<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:
[ x ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] 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: ____________________________________________________________
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PRELIMINARY COPY
JAKKS PACIFIC, INC.
22761 PACIFIC COAST HIGHWAY
MALIBU, CA 90265
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 23, 2000
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 June 23, 2000 at 9:00 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 amendments to the employment agreements between
the Company and Jack Friedman and Stephen G. Berman, respectively,
described in the accompanying Proxy Statement.
(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 May 12, 2000 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
May 24, 2000
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.
DEFINITIVE PROXY MATERIALS ARE EXPECTED TO BE MAILED TO THE COMPANY'S
STOCKHOLDERS ON OR ABOUT MAY 24, 2000.
<PAGE> 3
JAKKS PACIFIC, INC.
22761 PACIFIC COAST HIGHWAY
MALIBU, CA 90265
PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 23, 2000
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 2000 Annual Meeting of Stockholders to be held on June 23, 2000, 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 May 24,
2000, accompanied by our Annual Report to Stockholders for our fiscal year ended
December 31, 1999.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on May 12, 2000, 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 19,367,554 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 amendments to 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 May 11, 2000, 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, and
(3) all our directors and executive officers as a group. No person is 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
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP SHARES
------------------------ ------------ -----------
<S> <C> <C>
Jack Friedman............................................... 727,230(1) 3.7
Stephen G. Berman........................................... 86,816(2) *
Joel M. Bennett............................................. 40,312(3) *
Robert E. Glick............................................. 74,288(4) *
Michael G. Miller........................................... 63,788(5) *
Murray L. Skala............................................. 166,419(6) *
All directors and executive officers as a group (6
persons).................................................. 1,088,545(7) 5.5
</TABLE>
- ---------------
* Less than 1% of our outstanding shares.
(1) Includes 70,308 shares held in trusts for the benefit of children of Mr.
Friedman. Also includes 187,500 shares which Mr. Friedman may purchase upon
the exercise of certain stock options.
(2) Represents shares which Mr. Berman may purchase upon the exercise of certain
stock options.
(3) Includes 8,751 shares which Mr. Bennett may purchase upon the exercise of
certain stock options.
(4) Represents shares which Mr. Glick may purchase upon the exercise of certain
stock options.
(5) Represents shares which Mr. Miller may purchase upon the exercise of certain
stock options.
(6) Includes 96,111 shares which Mr. Skala may purchase upon the exercise of
certain stock options and 70,308 shares held by Mr. Skala as trustee under
trusts for the benefit of children of Mr. Friedman.
(7) Includes 70,308 shares held in trusts for the benefit of children of Mr.
Friedman and an aggregate of 518,564 shares which the directors and
executive officers may purchase upon the exercise of certain stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best of our knowledge, all Forms 3, 4 or 5 required to be filed
pursuant to Section 16(a) of the Exchange Act during or with respect to the
fiscal year ended December 31, 1999 were filed on a timely basis, except that
each of Messrs. Friedman, Berman, Bennett, Glick, Miller and Skala did not file
a Form 4 until January 5, 2000 with respect to the shares of our common stock
distributed to him on November 4, 1999 in connection with the 3-for-2 split of
our common stock effected on that date.
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ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The persons named in the enclosed proxy will vote to elect as directors the
five nominees named below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. All of the
nominees have indicated their willingness to serve, if elected, but if any
nominee should be unable to serve 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 35 Chief Operating Officer, President, January 1995
Secretary and Director
Robert E. Glick 54 Director October 1996
Michael G. Miller 52 Director February 1996
Murray L. Skala 53 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 these 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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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 1999, our Board held ten meetings and acted by unanimous consent seven
times; our Stock Option Committee acted by unanimous consent once; 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, 38, 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 $1,000,000 in 1999.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation we paid for our fiscal
years ended December 31, 1997, 1998 and 1999 to our Chief Executive Officer and
to each of our other executive officers whose compensation exceeded $100,000 on
an annual basis (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AWARDS
ANNUAL COMPENSATION --------------------
----------------------------------------- RESTRICTED
OTHER ANNUAL STOCK
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#)
------------------ ---- ------- --------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Jack Friedman......................... 1999 521,000 1,750,000 -- -- 232,500
Chairman and Chief 1998 446,000 550,000 -- -- 125,000
Executive Officer 1997 296,000 130,224 -- -- 125,000
Stephen G. Berman..................... 1999 496,000 1,750,000 -- -- 394,500
Chief Operating Officer, 1998 421,000 550,000 -- -- 125,000
President and Secretary 1997 271,000 130,224 -- -- 125,000
Joel M. Bennett....................... 1999 155,000 130,000 -- -- 42,500
Chief Financial Officer 1998 135,000 45,000 -- -- --
1997 110,000 40,000 -- -- 30,000
</TABLE>
The following table sets forth certain information regarding options
granted to the Named Officers in 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE --------------------------
NAME GRANTED (#) FISCAL YEAR(1) ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ------------ -------------- ------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Friedman......... 75,000 6.7% 16.58 8/12/05 423,000 959,250
157,500 14.1% 21.21 9/14/05 1,135,575 2,578,275
Stephen G. Berman..... 162,000 14.6% 11.04 2/9/05 607,500 1,380,240
75,000 6.7% 16.58 8/12/05 423,000 959,250
157,500 14.1% 21.21 9/14/05 1,135,575 2,578,275
Joel M. Bennett....... 30,000 2.7% 11.04 2/9/05 112,500 255,600
12,500 1.1% 18.875 12/31/05 80,188 182,063
</TABLE>
- ---------------
(1) Options to purchase a total of 444,250 shares of our common stock were
granted to our employees, including the Named Officers, during 1999.
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The following table sets forth certain information regarding options
exercised and exercisable during 1999 and the value of the options held as of
December 31, 1999 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................ -- -- 187,500 420,000 2,283,594 2,561,719
Stephen G. Berman............ 124,986 2,247,805(1) 62,514 582,000 763,219 3,900,344
Joel M. Bennett.............. 40,500 697,427 34,312 57,500 517,956 412,188
</TABLE>
- ---------------
(1) The difference between (x) the product of the number of exercised options
and 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 $18.6875 (the closing sale price of the common stock on December 31,
1999) and (y) the aggregate exercise price of such options.
COMPENSATION OF DIRECTORS
Each of our directors receives an annual cash stipend of $10,000. We also
reimburse our directors for their reasonable expenses of attending Board or
committee meetings. In addition, our Option Plan provides for each newly elected
non-employee director to receive at the commencement of his term an option to
purchase 37,500 shares of our common stock at their then current fair market
value, and for grants to our non-employee directors on January 1 of each year of
an option to purchase 9,375 shares of our common stock at their then current
fair market value. 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
We entered into 10-year 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 2000 is $771,000 and Mr. Berman's
is $746,000. 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 $2,000,000, 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
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
Our Option Plan was originally adopted and approved by the stockholders and
directors in July 1998 and amended in August 1999. Options to purchase, in the
aggregate, up to 2,625,000 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
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<PAGE> 9
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 that 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 prices 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.
Upon the occurrence of a merger, consolidation or other reorganization, or
a sale of all or substantially all of the assets, of JAKKS, or a transaction
giving any person the right to elect a majority of our Board, as a result of
which a distribution of cash, securities or other property is to be made to our
stockholders, the options held by any consultant or any person who shall have
been an employee for at least one year will vest and become immediately
exercisable by such holder, even if such options would not otherwise then be
exercisable under any applicable vesting schedule or other condition to the
exercise thereof.
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 May 11, 2000, we have granted options to purchase an aggregate of
2,625,000 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 May 11, 2000, the closing sale
price of our common stock on the Nasdaq National Market was $17.00.
As discussed above, each of our non-employee directors currently receives
automatic annual grants of options to purchase 9,375 shares of our common stock
(currently, 28,125 shares for all non-employee directors). Except for these
grants, the plan benefits that will be received by or allocated to participants
in the Option Plan are not currently determinable.
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
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<PAGE> 10
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Jack Friedman, our Chairman and Chief Executive Officer, is the only
member of our Compensation Committee who is or formerly was an officer or
employee of JAKKS or any of its subsidiaries. Our Board believes that Mr.
Friedman's assessment of the performance and contribution of our other employees
and his views on the appropriate manner and level of compensation for their
services are essential to the Compensation Committee's ability to evaluate and
make determinations with respect to compensation matters. However, Mr. Friedman
does not participate in any deliberations or determinations by the Compensation
Committee or our Board with respect to his own compensation.
None of our executive officers has served as a director or member of a
compensation committee (or other board committee performing equivalent
functions) of any other entity, one of whose executive officers served as a
director or a member of our Compensation Committee.
8
<PAGE> 11
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERVIEW
Our approach to employee compensation is grounded in our belief that our
most important resource is our people. While some companies may enjoy an
exclusive or limited franchise or are able to exploit unique assets, proprietary
technology or other special properties or rights, we depend fundamentally on the
skills, energy and dedication of our employees to drive our business. It is only
through their constant efforts that we are able to innovate through the creation
of new products and the continual rejuvenation of our product lines, to maintain
superior operating efficiencies, and to develop and exploit marketing channels.
With this in mind, we have consistently sought to employ the most talented,
accomplished and energetic people available in the industry.
One of our key management principles is to operate with a "lean and mean"
executive staff. This allows for quick decision-making and efficient operation,
but also stresses clearly delineated responsibilities and accountability for
each area of business. We believe that we have assembled an outstanding
management team and that this has been a primary factor in our success to date.
Accordingly, we have determined that the paramount aim of our compensation
policy should be to attract and retain the most promising people available to
work for us and to motivate them so that they perform to their maximum
potential.
Our Board of Directors determines the compensation of our executive
officers, except that Mr. Friedman and Mr. Berman do not participate in any
deliberations or determinations with respect to their compensation. Mr. Friedman
and Mr. Berman generally determine the compensation of other management
employees, subject to oversight by the Board of Directors. Executive
compensation is generally determined based on a subjective evaluation of the
executive's efforts and achievements, our overall performance and the
executive's contribution thereto. The role of our Compensation Committee in this
process is to review our compensation policy for management employees, to
recommend to the Board programs and policies related to employee compensation
and benefits, and to administer programs and plans relating thereto, other than
the Option Plan. Our Stock Option Committee is authorized to administer the
Option Plan and, in particular, to determine the persons to whom, the number of
shares for which, and the times and exercise prices at which options are
granted.
EXECUTIVE COMPENSATION
Our executive compensation consists of four components:
Base Salary
The base salaries of Mr. Friedman and Mr. Berman are determined by our
Board of Directors in accordance with their respective employment agreements. We
determine the base salary of each of our other executive officers on an annual
basis.
Incentive Bonus
Generally, we award a cash bonus to our management employees based on their
personal performance in the past year and the overall performance of the
Company. Mr. Friedman and Mr. Berman are entitled to receive a formula-based
bonus under their respective employment agreements, and may also receive
additional discretionary bonuses.
Stock Option Grants
We believe that an important element of our compensation policy is to align
the interests of our management employees with the long-term interests of our
stockholders. The most direct way to accomplish this is by giving our executives
an equity stake in our Company, which we do by granting stock options to our
employees as a non-cash component of incentive compensation. Options are granted
to employees by the Board of Directors or our stock option committee, based on
the recommendations of Mr. Friedman and
9
<PAGE> 12
Mr. Berman (except that they do not participate in determining their own option
grants). To date, the exercise price of each option granted under our Option
Plan was set equal to the Nasdaq closing price of our common stock on the date
of grant (except where a higher exercise price was required in order for the
option to qualify as an "incentive stock option" under the Internal Revenue Code
when the option is granted to a 10% stockholder), and we intend to continue this
practice in general. Beginning in 1999, we have provided for all options granted
under our Option Plan to vest in increments of 15%, 15%, 15%, 25% and 30% over
the five-year period beginning on the first anniversary of the date of grant,
and to terminate six years after the date of grant. We believe that the
relatively long and back-end weighted vesting period encourages a long-term
commitment to the Company by the option grantee.
Employee Benefits
We provide customary employee benefits, such as medical and hospitalization
insurance, vacation and a 401(k) retirement savings plan, to all our full-time
employees. In addition, certain of our management employees are entitled to
perquisites, such as an automobile allowance.
CHIEF EXECUTIVE OFFICER COMPENSATION
In 1999, Mr. Friedman, our chief executive officer, earned a base salary of
$521,000 and a bonus of $1,750,000, and was granted options to purchase 232,500
shares of our common stock, and Mr. Berman, our chief operating officer, earned
a base salary of $496,000 and a bonus of $1,750,000, and was granted options to
purchase 394,500 shares of our common stock. Mr. Friedman and Mr. Berman are
subject to employment agreements which require us to increase their salary each
year by an amount not less than $25,000 and which provide for a formula-based 4%
Bonus linked to our Pre-Tax Income (as defined). The 4% Bonus accounted for
$1,000,000 of their respective bonuses in 1999, the balance of which was made on
a discretionary basis by the Board of Directors. In order to implement an
understanding between them (and although there is no legally binding agreement
that requires it) we have paid, and expect to continue to pay, substantially
equal cash compensation to Mr. Friedman and Mr. Berman, the principal difference
being that Mr. Friedman's base salary is fixed in an amount $25,000 higher than
that of Mr. Berman.
We believe that our success to date has been to a significant extent
attributable to the personal efforts of Mr. Friedman and Mr. Berman. They
founded the Company, established its business philosophy and operating structure
and were the driving force behind our central theme of focusing our business on
"evergreen" products. Mr. Friedman's long-term relationship with Titan Sports
was instrumental in our acquiring our successful World Wrestling Federation
licenses. In his nearly four-decade-long career in the toy industry, he has
established an important network of relationships that we have been able to
exploit in product acquisition, production and sales. Both Mr. Berman and Mr.
Friedman embody our management philosophy with a hands-on approach in all areas
of our business. In addition to their general supervisory functions, they are
directly involved in license acquisition, product design and development,
production, and sales and marketing, as well as our financing and acquisition
efforts. Their efforts have resulted in our identifying and securing the World
Wrestling Federation licenses and other desirable licenses and properties, the
rapid expansion of our product lines, our achieving significant production
efficiencies and the development of a loyal and growing customer base. In 1999,
they guided us through two significant acquisitions, the implementation of our
video game joint venture with THQ Inc. and two public offerings.
Based on their contributions to our outstanding performance in 1999, which
witnessed a 116% increase in net sales, 245% increase in net income, 136%
increase in earnings per share and 160% increase in the market price of our
common stock, the Board determined that it would be appropriate to award Mr.
Friedman and Mr. Berman a substantial discretionary bonus with respect to 1999.
Our Compensation Committee commissioned a report from an independent consulting
firm to advise it on the appropriate level of compensation for Mr. Friedman and
Mr. Berman. Based on this report, our Compensation Committee recommended to the
Board that we give Mr. Friedman and Mr. Berman a bonus of $750,000, in addition
to the 4% Bonus, and the Board approved this recommendation. At the same time,
the Board also increased the cap on the 4% Bonus from $1,000,000 to $2,000,000
effective in 2000.
10
<PAGE> 13
CONSIDERATIONS WITH RESPECT TO TAX-DEDUCTIBILITY
The deductibility of compensation payments in excess of $1,000,000 to each
of our chief executive officer or four other most highly compensated executive
officers is subject to certain limitations under Section 162(m) of the Internal
Revenue Code. The Board of Directors and the Compensation Committee take into
account the effect of the loss of deductibility of executive compensation that
exceeds $1,000,000 as one factor in its consideration of the appropriate manner
and level of compensation for its executives. While they seek to minimize any
adverse impact of these limitations, they may not confine compensation to the
$1,000,000 limits in order to maintain flexibility to award greater compensation
where appropriate.
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
- ---------------------- ----------------------
<S> <C>
Jack Friedman Robert E. Glick
Michael G. Miller Michael G. Miller
Murray L. Skala
</TABLE>
PERFORMANCE GRAPH
The graph and table below display the relative performance of our common
stock, the Russell 2000 Stock Price Index (the "Russell 2000") and a peer group
index over the period from May 1, 1996 (the first day on which our common stock
was publicly traded) to December 31, 1999 by comparing the cumulative total
stockholder return (which assumes reinvestment of any dividends) on an assumed
$100 investment in our common stock (at its initial public offering price of
$4.16 2/3), the Russell 2000 and the peer group index at the market close on
April 30, 1996. We constructed the peer group index by including, on a market
capitalization weighted basis, the common stocks of eight companies: Acclaim
Entertainment, Inc., Action Performance Companies, Inc., Empire of Carolina,
Inc., Equity Marketing, Inc., The First Years, Inc., Hasbro, Inc., Mattel, Inc.
and Russ Berrie and Company, Inc. We believe that these companies represent a
cross-section of publicly-traded companies with product lines and businesses
similar to our own throughout the comparison period. The historical performance
data presented below may not be indicative of the future performance of our
common stock, either reference index or any component company in either
reference index.
<TABLE>
<CAPTION>
JAKKS PACIFIC PEER GROUP RUSSELL 2000
------------- ---------- ------------
<S> <C> <C> <C>
Apr. 30, 1996 100.00 100.00 100.00
Dec. 31, 1996 127.87 103.54 105.25
Dec. 31, 1997 127.87 136.79 128.65
Dec. 31, 1998 171.82 112.78 125.77
Dec. 31, 1999 448.03 74.65 152.63
</TABLE>
11
<PAGE> 14
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,
2000, subject to ratification by the stockholders. This firm served as our
independent auditors during 1999 and 1998. 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.
RATIFICATION AND APPROVAL OF THE 2000 AMENDMENT
TO OUR THIRD AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(PROPOSAL NO. 3)
On May 11, 2000, our Board of Directors unanimously adopted an amendment to
our Option Plan (the "2000 Amendment") which, if approved by our stockholders,
would increase the number of shares of our common stock available under the
Option Plan to 3,275,000 shares from the 2,625,000 shares currently available
under the Option Plan. The full text of the 2000 Amendment is presented in
Appendix A. Our Board of Directors believes that the Option Plan continues to
provide an important mechanism enabling the Company to attract, retain and
motivate employees. Since we have granted options to purchase, in the aggregate,
all 2,625,000 shares currently available under the Option Plan, our Board of
Directors has 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 3,275,000 shares in order to allow for additional grants of
options.
The 2000 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.
RATIFICATION AND APPROVAL OF AMENDMENTS TO THE
EMPLOYMENT AGREEMENTS BETWEEN THE COMPANY AND JACK FRIEDMAN
AND STEPHEN G. BERMAN, RESPECTIVELY
(PROPOSAL NO. 4)
On July 1, 1999, we entered into employment agreements with Jack Friedman
and Stephen G. Berman, respectively, which continued the basic compensation
packages provided to these executives under their prior employment agreements,
with certain additional provisions relating to severance compensation payable to
them under certain circumstances. On February 7, 2000, our Board of Directors
approved an increase in the maximum amount of the "4% Bonus" payable under these
employment agreements from $1,000,000 to $2,000,000, and these agreements were
amended accordingly. The full text of the amendments to their respective
employment agreements are presented in Appendix B. Our Board of Directors
believes that there is a reasonable likelihood that the total compensation
payable to each of Mr. Friedman and Mr. Berman pursuant to his employment
agreement, as so amended, 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 amendments to the employment agreements
must be approved by our stockholders. The ratification and approval of these
amendments to the employment agreements by our stockholders is not required for
the amendments to become or remain effective or binding
12
<PAGE> 15
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 recommends that the stockholders vote FOR these
nominees and proposals.
STOCKHOLDER PROPOSALS
Any stockholder intending to present a proposal at our 2001 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 January 25, 2001 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 2001 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 April 9, 2001.
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.
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.
13
<PAGE> 16
APPENDIX A
2000 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 Three
Million Two Hundred Seventy Five Thousand (3,275,000) shares, subject to
adjustment in accordance with the provisions of Section 13 hereof.
3. This 2000 Amendment to the Third Amended Plan was adopted by the Board
on May 11, 2000, 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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<PAGE> 17
APPENDIX B
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN JAKKS PACIFIC, INC. AND JACK FRIEDMAN
The Employment Agreement dated as of July 1, 1999 between JAKKS Pacific,
Inc. and Jack Friedman (the "Employment Agreement;" capitalized terms are used
herein as defined in the Employment Agreement) is hereby amended to increase the
maximum amount of the 4% Bonus provided therein from $1,000,000 to $2,000,000 by
replacing "$1,000,000" with "$2,000,000" in clause (B) of Subsection 3(a)(ii) of
the Employment Agreement.
This Amendment shall be effective as of January 1, 2000 and the Employment
Agreement, as so amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
Executive have duly executed this Amendment as of February 7, 2000.
JAKKS PACIFIC, INC.
By: /s/ STEPHEN G. BERMAN
------------------------------------
Stephen G. Berman
President
/s/ JACK FRIEDMAN
------------------------------------
Jack Friedman
B-1
<PAGE> 18
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN JAKKS PACIFIC, INC. AND STEPHEN G. BERMAN
The Employment Agreement dated as of July 1, 1999 between JAKKS Pacific,
Inc. and Stephen G. Berman (the "Employment Agreement;" capitalized terms are
used herein as defined in the Employment Agreement) is hereby amended to
increase the maximum amount of the 4% Bonus provided therein from $1,000,000 to
$2,000,000 by replacing "$1,000,000" with "$2,000,000" in clause (B) of
Subsection 3(a)(ii) of the Employment Agreement.
This Amendment shall be effective as of January 1, 2000 and the Employment
Agreement, as so amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
Executive have duly executed this Amendment as of February 7, 2000.
JAKKS PACIFIC, INC.
By: /s/ JACK FRIEDMAN
------------------------------------
Jack Friedman
Chief Executive Officer
/s/ STEPHEN G. BERMAN
------------------------------------
Stephen G. Berman
B-2
<PAGE> 19
APPENDIX C
FILED HEREWITH PURSUANT TO INSTRUCTION 3 TO PARAGRAPH (B)(2) OF ITEM 10 OF
SCHEDULE 14A UNDER THE SECURITIES EXCHANGE ACT OF 1934, NOT TO BE INCLUDED IN
THE PROXY STATEMENT TO BE FURNISHED TO SECURITYHOLDERS.
JAKKS PACIFIC, INC.
THIRD AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Purpose of the Plan. The JAKKS Pacific, Inc. Third Amended and Restated
1995 Stock Option Plan (the "Third Amended Plan") is intended to advance the
interests of JAKKS Pacific, Inc. (the "Company") by inducing persons of
outstanding ability and potential to join and remain with the Company, by
encouraging and enabling employees to acquire proprietary interests in the
Company, and by providing the participating employees with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options" (which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined),
to qualified employees. In addition, the Third Amended Plan also provides for
the granting of "Nonstatutory Stock Options" to all Directors who are not
employees of the Company, as consideration for their services and for attending
meetings of the Board of Directors, and also provides for the granting of
"Nonstatutory Stock Options" to consultants and advisors who provide services to
the Company.
2. Administration. The Third Amended Plan shall be administered by the
Board of Directors (the "Board"), or by a committee (the "Committee") consisting
of at least two (2) Directors chosen by the Board, each of whom is a
"Non-Employee Director," as such term is defined in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except as
herein specifically provided, the interpretation and construction by the Board
or Committee of any provision of the Third Amended Plan or of any Option granted
under it shall be final and conclusive. The receipt of Options by Directors, or
any members of the Committee, shall not preclude their vote on any matters in
connection with the administration or interpretation of the Third Amended Plan,
except as otherwise provided by law.
3. Shares Subject to the Third Amended Plan. The stock subject to grant
under the Third Amended Plan shall be shares of the Company's common stock,
$.001 par value (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury or shares purchased from stockholders expressly for use
under the Third Amended Plan. 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 Two Hundred Fifty Thousand (1,250,000) shares, subject to
adjustment in accordance with the provisions of Section 13 hereof. The Company
shall at all times while the Third Amended Plan is in force reserve such number
of shares of Common Stock as will be sufficient to satisfy the requirements of
all outstanding Options granted under the Third Amended Plan. In the event any
Option granted under the Third Amended Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for Options under this Third Amended Plan.
4. Stock Option Agreement. Each Option granted under the Third Amended Plan
shall be authorized by the Board or Committee and shall be evidenced by a
Certificate of Stock Option Agreement which shall be executed by the Company and
by the person to whom such Option is granted or such other document which
evidences the grant of the Option. The Certificate of Stock Option Agreement
shall specify the number of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable and the option price
per share thereof.
5. Discretionary Grant Participation. The class of persons which shall be
eligible to receive discretionary grants of Options under the Third Amended Plan
shall be all qualified employees (including officers) of either the Company or
any subsidiary corporation of the Company and consultants and advisors who
provide services to the Company or any subsidiary of the Company, other than in
connection with the offer or sale of
C-1
<PAGE> 20
securities in a capital raising transaction. Employees shall be entitled to
receive (i) Incentive Stock Options, as described in Section 7 hereafter and
(ii) Nonstatutory Stock Options, as described in Section 8 hereafter.
Consultants and advisors shall be entitled only to receive Nonstatutory Stock
Options. The Board or Committee, in its discretion, but subject to the
provisions of the Third Amended Plan, shall determine the employees, consultants
or advisors to whom Options shall be granted and the number of shares to be
covered by each Option taking into account the nature of the employment or
services rendered by the individuals being considered, their annual
compensation, their present and potential contributions to the success of the
Company and such other factors as the Board or Committee may deem relevant.
6. Participation of Directors Who Are Not Employees of the Company.
(a) On the date any person who is not an employee of the Company first
becomes a Director, such person shall automatically be granted, without
further action by the Board or Committee, an option to purchase 25,000
shares of the Company's Common Stock.
(b) On the first day of each calendar quarter during the term of the
Third Amended Plan, Directors of the Company who are not employees of the
Company then serving in such capacity, shall each be granted an Option to
purchase 6,250 shares of the Company's Common Stock.
(c) The option price of the shares subject to the Options set forth in
Sections 6(a) and 6(b) hereof shall be the fair market value (as defined in
Section 7(f) hereafter) of the Company's Common Stock on the date such
Options are granted. All of such Options shall be Nonstatutory Stock
Options, as described in Section 8 hereafter. The Options granted pursuant
to this Section 6 shall vest entirely on the date they are granted and
shall be exercisable for a period of ten (10) years.
(d) Directors who are not employees of the Company include attorneys,
accountants, consultants and advisors of the Company who, in addition to
providing services in such capacity, serve as Directors of the Company.
7. Incentive Stock Options. The Board or Committee may grant Options under
the Third Amended Plan which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986 (the "Code") (such an Option referred
to herein as an "Incentive Stock Option"), and which are subject to the
following terms and conditions and any other terms and conditions as may at any
time be required by Section 422 of the Code:
(a) No Incentive Stock Option shall be granted to individuals other
than qualified employees of the Company or of a subsidiary corporation of
the Company.
(b) Each Incentive Stock Option under the Third Amended Plan must be
granted prior to December 1, 2005, which is within ten (10) years from the
date the Company's original 1995 Stock Option Plan (the "Plan") was adopted
by the Board of Directors and shareholders of the Company.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value of the Common Stock at
the time such Incentive Stock Option is granted; provided, however, if an
Incentive Stock Option is granted to an individual who owns, at the time
the Incentive Stock Option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of a
subsidiary corporation of the Company, the option price of the shares
subject to the Incentive Stock Option shall be at least one hundred ten
percent (110%) of the fair market value of the Common Stock at the time the
Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Third Amended Plan
shall be exercisable after the expiration of ten (10) years from the date
of its grant. However, if an Incentive Stock Option is granted to an
individual who owns, at the time the Incentive Stock Option is granted,
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of a subsidiary corporation, of the
Company, such Incentive Stock Option shall not be exercisable after the
expiration of five (5) years from the date of its grant. Every Incentive
Stock Option granted under the Third Amended Plan shall be subject to
earlier termination as expressly provided in Section 11 hereof.
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<PAGE> 21
(e) For purposes of determining stock ownership under this Section 7,
the attribution rules of Section 425(d) of the Code shall apply.
(f) For purposes of the Third Amended Plan, fair market value shall be
determined by the Board or Committee and, if the Common Stock is listed on
a national securities exchange or traded on the Over-the-Counter market,
the fair market value shall be the closing price of the Common Stock on
such exchange, or on the Over-the-Counter market as reported by the
National Quotation Bureau, Incorporated, as the case may be, on the day on
which the Option is granted or on the day on which a determination of fair
market value is required under the Third Amended Plan, or, if there is no
trading or closing price on that day, the closing price on the most recent
day preceding the day for which such prices are available.
8. Nonstatutory Stock Options. The Board or Committee may grant Options
under the Third Amended Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code, but the terms of which provide that
they will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option"). Nonstatutory Stock Options which are not intended
to meet these requirements shall be subject to the following terms and
conditions:
(a) A Nonstatutory Stock Option may be granted to any person eligible
to receive an Option under the Third Amended Plan pursuant to Section 5
hereof.
(b) Persons eligible to receive Nonstatutory Stock Options pursuant to
Section 6 hereof are granted Options automatically under the Third Amended
Plan, without any determination by the Board or Committee.
(c) Subject to the price provisions of Section 6 hereof, the option
price of the shares subject to a Nonstatutory Stock Option shall be
determined by the Board or Committee, in its absolute discretion, at the
time of the grant of the Nonstatutory Stock Option.
(d) Subject to the provisions of Section 6 hereof, a Nonstatutory
Stock Option granted under the Third Amended Plan may be of such duration
as shall be determined by the Board or Committee (not to exceed 10 years),
and shall be subject to earlier termination as expressly provided in
Section 11 hereof.
9. Rights of Option Holders. The holder of any Option granted under the
Third Amended Plan shall have none of the rights of a stockholder with respect
to the shares covered by his Option until such shares shall be issued to him
upon the exercise of his Option.
10. Transferability. No Option granted under the Third Amended Plan shall
be transferable by the individual to whom it was granted otherwise than by will
or the laws of decent and distribution, or pursuant to a domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Securities Act, or the rules thereunder and, during the lifetime of such
individual, shall not be exercisable by any other person, but only by him.
11. Termination of Employment; Death; Restrictive Covenants.
(a) If the employment of an employee by the Company or any subsidiary
of the Company shall be terminated voluntarily by the employee or for
cause, then his Options shall expire forthwith. Except as provided in
subsections (b) and (c) of this Section 11, if such employment or services
shall terminate for any other reason, then such Options may be exercised at
any time within three (3) months after such termination, subject to the
provisions of subparagraph (f) of this Section 11. For purposes of the
Third Amended Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal
retirement date prescribed from time to time by the Company shall be deemed
to be termination of such individual's employment other than voluntarily or
for cause. For purposes of this subparagraph, an employee who leaves the
employ of the Company to become an employee of a subsidiary corporation of
the Company or a corporation (or subsidiary or parent corporation of the
corporation) which has assumed the Option of the Company as a result of a
corporate reorganization, shall not be considered to have terminated his
employment.
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(b) If the holder of any Options under the Third Amended Plan dies (i)
while employed by the Company or a subsidiary of the Company, or (ii)
within three (3) months after the termination of his employment or services
other than voluntarily by the employee or for cause, then such Options may,
subject to the provisions of subparagraph (f) of this Section 11, be
exercised by the estate of the employee or by a person who acquired the
right to exercise such Options by bequest or inheritance or by reason of
the death of such employee at any time within one (1) year after such
death.
(c) If the holder of any Options under the Third Amended Plan ceases
employment because of permanent and total disability (within the meaning of
Section 22(e)(3) of the Code) while employed by the Company or a subsidiary
of the Company, then such Options may, subject to the provision of
subparagraph (f) of this Section 11, be exercised at any time within one
(1) year after his termination of employment due to this disability.
(d) If the services of a Director who is not an employee of the
Company shall be terminated by the Company for cause, then his Options
shall expire forthwith. If such services shall terminate for any other
reason (including the death or disability of such Director), he shall
resign as a director of the Company or his term shall expire, then such
Options may be exercised at any time within one (1) year after such
termination, subject to the provisions of subparagraph (f) of this Section
11. In the event of the death of a Director who is not an employee of the
Company, his Options may be exercised by his estate or by a person who
acquired the right to exercise such Options by bequest or inheritance or by
reason of the death of such Director at any time within one (1) year after
such death.
(e) Upon the death of any consultant or advisor to the Company or any
of its subsidiaries, who is granted any Options hereunder, such Options
may, subject to the provisions of subparagraph (f) of this Section 11, be
exercised by the estate of such person or by a person who acquired the
right to exercise such Options by bequest or inheritance or by reason of
the death of such person at any time within one (1) year after such death.
(f) An Option may not be exercised pursuant to this Section 11 except
to the extent that the holder was entitled to exercise the Option at the
time of termination of employment, termination of Directorship, or death,
and in any event may not be exercised after the expiration of the Option.
(g) For purposes of this Section 11, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company will
be treated as continuing intact while he is on military or sick leave or
other bona fide leave of absence (such as temporary employment by the
Government) if such leave does not exceed ninety (90) days, or, if longer,
so long as his right to reemployment is guaranteed either by status or by
contract.
(h) Restrictive Covenants. In consideration of the Options granted
pursuant to this Third Amended Plan and to induce the Company to grant such
Options, all option agreements entered into as a result of Options granted
hereunder shall require each optionee to agree as follows:
(i) Definitions. As used in this Section 11(h), the following terms
shall have the meanings ascribed to them in this subsection:
"Business" shall mean the business of designing, developing,
marketing, selling and/or distributing children's toys and games.
"Competitive Company" shall mean any person, corporation,
association, joint venture, partnership, or other business entity
that engages in any part of the Business in competition with the
Company.
"Restrictive Period" shall mean a period of one year following
the optionee's voluntary termination of his employment with the
Company or the termination of his employment with the Company for
cause; provided, however, that the Restrictive Period shall be
extended for an additional period equal to any period during which
the optionee is in violation of any of the provisions of Section
11(h)(iv), below.
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"Territory" shall mean the United States.
(ii) Acknowledgements. The optionee will acknowledge that by reason
of his position with the Company he is and will be acquainted with
confidential and privileged information relating to customer files and
special customer information, vendor sources and information, licenses,
product lines, intellectual property (including, but not limited to,
patents, trademarks and copyrights), financings, mergers, acquisitions,
selective personnel information and confidential processes, designs,
ideas, plans, devices and materials, and other similar matters treated
by the Company as confidential (the "Confidential Information") and that
use of the Confidential Information might seriously damage the Company
in the operation of its Business.
(iii) Nondisclosure. The optionee will agree not to divulge,
furnish, or make accessible to any third person, company or other
organization or entity (other than in the regular course of the
Company's Business) any Confidential Information, without the prior
written consent of the Company; provided, however, that such covenant
will not apply to any Confidential Information that was known by the
optionee prior to the Company's disclosure thereof to such optionee,
that is or becomes through no fault of the optionee generally available
to the public, or that is independently developed and supplied to the
optionee by a source other than the Company.
(iv) Covenant Not to Compete. The Optionee will agree that during
the continuation of his employment with the Company and during the
Restrictive Period if his employment with the Company is terminated by
him voluntarily or by the Company for cause, the optionee will not,
directly or indirectly, within the Territory:
(1) own, manage, operate, control, be employed by, render
advisory services to, support or assist (by loans or otherwise),
participate in or be connected in the management or control of any
Competitive Company, unless his affiliation with such Competitive
Company is not related in any way, directly or indirectly to the sale
or marketing of products or the provision of services that are of the
same kind or a like nature as those products sold or services
provided by the Company at the time the optionee's employment
terminates; or
(2) solicit or attempt in any manner to persuade or influence
any present or future customer of the Company to divert its business
from the Company to any Competitive Company.
(v) Enforcement. The optionee will agree that in the event of any
breach or threatened breach by the optionee of the foregoing covenants,
the Company, in addition to any other rights and remedies it may have,
will be entitled to an injunction restraining such breach or threatened
breach, the optionee agreeing to stipulate that a breach by the optionee
would cause irreparable damage to the Company and that its remedies at
law would be inadequate. The optionee will further agree that the
existence of any claim or cause of action on the part of the optionee
against the Company shall not constitute a defense to the enforcement of
these provisions and that the terms of the foregoing covenants,
including without limitation the Restrictive Period and the Territory,
are reasonable in all respects and necessary for the protection of the
Company. If any court of competent jurisdiction will finally adjudicate
that any of the covenants are too broad as to area, activity or time
covered, the optionee will agree that such area, activity or time
covered may be reduced to whatever extent such court deems reasonable
and the covenants and the remedy of injunctive relief may be enforced as
to such reduced area, activity or time.
12. Exercise of Options.
(a) Unless otherwise provided in the Certificate of Stock Option
Agreement, any Option granted under the Third Amended Plan shall be
exercisable in whole at any time, or in part from time to time, prior to
expiration. The Board or Committee, in its absolute discretion, may provide
in any Certificate of Stock Option Agreement that the exercise of any
Option granted under the Third Amended Plan shall be subject (i) to such
condition or conditions as it may impose, including but not limited to, a
condition that the holder thereof remain in the employ or service of the
Company or a subsidiary corporation of the
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<PAGE> 24
Company for such period or periods of time from the date of grant of the
Option, as the Board or Committee, in its absolute discretion, shall
determine; and (ii) to such limitations as it may impose, including, but
not limited to, a limitation that the aggregate fair market value of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any employee during any calendar year (under all
plans of the Company and its parent and subsidiary corporations) shall not
exceed One Hundred Thousand Dollars ($100,000). In addition, in the event
that under any Certificate of Stock Option Agreement the aggregate fair
market value of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by any employee during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) exceeds One Hundred Thousand Dollars ($100,000), the Board or
Committee may, when shares are transferred upon exercise of such Options,
designate those shares which shall be treated as transferred upon exercise
of an Incentive Stock Option and those shares which shall be treated as
transferred upon exercise of a Nonstatutory Stock Option.
(b) An Option granted under the Third Amended Plan shall be exercised
by the delivery by the holder thereof to the Company at its principal
office (attention of the Secretary) of written notice of the number of
shares with respect to which the Option is being exercised. Such notice
shall be accompanied by payment of the full option price of such shares,
and payment of such option price shall be made by the holder's delivery of
his check payable to the order of the Company; provided, however, that
notwithstanding the foregoing provisions of this Section 12 or any other
terms, provisions or conditions of the Third Amended Plan, at the written
request of the optionee and upon approval by the Board of Directors or the
Committee, shares acquired pursuant to the exercise of any Option may be
paid for in full at the time of exercise by the surrender of shares of
Common Stock of the Company held by or for the account of the optionee at
the time of exercise to the extent permitted by subsection (c)(5) of
Section 422 of the Code and, with respect to any person who is subject to
the reporting requirements of Section 16(a) of the Exchange Act, to the
extent permitted by Section 16(b) of the Exchange Act and the Rules of the
Securities and Exchange Commission, without liability to the Company. In
such case, the fair market value of the surrendered shares shall be
determined by the Board or Committee as of the date of exercise in the same
manner as such value is determined upon the grant of an Incentive Stock
Option.
13. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter
changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares,
stock dividends or the like, an appropriate adjustment shall be made by the
Committee in the aggregate number of shares available under the Third
Amended Plan and in the number of shares and option price per share subject
to outstanding Options. If the Company shall be reorganized, consolidated
or merged with another corporation, or if all or substantially all of the
assets of the Company shall be sold or exchanged, the holder of an Option
shall, at the time of issuance of the stock under such a corporate event,
be entitled to receive upon the exercise of his Option the same number and
kind of shares of stock or the same amount of property, cash or securities
as he would have been entitled to receive upon the happening of such
corporate event as if he had been, immediately prior to such event, the
holder of the number of shares covered by his Option; provided, however,
that in such event the Board or Committee shall have the discretionary
power to take any action necessary or appropriate to prevent any Incentive
Stock Option granted hereunder from being disqualified as an "incentive
stock option" under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.
(b) Any adjustment in the number of shares shall apply proportionately
to only the unexercised portion of the Option granted hereunder. If
fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
14. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the shares issuable
upon such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), the notice of exercise shall be accompanied by a
representation or
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agreement of the individual exercising the Option to the Company to the
effect that such shares are being acquired for investment and not with a
view to the resale or distribution thereof or such other documentation as
may be required by the Company unless in the opinion of counsel to the
Company such representation, agreement or documentation is not necessary to
comply with the Securities Act.
(b) The Company shall not be obligated to deliver any Common Stock
until it has been listed on each securities exchange on which the Common
Stock may then be listed or until there has been qualification under or
compliance with such state or federal laws, rules or regulations as the
Company may deem applicable. The Company shall use reasonable efforts to
obtain such listing, qualification and compliance.
15. Effectiveness of the Plan. The Plan was originally adopted by the Board
of Directors on December 1, 1995. The Plan was approved by the affirmative vote
of a majority of the outstanding shares of capital stock of the Company by
written consent dated December 1, 1995. The Third Amended Plan was approved by
the Board of Directors on May 19, 1998 and adopted by the stockholders of the
Company on July 29, 1998.
16. Termination, Modification and Amendment.
(a) The Third Amended Plan (but not Options previously granted under
the Third Amended Plan) shall terminate on December 1, 2005, which is
within ten (10) years from the date of the adoption of the Plan by the
Board of Directors, or sooner as hereinafter provided, and no Option shall
be granted after termination of the Third Amended Plan.
(b) The Third Amended Plan may from time to time be terminated,
modified or amended by the affirmative vote of the holders of a majority of
the outstanding shares of capital stock of the Company present in person or
by proxy at a meeting of stockholders of the Company convened for such
purpose.
(c) The Board of Directors may at any time, on or before the
termination date referred to in Section 16(a) hereof, terminate the Third
Amended Plan, or from time to time make such modifications or amendments to
the Third Amended Plan as it may deem advisable; provided, however, that
the Board of Directors shall not, without approval by the affirmative vote
of the holders of a majority of the outstanding shares of capital stock of
the Company present in person or by proxy at a meeting of stockholders of
the Company convened for such purpose, increase (except as provided by
Section 13 hereof) the maximum number of shares as to which Incentive Stock
Options may be granted, or change the designation of the employees or class
of employees eligible to receive Options or make any other change which
would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from disqualifying as such under
the then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
(d) No termination, modification or amendment of the Third Amended
Plan, may without the consent of the individual to whom an Option shall
have been previously granted, adversely affect the rights conferred by such
Option.
17. Not a Contract of Employment. Nothing contained in the Third Amended
Plan or in any Certificate of Stock Option Agreement executed pursuant hereto
shall be deemed to confer upon any individual to whom an Option is or may be
granted hereunder any right to remain in the employ or service of the Company or
a subsidiary corporation of the Company.
18. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Third Amended Plan shall constitute general funds of
the Company.
19. Indemnification of Board of Directors or Committee. In addition to such
other rights of indemnification as they may have, the members of the Board of
Directors or the Committee, as the case may be, shall be indemnified by the
Company to the extent permitted under applicable law against all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Third Amended Plan or
any rights granted thereunder and against all amounts paid by them in settlement
thereof or paid by them in satisfaction of a judgment of any such action, suit
or proceeding, except a judgment based upon a
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<PAGE> 26
finding of bad faith. Upon the institution of any such action, suit or
proceeding, the member or members of the Board of Directors or the Committee, as
the case may be, shall notify the Company in writing, giving the Company an
opportunity at its own cost to defend the same before such member or members
undertake to defend the same on their own behalf.
20. Definitions. For purposes of the Third Amended Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings as set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.
21. Governing Law. The Third Amended Plan shall be governed by, and all
questions arising hereunder shall be determined in accordance with, the law of
the State of Delaware.
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 on such date
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
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<PAGE> 27
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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<PAGE> 28
JAKKS PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 23, 2000
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 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 May 12, 2000, at the Annual Meeting of Stockholders of the Company
to be held on June 23, 2000 at the Sherwood Country Club, 320 West Stafford
Road, Thousand Oaks, California 91361, beginning at 9:00 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> 29
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 2000 Amendment to the Company's Third
Amended and Restated 1995 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification and approval of amendments to the 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.
