<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. 1)
[ x ] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
JAKKS Pacific, Inc.
- --------------------------------------------------------------------------------
Name of Registrant as Specified in its Charter
- --------------------------------------------------------------------------------
Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined:
(4) Proposed aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 09- 11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ________________________________________________
(2) Form. Schedule or Registration Statement No. __________________________
(3) Filing Party: __________________________________________________________
(4) Date Filed: ____________________________________________________________
1
<PAGE> 2
JAKKS PACIFIC, INC.
22761 PACIFIC COAST HIGHWAY, SUITE 226
MALIBU, CA 90265
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12, 1999
The Annual Meeting of Stockholders of JAKKS PACIFIC, INC. (the "Company")
will be held at the Sherwood Country Club, 320 West Stafford Road, Thousand
Oaks, California 91361, on August 12, 1999 at 10:00 a.m. local time, to consider
and act upon the following matters:
(1) To elect five directors to serve for the ensuing year.
(2) To ratify the appointment by the Board of Directors of Pannell Kerr
Forster, Certified Public Accountants, A Professional Corporation, as
the Company's independent auditors for the current fiscal year.
(3) To ratify and approve the amendment to the Company's Third Amended and
Restated 1995 Stock Option Plan described in the accompanying Proxy
Statement.
(4) To ratify and approve employment agreements between the Company and
Jack Friedman and Stephen G. Berman, respectively.
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record as of the close of business on June 21, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
By Order of the Board of Directors
Stephen G. Berman, Secretary
Malibu, California
July 12, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED.
<PAGE> 3
JAKKS PACIFIC, INC.
22761 PACIFIC COAST HIGHWAY, SUITE 226
MALIBU, CA 90265
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of JAKKS Pacific, Inc. (the "Company") for use
at the 1999 Annual Meeting of Stockholders to be held on August 12, 1999, and at
any adjournment of that meeting (the "Annual Meeting"). Throughout this Proxy
Statement, "we," "us" and "our" are used to refer to the Company.
The shares of our common stock represented by each proxy will be voted in
accordance with the stockholder's instructions as to each matter specified
thereon, unless no instruction is given, in which case, the proxy will be voted
in favor of such matter. Any proxy may be revoked by a stockholder at any time
before it is exercised by delivery of written revocation or a subsequently dated
proxy to our corporate Secretary or by voting in person at the Annual Meeting.
We are mailing this Proxy Statement to our stockholders on or about July
12, 1999, accompanied by our Annual Report to Stockholders for our fiscal year
ended December 31, 1998.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 21, 1999, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 10,105,012 shares of our common
stock, par value $.001 per share. All holders of our common stock are entitled
to one vote per share.
The affirmative vote of the holders of a plurality of the shares of our
common stock present or represented by proxy at the Annual Meeting is required
for election of directors. The affirmative vote of the holders of a majority of
the shares of our common stock present or represented by proxy at the Annual
Meeting is required for the ratification of the appointment by the Board of
Directors of Pannell Kerr Forster, Certified Public Accountants, A Professional
Corporation, as our independent auditors for the current fiscal year; the
ratification and approval of the amendment to our Third Amended and Restated
1995 Stock Option Plan hereinafter described; and the ratification and approval
of the employment agreements between us and Jack Friedman and Stephen G. Berman,
respectively. A majority of the outstanding shares of our common stock
represented in person or by proxy at the Annual Meeting will constitute a quorum
at the meeting. All shares of our common stock represented in person or by proxy
(including shares which abstain or do not vote for any reason with respect to
one or more of the matters presented for stockholder approval) will be counted
for purposes of determining whether a quorum is present at the Annual Meeting.
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the number of shares present and entitled to vote with
respect to any particular matter, but will not be counted as a vote in favor of
such matter. Accordingly, an abstention from voting on a matter has the same
legal effect as a vote against the matter. If a broker or nominee holding stock
in "street name" indicates on the proxy that it does not have discretionary
authority to vote as to a particular matter ("broker non-votes"), those shares
will not be considered as present and entitled to vote with respect to such
matter. Accordingly, a broker non-vote on a matter has no effect on the voting
on such matter.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 9, 1999, with
respect to the beneficial ownership of our common stock by (1) each current
director and nominee for director, (2) each executive officer named in the
Summary Compensation Table under the caption "Executive Compensation" below, (3)
all our directors and executive officers as a group and (4) each person known by
us to own beneficially more than 5% of the outstanding shares of our common
stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP SHARES
------------------- ---------- -----------
<S> <C> <C>
Jack Friedman(1)............................................ 587,703(3) 5.5
Stephen G. Berman(1)........................................ 47,180(4) *
Joel M. Bennett(1).......................................... 24,250(5) *
Robert E. Glick(1).......................................... 73,275(6) *
Michael G. Miller(1)........................................ 66,275(7) *
Murray L. Skala(1).......................................... 164,696(8) 1.5
Renaissance Capital Growth & Income Fund III, Inc.(2)....... 553,565 5.2
All directors and executive officers, as a group (6
persons).................................................. 896,507(9) 8.2
</TABLE>
- ---------------
* Less than 1% of our outstanding shares.
(1) The address of Messrs. Friedman, Berman, Bennett, Glick, Miller and Skala
is 22761 Pacific Coast Highway, Malibu, California 90265.
(2) The address of this beneficial owner is 8080 N. Central Parkway, Dallas, TX
75026.
(3) Includes 66,872 shares held in trusts for the benefit of children of Mr.
Friedman. Also includes 41,667 shares which Mr. Friedman may purchase upon
the exercise of certain stock options.
(4) Includes 41,667 shares which Mr. Berman may purchase upon the exercise of
certain stock options.
(5) Includes 23,250 shares which Mr. Bennett may purchase upon the exercise of
certain stock options.
(6) Includes 66,275 shares which Mr. Glick may purchase upon the exercise of
certain stock options.
(7) Represents shares which Mr. Miller may purchase upon the exercise of
certain stock options.
(8) Includes 71,700 shares which Mr. Skala may purchase upon the exercise of
certain stock options and 66,872 shares held by Mr. Skala as trustee under
trusts for the benefit of children of Mr. Friedman.
(9) Includes 66,872 shares held in trusts for the benefit of children of Mr.
Friedman and an aggregate of 310,834 shares which our directors and
executive officers may purchase upon the exercise of certain stock options.
Messrs. Friedman and Berman may be deemed "founders" of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on our review of Forms 3, 4 or 5 (and any amendments thereto) filed
during or with respect to our fiscal year ended December 31, 1998, all our
reporting persons filed all such forms, as required by Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"), on a timely basis.
2
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The persons named in the enclosed proxy will vote to elect as directors the
five nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. All of the
nominees have indicated their willingness to serve, if elected, but if any
nominee should be unable to serve or for good cause will not serve, the proxies
may be voted for a substitute nominee designated by management. Each director
will be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. There are no family relationships
between or among any of our executive officers or directors.
NOMINEES
Certain information about the nominees to serve as our directors (all of
whom are currently directors) is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY DIRECTOR SINCE
---- --- -------------------------- --------------
<S> <C> <C> <C>
Jack Friedman 60 Chairman and Chief Executive Officer January 1995
Stephen G. Berman 34 Chief Operating Officer, President, January 1995
Secretary and Director
Robert E. Glick 54 Director October 1996
Michael G. Miller 51 Director February 1996
Murray L. Skala 52 Director October 1995
</TABLE>
Jack Friedman has been our Chairman and Chief Executive Officer since
co-founding JAKKS with Mr. Berman in January 1995. Until December 31, 1998, he
was also our President. From January 1989 until January 1995, Mr. Friedman was
Chief Executive Officer, President and a director of THQ Inc., a developer,
publisher and distributor of interactive entertainment software ("THQ"). From
1970 to 1989, Mr. Friedman was President and Chief Operating Officer of LJN
Toys, Ltd., a toy and software company. After LJN was acquired by MCA/Universal,
Inc. in 1986, Mr. Friedman continued as President until his departure in late
1988.
Stephen G. Berman has been our Chief Operating Officer and Secretary since
co-founding JAKKS with Mr. Friedman in January 1995. Since January 1, 1999, he
has also served as our President. From our inception until December 31, 1998,
Mr. Berman was also our Executive Vice President. From October 1991 to August
1995, Mr. Berman was a Vice President and Managing Director of THQ
International, Inc., a subsidiary of THQ. From 1988 to 1991, he was President
and an owner of Balanced Approach, Inc., a distributor of personal fitness
products and services.
Robert E. Glick. For more than 20 years, Mr. Glick has been an officer,
director and principal stockholder in a number of privately-held companies which
manufacture and market women's apparel.
Michael G. Miller. From 1979 until May 1998, Mr. Miller was President and a
director of several privately-held affiliated companies, including a list
brokerage and list management consulting firm, a database management consulting
firm, and a direct mail graphic and creative design firm. Mr. Miller's interests
in such companies were sold in May 1998. Since 1991, he has been President of an
advertising company.
Murray L. Skala. Since 1976, Mr. Skala has been a partner of the law firm
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, our general counsel. Mr.
Skala is a director of Quintel Entertainment, Inc., a publicly-held company in
the business of telecommunications services and entertainment. Mr. Skala has
also served as a director of other public companies, including THQ from January
1991 to January 1997, Katz Digital Technologies, Inc., a digital prepress and
printing company, from December 1995 to December 1998, and Grand Toys
International, Inc., from 1993 to 1994.
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<PAGE> 6
COMMITTEES OF THE BOARD OF DIRECTORS
We have 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 primary functions of the Audit Committee are to
recommend the appointment of our independent certified public accountants and to
review the scope and effect of such audits. Messrs. Glick, Miller 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 our Third Amended and Restated 1995 Stock Option
Plan (the "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 Option
Plan. Messrs. Glick and Miller, both of whom are non-employee directors, are the
current members of the Stock Option Committee.
In 1998, our Board held four meetings and acted by unanimous consent three
times; our Stock Option Committee met twice and acted by unanimous consent
twice; and our Audit Committee met once. All members of the Board and of each
Committee attended their respective meetings.
EXECUTIVE OFFICERS
Our officers are elected annually by our Board of Directors and serve at
the discretion of the Board of Directors. Two of our executive officers, Jack
Friedman and Stephen G. Berman, are also directors of the Company. See the
section above entitled "Nominees" for biographical information about these
officers.
Mr. Joel M. Bennett, 37, joined us in September 1995 as our 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, he 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 its international television syndication
and production division. Mr. Bennett holds a Master of Business Administration
degree and is a Certified Public Accountant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One of our directors, Murray L. Skala, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, which has performed, and is
expected to continue to perform, legal services for us. We paid his firm legal
fees of approximately $151,000 in 1997 and $510,000 in 1998.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth the compensation we paid for our fiscal
years ended December 31, 1998, 1997 and 1996 to our Chief Executive Officer and
to each of our other executive officers whose compensation exceeded $100,000 in
1998 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AWARDS
ANNUAL COMPENSATION --------------------
--------------------------------------- RESTRICTED
OTHER ANNUAL STOCK
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#)
------------------ ---- ------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Jack Friedman........................... 1998 446,000 550,000 -- -- 125,000
Chairman and Chief 1997 296,000 130,224 -- -- 125,000
Executive Officer 1996 226,000 53,722 -- -- --
Stephen G. Berman....................... 1998 421,000 550,000 -- -- 125,000
Chief Operating Officer, 1997 271,000 130,224 -- -- 125,000
President and Secretary 1996 201,000 53,722 -- -- --
Joel M. Bennett......................... 1998 135,000 45,000 -- -- --
Chief Financial Officer 1997 110,000 40,000 -- -- 30,000
1996 85,000 10,200 -- -- --
</TABLE>
The following table sets forth certain information regarding the granting
of options to the Named Officers in 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(1) ($/SHARE) DATE
---- -------------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Jack Friedman............... 125,000 33.7% $ 8.6625 10/9/03
Stephen G. Berman........... 125,000 33.7 7.875 10/9/03
</TABLE>
- ---------------
(1) Options to purchase a total of 371,500 shares of our common stock were
granted to our employees, including the Named Officers, during 1998.
5
<PAGE> 8
The following table sets forth certain information regarding options
exercised and exercisable during 1998 and the value of the options held as of
December 31, 1998 by the Named Officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack Friedman................ -- -- 41,667 83,333 1,042 2,083
-- 125,000 -- 260,938
Stephen G. Berman............ -- -- 41,667 83,333 41,667 83,333
-- 125,000 -- 359,375
Joel M. Bennett.............. 20,000 165,070(1) 13,250 16,625 115,938 145,469
10,000 20,000 10,000 20,000
</TABLE>
- ---------------
(1) The difference between (x) the product of the number of exercised options
and $10.2535 (the average sale price per share of the common stock sold on
the exercise dates) and (y) the aggregate exercise price of such options.
(2) The difference between (x) the product of the number of unexercised options
and $10.75 (the closing sale price of the common stock on December 31, 1998)
and (y) the aggregate exercise price of such options.
COMPENSATION OF DIRECTORS
Our directors do not currently receive any cash compensation for their
services as such, but, beginning in 2000, each director will be paid an annual
cash stipend of $10,000. We also reimburse our directors for their reasonable
expenses of attending Board or Committee meetings. In addition, non-employee
directors receive automatic grants of options to purchase shares of our common
stock. Each non-employee director serving on the Board when the Option Plan was
originally adopted received options to purchase an aggregate of 10,850 shares of
common stock at the fair market value of our common stock on such date. The
Option Plan currently provides for any newly appointed non-employee director to
receive an option to purchase 25,000 shares at their then current fair market
value on the date of appointment and for each non-employee director to receive,
in each calendar quarter, an option to purchase 6,250 shares at their then
current fair market value. The Board of Directors has adopted an amendment to
the Option Plan, subject to stockholder approval, which would, among other
things, reduce the number of shares subject to options to be granted to
non-employee directors. The discussion of Proposal No. 3 below provides more
information on this and other amendments adopted by our Board of Directors.
Options granted to a non-employee director expire upon the termination of the
director's services for cause, but may be exercised at any time during a
one-year period after such person ceases to serve as a director for any other
reason.
EMPLOYMENT AGREEMENTS
On July 1, 1999, we entered into employment agreements with Mr. Friedman
and Mr. Berman, pursuant to which Mr. Friedman serves as our Chairman and Chief
Executive Officer and Mr. Berman serves as our President and Chief Operating
Officer. Mr. Friedman's annual base salary in 1999 is $521,000 and Mr. Berman's
is $496,000. Their annual base salaries are subject to annual increases in an
amount, not less than $25,000, determined by our Board of Directors. Each of
them is also entitled to receive an annual bonus equal to 4% of our pre-tax
income, but not more than $1,000,000, if our pre-tax earnings are at least
$2,000,000. If we terminate Mr. Friedman's or Mr. Berman's employment other than
"for cause" or if he resigns because of our material breach of the employment
agreement or because we cause a material change in his employment, we are
required to make a lump-sum severance payment in an amount equal to his base
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<PAGE> 9
salary and 4% bonus during the balance of the term of the employment agreement,
based on his then applicable annual base salary and 4% bonus. In the event of
the termination of his employment under certain circumstances after a "Change of
Control" (as defined in the employment agreement), we are required to make to
him a one-time payment of an amount equal to 2.99 times his "base amount"
determined in accordance with the applicable provisions of the Internal Revenue
Code.
THIRD AMENDED AND RESTATED 1995 STOCK OPTION PLAN
In its current form, our Option Plan was adopted and approved by the
stockholders and directors in July 1998. Options to purchase, in the aggregate,
up to 1,250,000 shares of our common stock may be granted under the Option Plan.
The Option Plan allows us to grant options that are intended to qualify as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code or as options that are not intended to
meet the requirements of such section ("Nonstatutory Stock Options"). Under the
Option Plan, Incentive Stock Options may only be granted to our employees
(including officers), while Nonstatutory Stock Options may be granted to
employees (including officers), non-employee directors, consultants or advisors.
The Option Plan is administered by the Stock Option Committee, whose
members are non-employee directors chosen by our Board. Apart from the automatic
grants of options to our non-employee directors described above, and subject to
the restrictions prescribed in the Option Plan, this committee has discretionary
authority to select the persons to whom, the number of shares for which, the
times and the exercise price at which options will be granted. Options under the
Option Plan are granted in consideration of services rendered by the optionee
and no separate consideration is required to be paid to receive such options.
Options granted to an employee expire immediately upon the termination of
employment voluntarily by such employee or for cause. Employee options may be
exercised up to one year after the termination of employment due to death or
disability, or up to three months after termination for any other reason.
Incentive Stock Options must have an exercise price greater than or equal
to the fair market value of the shares underlying the option on the date of
grant (or, if granted to a holder of 10% or more of our common stock, an
exercise price of at least 110% of the underlying shares' fair market value on
the date of grant). The maximum exercise period of Incentive Stock Options is 10
years from the date of grant (or five years in the case of a holder of 10% or
more of our common stock). The aggregate fair market value (determined at the
date the option is granted) of shares with respect to which Incentive Stock
Options are exercisable for the first time by the holder of the option during
any calendar year may not exceed $100,000. If that amount exceeds $100,000, our
Board or the Stock Option Committee may designate those shares that will be
treated as Nonstatutory Stock Options.
The Option Plan provides for the inclusion in any grant of options to one
of our employees of a provision requiring the optionee, for a period of one year
after the optionee's employment is terminated, not to disclose certain of our
confidential information and, under certain circumstances, not to compete with
us or be employed by an individual or entity that competes with us.
As of July 1, 1999, we have granted options to purchase an aggregate of
1,249,750 shares of our common stock under the Option Plan. All the shares
issuable upon exercise of outstanding options granted under the Option Plan are
currently registered under the Securities Act. On July 9, 1999, the closing sale
price of our common stock on the Nasdaq National Market was $29 3/8.
As discussed above, each of our non-employee directors currently receives
automatic quarterly grants of options to purchase 6,250 shares of our common
stock (currently, 18,750 shares for all non-employee directors) and, if the 1999
Amendment described below becomes effective, will receive in 2000 and subsequent
years automatic annual grants of options to purchase 6,250 shares of our common
stock. Except for these grants, the plan benefits that will be received by or
allocated to participants in the Option Plan are not currently determinable.
7
<PAGE> 10
The following is a summary of the federal income tax treatment of incentive
stock options and non-statutory stock options. The tax consequences recognized
by an optionee may vary; therefore, an optionee should consult his or her tax
advisor for advice concerning any specific transaction.
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option granted under
the Option Plan. The difference between the exercise price and the fair market
value of the stock on the date of exercise will be included in alternative
minimum taxable income for purposes of the alternative minimum tax. The
alternative minimum tax is imposed upon an individual's alternative minimum
taxable income at rates of 26% and 28%, but only to the extent that such tax
exceeds the taxpayer's regular income tax liability for the taxable year.
Generally, if an optionee holds shares acquired upon the exercise of
Incentive Stock Options until the later of (i) two years from the date of grant
of the option and (ii) one year from the date of transfer of the purchased
shares to him or her (the "Statutory Holding Period"), any gain recognized by
the optionee on a sale of such shares will be treated as capital gain. The gain
recognized upon the sale of the stock is the difference between the option price
and the sale price of the stock. The net federal income tax effect on the holder
of Incentive Stock Options is to defer, until the stock is sold, taxation of any
increase in the stock's value from the time of grant to the time of exercise,
and to treat such increase as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period, he or she will realize taxable income on the date of early
disposition at ordinary income tax rates in an amount equal to the lesser of (i)
the fair market value of the shares on the date of exercise less the option
price, or (ii) the amount realized on the disposition of the stock less the
option price, and we will receive a corresponding business expense deduction.
However, special rules may apply to options held by reporting persons under
Section 16 of the Exchange Act. The amount by which the proceeds of the sale
exceeds the fair market value of the shares on the date of exercise will be
treated as long-term capital gain if the shares are held for more than one year
prior to the sale and as short-term capital gain if the shares are held for a
shorter period. If an optionee sells the shares acquired upon exercise of an
option at a price less than the option price, he or she will recognize a capital
loss equal to the difference between the sale price and the option price. The
loss will be long-term capital loss if the shares are held for more than one
year prior to the sale and a short-term capital loss if the shares are held for
a shorter period.
Non-Statutory Stock Options. No taxable income is recognized by the
optionee upon the grant of a Non-Statutory Option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount by
which the fair market value of the purchased shares on the date of exercise
exceeds the option price. However, special rules may apply to options held by
persons required to file reports under Section 16 of the Exchange Act. We will
be entitled to a business expense deduction equal to the amount of ordinary
income recognized by the optionee, subject to certain limitations imposed by the
Internal Revenue Code. Any additional gain or any loss recognized upon the
subsequent disposition of the purchased shares will be a capital gain or loss,
and will be a long-term gain or loss if the shares are held for more than one
year.
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
Our Board of Directors has appointed the firm of Pannell Kerr Forster,
Certified Public Accountants, A Professional Corporation, as the principal
independent auditors of the Company for the fiscal year ending December 31,
1999, subject to ratification by the stockholders. This firm served as our
independent auditors during 1998 and 1997. If the appointment of this firm is
not ratified or if it declines to act or their engagement is otherwise
discontinued, the Board of Directors will appoint other independent auditors.
Representatives of the firm are expected to be present at the Annual Meeting,
will have the opportunity to make a statement at the Annual Meeting, if they so
desire, and will be available to respond to appropriate questions from
stockholders.
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RATIFICATION AND APPROVAL OF THE 1999 AMENDMENT
TO OUR THIRD AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(PROPOSAL NO. 3)
On June 17, 1999, our Board of Directors unanimously adopted, subject to
stockholder approval, amendments to our Option Plan (the "1999 Amendment"). If
approved by our stockholders, the 1999 Amendment would (i) increase the number
of shares of our common stock available under the Option Plan to 1,750,000
shares from the 1,250,000 shares currently available under the Option Plan; (ii)
provide for automatic annual grants of options to purchase 6,250 shares of our
common stock to our non-employee directors; and (iii) provide for the immediate
vesting of all options granted to our consultants and to our employees who have
been employed by us for at least one year at the time of any sale of the
Company. The full text of the 1999 Amendment is presented in Appendix A.
Our Board of Directors considered the following factors in its decision to
adopt the 1999 Amendment:
1. Our Board of Directors believes that the Option Plan continues to
provide an important mechanism enabling the Company to attract, retain and
motivate employees. Currently, 1,250,000 shares of our common stock are
available for issuance upon the exercise of options granted under the Option
Plan. At July 1, 1999, options to purchase 1,249,750 shares of our common stock
had been granted under the Option Plan. Accordingly, our Board of Directors
determined that it would be appropriate to increase the number of shares
available for issuance upon the exercise of options granted under the Option
Plan to 1,750,000 shares in order to allow for additional grants of options to
current and future employees.
2. Our Board of Directors continues to believe that it is important to
motivate our non-employee directors and reward their dedication and efforts on
our behalf by giving them an equity stake in our performance. Currently, the
Option Plan provides for our non-employee directors to receive in each calendar
quarter options to purchase 6,250 shares of our common stock. Our Board of
Directors determined that, in light of the substantial increase in the public
market price of our common stock, the number of options to be granted to each
non-employee director should be reduced from 25,000 to 6,250 shares in each
calendar year. At the same time, our Board of Directors adopted a change to our
directors' compensation policy by providing for an annual cash stipend of
$10,000 to be paid to each non-employee director.
3. Our Option Plan currently allows us to determine whether unvested
options outstanding at the time of certain types of transactions, including, for
example, a recapitalization, merger, consolidation or sale of all or
substantially all of our assets, should remain outstanding or expire, and, if
they are to remain outstanding, whether they should vest or remain unvested. Our
Board of Directors has determined that, in order to better protect the interests
of our employees and to make options granted under the Option Plan a more
effective tool to motivate and reward our employees, all options outstanding at
the time of such a transaction should vest immediately.
The 1999 Amendment will not become effective unless it is ratified and
approved by the holders of a majority of the shares of our common stock present
in person or represented by proxy at the Annual Meeting. The 1999 Amendment
cannot be adopted in part; if ratified and approved by the stockholders, all the
changes incorporated in the 1999 Amendment will be adopted and become effective.
RATIFICATION AND APPROVAL OF EMPLOYMENT AGREEMENTS BETWEEN
THE COMPANY AND JACK FRIEDMAN AND STEPHEN G. BERMAN, RESPECTIVELY
(PROPOSAL NO. 4)
On July 1, 1999, the Company entered into new employment agreements with
Jack Friedman and Stephen G. Berman, respectively. These employment agreements
continue the basic compensation packages provided to these executives under
their prior employment agreements, but change the basis for the determination of
the severance payment to be paid, under certain conditions, upon the termination
of his employment prior to the expiration of the term of the agreement. The full
text of the form of employment
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agreement is presented in Appendix B. The identical form applies to each
employment agreement, except that Mr. Friedman's base salary in 1999 is
$521,000, while Mr. Berman's base salary in 1999 is $496,000. Our Board of
Directors believes that there is a reasonable likelihood that the total
compensation payable to Mr. Friedman or Mr. Berman pursuant to his employment
agreement could exceed $1,000,000 in a fiscal year. Certain provisions of the
federal tax laws limit the deductibility of a portion of the compensation to our
executives as an expense of the Company if this threshold is exceeded, unless
various prescribed conditions are met. Accordingly, we have endeavored to
structure the compensation to these executives under their respective employment
agreements in order to comply with the applicable conditions to permit the
deductibility of their compensation. As a further condition for this
deductibility, the employment agreements must be approved by our stockholders.
The ratification and approval of these employment agreements by our stockholders
is not required for the agreements to become or remain effective or binding on
us, but only to satisfy the applicable condition of federal tax law relating to
the deductibility of a portion of their compensation as an expense for federal
income tax purposes.
BOARD RECOMMENDATION
The Board of Directors believes that election of the Board's nominees and
approval of the foregoing three proposals is in the best interests of the
Company and its stockholders and therefore recommends that the stockholders vote
FOR these nominees and proposals.
STOCKHOLDER PROPOSALS
Any stockholder intending to present a proposal at our 2000 Annual Meeting
of Stockholders must deliver such proposal (and supporting statement, if any) to
us at our principal office, 22761 Pacific Coast Highway, Malibu, California
90265, Attention: Secretary, not later than March 14, 2000 for inclusion, if
appropriate under applicable law and the regulations of the Securities and
Exchange Commission, in the proxy statement and proxy relating to such meeting.
Any proxies appointed for such 2000 annual meeting may exercise discretionary
authority as to any matter presented at such meeting, but which is not included
in the notice for such meeting, only if we have not received notice of such
proposal on or before May 28, 2000.
OTHER MATTERS
Our management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented at the
Annual Meeting, the persons named in the accompanying proxy intend to vote, or
otherwise act, in accordance with their judgment on such matters.
We will bear all costs of solicitation of proxies. In addition to
solicitations by mail, our directors, officers and regular employees, without
additional remuneration, may solicit proxies by telephone, telegraph, facsimile,
mail and personal interviews, and we reserve the right to compensate outside
agencies for the purpose of soliciting proxies. We will request brokers,
custodians and fiduciaries to forward proxy soliciting material to the owners of
shares held in their names and we will reimburse them for out-of-pocket expenses
incurred on our behalf.
July 12, 1999
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE ANNUAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS
WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR SHARES PERSONALLY, EVEN THOUGH THEY
HAVE SENT IN THEIR PROXIES.
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APPENDIX A
1999 AMENDMENT TO THIRD AMENDED AND RESTATED
1995 STOCK OPTION PLAN OF JAKKS PACIFIC, INC.
The Third Amended and Restated 1995 Stock Option Plan is hereby amended as
follows:
1. Capitalized terms are used herein as defined in the Third Amended and
Restated 1995 Stock Option Plan of JAKKS Pacific, Inc.
2. Section 3 of the Third Amended Plan is amended by replacing the second
sentence thereof with the following:
The maximum number of shares of Common Stock which may be issued pursuant
to Options granted under the Third Amended Plan shall not exceed One
Million Seven Hundred Fifty Thousand (1,750,000) shares, subject to
adjustment in accordance with the provisions of Section 13 hereof.
3. Section 6 of the Third Amended Plan is amended by replacing paragraph
(b) thereof with the following:
(b) Each Director of the Company on January 1 of each calendar year who is
not an employee of the Company shall automatically be granted as of such
date, without any further action by the Board or Committee, an Option to
purchase 6,250 shares of Common Stock.
4. Section 13 of the Third Amended Plan is amended by replacing paragraph
(a) thereof with the following:
(a) If any merger, consolidation or other reorganization of the Company,
split-up or combination of shares, dividend payable in shares,
recapitalization, reclassification or other capital transaction requires or
results in any change in the outstanding Common Stock, the Board or
Committee shall make an appropriate adjustment in the aggregate number of
shares available under the Third Amended Plan and in the number of shares
and option price per share subject to outstanding Options. If there shall
occur any merger, consolidation or other reorganization of the Company, or
any sale of all or substantially all of the assets of the Company, or any
transaction in which any person (including a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934) acquires the right
to elect a majority of the Board, and in any such case the Company's
stockholders shall become, as a result of such transaction, entitled to
receive any cash, securities of the Company or any other issuer, or any
other property, each optionee who is a consultant to the Company or who, on
the date on which such distribution of cash, securities or other property
is to be made to the Company's stockholders, shall have been employed by
the Company for a period (including any vacation or leave of absence or
other interruption of employment approved or permitted by the Company) of
at least one year shall likewise become entitled to receive the same cash,
securities or other property as the Company's stockholders are so entitled
to receive in respect of all the shares subject to the option, whether or
not then vested in respect of all such shares, then held by such optionee,
upon the exercise of such option and the payment of the option price per
share thereof (or, if provided in the applicable Certificate of Stock
Option Agreement or agreements governing the terms of such transaction or
otherwise permitted by action of the Board or Committee, by deduction of
such option price from the cash, securities or other property to be paid or
delivered to such optionee). Notwithstanding the foregoing, in any such
event, the Board or Committee shall have the power to take any action
necessary or appropriate to prevent any Incentive Stock Option theretofore
granted hereunder from being disqualified as an "incentive stock option"
under the Code, as then in effect.
5. This 1999 Amendment to the Third Amended Plan was adopted by the Board
on June 17, 1999, but shall become effective only if and as of the date on which
it is ratified and approved by the Company's stockholders in accordance with
Section 16 thereof.
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APPENDIX B
FORM OF EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of July 1, 1999 by and between JAKKS Pacific,
Inc., a Delaware corporation (the "Company"), and (1)
("Executive")
WITNESSETH:
WHEREAS, the Company desires to employ Executive on the terms and subject
to the conditions hereinafter set forth, and Executive desires so to be
employed;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties agree as follows:
1. Offices and Duties. The Company hereby employs Executive during the Term
(as hereinafter defined) to serve as the Company's (2) and
to perform such executive and supervisory duties on behalf of the Company as the
Company's Board of Directors may from time to time reasonably direct. The
Company's Board of Directors shall elect Executive to serve as the Company's
(3) and may elect or designate Executive to serve in such
other corporate offices of the Company or a subsidiary of the Company as the
Company's Board of Directors from time to time may deem necessary, proper or
advisable. Executive hereby accepts such employment and agrees that throughout
the Term he shall faithfully, diligently and to the best of his ability, in
furtherance of the business of the Company, perform the duties assigned to him
or incidental to the offices assumed by him pursuant to this Section. Executive
shall devote substantially all of his business time and attention to the
business and affairs of the Company, but Executive shall not be required to
devote any minimum amount of time or report or perform his duties hereunder on a
fixed or periodic basis, and Executive may engage or participate in such other
activities incidental to any other employment, occupation or business venture or
enterprise as do not materially interfere with or compromise his ability to
perform his duties hereunder. Executive shall at all times be subject to the
direction and control of the Company's Board of Directors, and observe and
comply with such rules, regulations, policies and practices as the Company's
Board of Directors may from time to time establish.
2. Term. The employment of Executive hereunder shall commence on the date
hereof and continue for a term of ten (10) years ending on June 30, 2009,
subject to earlier termination upon the terms and conditions provided elsewhere
herein (the "Term"). As used herein, "Termination Date" means the last day of
the Term.
3. Compensation.
(a) As compensation for his services hereunder, the Company shall pay to
Executive during the Term:
(i) a base salary in 1999 at the rate of $ (4) per
annum, and in each subsequent year during the Term at a rate to be
determined by the Company's Board of Directors, but that is at least
$25,000 more than the rate in the immediately preceding year (the "Base
Salary"), such Base Salary to be paid in substantially equal installments
no less often than twice monthly;
(ii) a bonus (the "4% Bonus") in respect of each Bonus Period (as
hereinafter defined) in which Pre-Tax Income (as hereinafter defined)
equals or exceeds the Bonus Target (as hereinafter defined) for such Bonus
Period, payable within 90 days after the end of such Bonus Period, in an
amount equal to the lesser of (A) 4% of such Pre-Tax Income and (B)
$1,000,000; and
(iii) such additional incentive or bonus compensation as the Company's
Board of Directors may from time to time determine.
- ---------------
1 Jack Friedman or Stephen G. Berman.
2 Chief Executive Officer in the case of Mr. Friedman; Chief Operating
Officer in the case of Mr. Berman.
3 Chairman in the case of Mr. Friedman; President in the case of Mr.
Berman.
4 $521,000 in the case of Mr. Friedman; $496,000 in the case of Mr. Berman.
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(b) For the purposes of Section 3(a):
(i) A "Bonus Period" is either a fiscal year of the Company ending
during the Term or, if the Term ends on a day other than the last day of a
fiscal year of the Company, the portion of such fiscal year ending on the
last day of the last full month ending during the Term.
(ii) The "Bonus Target" for any Bonus Period is (A) $2 million, if
such Bonus Period consists of 12 calendar months, or (B) in any other case,
the product of (I) $5,479.45 and (II) the number of days included in such
Bonus Period.
(iii) The "Pre-Tax Income" in any Bonus Period is the Company's income
before any deduction or reserve for income taxes and without adjustment for
any extraordinary item.
The determination of the Bonus Target, Pre-Tax Income and the 4% Bonus for any
Bonus Period, including all estimates, allocations or prorations required to be
made in connection therewith, shall be made by the Company's regularly-engaged
independent certified public accounts in accordance with generally accepted
accounting principles applied on a basis consistent with past periods, which
determination, absent manifest error, shall be conclusive and binding upon the
Company and Executive. If a Bonus Period ends prior to the end of a fiscal year
of the Company, and any year-end adjustment is subsequently made that affects
the determination of the 4% Bonus for such Bonus Period, the Company shall
promptly give written notice to Executive of any change proposed to be made to
such 4% Bonus, setting forth in reasonable detail therein the amount of and
basis for such change. If such change involves an increase to such 4% Bonus, the
Company shall pay such increase to Executive concurrently with the delivery of
such notice; and if such change involves a decrease to such 4% Bonus, Executive
shall repay the amount of such decrease to the Company promptly, and in any
event within 60 days, after receipt of such notice.
(c) At his request, the Company shall use its best efforts to procure major
medical, hospitalization, dental and disability insurance for the benefit of
Executive and life insurance in the amount of $500,000 in favor of such
beneficiary or beneficiaries as Executive may from time to time designate, and
the Company shall pay all premiums and any other costs or expenses incurred to
maintain such policies in effect during the term of Executive's employment
hereunder.
(d) In addition to his Base Salary and other compensation provided herein,
Executive shall be entitled to participate, to the extent he is eligible under
the terms and conditions thereof, in any stock, stock option or other equity
participation plan and any profit-sharing, pension, retirement, insurance,
medical service or other employee benefit plan generally available to the
executive officers of the Company, and to receive any other benefits or
perquisites generally available to the executive officers of the Company
pursuant to any employment policy or practice, which may be in effect from time
to time during the Term. Except as otherwise expressly provided herein, the
Company shall be under no obligation hereunder to institute or to continue any
such employee benefit plan or employment policy or practice.
(e) No provision hereof is intended, or shall be deemed, to impair or limit
Executive's eligibility to receive, or any right he may now or at any time
hereafter have to receive, hold or dispose of any common stock, par value $.001
per share, of the Company (the "Common Stock") or other securities of the
Company or to receive, hold or exercise any options, warrants or other rights to
acquire any Common Stock or other securities of the Company.
(f) During the Term, Executive shall not be entitled to additional
compensation for serving in any office of the Company (or any subsidiary
thereof) to which he is elected or appointed, except that, throughout any period
or periods during which he shall serve as a director of the Company (or such
subsidiary), Executive shall be entitled to directors' fees in accordance with
the policies and practices of the Company (or such subsidiary) then in effect.
4. Expense Allowance.
(a) The Company shall pay directly, or advance funds to Executive or
reimburse Executive for, all expenses reasonably incurred by him in connection
with the performance of his duties hereunder and the
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business of the Company, upon the submission to the Company of itemized expense
reports, receipts or vouchers in accordance with its then customary policies and
practices.
(b) The Company shall provide to Executive a suitable automobile or other
vehicle for his exclusive use and the Company shall pay the entire cost thereof,
including without limitation purchase price or lease payments, insurance
premiums, repair charges, and maintenance and operating expenses, or if, in lieu
thereof, Executive uses his own automobile or other vehicle, the Company shall
grant him a monthly allowance in an amount sufficient to pay all such costs
therefor.
5. Location. Except for routine travel and temporary accommodation
reasonably required to perform his services hereunder, Executive shall not be
required to perform his services hereunder at any location other than the
principal executive office of the Company, which office shall be located
throughout the Term at its location on the date hereof, or, if relocated, at a
location within a distance of 30 miles from its location on the date hereof, or
at such other office or site to which Executive may, in his sole discretion,
consent; nor shall he be required to relocate his principal residence to, or
otherwise to reside at, any location specified by the Company.
6. Office. The Company shall provide Executive with suitable office space,
furnishings and equipment, secretarial and clerical services and such other
facilities and office support as Executive may reasonably request.
7. Vacation. Executive shall be entitled to four weeks paid vacation during
each year of his employment hereunder, such vacation to be taken at such time or
times as shall be agreed upon by Executive and the Company. Vacation time shall
be cumulative from year to year, except that Executive shall not be entitled to
take more than eight weeks vacation during any consecutive 12-month period
during the Term.
8. Key-Man Insurance. The Company shall have the right from time to time to
purchase, increase, modify or terminate insurance policies on the life of
Executive for the benefit of the Company in such amounts as the Company may
determine in its sole discretion. In connection therewith, Executive shall, at
such time or times and at such place or places as the Company may reasonably
direct, submit himself to such physical examinations and execute and deliver
such documents as the Company may deem necessary or appropriate.
9. Trade Secrets. Executive shall hold in a fiduciary capacity for the
benefit of the Company all information relating to or concerned with its
operations, business and affairs, and he shall not, at any time hereafter, use
or disclose any such information to any person other than to the Company or its
designees or except as may otherwise be required in connection with the business
and affairs of the Company.
10. Intellectual Property. Subject to Sections 2870 and 2871 of the
California Labor Code:
(a) Any idea, invention, design, process, system, procedure, improvement,
development or discovery conceived, developed, created or made by Executive,
alone or with others, during the Term and applicable to the business of the
Company, whether or not patentable or registrable, shall become the sole and
exclusive property of the Company.
(b) Executive shall disclose the same promptly and completely to the
Company and shall, during the Term or thereafter, (i) execute all documents
requested by the Company for vesting in the Company the entire right, title and
interest in and to the same, (ii) execute all documents requested by the Company
for filing and procuring such applications for patents, trademarks, service
marks or copyrights as the Company, in its sole discretion, may desire to
prosecute, and (iii) give the Company all assistance it may reasonably require,
including the giving of testimony in any Proceeding (as hereinafter defined), in
other to obtain, maintain and protect the Company's right therein and thereto.
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11. No Competition.
(a) During the Term, and if his employment terminates because he is
discharged by the Company "for cause" pursuant to Section 13 or he voluntarily
resigns pursuant to Section 14(c), for a further period of one year thereafter,
Executive shall not, directly or indirectly:
(i) own, control, manage, operate, participate or invest in, or
otherwise be connected with, in any manner, any business activity, venture
or enterprise which is engaged in any business in the United States in
which the Company (or any subsidiary thereof) is currently engaged or is
engaged at the time of termination of Executive's employment hereunder, or
(ii) for himself or on behalf of any other person, employ or engage
any person who at the time shall have been within the preceding 12-month
period an employee of the Company (or such subsidiary) or contact any
supplier, customer or employee of the Company (or such subsidiary) for the
purpose of soliciting or diverting any supplier, customer or employee from
the Company (or such subsidiary).
(b) The provisions of Section 11(a) notwithstanding, Executive may invest
his funds in securities of an issuer if the securities of such issuer are listed
for trading on a registered securities exchange or actively traded in an
over-the-counter market and Executive's holdings therein represent less than 1%
of the total number of shares or principal amount of the securities of such
issuer outstanding.
(c) Executive acknowledges that the provisions of this Section, and the
period of time, geographic area and scope and type of restrictions on his
activities set forth herein, are reasonable and necessary for the protection of
the Company.
12. Termination Upon Disability. In the event that Executive is unable to
perform his duties hereunder by reason of any disability or incapacity (due to
any physical or mental injury, illness or defect) for an aggregate of 180 days
in any consecutive 12-month period, the Company shall have the right to
terminate Executive's employment hereunder within 60 days after the 180th day of
his disability or incapacity by giving Executive notice to such effect at least
30 days prior to the date of termination set forth in such notice, and on such
date such employment shall terminate.
13. Termination for Cause.
(a) In addition to any other rights or remedies provided by law or in this
Agreement, the Company may terminate Executive's employment under this Agreement
if:
(i) Executive is convicted of, or enters a plea of guilty or nolo
contendere (which plea is not withdrawn prior to its approval by the court)
to, a felony offense and either Executive fails to perfect an appeal of
such conviction prior to the expiration of the maximum period of time
within which, under applicable law or rules of court, such appeal may be
perfected or, if Executive does perfect such an appeal, his conviction of a
felony offense is sustained on appeal; or
(ii) the Company's Board of Directors determines, after due inquiry,
based on convincing evidence, that Executive has:
(A) committed fraud against, or embezzled or misappropriated funds or
other assets of, the Company (or any subsidiary thereof);
(B) violated, or caused the Company (or any subsidiary thereof) or
any officer, employee or other agent thereof, or any other person to
violate, any material law, regulation or ordinance or any material
rule, regulation, policy or practice established by the Company's
Board of Directors;
(C) willfully, or because of gross or persistent negligence, (A)
failed properly to perform his duties hereunder or (B) acted in a
manner detrimental to, or adverse to the interests of, the Company;
or
(D) violated, or failed to perform or satisfy any material covenant,
condition or obligation required to be performed or satisfied by
Executive hereunder;
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and that, in the case of any violation or failure referred to in clause (B), (C)
or (D) of this paragraph (ii) of Section 13(a), such violation or failure has
caused, or is reasonably likely to cause, the Company to suffer or incur a
substantial casualty, loss, penalty, expense or other liability or cost.
(b) The Company may effect such termination for cause by giving Executive
notice to such effect, setting forth in reasonable detail the factual basis for
such termination, at least five days prior to the date of termination set forth
therein; provided however that Executive may avoid such termination if
Executive, prior to the date of termination set forth in such notice, cures or
explains to the reasonable satisfaction of the Company's Board of Directors the
factual basis for termination set forth therein.
(c) In making any determination pursuant to Section 13(a) as to the
occurrence of any act or event described in clauses (A) to (D) of paragraph (ii)
thereof (each, a "For Cause Event"), each of the following shall constitute
convincing evidence of such occurrence:
(i) if Executive is made a party to, or target of, any Proceeding
arising under or relating to any For Cause Event, Executive's failure to
defend against such Proceeding or to answer any complaint filed against him
therein, or to deny any claim, charge, averment, or allegation thereof
asserting or based upon the occurrence of a For Cause Event;
(ii) any judgment, award, order, decree or other adjudication or
ruling in any such Proceeding finding or based upon the occurrence of a For
Cause Event (that is not reversed or vacated on appeal); or
(iii) any settlement or compromise of, or consent decree issued in,
any such Proceeding in which Executive expressly admits the occurrence of a
For Cause Event;
provided that none of the foregoing shall be dispositive or create an
irrebuttable presumption of the occurrence of such For Cause Event; and provided
further that the Company's Board of Directors may rely on any other factor or
event as convincing evidence of the occurrence of a For Cause Event.
(d) In determining and assessing the detrimental effect of any For Cause
Event on the Company and whether such For Cause Event warrants the termination
of Executive's employment hereunder, the Company's Board of Directors shall take
the following factors, to the extent applicable and material, into account:
(i) whether the Company's Board of Directors directed or authorized
Executive to take, or to omit to take, any action involved in such For
Cause Event, or approved, consented to or acquiesced in his taking or
omitting to take such action;
(ii) any award of damages, penalty or other sanction, remedy or relief
granted or imposed in any Proceeding based upon or relating to such For
Cause Event, and whether such sanction, remedy or relief is sufficient to
recompense the Company or any other injured person, or to prevent or to
deter the recurrence of such For Cause Event;
(iii) whether any lesser sanction would be appropriate and effective;
and
(iv) any adverse effect that the loss of Executive's services would
have, or be reasonably likely to have, upon the Company.
14. Termination by Executive. In addition to any other rights or remedies
provided by law or in this Agreement, Executive may terminate his employment
hereunder:
(a) if (i) the Company violates, or fails to perform or satisfy any
material covenant, condition or obligation required to be performed or satisfied
by it hereunder or, (ii) as a result of any action or failure to act by the
Company, there is a material change in the nature or scope of the duties,
obligations, rights or powers of Executive's employment, by giving the Company
notice to such effect, setting forth in reasonable detail the factual basis for
such termination, at least five days prior to the date of termination set forth
therein; provided however that the Company may avoid such termination if it,
prior to the date of termination set forth in such notice, cures or explains to
the reasonable satisfaction of Executive the factual basis for termination set
forth therein;
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(b) if a Change of Control (as hereinafter defined) occurs during the Term,
at any time within the two-year period thereafter, by giving the Company notice
to such effect, setting forth the event or circumstance constituting such Change
of Control, such termination to be effective upon the date of termination, not
more than 30 days after the date of such notice, set forth therein or, if no
such date is set forth therein, immediately upon delivery of such notice to the
Company; or
(c) at any time by giving the Company written notice to such effect at
least 60 days prior to the date of termination set forth therein, such
termination to be irrevocable upon receipt of such notice by the Company.
The termination by Executive of his employment hereunder pursuant to Section
14(a) or 14(b) shall not constitute or be deemed to constitute for any purpose a
"voluntary resignation" of his employment.
15. Compensation upon Termination.
(a) Upon termination of Executive's employment hereunder, he shall be
entitled to receive, in any case, any compensation or other amount due to him
pursuant to Section 3 or 4 in respect of his employment prior to the Termination
Date.
(b) If Executive is discharged "for cause" pursuant to Section 13, except
for the payment of any amount required to be made by Section 15(a), from and
after the Termination Date, the Company shall have no further obligation to
Executive hereunder, including without limitation any obligation pursuant to
Section 17.
(c) If his employment is terminated by Executive pursuant to Section 14(a)
or by the Company other than "for cause" pursuant to Section 13, he shall be
entitled to receive an amount equal to the product of (i) the sum of (A) his
Base Salary in effect on the Termination Date and (B) his 4% Bonus for the last
Bonus Period ending before the Termination Date (annualized if such Bonus Period
is other than a 12-month fiscal year of the Company), and (ii) a fraction, the
numerator of which is the number of full months remaining in the balance of the
Term after the Termination Date and the denominator of which is 120.
(d) If his employment terminates pursuant to Section 14(b) and, if at the
time Executive gives the Company the notice of termination referred to therein,
the Company has not given to Executive a notice of termination upon his
disability pursuant to Section 12 or "for cause" pursuant to Section 13, he
shall be entitled to receive, upon the terms and subject to the conditions set
forth in Section 16, the Parachute Amount (as hereinafter defined).
(e) Any amount payable to Executive upon termination of his employment
hereunder shall be paid promptly, and in any event within 30 days, after the
Termination Date.
(f) Executive shall have no obligation hereunder to seek or to accept any
other employment after the Termination Date or otherwise to mitigate the
payments required to be made by this Section. No compensation or other amount
received or receivable by Executive on account of any employment or engagement
after the Termination Date shall be offset against or deducted from any payment
required to be made by this Section.
16. Change of Control.
(a) For the purposes of this Section 16:
(i) The "Act" is the Securities Exchange Act of 1934, as amended.
(ii) A "person" includes a "group" within the meaning of Section
13(d)(3) of the Act.
(iii) "Control" is used herein as defined in Rule 12b-2 under the Act.
(iv) "Beneficially owns" and "acquisition" are used herein as defined
in Rules 13d-3 and 13d-5, respectively, under the Act.
(v) "Non-Affiliated Person" means any person, other than Executive, an
employee stock ownership trust of the Company (or any trustee thereof for
the benefit of such trust), or any person controlled by Executive, the
Company or such a trust.
B-6
<PAGE> 20
(vi) "Voting Securities" includes Common Stock and any other
securities of the Company that ordinarily entitle the holders thereof to
vote, together with the holders of Common Stock or as a separate class,
with respect to matters submitted to a vote of the holders of Common Stock,
but securities of the Company as to which the consent of the holders
thereof is required by applicable law or the terms of such securities only
with respect to certain specified transactions or other matters, or the
holders of which are entitled to vote only upon the occurrence of certain
specified events (such as default in the payment of a mandatory dividend on
preferred stock or a scheduled installment of principal or interest of any
debt security), shall not be Voting Securities.
(vii) "Right" means any option, warrant or other right to acquire any
Voting Security (other than such a right of conversion or exchange included
in a Voting Security).
(viii) The "Code" is the Internal Revenue Code of 1986, as amended.
(ix) "Base amount," "present value" and "parachute payment" are used
herein as defined in Section 280G of the Code.
(b) A "Change of Control" occurs when:
(i) a Non-Affiliated Person acquires control of the Company;
(ii) upon an acquisition of Voting Securities or Rights by a
Non-Affiliated Person or any change in the number or voting power of
outstanding Voting Securities, such Non-Affiliated Person beneficially owns
Voting Securities or Rights entitling such person to cast a number of votes
(determined in accordance with Section 16(g)) equal to or greater than 25%
of the sum of (A) the number of votes that may be cast by all other holders
of outstanding Voting Securities and (B) the number of votes that may be
cast by such Non-Affiliated Person (determined in accordance with Section
16(g)); or
(iii) upon any change in the membership of the Company's Board of
Directors, a majority of the directors are persons who are not nominated or
appointed by the Company's Board of Directors as constituted prior to such
change.
(c) The "Parachute Amount" to which Executive shall be entitled pursuant to
Section 15(d) shall equal 2.99 times Executive's base amount.
(d) It is intended that the present value of any payments or benefits to
Executive, whether hereunder or otherwise, that are includable in the
computation of parachute payments shall not exceed 2.99 times the base amount.
Accordingly, if Executive receives any payment or benefit from the Company prior
to payment of the Parachute Amount which, when added to the Parachute Amount,
would subject any of the payments or benefits to Executive to the excise tax
imposed by Section 4999 of the Code, the Parachute Amount shall be reduced by
the least amount necessary to avoid such tax. The Company shall have no
obligation hereunder to make any payment or provide any benefit to Executive
after the payment of the Parachute Amount which would subject any of such
payments or benefits to the excise tax imposed by Section 4999 of the Code.
(e) Any other provision hereof notwithstanding, Executive may, prior to his
receipt of the Parachute Amount pursuant to Section 15(d), waive the payment
thereof, or, after his receipt of the Parachute Amount thereunder, treat some or
all of such amount as a loan from the Company which Executive shall repay to the
Company within 180 days after the receipt thereof, together with interest
thereon at the rate provided in Section 7872 of the Code, in either case, by
giving the Company notice to such effect.
(f) Any determination of the base amount, the Parachute Amount, any
liability for excise tax under Section 4999 of the Code or other matter required
to be made pursuant to this Section 18, shall be made by the Company's
regularly-engaged independent certified public accountants, whose determination
shall be conclusive and binding upon the Company and Executive; provided that
such accountants shall give to Executive, on or before the date on which payment
of the Parachute Amount or any later payment or benefit would be made, a notice
setting forth in reasonable detail such determination and the basis therefor,
and stating expressly that Executive is entitled to rely thereon.
B-7
<PAGE> 21
(g) The number of votes that may be cast by holders of Voting Securities or
Rights upon the issuance or grant thereof shall be deemed to be the largest
number of votes that may be cast by the holders of such securities or the
holders of any other Voting Securities into which such Voting Securities or
Rights are convertible or for which they are exchangeable or exercisable,
determined as though such Voting Securities or Rights were immediately
convertible, exchangeable or exercisable and without regard to any anti-dilution
or other adjustments provided for therein.
17. Other Termination Provisions.
(a) Upon request by Executive, on the Termination Date or as soon as
practicable thereafter, the Company shall assign to Executive, and Executive
shall assume, the purchase agreement or lease relating to any automobile or
other vehicle that the Company provides for his use on the Termination Date
pursuant to Section 4(b) (other than an automobile or other vehicle owned or
leased by Executive), if and to the extent assignable under the terms and
conditions thereof, and thereafter Executive shall be liable for, and the
Company shall be relieved of all liability for, any amount or other obligation
required to be paid or performed thereunder in respect of any period commencing
after the date of assignment.
(b) Throughout the 10-year period following the Termination Date, the
Company shall indemnify Executive, and hold him harmless from, any loss,
damages, liability, obligation or expense that he may suffer or incur in
connection with any claim made or Proceeding commenced during such period
relating to his service as a director, officer, employee or agent of the Company
(or any subsidiary thereof) to the same extent and in same manner as the Company
shall be obligated so to indemnify Executive immediately prior to the
Termination Date; provided that, if during such 10-year period the Company
adopts or assumes any indemnification policy or practice with respect to its
directors, officers, employees or agents that is more favorable than that in
effect on the Termination Date, Executive shall be entitled to such more
favorable indemnification.
(c) Throughout the 10-year period following the Termination Date, the
Company shall maintain for the benefit of Executive directors' and officers'
liability insurance (on a "claims made" basis) providing coverage at least as
favorable to Executive (including with respect to limits of liability,
exclusions, and deductible and retention amounts) as that in effect on the
Termination Date.
18. Limitation of Authority. Except as expressly provided herein, no
provision hereof shall be deemed to authorize or empower either party hereto to
act on behalf of, obligate or bind the other party hereto.
19. Notices. Any notice or demand required or permitted to be given or made
hereunder to or upon either party hereto shall be deemed to have been duly given
or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex
or similar electronic means, provided that a written copy thereof is sent on the
same day by postage-paid first-class mail, to such party at the following
address:
<TABLE>
<S> <C>
to the Company at: 22761 Pacific Coast Highway, Suite 226
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
with a copy to: Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Murray L. Skala, Esq.
Fax: (212) 888-7776
to Executive at:
Fax: ( )
</TABLE>
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a) (i), the date of the receipt; in the case of clause (a) (ii), five
business days after
B-8
<PAGE> 22
such notice or demand is sent; and, in the case of clause (b), the business day
next following the date such notice or demand is sent.
20. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
21. Waiver. No course of dealing or omission or delay on the part of either
party hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
22. Governing Law. This Agreement shall be governed by, and interpreted and
enforced in accordance with, the laws of the State of California without regard
to principles of choice of law or conflict of laws.
23. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the jurisdiction of the courts of the State of California and the
United States District Court for the Southern District of California in
connection with any suit, action or proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby, waives any objection to
venue in the County of Los Angeles, State of California, or such District, and
agrees that service of any summons, complaint, notice or other process relating
to such proceeding may be effected in the manner provided by clause (a) (ii) of
Section 19.
24. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
25. Severability. The provisions hereof are severable and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
26. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
27. Assignment. This Agreement, and each right, interest and obligation
hereunder, may not be assigned by either party hereto without the prior written
consent of the other party hereto, and any purported assignment without such
consent shall be void and without effect, except that this Agreement shall be
assigned to, and assumed by, any person with or into which the Company merges or
consolidates, or which acquires all or substantially all of its assets, or which
otherwise succeeds to and continues the Company's business substantially as an
entirety. Except as otherwise expressly provided herein or required by law,
Executive shall not have any power of anticipation, assignment or alienation of
any payments required to be made to him hereunder, and no other person may
acquire any right or interest in any thereof by reason of any purported sale,
assignment or other disposition thereof, whether voluntary or involuntary, any
claim in a bankruptcy or other insolvency proceeding against Executive, or any
other ruling, judgment, order, writ or decree.
28. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not intended, and shall not be deemed, to create or
confer any right or interest for the benefit of any person not a party hereto.
29. Titles and Captions. The titles and captions of the Articles and
Sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
B-9
<PAGE> 23
30. Grammatical Conventions. Whenever the context so requires, each pronoun
or verb used herein shall be construed in the singular or the plural sense and
each capitalized term defined herein and each pronoun used herein shall be
construed in the masculine, feminine or neuter sense.
31. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
32. No Presumptions. Each party hereto acknowledges that it has had an
opportunity to consult with counsel and has participated in the preparation of
this Agreement. No party hereto is entitled to any presumption with respect to
the interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
33. Certain Definitions. As used herein:
(a) "Person" includes without limitation a natural person, corporation,
joint stock company, limited liability company, partnership, joint venture,
association, trust, government or governmental authority, agency or
instrumentality, or any group of the foregoing acting in concert.
(b) A "Proceeding" is any suit, action, arbitration, audit, investigation
or other proceeding before or by any court, magistrate, arbitration panel or
other tribunal, or any governmental agency, authority or instrumentality of
competent jurisdiction.
34. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto, including without
limitation the Employment Agreement dated as of January 1, 1998 between the
Company and Executive, as amended, which shall terminate, notwithstanding any
contrary provision thereof, immediately upon the commencement of the Term,
except that each party thereto shall (a) remain required to perform any act and
to satisfy any obligation or condition that such party is required to perform or
satisfy thereunder with respect to any event occurring or circumstance existing
during the term thereof (including without limitation the payment or delivery to
Executive of any compensation, reimbursable expense or employee benefit or
perquisite to which he may be entitled, but which has not yet been paid to him,
on account of his employment thereunder) that has not been so performed or
satisfied, and (b) retain its right thereunder to assert or to allege any claim
or cause of action relating to or based upon, or otherwise to enforce, any
provision thereof with respect to any event occurring or circumstance existing
during the term thereof.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the day and year first above written.
THE COMPANY:
JAKKS PACIFIC, INC.
By:
------------------------------------
Name:
Title:
EXECUTIVE:
--------------------------------------
B-10
<PAGE> 24
JAKKS PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 12, 1999
Know all men by these presents, that the undersigned hereby constitutes and
appoints Jack Friedman and Stephen G. Berman, and each of them, the true and
lawful attorneys, agents and proxies of the undersigned, with full power of
substitution, to represent and vote with respect to all of the shares of the
common stock of JAKKS Pacific, Inc. standing in the name of the undersigned at
the close of business on June 21, 1999, at the Annual Meeting of Stockholders of
the Company to be held on August 12, 1999 at the Sherwood Country Club, 320 West
Stafford Road, Thousand Oaks, California 91361, beginning at 10:00 a.m. local
time, and at any and all adjournments thereof, with all the rights and powers
that the undersigned would possess if personally present, and especially (but
without limiting the general authorization and power hereby given) to vote as
follows.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
1. Election of Directors [ ] FOR [ ] AGAINST
Nominees are: Jack Friedman, Stephen G. Berman, Robert E. Glick, Michael G.
Miller and Murray L. Skala
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(Continued and to be signed on the reverse side.)
<PAGE> 25
2. Ratification of appointment of Pannel Kerr Forster, Certified Public
Accountants, A Professional Corporation, as the Company's auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification and approval of the 1999 Amendment to the Company's Third
Amended and Restated 1995 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification and approval of Employment Agreements with Jack Friedman and
Stephen G. Berman.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion upon such other measures as may properly come before the
meeting, hereby ratifying and confirming all that said proxy may lawfully do
or cause to be done by virtue hereof and hereby revoking all proxies
heretofore given by the undersigned to vote at said meeting or any
adjournment thereof.
The shares represented
by this proxy will be
voted in the manner
indicated, and if no
instructions to the
contrary are indicated,
will be voted FOR all
proposals listed above.
Number of shares owned by
undersigned:
Signature:______________
Date:___________________
Signature:______________
Date:___________________
IMPORTANT: Please sign
exactly as your name or
names are printed here.
Executors,
administrators, trustees
and other persons signing
in a representative
capacity should give full
title.
