & Income Trust PLC.......................... 521,739(7) 8.1
8080 N. Central Expressway
Dallas, Texas 75206
Joseph Charles & Associates, Inc. ................................ 320,000(8) 5.2
9701 Wilshire Boulevard
Beverly Hills, California 90212
All directors and executive officers as a group (six
persons)........................................................ 1,549,235(9) 25.8
</TABLE>
- ---------------
* Less than 1% of outstanding shares.
(1) Includes an aggregate of 147,872 shares held in trusts for the benefit of
children of Mr. Friedman.
(2) Includes 16,625 shares which Mr. Bennett has the right to acquire pursuant
to certain stock options.
(3) Includes 40,450 shares which Mr. Skala has the right to acquire pursuant to
certain stock options and an aggregate of 147,872 shares held by Mr. Skala
as trustee under trusts for the benefit of children of Mr. Friedman.
(4) Represents shares which Mr. Miller has the right to acquire pursuant
to certain stock options.
(5) Includes 35,025 shares which Mr. Glick has the right to acquire pursuant to
certain stock options.
(6) Consists of 521,739 shares which Renaissance Capital Growth & Income Fund
III, Inc. has the right to acquire upon the conversion of $3,000,000
principal amount of convertible debentures (the "Debentures") held by it (at
a conversion price of $5.75 per share), and 335,195 shares which
it has the right to acquire upon the conversion of 600 shares of the
Company's Series A Cumulative Convertible Preferred Stock held by it (at
a conversion price of $8.95 per share).
(7) Represents shares which Renaissance US Growth & Income Trust PLC has the
right to acquire upon the conversion of $3,000,000 principal amount of
Debentures owned by it (at a conversion price of $5.75 per share).
(8) Consists of 270,000 shares which Joseph Charles & Associates, Inc. has
the right to acquire upon the exercise of certain warrants and 50,000
shares which it has the right to acquire pursuant to certain stock options.
(9) Includes an aggregate of 147,872 shares held in trusts for the benefit of
children of Mr. Friedman and an aggregate of 127,125 shares which such
directors and executive officers have the right to acquire pursuant to
certain stock options.
35
<PAGE> 37
Messrs. Friedman and Berman may be deemed "founders" of the Company, as
such term is defined under the federal securities laws.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Skala, a director of the Company, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, counsel to the Company. The
Company paid legal fees to Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP
in the amount of approximately $151,000 in 1997, $270,000 in 1996 and $75,000 in
1995.
36
<PAGE> 38
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (1)
3.1.1 Certificate of Designation of 4% Redeemable Convertible Preferred Stock of the Company (5)
3.1.2 Certificate of Designation and Preferences of Series A Cumulative Convertible Preferred Stock of the Company (7)
3.1.3 Certificate of Elimination of All Shares of 4% Redeemable Convertible Preferred Stock of the Company (7)
3.2 By-Laws of the Company (1)
3.2.1 Amendment to By-Laws of the Company (2)
4.1 9% Convertible Debenture issued to Renaissance Capital Growth & Income Fund III, Inc. dated December 31, 1996(2)
4.2 9% Convertible Debenture issued to Renaissance US Growth & Income Trust PLC dated December 31, 1996(2)
10.1 Amended and Restated 1995 Stock Option Plan (2)
10.2 Employment Agreement between the Company and Jack Friedman dated January 1, 1998 (8)
10.3 Employment Agreement between the Company and Stephen G. Berman dated January 1, 1998 (8)
10.4 Asset Purchase Agreement dated October 19, 1995 (as of July 1, 1995) between the Company, JP (HK) Limited and
Justin (1)
10.5 Convertible Loan Agreement among the Company and Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth & Income Trust PLC dated December 31, 1996 (2)
10.6 Purchase Agreement among the Company, JAKKS Acquisition Corp., Road Champs, Inc., Road Champs Ltd., Die Cast
Associates, Inc. and the shareholders of Road Champs, Inc. dated January 21, 1997 (3)
10.7.1 Office Lease dated June 18, 1997 between the Company and Malibu Vista Partners (8) (P)
10.8 Lease of the Company's warehouse space at 7 Patton Drive, West Caldwell, New Jersey and amendment thereto (3)
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.8A Office Lease dated March 27, 1998 between the Company and Hundal of Union L.P. (8) (P)
10.9 Lease of the Company's showroom at the Toy Center South, 200 Fifth Avenue, New York, New York (1)
10.10 Lease of the Company's showroom at the Toy Center North, 1107 Broadway, New York, New York (3)
10.11 Tenancy Agreement dated March 14, 1998 between the Company and Astoria Investment Company, Ltd. (8) (P)
10.12 License Agreement with Titan Sports, Inc. dated October 24, 1995 (1)
10.12.1 Amendment to License Agreement with Titan Sports, Inc. dated April 22, 1996 (4)
10.12.2 Amendment to License Agreement with Titan Sports, Inc. dated January 21, 1997 (4)
10.12.3 Amendment to License Agreement with Titan Sports, Inc. dated December 3, 1997 (8)
10.12.4 Amendment to License Agreement with Titan Sports, Inc. dated January 29, 1998 (8)
10.13 International License Agreement with Titan Sports, Inc. dated February 10, 1997 (4)
10.13.1 Amendment to International License Agreement with Titan Sports, Inc. dated December 3, 1997 (8)
10.13.2 Amendment to International License Agreement with Titan Sports, Inc. dated January 29, 1998
(8)
10.14 License Agreement with Saban Merchandising, Inc. and Saban International N.V. dated May 21, 1996, with amendment
dated October 31, 1996 (4)
10.15 License Agreement with Wow Wee International dated June 1, 1996 (4)
10.16 Agreement with Quantum Toy Concepts Pty, Ltd. dated July 1996 (4)
10.17 [RESERVED]
10.18 [RESERVED]
10.19 Warrant to purchase 150,000 shares of Common Stock dated January 8, 1997 issued to Joseph Charles & Associates,
Inc. (8)
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.20 [RESERVED]
10.21 Option Agreement dated August 28, 1997 between the Company and Silverman Heller Associates (8)
10.22 Consulting Agreement dated July 30, 1997 between the Company and Silverman Heller Associates (8)
10.23 Option Agreement dated August 28, 1997 between the Company and Joseph Charles & Associates, Inc. (5)
10.24 Engagement Letter dated August 28, 1997 between the Company and Joseph Charles & Associates, Inc. (5)
10.25 Consulting Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18, 1996 (5)
10.26.1 Stock Option Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18, 1996 (5)
10.26.2 Restated Stock Option Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18,
1996 (5)
10.27 Restated Option Agreement between the Company and Murray Bass dated September 1, 1995 (5)
10.28 Restated Option Agreement between the Company and Joel Bennett dated September 1, 1995 (5)
10.29 Restated Option Agreement between the Company and Gina Hancock dated September 1, 1995 (5)
10.30 Restated Option Agreement between the Company and Wills Hon dated September 1, 1995 (5)
10.31 Restated Option Agreement between the Company and Bruce Katz dated September 1, 1995 (5)
10.32 Trademark Purchase Agreement dated October 24, 1997 between the Company and Azrak-Hamway International, Inc. (6)
10.33 $1,200,000 Promissory Note dated October 24, 1997 of the Company payable to Azrak-Hamway International, Inc. (6)
10.34 Manufacturing and Supply Agreement dated October 24, 1997 between the Company and Azrak- Hamway International,
Inc. (6)
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.35 Security Agreement dated October 24, 1997 between the Company and Azrak-Hamway International, Inc. (6)
10.36A Debenture dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and Road Champs Limited
(8)
10.36B Debenture dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and JP (HK) Limited (8)
10.36C Debentures dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and JAKKS Pacific (H.K.)
Limited (8)
10.37 Guaranty dated October 21, 1997 by the Company in favor of Norwest Bank Minnesota, National Association (8)
10.38A Guaranty dated October 21, 1997 by Road Champs, Inc. in favor of Norwest Bank Minnesota, National Association (8)
10.38B Guaranty dated October 21, 1997 by JAKKS Acquisition Corp. in favor of Norwest Bank Minnesota, National
Association (8)
10.38C Guaranty dated October 21, 1997 by J-X Enterprises, Inc. in favor of Norwest Bank Minnesota, National Association
(8)
10.39 Security Agreement dated October 21, 1997 between the Company and Norwest Bank Minnesota, National Association
(8)
10.40A Security Agreement dated October 21, 1997 between Road Champs, Inc. and Norwest Bank Minnesota, National
Association (8)
10.40B Security Agreement dated October 21, 1997 between JAKKS Acquisition Corp. and Norwest Bank Minnesota, National
Association (8)
10.40C Security Agreement dated October 21, 1997 between J-X Enterprises, Inc. and Norwest Bank Minnesota, National
Association (8)
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.41 Purchase Agreement dated April 1, 1998 among the Company, Renaissance Capital Growth & Income Fund III, Inc. and
ProFutures Bridge Capital Fund, L.P. (7)
21 Subsidiaries of the Company (8)
23 Consent of Pannell Kerr Forster, Certified Public Accountants, A Professional Corporation, Los Angeles,
California (8)
27.1997 Financial Data Schedule (8)
27.Q296 Restated Financial Data Schedule for the period ended June 30, 1996 (8)
27.Q396 Restated Financial Data Schedule for the period ended September 30, 1996 (8)
27.1996 Restated Financial Data Schedule for the period ended December 31, 1996 (8)
27.Q397 Restated Financial Data Schedule for the period ended September 30, 1997 (8)
- ---------
</TABLE>
(1) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-2048-LA), effective May 1, 1996, and
incorporated herein by reference.
(2) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-22583), effective May 1, 1997, and
incorporated herein by reference.
(3) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed February 21, 1997, or as schedule 4.2(iii) thereto, and
incorporated herein by reference.
(4) Filed previously as an exhibit to the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997, and incorporated
herein by reference.
(5) Filed previously as an exhibit to the Company's Registration Statement
on Form S-8 (File No. 333-35053), effective September 5, 1997, and
incorporated herein by reference.
(6) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed November 7, 1997, and incorporated herein by reference.
(7) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed April 7, 1998, and incorporated herein by reference.
(8) Filed herewith.
(P) Filed in paper format pursuant to a hardship exemption under Regulation
232.202 of Regulation S-T.
(b) REPORT ON FORM 8-K
The Company filed a Current Report on Form 8-K on November 7, 1997
relating to the Company's purchase of the Child Guidance/Remco trademarks.
41
<PAGE> 43
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 15, 1998 JAKKS PACIFIC, INC.
By: /s/ JACK FRIEDMAN
------------------------------------
Jack Friedman
Chairman, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ---------------
<C> <S> <C>
/s/ JACK FRIEDMAN Chairman, President and Chief April 15, 1998
- ------------------------------------------ Executive Officer (Principal
Jack Friedman Executive Officer)
/s/ JOEL M. BENNETT Chief Financial Officer April 15, 1998
- ------------------------------------------ (Principal Financial Officer
Joel M. Bennett and Principal Accounting
Officer)
/s/ STEPHEN G. BERMAN Chief Operating Officer, April 15, 1998
- ------------------------------------------ Executive Vice President,
Stephen G. Berman Secretary and Director
/s/ MURRAY L. SKALA Director April 15, 1998
- ------------------------------------------
Murray L. Skala
/s/ MICHAEL G. MILLER Director April 15, 1998
- ------------------------------------------
Michael G. Miller
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (1)
3.1.1 Certificate of Designation of 4% Redeemable Convertible Preferred Stock of the Company (5)
3.1.2 Certificate of Designation and Preferences of Series A Cumulative Convertible Preferred Stock of the Company (7)
3.1.3 Certificate of Elimination of All Shares of 4% Redeemable Convertible Preferred Stock of the Company (7)
3.2 By-Laws of the Company (1)
3.2.1 Amendment to By-Laws of the Company (2)
4.1 9% Convertible Debenture issued to Renaissance Capital Growth & Income Fund III, Inc. dated December 31, 1996(2)
4.2 9% Convertible Debenture issued to Renaissance US Growth & Income Trust PLC dated December 31, 1996(2)
10.1 Amended and Restated 1995 Stock Option Plan (2)
10.2 Employment Agreement between the Company and Jack Friedman dated January 1, 1998 (8)
10.3 Employment Agreement between the Company and Stephen G. Berman dated January 1, 1998 (8)
10.4 Asset Purchase Agreement dated October 19, 1995 (as of July 1, 1995) between the Company, JP (HK) Limited and
Justin (1)
10.5 Convertible Loan Agreement among the Company and Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth & Income Trust PLC dated December 31, 1996 (2)
10.6 Purchase Agreement among the Company, JAKKS Acquisition Corp., Road Champs, Inc., Road Champs Ltd., Die Cast
Associates, Inc. and the shareholders of Road Champs, Inc. dated January 21, 1997 (3)
10.7.1 Office Lease dated June 18, 1997 between the Company and Malibu Vista Partners (8) (P)
10.8 Lease of the Company's warehouse space at 7 Patton Drive, West Caldwell, New Jersey and amendment thereto (3)
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.8A Office Lease dated March 27, 1998 between the Company and Hundal of Union L.P. (8) (P)
10.9 Lease of the Company's showroom at the Toy Center South, 200 Fifth Avenue, New York, New York (1)
10.10 Lease of the Company's showroom at the Toy Center North, 1107 Broadway, New York, New York (3)
10.11 Tenancy Agreement dated March 14, 1998 between the Company and Astoria Investment Company, Ltd. (8) (P)
10.12 License Agreement with Titan Sports, Inc. dated October 24, 1995 (1)
10.12.1 Amendment to License Agreement with Titan Sports, Inc. dated April 22, 1996 (4)
10.12.2 Amendment to License Agreement with Titan Sports, Inc. dated January 21, 1997 (4)
10.12.3 Amendment to License Agreement with Titan Sports, Inc. dated December 3, 1997 (8)
10.12.4 Amendment to License Agreement with Titan Sports, Inc. dated January 29, 1998 (8)
10.13 International License Agreement with Titan Sports, Inc. dated February 10, 1997 (4)
10.13.1 Amendment to International License Agreement with Titan Sports, Inc. dated December 3, 1997 (8)
10.13.2 Amendment to International License Agreement with Titan Sports, Inc. dated January 29, 1998 (8)
10.14 License Agreement with Saban Merchandising, Inc. and Saban International N.V. dated May 21, 1996, with amendment
dated October 31, 1996 (4)
10.15 License Agreement with Wow Wee International dated June 1, 1996 (4)
10.16 Agreement with Quantum Toy Concepts Pty, Ltd. dated July 1996 (4)
10.17 [RESERVED]
10.18 [RESERVED]
10.19 Warrant to purchase 150,000 shares of Common Stock dated January 8, 1997 issued to Joseph Charles &
Associates, Inc. (8)
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.20 [RESERVED]
10.21 Option Agreement dated August 28, 1997 between the Company and Silverman Heller Associates (8)
10.22 Consulting Agreement dated July 30, 1997 between the Company and Silverman Heller Associates (8)
10.23 Option Agreement dated August 28, 1997 between the Company and Joseph Charles & Associates, Inc. (5)
10.24 Engagement Letter dated August 28, 1997 between the Company and Joseph Charles & Associates, Inc. (5)
10.25 Consulting Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18, 1996 (5)
10.26.1 Stock Option Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18, 1996 (5)
10.26.2 Restated Stock Option Agreement between the Company and Sheldon Weiner Sales Organization, Inc. dated June 18,
1996 (5)
10.27 Restated Option Agreement between the Company and Murray Bass dated September 1, 1995 (5)
10.28 Restated Option Agreement between the Company and Joel Bennett dated September 1, 1995 (5)
10.29 Restated Option Agreement between the Company and Gina Hancock dated September 1, 1995 (5)
10.30 Restated Option Agreement between the Company and Wills Hon dated September 1, 1995 (5)
10.31 Restated Option Agreement between the Company and Bruce Katz dated September 1, 1995 (5)
10.32 Trademark Purchase Agreement dated October 24, 1997 between the Company and Azrak-Hamway International, Inc. (6)
10.33 $1,200,000 Promissory Note dated October 24, 1997 of the Company payable to Azrak-Hamway International, Inc. (6)
10.34 Manufacturing and Supply Agreement dated October 24, 1997 between the Company and Azrak- Hamway International,
Inc. (6)
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.35 Security Agreement dated October 24, 1997 between the Company and Azrak-Hamway International, Inc. (6)
10.36A Debenture dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and Road Champs Limited
(8)
10.36B Debenture dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and JP (HK) Limited (8)
10.36C Debentures dated October 23, 1997 between Norwest Bank Minnesota, N.A., Hong Kong Branch and JAKKS Pacific (H.K.)
Limited (8)
10.37 Guaranty dated October 21, 1997 by the Company in favor of Norwest Bank Minnesota, National Association (8)
10.38A Guaranty dated October 21, 1997 by Road Champs, Inc. in favor of Norwest Bank Minnesota, National Association (8)
10.38B Guaranty dated October 21, 1997 by JAKKS Acquisition Corp. in favor of Norwest Bank Minnesota, National
Association (8)
10.38C Guaranty dated October 21, 1997 by J-X Enterprises, Inc. in favor of Norwest Bank Minnesota, National Association
(8)
10.39 Security Agreement dated October 21, 1997 between the Company and Norwest Bank Minnesota, National Association
(8)
10.40A Security Agreement dated October 21, 1997 between Road Champs, Inc. and Norwest Bank Minnesota, National
Association (8)
10.40B Security Agreement dated October 21, 1997 between JAKKS Acquisition Corp. and Norwest Bank Minnesota, National
Association (8)
10.40C Security Agreement dated October 21, 1997 between J-X Enterprises, Inc. and Norwest Bank Minnesota, National
Association (8)
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.41 Purchase Agreement dated April 1, 1998 among the Company, Renaissance Capital Growth & Income Fund III, Inc. and
ProFutures Bridge Capital Fund, L.P. (7)
21 Subsidiaries of the Company (8)
23 Consent of Pannell Kerr Forster, Certified Public Accountants, A Professional Corporation, Los Angeles,
California (8)
27.1997 Financial Data Schedule (8)
27.Q296 Restated Financial Data Schedule for the period ended June 30, 1996 (8)
27.Q396 Restated Financial Data Schedule for the period ended September 30, 1996 (8)
27.1996 Restated Financial Data Schedule for the period ended December 31, 1996 (8)
27.Q397 Restated Financial Data Schedule for the period ended September 30, 1997 (8)
</TABLE>
- ---------
(1) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-2048-LA), effective May 1, 1996, and
incorporated herein by reference.
(2) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-22583), effective May 1, 1997, and
incorporated herein by reference.
(3) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed February 21, 1997, or as schedule 4.2(iii) thereto, and
incorporated herein by reference.
(4) Filed previously as an exhibit to the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997, and incorporated
herein by reference.
(5) Filed previously as an exhibit to the Company's Registration Statement
on Form S-8 (File No. 333-35053), effective September 5, 1997, and
incorporated herein by reference.
(6) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed November 7, 1997, and incorporated herein by reference.
(7) Filed previously as an exhibit to the Company's Current Report on Form
8-K, filed April 7, 1998, and incorporated herein by reference.
(8) Filed herewith.
(P) Filed in paper format pursuant to a hardship exemption under Regulation
232.202 of Regulation S-T.
47
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT dated January 1, 1998
by and between JAKKS PACIFIC, INC., a
Delaware corporation (the "Company"), and
JACK FRIEDMAN (the "Executive").
__________________________________
The parties hereto desire to provide for the Executive's continued
employment by the Company in accordance with the terms and provisions set forth
below:
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
1.1 This Agreement shall replace that certain Employment
Agreement dated January 1, 1997 by and between the Company and the Executive
(the "1997 Agreement"), which 1997 Agreement shall no longer be in effect as of
the date hereof.
1.2 The Company will continue to employ the Executive,
and the Executive will continue to work for the Company, as its President,
Chairman and Chief Executive Officer, for a term commencing on the date hereof
and terminating on December 31, 2001 unless sooner terminated in accordance
with Section 9 hereof. Such period, together with the period of any extension
or renewal of such employment, is referred to herein as the "Employment
Period."
2. DUTIES.
During the Employment Period, the Executive shall serve as the
President, Chairman and Chief Executive Officer of the Company and of its
subsidiaries and affiliated companies, and perform such further duties as
shall, from time to time, be reasonably assigned to the Executive by the Board
of Directors of the Company consistent with his position and abilities.
3. DEVOTION OF TIME.
During the Employment Period, the Executive shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by the Executive to
be detrimental to the best interests of the Company.
4. COMPENSATION.
In consideration for the services to be performed by the
Executive during the
<PAGE> 2
Employment Period, the Company shall compensate the Executive at an annual base
salary from the date hereof of $446,000.00 per annum through December 31, 1998.
Thereafter, the Executive's salary shall increase annually in an amount to be
determined by the Company's Board of Directors, but in no event shall such
increase be less than $25,000.00 per annum. The Executive's salary shall be
payable in accordance with the Company's customary payroll practices. The
Executive shall also be entitled to receive an annual bonus in respect of each
fiscal year of the Company equal to four (4%) per cent of the Company's
earnings before taxes for each such year, provided such earnings equal or
exceed $2,000,000 per year. In the event this Agreement terminates prior to
the end of a fiscal year, the minimum earnings before taxes required hereby for
the payment of a bonus shall be decreased pro rata for the period of time
during such year this Agreement was in effect. The determination of the amount
of earnings before taxes shall be made by the Company's firm of independent
certified public accountants, in accordance with generally accepted accounting
principles consistently applied.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES;
ADDITIONAL BENEFITS.
5.1 Executive shall receive an automobile allowance for
the use of any automobile owned or leased by him in accordance with the
Company's then prevalent practices for executive employees.
5.2 The Company shall pay directly, or reimburse the
Executive for, all other reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of his
duties under this Agreement. For such purposes, the Executive shall submit to
the Company itemized reports of such expenses in accordance with the Company's
policies.
5.3 Executive shall be entitled to paid vacations during
the Employment Period in accordance with the Company's then prevalent practices
for executive employees; provided, however, that the Executive shall be
entitled to such paid vacations for not less than four (4) weeks per annum.
5.4 Executive shall be entitled to participate in, and to
receive benefits under, any employee benefit plans of the Company (including,
without limitation, pension, profit sharing, group life insurance and group
medical insurance plans) as may exist from time to time for its executive
employees.
6. EMPLOYEE KNOWLEDGE.
6.1 Executive hereby agrees to communicate and make known
to the Company all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented, patentable or
unpatentable, which relate to the business of the Company, whether acquired by
him before or during the Employment
2
<PAGE> 3
Period; provided, however, that nothing herein shall be construed as requiring
any such communication where the method, development, invention and/or
improvement is lawfully protected from disclosure as the trade secret of a
third party or by any other lawful bar to such communications existing prior to
the commencement of employment hereunder; and provided, further, that pursuant
to Section 2871 of the California Labor Code, any such disclosures shall be
held in confidence by the Company.
6.2 Executive hereby agrees to keep all such records in
connection with the Executive's employment as the Company may from time to time
reasonably direct, and all such records shall be the sole and exclusive
property of the Company.
6.3 It is expressly agreed between the Executive and the
Company that any invention the Executive developed entirely on his own time
without using the Company's equipment, supplies, facilities or trade secret
information belong to the Executive except for those inventions that either:
(a) relate at the time of conception or reduction to practice to the business,
actual anticipated research or development of the Company; or (b) result from
any work performed by the Executive for the Company.
7. RESTRICTIVE COVENANT.
7.1 The services of the Executive are unique,
extraordinary and essential to the business of the Company, particularly in
view of the Executive's access to the Company's confidential information.
Accordingly, the Executive agrees that if his employment hereunder shall at any
time be terminated by the Executive prior to December 31, 1998 voluntarily or
by the Company for cause (as defined in Section 8.3), the Executive will not at
any time within twelve months of such termination, without the prior written
approval of the Board of Directors of the Company, directly or indirectly,
engage in any business activity competitive with the business of the Company.
Furthermore, the Executive agrees that, during such twelve month period, he
shall not solicit, directly or indirectly, or affect to the Company's detriment
any relationship of the Company with any customer, supplier or employee of the
Company or cause any customer or supplier to refrain from entrusting additional
business to the Company. If the employment of Executive hereunder is
terminated by the Company prior to December 31, 1998 other than for cause, the
restraints on the Executive set forth in the preceding two sentences shall be
inapplicable. In the event that any of the provisions of this Section 7.1
shall be adjudicated to exceed the time, geographic or other limitations
permitted by applicable law in any jurisdiction, then such provision shall be
deemed reformed in any such jurisdiction to the maximum time, geographic or
other limitations permitted by applicable law.
7.2 As used in this Section 7, the term "Company" shall
mean and include any and all corporations affiliated with the Company, which
either now exist or which may hereafter be organized.
8. EARLIER TERMINATION.
3
<PAGE> 4
8.1 Executive's employment hereunder shall automatically
be terminated upon the death of the Executive or Executive's voluntarily
leaving the employ of the Company and, in addition, may be terminated, at the
sole discretion of the Company, as follows:
(a) upon thirty (30) days' prior written notice
by the Company, in the event of the Executive's disability as set forth in
Section 8.2 below; or
(b) upon thirty (30) days' prior written notice
by the Company, in the event that the Company terminates the Executive's
employment hereunder for cause as set forth in Section 8.3 below.
8.2 Executive shall be deemed disabled hereunder, if in
the opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, he shall become physically or mentally unable to perform his
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.
8.3 For purposes hereof, "cause" shall include, but not
be limited to, the following: (a) Executive's willful malfeasance or gross
negligence; or (b) the material breach of any covenant made by Executive
hereunder, and the Executive's failure to cure such conduct or event
constituting "cause" within 30 days after written notice thereof.
8.4 In the event that this Agreement shall be terminated
due to the Executive's death or disability, then the Company shall pay to the
Executive or his personal representatives, as the case may be, severance pay in
a lump sum amount equal to base annual salary for a period of twelve months as
set forth in Section 4 hereof. If, however, this Agreement shall be terminated
for any other reason whatsoever, then the Company shall not be obligated to
make any severance payments whatsoever to the Executive hereunder, except for
the compensation set forth in Section 4 which shall have accrued but be unpaid
at the effective time of termination and Section 8.5.
8.5 (a) In the event of a Termination (as defined
below) of the Executive's employment with the Company (including its
subsidiaries) within two years after a Change of Control (as defined below):
(i) on or before the Executive's last day of
employment with the Company, the Company will pay to
the Executive as compensation for services rendered
to the Company a one-time cash payment equal to the
aggregate gross amount to be paid to the Executive as
salary for the period from January 1, 1999 through
December 31, 2001 (subject to any applicable payroll
or other taxes required to be withheld), all in
accordance with Section 4, hereof.
(ii) any awards previously made to the Executive
as bonus
4
<PAGE> 5
compensation and not previously paid thereto shall
immediately vest on the date of his Termination and
shall be paid on that date.
(iii) the Executive's participation in any
applicable savings and/or profit sharing plan of the
Company or any of its subsidiaries will end on the
last day of his employment. Any terminating
distributions and/or vested rights under such plans
shall be governed by the terms of those respective
plans.
(iv) all options to acquire securities of the
Company then held by the Executive which have not yet
vested shall accelerate and become immediately
exercisable in full. Such options shall remain
exercisable by the Executive at any time during a
period ending three years following his last day of
employment with the Company.
(v) the Executive shall be entitled to the total
retirement benefits actually payable to him or his
beneficiaries under the Company's retirement plans or
any successor plans of the Company, and in the amount
and manner prescribed by such plans.
(vi) the Executive shall not be obligated to seek
other employment in mitigation of the amounts payable
or arrangements made under this Section 8.5, nor
shall any payments under this Section 8.5 be reduced
on account of any compensation or benefits earned by
the Executive from any employment that the Executive
may obtain subsequent to Termination.
(b) For purposes of this Section 8.5, a "Change
of Control" shall be deemed have taken place if either:
(i) as the result of, or in connection with, any
cash tender or exchange offer, consolidation, merger
or other business combination, sale of assets or
contested election or any combination of the
foregoing transactions (a "Transaction"), the persons
who were directors of the Company before the
Transaction shall cease for any reason to constitute
a majority of the Board of Directors of the Company
or any successor to the Company, or
(ii) a third "person" (as that term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"),
including a "group" as defined in Section 13(d)(3) of
the Exchange Act, becomes the beneficial owner,
directly or indirectly, of shares of the Company
having 25% or more of the total number of voting
shares of Common Stock of the Company.
5
<PAGE> 6
(c) For purposes of this Section 8.5, the term
"Termination" shall mean termination by the Company of the employment of the
Executive with the Company (including its subsidiaries) for any reason (other
than death, disability or cause) or resignation of the Executive upon the
occurrence of (i) a significant change in the nature or scope of the
Executive's authority from that prior to a Change of Control, (ii) a reduction
in the Executive's total compensation (including all bonuses, incentive
compensation and benefits referred to in this Agreement, as the same may be
increased from time to time) from that prior to a Change of Control or (iii) a
change in the location where the Executive is required to perform the services
required hereunder from that prior to a Change of Control.
9. INJUNCTIVE RELIEF
Executive hereby acknowledges and agrees that, in the event he
shall violate any provisions of this Agreement, the Company will be without an
adequate remedy at law and accordingly, will be entitled to enforce such
provisions by temporary or permanent injunctive or mandatory relief obtained in
any action or proceeding instituted in any court of competent jurisdiction
without the necessity of proving damages and without prejudice to any other
remedies which it may have at law or in equity.
10. NO REQUIREMENT OF RELOCATION.
The Company expressly agrees that the Executive, as a
condition of his employment, need not relocate his residence from the community
in which he presently resides. Any demand or requirement by the Company that
the Executive principally perform his duties at a location or office that
requires more than an additional hour of one-way commuting time than the
Executive currently experiences shall, in the absence of the Executive's
consent (which may be withheld for any reason), constitute a termination
without cause by the Company of the Executive's employment hereunder.
11. SERVICE AS DIRECTOR.
During the Employment Period, the Executive shall, if elected
or appointed, serve as a Director of the Company and/or any subsidiary of the
Company upon such terms as shall be mutually agreed upon by the Executive and
the Company.
12. ASSIGNMENT.
This Agreement, as it relates to the employment of the
Executive, is a personal contract and the rights and interests of the Executive
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as otherwise set forth herein. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns,
including without limitation, any corporation or other entity into which the
6
<PAGE> 7
Company is merged or which acquires all of the outstanding shares of the
Company's capital stock, or all or substantially all of the assets of the
Company.
13. RIGHT TO PAYMENTS.
Executive shall not under any circumstances have any option or
right to require payments hereunder otherwise than in accordance with the terms
hereof. To the extent permitted by law, the Executive shall not have any power
of anticipation, alienation or assignment of payments contemplated hereunder,
and all rights and benefits of the Executive shall be for the sole personal
benefit of the Executive, and no other person shall acquire any right, title or
interest hereunder by reason of any sale, assignment, transfer, claim or
judgment or bankruptcy proceedings against the Executive.
14. NOTICES.
Any notice required or permitted hereunder shall be in writing
and shall be deemed effective (a) upon personal delivery, if delivered by hand
and followed by notice by mail or facsimile transmission; (b) one day after
the date of delivery by Federal Express or other nationally recognized courier
service, if delivered by priority overnight delivery between any two points
within the United States; or (c) five days after deposit in the mails, if
mailed by certified or registered mail (return receipt requested) between any
two points within the United States, and in each case of mailing, postage
prepaid. Any notice required or permitted to be given hereunder shall be
addressed as follows: (x) if to Executive, at 6331 Ramirez Mesa, Malibu, CA
90265; and (y) if to the Company, at 22761 Pacific Coast Highway, Suite 226,
Malibu, CA 90265, or at such other address as any such party shall designate by
written notice to the other party.
15. WAIVER.
In the event any provision of this Agreement is found to be
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall attach only to such provision and not in any way
affect or render invalid or unenforceable any other provisions of this
Agreement, and this Agreement shall be carried out as if such invalid or
unenforceable provisions were not embodied therein.
16. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the parties hereto
relating to the transactions contemplated by this Agreement; provided, however,
that it is the intention of the parties that this Agreement shall be
interpreted and applied in conjunction with the terms of any option, warrant or
other right
7
<PAGE> 8
now in existence or hereinafter granted to the Executive to acquire shares of
capital stock of the Company. In the event of any conflict, however, the terms
of this Agreement shall govern and prevail. This Agreement may be amended only
in writing executed by the parties hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
JAKKS PACIFIC, INC.
By: /s/ Stephen G. Berman
---------------------------------------
Stephen G. Berman, Chief Operating Officer
/s/ Jack Friedman
------------------------------------------
Jack Friedman, Executive
8
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT dated January 1, 1998
by and between JAKKS PACIFIC, INC., a
Delaware corporation (the "Company"), and
STEPHEN G. BERMAN (the "Executive").
__________________________________
The parties hereto desire to provide for the Executive's continued
employment by the Company in accordance with the terms and provisions set forth
below:
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
1.1 This Agreement shall replace that certain Employment
Agreement dated January 1, 1997 by and between the Company and the Executive
(the "1997 Agreement"), which 1997 Agreement shall no longer be in effect as of
the date hereof.
1.2 The Company will continue to employ the Executive,
and the Executive will continue to work for the Company, as its Executive Vice
President, Chief Operating Officer and Secretary, for a term commencing on the
date hereof and terminating on December 31, 2001 unless sooner terminated in
accordance with Section 9 hereof. Such period, together with the period of any
extension or renewal of such employment, is referred to herein as the
"Employment Period."
2. DUTIES.
During the Employment Period, the Executive shall serve as the
Executive Vice President, Chief Operating Officer and Secretary of the Company
and of its subsidiaries and affiliated companies, and perform such further
duties as shall, from time to time, be reasonably assigned to the Executive by
the Board of Directors of the Company consistent with his position and
abilities.
3. DEVOTION OF TIME.
During the Employment Period, the Executive shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by the Executive to
be detrimental to the best interests of the Company.
4. COMPENSATION.
In consideration for the services to be performed by the
Executive during the
<PAGE> 2
Employment Period, the Company shall compensate the Executive at an annual base
salary from the date hereof of $421,000.00 per annum through December 31, 1998.
Thereafter, the Executive's salary shall increase annually in an amount to be
determined by the Company's Board of Directors, but in no event shall such
increase be less than $25,000.00 per annum. The Executive's salary shall be
payable in accordance with the Company's customary payroll practices. The
Executive shall also be entitled to receive an annual bonus in respect of each
fiscal year of the Company equal to four (4%) per cent of the Company's
earnings before taxes for each such year, provided such earnings equal or
exceed $2,000,000 per year. In the event this Agreement terminates prior to
the end of a fiscal year, the minimum earnings before taxes required hereby for
the payment of a bonus shall be decreased pro rata for the period of time
during such year this Agreement was in effect. The determination of the amount
of earnings before taxes shall be made by the Company's firm of independent
certified public accountants, in accordance with generally accepted accounting
principles consistently applied.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES; ADDITIONAL
BENEFITS.
5.1 Executive shall receive an automobile allowance for
the use of any automobile owned or leased by him in accordance with the
Company's then prevalent practices for executive employees.
5.2 The Company shall pay directly, or reimburse the
Executive for, all other reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of his
duties under this Agreement. For such purposes, the Executive shall submit to
the Company itemized reports of such expenses in accordance with the Company's
policies.
5.3 Executive shall be entitled to paid vacations during
the Employment Period in accordance with the Company's then prevalent practices
for executive employees; provided, however, that the Executive shall be
entitled to such paid vacations for not less than four (4) weeks per annum.
5.4 Executive shall be entitled to participate in, and to
receive benefits under, any employee benefit plans of the Company (including,
without limitation, pension, profit sharing, group life insurance and group
medical insurance plans) as may exist from time to time for its executive
employees.
6. EMPLOYEE KNOWLEDGE.
6.1 Executive hereby agrees to communicate and make known
to the Company all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented, patentable or
unpatentable, which relate to the business of the Company, whether acquired by
him before or during the Employment Period; provided, however, that nothing
herein shall be construed as requiring any such communication where the
2
<PAGE> 3
method, development, invention and/or improvement is lawfully protected from
disclosure as the trade secret of a third party or by any other lawful bar to
such communications existing prior to the commencement of employment hereunder;
and provided, further, that pursuant to Section 2871 of the California Labor
Code, any such disclosures shall be held in confidence by the Company.
6.2 Executive hereby agrees to keep all such records in
connection with the Executive's employment as the Company may from time to time
reasonably direct, and all such records shall be the sole and exclusive
property of the Company.
6.3 It is expressly agreed between the Executive and the
Company that any invention the Executive developed entirely on his own time
without using the Company's equipment, supplies, facilities or trade secret
information belong to the Executive except for those inventions that either:
(a) relate at the time of conception or reduction to practice to the business,
actual anticipated research or development of the Company; or (b) result from
any work performed by the Executive for the Company.
7. RESTRICTIVE COVENANT.
7.1 The services of the Executive are unique,
extraordinary and essential to the business of the Company, particularly in
view of the Executive's access to the Company's confidential information.
Accordingly, the Executive agrees that if his employment hereunder shall at any
time be terminated by the Executive prior to December 31, 1998 voluntarily or
by the Company for cause (as defined in Section 8.3), the Executive will not at
any time within twelve months of such termination, without the prior written
approval of the Board of Directors of the Company, directly or indirectly,
engage in any business activity competitive with the business of the Company.
Furthermore, the Executive agrees that, during such twelve month period, he
shall not solicit, directly or indirectly, or affect to the Company's detriment
any relationship of the Company with any customer, supplier or employee of the
Company or cause any customer or supplier to refrain from entrusting additional
business to the Company. If the employment of Executive hereunder is
terminated by the Company prior to December 31, 1998 other than for cause, the
restraints on the Executive set forth in the preceding two sentences shall be
inapplicable. In the event that any of the provisions of this Section 7.1
shall be adjudicated to exceed the time, geographic or other limitations
permitted by applicable law in any jurisdiction, then such provision shall be
deemed reformed in any such jurisdiction to the maximum time, geographic or
other limitations permitted by applicable law.
7.2 As used in this Section 7, the term "Company" shall
mean and include any and all corporations affiliated with the Company, which
either now exist or which may hereafter be organized.
8. EARLIER TERMINATION.
8.1 Executive's employment hereunder shall automatically
be terminated upon
3
<PAGE> 4
the death of the Executive or Executive's voluntarily leaving the employ of the
Company and, in addition, may be terminated, at the sole discretion of the
Company, as follows:
(a) upon thirty (30) days' prior written notice
by the Company, in the event of the Executive's disability as set forth in
Section 8.2 below; or
(b) upon thirty (30) days' prior written notice
by the Company, in the event that the Company terminates the Executive's
employment hereunder for cause as set forth in Section 8.3 below.
8.2 Executive shall be deemed disabled hereunder, if in
the opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, he shall become physically or mentally unable to perform his
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.
8.3 For purposes hereof, "cause" shall include, but not
be limited to, the following: (a) Executive's willful malfeasance or gross
negligence; or (b) the material breach of any covenant made by Executive
hereunder, and the Executive's failure to cure such conduct or event
constituting "cause" within 30 days after written notice thereof.
8.4 In the event that this Agreement shall be terminated
due to the Executive's death or disability, then the Company shall pay to the
Executive or his personal representatives, as the case may be, severance pay in
a lump sum amount equal to base annual salary for a period of twelve months as
set forth in Section 4 hereof. If, however, this Agreement shall be terminated
for any other reason whatsoever, then the Company shall not be obligated to
make any severance payments whatsoever to the Executive hereunder, except for
the compensation set forth in Section 4 which shall have accrued but be unpaid
at the effective time of termination and Section 8.5.
8.5 (a) In the event of a Termination (as defined
below) of the Executive's employment with the Company (including its
subsidiaries) within two years after a Change of Control (as defined below):
(i) on or before the Executive's last day of
employment with the Company, the Company will pay to
the Executive as compensation for services rendered
to the Company a one-time cash payment equal to the
aggregate gross amount to be paid to the Executive as
salary for the period from January 1, 1999 through
December 31, 2001 (subject to any applicable payroll
or other taxes required to be withheld), all in
accordance with Section 4, hereof.
(ii) any awards previously made to the Executive
as bonus compensation and not previously paid thereto
shall immediately vest on the date of his Termination
and shall be paid on that date.
4
<PAGE> 5
(iii) the Executive's participation in any
applicable savings and/or profit sharing plan of the
Company or any of its subsidiaries will end on the
last day of his employment. Any terminating
distributions and/or vested rights under such plans
shall be governed by the terms of those respective
plans.
(iv) all options to acquire securities of the
Company then held by the Executive which have not yet
vested shall accelerate and become immediately
exercisable in full. Such options shall remain
exercisable by the Executive at any time during a
period ending three years following his last day of
employment with the Company.
(v) the Executive shall be entitled to the total
retirement benefits actually payable to him or his
beneficiaries under the Company's retirement plans or
any successor plans of the Company, and in the amount
and manner prescribed by such plans.
(vi) the Executive shall not be obligated to seek
other employment in mitigation of the amounts payable
or arrangements made under this Section 8.5, nor
shall any payments under this Section 8.5 be reduced
on account of any compensation or benefits earned by
the Executive from any employment that the Executive
may obtain subsequent to Termination.
(b) For purposes of this Section 8.5, a "Change
of Control" shall be deemed to have taken place if either:
(i) as the result of, or in connection with, any
cash tender or exchange offer, consolidation, merger
or other business combination, sale of assets or
contested election or any combination of the
foregoing transactions (a "Transaction"), the persons
who were directors of the Company before the
Transaction shall cease for any reason to constitute
a majority of the Board of Directors of the Company
or any successor to the Company, or
(ii) a third "person" (as that term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"),
including a "group" as defined in Section 13(d)(3) of
the Exchange Act, becomes the beneficial owner,
directly or indirectly, of shares of the Company
having 25% or more of the total number of voting
shares of Common Stock of the Company.
(c) For purposes of this Section 8.5, the term
"Termination" shall mean termination by the Company of the employment of the
Executive with the Company (including its subsidiaries) for any reason (other
than death, disability or cause) or resignation of the Executive upon the
occurrence of (i) a significant change in the nature or scope of the
Executive's authority from that prior to a Change of Control, (ii) a reduction
in the Executive's
5
<PAGE> 6
total compensation (including all bonuses, incentive compensation and benefits
referred to in this Agreement, as the same may be increased from time to time)
from that prior to a Change of Control or (iii) a change in the location where
the Executive is required to perform the services required hereunder from that
prior to a Change of Control.
9. INJUNCTIVE RELIEF
Executive hereby acknowledges and agrees that, in the event he
shall violate any provisions of this Agreement, the Company will be without an
adequate remedy at law and accordingly, will be entitled to enforce such
provisions by temporary or permanent injunctive or mandatory relief obtained in
any action or proceeding instituted in any court of competent jurisdiction
without the necessity of proving damages and without prejudice to any other
remedies which it may have at law or in equity.
10. NO REQUIREMENT OF RELOCATION.
The Company expressly agrees that the Executive, as a
condition of his employment, need not relocate his residence from the community
in which he presently resides. Any demand or requirement by the Company that
the Executive principally perform his duties at a location or office that
requires more than an additional hour of one-way commuting time than the
Executive currently experiences shall, in the absence of the Executive's
consent (which may be withheld for any reason), constitute a termination
without cause by the Company of the Executive's employment hereunder.
11. SERVICE AS DIRECTOR.
During the Employment Period, the Executive shall, if elected
or appointed, serve as a Director of the Company and/or any subsidiary of the
Company upon such terms as shall be mutually agreed upon by the Executive and
the Company.
12. ASSIGNMENT.
This Agreement, as it relates to the employment of the
Executive, is a personal contract and the rights and interests of the Executive
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as otherwise set forth herein. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns,
including without limitation, any corporation or other entity into which the
Company is merged or which acquires all of the outstanding shares of the
Company's capital stock, or all or substantially all of the assets of the
Company.
13. RIGHT TO PAYMENTS.
6
<PAGE> 7
Executive shall not under any circumstances have any option or
right to require payments hereunder otherwise than in accordance with the terms
hereof. To the extent permitted by law, the Executive shall not have any power
of anticipation, alienation or assignment of payments contemplated hereunder,
and all rights and benefits of the Executive shall be for the sole personal
benefit of the Executive, and no other person shall acquire any right, title or
interest hereunder by reason of any sale, assignment, transfer, claim or
judgment or bankruptcy proceedings against the Executive.
14. NOTICES.
Any notice required or permitted hereunder shall be in writing
and shall be deemed effective (a) upon personal delivery, if delivered by hand
and followed by notice by mail or facsimile transmission; (b) one day after
the date of delivery by Federal Express or other nationally recognized courier
service, if delivered by priority overnight delivery between any two points
within the United States; or (c) five days after deposit in the mails, if
mailed by certified or registered mail (return receipt requested) between any
two points within the United States, and in each case of mailing, postage
prepaid. Any notice required or permitted to be given hereunder shall be
addressed as follows: (x) if to Executive, at P.O. Box 4325, Malibu, CA 90264;
and (y) if to the Company, at 22761 Pacific Coast Highway, Suite 226, Malibu,
CA 90265, or at such other address as any such party shall designate by written
notice to the other party.
15. WAIVER.
In the event any provision of this Agreement is found to be
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall attach only to such provision and not in any way
affect or render invalid or unenforceable any other provisions of this
Agreement, and this Agreement shall be carried out as if such invalid or
unenforceable provisions were not embodied therein.
16. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the parties hereto
relating to the transactions contemplated by this Agreement; provided, however,
that it is the intention of the parties that this Agreement shall be
interpreted and applied in conjunction with the terms of any option, warrant or
other right now in existence or hereinafter granted to the Executive to acquire
shares of capital stock of the Company. In the event of any conflict, however,
the terms of this Agreement shall govern and prevail. This Agreement may be
amended only in writing executed by the parties hereto affected by such
amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day
7
<PAGE> 8
and year first above written.
JAKKS PACIFIC, INC.
By: /S/ JACK FRIEDMAN
-------------------------------
Jack Friedman, President
/S/ STEPHEN G. BERMAN
----------------------------------
Stephen G. Berman, Executive
8
<PAGE> 1
EXHIBIT 10.12.3
[LOGO]
[WORLD WRESTLING FEDERATION(R)]
December 3, 1997
Mr. Jack Friedman
President
JAKKS Pacific, Inc.
22761 Pacific Coast Highway, Suite 226
Malibu, CA 90265
Re: Titan Sports, Inc. ("Titan")-w- JAKKS Pacific, Inc. ("Licensee")
Dear Mr. Friedman:
Reference is hereby made to that certain License Agreement between the parties
dated October 24, 1995 as amended by Amendments to Agreement between the
parties effective April 22, 1996 and January 21, 1997, respectively
(collectively, the "Agreement"). For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties have
agreed to amend the Agreement as follows ("Third Amendment"):
1. The parties hereby amend Paragraph 1(e) of the Agreement to add the
following articles:
"Articulated and non-articulated, talking and non-talking figures from 8" and
up in size, and mini figures from 2" and under (sold separately or in mini
wrestling environments, such mini wrestling environments must not include
vehicles or motorcycles) made from a variety of materials and constructions,
including but not limited to PVC and vinyl, styrene and/or other plastic
materials, resin and stretch material; accessories and other articles not
expressly created to be sold for use with the figures; play sets, dioramas and
environments designed to interact with said figures; non-electronic
role-playing toys, defined as dress-up sets and accessories, microphones,
uniforms, costumes, collector cases for figures; puzzles; skill and action
games; and 6" and up fabric, soft body filled toys in the shape of wrestlers.
Figures to be sold separately or in diorama scenes. None of these Licensed
Products are to be operated by remote control or radio control or to be made
from die cast material. Electronic games, electric games, electronic stretch
figures, card games, target games and tug-of-war games are also excluded from
the Licensed Products."
2. The parties hereby amend Paragraph 3 the Agreement as follows:
"The Period of Agreement is extended by three (3) years from January 1, 2000
through December 31, 2002. Thereafter, if the Licensee wishes to renew this
Agreement for an additional year, such additional year shall be for a minimum
guaranteed royalty of US$
<PAGE> 2
850,000.00, and Licensee shall provide written notice of such intent to Titan
no less than sixty (60) days prior to the commencement of the renewal period in
question. In that event, provided the Licensee is not in default of any term
under this Agreement, and further provided that Licensee has paid to Titan all
royalties during the then current period, Titan will discuss with Licensee such
potential renewal, and the terms thereof. No renewal period will be effective
unless and until the parties reach a mutual agreement as to the terms
applicable to such renewal. This paragraph is in no way to be construed to
obligate Titan to renew this Agreement.
3. The parties hereby amend Paragraph 4(a) as follows:
"Advance Royalty Amount: US$200,000.00 due on signing of this Third Amendment."
4. The parties hereby amend Paragraph 4(c) of the Agreement as follows:
"4(c) Guaranteed Royalties. If the total of all royalties payable to Titan
under subparagraphs 4(a) and 4(b) of the Agreement is less than the Guaranteed
Royalty Amounts set forth below, the Licensee shall pay Titan, on or before the
dates stated in the payment schedule below, the difference between the
Guaranteed Royalty Amount due for the periods stated below and the total of the
royalties paid to Titan under subparagraphs 4(a) and 4(b):
<TABLE>
<CAPTION>
DUE DATE PAYMENT
- -------- -------
<S> <C>
March 31, 1998 US$ 212,500
June 30, 1998 US$ 212,500
September 30, 1998 US$ 212,500
December 31, 1998 US$ 212,500
March 31, 1999 US$ 212,500
June 30, 1999 US$ 212,500
September 30, 1999 US$ 212,500
December 31, 1999 US$ 212,500
March 31, 2000 US$ 212,500
June 30, 2000 US$ 212,500
September 30, 2000 US$ 212,500
December 31, 2000 US$ 212,500
March 31, 2001 US$ 212,500
June 30, 2001 US$ 212,500
September 30, 2001 US$ 212,500
December 31, 2001 US$ 212,500
March 31, 2002 US$ 212,500
June 30, 2002 US$ 212,500
September 30, 2002 US$ 212,500
December 31, 2002 US$ 212,500
------------
TOTAL: US$4,250,000"
</TABLE>
<PAGE> 3
5. Licensee acknowledges and agrees that "Jakks Pacific, Inc." is the
successor-in-interest to "Jaxxs, Inc." and "Jakks, Inc." and that Jakks Pacific,
Inc. assumes any and all obligations of Jaxx, Inc. and Jakks, Inc. under the
Agreement.
6. This Third Amendment shall not be executed by Titan and shall therefore
not be valid unless and until Titan receives a copy of a fully executed
agreement between Licensee and Playmates Toys, Inc. ("Playmates") assigning to
Licensee the rights granted to Playmates by Titan under a letter of agreement
between Titan and Playmates dated June 3, 1996.
All terms not defined herein shall have the same meaning given them in the
Agreement. Except as expressly or by necessary implication modified hereby,
the terms and conditions of the Agreement are hereby ratified and confirmed
without limitation or exception.
lease confirm acceptance of the First Amendment as set forth above on behalf of
Licensee in the space provided below on each of the enclosed two (2) copies and
return them to me. One fully executed copy will be returned to you for your
records.
Very truly yours,
/s/ Edward L. Kaufman
- -------------------------------
Edward L. Kaufman
ACCEPTED AND AGREED:
JAKKS PACIFIC, INC.
("LICENSEE")
By: /s/ Jack Friedman
----------------------
Its: CEO
Date: 12/15/97
TITAN SPORTS, INC.
("TITAN")
By: /s/ Linda E. McMahon
----------------------
Linda E. McMahon
President and CEO
Date: 1/12/98
<PAGE> 1
EXHIBIT 10.12.4
[LOGO]
[WORLD WRESTLING FEDERATION(R)]
January 29, 1998
Mr. Jack Friedman
President
JAKKS Pacific, Inc.
22761 Pacific Coast Highway, Suite 226
Malibu, CA 90265
Re: Titan Sports, Inc. ("Titan")-w- JAKKS Pacific, Inc. ("Licensee")
Dear Mr. Friedman:
Reference is hereby made to that certain License Agreement between the parties
dated October 24, 1995 as amended by Amendments to Agreement between the
parties effective April 22, 1996, January 21, 1997 and December 3, 1997
respectively (collectively, the "Agreement"). For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties have agreed to amend the Agreement as follows ("Fourth Amendment"):
1. Paragraph six (6) of the Third Amendment to the Agreement ("Third
Amendment") shall be deleted in its entirety and replaced with the following
language:
"The Third Amendment shall not be valid unless and until Titan receives
a copy of a fully executed settlement agreement between Titan and
Playmates Toys, Inc. ('Playmates') terminating the letter of agreement
between Titan and Playmates dated June 3, 1996."
All terms not defined herein shall have the same meaning given them in the
Agreement. Except as expressly or by necessary implication modified hereby,
the terms and conditions of the Agreement are hereby ratified and confirmed
without limitation or exception.
lease confirm acceptance of the First Amendment as set forth above on behalf of
Licensee in the space provided below on each of the enclosed two (2) copies and
return them to me. One fully executed copy will be returned to you for your
records.
Very truly yours,
/s/ Edward L. Kaufman
- ----------------------
Edward L. Kaufman
<PAGE> 2
ACCEPTED AND AGREED:
JAKKS PACIFIC, INC.
("LICENSEE")
By: /s/ Jack Friedman
----------------------
Its:
Date:
TITAN SPORTS, INC.
("TITAN")
By: /s/ Linda E. McMahon
----------------------
Linda E. McMahon
Its: President and CEO
Date: 2/14/98
<PAGE> 1
EXHIBIT 10.13.1
[LOGO]
[WORLD WRESTLING FEDERATION(R)]
December 3, 1997
Mr. Jack Friedman
President
JAKKS Pacific, Inc.
22761 Pacific Coast Highway, Suite 226
Malibu, CA 90265
Re: Titan Sports, Inc. ("Titan")-w- JAKKS Pacific, Inc. ("Licensee")
Dear Mr. Friedman:
Reference is hereby made to that certain License Agreement between the parties
dated February 10, 1997 ("Agreement"). For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties have
agreed to amend the Agreement as follows ("First Amendment"):
1. The parties hereby amend Paragraph 1(e) of the Agreement to add the
following articles:
"Articulated and non-articulated, talking and non-talking figures from 8" and
up in size, and mini figures from 2" and under (sold separately or in mini
wrestling environments, such mini wrestling environments must not include
vehicles or motorcycles) made from a variety of materials and constructions,
including but not limited to PVC and vinyl, styrene and/or other plastic
materials, resin and stretch material; accessories and other articles not
expressly created to be sold for use with the figures; play sets, dioramas and
environments designed to interact with said figures; non-electronic
role-playing toys, defined as dress-up sets and accessories, microphones,
uniforms, costumes, collector cases for figures; puzzles; skill and action
games; and 6" and up fabric, soft body filled toys in the shape of wrestlers.
Figures to be sold separately or in diorama scenes. None of these Licensed
Products are to be operated by remote control or radio control or to be made
from die cast material. Electronic games, electric games, electronic stretch
figures, card games, target games and tug-of-war games are also excluded from
the Licensed Products."
2. The parties hereby amend Paragraph 4(c) the Agreement as follows:
"4(c) Guaranteed Royalties. If the total of all royalties payable to Titan
under subparagraphs 4(a) and 4(b) of the Agreement is less than the Guaranteed
Royalty Amounts set forth below, the Licensee shall pay Titan, on or before the
dates stated in the payment schedule below, the difference between the
Guaranteed Royalty Amount due for the periods stated below and the total of the
royalties paid to Titan under subparagraphs 4(a) and 4(b):
<PAGE> 2
<TABLE>
<CAPTION>
DUE DATE PAYMENT
-------- -------
<S> <C>
December 31, 1997 US $ 50,000.00
December 31, 1998 US $ 75,000.00
December 31, 1999 US $ 75,000.00
--------------
Total US $200,000.00
</TABLE>
3. This First Amendment shall not be executed by Titan and shall
therefore not be valid unless and until Titan receives a copy of a fully
executed agreement between Licensee and Playmates Toys, Inc. ("Playmates")
assigning to Licensee the rights granted to Playmates by Titan under a letter
of agreement between Titan and Playmates dated June 3, 1996.
All terms not defined herein shall have the same meaning given them in the
Agreement. Except as expressly or by necessary implication modified hereby,
the terms and conditions of the Agreement are hereby ratified and confirmed
without limitation or exception.
Please confirm acceptance of the First Amendment as set forth above on behalf
of Licensee in the space provided below on each of the enclosed two (2) copies
and return them to me. One fully executed copy will be returned to you for
your records.
Very truly yours,
/s/ Edward L. Kaufman
- ----------------------
Edward L. Kaufman
ACCEPTED AND AGREED:
JAKKS PACIFIC, INC.
("LICENSEE")
By: /s/ Jack Friedman
----------------------
Its: CEO
TITAN SPORTS, INC.
("TITAN")
By: /s/ Linda E. McMahon
----------------------
Linda E. McMahon
President and CEO
<PAGE> 1
EXHIBIT 10.13.2
[LOGO]
WORLD WRESTLING FEDERATION
January 29, 1998
Mr. Jack Friedman
President
JAKKS Pacific, Inc.
22761 Pacific Coast Highway, Suite 226
Malibu, CA 90265
Re: TITAN SPORTS, INC. ("TITAN")-W-JAKKS PACIFIC, INC. ("LICENSEE")
Dear Mr. Friedman:
Reference is hereby made to that certain License Agreement between the parties
dated February 10, 1997 as amended by an Amendment to the Agreement between the
parties effective December 3, 1997 (collectively, "Agreement"). For good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties have agreed to amend the Agreement as follows
("Second Amendment"):
1. Paragraph three (3) of the First Amendment to the Agreement ("First
Amendment" shall be deleted in its entirety and replaced with the language:
"The First Amendment shall not be valid unless and until Titan
receives a copy of a fully executed settlement agreement between Titan
and Playmates Toys, Inc. ('Playmates') terminating the letter of
agreement between Titan and Playmates dated June 3, 1996."
All terms not defined herein shall have the same meaning given them in the
Agreement. Except as expressly or by necessary implication modified hereby,
the terms and conditions of the Agreement are hereby ratified and confirmed
without limitation or exception.
Please confirm acceptance of this Second Amendment as set forth above on behalf
of Licensee in the space provided below on each of the enclosed two (2) copies
and return them to me. One (1) fully executed copy will be returned to you for
your records.
Very truly yours,
/s/ Edward L. Kaufman
- ----------------------
Edward L. Kaufman
<PAGE> 2
ACCEPTED AND AGREED:
JAKKS PACIFIC, INC.
("LICENSEE")
By: /s/ Jack Friedman
----------------------
Its: CEO
TITAN SPORTS, INC.
("TITAN")
By: /s/ Linda E. McMahon
----------------------
Linda E. McMahon
President and CEO
<PAGE> 1
Exhibit 10.19
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT
ACT OR AN OPINION OF COUNSEL TO THE COMPANY IS OBTAINED
STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
_________________
JAKKS PACIFIC, INC.
(Incorporated under the laws of the State of Delaware)
Void after 5:00 P.M., Pacific Coast Time, on January 8, 2002
Warrant to Purchase 150,000
Shares of Common Stock
Warrant for the Purchase of Shares of Common Stock
January 8, 1997
FOR VALUE RECEIVED, JAKKS Pacific, Inc., a Delaware corporation (the
"Company"), hereby certifies that Joseph Charles & Associates, Inc. (the
"Holder") is entitled, subject to the provisions of this warrant (this
"Warrant"), to purchase, from the Company, during the period commencing on
January 8, 1997, and expiring at 5:00 P.M. Pacific Coast time on January 8,
2002, up to 150,000 fully paid and non-assessable shares of Common Stock of the
Company at a price of $7.50 per share (the "Exercise Price").
The term "Common Stock" means the common shares, $.001 par value, of
the Company. The shares of Common Stock deliverable upon such exercise, are
hereinafter sometimes referred to as "Warrant Stock."
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and of the
cancellation of this Warrant, the Company shall execute and deliver a new
Warrant of like tenor and date.
The Holder agrees with the Company that this Warrant is issued, and
all the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
<PAGE> 2
1. Exercise of Warrant. This Warrant may be exercised in whole
or in part at any time, or from time to time, during the period commencing on
January 8, 1997 and expiring 5:00 P.M. Pacific Coast time on January 8, 2002
or, if such day is a day on which banking institutions in the City of Malibu,
California are authorized by law to close, then on the next succeeding day that
shall not be such a day, by presentation and surrender hereof to the Company at
its principal office, or at the office of its stock transfer agent, if any,
with the Warrant Exercise Form attached hereto duly executed and accompanied by
payment (either in cash or by certified or official bank check, payable to the
order of the Company) of the Exercise Price for the number of shares specified
in such Form and instruments of transfer, if appropriate, duly executed by the
Holder or his duly authorized attorney. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant, together with the Exercise Price, at its office,
or by the stock transfer agent of the Company at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered
to the Holder. The Company shall pay any and all documentary stamp or similar
issue taxes payable in respect of the issue or delivery of shares of Common
Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve
for issuance and delivery upon exercise of this Warrant all shares of Common
Stock from time to time receivable upon exercise of this Warrant. All such
shares shall be duly authorized and, when issued upon such exercise, shall be
validly issued, fully paid and nonassessable shares of the Company.
3. Absence of Registration under Securities Act of 1933.
3.1 Absence of Registration under Securities Act of 1933.
The shares of Common Stock issuable upon exercise of this Warrant are not, as
of the date hereof, registered under the Securities Act of 1933, as amended
(the "Act"). The Warrant Stock, if not previously registered, will be
registered under the Act at the time of, and together with, the registration of
shares of Common Stock issued upon conversion of debentures date December 31,
1996 held by Renaissance Capital Growth & Income Fund III, Inc. and Renaissance
US Growth & Income Trust PLC.
3.2 Restrictions on Transferability. The Warrant Stock
and this Warrant may be sold or otherwise disposed of only in accordance with
the provisions of Section 8 hereof.
4. Piggyback Registration Rights
2
<PAGE> 3
4.1 Except for the registration statement which the
Company is currently planning to file with respect to a proposed underwritten
offering of its common stock by Cruttenden Roth Incorporated, if during the
period commencing on January 8, 1997 and ending January 8, 2002, the Company
proposes for any reason to register any of its securities under the Act (other
than pursuant to a Registration Statement on Forms S-8, S-4 or similar or
successor forms), it shall each such time promptly give written notice to the
Holder of its intentions to do so, and, upon the written request, given within
fifteen (15) days after the mailing of any such notice of the Holder to
register its Warrant Stock (which request shall specify the number of shares of
the Holder's Warrant Stock requested to be registered as part of such
Registration Statement), the Company shall, unless such Warrant Stock shall
previously have been registered by the Company under the Act, use its best
efforts to cause all of the shares of Warrant Stock the Holder requested to be
registered, to be registered as part of the Registration Statement proposed to
be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the Holder of such registered shares of Warrant Stock
through the public securities markets.
4.2 In the event that the proposed registration under
Section 4.1 hereof is, in whole or in part, an underwritten public offering of
securities, any request by the Holder to register its Warrant Stock may specify
that they are to be included in the underwriting on the same terms and
conditions as like shares, if any, otherwise being sold through underwriters
under such registration; provided, however, that, as to any registration
pursuant to Section 4.1 hereof, if the managing underwriter(s) of such proposed
public offering determine(s) and advise(s) that the inclusion of all or any
part of the Warrant Stock proposed to be included in the underwritten public
offering would interfere with or adversely affect the successful marketing of
the securities originally intended to be underwritten, then the number of
shares of Warrant Stock to be offered for the account of the Holder shall be
eliminated from or reduced or limited in such Registration Statement to the
amount, if any, recommended by such managing underwriter(s).
5. Restrictive Legends. Upon exercise of this Warrant and the
issuance of Warrant Stock, each certificate shall bear on the face thereof
(unless otherwise permitted by the provisions of Section 8 hereof) the
following legend (in addition to any legend required under applicable state
securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THESE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH OFFER OR SALE IS EXEMPT FROM THE
3
<PAGE> 4
REGISTRATION REQUIREMENTS OF SAID ACT AND IS IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS."
6. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, and the
Holder hereof hereby waives its right to receive such fractional shares or
scrip representing fractional shares or to receive any payment in lieu thereof.
7. Exchange, Transfers, Assignment of Warrant. This Warrant is
not registered under the Act nor under any applicable state securities law or
regulation. This Warrant cannot be exchanged, transferred or assigned, except
in accordance with the provisions of Section 8 hereafter. Upon such event and
upon surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form annexed hereto duly executed
and funds sufficient to pay any transfer tax, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be cancelled.
8. Notice of Transfer. By acceptance of this Warrant or of any
Warrant Stock, the Holder agrees, prior to any transfer of this Warrant or of
such Warrant Stock, to give written notice to the Company of the Holder's
intention to effect such transfer and to comply in all other respects with the
provisions of this Section 7. Each such notice shall describe the manner and
circumstances of the proposed transfer and shall be accompanied by the written
opinion, addressed to the Company, of counsel for the Holder as to whether in
the opinion of such counsel (which opinion shall be satisfactory to counsel for
the Company) such proposed transfer involves a transaction that does not
require the registration of this Warrant or the Warrant Stock under the Act.
If in the opinion of such counsel and counsel for the Company, the proposed
transfer of this Warrant or the Warrant Stock may be effected without
registration under the Act, the Holder shall thereupon be entitled to transfer
such Warrant or Warrant Stock in accordance with the terms of the notice
delivered by it to the Company. Each certificate or other instrument
evidencing the securities issued upon the transfer of this Warrant or the
Warrant Stock (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legend described in
Section 5 hereof unless (a) in the opinion of such counsel and counsel for the
Company registration of future transfers is not required by the applicable
provisions of the Act or (b) the Company shall have waived the requirement of
such legends; provided, however, that such legend shall not be required on any
certificate or other instrument evidencing the securities issued upon such
transfer in the event that in the opinion of counsel for the Company such
transfer shall be made in compliance with the requirements of Rule 144 (as
amended from time to time) promulgated under the Act (or successor Rule
thereto). The Holder shall not transfer this Warrant or the Warrant Stock
until such opinion of counsel has been given to the Company (which opinion
shall be satisfactory to counsel for the Company), unless such opinion is
waived by the Company.
4
<PAGE> 5
9. Rights of the Holder. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
10. Anti-Dilution.
10.1 Adjustments. In the event that the Company shall have
effected one or more stock splits, reverse splits, or readjustments, stock
dividends, or other increases or reductions of the number of outstanding shares
of Common Stock of the Company, or issued as dividends on the outstanding
shares of Common Stock of the Company other securities convertible into shares
of Common Stock of the Company, without receiving compensation therefor in
money, services or property (any such event being hereinafter referred to as a
"Dilutive Event"), the Holder shall be entitled to receive for the aggregate
payments to be made by him for the Warrant Stock, the number of shares of
Common Stock or other securities the Holder would have been entitled to receive
as a result of any such Dilutive Event if he had immediately prior to such
Dilutive Event exercised this Warrant and paid for and received the Warrant
Stock.
10.2 Merger, Consolidation or Recapitalization. In the event of
the recapitalization, merger or consolidation of the Company with or into
another corporation the Holder shall be entitled to receive upon payment of the
Exercise Price, such securities of such other corporation with or into which
the Company shall have been merged or consolidated as the Holder would have
received if he had immediately prior to such recapitalization, merger or
consolidation exercised this Warrant and paid for and received the Warrant
Stock.
11. Applicable Law. This Warrant is issued under and shall for
all purposes be governed by and construed in accordance with the laws of the
State of Delaware.
11. Notice. Notices and other communications to be given to the
Holder of the Warrant evidenced by this certificate or to the Company shall be
deemed to have been sufficiently given if made by personal delivery or sent by
registered or certified mail, return receipt requested, to the Company at 24955
Pacific Coast Highway, #B202, Malibu, California 90265, and if to the Holder,
9701 Wilshire Boulevard, 9th Floor, Beverly Hills, California 90210, or to such
other address as has been made known by such party in the manner required for
notice hereunder, with a copy to Feder, Kaszovitz, Isaacson, Weber, Skala &
Bass LLP, 750 Lexington Avenue, New York, New York 10022-1200, Attn.: Gabriel
Kaszovitz, Esq.
12. Qualification or Exemption of Option. The sale of the Warrant
(and underlying shares of Stock) which is the subject of this agreement has not
been qualified with the Commissioner of Corporations of the State of California
and the issuance of the Warrant and the underlying shares of Stock or the
payment or receipt of any part of the consideration therefore prior to the
qualification is unlawful, unless the sale of such
5
<PAGE> 6
securities is exempt from qualification by Section 25100, 25102 or 25105 of the
California Corporations code. The rights of all parties to this agreement are
expressly conditioned upon the qualification being obtained, unless the sale is
so exempt.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
JAKKS PACIFIC, INC.
By: /s/ Jack Friedman, President
-------------------------------
Jack Friedman, President
6
<PAGE> 7
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of the within
Warrant)
For value received
(the "Assignor")
hereby sells, assigns, and transfers unto
(the "Assignee") this Warrant and the
rights represented thereby to purchase the Warrant Stock (as such term is
defined in this Warrant) in accordance with the terms and conditions thereof,
and does hereby irrevocably direct any authorized officer of JAKKS PACIFIC,
INC. to execute and deliver a new warrant in the name of the Assignee and to
cancel this Warrant. All costs in connection with such assignment shall be
borne by the Assignor.
Dated: Signed:
<PAGE> 8
WARRANT EXERCISE FORM
(To be executed by the registered holder to exercise the rights to purchase
Common Stock evidenced by the within Warrant)
JAKKS PACIFIC, INC.
24955 Pacific Coast Highway, #B202
Malibu, California 90265
The undersigned hereby irrevocably subscribes for _____ shares of the
Warrant Stock (as such term is defined in this Warrant) pursuant to and in
accordance with the terms and conditions of this Warrant, and herewith makes
payment of $_________ therefor, and requests that a certificate for such shares
be issued in the name of the undersigned and be delivered to the undersigned at
the address stated below, and, if such number of shares shall not be all of the
shares purchasable hereunder, that a new Warrant of like tenor for the balance
of the remaining shares purchasable hereunder be delivered to the undersigned
at the address stated below:
Dated: Signed:
Address:
<PAGE> 1
EXHIBIT 10.21
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT
OR AN OPINION OF COUNSEL TO THE COMPANY IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
___________________
JAKKS PACIFIC, INC.
(Incorporated under the laws of the State of Delaware)
Void after 5:00 p.m., P.S.T., on AUGUST 28, 2002
Option to Purchase 10,000
Shares of Common Stock
CERTIFICATE OF OPTION AGREEMENT
FOR THE PURCHASE OF SHARES OF COMMON STOCK
August 28, 1997
JAKKS PACIFIC, INC., a Delaware corporation (the "Company"), having
its principal executive offices at 22761 Pacific Coast Highway, #226, Malibu,
California 90265, hereby certifies that SILVERMAN HELLER & ASSOCIATES (the
"Optionee"), having an address at 1100 Glendon Avenue, Suite 1801, Los Angeles,
California 90024, is entitled, subject to the provisions of this option (the
"Option") and the Company's Second Amended and Restated 1995 Stock Option Plan,
a copy of which is annexed hereto as Exhibit A (the "Plan"), to purchase, from
the Company, during the period commencing on August 28, 1997 and expiring at
5:00 p.m. Pacific Standard Time on August 28, 2002, up to TEN THOUSAND (10,000)
shares of Common Stock, par value $.001 per share, of the Company (the "Stock")
at a price of $6.875 per share (the "Exercise Price"), to be exercisable as
<PAGE> 2
hereinafter provided.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Option, the Company shall
execute and deliver a new Option of like tenor and date.
The Optionee agrees with the Company that this Option is issued, and
all the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Option. The Optionee's right to exercise this
Option, in whole or in part, shall vest immediately with respect to all ten
thousand (10,000) shares available hereunder.
2. Expiration of Option. This Option shall not be exercisable after
5:00 p.m. P.S.T. on August 28, 2002.
3. Non-Assignability of Option. This Option shall not be given,
granted, sold, exchanged, transferred, pledged, assigned or otherwise
incumbered or disposed of by the Optionee, otherwise than by Will or the laws
of descent 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 or existence of the Optionee, shall not be exercisable by any
other person, but only by the Optionee.
4. Method of Exercise of Option. The Optionee shall notify the
Company by written notice sent by registered or certified mail, return receipt
requested, addressed to its principal office, or by hand delivery to such
office, properly receipted, as to the number of shares of Stock which the
Optionee desires to purchase under this Option, which written notice shall be
accompanied by the Optionee's check payable to the order of the Company for the
full option price of such shares of Stock. As soon as practicable after the
receipt of such written notice the Company shall, at its principal office,
tender to the Optionee a certificate or certificates issued in the Optionee's
name evidencing the shares of Stock purchased by the Optionee hereunder.
5. Death of Optionee or Termination of Services. If the services of
Optionee shall be terminated by the Company for cause, then this Option shall
expire forthwith. If such services shall terminate for any other reason
(including the death or disability of the Optionee), then this Option may be
exercised at any time within one (1) year after such termination, subject to
the provisions of the Plan. In the event of the death of Optionee, this Option
may be exercised by Optionee's estate or by a person who acquired the right to
exercise such Option by bequest or inheritance or by reason of the death of
Optionee at any time within one (1) year after such death. Provided, however,
that nothing in this Section 5 shall extend the term of this Option beyond
August 28, 2002, nor give any person the right
2
<PAGE> 3
to purchase shares of Stock subject to this Option which could not be purchased
by the Optionee prior to death.
6. Investment Representation. The Optionee represents that at the
time of any exercise of this Option, where the shares of Stock are not
registered under the Securities Act of 1933, as amended, such Stock will be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon exercise of this Option and the issuance of any of the shares
thereunder, all certificates representing shares shall bear on the face thereof
substantially the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR AN EXEMPTION FROM REGISTRATION AND AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO JAKKS PACIFIC, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
7. Anti-Dilution.
7.1 Adjustments. In the event that the Company shall have
effected one or more stock splits, reverse splits, or readjustments, stock
dividends, or other increases or reductions of the number of outstanding shares
of Common Stock of the Company, or issued as dividends on the outstanding
shares of Common Stock of the Company other securities convertible into shares
of Common Stock of the Company, without receiving compensation therefor in
money, services or property (any such event being hereinafter referred to as a
"Dilutive Event"), the Optionee shall be entitled to receive for the aggregate
payments to be made by him for the Stock, the number of shares of Common Stock
or other securities the Optionee would have been entitled to receive as a
result of any such Dilutive Event if the Optionee had immediately prior to such
Dilutive Event exercised this Option and paid for and received the Stock. If
fractional shares would result from any such adjustment, the adjustment shall
be revised to the next lower whole number of shares.
7.2 Merger, Consolidation or Recapitalization. In the event
of the recapitalization, merger or consolidation of the Company with or into
another corporation the Optionee shall be entitled to receive upon payment of
the Exercise Price, such securities of such other corporation with or into
which the Company shall have been merged or consolidated as the Optionee would
have received if such Optionee had immediately prior to such recapitalization,
merger or consolidation exercised this Option and paid for and received
3
<PAGE> 4
the Stock.
8. No Rights as Stockholder. The Optionee shall have no rights as a
Stock Holder in respect to the shares of Stock as to which this Option shall
not have been exercised and payment made as herein provided.
9. Binding Effect. Except as herein otherwise expressly provided,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their legal representatives, successors and assigns.
10. Qualification or Exemption of Option. The sale of the Option
(and underlying shares of Stock) which is the subject of this agreement has not
been qualified with the Commissioner of Corporations of the State of California
and the issuance of the Option and the underlying shares of Stock or the
payment or receipt of any part of the consideration therefore prior to the
qualification is unlawful, unless the sale of such securities is exempt from
qualification by Section 25100, 25102 or 25105 of the California Corporations
code. The rights of all parties to this agreement are expressly conditioned
upon the qualification being obtained, unless the sale is so exempt.
11. Optionee Bound by Plan. The Optionee hereby acknowledges receipt
of a copy of the Plan and agrees to be bound by all the terms and provisions
thereof, including the terms and provisions adopted after the granting of this
Option, but prior to complete exercise hereof.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
13. Notices. Any notice hereunder shall be delivered by hand or by
registered or certified mail, return receipt requested to a party at its
address set forth above with a copy to Feder, Kaszovitz, Isaacson, Weber, Skala
& Bass LLP, 750 Lexington Avenue, New York, New York 10022-1200, subject to the
right of either party to designate at any time hereafter, in writing, some
other address.
IN WITNESS WHEREOF, each of the Company and the Optionee has caused
this Option to be executed as of the day and year first above written.
JAKKS PACIFIC, INC.
By: /s/ Jack Friedman
--------------------------
Jack Friedman
President
SILVERMAN HELLER & ASSOCIATES
By:
--------------------------
4
<PAGE> 5
OPTION EXERCISE FORM
(To be executed by the Optionee to exercise the rights
to purchase Common Stock evidenced by the within Option)
JAKKS PACIFIC, INC.
22761 Pacific Coast Highway
#226
Malibu, California 90265
The undersigned hereby exercises the right to purchase _______ shares
of the Stock (as such term is defined in this Option) pursuant to and in
accordance with the terms and conditions of this Option, and herewith makes
payment of $__________ therefor, and requests that a certificate for such
shares be issued in the name of the undersigned and be delivered to the
undersigned at the address stated below, and, if such number of shares shall
not be all of the shares purchasable hereunder, that a new Option of like tenor
for the balance of the remaining shares purchasable hereunder be delivered to
the undersigned at the address stated below:
Dated: Signed:_____________________________
Address:
<PAGE> 1
EXHIBIT 10.22
[SILVERMAN HELLER ASSOCIATES]
July 30, 1997
Mr. Stephen G. Berman
Executive Vice President and
Chief Operating Officer
JAKKS Pacific, Inc.
24955 Pacific Coast Highway
Suite B202
Malibu, CA 90265
Dear Stephen:
This letter is intended to set forth the terms on which Silverman Heller
Associates (SHA) will perform financial and corporate communication activities
for JAKKS Pacific, Inc. (JAKK).
It is our understanding that JAKK retains SHA as non-exclusive consultants for
investor relations policies and procedures, and to assist JAKK in formulating
and implementing a program of communications with the investment community, the
investing public and the financial press. Services provided by SHA will
include consultation directly with management, contact with the investment
community, guidance and arrangement in connection with management exposure, and
aid in other corporate financial publications. In this relationship, SHA
agrees to comply with all SEC regulations, guidelines and applicable laws and
to maintain the confidentiality of all information not cleared by JAKK for
public release.
JAKK agrees to inform SHA of material facts related to the Company's past and
present performance, financial position and other relevant information and to
keep SHA continuously advised of current and impending developments, including
copies of JAKK's 10-Q and 10-K reports filed with the SEC and quarterly and
annual reports, with full knowledge that SHA will rely thereon.
For services rendered or to be rendered, JAKK agrees to pay SHA a retainer fee
of $5,000 per month for the first six months of the agreement and $5,500 per
month thereafter, as billed for work commencing on August 7, 1997, and grant an
option to purchase 10,000 shares of common stock of JAKK at the closing price
on July 30, 1997. The option will represent shares to be registered by the
Company 30 days after the commencement date of this agreement and will expire
five years from the issue date provided such shares can be registered on an S-8
registration statement. In the event such form of registration is not
available or the shares that underlie said options cannot otherwise be
registered thereunder, SHA shall be granted piggyback rights with respect to
such shares.
<PAGE> 2
At the end of nine months the parties shall discuss the terms and conditions
for an extension and, if the parties each determine to proceed, the Company's
Board of Directors will be convened to consider an additional option grant in
connection with such extension, if any.
In order to facilitate the conduct of the program, SHA agrees to expend its own
funds on behalf of JAKK to cover out-of-pocket expenses as they occur, such as
newswire services, security analyst and stockbroker luncheons, travel,
printing, mailing and telephone calls. After the end of each month, SHA will
invoice JAKK for the specific, itemized amount of out-of-pocket expenses
incurred during the month. SHA agrees not to incur any single expense of more
than $300,000 without obtaining prior approval by JAKK.
This agreement shall be in effect for a minimum period of nine months from the
date of execution. After the expiration of the nine-month term, either party
may terminate such agreement with 30 days written notice by certified mail.
If the above fairly reflects your understanding of the agreement, please
indicate by signing one copy of this letter and returning it to SHA.
We look forward to a productive relationship.
Sincerely,
/s/ Eugene G. Heller
- --------------------------
Eugene G. Heller
Accepted by:
JAKKS Pacific, Inc.
/s/ Stephen Berman
- --------------------------
<PAGE> 1
Exhibit 10.36A
Dated October 23, 1997
ROAD CHAMPS LIMITED
in favour of
NORWEST BANK MINNESOTA, N.A.,
HONG KONG BRANCH
----------------------------------
DEBENTURE
----------------------------------
<PAGE> 2
INDEX
CLAUSE NO. PAGE NO.
1. DEFINITIONS AND INTERPRETATION 1
2. COVENANTS FOR PAYMENT 3
3. CHARGES BY WAY OF SECURITY 3
4. FURTHER ASSURANCES 7
5. COVENANTS 8
6. ENFORCEMENT OF SECURITY 12
7. RECEIVERSHIP 13
8. SALE OF CHARGED ASSETS 16
9. COSTS AND EXPENSES, INDEMNITY 18
10. APPLICATION OF PROCEEDS 18
11. POWER OF ATTORNEY 20
12. TRUSTEESHIP 20
13. CONTINUING SECURITY 20
14. RIGHTS CUMULATIVE, WAIVERS, VARIATIONS 22
15. WARRANTIES 23
16. SUCCESSORS AND ASSIGNMENT 24
17. NOTICES 25
18. SEVERABILITY 25
19. GOVERNING LAW AND JURISDICTION 25
<PAGE> 3
THIS DEBENTURE dated October 23, 1997 is made
BY:-
ROAD CHAMPS LIMITED whose registered office is at Room 1008, Peninsula Centre,
67 Mody Road, Kowloon, Hong Kong ("the Company");
IN FAVOUR OF:-
NORWEST BANK MINNESOTA, N.A., HONG KONG BRANCH of 9/F., The Peninsula Office
Tower, 18 Middle Road, Tsim Sha Tsui, Kowloon, Hong Kong ("the Bank").
1. DEFINITIONS AND INTERPRETATION
1.01 In this Debenture, in addition to the above definitions:-
"Charged Assets" shall have the meaning ascribed to it in Clause 3.01 and
references to the Charged Assets include references to any part of them;
"Default Interest" means interest at such rate per annum charged by the Bank
from time to time on unauthorised overdrafts in the relevant currency,
compounded monthly in arrears;
"Exchange Rate" means the rate for converting one currency into another currency
which the Bank determines to be prevailing in the relevant foreign exchange
market at the relevant time, such determination to be conclusive and binding on
the Company;
"Receiver" includes each of the receivers and/or receivers and managers at any
time or from time to time appointed under this Debenture whether appointed
simultaneously or to act jointly and/or severally or to act in place of any one
or more receivers and/or receivers and managers previously appointed under this
Debenture or otherwise;
"Secured Indebtedness" means all amounts which are now or may at any time be or
become from time to time due or owing, actually or contingently, to the Bank by
the
<PAGE> 4
Company together with interest, commission, fees and all legal and other costs,
charges, expenses and liabilities incurred by the Bank or a Receiver in relation
to this Debenture, the Company or the Charged Assets on a full indemnity basis;
"Shares" shall have the meaning ascribed to it in Clause 3.01(a)(ii).
1.02 References to "Company" and "Lender" include, where the context admits,
their respective successors, transferees and assigns, whether immediate or
derivative. Any appointment or removal of a Receiver under this Debenture may be
made by writing signed or executed as a deed by or on behalf of the Bank.
1.03 In this Debenture, unless the context otherwise requires, references to
(or to any specific provision of) this Debenture or this security, or any other
instrument, agreement or document shall be construed as references to this
Debenture, that provision, that instrument, agreement or document as amended
with the agreement of the relevant parties and the Bank and in force at the
relevant time; references to (or to any specific provision of) any Ordinance or
enactment shall be deemed to include a reference to any re-enactment thereof for
the time being in force or any modification thereof having substantially the
same legal effect; references to Clauses shall be to clauses of this Debenture;
clause headings and the index have been inserted for convenience of reference
only and shall not affect the interpretation of this Debenture; words importing
the plural shall include the singular and vice versa and references to the
masculine, feminine or neuter shall include the others of them; and references
to a person shall be construed as references to an individual, firm, company,
corporation, unincorporated body of persons or any State or any agency thereof
or any combination of them whether or not having separate legal identity.
<PAGE> 5
2. COVENANTS FOR PAYMENT
2.01 The Company hereby covenants to pay the Secured Indebtedness to the
Bank on demand by the Bank.
2.02 The Company shall pay Default Interest on the Secured Indebtedness from
the date of demand by the Bank on the Company until the Bank receives payment of
the whole of the Secured Indebtedness.
2.03 Payments by the Company shall be made to the Bank as specified by the
Bank without any set-off, counterclaim, withholding or condition of any kind
except that, if the Company is compelled by law to make such withholding, the
sum payable by the Company shall be increased so that the amount actually
received by the Bank is the amount it would have received if there had been no
withholding.
2.04 A certificate of balance signed by any duly authorised officer of the
Bank shall be conclusive evidence against the Company of the amount of the
Secured Indebtedness owing at any time.
3. CHARGES BY WAY OF SECURITY
3.01 The Company, as beneficial owner, charges to the Bank, as a continuing
security for the payment and discharge of the Secured Indebtedness the Charged
Assets, namely, both present and future:-
(a) by way of first fixed charge:-
(i) all book and other debts, accounts receivable, moneys, revenues,
claims and things in action due, payable, owing, or incurred to,
or purchased or otherwise acquired by the Company (including,
without limitation, all moneys received or receivable by virtue
of any insurances and all credit balances and deposits of the
<PAGE> 6
Company with any other bank or financial institution or person
and any surplus arising on a realisation of any legal and/or
equitable assignment and/or charge whether in favour of the Bank
or any other person) and the full benefit of all negotiable or
non-negotiable instruments, guarantees, indemnities, debentures,
charges, pledges, liens, rights of set off, security reservations
of proprietary rights, rights of tracing and all other rights and
remedies in respect of the same;
(ii) the Shares, namely all stocks, shares, bonds and securities of
any kind whatsoever, whether marketable or otherwise, and all
other interests (including, but not limited to, loan capital) of
the Company in or issued by any person wheresoever situate,
including all allotments, accretions, offers, rights, benefits
and advantages whatsoever at any time accruing, offered or
arising in respect of or incidental to the same whether by way of
conversion, redemption, bonus, preference, option, dividend,
interest or otherwise;
(iii) the uncalled capital, goodwill and all patents, patent
applications, inventions, trademarks, trade names, registered
designs, copyrights, know-how and other intellectual property
rights of the Company, whatsoever and wheresoever, and all
licences, rights, benefits and advantages, including, without
limitation, all royalties, fees and other income, whatsoever and
wheresoever, deriving from or arising in respect of or incidental
to the same;
(iv) all real property of the Company, wheresoever situate, and all
rights and interests in or affecting land of the Company and all
buildings, structures and fixtures (including trade fixtures)
from time to time on any such property and the full benefit of
all debentures, mortgages, charges, pledges, options, agreements,
<PAGE> 7
rights and interests of the Company over or affecting land,
wheresoever situate; and
(v) all furniture, fittings, equipment, plant and machinery,
computers and vehicles of the Company, whatsoever and
wheresoever, and all spare parts, replacements, modifications and
additions for or to any of the same, whatsoever and wheresoever,
and the full benefit of all warranties and maintenance contracts
for any of the same, whatsoever and wheresoever, but excluding
any stock-in-trade of the Company; and
(b) by way of first floating charge:-
(i) the undertaking and all the property, assets, rights and revenues
of the Company, whatsoever and wheresoever including, but not
limited to, its inventory and stock-in-trade; and
(ii) the property, assets, rights and revenues described in Clause
3.01(a) if and in so far as the charges thereon created by this
Debenture shall for any reason be ineffective as fixed charges.
3.02 It is a term of this Debenture that and the Company hereby covenants
that it will not, without the prior consent in writing of the Bank:-
(a) create, purport, attempt or agree to create or permit to subsist, arise
or be created any debenture, mortgage, charge, pledge, lien or other
encumbrance upon, or permit any lien or other encumbrance (save a lien
arising by operation of law in the ordinary course of trading) to arise
on, extend to or otherwise affect, any of the Charged Assets or any
interest therein; or
<PAGE> 8
(b) part with, transfer, sell or dispose of or attempt or agree to part
with, transfer, sell or dispose of any of the Charged Assets or any
interest therein except, in the case of stock-in-trade charged by way
of floating charge only, by way of sale at market value in the usual
and ordinary course of trading as now conducted and for the purpose of
carrying on its business.
3.03 For the avoidance of doubt, it is hereby declared that the Company
shall have no power to, and the Company covenants that it will not without the
prior consent in writing of the Bank, charge, factor, pledge, assign or
otherwise dispose of any of the premises described in Clause 3.01(a)(i) or
deal with the same otherwise than by getting in and realising the same in the
ordinary course of and for the purpose of carrying on its business.
3.04 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the floating charge created by 3.01(b)
over the Charged Assets shall automatically be converted into a fixed charge if
and when:-
(a) the Company ceases to carry on business or a substantial part thereof
or shall cease to be a going concern; or
(b) the Company stops making payments to its creditor or gives notices to
creditors that it intends to stop payment; or
(c) immediately prior to the occurrence of any of the events stipulated in
Clause 3.02; or
(d) if the holder of any security interests whether ranking in priority to
or pari passu with or after the charges contained in this Debenture
shall appoint an administrative receiver, receiver, manager or receiver
and manager.
<PAGE> 9
3.05 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the Bank may at any time and from time
to time, by notice in writing to the Company, convert the floating charge
created by Clause 3.01(b) into a fixed charge as regards all of the premises
described in Clause 3.01(b) and/or only those premises specified in such
notice.
3.06 No payment by the Company to the Bank in respect or on account of the
Secured Indebtedness shall operate to reduce the Secured Indebtedness if made
after receipt by the Bank of notice (actual or otherwise) of any of the matters
referred to in Clauses 3.02 and 3.03 to which the Bank has not given its prior
written consent and any such payments shall be deemed to have been credited to a
new account of the Company with the Bank.
4. FURTHER ASSURANCES
The Company covenants at any time, if and when required by the Bank, on
demand to execute or do at the cost and expense of the Company such deeds,
assurances, agreements, instruments, acts and things as the Bank shall require
in respect of the Charged Assets to secure further the Secured Indebtedness or
any part thereof and/or perfect, improve, preserve, enforce or realise any
security created or intended to be created by this Debenture and/or to
facilitate the preservation or exercise of any right, power or remedy under this
Debenture or any proposed preservation or exercise as aforesaid and/or to
facilitate the realisation of any of the Charged Assets or any interest therein
or the exercise or proposed exercise by the Bank or a Receiver of any of their
powers under this Debenture. All mortgages, charges, pledges, assignments or
other security interests which the Bank may require the Company so to execute
pursuant to the provisions of this Clause 4 shall contain: (i) an immediate and
unrestricted power of sale without notice, (ii) a clause excluding any other
restrictions imposed by any applicable law on the power of sale, (iii) a clause
excluding any restrictions imposed by any applicable law on the consolidation of
mortgages or charges or other security interests, and (iv) such other clauses
and provisions for the protection and benefit of the Bank as the Bank may
require.
<PAGE> 10
5. COVENANTS
5.01 The Company covenants that, during the continuance of this security, it
will:-
(a) conduct and carry on its business in a proper and efficient manner and
not make any substantial alteration in the nature or mode of conduct of
its business;
(b) keep or cause to be kept proper books of accounts relating to its
business and promptly provide to the Bank such financial and other
information concerning it as the Bank may from time to time require;
(c) promptly file or cause to be filed all tax returns required to be filed
in all jurisdictions in which it is situate or carries on business or
is otherwise subject to taxation and pay or cause to be paid all taxes
shown to be due and payable on such returns or any assessments made
against it before the date from which penalties attach for failure to
pay the same (except those being contested in good faith and where such
payment may be lawfully withheld and for the payment of which adequate
reserves have been set aside);
(d) promptly pay into the Company's account with the Bank (or such other
accounts as the Bank shall from time to time direct) all moneys which
it may receive in respect of any premises described in Clause 3.01(a)
(i) forthwith on receipt (except to the extent that the Bank may agree
otherwise in writing) and, pending such payment, hold such moneys on
trust for the Bank and not withdraw the monies it receives from such
account(s) unless and to the extent that the Bank shall agree thereto
in writing;
<PAGE> 11
(e) if so required by the Bank, promptly give notice (in such form as the
Bank may require) to any person requiring payment into the Company's
account(s) with the Bank of all moneys due or to become due to the
Company from that person;
(f) promptly deposit with the Bank and permit the Bank to hold and retain
all certificates and documents of title, duly executed transfers or
assignments and any other documents relating to the Charged Assets or
any interest therein as the Bank may from time to time require to
perfect its title thereto or to vest or enable it to vest the same in
itself or its nominees or any purchaser;
(g) observe and perform all covenants and stipulations from time to time
affecting any of the Charged Assets or any interest therein, take such
action as may from time to time be necessary or desirable to preserve,
maintain and renew any of the Charged Assets or any interest therein,
and not do or suffer or omit to be done any act matter or thing whereby
any provision of any applicable law, decree, order or regulation from
time to time in force affecting any of the Charged Assets or any
interest therein is infringed;
(h) keep all its buildings, structures, fixtures, furniture, fittings,
equipment, plant and machinery, computers, and vehicles in good and
substantial repair and in good working order and condition with
recognisable identification markings, and not pull down, demolish,
dismantle, remove or do anything similar with any of the same without
the prior written consent of the Bank except in the ordinary course of
use, repair, maintenance or improvement or where the asset concerned is
no longer required for the purpose of its business;
(i) inform the Bank immediately on contracting to purchase or otherwise
acquire any estate or interest in real property and promptly provide
the
<PAGE> 12
Bank with such information in relation to the same as the Bank may from
time to time require;
(j) insure and keep insured such of the Charged Assets as are of an
insurable nature with insurers previously approved by the Bank against
such risks, contingencies, losses and liabilities in respect of which
insurance is prudently taken out and against such other risks,
contingencies, losses or liabilities as the Bank shall from time to
time request to their full replacement value from time to time
(including fees and other charges and expenses), with the interest of
the Bank noted on every policy or cover note relating to such
insurances each of which shall contain such provisions for the
protection of the Bank as the Bank may require; duly and punctually pay
all premiums and other moneys necessary for effecting and keeping up
such insurances and on demand produce to the Bank the policies of such
insurances and proof of such payments; forthwith upon receipt pay to
the Bank and pending such payment hold on trust for the Bank all moneys
received by it by virtue of any insurances maintained or effected by it
(whether or not effected pursuant to the above) for application, at the
option of the Bank, in making good the loss, damage, destruction or
liability in respect of which such moneys are received (any deficiency
being made good by the Company) or in or towards payment, discharge or
satisfaction of any Secured Indebtedness;
(k) duly and punctually pay, discharge and indemnify the Bank and any
Receiver against all debts, obligations and liabilities which would
have preference to the floating charge created by this Debenture and
all existing and future taxes, duties, rates, rents and outgoings
assessed upon or payable by the Company in respect of any of the
Charged Assets or any interest therein and on demand produce to the
Bank receipts or other evidence satisfactory to the Bank that such
payments have been duly made or (as the case may be) such obligations
and liabilities have been duly discharged (failing which, the Bank may
assume that such
<PAGE> 13
payments have not been duly made or such obligations and liabilities
have not been duly discharged); and
(l) promptly take such action as may be necessary or desirable to preserve,
protect, maintain or renew any Charged Assets or any interest therein.
5.02 The Company covenants with the Bank that during the continuance of this
security, it will not, without the prior written consent of the Bank:-
(a) declare or pay any dividend on, or declare or make any cash or other
distribution in respect of , any class or part of its share or loan
capital in respect of any financial year except to such extent and in
such manner as the Bank may from time to time agree;
(b) make or grant any loan or advance, provide or extend any credit or
accommodation, enter into any funding arrangement, give any guarantee,
indemnity or assurance against loss to or for the benefit of any person
or act as surety or otherwise voluntarily assume any liability, whether
actual or contingent, in respect of any obligation of any other person,
except (in each case) on normal commercial terms in the ordinary course
of its business as now conducted and for the purpose of carrying on
that business;
(c) borrow or in any manner raise money or incur or create any actual or
contingent liability for any indebtedness beyond any limit from time to
time determined by the Bank;
(d) enter into or undertake any new capital commitment involving estimated
expenditure by the Company beyond any limit from time to time
determined by the Bank;
<PAGE> 14
(e) incur any expenditure, indebtedness or financial or other obligation or
liability of an exceptional or unusual nature;
(f) form or co-operate in the formation of, or purchase or acquire, any
subsidiary or purchase or acquire any share or other ownership interest
in any other company or person or enter into any partnership agreement
or arrangement;
(g) change its financial year or its auditors;
(h) do, neglect or omit or cause, permit or suffer to be done, neglected or
omitted any act, matter or thing which might infringe any law,
ordinance, enactment, decree, order or regulation affecting any of the
Charged Assets or any interest therein; or
(i) generally do or cause or permit to be done anything which may in any
way depreciate, jeopardise or otherwise prejudice the value of any of
the Charged Assets or any interest therein or this security.
5.03 If the Company fails to observe or perform any of its covenants under
this Debenture, the Bank shall be entitled (but not obliged) to take such action
as it shall in its absolute discretion consider appropriate on behalf of or in
the name of the Company or otherwise with a view to remedying or mitigating the
consequences of any such failure (and the Bank shall be indemnified by the
Company accordingly) and any moneys expended by the Bank in such regard shall be
repayable by the Company to the Bank on demand together with Default Interest on
the sums demanded.
6. ENFORCEMENT OF SECURITY
At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank and any nominee of the Bank may exercise, without further
<PAGE> 15
notice and without first appointing a Receiver under this Debenture, all the
powers and discretions conferred by this Debenture on a Receiver appointed under
this Debenture.
<PAGE> 16
7. RECEIVERSHIP
7.01 At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank may appoint any one or more persons to be a Receiver of
all or any part of the Charged Assets and may from time to time fix his
remuneration (which shall be of such amount as may be agreed from time to time
between the Bank and such Receiver) and may remove any Receiver so appointed and
appoint another in his place.
7.02 Where two or more persons are appointed Receivers, then, unless the
Bank otherwise directs, their appointment shall be deemed to be joint and
several and each may exercise any power independently of the others.
7.03 A Receiver so appointed shall be the agent of the Company for all
purposes, and the Company shall be solely responsible for his acts, defaults,
losses or misconduct and for his remuneration and the Bank shall incur no
liability therefor by reason of its appointing him as Receiver.
7.04 A Receiver so appointed shall have power:-
(a) to enter into and upon and take possession of, collect and get in all
or any of the Charged Assets, exercise in respect of the Shares all
voting or other powers or rights available to a registered and/or
beneficial (as appropriate) owner of the same in such manner as he may
think fit and to take, defend, settle, refer to arbitration, enforce,
compromise, or abandon any proceedings in the name of the Company or
otherwise concerning the Company's business or any part thereof or any
of the Charged Assets as he shall think necessary or expedient;
(b) to carry on or authorise or concur in carrying on the business or any
part of the business of the Company and to manage, conduct,
reconstruct, amalgamate or diversify the business of the Company or any
part thereof (including power to buy, lease or otherwise acquire,
develop or improve
<PAGE> 17
properties or other assets) without being responsible for loss or
damage and do all acts and things which the Company might do in the
ordinary conduct of its business or for the preservation, protection or
improvement of any of the Charged Assets or any interest therein or
obtaining any income or return therefrom;
(c) to raise or borrow money from or incur any other liability to the Bank
or others on such terms with or without security as he may think fit
and so that any such security may be or include a charge on all or any
part of the Charged Assets ranking in priority to this security or
otherwise;
(d) to sell by public auction or private contract, let, surrender or accept
surrenders, grant leases, tenancies or licences or otherwise dispose of
or deal with all or any of the Charged Assets in such manner, for such
consideration and generally on such terms and conditions as he may
think fit, with full power to convey or otherwise transfer such Charged
Assets in the name of the Company or other the estate owner. Any such
consideration may be cash, debentures or other obligations, shares,
stock or other consideration and may be payable immediately or by
instalments spread over such period or periods as he shall think fit,
and so that any consideration received or receivable shall ipso facto
forthwith be and become charged with the payment and discharge of the
Secured Indebtedness. Equipment, accessories and other fixtures and
fittings may be severed and sold separately from any premises of the
Company containing them and the Receiver may apportion any rent and the
performance of any obligations affecting any premises sold without the
consent of the Company;
(e) to promote the formation of companies with a view to the same
purchasing, leasing, licensing or otherwise acquiring interests in all
or any of the Charged Assets or otherwise;
<PAGE> 18
(f) to make any arrangement, settlement or compromise or enter into,
continue, cancel, abandon or disregard any contracts which he shall
think necessary or expedient in the interests of the Bank;
(g) to make and effect all repairs, renewals, alterations and improvements
and to maintain, renew, take out or increase insurances with respect to
any of the Charged Assets;
(h) to appoint and remunerate any person for any of the purposes mentioned
in this Clause 7.04 or to guard or protect the Charged Assets for such
periods as he may determine and to dismiss the same;
(i) to make calls conditionally or unconditionally on the members of the
Company in respect of uncalled capital with the same powers of
enforcing payment of any calls so made as are by the constitutional
documents of the Company conferred upon the Directors thereof and to
the exclusion of the Directors' powers in that behalf;
(j) to do anything which he shall think necessary or expedient to preserve,
protect, maintain or manage any of the Charged Assets;
(k) to exercise all rights and powers incidental to ownership of all or any
of the Charged Assets or any interest therein;
(l) to sign any document, execute any deed and do all such other acts and
things as may be considered to be incidental or conducive to any of the
above matters or powers or to the realisation of this security, and to
use the name of the Company for all the above purposes; and
(m) generally on behalf and at the cost of the Company (notwithstanding
liquidation of the Company or any event analogous thereto) to do, omit
to do or cause, permit or suffer to be done or omitted anything which
the
<PAGE> 19
Company could do, omit, cause, permit or suffer in relation to all or
any part of the Charged Assets or any interest therein.
7.05 A Receiver shall in the exercise of his powers conform to any
regulations or directions from time to time made or given by the Bank.
7.06 The Bank may require a Receiver to give security for the due
performance of his duties as Receiver and may fix the nature and amount of the
security to be so given, but the Bank shall not be bound in any case to require
any such security.
7.07 The Bank may pay over to a Receiver any moneys forming part of the
Charged Assets or the income thereof to the intent that the same may be applied
for the purposes of this Debenture by the Receiver and the Bank may from time to
time determine what funds a Receiver may keep in hand to enable him to perform
his duties as Receiver.
7.08 A Receiver may retain out of any money which he receives, collects,
recovers or realises under this Debenture his remuneration and all costs,
charges and expenses incurred by him as Receiver.
8. SALE OF CHARGED ASSETS
8.01 No restrictions imposed by any enactment or law on any immediate or
other power of sale, or on the consolidation of mortgages or charges or other
securities shall apply to this Debenture or to any security given to the Bank
pursuant to this Debenture.
8.02 Any sale or other disposition by or on behalf of the Bank, or any of
its nominees, or a Receiver may be made upon such terms as to indemnity as the
Bank or such Receiver may think fit.
<PAGE> 20
8.03 Upon any such sale or other disposition and upon any other dealing or
transaction under the provisions of this Debenture, the receipt of the Bank or a
Receiver for the purchase money of the property or asset sold or for any other
moneys paid to or other consideration received by it or him shall effectually
discharge the purchaser or person paying or giving the same therefrom and from
being concerned to see to the application or being answerable for the loss,
non-application or mis-application thereof.
8.04 No purchaser or other person shall be bound or concerned to see or
enquire whether the right of the Bank, or any of its nominees, or a Receiver to
exercise any of the powers conferred by this Debenture has arisen or not or with
the propriety of the exercise or purported exercise of such powers or be
concerned with notice to the contrary of any of the foregoing.
8.05 Any dealing by any purchaser or other person with the Bank, a Receiver
or its or his attorney, agent or nominee shall be deemed, so far as concerns the
safety and protection of such purchaser or other person, to be within the powers
conferred by this Debenture and to be valid and effectual accordingly.
8.06 The remedy of the Company in respect of any irregularity or impropriety
whatsoever in the exercise or purported exercise of any power or right under
this Debenture or the execution or purported execution of any provision of this
Debenture shall be in damages only.
8.07 Neither the Bank nor a Receiver shall be answerable for any losses
which may arise in the exercise of any of their powers nor shall they be liable
by reason of any entry into possession of the Charged Assets or any part thereof
to account as mortgagee in possession for any moneys except actual receipts or
be liable for any loss on realisation or for any default or omission for which a
mortgagee in possession may be liable.
<PAGE> 21
9. COSTS AND EXPENSES, INDEMNITY
9.01 The Company covenants with the Bank, on demand, to pay all costs and
expenses (on a full and unqualified basis) incurred in connection with the
negotiation, preparation, execution and registration of this Debenture, and by
the Bank or by a Receiver in the exercise of any powers, rights or remedies
conferred by this Debenture, or which the Bank or a Receiver shall incur in or
about the preservation or attempted preservation of this security or the
preservation, recovery or realisation or attempted preservation, recovery or
realisation of all or any part of the Charged Assets, together with Default
Interest on the sums demanded.
9.02 The Company covenants to indemnify the Bank and a Receiver against all
losses, actions, claims, expenses, demands and liabilities whether in contract,
tort or otherwise now or hereafter incurred by it or him or by any manager,
agent, officer or employee for whose liability act or omission it or he may be
answerable for anything done or omitted in the exercise or purported exercise of
the powers contained in this Debenture or occasioned by any breach by the
Company of any of its covenants or other obligations to the Bank. The Company
shall so indemnify the Bank and a Receiver on demand and shall pay Default
Interest on the sums demanded.
9.03 The Bank and any Receiver may retain and pay out of any money received,
collected, recovered or realised under this Debenture all sums required to
implement the indemnity in Clause 9.02 and such sums shall be a charge on the
Charged Assets and shall rank in priority to any other Secured Indebtedness.
10. APPLICATION OF PROCEEDS
10.01 All moneys received by a Receiver and/or by the Bank in the exercise of
any powers conferred by this Debenture shall, subject to any claims ranking in
priority to the Secured Indebtedness to the extent of such priority, be
applied:-
<PAGE> 22
(a) first, in or towards the payment, discharge or satisfaction of all
actions, claims, demands, proceedings, liabilities, losses, damages,
costs, charges and expenses covered by the indemnity in Clause 9.02;
(b) secondly, in or towards the payment of any such Receiver's remuneration
and the costs, charges, expenses and liabilities incurred or suffered
by any such Receiver and/or the Bank in or incidental to realisation of
such moneys or to the exercise or purported exercise of their
respective powers or otherwise in relation to this Debenture or the
Charged Assets if and to the extent that such costs, charges, expenses
and liabilities do not fall within the indemnity in Clause 9.02; and
(c) thirdly, in or towards the payment, discharge or satisfaction of all
other Secured Indebtedness in such order as the Bank may in its
absolute discretion from time to time determine,
provided that all or any such moneys may in the absolute discretion of the Bank
be credited to any suspense account and may be held in such account for so long
and in such manner as the Bank may think fit and a Receiver may retain the same
for such period as he may consider expedient.
10.02 The Bank and/or a Receiver may convert any moneys received, recovered
or realised under this Debenture (including the proceeds of any previous
conversion under this Clause 10.02) from their existing currency of denomination
into such other currency of denomination as the Bank and/or a Receiver may think
fit and any such conversion shall be effected at the Exchange Rate.
10.03 No payment to the Bank pursuant to any judgment or order of any court
or otherwise shall discharge the obligation of the Company in respect of which
it was made unless and until payment in full has been received in the currency
in which such obligation was incurred and to the extent that the amount of any
such payment shall, on actual conversion into such currency at the Exchange
Rate, fall short of the amount of
<PAGE> 23
the obligation expressed in that currency, the Company shall be liable to the
Bank for the shortfall.
11. POWER OF ATTORNEY
The Company, by way of security, irrevocably appoints the Bank and
separately each Receiver to be its attorney (with full power to appoint
substitutes and to sub-delegate) and on behalf of and in the name of the Company
and as its act and deed or otherwise, to execute, seal and deliver and otherwise
perfect and do all such deeds, assurances, agreements, instruments, acts and
things required to be done pursuant to Clause 4 or which otherwise may be
required for or deemed proper on or in connection with the full exercise of the
powers conferred by this Debenture by the Bank or by a Receiver or to give full
force and effect to the covenants, undertakings, terms and conditions contained
in this Debenture. The Company ratifies and confirms and agrees to ratify and
confirm any deed, document, act or thing which any such attorney may lawfully
execute or do.
12. TRUSTEESHIP
The Company declares that, as and when the security created by this
Debenture shall become enforceable, it will hold all the Charged Assets (subject
to the Company's right of redemption) upon trust to convey, assign, transfer or
otherwise dispose of or deal with the same in such manner and to such person as
the Bank shall direct, and declares that it shall be lawful for the Bank to
appoint new trustees of the Charged Assets, or any part thereof, from time to
time in place of the Company or in place of any trustee appointed under this
power.
13. CONTINUING SECURITY
13.01 This Debenture is a continuing security and shall secure the whole of
the Secured Indebtedness and is in addition to, shall not be affected by and may
be enforced despite the existence of any other guarantee or security held by or
available to the Bank.
<PAGE> 24
13.02 Any release, discharge or settlement under this Debenture shall be
conditional upon no payment of the Secured Indebtedness by the Company or any
other person being avoided, reduced or repaid for any reason and the Bank shall
be entitled to enforce this Debenture if such condition is not fulfilled as if
such release, discharge or settlement had not occurred.
13.03 The Company hereby agrees that the Bank may, at any time without
notice, combine or consolidate all or any of the Company's then existing
accounts with the Bank (of any nature of description whatsoever and whether
subject to notice or not), and set-off or transfer any sum standing to the
credit of any one or more such accounts wheresoever situate in or towards
satisfaction of any liabilities of the Company to the Bank under this Debenture
whether such liabilities be present or future, actual or contingent, primary or
collateral, and several or joint.
13.04 The Bank may at any time without notice apply any credit balance to
which the Company is entitled on any account with the Bank in or towards
satisfaction of the Secured Indebtedness. For this purpose, the Bank is
authorised to purchase, at the Exchange Rate, such other currencies as may be
necessary to effect such application with the moneys standing to the credit of
such account.
13.05 The Bank shall have and shall be authorised to exercise a lien over all
property of the Company coming into the possession or control of the Bank, for
custody or any other reason with power for the Bank to sell such property to
satisfy the Secured Indebtedness.
13.06 If there are any security interests having priority to the charges
contained in this Debenture in respect of all or any part of the Charged Assets
then :-
(a) if any proceedings or steps are being taken to exercise or enforce any
powers or remedies conferred by such prior security interest against
the Charged Assets, the Bank or any Receiver may (but without prejudice
to
<PAGE> 25
any rights the Bank or the Receiver may have under statute) redeem such
prior charge or procure the transfer thereof to itself or himself, as
the case may be, and may settle and pass the accounts of the prior
chargees and any account so settled and passed shall be conclusive and
binding on the Company and the principal, interest, costs, charges and
expenses of and incidental to such redemption or transfer shall be paid
to the Bank on demand with interest at the rate as may be conclusively
determined by the Bank and, until payment, the Charged Assets shall
stand charged with the amount to be paid; and
(b) all the powers, authorities and discretions conferred by a prior charge
upon the chargee or any receiver thereunder shall be exercisable by the
Bank or a Receiver in like manner as if the same were expressly
included herein and the Bank shall be entitled to exercise all the
powers, authorities and discretions of an administrative receiver,
receiver, manager or receiver and manager appointed thereunder.
13.07 This Debenture shall remain valid and enforceable notwithstanding any
change in the name, composition or constitution of the Bank or the Company or
any amalgamation or consolidation by the Bank or the Company with any other
corporation.
14. RIGHTS CUMULATIVE, WAIVERS, VARIATION
14.01 The rights, powers and remedies provided in this Debenture are
cumulative, may be exercised as often as the Bank or a Receiver thinks fit and
are in addition to and not exclusive of any rights, powers or remedies provided
by law. No single or partial exercise by the Bank or a Receiver of any right,
power or remedy shall preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
14.02 No failure or delay on the part of the Bank to exercise any power,
right or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise or
<PAGE> 26
waiver by the Bank of any power, right or remedy preclude any other or further
exercise thereof or the exercise of any other power, right or remedy.
15. WARRANTIES
The Company represents and warrants to the Bank that:-
(a) it is duly incorporated and validly existing in its jurisdiction of
incorporation;
(b) it has the power and has taken all necessary action to authorise it to
enter into and perform its obligations under this Debenture;
(c) this Debenture constitutes its legal and validly binding obligations
enforceable in accordance with its terms;
(d) it is absolutely entitled to all of the Charged Assets vested in it as
at the date of this Debenture free from all security interests and
claims whatsoever; and
(e) the execution, delivery and performance of this Debenture and any
assurance given hereunder by or on behalf of the Company will not:-
(i) contravene any existing applicable law, enactment, rule or
regulation or any judgment, decree or permit to which the Company
is subject or by which it or any of the Charged Assets is bound;
or
(ii) conflict with, or result in any breach of any of the terms of, or
constitute a default under, any agreement or other instrument or
document to which the Company is a party or is subject or by
which it or any of the Charged Assets is bound; or
<PAGE> 27
(iii) contravene or conflict with any provision of the Company's
constitutional documents; or
(iv) result in the creation or imposition of or oblige the Company to
create any security interest on or over any Charged Asset or any
interest therein;
and undertakes to ensure that the above representations and warranties remain
true so long as it is under any liability under this Debenture.
16. SUCCESSORS AND ASSIGNMENT
16.01 This Debenture shall be binding upon the Company and its successors and
enure for the benefit of the Bank and its successors.
16.02 The Company may not assign or transfer any of its rights or obligations
under this Debenture.
16.03 The Bank may assign all or any part of this security and all or any
part of its rights or benefits under this Debenture to any persons, in which
event all relevant references in this Debenture to the Bank shall thereafter be
construed as a reference to the Bank or its assignee(s) to the extent of their
respective interests.
16.04 The Bank may disclose to a potential assignee or other person with whom
it may propose contracting in relation to this Debenture or any assurance such
information about the Company, its subsidiaries (if any) and the Charged Assets
as the Bank considers appropriate.
17. NOTICES
<PAGE> 28
17.01 Any notice, demand or other communication under this Debenture shall be
in writing in the English language addressed to the Company at its registered
office or its principal place of business in Hong Kong or the last address
registered with the Bank and to the Bank at its address specified above or such
other address as the Bank may notify to the Company for this purpose and may be
delivered by leaving it at such address or by post, facsimile transmission or
telex.
17.02 Any such notice, demand or other communication shall be deemed to have
been delivered to the Company on leaving it at such address, on the second day
after posting (if to an address in Hong Kong), on the fifth day after posting by
airmail (if to an address outside Hong Kong), at the time of transmission if
sent by facsimile and on receipt of the addressee's answerback if sent by telex.
Any notice or other communication to the Bank under this Debenture shall be
effective only when actually received by the Bank.
18. SEVERABILITY
Any provision of this Debenture prohibited by or unlawful or
unenforceable under any applicable law actually applied by any court of
competent jurisdiction shall, to the extent required by such law, be severed
from this Debenture and rendered ineffective so far as is possible without
modifying the remaining provisions of this Debenture. Where, however, the
provisions of any such applicable law may be waived, they are hereby waived by
the Company to the full extent permitted by such law.
19. GOVERNING LAW AND JURISDICTION
19.01 This Debenture shall be governed by and construed in accordance with
the laws of the Hong Kong Special Administrative Region.
19.02 The Company submits to the non-exclusive jurisdiction of the Courts of
the Hong Kong Special Administrative Region but the submission by the Company to
<PAGE> 29
the non-exclusive jurisdiction of such Courts shall not (and shall not be
construed so as to) limit the right of the Bank to take proceedings against the
Company in whatsoever jurisdictions shall to it seem fit, nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction, whether concurrently or not. The
Company:-
(a) waives any objection to the laying of the venue of any legal action or
proceedings brought against it under this Debenture and any immunity
from suit, execution, attachment or other legal process to the full
extent permitted by applicable law; and
(b) consents generally and irrevocably in respect of any legal action or
proceedings under this Debenture to the giving of any relief or the
issue of any process in connection with such legal action or
proceedings.
IN WITNESS whereof this Debenture has been duly executed and delivered
as a Deed by the Company the date first above written.
SEALED with the COMMON SEAL of )
ROAD CHAMPS LIMITED )
by authority of its Board of )
Directors, in the presence of:- )
Witness:-For & On Behalf of
Road Champs Ltd.
/s/ JACK FRIEDMAN
- -------------------------------
Name: Jack Friedman
Address: 22761 Pacific Coast Hwy. #226
Malibu, CA 90265 USA
<PAGE> 1
Exhibit 10.36B
Dated October 23, 1997
JP (HK) LIMITED
in favour of
NORWEST BANK MINNESOTA, N.A.,
HONG KONG BRANCH
----------------------------------
DEBENTURE
----------------------------------
<PAGE> 2
INDEX
CLAUSE NO. PAGE NO.
1. DEFINITIONS AND INTERPRETATION 1
2. COVENANTS FOR PAYMENT 3
3. CHARGES BY WAY OF SECURITY 3
4. FURTHER ASSURANCES 7
5. COVENANTS 8
6. ENFORCEMENT OF SECURITY 12
7. RECEIVERSHIP 13
8. SALE OF CHARGED ASSETS 16
9. COSTS AND EXPENSES, INDEMNITY 18
10. APPLICATION OF PROCEEDS 18
11. POWER OF ATTORNEY 20
12. TRUSTEESHIP 20
13. CONTINUING SECURITY 20
14. RIGHTS CUMULATIVE, WAIVERS, VARIATIONS 22
15. WARRANTIES 23
16. SUCCESSORS AND ASSIGNMENT 24
17. NOTICES 25
18. SEVERABILITY 25
19. GOVERNING LAW AND JURISDICTION 25
<PAGE> 3
THIS DEBENTURE dated October 23, 1997 is made
BY:-
JP (HK) LIMITED whose registered office is at Rooms 1605-6, 16/F., Wheelock
House, 20 Pedder Street, Hong Kong ("the Company");
IN FAVOUR OF:-
NORWEST BANK MINNESOTA, N.A., HONG KONG BRANCH of 9/F., The Peninsula Office
Tower, 18 Middle Road, Tsim Sha Tsui, Kowloon, Hong Kong ("the Bank").
1. DEFINITIONS AND INTERPRETATION
1.01 In this Debenture, in addition to the above definitions:-
"Charged Assets" shall have the meaning ascribed to it in Clause 3.01 and
references to the Charged Assets include references to any part of them;
"Default Interest" means interest at such rate per annum charged by the Bank
from time to time on unauthorised overdrafts in the relevant currency,
compounded monthly in arrears;
"Exchange Rate" means the rate for converting one currency into another currency
which the Bank determines to be prevailing in the relevant foreign exchange
market at the relevant time, such determination to be conclusive and binding on
the Company;
"Receiver" includes each of the receivers and/or receivers and managers at any
time or from time to time appointed under this Debenture whether appointed
simultaneously or to act jointly and/or severally or to act in place of any one
or more receivers and/or receivers and managers previously appointed under this
Debenture or otherwise;
"Secured Indebtedness" means all amounts which are now or may at any time be or
become from time to time due or owing, actually or contingently, to the Bank by
the
<PAGE> 4
Company together with interest, commission, fees and all legal and other costs,
charges, expenses and liabilities incurred by the Bank or a Receiver in relation
to this Debenture, the Company or the Charged Assets on a full indemnity basis;
"Shares" shall have the meaning ascribed to it in Clause 3.01 (a) (ii).
1.02 References to "Company" and "Lender" include, where the context admits,
their respective successors, transferees and assigns, whether immediate or
derivative. Any appointment or removal of a Receiver under this Debenture may be
made by writing signed or executed as a deed by or on behalf of the Bank.
1.03 In this Debenture, unless the context otherwise requires, references to
(or to any specific provision of) this Debenture or this security, or any other
instrument, agreement or document shall be construed as references to this
Debenture, that provision, that instrument, agreement or document as amended
with the agreement of the relevant parties and the Bank and in force at the
relevant time; references to (or to any specific provision of) any Ordinance or
enactment shall be deemed to include a reference to any re-enactment thereof for
the time being in force or any modification thereof having substantially the
same legal effect; references to Clauses shall be to clauses of this Debenture;
clause headings and the index have been inserted for convenience of reference
only and shall not affect the interpretation of this Debenture; words importing
the plural shall include the singular and vice versa and references to the
masculine, feminine or neuter shall include the others of them; and references
to a person shall be construed as references to an individual, firm, company,
corporation, unincorporated body of persons or any State or any agency thereof
or any combination of them whether or not having separate legal identity.
<PAGE> 5
2. COVENANTS FOR PAYMENT
2.01 The Company hereby covenants to pay the Secured Indebtedness to the
Bank on demand by the Bank.
2.02 The Company shall pay Default Interest on the Secured Indebtedness from
the date of demand by the Bank on the Company until the Bank receives payment of
the whole of the Secured Indebtedness.
2.03 Payments by the Company shall be made to the Bank as specified by the
Bank without any set-off, counterclaim, withholding or condition of any kind
except that, if the Company is compelled by law to make such withholding, the
sum payable by the Company shall be increased so that the amount actually
received by the Bank is the amount it would have received if there had been no
withholding.
2.04 A certificate of balance signed by any duly authorised officer of the
Bank shall be conclusive evidence against the Company of the amount of the
Secured Indebtedness owing at any time.
3. CHARGES BY WAY OF SECURITY
3.01 The Company, as beneficial owner, charges to the Bank, as a continuing
security for the payment and discharge of the Secured Indebtedness the Charged
Assets, namely, both present and future:-
(a) by way of first fixed charge:-
(i) all book and other debts, accounts receivable, moneys, revenues,
claims and things in action due, payable, owing, or incurred to,
or purchased or otherwise acquired by the Company (including,
without limitation, all moneys received or receivable by virtue
of any insurances and all credit balances and deposits of the
<PAGE> 6
Company with any other bank or financial institution or person
and any surplus arising on a realisation of any legal and/or
equitable assignment and/or charge whether in favour of the Bank
or any other person) and the full benefit of all negotiable or
non-negotiable instruments, guarantees, indemnities, debentures,
charges, pledges, liens, rights of set off, security reservations
of proprietary rights, rights of tracing and all other rights and
remedies in respect of the same;
(ii) the Shares, namely all stocks, shares, bonds and securities of
any kind whatsoever, whether marketable or otherwise, and all
other interests (including, but not limited to, loan capital) of
the Company in or issued by any person wheresoever situate,
including all allotments, accretions, offers, rights, benefits
and advantages whatsoever at any time accruing, offered or
arising in respect of or incidental to the same whether by way of
conversion, redemption, bonus, preference, option, dividend,
interest or otherwise;
(iii) the uncalled capital, goodwill and all patents, patent
applications, inventions, trademarks, trade names, registered
designs, copyrights, know-how and other intellectual property
rights of the Company, whatsoever and wheresoever, and all
licences, rights, benefits and advantages, including, without
limitation, all royalties, fees and other income, whatsoever and
wheresoever, deriving from or arising in respect of or incidental
to the same;
(iv) all real property of the Company, wheresoever situate, and all
rights and interests in or affecting land of the Company and all
buildings, structures and fixtures (including trade fixtures)
from time to time on any such property and the full benefit of
all debentures, mortgages, charges, pledges, options, agreements,
<PAGE> 7
rights and interests of the Company over or affecting land,
wheresoever situate; and
(v) all furniture, fittings, equipment, plant and machinery,
computers and vehicles of the Company, whatsoever and
wheresoever, and all spare parts, replacements, modifications and
additions for or to any of the same, whatsoever and wheresoever,
and the full benefit of all warranties and maintenance contracts
for any of the same, whatsoever and wheresoever, but excluding
any stock-in-trade of the Company; and
(b) by way of first floating charge:-
(i) the undertaking and all the property, assets, rights and revenues
of the Company, whatsoever and wheresoever including, but not
limited to, its inventory and stock-in-trade; and
(ii) the property, assets, rights and revenues described in Clause
3.01(a) if and in so far as the charges thereon created by this
Debenture shall for any reason be ineffective as fixed charges.
3.02 It is a term of this Debenture that and the Company hereby covenants
that it will not, without the prior consent in writing of the Bank:-
(a) create, purport, attempt or agree to create or permit to subsist, arise
or be created any debenture, mortgage, charge, pledge, lien or other
encumbrance upon, or permit any lien or other encumbrance (save a lien
arising by operation of law in the ordinary course of trading) to arise
on, extend to or otherwise affect, any of the Charged Assets or any
interest therein; or
<PAGE> 8
(b) part with, transfer, sell or dispose of or attempt or agree to part
with, transfer, sell or dispose of any of the Charged Assets or any
interest therein except, in the case of stock-in-trade charged by way
of floating charge only, by way of sale at market value in the usual
and ordinary course of trading as now conducted and for the purpose of
carrying on its business.
3.03 For the avoidance of doubt, it is hereby declared that the Company
shall have no power to, and the Company covenants that it will not without the
prior consent in writing of the Bank, charge, factor, pledge, assign or
otherwise dispose of any of the premises described in Clause 3.01 (a) (i) or
deal with the same otherwise than by getting in and realising the same in the
ordinary course of and for the purpose of carrying on its business.
3.04 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the floating charge created by 3.01 (b)
over the Charged Assets shall automatically be converted into a fixed charge if
and when:-
(a) the Company ceases to carry on business or a substantial part thereof
or shall cease to be a going concern; or
(b) the Company stops making payments to its creditor or gives notices to
creditors that it intends to stop payment; or
(c) immediately prior to the occurrence of any of the events stipulated in
Clause 3.02; or
(d) if the holder of any security interests whether ranking in priority to
or pari passu with or after the charges contained in this Debenture
shall appoint an administrative receiver, receiver, manager or receiver
and manager.
<PAGE> 9
3.05 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the Bank may at any time and from time
to time, by notice in writing to the Company, convert the floating charge
created by Clause 3.01 (b) into a fixed charge as regards all of the premises
described in Clause 3.01 (b) and/or only those premises specified in such
notice.
3.06 No payment by the Company to the Bank in respect or on account of the
Secured Indebtedness shall operate to reduce the Secured Indebtedness if made
after receipt by the Bank of notice (actual or otherwise) of any of the matters
referred to in Clauses 3.02 and 3.03 to which the Bank has not given its prior
written consent and any such payments shall be deemed to have been credited to a
new account of the Company with the Bank.
4. FURTHER ASSURANCES
The Company covenants at any time, if and when required by the Bank, on
demand to execute or do at the cost and expense of the Company such deeds,
assurances, agreements, instruments, acts and things as the Bank shall require
in respect of the Charged Assets to secure further the Secured Indebtedness or
any part thereof and/or perfect, improve, preserve, enforce or realise any
security created or intended to be created by this Debenture and/or to
facilitate the preservation or exercise of any right, power or remedy under this
Debenture or any proposed preservation or exercise as aforesaid and/or to
facilitate the realisation of any of the Charged Assets or any interest therein
or the exercise or proposed exercise by the Bank or a Receiver of any of their
powers under this Debenture. All mortgages, charges, pledges, assignments or
other security interests which the Bank may require the Company so to execute
pursuant to the provisions of this Clause 4 shall contain: (i) an immediate and
unrestricted power of sale without notice, (ii) a clause excluding any other
restrictions imposed by any applicable law on the power of sale, (iii) a clause
excluding any restrictions imposed by any applicable law on the consolidation of
mortgages or charges or other security interests, and (iv) such other clauses
and provisions for the protection and benefit of the Bank as the Bank may
require.
<PAGE> 10
5. COVENANTS
5.01 The Company covenants that, during the continuance of this security, it
will:-
(a) conduct and carry on its business in a proper and efficient manner and
not make any substantial alteration in the nature or mode of conduct of
its business;
(b) keep or cause to be kept proper books of accounts relating to its
business and promptly provide to the Bank such financial and other
information concerning it as the Bank may from time to time require;
(c) promptly file or cause to be filed all tax returns required to be filed
in all jurisdictions in which it is situate or carries on business or
is otherwise subject to taxation and pay or cause to be paid all taxes
shown to be due and payable on such returns or any assessments made
against it before the date from which penalties attach for failure to
pay the same (except those being contested in good faith and where such
payment may be lawfully withheld and for the payment of which adequate
reserves have been set aside);
(d) promptly pay into the Company's account with the Bank (or such other
accounts as the Bank shall from time to time direct) all moneys which
it may receive in respect of any premises described in Clause 3.01 (a)
(i) forthwith on receipt (except to the extent that the Bank may agree
otherwise in writing) and, pending such payment, hold such moneys on
trust for the Bank and not withdraw the monies it receives from such
account(s) unless and to the extent that the Bank shall agree thereto
in writing;
<PAGE> 11
(e) if so required by the Bank, promptly give notice (in such form as the
Bank may require) to any person requiring payment into the Company's
account(s) with the Bank of all moneys due or to become due to the
Company from that person;
(f) promptly deposit with the Bank and permit the Bank to hold and retain
all certificates and documents of title, duly executed transfers or
assignments and any other documents relating to the Charged Assets or
any interest therein as the Bank may from time to time require to
perfect its title thereto or to vest or enable it to vest the same in
itself or its nominees or any purchaser;
(g) observe and perform all covenants and stipulations from time to time
affecting any of the Charged Assets or any interest therein, take such
action as may from time to time be necessary or desirable to preserve,
maintain and renew any of the Charged Assets or any interest therein,
and not do or suffer or omit to be done any act matter or thing whereby
any provision of any applicable law, decree, order or regulation from
time to time in force affecting any of the Charged Assets or any
interest therein is infringed;
(h) keep all its buildings, structures, fixtures, furniture, fittings,
equipment, plant and machinery, computers, and vehicles in good and
substantial repair and in good working order and condition with
recognisable identification markings, and not pull down, demolish,
dismantle, remove or do anything similar with any of the same without
the prior written consent of the Bank except in the ordinary course of
use, repair, maintenance or improvement or where the asset concerned is
no longer required for the purpose of its business;
(i) inform the Bank immediately on contracting to purchase or otherwise
acquire any estate or interest in real property and promptly provide
the
<PAGE> 12
Bank with such information in relation to the same as the Bank may from
time to time require;
(j) insure and keep insured such of the Charged Assets as are of an
insurable nature with insurers previously approved by the Bank against
such risks, contingencies, losses and liabilities in respect of which
insurance is prudently taken out and against such other risks,
contingencies, losses or liabilities as the Bank shall from time to
time request to their full replacement value from time to time
(including fees and other charges and expenses), with the interest of
the Bank noted on every policy or cover note relating to such
insurances each of which shall contain such provisions for the
protection of the Bank as the Bank may require; duly and punctually pay
all premiums and other moneys necessary for effecting and keeping up
such insurances and on demand produce to the Bank the policies of such
insurances and proof of such payments; forthwith upon receipt pay to
the Bank and pending such payment hold on trust for the Bank all moneys
received by it by virtue of any insurances maintained or effected by it
(whether or not effected pursuant to the above) for application, at the
option of the Bank, in making good the loss, damage, destruction or
liability in respect of which such moneys are received (any deficiency
being made good by the Company) or in or towards payment, discharge or
satisfaction of any Secured Indebtedness;
(k) duly and punctually pay, discharge and indemnify the Bank and any
Receiver against all debts, obligations and liabilities which would
have preference to the floating charge created by this Debenture and
all existing and future taxes, duties, rates, rents and outgoings
assessed upon or payable by the Company in respect of any of the
Charged Assets or any interest therein and on demand produce to the
Bank receipts or other evidence satisfactory to the Bank that such
payments have been duly made or (as the case may be) such obligations
and liabilities have been duly discharged (failing which, the Bank may
assume that such
<PAGE> 13
payments have not been duly made or such obligations and liabilities
have not been duly discharged); and
(l) promptly take such action as may be necessary or desirable to preserve,
protect, maintain or renew any Charged Assets or any interest therein.
5.02 The Company covenants with the Bank that during the continuance of this
security, it will not, without the prior written consent of the Bank:-
(a) declare or pay any dividend on, or declare or make any cash or other
distribution in respect of , any class or part of its share or loan
capital in respect of any financial year except to such extent and in
such manner as the Bank may from time to time agree;
(b) make or grant any loan or advance, provide or extend any credit or
accommodation, enter into any funding arrangement, give any guarantee,
indemnity or assurance against loss to or for the benefit of any person
or act as surety or otherwise voluntarily assume any liability, whether
actual or contingent, in respect of any obligation of any other person,
except (in each case) on normal commercial terms in the ordinary course
of its business as now conducted and for the purpose of carrying on
that business;
(c) borrow or in any manner raise money or incur or create any actual or
contingent liability for any indebtedness beyond any limit from time to
time determined by the Bank;
(d) enter into or undertake any new capital commitment involving estimated
expenditure by the Company beyond any limit from time to time
determined by the Bank;
<PAGE> 14
(e) incur any expenditure, indebtedness or financial or other obligation or
liability of an exceptional or unusual nature;
(f) form or co-operate in the formation of, or purchase or acquire, any
subsidiary or purchase or acquire any share or other ownership interest
in any other company or person or enter into any partnership agreement
or arrangement;
(g) change its financial year or its auditors;
(h) do, neglect or omit or cause, permit or suffer to be done, neglected or
omitted any act, matter or thing which might infringe any law,
ordinance, enactment, decree, order or regulation affecting any of the
Charged Assets or any interest therein; or
(i) generally do or cause or permit to be done anything which may in any
way depreciate, jeopardise or otherwise prejudice the value of any of
the Charged Assets or any interest therein or this security.
5.03 If the Company fails to observe or perform any of its covenants under
this Debenture, the Bank shall be entitled (but not obliged) to take such action
as it shall in its absolute discretion consider appropriate on behalf of or in
the name of the Company or otherwise with a view to remedying or mitigating the
consequences of any such failure (and the Bank shall be indemnified by the
Company accordingly) and any moneys expended by the Bank in such regard shall be
repayable by the Company to the Bank on demand together with Default Interest on
the sums demanded.
6. ENFORCEMENT OF SECURITY
At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank and any nominee of the Bank may exercise, without further
<PAGE> 15
notice and without first appointing a Receiver under this Debenture, all the
powers and discretions conferred by this Debenture on a Receiver appointed under
this Debenture.
<PAGE> 16
7. RECEIVERSHIP
7.01 At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank may appoint any one or more persons to be a Receiver of
all or any part of the Charged Assets and may from time to time fix his
remuneration (which shall be of such amount as may be agreed from time to time
between the Bank and such Receiver) and may remove any Receiver so appointed and
appoint another in his place.
7.02 Where two or more persons are appointed Receivers, then, unless the
Bank otherwise directs, their appointment shall be deemed to be joint and
several and each may exercise any power independently of the others.
7.03 A Receiver so appointed shall be the agent of the Company for all
purposes, and the Company shall be solely responsible for his acts, defaults,
losses or misconduct and for his remuneration and the Bank shall incur no
liability therefor by reason of its appointing him as Receiver.
7.04 A Receiver so appointed shall have power:-
(a) to enter into and upon and take possession of, collect and get in all
or any of the Charged Assets, exercise in respect of the Shares all
voting or other powers or rights available to a registered and/or
beneficial (as appropriate) owner of the same in such manner as he may
think fit and to take, defend, settle, refer to arbitration, enforce,
compromise, or abandon any proceedings in the name of the Company or
otherwise concerning the Company's business or any part thereof or any
of the Charged Assets as he shall think necessary or expedient;
(b) to carry on or authorise or concur in carrying on the business or any
part of the business of the Company and to manage, conduct,
reconstruct, amalgamate or diversify the business of the Company or any
part thereof (including power to buy, lease or otherwise acquire,
develop or improve
<PAGE> 17
properties or other assets) without being responsible for loss or
damage and do all acts and things which the Company might do in the
ordinary conduct of its business or for the preservation, protection or
improvement of any of the Charged Assets or any interest therein or
obtaining any income or return therefrom;
(c) to raise or borrow money from or incur any other liability to the Bank
or others on such terms with or without security as he may think fit
and so that any such security may be or include a charge on all or any
part of the Charged Assets ranking in priority to this security or
otherwise;
(d) to sell by public auction or private contract, let, surrender or accept
surrenders, grant leases, tenancies or licences or otherwise dispose of
or deal with all or any of the Charged Assets in such manner, for such
consideration and generally on such terms and conditions as he may
think fit, with full power to convey or otherwise transfer such Charged
Assets in the name of the Company or other the estate owner. Any such
consideration may be cash, debentures or other obligations, shares,
stock or other consideration and may be payable immediately or by
instalments spread over such period or periods as he shall think fit,
and so that any consideration received or receivable shall ipso facto
forthwith be and become charged with the payment and discharge of the
Secured Indebtedness. Equipment, accessories and other fixtures and
fittings may be severed and sold separately from any premises of the
Company containing them and the Receiver may apportion any rent and the
performance of any obligations affecting any premises sold without the
consent of the Company;
(e) to promote the formation of companies with a view to the same
purchasing, leasing, licensing or otherwise acquiring interests in all
or any of the Charged Assets or otherwise;
<PAGE> 18
(f) to make any arrangement, settlement or compromise or enter into,
continue, cancel, abandon or disregard any contracts which he shall
think necessary or expedient in the interests of the Bank;
(g) to make and effect all repairs, renewals, alterations and improvements
and to maintain, renew, take out or increase insurances with respect to
any of the Charged Assets;
(h) to appoint and remunerate any person for any of the purposes mentioned
in this Clause 7.04 or to guard or protect the Charged Assets for such
periods as he may determine and to dismiss the same;
(i) to make calls conditionally or unconditionally on the members of the
Company in respect of uncalled capital with the same powers of
enforcing payment of any calls so made as are by the constitutional
documents of the Company conferred upon the Directors thereof and to
the exclusion of the Directors' powers in that behalf;
(j) to do anything which he shall think necessary or expedient to preserve,
protect, maintain or manage any of the Charged Assets;
(k) to exercise all rights and powers incidental to ownership of all or any
of the Charged Assets or any interest therein;
(l) to sign any document, execute any deed and do all such other acts and
things as may be considered to be incidental or conducive to any of the
above matters or powers or to the realisation of this security, and to
use the name of the Company for all the above purposes; and
(m) generally on behalf and at the cost of the Company (notwithstanding
liquidation of the Company or any event analogous thereto) to do, omit
to do or cause, permit or suffer to be done or omitted anything which
the
<PAGE> 19
Company could do, omit, cause, permit or suffer in relation to all or
any part of the Charged Assets or any interest therein.
7.05 A Receiver shall in the exercise of his powers conform to any
regulations or directions from time to time made or given by the Bank.
7.06 The Bank may require a Receiver to give security for the due
performance of his duties as Receiver and may fix the nature and amount of the
security to be so given, but the Bank shall not be bound in any case to require
any such security.
7.07 The Bank may pay over to a Receiver any moneys forming part of the
Charged Assets or the income thereof to the intent that the same may be applied
for the purposes of this Debenture by the Receiver and the Bank may from time to
time determine what funds a Receiver may keep in hand to enable him to perform
his duties as Receiver.
7.08 A Receiver may retain out of any money which he receives, collects,
recovers or realises under this Debenture his remuneration and all costs,
charges and expenses incurred by him as Receiver.
8. SALE OF CHARGED ASSETS
8.01 No restrictions imposed by any enactment or law on any immediate or
other power of sale, or on the consolidation of mortgages or charges or other
securities shall apply to this Debenture or to any security given to the Bank
pursuant to this Debenture.
8.02 Any sale or other disposition by or on behalf of the Bank, or any of
its nominees, or a Receiver may be made upon such terms as to indemnity as the
Bank or such Receiver may think fit.
<PAGE> 20
8.03 Upon any such sale or other disposition and upon any other dealing or
transaction under the provisions of this Debenture, the receipt of the Bank or a
Receiver for the purchase money of the property or asset sold or for any other
moneys paid to or other consideration received by it or him shall effectually
discharge the purchaser or person paying or giving the same therefrom and from
being concerned to see to the application or being answerable for the loss,
non-application or mis-application thereof.
8.04 No purchaser or other person shall be bound or concerned to see or
enquire whether the right of the Bank, or any of its nominees, or a Receiver to
exercise any of the powers conferred by this Debenture has arisen or not or with
the propriety of the exercise or purported exercise of such powers or be
concerned with notice to the contrary of any of the foregoing.
8.05 Any dealing by any purchaser or other person with the Bank, a Receiver
or its or his attorney, agent or nominee shall be deemed, so far as concerns the
safety and protection of such purchaser or other person, to be within the powers
conferred by this Debenture and to be valid and effectual accordingly.
8.06 The remedy of the Company in respect of any irregularity or impropriety
whatsoever in the exercise or purported exercise of any power or right under
this Debenture or the execution or purported execution of any provision of this
Debenture shall be in damages only.
8.07 Neither the Bank nor a Receiver shall be answerable for any losses
which may arise in the exercise of any of their powers nor shall they be liable
by reason of any entry into possession of the Charged Assets or any part thereof
to account as mortgagee in possession for any moneys except actual receipts or
be liable for any loss on realisation or for any default or omission for which a
mortgagee in possession may be liable.
<PAGE> 21
9. COSTS AND EXPENSES, INDEMNITY
9.01 The Company covenants with the Bank, on demand, to pay all costs and
expenses (on a full and unqualified basis) incurred in connection with the
negotiation, preparation, execution and registration of this Debenture, and by
the Bank or by a Receiver in the exercise of any powers, rights or remedies
conferred by this Debenture, or which the Bank or a Receiver shall incur in or
about the preservation or attempted preservation of this security or the
preservation, recovery or realisation or attempted preservation, recovery or
realisation of all or any part of the Charged Assets, together with Default
Interest on the sums demanded.
9.02 The Company covenants to indemnify the Bank and a Receiver against all
losses, actions, claims, expenses, demands and liabilities whether in contract,
tort or otherwise now or hereafter incurred by it or him or by any manager,
agent, officer or employee for whose liability act or omission it or he may be
answerable for anything done or omitted in the exercise or purported exercise of
the powers contained in this Debenture or occasioned by any breach by the
Company of any of its covenants or other obligations to the Bank. The Company
shall so indemnify the Bank and a Receiver on demand and shall pay Default
Interest on the sums demanded.
9.03 The Bank and any Receiver may retain and pay out of any money received,
collected, recovered or realised under this Debenture all sums required to
implement the indemnity in Clause 9.02 and such sums shall be a charge on the
Charged Assets and shall rank in priority to any other Secured Indebtedness.
10. APPLICATION OF PROCEEDS
10.01 All moneys received by a Receiver and/or by the Bank in the exercise of
any powers conferred by this Debenture shall, subject to any claims ranking in
priority to the Secured Indebtedness to the extent of such priority, be
applied:-
<PAGE> 22
(a) first, in or towards the payment, discharge or satisfaction of all
actions, claims, demands, proceedings, liabilities, losses, damages,
costs, charges and expenses covered by the indemnity in Clause 9.02;
(b) secondly, in or towards the payment of any such Receiver's remuneration
and the costs, charges, expenses and liabilities incurred or suffered
by any such Receiver and/or the Bank in or incidental to realisation of
such moneys or to the exercise or purported exercise of their
respective powers or otherwise in relation to this Debenture or the
Charged Assets if and to the extent that such costs, charges, expenses
and liabilities do not fall within the indemnity in Clause 9.02; and
(c) thirdly, in or towards the payment, discharge or satisfaction of all
other Secured Indebtedness in such order as the Bank may in its
absolute discretion from time to time determine,
provided that all or any such moneys may in the absolute discretion of the Bank
be credited to any suspense account and may be held in such account for so long
and in such manner as the Bank may think fit and a Receiver may retain the same
for such period as he may consider expedient.
10.02 The Bank and/or a Receiver may convert any moneys received, recovered
or realised under this Debenture (including the proceeds of any previous
conversion under this Clause 10.02) from their existing currency of denomination
into such other currency of denomination as the Bank and/or a Receiver may think
fit and any such conversion shall be effected at the Exchange Rate.
10.03 No payment to the Bank pursuant to any judgment or order of any court
or otherwise shall discharge the obligation of the Company in respect of which
it was made unless and until payment in full has been received in the currency
in which such obligation was incurred and to the extent that the amount of any
such payment shall, on actual conversion into such currency at the Exchange
Rate, fall short of the amount of
<PAGE> 23
the obligation expressed in that currency, the Company shall be liable to the
Bank for the shortfall.
11. POWER OF ATTORNEY
The Company, by way of security, irrevocably appoints the Bank and
separately each Receiver to be its attorney (with full power to appoint
substitutes and to sub-delegate) and on behalf of and in the name of the Company
and as its act and deed or otherwise, to execute, seal and deliver and otherwise
perfect and do all such deeds, assurances, agreements, instruments, acts and
things required to be done pursuant to Clause 4 or which otherwise may be
required for or deemed proper on or in connection with the full exercise of the
powers conferred by this Debenture by the Bank or by a Receiver or to give full
force and effect to the covenants, undertakings, terms and conditions contained
in this Debenture. The Company ratifies and confirms and agrees to ratify and
confirm any deed, document, act or thing which any such attorney may lawfully
execute or do.
12. TRUSTEESHIP
The Company declares that, as and when the security created by this
Debenture shall become enforceable, it will hold all the Charged Assets (subject
to the Company's right of redemption) upon trust to convey, assign, transfer or
otherwise dispose of or deal with the same in such manner and to such person as
the Bank shall direct, and declares that it shall be lawful for the Bank to
appoint new trustees of the Charged Assets, or any part thereof, from time to
time in place of the Company or in place of any trustee appointed under this
power.
13. CONTINUING SECURITY
13.01 This Debenture is a continuing security and shall secure the whole of
the Secured Indebtedness and is in addition to, shall not be affected by and may
be enforced despite the existence of any other guarantee or security held by or
available to the Bank.
<PAGE> 24
13.02 Any release, discharge or settlement under this Debenture shall be
conditional upon no payment of the Secured Indebtedness by the Company or any
other person being avoided, reduced or repaid for any reason and the Bank shall
be entitled to enforce this Debenture if such condition is not fulfilled as if
such release, discharge or settlement had not occurred.
13.03 The Company hereby agrees that the Bank may, at any time without
notice, combine or consolidate all or any of the Company's then existing
accounts with the Bank (of any nature of description whatsoever and whether
subject to notice or not), and set-off or transfer any sum standing to the
credit of any one or more such accounts wheresoever situate in or towards
satisfaction of any liabilities of the Company to the Bank under this Debenture
whether such liabilities be present or future, actual or contingent, primary or
collateral, and several or joint.
13.04 The Bank may at any time without notice apply any credit balance to
which the Company is entitled on any account with the Bank in or towards
satisfaction of the Secured Indebtedness. For this purpose, the Bank is
authorised to purchase, at the Exchange Rate, such other currencies as may be
necessary to effect such application with the moneys standing to the credit of
such account.
13.05 The Bank shall have and shall be authorised to exercise a lien over all
property of the Company coming into the possession or control of the Bank, for
custody or any other reason with power for the Bank to sell such property to
satisfy the Secured Indebtedness.
13.06 If there are any security interests having priority to the charges
contained in this Debenture in respect of all or any part of the Charged Assets
then :-
(a) if any proceedings or steps are being taken to exercise or enforce any
powers or remedies conferred by such prior security interest against
the Charged Assets, the Bank or any Receiver may (but without prejudice
to
<PAGE> 25
any rights the Bank or the Receiver may have under statute) redeem such
prior charge or procure the transfer thereof to itself or himself, as
the case may be, and may settle and pass the accounts of the prior
chargees and any account so settled and passed shall be conclusive and
binding on the Company and the principal, interest, costs, charges and
expenses of and incidental to such redemption or transfer shall be paid
to the Bank on demand with interest at the rate as may be conclusively
determined by the Bank and, until payment, the Charged Assets shall
stand charged with the amount to be paid; and
(b) all the powers, authorities and discretions conferred by a prior charge
upon the chargee or any receiver thereunder shall be exercisable by the
Bank or a Receiver in like manner as if the same were expressly
included herein and the Bank shall be entitled to exercise all the
powers, authorities and discretions of an administrative receiver,
receiver, manager or receiver and manager appointed thereunder.
13.07 This Debenture shall remain valid and enforceable notwithstanding any
change in the name, composition or constitution of the Bank or the Company or
any amalgamation or consolidation by the Bank or the Company with any other
corporation.
14. RIGHTS CUMULATIVE, WAIVERS, VARIATION
14.01 The rights, powers and remedies provided in this Debenture are
cumulative, may be exercised as often as the Bank or a Receiver thinks fit and
are in addition to and not exclusive of any rights, powers or remedies provided
by law. No single or partial exercise by the Bank or a Receiver of any right,
power or remedy shall preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
14.02 No failure or delay on the part of the Bank to exercise any power,
right or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise or
<PAGE> 26
waiver by the Bank of any power, right or remedy preclude any other or further
exercise thereof or the exercise of any other power, right or remedy.
15. WARRANTIES
The Company represents and warrants to the Bank that:-
(a) it is duly incorporated and validly existing in its jurisdiction of
incorporation;
(b) it has the power and has taken all necessary action to authorise it to
enter into and perform its obligations under this Debenture;
(c) this Debenture constitutes its legal and validly binding obligations
enforceable in accordance with its terms;
(d) it is absolutely entitled to all of the Charged Assets vested in it as
at the date of this Debenture free from all security interests and
claims whatsoever; and
(e) the execution, delivery and performance of this Debenture and any
assurance given hereunder by or on behalf of the Company will not:-
(i) contravene any existing applicable law, enactment, rule or
regulation or any judgment, decree or permit to which the Company
is subject or by which it or any of the Charged Assets is bound;
or
(ii) conflict with, or result in any breach of any of the terms of, or
constitute a default under, any agreement or other instrument or
document to which the Company is a party or is subject or by
which it or any of the Charged Assets is bound; or
<PAGE> 27
(iii) contravene or conflict with any provision of the Company's
constitutional documents; or
(iv) result in the creation or imposition of or oblige the Company to
create any security interest on or over any Charged Asset or any
interest therein;
and undertakes to ensure that the above representations and warranties remain
true so long as it is under any liability under this Debenture.
16. SUCCESSORS AND ASSIGNMENT
16.01 This Debenture shall be binding upon the Company and its successors and
enure for the benefit of the Bank and its successors.
16.02 The Company may not assign or transfer any of its rights or obligations
under this Debenture.
16.03 The Bank may assign all or any part of this security and all or any
part of its rights or benefits under this Debenture to any persons, in which
event all relevant references in this Debenture to the Bank shall thereafter be
construed as a reference to the Bank or its assignee(s) to the extent of their
respective interests.
16.04 The Bank may disclose to a potential assignee or other person with whom
it may propose contracting in relation to this Debenture or any assurance such
information about the Company, its subsidiaries (if any) and the Charged Assets
as the Bank considers appropriate.
17. NOTICES
<PAGE> 28
17.01 Any notice, demand or other communication under this Debenture shall be
in writing in the English language addressed to the Company at its registered
office or its principal place of business in Hong Kong or the last address
registered with the Bank and to the Bank at its address specified above or such
other address as the Bank may notify to the Company for this purpose and may be
delivered by leaving it at such address or by post, facsimile transmission or
telex.
17.02 Any such notice, demand or other communication shall be deemed to have
been delivered to the Company on leaving it at such address, on the second day
after posting (if to an address in Hong Kong), on the fifth day after posting by
airmail (if to an address outside Hong Kong), at the time of transmission if
sent by facsimile and on receipt of the addressee's answerback if sent by telex.
Any notice or other communication to the Bank under this Debenture shall be
effective only when actually received by the Bank.
18. SEVERABILITY
Any provision of this Debenture prohibited by or unlawful or
unenforceable under any applicable law actually applied by any court of
competent jurisdiction shall, to the extent required by such law, be severed
from this Debenture and rendered ineffective so far as is possible without
modifying the remaining provisions of this Debenture. Where, however, the
provisions of any such applicable law may be waived, they are hereby waived by
the Company to the full extent permitted by such law.
19. GOVERNING LAW AND JURISDICTION
19.01 This Debenture shall be governed by and construed in accordance with
the laws of the Hong Kong Special Administrative Region.
19.02 The Company submits to the non-exclusive jurisdiction of the Courts of
the Hong Kong Special Administrative Region but the submission by the Company to
<PAGE> 29
the non-exclusive jurisdiction of such Courts shall not (and shall not be
construed so as to) limit the right of the Bank to take proceedings against the
Company in whatsoever jurisdictions shall to it seem fit, nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction, whether concurrently or not. The
Company:-
(a) waives any objection to the laying of the venue of any legal action or
proceedings brought against it under this Debenture and any immunity
from suit, execution, attachment or other legal process to the full
extent permitted by applicable law; and
(b) consents generally and irrevocably in respect of any legal action or
proceedings under this Debenture to the giving of any relief or the
issue of any process in connection with such legal action or
proceedings.
IN WITNESS whereof this Debenture has been duly executed and delivered
as a Deed by the Company the date first above written.
SEALED with the COMMON SEAL of )
JP (HK) LIMITED )
by authority of its Board of )
Directors, in the presence of:- )
Witness:-For and on behalf of
JP (HK) Limited
/s/ JACK FRIEDMAN
- -------------------------------
Name: Jack Friedman
Address: 22761 Pacific Coast Hwy #226
Malibu, CA 90265 USA
<PAGE> 1
Exhibit 10.36C
Dated October 23, 1997
JAKKS PACIFIC (H.K.) LIMITED
in favour of
NORWEST BANK MINNESOTA, N.A.,
HONG KONG BRANCH
----------------------------------
DEBENTURE
----------------------------------
<PAGE> 2
INDEX
CLAUSE NO. PAGE NO.
1. DEFINITIONS AND INTERPRETATION 1
2. COVENANTS FOR PAYMENT 3
3. CHARGES BY WAY OF SECURITY 3
4. FURTHER ASSURANCES 7
5. COVENANTS 8
6. ENFORCEMENT OF SECURITY 12
7. RECEIVERSHIP 13
8. SALE OF CHARGED ASSETS 16
9. COSTS AND EXPENSES, INDEMNITY 18
10. APPLICATION OF PROCEEDS 18
11. POWER OF ATTORNEY 20
12. TRUSTEESHIP 20
13. CONTINUING SECURITY 20
14. RIGHTS CUMULATIVE, WAIVERS, VARIATIONS 22
15. WARRANTIES 23
16. SUCCESSORS AND ASSIGNMENT 24
17. NOTICES 25
18. SEVERABILITY 25
19. GOVERNING LAW AND JURISDICTION 25
<PAGE> 3
THIS DEBENTURE dated , 1997 is made
BY:-
JAKKS PACIFIC (H.K.) LIMITED whose registered office is at Rooms 1605-6, 16/F.,
Wheelock House, 20 Pedder Street, Hong Kong ("the Company");
IN FAVOUR OF:-
NORWEST BANK MINNESOTA, N.A., HONG KONG BRANCH of 9/F., The Peninsula Office
Tower, 18 Middle Road, Tsim Sha Tsui, Kowloon, Hong Kong ("the Bank").
1. DEFINITIONS AND INTERPRETATION
1.01 In this Debenture, in addition to the above definitions:-
"Charged Assets" shall have the meaning ascribed to it in Clause 3.01 and
references to the Charged Assets include references to any part of them;
"Default Interest" means interest at such rate per annum charged by the Bank
from time to time on unauthorised overdrafts in the relevant currency,
compounded monthly in arrears;
"Exchange Rate" means the rate for converting one currency into another currency
which the Bank determines to be prevailing in the relevant foreign exchange
market at the relevant time, such determination to be conclusive and binding on
the Company;
"Receiver" includes each of the receivers and/or receivers and managers at any
time or from time to time appointed under this Debenture whether appointed
simultaneously or to act jointly and/or severally or to act in place of any one
or more receivers and/or receivers and managers previously appointed under this
Debenture or otherwise;
"Secured Indebtedness" means all amounts which are now or may at any time be or
become from time to time due or owing, actually or contingently, to the Bank by
the
<PAGE> 4
Company together with interest, commission, fees and all legal and other costs,
charges, expenses and liabilities incurred by the Bank or a Receiver in relation
to this Debenture, the Company or the Charged Assets on a full indemnity basis;
"Shares" shall have the meaning ascribed to it in Clause 3.01 (a) (ii).
1.02 References to "Company" and "Lender" include, where the context admits,
their respective successors, transferees and assigns, whether immediate or
derivative. Any appointment or removal of a Receiver under this Debenture may be
made by writing signed or executed as a deed by or on behalf of the Bank.
1.03 In this Debenture, unless the context otherwise requires, references to
(or to any specific provision of) this Debenture or this security, or any other
instrument, agreement or document shall be construed as references to this
Debenture, that provision, that instrument, agreement or document as amended
with the agreement of the relevant parties and the Bank and in force at the
relevant time; references to (or to any specific provision of) any Ordinance or
enactment shall be deemed to include a reference to any re-enactment thereof for
the time being in force or any modification thereof having substantially the
same legal effect; references to Clauses shall be to clauses of this Debenture;
clause headings and the index have been inserted for convenience of reference
only and shall not affect the interpretation of this Debenture; words importing
the plural shall include the singular and vice versa and references to the
masculine, feminine or neuter shall include the others of them; and references
to a person shall be construed as references to an individual, firm, company,
corporation, unincorporated body of persons or any State or any agency thereof
or any combination of them whether or not having separate legal identity.
<PAGE> 5
2. COVENANTS FOR PAYMENT
2.01 The Company hereby covenants to pay the Secured Indebtedness to the
Bank on demand by the Bank.
2.02 The Company shall pay Default Interest on the Secured Indebtedness from
the date of demand by the Bank on the Company until the Bank receives payment of
the whole of the Secured Indebtedness.
2.03 Payments by the Company shall be made to the Bank as specified by the
Bank without any set-off, counterclaim, withholding or condition of any kind
except that, if the Company is compelled by law to make such withholding, the
sum payable by the Company shall be increased so that the amount actually
received by the Bank is the amount it would have received if there had been no
withholding.
2.04 A certificate of balance signed by any duly authorised officer of the
Bank shall be conclusive evidence against the Company of the amount of the
Secured Indebtedness owing at any time.
3. CHARGES BY WAY OF SECURITY
3.01 The Company, as beneficial owner, charges to the Bank, as a continuing
security for the payment and discharge of the Secured Indebtedness the Charged
Assets, namely, both present and future:-
(a) by way of first fixed charge:-
(i) all book and other debts, accounts receivable, moneys, revenues,
claims and things in action due, payable, owing, or incurred to,
or purchased or otherwise acquired by the Company (including,
without limitation, all moneys received or receivable by virtue
of any insurances and all credit balances and deposits of the
<PAGE> 6
Company with any other bank or financial institution or person
and any surplus arising on a realisation of any legal and/or
equitable assignment and/or charge whether in favour of the Bank
or any other person) and the full benefit of all negotiable or
non-negotiable instruments, guarantees, indemnities, debentures,
charges, pledges, liens, rights of set off, security reservations
of proprietary rights, rights of tracing and all other rights and
remedies in respect of the same;
(ii) the Shares, namely all stocks, shares, bonds and securities of
any kind whatsoever, whether marketable or otherwise, and all
other interests (including, but not limited to, loan capital) of
the Company in or issued by any person wheresoever situate,
including all allotments, accretions, offers, rights, benefits
and advantages whatsoever at any time accruing, offered or
arising in respect of or incidental to the same whether by way of
conversion, redemption, bonus, preference, option, dividend,
interest or otherwise;
(iii) the uncalled capital, goodwill and all patents, patent
applications, inventions, trademarks, trade names, registered
designs, copyrights, know-how and other intellectual property
rights of the Company, whatsoever and wheresoever, and all
licences, rights, benefits and advantages, including, without
limitation, all royalties, fees and other income, whatsoever and
wheresoever, deriving from or arising in respect of or incidental
to the same;
(iv) all real property of the Company, wheresoever situate, and all
rights and interests in or affecting land of the Company and all
buildings, structures and fixtures (including trade fixtures)
from time to time on any such property and the full benefit of
all debentures, mortgages, charges, pledges, options, agreements,
<PAGE> 7
rights and interests of the Company over or affecting land,
wheresoever situate; and
(v) all furniture, fittings, equipment, plant and machinery,
computers and vehicles of the Company, whatsoever and
wheresoever, and all spare parts, replacements, modifications and
additions for or to any of the same, whatsoever and wheresoever,
and the full benefit of all warranties and maintenance contracts
for any of the same, whatsoever and wheresoever, but excluding
any stock-in-trade of the Company; and
(b) by way of first floating charge:-
(i) the undertaking and all the property, assets, rights and revenues
of the Company, whatsoever and wheresoever including, but not
limited to, its inventory and stock-in-trade; and
(ii) the property, assets, rights and revenues described in Clause
3.01(a) if and in so far as the charges thereon created by this
Debenture shall for any reason be ineffective as fixed charges.
3.02 It is a term of this Debenture that and the Company hereby covenants
that it will not, without the prior consent in writing of the Bank:-
(a) create, purport, attempt or agree to create or permit to subsist, arise
or be created any debenture, mortgage, charge, pledge, lien or other
encumbrance upon, or permit any lien or other encumbrance (save a lien
arising by operation of law in the ordinary course of trading) to arise
on, extend to or otherwise affect, any of the Charged Assets or any
interest therein; or
<PAGE> 8
(b) part with, transfer, sell or dispose of or attempt or agree to part
with, transfer, sell or dispose of any of the Charged Assets or any
interest therein except, in the case of stock-in-trade charged by way
of floating charge only, by way of sale at market value in the usual
and ordinary course of trading as now conducted and for the purpose of
carrying on its business.
3.03 For the avoidance of doubt, it is hereby declared that the Company
shall have no power to, and the Company covenants that it will not without the
prior consent in writing of the Bank, charge, factor, pledge, assign or
otherwise dispose of any of the premises described in Clause 3.01(a)(i) or deal
with the same otherwise than by getting in and realising the same in the
ordinary course of and for the purpose of carrying on its business.
3.04 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the floating charge created by 3.01 (b)
over the Charged Assets shall automatically be converted into a fixed charge if
and when:-
(a) the Company ceases to carry on business or a substantial part thereof
or shall cease to be a going concern; or
(b) the Company stops making payments to its creditor or gives notices to
creditors that it intends to stop payment; or
(c) immediately prior to the occurrence of any of the events stipulated in
Clause 3.02; or
(d) if the holder of any security interests whether ranking in priority to
or pari passu with or after the charges contained in this Debenture
shall appoint an administrative receiver, receiver, manager or receiver
and manager.
<PAGE> 9
3.05 In addition and without prejudice to any other event resulting in a
crystallisation of the floating charge, the Bank may at any time and from time
to time, by notice in writing to the Company, convert the floating charge
created by Clause 3.01(b) into a fixed charge as regards all of the premises
described in Clause 3.01(b) and/or only those premises specified in such notice.
3.06 No payment by the Company to the Bank in respect or on account of the
Secured Indebtedness shall operate to reduce the Secured Indebtedness if made
after receipt by the Bank of notice (actual or otherwise) of any of the matters
referred to in Clauses 3.02 and 3.03 to which the Bank has not given its prior
written consent and any such payments shall be deemed to have been credited to a
new account of the Company with the Bank.
4. FURTHER ASSURANCES
The Company covenants at any time, if and when required by the Bank, on
demand to execute or do at the cost and expense of the Company such deeds,
assurances, agreements, instruments, acts and things as the Bank shall require
in respect of the Charged Assets to secure further the Secured Indebtedness or
any part thereof and/or perfect, improve, preserve, enforce or realise any
security created or intended to be created by this Debenture and/or to
facilitate the preservation or exercise of any right, power or remedy under this
Debenture or any proposed preservation or exercise as aforesaid and/or to
facilitate the realisation of any of the Charged Assets or any interest therein
or the exercise or proposed exercise by the Bank or a Receiver of any of their
powers under this Debenture. All mortgages, charges, pledges, assignments or
other security interests which the Bank may require the Company so to execute
pursuant to the provisions of this Clause 4 shall contain: (i) an immediate and
unrestricted power of sale without notice, (ii) a clause excluding any other
restrictions imposed by any applicable law on the power of sale, (iii) a clause
excluding any restrictions imposed by any applicable law on the consolidation of
mortgages or charges or other security interests, and (iv) such other clauses
and provisions for the protection and benefit of the Bank as the Bank may
require.
<PAGE> 10
5. COVENANTS
5.01 The Company covenants that, during the continuance of this security, it
will:-
(a) conduct and carry on its business in a proper and efficient manner and
not make any substantial alteration in the nature or mode of conduct of
its business;
(b) keep or cause to be kept proper books of accounts relating to its
business and promptly provide to the Bank such financial and other
information concerning it as the Bank may from time to time require;
(c) promptly file or cause to be filed all tax returns required to be filed
in all jurisdictions in which it is situate or carries on business or
is otherwise subject to taxation and pay or cause to be paid all taxes
shown to be due and payable on such returns or any assessments made
against it before the date from which penalties attach for failure to
pay the same (except those being contested in good faith and where such
payment may be lawfully withheld and for the payment of which adequate
reserves have been set aside);
(d) promptly pay into the Company's account with the Bank (or such other
accounts as the Bank shall from time to time direct) all moneys which
it may receive in respect of any premises described in Clause
3.01(a)(i) forthwith on receipt (except to the extent that the Bank may
agree otherwise in writing) and, pending such payment, hold such moneys
on trust for the Bank and not withdraw the monies it receives from such
account(s) unless and to the extent that the Bank shall agree thereto
in writing;
<PAGE> 11
(e) if so required by the Bank, promptly give notice (in such form as the
Bank may require) to any person requiring payment into the Company's
account(s) with the Bank of all moneys due or to become due to the
Company from that person;
(f) promptly deposit with the Bank and permit the Bank to hold and retain
all certificates and documents of title, duly executed transfers or
assignments and any other documents relating to the Charged Assets or
any interest therein as the Bank may from time to time require to
perfect its title thereto or to vest or enable it to vest the same in
itself or its nominees or any purchaser;
(g) observe and perform all covenants and stipulations from time to time
affecting any of the Charged Assets or any interest therein, take such
action as may from time to time be necessary or desirable to preserve,
maintain and renew any of the Charged Assets or any interest therein,
and not do or suffer or omit to be done any act matter or thing whereby
any provision of any applicable law, decree, order or regulation from
time to time in force affecting any of the Charged Assets or any
interest therein is infringed;
(h) keep all its buildings, structures, fixtures, furniture, fittings,
equipment, plant and machinery, computers, and vehicles in good and
substantial repair and in good working order and condition with
recognisable identification markings, and not pull down, demolish,
dismantle, remove or do anything similar with any of the same without
the prior written consent of the Bank except in the ordinary course of
use, repair, maintenance or improvement or where the asset concerned is
no longer required for the purpose of its business;
(i) inform the Bank immediately on contracting to purchase or otherwise
acquire any estate or interest in real property and promptly provide
the
<PAGE> 12
Bank with such information in relation to the same as the Bank may from
time to time require;
(j) insure and keep insured such of the Charged Assets as are of an
insurable nature with insurers previously approved by the Bank against
such risks, contingencies, losses and liabilities in respect of which
insurance is prudently taken out and against such other risks,
contingencies, losses or liabilities as the Bank shall from time to
time request to their full replacement value from time to time
(including fees and other charges and expenses), with the interest of
the Bank noted on every policy or cover note relating to such
insurances each of which shall contain such provisions for the
protection of the Bank as the Bank may require; duly and punctually pay
all premiums and other moneys necessary for effecting and keeping up
such insurances and on demand produce to the Bank the policies of such
insurances and proof of such payments; forthwith upon receipt pay to
the Bank and pending such payment hold on trust for the Bank all moneys
received by it by virtue of any insurances maintained or effected by it
(whether or not effected pursuant to the above) for application, at the
option of the Bank, in making good the loss, damage, destruction or
liability in respect of which such moneys are received (any deficiency
being made good by the Company) or in or towards payment, discharge or
satisfaction of any Secured Indebtedness;
(k) duly and punctually pay, discharge and indemnify the Bank and any
Receiver against all debts, obligations and liabilities which would
have preference to the floating charge created by this Debenture and
all existing and future taxes, duties, rates, rents and outgoings
assessed upon or payable by the Company in respect of any of the
Charged Assets or any interest therein and on demand produce to the
Bank receipts or other evidence satisfactory to the Bank that such
payments have been duly made or (as the case may be) such obligations
and liabilities have been duly discharged (failing which, the Bank may
assume that such
<PAGE> 13
payments have not been duly made or such obligations and liabilities
have not been duly discharged); and
(l) promptly take such action as may be necessary or desirable to preserve,
protect, maintain or renew any Charged Assets or any interest therein.
5.02 The Company covenants with the Bank that during the continuance of this
security, it will not, without the prior written consent of the Bank:-
(a) declare or pay any dividend on, or declare or make any cash or other
distribution in respect of , any class or part of its share or loan
capital in respect of any financial year except to such extent and in
such manner as the Bank may from time to time agree;
(b) make or grant any loan or advance, provide or extend any credit or
accommodation, enter into any funding arrangement, give any guarantee,
indemnity or assurance against loss to or for the benefit of any person
or act as surety or otherwise voluntarily assume any liability, whether
actual or contingent, in respect of any obligation of any other person,
except (in each case) on normal commercial terms in the ordinary course
of its business as now conducted and for the purpose of carrying on
that business;
(c) borrow or in any manner raise money or incur or create any actual or
contingent liability for any indebtedness beyond any limit from time to
time determined by the Bank;
(d) enter into or undertake any new capital commitment involving estimated
expenditure by the Company beyond any limit from time to time
determined by the Bank;
<PAGE> 14
(e) incur any expenditure, indebtedness or financial or other obligation or
liability of an exceptional or unusual nature;
(f) form or co-operate in the formation of, or purchase or acquire, any
subsidiary or purchase or acquire any share or other ownership interest
in any other company or person or enter into any partnership agreement
or arrangement;
(g) change its financial year or its auditors;
(h) do, neglect or omit or cause, permit or suffer to be done, neglected or
omitted any act, matter or thing which might infringe any law,
ordinance, enactment, decree, order or regulation affecting any of the
Charged Assets or any interest therein; or
(i) generally do or cause or permit to be done anything which may in any
way depreciate, jeopardise or otherwise prejudice the value of any of
the Charged Assets or any interest therein or this security.
5.03 If the Company fails to observe or perform any of its covenants under
this Debenture, the Bank shall be entitled (but not obliged) to take such action
as it shall in its absolute discretion consider appropriate on behalf of or in
the name of the Company or otherwise with a view to remedying or mitigating the
consequences of any such failure (and the Bank shall be indemnified by the
Company accordingly) and any moneys expended by the Bank in such regard shall be
repayable by the Company to the Bank on demand together with Default Interest on
the sums demanded.
6. ENFORCEMENT OF SECURITY
At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank and any nominee of the Bank may exercise, without further
<PAGE> 15
notice and without first appointing a Receiver under this Debenture, all the
powers and discretions conferred by this Debenture on a Receiver appointed under
this Debenture.
<PAGE> 16
7. RECEIVERSHIP
7.01 At any time after demand by the Bank for the payment of the Secured
Indebtedness, the Bank may appoint any one or more persons to be a Receiver of
all or any part of the Charged Assets and may from time to time fix his
remuneration (which shall be of such amount as may be agreed from time to time
between the Bank and such Receiver) and may remove any Receiver so appointed and
appoint another in his place.
7.02 Where two or more persons are appointed Receivers, then, unless the
Bank otherwise directs, their appointment shall be deemed to be joint and
several and each may exercise any power independently of the others.
7.03 A Receiver so appointed shall be the agent of the Company for all
purposes, and the Company shall be solely responsible for his acts, defaults,
losses or misconduct and for his remuneration and the Bank shall incur no
liability therefor by reason of its appointing him as Receiver.
7.04 A Receiver so appointed shall have power:-
(a) to enter into and upon and take possession of, collect and get in all
or any of the Charged Assets, exercise in respect of the Shares all
voting or other powers or rights available to a registered and/or
beneficial (as appropriate) owner of the same in such manner as he may
think fit and to take, defend, settle, refer to arbitration, enforce,
compromise, or abandon any proceedings in the name of the Company or
otherwise concerning the Company's business or any part thereof or any
of the Charged Assets as he shall think necessary or expedient;
(b) to carry on or authorise or concur in carrying on the business or any
part of the business of the Company and to manage, conduct,
reconstruct, amalgamate or diversify the business of the Company or any
part thereof (including power to buy, lease or otherwise acquire,
develop or improve
<PAGE> 17
properties or other assets) without being responsible for loss or
damage and do all acts and things which the Company might do in the
ordinary conduct of its business or for the preservation, protection or
improvement of any of the Charged Assets or any interest therein or
obtaining any income or return therefrom;
(c) to raise or borrow money from or incur any other liability to the Bank
or others on such terms with or without security as he may think fit
and so that any such security may be or include a charge on all or any
part of the Charged Assets ranking in priority to this security or
otherwise;
(d) to sell by public auction or private contract, let, surrender or accept
surrenders, grant leases, tenancies or licences or otherwise dispose of
or deal with all or any of the Charged Assets in such manner, for such
consideration and generally on such terms and conditions as he may
think fit, with full power to convey or otherwise transfer such Charged
Assets in the name of the Company or other the estate owner. Any such
consideration may be cash, debentures or other obligations, shares,
stock or other consideration and may be payable immediately or by
instalments spread over such period or periods as he shall think fit,
and so that any consideration received or receivable shall ipso facto
forthwith be and become charged with the payment and discharge of the
Secured Indebtedness. Equipment, accessories and other fixtures and
fittings may be severed and sold separately from any premises of the
Company containing them and the Receiver may apportion any rent and the
performance of any obligations affecting any premises sold without the
consent of the Company;
(e) to promote the formation of companies with a view to the same
purchasing, leasing, licensing or otherwise acquiring interests in all
or any of the Charged Assets or otherwise;
<PAGE> 18
(f) to make any arrangement, settlement or compromise or enter into,
continue, cancel, abandon or disregard any contracts which he shall
think necessary or expedient in the interests of the Bank;
(g) to make and effect all repairs, renewals, alterations and improvements
and to maintain, renew, take out or increase insurances with respect to
any of the Charged Assets;
(h) to appoint and remunerate any person for any of the purposes mentioned
in this Clause 7.04 or to guard or protect the Charged Assets for such
periods as he may determine and to dismiss the same;
(i) to make calls conditionally or unconditionally on the members of the
Company in respect of uncalled capital with the same powers of
enforcing payment of any calls so made as are by the constitutional
documents of the Company conferred upon the Directors thereof and to
the exclusion of the Directors' powers in that behalf;
(j) to do anything which he shall think necessary or expedient to preserve,
protect, maintain or manage any of the Charged Assets;
(k) to exercise all rights and powers incidental to ownership of all or any
of the Charged Assets or any interest therein;
(l) to sign any document, execute any deed and do all such other acts and
things as may be considered to be incidental or conducive to any of the
above matters or powers or to the realisation of this security, and to
use the name of the Company for all the above purposes; and
(m) generally on behalf and at the cost of the Company (notwithstanding
liquidation of the Company or any event analogous thereto) to do, omit
to do or cause, permit or suffer to be done or omitted anything which
the
<PAGE> 19
Company could do, omit, cause, permit or suffer in relation to all or
any part of the Charged Assets or any interest therein.
7.05 A Receiver shall in the exercise of his powers conform to any
regulations or directions from time to time made or given by the Bank.
7.06 The Bank may require a Receiver to give security for the due
performance of his duties as Receiver and may fix the nature and amount of the
security to be so given, but the Bank shall not be bound in any case to require
any such security.
7.07 The Bank may pay over to a Receiver any moneys forming part of the
Charged Assets or the income thereof to the intent that the same may be applied
for the purposes of this Debenture by the Receiver and the Bank may from time to
time determine what funds a Receiver may keep in hand to enable him to perform
his duties as Receiver.
7.08 A Receiver may retain out of any money which he receives, collects,
recovers or realises under this Debenture his remuneration and all costs,
charges and expenses incurred by him as Receiver.
8. SALE OF CHARGED ASSETS
8.01 No restrictions imposed by any enactment or law on any immediate or
other power of sale, or on the consolidation of mortgages or charges or other
securities shall apply to this Debenture or to any security given to the Bank
pursuant to this Debenture.
8.02 Any sale or other disposition by or on behalf of the Bank, or any of
its nominees, or a Receiver may be made upon such terms as to indemnity as the
Bank or such Receiver may think fit.
<PAGE> 20
8.03 Upon any such sale or other disposition and upon any other dealing or
transaction under the provisions of this Debenture, the receipt of the Bank or a
Receiver for the purchase money of the property or asset sold or for any other
moneys paid to or other consideration received by it or him shall effectually
discharge the purchaser or person paying or giving the same therefrom and from
being concerned to see to the application or being answerable for the loss,
non-application or mis-application thereof.
8.04 No purchaser or other person shall be bound or concerned to see or
enquire whether the right of the Bank, or any of its nominees, or a Receiver to
exercise any of the powers conferred by this Debenture has arisen or not or with
the propriety of the exercise or purported exercise of such powers or be
concerned with notice to the contrary of any of the foregoing.
8.05 Any dealing by any purchaser or other person with the Bank, a Receiver
or its or his attorney, agent or nominee shall be deemed, so far as concerns the
safety and protection of such purchaser or other person, to be within the powers
conferred by this Debenture and to be valid and effectual accordingly.
8.06 The remedy of the Company in respect of any irregularity or impropriety
whatsoever in the exercise or purported exercise of any power or right under
this Debenture or the execution or purported execution of any provision of this
Debenture shall be in damages only.
8.07 Neither the Bank nor a Receiver shall be answerable for any losses
which may arise in the exercise of any of their powers nor shall they be liable
by reason of any entry into possession of the Charged Assets or any part thereof
to account as mortgagee in possession for any moneys except actual receipts or
be liable for any loss on realisation or for any default or omission for which a
mortgagee in possession may be liable.
<PAGE> 21
9. COSTS AND EXPENSES, INDEMNITY
9.01 The Company covenants with the Bank, on demand, to pay all costs and
expenses (on a full and unqualified basis) incurred in connection with the
negotiation, preparation, execution and registration of this Debenture, and by
the Bank or by a Receiver in the exercise of any powers, rights or remedies
conferred by this Debenture, or which the Bank or a Receiver shall incur in or
about the preservation or attempted preservation of this security or the
preservation, recovery or realisation or attempted preservation, recovery or
realisation of all or any part of the Charged Assets, together with Default
Interest on the sums demanded.
9.02 The Company covenants to indemnify the Bank and a Receiver against all
losses, actions, claims, expenses, demands and liabilities whether in contract,
tort or otherwise now or hereafter incurred by it or him or by any manager,
agent, officer or employee for whose liability act or omission it or he may be
answerable for anything done or omitted in the exercise or purported exercise of
the powers contained in this Debenture or occasioned by any breach by the
Company of any of its covenants or other obligations to the Bank. The Company
shall so indemnify the Bank and a Receiver on demand and shall pay Default
Interest on the sums demanded.
9.03 The Bank and any Receiver may retain and pay out of any money received,
collected, recovered or realised under this Debenture all sums required to
implement the indemnity in Clause 9.02 and such sums shall be a charge on the
Charged Assets and shall rank in priority to any other Secured Indebtedness.
10. APPLICATION OF PROCEEDS
10.01 All moneys received by a Receiver and/or by the Bank in the exercise of
any powers conferred by this Debenture shall, subject to any claims ranking in
priority to the Secured Indebtedness to the extent of such priority, be
applied:-
<PAGE> 22
(a) first, in or towards the payment, discharge or satisfaction of all
actions, claims, demands, proceedings, liabilities, losses, damages,
costs, charges and expenses covered by the indemnity in Clause 9.02;
(b) secondly, in or towards the payment of any such Receiver's remuneration
and the costs, charges, expenses and liabilities incurred or suffered
by any such Receiver and/or the Bank in or incidental to realisation of
such moneys or to the exercise or purported exercise of their
respective powers or otherwise in relation to this Debenture or the
Charged Assets if and to the extent that such costs, charges, expenses
and liabilities do not fall within the indemnity in Clause 9.02; and
(c) thirdly, in or towards the payment, discharge or satisfaction of all
other Secured Indebtedness in such order as the Bank may in its
absolute discretion from time to time determine,
provided that all or any such moneys may in the absolute discretion of the Bank
be credited to any suspense account and may be held in such account for so long
and in such manner as the Bank may think fit and a Receiver may retain the same
for such period as he may consider expedient.
10.02 The Bank and/or a Receiver may convert any moneys received, recovered
or realised under this Debenture (including the proceeds of any previous
conversion under this Clause 10.02) from their existing currency of denomination
into such other currency of denomination as the Bank and/or a Receiver may think
fit and any such conversion shall be effected at the Exchange Rate.
10.03 No payment to the Bank pursuant to any judgment or order of any court
or otherwise shall discharge the obligation of the Company in respect of which
it was made unless and until payment in full has been received in the currency
in which such obligation was incurred and to the extent that the amount of any
such payment shall, on actual conversion into such currency at the Exchange
Rate, fall short of the amount of
<PAGE> 23
the obligation expressed in that currency, the Company shall be liable to the
Bank for the shortfall.
11. POWER OF ATTORNEY
The Company, by way of security, irrevocably appoints the Bank and
separately each Receiver to be its attorney (with full power to appoint
substitutes and to sub-delegate) and on behalf of and in the name of the Company
and as its act and deed or otherwise, to execute, seal and deliver and otherwise
perfect and do all such deeds, assurances, agreements, instruments, acts and
things required to be done pursuant to Clause 4 or which otherwise may be
required for or deemed proper on or in connection with the full exercise of the
powers conferred by this Debenture by the Bank or by a Receiver or to give full
force and effect to the covenants, undertakings, terms and conditions contained
in this Debenture. The Company ratifies and confirms and agrees to ratify and
confirm any deed, document, act or thing which any such attorney may lawfully
execute or do.
12. TRUSTEESHIP
The Company declares that, as and when the security created by this
Debenture shall become enforceable, it will hold all the Charged Assets (subject
to the Company's right of redemption) upon trust to convey, assign, transfer or
otherwise dispose of or deal with the same in such manner and to such person as
the Bank shall direct, and declares that it shall be lawful for the Bank to
appoint new trustees of the Charged Assets, or any part thereof, from time to
time in place of the Company or in place of any trustee appointed under this
power.
13. CONTINUING SECURITY
13.01 This Debenture is a continuing security and shall secure the whole of
the Secured Indebtedness and is in addition to, shall not be affected by and may
be enforced despite the existence of any other guarantee or security held by or
available to the Bank.
<PAGE> 24
13.02 Any release, discharge or settlement under this Debenture shall be
conditional upon no payment of the Secured Indebtedness by the Company or any
other person being avoided, reduced or repaid for any reason and the Bank shall
be entitled to enforce this Debenture if such condition is not fulfilled as if
such release, discharge or settlement had not occurred.
13.03 The Company hereby agrees that the Bank may, at any time without
notice, combine or consolidate all or any of the Company's then existing
accounts with the Bank (of any nature of description whatsoever and whether
subject to notice or not), and set-off or transfer any sum standing to the
credit of any one or more such accounts wheresoever situate in or towards
satisfaction of any liabilities of the Company to the Bank under this Debenture
whether such liabilities be present or future, actual or contingent, primary or
collateral, and several or joint.
13.04 The Bank may at any time without notice apply any credit balance to
which the Company is entitled on any account with the Bank in or towards
satisfaction of the Secured Indebtedness. For this purpose, the Bank is
authorised to purchase, at the Exchange Rate, such other currencies as may be
necessary to effect such application with the moneys standing to the credit of
such account.
13.05 The Bank shall have and shall be authorised to exercise a lien over all
property of the Company coming into the possession or control of the Bank, for
custody or any other reason with power for the Bank to sell such property to
satisfy the Secured Indebtedness.
13.06 If there are any security interests having priority to the charges
contained in this Debenture in respect of all or any part of the Charged Assets
then :-
(a) if any proceedings or steps are being taken to exercise or enforce any
powers or remedies conferred by such prior security interest against
the Charged Assets, the Bank or any Receiver may (but without prejudice
to
<PAGE> 25
any rights the Bank or the Receiver may have under statute) redeem such
prior charge or procure the transfer thereof to itself or himself, as
the case may be, and may settle and pass the accounts of the prior
chargees and any account so settled and passed shall be conclusive and
binding on the Company and the principal, interest, costs, charges and
expenses of and incidental to such redemption or transfer shall be paid
to the Bank on demand with interest at the rate as may be conclusively
determined by the Bank and, until payment, the Charged Assets shall
stand charged with the amount to be paid; and
(b) all the powers, authorities and discretions conferred by a prior charge
upon the chargee or any receiver thereunder shall be exercisable by the
Bank or a Receiver in like manner as if the same were expressly
included herein and the Bank shall be entitled to exercise all the
powers, authorities and discretions of an administrative receiver,
receiver, manager or receiver and manager appointed thereunder.
13.07 This Debenture shall remain valid and enforceable notwithstanding any
change in the name, composition or constitution of the Bank or the Company or
any amalgamation or consolidation by the Bank or the Company with any other
corporation.
14. RIGHTS CUMULATIVE, WAIVERS, VARIATION
14.01 The rights, powers and remedies provided in this Debenture are
cumulative, may be exercised as often as the Bank or a Receiver thinks fit and
are in addition to and not exclusive of any rights, powers or remedies provided
by law. No single or partial exercise by the Bank or a Receiver of any right,
power or remedy shall preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
14.02 No failure or delay on the part of the Bank to exercise any power,
right or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise or
<PAGE> 26
waiver by the Bank of any power, right or remedy preclude any other or further
exercise thereof or the exercise of any other power, right or remedy.
15. WARRANTIES
The Company represents and warrants to the Bank that:-
(a) it is duly incorporated and validly existing in its jurisdiction of
incorporation;
(b) it has the power and has taken all necessary action to authorise it to
enter into and perform its obligations under this Debenture;
(c) this Debenture constitutes its legal and validly binding obligations
enforceable in accordance with its terms;
(d) it is absolutely entitled to all of the Charged Assets vested in it as
at the date of this Debenture free from all security interests and
claims whatsoever; and
(e) the execution, delivery and performance of this Debenture and any
assurance given hereunder by or on behalf of the Company will not:-
(i) contravene any existing applicable law, enactment, rule or
regulation or any judgment, decree or permit to which the
Company is subject or by which it or any of the Charged Assets
is bound; or
(ii) conflict with, or result in any breach of any of the terms of,
or constitute a default under, any agreement or other
instrument or document to which the Company is a party or is
subject or by which it or any of the Charged Assets is bound;
or
<PAGE> 27
(iii) contravene or conflict with any provision of the Company's
constitutional documents; or
(iv) result in the creation or imposition of or oblige the Company
to create any security interest on or over any Charged Asset
or any interest therein;
and undertakes to ensure that the above representations and warranties remain
true so long as it is under any liability under this Debenture.
16. SUCCESSORS AND ASSIGNMENT
16.01 This Debenture shall be binding upon the Company and its successors and
enure for the benefit of the Bank and its successors.
16.02 The Company may not assign or transfer any of its rights or obligations
under this Debenture.
16.03 The Bank may assign all or any part of this security and all or any
part of its rights or benefits under this Debenture to any persons, in which
event all relevant references in this Debenture to the Bank shall thereafter be
construed as a reference to the Bank or its assignee(s) to the extent of their
respective interests.
16.04 The Bank may disclose to a potential assignee or other person with whom
it may propose contracting in relation to this Debenture or any assurance such
information about the Company, its subsidiaries (if any) and the Charged Assets
as the Bank considers appropriate.
17. NOTICES
<PAGE> 28
17.01 Any notice, demand or other communication under this Debenture shall be
in writing in the English language addressed to the Company at its registered
office or its principal place of business in Hong Kong or the last address
registered with the Bank and to the Bank at its address specified above or such
other address as the Bank may notify to the Company for this purpose and may be
delivered by leaving it at such address or by post, facsimile transmission or
telex.
17.02 Any such notice, demand or other communication shall be deemed to have
been delivered to the Company on leaving it at such address, on the second day
after posting (if to an address in Hong Kong), on the fifth day after posting by
airmail (if to an address outside Hong Kong), at the time of transmission if
sent by facsimile and on receipt of the addressee's answerback if sent by telex.
Any notice or other communication to the Bank under this Debenture shall be
effective only when actually received by the Bank.
18. SEVERABILITY
Any provision of this Debenture prohibited by or unlawful or
unenforceable under any applicable law actually applied by any court of
competent jurisdiction shall, to the extent required by such law, be severed
from this Debenture and rendered ineffective so far as is possible without
modifying the remaining provisions of this Debenture. Where, however, the
provisions of any such applicable law may be waived, they are hereby waived by
the Company to the full extent permitted by such law.
19. GOVERNING LAW AND JURISDICTION
19.01 This Debenture shall be governed by and construed in accordance with
the laws of the Hong Kong Special Administrative Region.
19.02 The Company submits to the non-exclusive jurisdiction of the Courts of
the Hong Kong Special Administrative Region but the submission by the Company to
<PAGE> 29
the non-exclusive jurisdiction of such Courts shall not (and shall not be
construed so as to) limit the right of the Bank to take proceedings against the
Company in whatsoever jurisdictions shall to it seem fit, nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction, whether concurrently or not. The
Company:-
(a) waives any objection to the laying of the venue of any legal action or
proceedings brought against it under this Debenture and any immunity
from suit, execution, attachment or other legal process to the full
extent permitted by applicable law; and
(b) consents generally and irrevocably in respect of any legal action or
proceedings under this Debenture to the giving of any relief or the
issue of any process in connection with such legal action or
proceedings.
IN WITNESS whereof this Debenture has been duly executed and delivered
as a Deed by the Company the date first above written.
SEALED with the COMMON SEAL of ) /S/ JF
JAKKS PACIFIC (H.K.) LIMITED )
by authority of its Board of ) /S/ JF
Directors, in the presence of:- )
Witness:-
/s/ JACK FRIEDMAN
- -----------------------------
Name: Jack Friedman
Address: 22761 Pacific Coast Hwy. #226
Malibu, CA 90265 USA
<PAGE> 1
EXHIBIT 10.37
GUARANTY
(JAKKS PACIFIC, INC.)
Minneapolis, Minnesota
October 21, 1997
This Guaranty, dated as of October 21, 1997, is made by JAKKS
PACIFIC, INC., a Delaware corporation (the "Guarantor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(with its participants, successors and assigns, the "Lender").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Lender make loans and
extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Lender has required the execution
and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:
1. Indebtedness Guaranteed. The Guarantor hereby absolutely
and unconditionally guarantees to the Lender the full and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise, of
each and every other sum now or hereafter owing to the Lender by the Borrowers,
including but not limited to, debts, liabilities and obligations arising out of
loans, letter of credit transactions, financial accommodations, discounts,
purchases of property or other transactions with the Borrowers or for the
Borrowers' accounts or out of any other transaction or event, owed to the Lender
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by the Lender, in each case whether now existing
or hereafter arising, whether arising directly in a transaction or event
involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrowers as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
<PAGE> 2
2. Guarantor's Representations and Warranties. The Guarantor
represents and warrants to the Lender that (i) the Guarantor is a corporation,
duly organized and existing in good standing and has full power and authority to
make and deliver this Guaranty; (ii) the execution, delivery and performance of
this Guaranty by the Guarantor have been duly authorized by all necessary action
of its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrowers and expects to
derive substantial benefits therefrom and from any loans, letter of credit
transactions, financial accommodations, discounts, purchases of property and
other transactions and events resulting in the creation of the Indebtedness
guarantied hereby, and that this Guaranty is given for a corporate purpose. The
Guarantor agrees to rely exclusively on the right to revoke this Guaranty
prospectively as to future transactions, in accordance with paragraph 3, if at
any time, in the opinion of the directors or officers, the benefits then being
received by the Guarantor in connection with this Guaranty are not sufficient to
warrant the continuance of this Guaranty as to the future Indebtedness of the
Borrowers. Accordingly, so long as this Guaranty is not revoked prospectively in
accordance with paragraph 3, the Lender may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Lender shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Lender without regard to the receipt, nature or value of any
such benefits.
3. Unconditional Nature. No act or thing need occur to
establish the Guarantor's liability hereunder, and no act or thing, except full
payment and discharge of all of the Indebtedness, shall in any way exonerate the
Guarantor hereunder or modify, reduce, limit or release the Guarantor's
liability hereunder. This is an absolute, unconditional and continuing guaranty
of payment of the Indebtedness and shall continue to be in force and be binding
upon the Guarantor, whether or not all of the Indebtedness is paid in full,
until this Guaranty is revoked prospectively as to future transactions, by
written notice actually received by the Lender, and such revocation shall not be
effective as to the amount of Indebtedness existing or committed for at the time
of actual receipt of such notice by the Lender, or as to any renewals,
extensions, refinancings or refundings thereof.
4. Dissolution or Insolvency of Guarantor. The dissolution or
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however
-2-
<PAGE> 3
defined), then the Lender shall have the right to declare immediately due and
payable, and the Guarantor will forthwith pay to the Lender, the full amount of
all of the Indebtedness whether due and payable or unmatured. If the Guarantor
voluntarily commences or there is commenced involuntarily against the Guarantor
a case under the United States Bankruptcy Code, the full amount of all
Indebtedness, whether due and payable or unmatured, shall be immediately due and
payable without demand or notice thereof.
5. Subrogation, etc. The Guarantor hereby waives all rights
that the Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrowers or from any property of the Borrowers any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrowers or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
6. Enforcement Expenses. The Guarantor will pay or reimburse
the Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
7. Lender's Rights. The Lender shall not be obligated by
reason of its acceptance of this Guaranty to engage in any transactions with or
for the Borrowers. Whether or not any existing relationship between the
Guarantor and the Borrowers has been changed or ended and whether or not this
Guaranty has been revoked, the Lender may enter into transactions resulting in
the creation or continuance of the Indebtedness and may otherwise agree, consent
to or suffer the creation or continuance of any of the Indebtedness, without any
consent or approval by the Guarantor and without any prior or subsequent notice
to the Guarantor. The Guarantor's liability shall not be affected or impaired by
any of the following acts or things (which the Lender is expressly authorized to
do, omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrowers, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrowers or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
-3-
<PAGE> 4
(including rights of setoff) for the Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or disposition of, or any other foreclosure or enforcement of or
realization on, any collateral security; (viii) any assignment, pledge or other
transfer of any of the Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon the Indebtedness;
and (x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
8. Waivers by Guarantor. The Guarantor waives any and all
defenses, claims, setoffs and discharges of the Borrowers, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge by payment in
full. Without limiting the generality of the foregoing, the Guarantor will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrowers or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrowers or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees that
the Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrowers or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the Guarantor shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrowers or any of their assets. The
Guarantor will not assert, plead or enforce against the Lender any claim,
defense or setoff available to the Guarantor against the Borrowers. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Lender
shall not be required first to resort for payment of the Indebtedness to the
Borrowers or other persons, or their properties, or first to enforce, realize
upon or exhaust any collateral security for the Indebtedness, before enforcing
this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by the
Lender to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrowers or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding
-4-
<PAGE> 5
such application, and this Guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.
10. Additional Obligation of Guarantor. The Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrowers, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrowers or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrowers and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
12. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the successors and assigns of
the Guarantor and shall inure to the benefit of the Lender and its participants,
successors and assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
application thereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Guarantor and the Lender. This Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Minnesota. The Guarantor hereby (i) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related to this Guaranty; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Guarantor in connection with this Guaranty shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
-5-
<PAGE> 6
13. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the Guarantor the date first written above.
JAKKS PACIFIC, INC.
By /s/ JACK FRIEDMAN
----------------------------------------
Its President
----------------------------------
Address: 22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 21st
day of October, 1997 by Jack Friedman, the President of JAKKS Pacific, Inc., a
Delaware corporation, on behalf of the corporation.
______________________________
Notary Public
-6-
<PAGE> 1
EXHIBIT 10.38A
GUARANTY
(ROAD CHAMPS, INC.)
Minneapolis, Minnesota
October 21, 1997
This Guaranty, dated as of October 21, 1997, is made by ROAD
CHAMPS, INC., a Pennsylvania corporation (the "Guarantor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(with its participants, successors and assigns, the "Lender").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Lender make loans and
extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Lender has required the execution
and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:
1. Indebtedness Guaranteed. The Guarantor hereby absolutely
and unconditionally guarantees to the Lender the full and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise, of
each and every other sum now or hereafter owing to the Lender by the Borrowers,
including but not limited to, debts, liabilities and obligations arising out of
loans, letter of credit transactions, financial accommodations, discounts,
purchases of property or other transactions with the Borrowers or for the
Borrowers' accounts or out of any other transaction or event, owed to the Lender
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by the Lender, in each case whether now existing
or hereafter arising, whether arising directly in a transaction or event
involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrowers as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
<PAGE> 2
2. Guarantor's Representations and Warranties. The Guarantor
represents and warrants to the Lender that (i) the Guarantor is a corporation,
duly organized and existing in good standing and has full power and authority to
make and deliver this Guaranty; (ii) the execution, delivery and performance of
this Guaranty by the Guarantor have been duly authorized by all necessary action
of its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrowers and expects to
derive substantial benefits therefrom and from any loans, letter of credit
transactions, financial accommodations, discounts, purchases of property and
other transactions and events resulting in the creation of the Indebtedness
guarantied hereby, and that this Guaranty is given for a corporate purpose. The
Guarantor agrees to rely exclusively on the right to revoke this Guaranty
prospectively as to future transactions, in accordance with paragraph 3, if at
any time, in the opinion of the directors or officers, the benefits then being
received by the Guarantor in connection with this Guaranty are not sufficient to
warrant the continuance of this Guaranty as to the future Indebtedness of the
Borrowers. Accordingly, so long as this Guaranty is not revoked prospectively in
accordance with paragraph 3, the Lender may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Lender shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Lender without regard to the receipt, nature or value of any
such benefits.
3. Unconditional Nature. No act or thing need occur to
establish the Guarantor's liability hereunder, and no act or thing, except full
payment and discharge of all of the Indebtedness, shall in any way exonerate the
Guarantor hereunder or modify, reduce, limit or release the Guarantor's
liability hereunder. This is an absolute, unconditional and continuing guaranty
of payment of the Indebtedness and shall continue to be in force and be binding
upon the Guarantor, whether or not all of the Indebtedness is paid in full,
until this Guaranty is revoked prospectively as to future transactions, by
written notice actually received by the Lender, and such revocation shall not be
effective as to the amount of Indebtedness existing or committed for at the time
of actual receipt of such notice by the Lender, or as to any renewals,
extensions, refinancings or refundings thereof.
4. Dissolution or Insolvency of Guarantor. The dissolution or
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however
-2-
<PAGE> 3
defined), then the Lender shall have the right to declare immediately due and
payable, and the Guarantor will forthwith pay to the Lender, the full amount of
all of the Indebtedness whether due and payable or unmatured. If the Guarantor
voluntarily commences or there is commenced involuntarily against the Guarantor
a case under the United States Bankruptcy Code, the full amount of all
Indebtedness, whether due and payable or unmatured, shall be immediately due and
payable without demand or notice thereof.
5. Subrogation, etc. The Guarantor hereby waives all rights
that the Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrowers or from any property of the Borrowers any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrowers or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
6. Enforcement Expenses. The Guarantor will pay or reimburse
the Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
7. Lender's Rights. The Lender shall not be obligated by
reason of its acceptance of this Guaranty to engage in any transactions with or
for the Borrowers. Whether or not any existing relationship between the
Guarantor and the Borrowers has been changed or ended and whether or not this
Guaranty has been revoked, the Lender may enter into transactions resulting in
the creation or continuance of the Indebtedness and may otherwise agree, consent
to or suffer the creation or continuance of any of the Indebtedness, without any
consent or approval by the Guarantor and without any prior or subsequent notice
to the Guarantor. The Guarantor's liability shall not be affected or impaired by
any of the following acts or things (which the Lender is expressly authorized to
do, omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrowers, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrowers or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
-3-
<PAGE> 4
(including rights of setoff) for the Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or disposition of, or any other foreclosure or enforcement of or
realization on, any collateral security; (viii) any assignment, pledge or other
transfer of any of the Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon the Indebtedness;
and (x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
8. Waivers by Guarantor. The Guarantor waives any and all
defenses, claims, setoffs and discharges of the Borrowers, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge by payment in
full. Without limiting the generality of the foregoing, the Guarantor will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrowers or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrowers or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees that
the Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrowers or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the Guarantor shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrowers or any of their assets. The
Guarantor will not assert, plead or enforce against the Lender any claim,
defense or setoff available to the Guarantor against the Borrowers. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Lender
shall not be required first to resort for payment of the Indebtedness to the
Borrowers or other persons, or their properties, or first to enforce, realize
upon or exhaust any collateral security for the Indebtedness, before enforcing
this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by the
Lender to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrowers or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding
-4-
<PAGE> 5
such application, and this Guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.
10. Additional Obligation of Guarantor. The Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrowers, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrowers or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrowers and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
12. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the successors and assigns of
the Guarantor and shall inure to the benefit of the Lender and its participants,
successors and assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
application thereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Guarantor and the Lender. This Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Minnesota. The Guarantor hereby (i) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related to this Guaranty; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Guarantor in connection with this Guaranty shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
-5-
<PAGE> 6
13. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the Guarantor the date first written above.
ROAD CHAMPS, INC.
By /s/ JACK FRIEDMAN
---------------------------------------------
Its President
---------------------------------------
Address: 7 Patton Drive
West Caldwell, New Jersey 07006
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 21st
day of October, 1997 by Jack Friedman, the President of Road Champs, Inc., a
Pennsylvania corporation, on behalf of the corporation.
_______________________________
Notary Public
-6-
<PAGE> 1
EXHIBIT 10.38B
GUARANTY
(JAKKS ACQUISITION CORP.)
Minneapolis, Minnesota
October 21, 1997
This Guaranty, dated as of October 21, 1997, is made by JAKKS
ACQUISITION CORP., a Delaware corporation (the "Guarantor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(with its participants, successors and assigns, the "Lender").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Lender make loans and
extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Lender has required the execution
and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:
1. Indebtedness Guaranteed. The Guarantor hereby absolutely
and unconditionally guarantees to the Lender the full and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise, of
each and every other sum now or hereafter owing to the Lender by the Borrowers,
including but not limited to, debts, liabilities and obligations arising out of
loans, letter of credit transactions, financial accommodations, discounts,
purchases of property or other transactions with the Borrowers or for the
Borrowers' accounts or out of any other transaction or event, owed to the Lender
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by the Lender, in each case whether now existing
or hereafter arising, whether arising directly in a transaction or event
involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrowers as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
<PAGE> 2
2. Guarantor's Representations and Warranties. The Guarantor
represents and warrants to the Lender that (i) the Guarantor is a corporation,
duly organized and existing in good standing and has full power and authority to
make and deliver this Guaranty; (ii) the execution, delivery and performance of
this Guaranty by the Guarantor have been duly authorized by all necessary action
of its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrowers and expects to
derive substantial benefits therefrom and from any loans, letter of credit
transactions, financial accommodations, discounts, purchases of property and
other transactions and events resulting in the creation of the Indebtedness
guarantied hereby, and that this Guaranty is given for a corporate purpose. The
Guarantor agrees to rely exclusively on the right to revoke this Guaranty
prospectively as to future transactions, in accordance with paragraph 3, if at
any time, in the opinion of the directors or officers, the benefits then being
received by the Guarantor in connection with this Guaranty are not sufficient to
warrant the continuance of this Guaranty as to the future Indebtedness of the
Borrowers. Accordingly, so long as this Guaranty is not revoked prospectively in
accordance with paragraph 3, the Lender may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Lender shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Lender without regard to the receipt, nature or value of any
such benefits.
3. Unconditional Nature. No act or thing need occur to
establish the Guarantor's liability hereunder, and no act or thing, except full
payment and discharge of all of the Indebtedness, shall in any way exonerate the
Guarantor hereunder or modify, reduce, limit or release the Guarantor's
liability hereunder. This is an absolute, unconditional and continuing guaranty
of payment of the Indebtedness and shall continue to be in force and be binding
upon the Guarantor, whether or not all of the Indebtedness is paid in full,
until this Guaranty is revoked prospectively as to future transactions, by
written notice actually received by the Lender, and such revocation shall not be
effective as to the amount of Indebtedness existing or committed for at the time
of actual receipt of such notice by the Lender, or as to any renewals,
extensions, refinancings or refundings thereof.
4. Dissolution or Insolvency of Guarantor. The dissolution or
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however
-2-
<PAGE> 3
defined), then the Lender shall have the right to declare immediately due and
payable, and the Guarantor will forthwith pay to the Lender, the full amount of
all of the Indebtedness whether due and payable or unmatured. If the Guarantor
voluntarily commences or there is commenced involuntarily against the Guarantor
a case under the United States Bankruptcy Code, the full amount of all
Indebtedness, whether due and payable or unmatured, shall be immediately due and
payable without demand or notice thereof.
5. Subrogation, etc. The Guarantor hereby waives all rights
that the Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrowers or from any property of the Borrowers any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrowers or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
6. Enforcement Expenses. The Guarantor will pay or reimburse
the Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
7. Lender's Rights. The Lender shall not be obligated by
reason of its acceptance of this Guaranty to engage in any transactions with or
for the Borrowers. Whether or not any existing relationship between the
Guarantor and the Borrowers has been changed or ended and whether or not this
Guaranty has been revoked, the Lender may enter into transactions resulting in
the creation or continuance of the Indebtedness and may otherwise agree, consent
to or suffer the creation or continuance of any of the Indebtedness, without any
consent or approval by the Guarantor and without any prior or subsequent notice
to the Guarantor. The Guarantor's liability shall not be affected or impaired by
any of the following acts or things (which the Lender is expressly authorized to
do, omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrowers, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrowers or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
-3-
<PAGE> 4
(including rights of setoff) for the Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or disposition of, or any other foreclosure or enforcement of or
realization on, any collateral security; (viii) any assignment, pledge or other
transfer of any of the Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon the Indebtedness;
and (x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
8. Waivers by Guarantor. The Guarantor waives any and all
defenses, claims, setoffs and discharges of the Borrowers, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge by payment in
full. Without limiting the generality of the foregoing, the Guarantor will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrowers or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrowers or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees that
the Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrowers or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the Guarantor shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrowers or any of their assets. The
Guarantor will not assert, plead or enforce against the Lender any claim,
defense or setoff available to the Guarantor against the Borrowers. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Lender
shall not be required first to resort for payment of the Indebtedness to the
Borrowers or other persons, or their properties, or first to enforce, realize
upon or exhaust any collateral security for the Indebtedness, before enforcing
this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by the
Lender to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrowers or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding
-4-
<PAGE> 5
such application, and this Guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.
10. Additional Obligation of Guarantor. The Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrowers, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrowers or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrowers and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
12. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the successors and assigns of
the Guarantor and shall inure to the benefit of the Lender and its participants,
successors and assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
application thereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Guarantor and the Lender. This Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Minnesota. The Guarantor hereby (i) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related to this Guaranty; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Guarantor in connection with this Guaranty shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
-5-
<PAGE> 6
13. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the Guarantor the date first written above.
JAKKS ACQUISITION CORP.
By /s/ JACK FRIEDMAN
--------------------------------------
Its PRESIDENT
--------------------------------
Address: 22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 21st
day of October, 1997 by Jack Friedman, the President of JAKKS Acquisition Corp.,
a Delaware corporation, on behalf of the corporation.
________________________________
Notary Public
-6-
<PAGE> 1
EXHIBIT 10.38C
GUARANTY
(J-X ENTERPRISES, INC.)
Minneapolis, Minnesota
October 21, 1997
This Guaranty, dated as of October 21, 1997, is made by J-X
ENTERPRISES, INC., a New York corporation (the "Guarantor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(with its participants, successors and assigns, the "Lender").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Lender make loans and
extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Lender has required the execution
and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:
1. Indebtedness Guaranteed. The Guarantor hereby absolutely
and unconditionally guarantees to the Lender the full and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise, of
each and every other sum now or hereafter owing to the Lender by the Borrowers,
including but not limited to, debts, liabilities and obligations arising out of
loans, letter of credit transactions, financial accommodations, discounts,
purchases of property or other transactions with the Borrowers or for the
Borrowers' accounts or out of any other transaction or event, owed to the Lender
or owed to others by reason of participations granted to or interests acquired
or created for or sold to them by the Lender, in each case whether now existing
or hereafter arising, whether arising directly in a transaction or event
involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrowers as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
<PAGE> 2
2. Guarantor's Representations and Warranties. The Guarantor
represents and warrants to the Lender that (i) the Guarantor is a corporation,
duly organized and existing in good standing and has full power and authority to
make and deliver this Guaranty; (ii) the execution, delivery and performance of
this Guaranty by the Guarantor have been duly authorized by all necessary action
of its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrowers and expects to
derive substantial benefits therefrom and from any loans, letter of credit
transactions, financial accommodations, discounts, purchases of property and
other transactions and events resulting in the creation of the Indebtedness
guarantied hereby, and that this Guaranty is given for a corporate purpose. The
Guarantor agrees to rely exclusively on the right to revoke this Guaranty
prospectively as to future transactions, in accordance with paragraph 3, if at
any time, in the opinion of the directors or officers, the benefits then being
received by the Guarantor in connection with this Guaranty are not sufficient to
warrant the continuance of this Guaranty as to the future Indebtedness of the
Borrowers. Accordingly, so long as this Guaranty is not revoked prospectively in
accordance with paragraph 3, the Lender may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefitted by this
Guaranty and the Lender shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Lender without regard to the receipt, nature or value of any
such benefits.
3. Unconditional Nature. No act or thing need occur to
establish the Guarantor's liability hereunder, and no act or thing, except full
payment and discharge of all of the Indebtedness, shall in any way exonerate the
Guarantor hereunder or modify, reduce, limit or release the Guarantor's
liability hereunder. This is an absolute, unconditional and continuing guaranty
of payment of the Indebtedness and shall continue to be in force and be binding
upon the Guarantor, whether or not all of the Indebtedness is paid in full,
until this Guaranty is revoked prospectively as to future transactions, by
written notice actually received by the Lender, and such revocation shall not be
effective as to the amount of Indebtedness existing or committed for at the time
of actual receipt of such notice by the Lender, or as to any renewals,
extensions, refinancings or refundings thereof.
4. Dissolution or Insolvency of Guarantor. The dissolution or
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however
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<PAGE> 3
defined), then the Lender shall have the right to declare immediately due and
payable, and the Guarantor will forthwith pay to the Lender, the full amount of
all of the Indebtedness whether due and payable or unmatured. If the Guarantor
voluntarily commences or there is commenced involuntarily against the Guarantor
a case under the United States Bankruptcy Code, the full amount of all
Indebtedness, whether due and payable or unmatured, shall be immediately due and
payable without demand or notice thereof.
5. Subrogation, etc. The Guarantor hereby waives all rights
that the Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrowers or from any property of the Borrowers any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrowers or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
6. Enforcement Expenses. The Guarantor will pay or reimburse
the Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
7. Lender's Rights. The Lender shall not be obligated by
reason of its acceptance of this Guaranty to engage in any transactions with or
for the Borrowers. Whether or not any existing relationship between the
Guarantor and the Borrowers has been changed or ended and whether or not this
Guaranty has been revoked, the Lender may enter into transactions resulting in
the creation or continuance of the Indebtedness and may otherwise agree, consent
to or suffer the creation or continuance of any of the Indebtedness, without any
consent or approval by the Guarantor and without any prior or subsequent notice
to the Guarantor. The Guarantor's liability shall not be affected or impaired by
any of the following acts or things (which the Lender is expressly authorized to
do, omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrowers, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrowers or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
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<PAGE> 4
(including rights of setoff) for the Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or disposition of, or any other foreclosure or enforcement of or
realization on, any collateral security; (viii) any assignment, pledge or other
transfer of any of the Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon the Indebtedness;
and (x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
8. Waivers by Guarantor. The Guarantor waives any and all
defenses, claims, setoffs and discharges of the Borrowers, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge by payment in
full. Without limiting the generality of the foregoing, the Guarantor will not
assert, plead or enforce against the Lender any defense of waiver, release,
discharge or disallowance in bankruptcy, statute of limitations, res judicata,
statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrowers or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrowers or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees that
the Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrowers or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the Guarantor shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrowers or any of their assets. The
Guarantor will not assert, plead or enforce against the Lender any claim,
defense or setoff available to the Guarantor against the Borrowers. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The Lender
shall not be required first to resort for payment of the Indebtedness to the
Borrowers or other persons, or their properties, or first to enforce, realize
upon or exhaust any collateral security for the Indebtedness, before enforcing
this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by the
Lender to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Borrowers or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding
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<PAGE> 5
such application, and this Guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.
10. Additional Obligation of Guarantor. The Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrowers, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrowers or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrowers and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
12. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the successors and assigns of
the Guarantor and shall inure to the benefit of the Lender and its participants,
successors and assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
application thereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Guarantor and the Lender. This Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Minnesota. The Guarantor hereby (i) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related to this Guaranty; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Guarantor in connection with this Guaranty shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
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<PAGE> 6
13. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the Guarantor the date first written above.
J-X ENTERPRISES, INC.
By /s/ JACK FRIEDMAN
------------------------------------
Its PRESIDENT
------------------------------
Address: 200 Fifth Avenue, Room 550
New York, New York 10010
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 21st
day of October, 1997 by Jack Friedman, the President of J-X Enterprises, Inc., a
New York corporation, on behalf of the corporation.
___________________________
Notary Public
-6-
<PAGE> 1
EXHIBIT 10.39
SECURITY AGREEMENT
(JAKKS PACIFIC, INC.)
This Agreement, dated as of October 21, 1997, is made by and
between JAKKS PACIFIC, INC., a Delaware corporation (the "Debtor"), and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the
"Secured Party").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Secured Party make loans
and extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Secured Party has required, among
other things, the execution and delivery of the Debtor's Guaranty of even date
herewith, guaranteeing the payment and performance of all of the Obligations
(defined below) of the Borrowers (the "Guaranty").
As a further condition to making loans and extending other
credit and financial accommodations to the Borrowers, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms have the
meanings set forth below:
"Accounts" means each and every account and other right of the
Debtor to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property by the
Debtor, out of a rendering of services by the Debtor, out of a loan by
the Debtor, out of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any of the property of such account debtor or other obligor,
all including but not limited to all present and future debt
instruments, chattel papers, accounts, loans and obligations
receivable, tax refunds and royalties, including, without limitation,
all rights to
<PAGE> 2
payment and/or proceeds in respect of all letters of credit which are
issued for the benefit of the Debtor or in which the Debtor has any
interest.
"Collateral" means the Accounts, Inventory and Investment Property,
together with all substitutions and replacements for, products and
proceeds of, any of the foregoing property, all accessions, all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any of the foregoing,
and all warehouse receipts, bills of lading and other documents of title
now or hereafter covering any of the foregoing.
"Event of Default" has the meaning specified in Section 6.
"Inventory" means all inventory of the Debtor, whether now owned or
hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment property,
whether now owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity
contracts, commodity accounts, stocks, bonds, mutual fund shares, money
market shares and U.S. Government securities.
"Obligations" means (i) each and every debt, liability and
obligation of every type and description which the Borrowers may now or at
any time hereafter owe to the Secured Party, whether such debt, liability
or obligation now exists or is hereafter created or incurred and whether
it is or may be direct or indirect, due or to become due, or absolute or
contingent, whether now existing or hereafter arising, and (ii) each and
every debt, liability and obligation of every type and description which
the Debtor may now or at any time hereafter owe to the Secured Party,
whether such debt, liability or obligation now exists or is hereafter
created or incurred and whether it is or may be direct or indirect, due or
to become due, or absolute or contingent, including without limitation all
obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
2. Security Interest. The Debtor hereby grants the Secured Party a
security interest (the "Security Interest") in the Collateral to secure payment
of the Obligations.
3. Representations, Warranties and Agreements. The Debtor hereby
represents, warrants and agrees as follows:
( a) TITLE. The Debtor ( i) has absolute title to each item of
Collateral in existence on the date hereof, free and clear of all security
interests, liens and encumbrances, except the Security Interest, except
for a security interest in favor of Renaissance Capital Growth & Income
Fund III, Inc. and Renaissance US Growth & Income Trust PLC (the
"Permitted Lien"), ( ii) will have, at the time the Debtor acquires any
rights in Collateral hereafter arising, absolute title to each such item
of
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<PAGE> 3
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest and the Permitted Lien, ( iii)
will keep all Collateral free and clear of all security interests, liens
and encumbrances except the Security Interest and the Permitted Lien and (
iv) will defend the Collateral against all claims or demands of all
persons other than the Secured Party and the holder of the Permitted Lien.
The Debtor will not sell or otherwise dispose of the Collateral or any
interest therein without the prior written consent of the Secured Party,
except that, until the occurrence of an Event of Default and the
revocation by the Secured Party of the Debtor's right to do so, the Debtor
may sell any inventory constituting Collateral to buyers in the ordinary
course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The Debtor's
chief executive office is located at the address set forth under its
signature below. The Debtor's federal employer identification number is
correctly set forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the tangible
Collateral is located only in the states as set forth on Exhibit A
attached hereto. The Debtor will not permit any tangible Collateral to be
located in any state (and, if county filing is required, in any county) in
which a financing statement covering such Collateral is required to be,
but has not in fact been, filed in order to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not change its
business name, without prior written notice to the Secured Party. The
Debtor will not change its business address, without prior written notice
to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible Collateral to
become part of or to be affixed to any real property without first
assuring to the reasonable satisfaction of the Secured Party that the
Security Interest will be prior and senior to any interest or lien then
held or thereafter acquired by any mortgagee of such real property or the
owner or purchaser of any interest therein. No part of the tangible
Collateral is now or will become so related to particular real estate as
to be a fixture.
(f) RIGHTS TO PAYMENT. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or will be when arising, issued or assigned to the Secured
Party) the valid, genuine and legally enforceable obligation, subject to
no defense, setoff or counterclaim (other than those arising in the
ordinary course of business), of the account debtor or other obligor named
therein or in the Debtor's records pertaining thereto as being obligated
to pay such obligation. The Debtor will neither agree to any material
modification or amendment nor agree to any forbearance, release or
cancellation of any such obligation without the Secured Party's prior
written consent, and will not subordinate any such right to payment to
claims of other creditors of such account debtor or other obligor, unless
the Debtor in good faith believes it is appropriate to do so in order to
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<PAGE> 4
maximize recovery from such account debtor or other obligor or such
account debtor or other obligor has a legitimate basis for requesting any
of the foregoing based on the Debtor's performance.
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof;
(ii) promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or
upon or against the creation, perfection or continuance of the
Security Interest;
(iii) at all reasonable times, permit the Secured Party
or its representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the
Debtor's books and records pertaining to the Collateral and
its business and financial condition and to send and discuss
with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records pertaining to
the Collateral and pertaining to the Debtor's business and
financial condition and submit to the Secured Party such
periodic reports concerning the Collateral and the Debtor's
business and financial condition as the Secured Party may from
time to time reasonably request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse change,
known to the Debtor, in the prospect of payment of any sums
due on or under any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured Party
any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral insured
against risks of fire (including so-called extended coverage),
theft, collision (in case of Collateral consisting of motor
vehicles) and such other risks and in such amounts as the
Secured Party may reasonably request, with any loss payable to
the Secured Party to the extent of its interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably require in
order to perfect the Security Interest
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<PAGE> 5
and, if any Collateral consists of a motor vehicle, execute
such documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on
demand for all costs of collection of any of the Obligations
and all other out-of-pocket expenses (including in each case
all reasonable attorneys' fees) incurred by the Secured Party
in connection with the creation, perfection, satisfaction,
protection, defense or enforcement of the Security Interest or
the creation, continuance, protection, defense or enforcement
of this Agreement or any or all of the Obligations, including
expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and
other agreements and writings which the Secured Party may at
any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be
used or kept, for any unlawful purpose or in violation of any
federal, state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor at
any time fails to perform or observe any agreement contained in Section
3(g), and if such failure continues for a period of ten calendar days
after the Secured Party gives the Debtor written notice thereof (or, in
the case of the agreements contained in clauses (vii) and (viii) of
Section 3(g), immediately upon the occurrence of such failure, without
notice or lapse of time), the Secured Party may (but need not) perform
or observe such agreement on behalf and in the name, place and stead of
the Debtor (or, at the Secured Party's option, in the Secured Party's
own name) and may (but need not) take any and all other actions which
the Secured Party may reasonably deem necessary to cure or correct such
failure (including, without limitation the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the
performance of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance of
insurance, the execution of financing statements, the endorsement of
instruments, and the procurement of repairs, transportation or
insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, the Debtor shall thereupon
pay the Secured Party on demand the amount of all moneys expended and
all costs and expenses (including reasonable attorneys' fees) incurred
by the Secured Party in connection with or as a result of the Secured
Party's performing or observing such agreements or taking such actions,
together with interest thereon from the date expended or incurred by
the Secured
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<PAGE> 6
Party at the highest rate then applicable to any of the Obligations. To
facilitate the performance or observance by the Secured Party of such
agreements of the Debtor, the Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) the Secured Party, or its
delegate, as the attorney-in-fact of the Debtor with the right (but not
the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file, in the name and on behalf of the Debtor, any and
all instruments, documents, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Debtor under this Section 3 and
Section 4.
4. Rights of Secured Party. At any time and from time to time,
whether before or after an Event of Default, the Secured Party may take any or
all of the following actions:
(a) ACCOUNT VERIFICATION. The Secured Party may verify any accounts
in the name of the Debtor or in its own name; and the Debtor, whenever
requested, shall furnish the Secured Party with duplicate statements of
the accounts, which statements may be mailed or delivered by the Secured
Party for that purpose. The Secured Party may also at any time and from
time to time telephone account debtors and other obligors to verify
accounts.
(b) COLLATERAL ACCOUNT. The Secured Party may establish a
collateral account for the deposit of checks, drafts and cash payments
made by the Debtor's account debtors. If a collateral account is so
established, the Debtor shall promptly deliver to the Secured Party, for
deposit into said collateral account, all payments on accounts and chattel
paper received by it. All such payments shall be delivered to the Secured
Party in the form received (except for the Debtor's endorsement where
necessary). Until so deposited, all payments on accounts and chattel paper
received by the Debtor shall be held in trust by the Debtor for and as the
property of the Secured Party and shall not be commingled with any funds
or property of the Debtor. All deposits in said collateral account shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation. At all times prior to the occurrence of a Default or Event of
Default, the Secured Party shall permit the Debtor to withdraw all or any
part of the balance on deposit in said collateral account. Following the
occurrence and during the continuance of a Default or Event of Default,
the Secured Party may, at its option at any time, apply finally collected
funds on deposit in said collateral account to the payment of the
Obligations in such order of application as the Secured Party may
determine, or permit the Debtor to withdraw all or any part of the balance
on deposit in said collateral account.
(c) LOCKBOX. The Secured Party may, by notice to the Debtor,
require the Debtor to direct each of its account debtors to make payments
due under the relevant account or chattel paper directly to a special
lockbox to be under the control of the Secured Party. The Debtor hereby
authorizes and directs the Secured Party to deposit
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<PAGE> 7
all checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
(d) DIRECT COLLECTION. The Secured Party may, after the occurrence
and during the continuance of an Event of Default, notify any account
debtor, or any other person obligated to pay any amount due, that such
chattel paper, account, or other right to payment has been assigned or
transferred to the Secured Party for security and shall be paid directly
to the Secured Party. If the Secured Party so requests at any time, the
Debtor will so notify such account debtors and other obligors in writing
and will indicate on all invoices to such account debtors or other
obligors that the amount due is payable directly to the Secured Party. At
any time after the Secured Party or the Debtor gives such notice to an
account debtor or other obligor, the Secured Party may (but need not), in
its own name or in the Debtor's name, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of, or
securing, any such chattel paper, account, or other right to payment, or
grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations
(including collateral obligations) of any such account debtor or other
obligor.
5. Assignment of Insurance. The Debtor hereby assigns to the Secured
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay
any such moneys directly to the Secured Party. Both before and after the
occurrence of an Event of Default, the Secured Party may (but need not), in its
own name or in the Debtor's name, execute and deliver proofs of claim, receive
all such moneys, endorse checks and other instruments representing payment of
such moneys, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.
6. Events of Default. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called "Event of
Default"): (i) an Event of Default shall occur under any letter agreement, loan
agreement, reimbursement agreement, general customer agreement or other
agreement or document evidencing any of the Obligations; or (ii) the Debtor
shall fail to pay any or all of the Obligations when due or (if payable on
demand) on demand; or (iii) the Debtor shall fail to observe or perform any
covenant or agreement binding on it under the Guaranty of this Agreement.
7. Remedies upon Event of Default. Upon the occurrence of an Event
of Default and at any time thereafter, the Secured Party may exercise any one or
more of the following rights and remedies: (i) declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or demand; (ii)
exercise and enforce any or all rights and remedies available upon default to a
secured party under the Uniform Commercial Code,
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<PAGE> 8
including but not limited to the right to take possession of any Collateral,
proceeding without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Debtor hereby expressly waives), and the
right to sell, lease or otherwise dispose of any or all of the Collateral, and
in connection therewith, the Secured Party may require the Debtor to make the
Collateral available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties, and if notice to
the Debtor of any intended disposition of Collateral or any other intended
action is required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 9) at least
10 calendar days prior to the date of intended disposition or other action;
(iii) exercise or enforce any or all other rights or remedies available to the
Secured Party by law or agreement against the Collateral, against the Debtor or
against any other person or property. The Secured Party is hereby granted a
nonexclusive, worldwide and royalty-free license to use or otherwise exploit all
trademarks, trade secrets, franchises, copyrights and patents of the Debtor that
the Secured Party deems necessary or appropriate to the disposition of any
Collateral.
8. Other Personal Property. Unless at the time the Secured Party
takes possession of any tangible Collateral, or within seven days thereafter,
the Debtor gives written notice to the Secured Party of the existence of any
goods, papers or other property of the Debtor, not affixed to or constituting a
part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible
or liable to the Debtor for any action taken or omitted by or on behalf of the
Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that it was located
or to be found upon or within such Collateral.
9. Notice. All notices and other communications hereunder shall be
in writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the
other party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) when deposited in
the mail if delivered by mail, (iii) the date sent if sent by overnight courier,
or (iv) the date of transmission if delivered by telecopy.
10. Miscellaneous. This Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of
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<PAGE> 9
the Secured Party shall be cumulative and may be exercised singularly or
concurrently, at the Secured Party's option, and the exercise or enforcement of
any one such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. The Secured Party's duty of care with
respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if the Secured Party exercises reasonable care in physically
safekeeping such Collateral or, in the case of Collateral in the custody or
possession of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and the Secured Party need not
otherwise preserve, protect, insure or care for any Collateral. The Secured
Party shall not be obligated to preserve any rights the Debtor may have against
prior parties, to realize on the Collateral at all or in any particular manner
or order, or to apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
the Debtor and the Secured Party and their respective successors and assigns and
shall take effect when signed by the Debtor and delivered to the Secured Party,
and the Debtor waives notice of the Secured Party's acceptance hereof. The
Secured Party may execute this Agreement if appropriate for the purpose of
filing, but the failure of the Secured Party to execute this Agreement shall not
affect or impair the validity or effectiveness of this Agreement. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement signed by the Debtor shall have the same force and effect as the
original for all purposes of a financing statement. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The parties hereto hereby (v) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; (vi) waive any argument that venue in any
such forum is not convenient, (vii) agree that any litigation initiated by the
Debtor in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (viii) agree
that a final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NORWEST BANK MINNESOTA, JAKKS PACIFIC, INC.
NATIONAL ASSOCIATION
By /s/ Lisa M. Hoppin By /s/ Jack Friedman
--------------------------------- ---------------------------------
Its Vice President Its CEO/President
--------------------------- ---------------------------
<TABLE>
<S> <C>
Address: Address:
Norwest Center
Sixth Street and Marquette Avenue 22761 Pacific Coast Highway,
Minneapolis, Minnesota 55479-0085 Suite 226 Malibu, California 90265
Employer identification number: 41-1592157 Employer identification number: 95-4527222
</TABLE>
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<PAGE> 11
EXHIBIT A TO SECURITY AGREEMENT
LOCATION OF COLLATERAL
22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
<PAGE> 1
EXHIBIT 10.40A
SECURITY AGREEMENT
(ROAD CHAMPS, INC.)
This Agreement, dated as of October 21, 1997, is made by and
between ROAD CHAMPS, INC., a Pennsylvania corporation (the "Debtor"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Secured Party make loans
and extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Secured Party has required, among
other things, the execution and delivery of the Debtor's Guaranty of even date
herewith, guaranteeing the payment and performance of all of the Obligations
(defined below) of the Borrowers (the "Guaranty").
As a further condition to making loans and extending other
credit and financial accommodations to the Borrowers, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms have
the meanings set forth below:
"Accounts" means each and every account and other right of the
Debtor to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property by the
Debtor, out of a rendering of services by the Debtor, out of a loan by
the Debtor, out of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any of the property of such account debtor or other obligor,
all including but not limited to all present and future debt
instruments, chattel papers, accounts, loans and obligations
receivable, tax refunds and royalties, including, without limitation,
all rights to
<PAGE> 2
payment and/or proceeds in respect of all letters of credit which are
issued for the benefit of the Debtor or in which the Debtor has any
interest.
"Collateral" means the Accounts, Inventory and Investment
Property, together with all substitutions and replacements for,
products and proceeds of, any of the foregoing property, all
accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
of the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Event of Default" has the meaning specified in Section 6.
"Inventory" means all inventory of the Debtor, whether now
owned or hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment
property, whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Obligations" means (i) each and every debt, liability and
obligation of every type and description which the Borrowers may now or
at any time hereafter owe to the Secured Party, whether such debt,
liability or obligation now exists or is hereafter created or incurred
and whether it is or may be direct or indirect, due or to become due,
or absolute or contingent, whether now existing or hereafter arising,
and (ii) each and every debt, liability and obligation of every type
and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now
exists or is hereafter created or incurred and whether it is or may be
direct or indirect, due or to become due, or absolute or contingent,
including without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in the Collateral to
secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof, free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest, (iii) will keep all
Collateral free and clear of all security interests,
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<PAGE> 3
liens and encumbrances except the Security Interest and ( iv) will
defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise
dispose of the Collateral or any interest therein without the prior
written consent of the Secured Party, except that, until the occurrence
of an Event of Default and the revocation by the Secured Party of the
Debtor's right to do so, the Debtor may sell any inventory constituting
Collateral to buyers in the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The
Debtor's chief executive office is located at the address set forth
under its signature below. The Debtor's federal employer identification
number is correctly set forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the
tangible Collateral is located only in the states as set forth on
Exhibit A attached hereto. The Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing is
required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not
change its business name, without prior written notice to the Secured
Party. The Debtor will not change its business address, without prior
written notice to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real property
without first assuring to the reasonable satisfaction of the Secured
Party that the Security Interest will be prior and senior to any
interest or lien then held or thereafter acquired by any mortgagee of
such real property or the owner or purchaser of any interest therein.
No part of the tangible Collateral is now or will become so related to
particular real estate as to be a fixture.
(f) RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or will be when arising, issued or assigned
to the Secured Party) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim (other than
those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records
pertaining thereto as being obligated to pay such obligation. The
Debtor will neither agree to any material modification or amendment nor
agree to any forbearance, release or cancellation of any such
obligation without the Secured Party's prior written consent, and will
not subordinate any such right to payment to claims of other creditors
of such account debtor or other obligor, unless the Debtor in good
faith believes it is appropriate to do so in order to maximize recovery
from such account debtor or other obligor or such account debtor or
other obligor has a legitimate basis for requesting any of the
foregoing based on the Debtor's performance.
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<PAGE> 4
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof;
(ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured
Party or its representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy
the Debtor's books and records pertaining to the Collateral
and its business and financial condition and to send and
discuss with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records
pertaining to the Collateral and pertaining to the Debtor's
business and financial condition and submit to the Secured
Party such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the Secured Party
may from time to time reasonably request;
(v) promptly notify the Secured Party of any
loss of or material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment of any
sums due on or under any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured Party
any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral
insured against risks of fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as
the Secured Party may reasonably request, with any loss
payable to the Secured Party to the extent of its interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably require in
order to perfect the Security Interest and, if any Collateral
consists of a motor vehicle, execute such documents as may be
required to have the Security Interest properly noted on a
certificate of title;
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<PAGE> 5
(ix) pay when due or reimburse the Secured Party
on demand for all costs of collection of any of the
Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and
other agreements and writings which the Secured Party may at
any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor
at any time fails to perform or observe any agreement contained in
Section 3(g), and if such failure continues for a period of ten
calendar days after the Secured Party gives the Debtor written notice
thereof (or, in the case of the agreements contained in clauses (vii)
and (viii) of Section 3(g), immediately upon the occurrence of such
failure, without notice or lapse of time), the Secured Party may (but
need not) perform or observe such agreement on behalf and in the name,
place and stead of the Debtor (or, at the Secured Party's option, in
the Secured Party's own name) and may (but need not) take any and all
other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation the payment
of taxes, the satisfaction of security interests, liens, or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money
usurious or otherwise illegal under any applicable law, the Debtor
shall thereupon pay the Secured Party on demand the amount of all
moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by the Secured Party in connection with or as
a result of the Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance or
observance by the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is coupled with
an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with
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<PAGE> 6
the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by
the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from time to
time, whether before or after an Event of Default, the Secured Party may take
any or all of the following actions:
(a) ACCOUNT VERIFICATION. The Secured Party may verify
any accounts in the name of the Debtor or in its own name; and the
Debtor, whenever requested, shall furnish the Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by the Secured Party for that purpose. The Secured Party may
also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
(b) COLLATERAL ACCOUNT. The Secured Party may establish a
collateral account for the deposit of checks, drafts and cash payments
made by the Debtor's account debtors. If a collateral account is so
established, the Debtor shall promptly deliver to the Secured Party,
for deposit into said collateral account, all payments on accounts and
chattel paper received by it. All such payments shall be delivered to
the Secured Party in the form received (except for the Debtor's
endorsement where necessary). Until so deposited, all payments on
accounts and chattel paper received by the Debtor shall be held in
trust by the Debtor for and as the property of the Secured Party and
shall not be commingled with any funds or property of the Debtor. All
deposits in said collateral account shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the
Secured Party shall permit the Debtor to withdraw all or any part of
the balance on deposit in said collateral account. Following the
occurrence and during the continuance of a Default or Event of Default,
the Secured Party may, at its option at any time, apply finally
collected funds on deposit in said collateral account to the payment of
the Obligations in such order of application as the Secured Party may
determine, or permit the Debtor to withdraw all or any part of the
balance on deposit in said collateral account.
(c) LOCKBOX. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account debtors to
make payments due under the relevant account or chattel paper directly
to a special lockbox to be under the control of the Secured Party. The
Debtor hereby authorizes and directs the Secured Party to deposit all
checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
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<PAGE> 7
(d) DIRECT COLLECTION. The Secured Party may, after the
occurrence and during the continuance of an Event of Default, notify
any account debtor, or any other person obligated to pay any amount
due, that such chattel paper, account, or other right to payment has
been assigned or transferred to the Secured Party for security and
shall be paid directly to the Secured Party. If the Secured Party so
requests at any time, the Debtor will so notify such account debtors
and other obligors in writing and will indicate on all invoices to such
account debtors or other obligors that the amount due is payable
directly to the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other obligor, the
Secured Party may (but need not), in its own name or in the Debtor's
name, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive,
modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
5. Assignment of Insurance. The Debtor hereby assigns to
the Secured Party, as additional security for the payment of the Obligations,
any and all moneys (including but not limited to proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Debtor under or with respect to, any and all policies of insurance
covering the Collateral, and the Debtor hereby directs the issuer of any such
policy to pay any such moneys directly to the Secured Party. Both before and
after the occurrence of an Event of Default, the Secured Party may (but need
not), in its own name or in the Debtor's name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
6. Events of Default. Each of the following occurrences
shall constitute an event of default under this Agreement (herein called "Event
of Default"): (i) an Event of Default shall occur under any letter agreement,
loan agreement, reimbursement agreement, general customer agreement or other
agreement or document evidencing any of the Obligations; or (ii) the Debtor
shall fail to pay any or all of the Obligations when due or (if payable on
demand) on demand; or (iii) the Debtor shall fail to observe or perform any
covenant or agreement binding on it under the Guaranty of this Agreement.
7. Remedies upon Event of Default. Upon the occurrence
of an Event of Default and at any time thereafter, the Secured Party may
exercise any one or more of the following rights and remedies: ( i) declare all
unmatured Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or other notice or
demand; ( ii) exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which the Debtor hereby expressly waives), and the right to sell, lease
or otherwise dispose of any or all
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<PAGE> 8
of the Collateral, and in connection therewith, the Secured Party may require
the Debtor to make the Collateral available to the Secured Party at a place to
be designated by the Secured Party which is reasonably convenient to both
parties, and if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 9) at least 10 calendar days prior to the date of intended
disposition or other action; ( iii) exercise or enforce any or all other rights
or remedies available to the Secured Party by law or agreement against the
Collateral, against the Debtor or against any other person or property. The
Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
8. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or within seven days
thereafter, the Debtor gives written notice to the Secured Party of the
existence of any goods, papers or other property of the Debtor, not affixed to
or constituting a part of such Collateral, but which are located or found upon
or within such Collateral, describing such property, the Secured Party shall not
be responsible or liable to the Debtor for any action taken or omitted by or on
behalf of the Secured Party with respect to such property without actual
knowledge of the existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
9. Notice. All notices and other communications
hereunder shall be in writing and shall be ( a) personally delivered, ( b) sent
by first class United States mail, ( c) sent by overnight courier of national
reputation, or ( d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below its signature or, as to each party, at such
other address or telecopier number as may hereafter be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be deemed to have been given on ( i) the date received if personally
delivered, ( ii) when deposited in the mail if delivered by mail, ( iii) the
date sent if sent by overnight courier, or ( iv) the date of transmission if
delivered by telecopy.
10. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
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<PAGE> 9
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The parties hereto hereby ( v) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; ( vi) waive any argument that venue in
any such forum is not convenient, ( vii) agree that any litigation initiated by
the Debtor in connection with this Agreement or the other Loan Documents shall
be venued in either the District Court of Hennepin County, Minnesota, or the
United States District Court, District of Minnesota, Fourth Division; and (
viii) agree that a final judgment in any such suit, action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NORWEST BANK MINNESOTA, ROAD CHAMPS, INC.
NATIONAL ASSOCIATION
By /s/ LISA M. HOPPIN By /s/ JACK FRIEDMAN
---------------------------------- -----------------------------------
Its Vice President Its President
------------------------------ -------------------------------
<TABLE>
<S> <C>
Address: Address:
Norwest Center
Sixth Street and Marquette Avenue 7 Patton Drive
Minneapolis, Minnesota 55479-0085 West Caldwell, New Jersey 07006
Employer identification number: 41-1592157 Employer identification number: 23-1552961
</TABLE>
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<PAGE> 11
EXHIBIT A TO SECURITY AGREEMENT
LOCATIONS OF COLLATERAL
7 Patton Drive
West Caldwell, New Jersey 07006
1107 Broadway, Suite 1517
New York, New York 10010
<PAGE> 1
EXHIBIT 10.40.B
SECURITY AGREEMENT
(JAKKS ACQUISITION CORP.)
This Agreement, dated as of October 21, 1997, is made by and
between JAKKS ACQUISITION CORP., a Delaware corporation (the "Debtor"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Secured Party make loans
and extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Secured Party has required, among
other things, the execution and delivery of the Debtor's Guaranty of even date
herewith, guaranteeing the payment and performance of all of the Obligations
(defined below) of the Borrowers (the "Guaranty").
As a further condition to making loans and extending other
credit and financial accommodations to the Borrowers, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms have
the meanings set forth below:
"Accounts" means each and every account and other right of the
Debtor to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property by the
Debtor, out of a rendering of services by the Debtor, out of a loan by
the Debtor, out of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any of the property of such account debtor or other obligor,
all including but not limited to all present and future debt
instruments, chattel papers, accounts, loans and obligations
receivable, tax refunds and royalties, including, without limitation,
all rights to
<PAGE> 2
payment and/or proceeds in respect of all letters of credit which are
issued for the benefit of the Debtor or in which the Debtor has any
interest.
"Collateral" means the Accounts, Inventory and Investment
Property, together with all substitutions and replacements for,
products and proceeds of, any of the foregoing property, all
accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
of the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Event of Default" has the meaning specified in Section 6.
"Inventory" means all inventory of the Debtor, whether now
owned or hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment
property, whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Obligations" means (i) each and every debt, liability and
obligation of every type and description which the Borrowers may now or
at any time hereafter owe to the Secured Party, whether such debt,
liability or obligation now exists or is hereafter created or incurred
and whether it is or may be direct or indirect, due or to become due,
or absolute or contingent, whether now existing or hereafter arising,
and (ii) each and every debt, liability and obligation of every type
and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now
exists or is hereafter created or incurred and whether it is or may be
direct or indirect, due or to become due, or absolute or contingent,
including without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in the Collateral to
secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) TITLE. The Debtor ( i) has absolute title to each
item of Collateral in existence on the date hereof, free and clear of
all security interests, liens and encumbrances, except the Security
Interest, ( ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest, ( iii) will keep all
Collateral free and clear of all security interests,
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<PAGE> 3
liens and encumbrances except the Security Interest and (iv) will
defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise
dispose of the Collateral or any interest therein without the prior
written consent of the Secured Party, except that, until the occurrence
of an Event of Default and the revocation by the Secured Party of the
Debtor's right to do so, the Debtor may sell any inventory constituting
Collateral to buyers in the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The
Debtor's chief executive office is located at the address set forth
under its signature below. The Debtor's federal employer identification
number is correctly set forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the
tangible Collateral is located only in the states as set forth on
Exhibit A attached hereto. The Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing is
required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not
change its business name, without prior written notice to the Secured
Party. The Debtor will not change its business address, without prior
written notice to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real property
without first assuring to the reasonable satisfaction of the Secured
Party that the Security Interest will be prior and senior to any
interest or lien then held or thereafter acquired by any mortgagee of
such real property or the owner or purchaser of any interest therein.
No part of the tangible Collateral is now or will become so related to
particular real estate as to be a fixture.
(f) RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or will be when arising, issued or assigned
to the Secured Party) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim (other than
those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records
pertaining thereto as being obligated to pay such obligation. The
Debtor will neither agree to any material modification or amendment nor
agree to any forbearance, release or cancellation of any such
obligation without the Secured Party's prior written consent, and will
not subordinate any such right to payment to claims of other creditors
of such account debtor or other obligor, unless the Debtor in good
faith believes it is appropriate to do so in order to maximize recovery
from such account debtor or other obligor or such account debtor or
other obligor has a legitimate basis for requesting any of the
foregoing based on the Debtor's performance.
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<PAGE> 4
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof;
(ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured
Party or its representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy
the Debtor's books and records pertaining to the Collateral
and its business and financial condition and to send and
discuss with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records
pertaining to the Collateral and pertaining to the Debtor's
business and financial condition and submit to the Secured
Party such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the Secured Party
may from time to time reasonably request;
(v) promptly notify the Secured Party of any
loss of or material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment of any
sums due on or under any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured Party
any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral
insured against risks of fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as
the Secured Party may reasonably request, with any loss
payable to the Secured Party to the extent of its interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably require in
order to perfect the Security Interest and, if any Collateral
consists of a motor vehicle, execute such documents as may be
required to have the Security Interest properly noted on a
certificate of title;
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<PAGE> 5
(ix) pay when due or reimburse the Secured Party
on demand for all costs of collection of any of the
Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and
other agreements and writings which the Secured Party may at
any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor
at any time fails to perform or observe any agreement contained in
Section 3(g), and if such failure continues for a period of ten
calendar days after the Secured Party gives the Debtor written notice
thereof (or, in the case of the agreements contained in clauses (vii)
and (viii) of Section 3(g), immediately upon the occurrence of such
failure, without notice or lapse of time), the Secured Party may (but
need not) perform or observe such agreement on behalf and in the name,
place and stead of the Debtor (or, at the Secured Party's option, in
the Secured Party's own name) and may (but need not) take any and all
other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation the payment
of taxes, the satisfaction of security interests, liens, or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money
usurious or otherwise illegal under any applicable law, the Debtor
shall thereupon pay the Secured Party on demand the amount of all
moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by the Secured Party in connection with or as
a result of the Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance or
observance by the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is coupled with
an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with
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<PAGE> 6
the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by
the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from time to
time, whether before or after an Event of Default, the Secured Party may take
any or all of the following actions:
(a) ACCOUNT VERIFICATION. The Secured Party may verify
any accounts in the name of the Debtor or in its own name; and the
Debtor, whenever requested, shall furnish the Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by the Secured Party for that purpose. The Secured Party may
also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
(b) COLLATERAL ACCOUNT. The Secured Party may establish a
collateral account for the deposit of checks, drafts and cash payments
made by the Debtor's account debtors. If a collateral account is so
established, the Debtor shall promptly deliver to the Secured Party,
for deposit into said collateral account, all payments on accounts and
chattel paper received by it. All such payments shall be delivered to
the Secured Party in the form received (except for the Debtor's
endorsement where necessary). Until so deposited, all payments on
accounts and chattel paper received by the Debtor shall be held in
trust by the Debtor for and as the property of the Secured Party and
shall not be commingled with any funds or property of the Debtor. All
deposits in said collateral account shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the
Secured Party shall permit the Debtor to withdraw all or any part of
the balance on deposit in said collateral account. Following the
occurrence and during the continuance of a Default or Event of Default,
the Secured Party may, at its option at any time, apply finally
collected funds on deposit in said collateral account to the payment of
the Obligations in such order of application as the Secured Party may
determine, or permit the Debtor to withdraw all or any part of the
balance on deposit in said collateral account.
(c) LOCKBOX. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account debtors to
make payments due under the relevant account or chattel paper directly
to a special lockbox to be under the control of the Secured Party. The
Debtor hereby authorizes and directs the Secured Party to deposit all
checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
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<PAGE> 7
(d) DIRECT COLLECTION. The Secured Party may, after the
occurrence and during the continuance of an Event of Default, notify
any account debtor, or any other person obligated to pay any amount
due, that such chattel paper, account, or other right to payment has
been assigned or transferred to the Secured Party for security and
shall be paid directly to the Secured Party. If the Secured Party so
requests at any time, the Debtor will so notify such account debtors
and other obligors in writing and will indicate on all invoices to such
account debtors or other obligors that the amount due is payable
directly to the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other obligor, the
Secured Party may (but need not), in its own name or in the Debtor's
name, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive,
modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
5. Assignment of Insurance. The Debtor hereby assigns to
the Secured Party, as additional security for the payment of the Obligations,
any and all moneys (including but not limited to proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Debtor under or with respect to, any and all policies of insurance
covering the Collateral, and the Debtor hereby directs the issuer of any such
policy to pay any such moneys directly to the Secured Party. Both before and
after the occurrence of an Event of Default, the Secured Party may (but need
not), in its own name or in the Debtor's name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
6. Events of Default. Each of the following occurrences
shall constitute an event of default under this Agreement (herein called "Event
of Default"): (i) an Event of Default shall occur under any letter agreement,
loan agreement, reimbursement agreement, general customer agreement or other
agreement or document evidencing any of the Obligations; or (ii) the Debtor
shall fail to pay any or all of the Obligations when due or (if payable on
demand) on demand; or (iii) the Debtor shall fail to observe or perform any
covenant or agreement binding on it under the Guaranty of this Agreement.
7. Remedies upon Event of Default. Upon the occurrence
of an Event of Default and at any time thereafter, the Secured Party may
exercise any one or more of the following rights and remedies: ( i) declare all
unmatured Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or other notice or
demand; ( ii) exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which the Debtor hereby expressly waives), and the right to sell, lease
or otherwise dispose of any or all
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<PAGE> 8
of the Collateral, and in connection therewith, the Secured Party may require
the Debtor to make the Collateral available to the Secured Party at a place to
be designated by the Secured Party which is reasonably convenient to both
parties, and if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 9) at least 10 calendar days prior to the date of intended
disposition or other action; ( iii) exercise or enforce any or all other rights
or remedies available to the Secured Party by law or agreement against the
Collateral, against the Debtor or against any other person or property. The
Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
8. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or within seven days
thereafter, the Debtor gives written notice to the Secured Party of the
existence of any goods, papers or other property of the Debtor, not affixed to
or constituting a part of such Collateral, but which are located or found upon
or within such Collateral, describing such property, the Secured Party shall not
be responsible or liable to the Debtor for any action taken or omitted by or on
behalf of the Secured Party with respect to such property without actual
knowledge of the existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
9. Notice. All notices and other communications
hereunder shall be in writing and shall be ( a) personally delivered, ( b) sent
by first class United States mail, ( c) sent by overnight courier of national
reputation, or ( d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below its signature or, as to each party, at such
other address or telecopier number as may hereafter be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be deemed to have been given on ( i) the date received if personally
delivered, ( ii) when deposited in the mail if delivered by mail, ( iii) the
date sent if sent by overnight courier, or ( iv) the date of transmission if
delivered by telecopy.
10. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
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<PAGE> 9
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The parties hereto hereby ( v) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; ( vi) waive any argument that venue in
any such forum is not convenient, ( vii) agree that any litigation initiated by
the Debtor in connection with this Agreement or the other Loan Documents shall
be venued in either the District Court of Hennepin County, Minnesota, or the
United States District Court, District of Minnesota, Fourth Division; and (
viii) agree that a final judgment in any such suit, action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NORWEST BANK MINNESOTA, JAKKS ACQUISITION CORP.
NATIONAL ASSOCIATION
By /s/ LISA M. HOPPIN By /s/ JACK FRIEDMAN
---------------------------------- --------------------------------
Its Vice President Its President
------------------------------- -----------------------------
<TABLE>
<S> <C>
Address: Address:
Norwest Center 22761 Pacific Coast Highway, Suite 226
Sixth Street and Marquette Avenue Malibu, California 90265
Minneapolis, Minnesota 55479-0085
Employer identification number: 91-1766302
Employer identification number: 41-1592157
</TABLE>
-10-
<PAGE> 11
EXHIBIT A TO SECURITY AGREEMENT
LOCATIONS OF COLLATERAL
22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
<PAGE> 1
EXHIBIT 10.40C
SECURITY AGREEMENT
(J-X ENTERPRISES, INC.)
This Agreement, dated as of October 21, 1997, is made by and
between J-X ENTERPRISES, INC., a New York corporation (the "Debtor"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Secured Party make loans
and extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Secured Party has required, among
other things, the execution and delivery of the Debtor's Guaranty of even date
herewith, guaranteeing the payment and performance of all of the Obligations
(defined below) of the Borrowers (the "Guaranty").
As a further condition to making loans and extending other
credit and financial accommodations to the Borrowers, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms have
the meanings set forth below:
"Accounts" means each and every account and other right of the
Debtor to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property by the
Debtor, out of a rendering of services by the Debtor, out of a loan by
the Debtor, out of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any of the property of such account debtor or other obligor,
all including but not limited to all present and future debt
instruments, chattel papers, accounts, loans and obligations
receivable, tax refunds and royalties, including, without limitation,
all rights to
<PAGE> 2
payment and/or proceeds in respect of all letters of credit which are
issued for the benefit of the Debtor or in which the Debtor has any
interest.
"Collateral" means the Accounts, Inventory and Investment
Property, together with all substitutions and replacements for,
products and proceeds of, any of the foregoing property, all
accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
of the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Event of Default" has the meaning specified in Section 6.
"Inventory" means all inventory of the Debtor, whether now
owned or hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment
property, whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Obligations" means (i) each and every debt, liability and
obligation of every type and description which the Borrowers may now or
at any time hereafter owe to the Secured Party, whether such debt,
liability or obligation now exists or is hereafter created or incurred
and whether it is or may be direct or indirect, due or to become due,
or absolute or contingent, whether now existing or hereafter arising,
and (ii) each and every debt, liability and obligation of every type
and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now
exists or is hereafter created or incurred and whether it is or may be
direct or indirect, due or to become due, or absolute or contingent,
including without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in the Collateral to
secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof, free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest, (iii) will keep all
Collateral free and clear of all security interests,
-2-
<PAGE> 3
liens and encumbrances except the Security Interest and (iv) will
defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise
dispose of the Collateral or any interest therein without the prior
written consent of the Secured Party, except that, until the occurrence
of an Event of Default and the revocation by the Secured Party of the
Debtor's right to do so, the Debtor may sell any inventory constituting
Collateral to buyers in the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The
Debtor's chief executive office is located at the address set forth
under its signature below. The Debtor's federal employer identification
number is correctly set forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the
tangible Collateral is located only in the states as set forth on
Exhibit A attached hereto. The Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing is
required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not
change its business name, without prior written notice to the Secured
Party. The Debtor will not change its business address, without prior
written notice to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real property
without first assuring to the reasonable satisfaction of the Secured
Party that the Security Interest will be prior and senior to any
interest or lien then held or thereafter acquired by any mortgagee of
such real property or the owner or purchaser of any interest therein.
No part of the tangible Collateral is now or will become so related to
particular real estate as to be a fixture.
(f) RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or will be when arising, issued or assigned
to the Secured Party) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim (other than
those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records
pertaining thereto as being obligated to pay such obligation. The
Debtor will neither agree to any material modification or amendment nor
agree to any forbearance, release or cancellation of any such
obligation without the Secured Party's prior written consent, and will
not subordinate any such right to payment to claims of other creditors
of such account debtor or other obligor, unless the Debtor in good
faith believes it is appropriate to do so in order to maximize recovery
from such account debtor or other obligor or such account debtor or
other obligor has a legitimate basis for requesting any of the
foregoing based on the Debtor's performance.
-3-
<PAGE> 4
(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof;
(ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured
Party or its representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy
the Debtor's books and records pertaining to the Collateral
and its business and financial condition and to send and
discuss with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records
pertaining to the Collateral and pertaining to the Debtor's
business and financial condition and submit to the Secured
Party such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the Secured Party
may from time to time reasonably request;
(v) promptly notify the Secured Party of any
loss of or material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment of any
sums due on or under any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured Party
any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral
insured against risks of fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as
the Secured Party may reasonably request, with any loss
payable to the Secured Party to the extent of its interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably require in
order to perfect the Security Interest and, if any Collateral
consists of a motor vehicle, execute such documents as may be
required to have the Security Interest properly noted on a
certificate of title;
-4-
<PAGE> 5
(ix) pay when due or reimburse the Secured Party
on demand for all costs of collection of any of the
Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and
other agreements and writings which the Secured Party may at
any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor
at any time fails to perform or observe any agreement contained in
Section 3(g), and if such failure continues for a period of ten
calendar days after the Secured Party gives the Debtor written notice
thereof (or, in the case of the agreements contained in clauses (vii)
and (viii) of Section 3(g), immediately upon the occurrence of such
failure, without notice or lapse of time), the Secured Party may (but
need not) perform or observe such agreement on behalf and in the name,
place and stead of the Debtor (or, at the Secured Party's option, in
the Secured Party's own name) and may (but need not) take any and all
other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation the payment
of taxes, the satisfaction of security interests, liens, or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money
usurious or otherwise illegal under any applicable law, the Debtor
shall thereupon pay the Secured Party on demand the amount of all
moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by the Secured Party in connection with or as
a result of the Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance or
observance by the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is coupled with
an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with
-5-
<PAGE> 6
the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by
the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from time to
time, whether before or after an Event of Default, the Secured Party may take
any or all of the following actions:
(a) ACCOUNT VERIFICATION. The Secured Party may verify
any accounts in the name of the Debtor or in its own name; and the
Debtor, whenever requested, shall furnish the Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by the Secured Party for that purpose. The Secured Party may
also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
(b) COLLATERAL ACCOUNT. The Secured Party may establish a
collateral account for the deposit of checks, drafts and cash payments
made by the Debtor's account debtors. If a collateral account is so
established, the Debtor shall promptly deliver to the Secured Party,
for deposit into said collateral account, all payments on accounts and
chattel paper received by it. All such payments shall be delivered to
the Secured Party in the form received (except for the Debtor's
endorsement where necessary). Until so deposited, all payments on
accounts and chattel paper received by the Debtor shall be held in
trust by the Debtor for and as the property of the Secured Party and
shall not be commingled with any funds or property of the Debtor. All
deposits in said collateral account shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the
Secured Party shall permit the Debtor to withdraw all or any part of
the balance on deposit in said collateral account. Following the
occurrence and during the continuance of a Default or Event of Default,
the Secured Party may, at its option at any time, apply finally
collected funds on deposit in said collateral account to the payment of
the Obligations in such order of application as the Secured Party may
determine, or permit the Debtor to withdraw all or any part of the
balance on deposit in said collateral account.
(c) LOCKBOX. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account debtors to
make payments due under the relevant account or chattel paper directly
to a special lockbox to be under the control of the Secured Party. The
Debtor hereby authorizes and directs the Secured Party to deposit all
checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
-6-
<PAGE> 7
(d) DIRECT COLLECTION. The Secured Party may, after the
occurrence and during the continuance of an Event of Default, notify
any account debtor, or any other person obligated to pay any amount
due, that such chattel paper, account, or other right to payment has
been assigned or transferred to the Secured Party for security and
shall be paid directly to the Secured Party. If the Secured Party so
requests at any time, the Debtor will so notify such account debtors
and other obligors in writing and will indicate on all invoices to such
account debtors or other obligors that the amount due is payable
directly to the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other obligor, the
Secured Party may (but need not), in its own name or in the Debtor's
name, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive,
modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
5. Assignment of Insurance. The Debtor hereby assigns to
the Secured Party, as additional security for the payment of the Obligations,
any and all moneys (including but not limited to proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Debtor under or with respect to, any and all policies of insurance
covering the Collateral, and the Debtor hereby directs the issuer of any such
policy to pay any such moneys directly to the Secured Party. Both before and
after the occurrence of an Event of Default, the Secured Party may (but need
not), in its own name or in the Debtor's name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
6. Events of Default. Each of the following occurrences
shall constitute an event of default under this Agreement (herein called "Event
of Default"): (i) an Event of Default shall occur under any letter agreement,
loan agreement, reimbursement agreement, general customer agreement or other
agreement or document evidencing any of the Obligations; or (ii) the Debtor
shall fail to pay any or all of the Obligations when due or (if payable on
demand) on demand; or (iii) the Debtor shall fail to observe or perform any
covenant or agreement binding on it under the Guaranty of this Agreement.
7. Remedies upon Event of Default. Upon the occurrence
of an Event of Default and at any time thereafter, the Secured Party may
exercise any one or more of the following rights and remedies: ( i) declare all
unmatured Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or other notice or
demand; ( ii) exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which the Debtor hereby expressly waives), and the right to sell, lease
or otherwise dispose of any or all
-7-
<PAGE> 8
of the Collateral, and in connection therewith, the Secured Party may require
the Debtor to make the Collateral available to the Secured Party at a place to
be designated by the Secured Party which is reasonably convenient to both
parties, and if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 9) at least 10 calendar days prior to the date of intended
disposition or other action; ( iii) exercise or enforce any or all other rights
or remedies available to the Secured Party by law or agreement against the
Collateral, against the Debtor or against any other person or property. The
Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
8. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or within seven days
thereafter, the Debtor gives written notice to the Secured Party of the
existence of any goods, papers or other property of the Debtor, not affixed to
or constituting a part of such Collateral, but which are located or found upon
or within such Collateral, describing such property, the Secured Party shall not
be responsible or liable to the Debtor for any action taken or omitted by or on
behalf of the Secured Party with respect to such property without actual
knowledge of the existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
9. Notice. All notices and other communications
hereunder shall be in writing and shall be ( a) personally delivered, ( b) sent
by first class United States mail, ( c) sent by overnight courier of national
reputation, or ( d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below its signature or, as to each party, at such
other address or telecopier number as may hereafter be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be deemed to have been given on ( i) the date received if personally
delivered, ( ii) when deposited in the mail if delivered by mail, ( iii) the
date sent if sent by overnight courier, or ( iv) the date of transmission if
delivered by telecopy.
10. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
-8-
<PAGE> 9
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The parties hereto hereby ( v) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; ( vi) waive any argument that venue in
any such forum is not convenient, ( vii) agree that any litigation initiated by
the Debtor in connection with this Agreement or the other Loan Documents shall
be venued in either the District Court of Hennepin County, Minnesota, or the
United States District Court, District of Minnesota, Fourth Division; and (viii)
agree that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NORWEST BANK MINNESOTA, J-X ENTERPRISES, INC.
NATIONAL ASSOCIATION
By /s/ LISA M. HOPPIN By /s/ JACK FRIEDMAN
---------------------------------- -----------------------------------
Its Vice President Its CEO/President
------------------------------ ------------------------------
<TABLE>
<S> <C>
Address: Address:
Norwest Center
Sixth Street and Marquette Avenue 200 Fifth Avenue, Room 550
Minneapolis, Minnesota 55479-0085 New York, New York 10010
Employer identification number: 41-1592157 Employer identification number: 13-3880455
</TABLE>
-10-
<PAGE> 11
EXHIBIT A TO SECURITY AGREEMENT
LOCATIONS OF COLLATERAL
200 Fifth Avenue, Room 550
New York, New York 10010
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Subsidiary* Jurisdiction
- ----------- ------------
<S> <C>
JP (HK) Limited Hong Kong
JAKKS Pacific (HK) Limited Hong Kong
J-X Enterprises, Inc. New York
JAKKS Acquisition Corp. Delaware
Road Champs, Inc. Pennsylvania
Road Champs, Ltd. Hong Kong
</TABLE>
* All subsidiaries conduct business under their respective corporate names.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 12, 1998, except note 17 for which the
date is April 1, 1998, on the consolidated financial statements of JAKKS
Pacific, Inc. in this Form 10-KSB into the previously filed Form S-3
Registration Statement of JAKKS Pacific, Inc. (File No. 333-48865).
Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation
Los Angeles, California
April 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,535,925
<SECURITIES> 0
<RECEIVABLES> 8,735,528
<ALLOWANCES> 51,153
<INVENTORY> 1,948,250
<CURRENT-ASSETS> 14,927,336
<PP&E> 3,955,856
<DEPRECIATION> 1,099,207
<TOTAL-ASSETS> 43,604,815
<CURRENT-LIABILITIES> 11,559,213
<BONDS> 6,000,000
0
4
<COMMON> 4,942
<OTHER-SE> 25,953,760
<TOTAL-LIABILITY-AND-EQUITY> 43,604,815
<SALES> 41,944,921
<TOTAL-REVENUES> 41,944,921
<CGS> 25,874,784
<TOTAL-COSTS> 25,874,784
<OTHER-EXPENSES> 11,895,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687,341
<INCOME-PRETAX> 3,429,445
<INCOME-TAX> 642,949
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,786,496
<EPS-PRIMARY> .60
<EPS-DILUTED> .52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
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