AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996
REGISTRATION NO. 333-08175
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PINNACLE BRANDS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2752 75-2406170
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Numbers) Identification No.)
organization)
</TABLE>
924 AVENUE J EAST
GRAND PRAIRIE, TEXAS 75050
(214) 601-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
JERRY M. MEYER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PINNACLE BRANDS, INC.
924 AVENUE J EAST
GRAND PRAIRIE, TEXAS 75050
(214) 601-7000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
NANCY E. FUCHS ROHAN S. WEERASINGHE
JOEL I. GREENBERG SHEARMAN & STERLING
KAYE, SCHOLER, FIERMAN, 599 LEXINGTON AVENUE
HAYS & HANDLER, LLP NEW YORK, NEW YORK 10022
425 PARK AVENUE (212) 848-4000
NEW YORK, NEW YORK 10022
(212) 836-8000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST , 1996
PROSPECTUS
4,000,000 SHARES
PINNACLE BRANDS, INC.
COMMON STOCK
-------------------
The 4,000,000 shares of Common Stock of Pinnacle Brands, Inc. (the
"Company") offered hereby are being offered by the Company. Prior to this
offering there has been no public market for any securities of the Company. It
is currently estimated that the initial offering price per share will be between
$14 and $16. For a discussion of the factors to be considered in determining the
initial public offering price, see "Underwriting."
The Company has applied for listing of the Common Stock on the New York
Stock Exchange ("NYSE") under the symbol .
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
</TABLE>
(1) The Company and the Company's principal stockholder (the "Selling
Stockholder") have agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Selling Stockholder has granted the several Underwriters a 30-day option
to purchase up to 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public and Underwriting Discount, and the proceeds to the Selling
Stockholder will be $ , $ , and $ , respectively. See
"Underwriting." Approximately $ million of the proceeds to be received by
the Company in this offering will be used to repay indebtedness held by the
Selling Stockholder. See "Use of Proceeds."
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York, on or
about , 1996.
-------------------
MERRILL LYNCH & CO.
-------------------
The date of this Prospectus is , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
ARTWORK DESCRIPTIONS
INSIDE FRONT COVER ARTWORK
Picture of a baseball player swinging a baseball bat with inset pictures of
the Company's trading card boxes and card packs.
FOLD OUT ARTWORK
Copy of Pinnacle advertisement showing a boy standing next to a bicycle
which has a football trading card in the spokes on one side of the page and the
back of one of the Company's card packs on the other side of the page. The
caption says "If it's one of your Pinnacles, ground him for life."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
(including the notes thereto) included elsewhere in this Prospectus. Unless the
context otherwise requires, as used in this Prospectus, the term "Pinnacle"
means Pinnacle Brands, Inc., and the term "Company" means Pinnacle and its
direct and indirect wholly-owned subsidiaries. "SCMA" means the Sports Card
Manufacturers Association, Inc., which is a trade organization comprising the
Company and its three principal competitors: Fleer/Skybox, Topps and Upper Deck.
As used in this Prospectus, references to SCMA data or net sales mean net sales,
defined as the aggregate wholesale gross sales of the four SCMA members less the
dollar value of product returns the four members actually received during the
reporting period. SCMA net sales are reported for baseball, football, hockey and
basketball trading cards. The Company believes that SCMA data represent
approximately 90% of wholesale net sales of the sports trading card industry.
THE COMPANY
The Company is one of the nation's leading designers, producers and
distributors of sports trading cards. The Company offers premium value products
under numerous brands and sub-brands--differentiated by product feature, price
point, sport and distribution channel--including such well-established brands as
Score, Select, Pinnacle, Donruss, Leaf, Action Packed, Racer's Choice and
Sportflix. Based on SCMA data, for 1995 the Company had an aggregate 37% market
share in the three major team sports categories in which it competes (consisting
of a 26% market share for the Company and an 11% market share related to
products sold under licenses acquired by the Company in May 1996). The Company
believes that it has the leading market share in each of those three team
sports--baseball, football and hockey. The Company is also a NASCAR licensee and
a leading producer of auto racing cards. As a result of the marketing strategy
implemented by the Company beginning in 1993, the Company's net sales more than
doubled from $62.5 million in 1993 to $130.2 million in 1995, despite a decline
in overall sports trading card industry sales during that period. The Company's
net sales have increased 19% from $41.9 million for the first six months of 1995
to $49.9 million for the comparable 1996 period. Market indicators suggest that
sports trading card industry sales have begun to improve. In addition to its
sports trading card business, the Company sells collectible and similar picture
products to consumer and food product companies for their promotional purposes.
According to SCMA data, the 1995 sports trading card market was
approximately $560 million, which equates to approximately $900 million in
retail sales. Sales of sports trading cards are significantly influenced by the
popularity of the related sport. The Company and other producers of sports
trading cards operate pursuant to licenses with the owners' and players'
association in each relevant team sport or, in the case of auto racing, with
National Association for Stock Car Auto Racing, Inc. ("NASCAR") and the relevant
drivers, team owners and sponsors. The major sports organizations have generally
limited the number of licensed sports trading card competitors. Sports trading
cards are sold to consumers through a variety of distribution channels,
including approximately 5,000 specialty hobby stores and over 80,000 retail
outlets such as mass merchandisers, convenience stores, grocery and drug stores
and toy stores. Sport trading cards are a highly attractive category for
retailers because of their relatively high profit margins per square foot of
shelf space.
The Company has positioned itself as a leader in the industry through an
emphasis on collectibility and continual product innovation, with a reputation
for high quality products and service. Each of the Company's sports trading card
brands has its own positioning in the marketplace and is designed to appeal to a
targeted group of consumers. Marketing studies commissioned by the Company
indicate that the Company's average collector is approximately 31 years old and
owns a collection valued at over $4,000. The Company produces different products
utilizing a variety of production technologies and distinctive features and
sells these products through multiple distribution channels at a wide range of
1
<PAGE>
price points. The Company believes that it is an industry leader in innovative
card design and production technologies, as evidenced by recent awards received
by the Company including "Best Manufacturer" as awarded by Sports Collectibles
Association International, the trade association for sports collectibles and
memorabilia retailers, and "The 1995 Sports Trading Card of the Year" for the
Company's Zenith Football product as awarded by Tuff Stuff magazine. The
Company's sports trading card products consistently have among the industry's
highest aftermarket trading values, based on aftermarket prices published in
Beckett Monthly (the most widely circulated sports trading card publication).
Historically, the Company relied on multiple-product brokers to sell its
products. In 1996, however, the Company established an in-house, field sales
force to market its trading card products more effectively by providing a higher
level of customer service to retail and hobby dealers. The field sales force
educates the customer about the Company's products, helps to tailor the
customer's product selection, and shares product placement and merchandising
techniques with the customer, all with the goal of enhancing the customer's
sell-through of the Company's products.
The Company utilizes what it believes to be an aggressive, cost-effective
marketing strategy concentrating on public relations events and targeted
advertising to maximize brand awareness. To increase its visibility in the
sports market, the Company has entered into multi-year commitments to be the
exclusive title sponsor of the premiere fan events for hockey and baseball,
which include the Pinnacle NHL FANtasy held in conjunction with the National
Hockey League All-Star game and the Pinnacle All-Star FanFest held in
conjunction with the Major League Baseball All-Star game. The Company is also
the exclusive sports trading card sponsor of the NFL Quarterback Club's
Quarterback Challenge. These events serve both to increase fan interest in the
relevant sport and to provide an opportunity to introduce the Company's sports
trading cards to a large number of fans who may not be familiar with the
Company's products. In addition, these events provide significant brand
exposure, including national television and print media coverage, to a
sports-conscious target audience at a substantially lower cost than conventional
media advertising.
The Company continually seeks to improve its profitability and the quality
and predictability of its earnings and cash flows by managing the return of
unsold product and controlling costs. The Company believes that it has been an
industry leader in the effort to minimize returns, which has historically been a
concern for the industry. The Company has increased the percentage of its sales
to the hobby distribution channel, which traditionally does not have return
privileges, and has also negotiated with some major mass market retailers to
eliminate return privileges. As a result, since 1992 the Company has tripled the
percentage of its sales made on a non-returnable basis, to more than 50%. In
addition, the Company continually evaluates cost control opportunities. The
Company has successfully identified and reduced certain significant costs
through investments in design technology and identification of more
cost-efficient vendors and sources of raw materials. In addition, since 1993 the
Company has shifted its focus from being a manufacturer of sports trading cards
to being a flexible designer, marketer and distributor of collectible products.
The Company now outsources substantially all of its production processes other
than design and artwork.
STRATEGY
The Company's strategy is to position its sports trading card products
principally as collectibles which are likely to have superior value in the
secondary market. This strategy has led the Company to increase its sales to
specialty retail outlets, consisting mainly of trading card hobby stores, the
retailer of choice for the serious collector/consumer. The Company believes that
success within this hobby channel, in turn, drives demand within the broader,
general retail channel. Since 1993, by consistently executing this strategy, the
Company has experienced a significant increase in net sales, as well as the
2
<PAGE>
proportion of its sales attributable to the key hobby channel. The Company's
strategy encompasses the following elements:
. Continual product innovation, both technological and artistic, to stimulate
collector interest;
. Managed production quantity and quality, making less than the market demands,
to promote collectibility; and
. Tailored product distribution, packaging and sales support, customized to each
individual channel of distribution to maximize sell-through.
In order to implement its strategy, the Company intends to: (i) continue to
enhance highly recognizable brands; (ii) further enhance hobby channel
distribution; (iii) selectively expand general retail distribution; (iv)
continually evaluate and reposition products to meet both customers' and
consumers' demands and preferences; (v) maximize profitability of recent
acquisitions; (vi) pursue opportunities in promotional and related markets; and
(vii) position the Company as a strong contender for additional licensing
opportunities. In addition, the Company will continue to seek strategic
acquisitions which would complement its the existing business and/or take
maximum advantage of the Company's core competencies. These competencies
include, among other things, retail and specialty distribution, product
development, licensing and knowledge of collectibles markets. The Company
believes that the continued implementation of its strategy will enable it to
maintain its leadership position in the sports trading card market and achieve
future growth.
RECENT ACQUISITION
In May 1996, the Company acquired from Donruss Trading Cards, Inc.
("Donruss/Leaf"), a subsidiary of Leaf, Inc., its baseball and hockey trading
card licenses, as well as certain inventory and intangibles, for an aggregate
purchase price of approximately $41.0 million (the "Donruss License
Acquisition"), which comprised a $32.5 million cash payment to Donruss/Leaf
plus the assumption of certain liabilities. In 1995, based on data reported to
its licensors, Donruss' gross shipments of products sold pursuant to the
purchased licenses (without deduction for returns) exceeded $50 million. The
Company believes that the Donruss License Acquisition significantly enhances
the Company's strategic position in the sports trading card industry. Management
believes that the Donruss products have distinctive features and brand
recognition that appeal to certain collectors/consumers and therefore intends
to maintain the distinctiveness of these products. The Company's strategy to
maximize net sales and profitability of the Donruss licensed products includes:
(i) leveraging the Company's existing infrastructure to maximize the
contribution of the Donruss products; (ii) repositioning Donruss products for
targeted market segments; (iii) marketing Donruss products using the Company's
more effective field sales force and aggressive marketing techniques;
(iv) extending Donruss brands into football trading cards; and (v) applying the
Company's return policies to sales of Donruss products.
Except as otherwise indicated, all information in this Prospectus (i) has
been adjusted to reflect a -for-1 stock split of the outstanding Common
Stock to be effected immediately prior to the consummation of this Offering,
(ii) gives effect to the conversion of certain subordinated indebtedness and all
outstanding shares of Redeemable Preferred Stock, par value $.01 per share
("Redeemable Preferred Stock"), into shares of Common Stock and (iii) assumes no
exercise of the Underwriters' over-allotment option.
Score, Select, Pinnacle, Donruss, Action Packed, Racer's Choice, Sportflix
and Optigraphics are among the Company's trademarks. Leaf is a trademark of
Leaf, Inc.
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered(a)...................... 4,000,000 shares
Common Stock to be outstanding after the
Offering(b)................................. shares
Use of Proceeds.............................. Of the estimated net proceeds to the Company
of $55.0 million, approximately $22.0 million
will be used to reduce indebtedness under the
Credit Agreement (as defined herein) and
$33.0 million will be used to retire a
portion of the Subordinated Notes (as defined
herein). The Company will not receive any of
the proceeds from the sale of shares subject
to the over-allotment option.
Proposed New York Stock Exchange Symbol......
</TABLE>
- ------------
(a) Excludes shares subject to the over-allotment option which are being offered
by the Selling Stockholder.
(b) Excludes shares of Common Stock subject to options granted under the
Company's 1992 Option Plan and shares of Common Stock subject to other
options. Excludes shares reserved for issuance under the 1996 Incentive
Stock Option Plan.
-------------------
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE THREE MONTHS
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ----------------------------------------- -----------------
1991(A) 1992 1993 1994 1995 1995 1996
------------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales(b).................... $35,511 $108,881 $ 62,501 $117,965 $130,183 $41,879 $49,905
Cost of sales................... 25,810 73,264 41,000 78,013 90,388 29,548 34,503
------------- -------- -------- -------- -------- ------- -------
Gross profit.................... 9,701 35,617 21,501 39,952 39,795 12,331 15,402
Selling, general and
administrative expenses........ 5,119 20,222 20,972 23,506 26,310 11,480 15,659
Unusual charges(c)(d)........... -- -- 41,435 47,366 -- -- --
------------- -------- -------- -------- -------- ------- -------
Operating income (loss)......... 4,582 15,395 (40,906) (30,920) 13,485 851 (257)
Interest expense--subordinated
notes payable.................. (777) (4,298) (7,198) (9,307) (11,526) (5,524) (6,034)
Interest expense--other......... (839) (5,792) (4,180) (4,509) (5,068) (2,581) (3,521)
Other income (expense), net..... (795) 252 72 730 657 42 195
------------- -------- -------- -------- -------- ------- -------
Income (loss) before income
taxes........................... 2,171 5,557 (52,212) (44,006) (2,452) (7,212) (9,617)
Income tax provision............ 1,074 2,431 -- -- -- -- --
------------- -------- -------- -------- -------- ------- -------
Net income (loss)(e)............ $ 1,097 $ 3,126 $(52,212) $(44,006) $ (2,452) $(7,212) $(9,617)
------------- -------- -------- -------- -------- ------- -------
------------- -------- -------- -------- -------- ------- -------
</TABLE>
PRO FORMA, AS ADJUSTED, STATEMENT OF OPERATIONS DATA(F):
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS
ENDED ENDED JUNE 30,
DECEMBER 31, -----------------
1995(G) 1995(H) 1996(I)
------------ ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net sales...................................................................... $130,183 $41,879 $49,905
Cost of sales.................................................................. 90,388 29,548 34,503
------------ ------- -------
Gross profit................................................................... 39,795 12,331 15,402
Selling, general and administrative expenses................................... 24,325 10,930 15,509
------------ ------- -------
Operating income (loss)........................................................ 15,470 1,401 (107)
Interest expense............................................................... (2,888) (1,490) (2,431)
Other income (expense), net.................................................... 657 42 195
------------ ------- -------
Income (loss) before income taxes.............................................. 13,239 (47) (2,343)
Income tax provision (benefit)................................................. 5,031 (18) (890)
------------ ------- -------
Net income (loss).............................................................. $ 8,208 $ (29) $(1,453)
------------ ------- -------
------------ ------- -------
Net income (loss) per share(j)................................................. $ $ $
Weighted average number of shares of common stock and equivalents(j)...........
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
PRO FORMA, AS
ACTUAL ADJUSTED(F)(K)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net working capital...................................................... $ 11,471 $ 11,471
Total assets............................................................. 129,296
Long-term debt, including current maturities............................. 197,666 74,318
Stockholders' equity (deficit)........................................... (102,492)
</TABLE>
(Notes on following page)
5
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<C> <S>
(a) The Company was formed by a group of investors to effect the September 28, 1991
acquisition of Optigraphics, Inc. Therefore, the 1991 period includes results of
operations for the three months ended December 31, 1991.
(b) Net sales for 1992 includes sales related to "collector's sets" that were discontinued
after 1992. The Company's reported SCMA net sales for these "collector's sets" for 1992
were $17.0 million. Unlike the data contained in the table above, which reports sales of
products shipped less a provision for estimated returns of such products, reported SCMA
net sales are based on sales of products shipped less the dollar value of returns
actually received during the period.
(c) Included in operating loss for 1993 is an unusual charge of $41.4 million resulting from
events that led to the MLM Acquisition related to (i) the write-off of a $30.2 million
pre-acquisition receivable from MLM and (ii) incremental sales returns, write-offs of
unsalable inventory and other operating expenses aggregating $11.2 million.
(d) Included in operating loss for 1994 are unusual charges of $47.4 million related to (i)
a $40.0 million writedown of goodwill and (ii) incremental sales returns and write-offs
of unsalable inventory related to the Major League Baseball and National Hockey League
work stoppages.
(e) For the year ended December 31, 1993, net income (loss) as reported herein is prior to
the effect of the adoption of a new accounting principle.
(f) Presented on a pro forma basis (as if the following transactions had occurred on the
first day of the period presented, and in the case of the Balance Sheet Data, as if such
transactions had occurred on June 30, 1996) to give effect to the conversion of a
portion of the Acadia subordinated notes and all of the Redeemable Preferred Stock; plus
options to purchase Common Stock issued in connection with the Offering at $ per share
and Common Stock to be contributed to the Company's 401(k) Plan (assuming all such
Common Stock was outstanding for all periods presented); and as adjusted for the
Offering assuming the issuance and sale of 4,000,000 shares of Common Stock and
application of the assumed net proceeds. Of the net proceeds from the sale of shares of
Common Stock offered by the Company in the Offering, approximately $22.0 million will be
used to repay senior bank indebtedness and $33.0 million will be used to repay Acadia
subordinated notes.
(g) Pro forma, as adjusted, results for the year ended December 31, 1995 give effect to (i)
decreased interest expense of $13.7 million (which consists of $2.0 million related to
senior bank borrowings, $11.5 million related to subordinated notes to Acadia, and $0.2
million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $2.0 million
(which consists of $2.3 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.3 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax provision of
$5.0 million.
(h) Pro forma, as adjusted, results for the six months ended June 30, 1995 give effect to
(i) decreased interest expense of $6.6 million (which consists of $1.0 million related
to senior bank borrowings, $5.5 million related to subordinated notes to Acadia, and
$0.1 million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $0.6 million
(which consists of $0.8 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.2 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax benefit of
$18,000.
(i) Pro forma, as adjusted, results for the six months ended June 30, 1996 give effect to
(i) decreased interest expense of $7.1 million (which consists of $1.0 million related
to senior bank borrowings, $6.0 million related to subordinated notes to Acadia, and
$0.1 million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $0.2 million
(which consists of $0.3 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.1 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax benefit of
$0.9 million.
(j) For purposes of pro forma, as adjusted, net income (loss) per share, weighted average
shares outstanding is , which is comprised of shares currently outstanding,
5,499,800 shares to be issued to give effect to the conversion of a portion of the
Acadia subordinated notes and all of the Redeemable Preferred Stock, options (net of
options granted by Acadia from its existing holdings) granted in August 1996 to
purchase Common Stock at $ per share and shares to be contributed to the
Company's 401(k) Plan, and 4,000,000 million shares to be issued in the Offering.
(k) Gives effect to the Offering and includes (i) a charge of $0.4 million (net of taxes of
$0.2 million) related to a write-off of a portion of deferred financing costs with
respect to the early payment of a portion of senior bank indebtedness, (ii) a non-cash
operating expense of $ million (net of taxes of $ million) in connection with the
grant of options to purchase Common Stock issued in connection with the Offering at $
per share and shares of Common Stock to be contributed to the Company's 401(k) Plan, and
(iii) a credit of $ million related to the reversal of a portion of the deferred tax
asset valuation allowance. See "Management's Discussion and Analysis of Results of
Operation and Financial Condition--General." These nonrecurring charges are not
considered in the pro forma, as adjusted, statement of operations data.
</TABLE>
6
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, as well as other information set forth in this Prospectus, before
purchasing the shares of Common Stock offered hereby.
DEPENDENCE UPON NON-EXCLUSIVE LICENSE AGREEMENTS
The Company's ability to market its sports trading cards, from which the
Company derived approximately 89% of its gross sales in 1995, is dependent upon
its non-exclusive licenses from professional sports leagues, players
associations and other licensors. The Company currently has four baseball
licenses (two each with the professional sports league and the players'
association), three football licenses (one with the professional sports league
and two with the players' association), four hockey licenses (two each with the
professional sports league and the players' association), a license with NASCAR
and over 100 licenses with NASCAR drivers, owners and sponsors. The team sport
licenses typically have durations of two to five years. One of the Company's
professional sports league baseball licenses expired on December 31, 1994, one
of its professional sports league football licenses expired on March 31, 1995
and one of its professional sports league hockey licenses expired on June 30,
1996. The Company has entered into letters of intent with Major League Baseball
Properties and National Football League Properties with respect to the material
terms of replacement three-year licenses and is in the process of negotiating
definitive license agreements. The Company is also in the process of negotiating
a new license agreement with National Hockey League Enterprises. The Company
continues to operate under the terms of its expired licenses. The remainder of
the Company's material licenses expire between December 31, 1997 and June 30,
1999. Although each of these licenses is subject to termination for cause by the
respective licensors and to non-renewal at the expiration of its term, the
Company believes its relationships with its sports licensors to be strong, and
anticipates that it will be able to renew its sports trading card licenses on
acceptable terms. However, there can be no assurance that these licenses will
not be terminated for cause, that these licenses will be renewed upon their
expiration or that the terms of future sports trading card licenses will not be
materially less favorable to the Company than those currently in effect. The
loss of any baseball, football or hockey license could have a material adverse
effect on the Company's results of operations and financial condition. See
"Business--License Agreements and Trademarks."
COMPETITION
The sports trading card industry is competitive. The Company competes with
three major competitors and numerous smaller competitors. The sports trading
card industry experienced significant growth between the early 1980s and 1991.
Between 1991 and 1993, however, a substantial industry contraction occurred
resulting in an increasingly competitive environment in the sports trading card
industry. Moreover, 1994 labor disputes in baseball and hockey caused even
further contraction and greater competition. If contractions in the sports
trading card market continue to occur, the resulting increased competition could
materially affect the Company's results of operations and financial condition.
In addition, the licensors retain the ability to grant additional sports trading
card licenses which, if granted, could increase competition in the sports
trading card industry. The Company also competes with sports memorabilia and
collectibles producers, as well as companies that market small toys, comic books
and other similar products. Certain of the Company's competitors are
significantly larger and have greater resources than the Company. See
"Business--Competition."
7
<PAGE>
DEPENDENCE ON POPULARITY OF RELATED SPORTS
Sales of sports trading cards are influenced by the popularity of the sports
to which the cards relate. During 1994, Major League Baseball experienced a
strike and the National Hockey League experienced a work stoppage. These labor
disputes resulted in a loss of interest in these sports by many fans, which in
turn triggered a significant and immediate reduction in the Company's baseball
and hockey card sales as well as substantial product returns. Although the
National Hockey League resolved its dispute and commenced its season in January
1995, and Major League Baseball resumed operations in April 1995 (but without a
written contract between the owners and the players union), industry sales have
been slow to rebound and remain well below pre-strike levels. Market indicators
suggest that sports trading card industry sales have begun to improve. However,
there can be no assurance that the industry's gross sales will return to
pre-strike levels. In addition, there can be no assurance that similar labor
disputes will not occur again or that the popularity of the sports for which the
Company holds sports trading card licenses will not decline for other reasons.
Further labor disputes or any such decline in popularity could have a material
adverse effect on the Company's results of operations and financial condition.
See "Business--Sports Trading Card Industry."
RETURNS
Historically, retailers' returns of unsold sports trading cards have been a
significant factor affecting profitability of companies in the sports trading
card industry. During each of the contractions in the sports trading card
industry since 1991, the industry experienced very high product returns
resulting in the need to increase financial provisions for returns as well as
write off excess inventory. For example, in 1994 the Company wrote off $2.3
million of unsalable inventory and took a charge of $5.1 million relating to
excess returns. Although less than 50% of the Company's sports trading card net
sales currently are subject to return privileges and the Company has implemented
business practices to reduce return occurrences, product returns that
significantly exceed the Company's estimates could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, actions taken by the Company to eliminate or reduce a retailer's
return privileges may accelerate returns of products previously sold to that
retailer. See "Business--Returns."
DEPENDENCE ON KEY PERSONNEL
The operations of the Company currently depend, to a great extent, on the
abilities and continued services of its senior executives, particularly Jerry M.
Meyer, chairman of the board and chief executive officer of the Company. The
Company has entered into employment agreements with Mr. Meyer and other key
executives. There can be no assurance that the Company will be able to retain
the services of such executives. The extended loss of the services of Mr. Meyer
or the other key executives could have a material adverse effect on the
Company's results of operations and financial condition. See
"Management--Employment Agreements."
CONTROL OF THE COMPANY
Upon completion of the Offering and the recapitalization, Acadia Partners,
L.P. and its affiliates (collectively, "Acadia") will own approximately % of
the outstanding Common Stock (or % on a fully diluted basis) or % if the
over-allotment option is exercised in full (or % on a fully diluted basis). As
a result, Acadia will effectively control the affairs of the Company and will
have the ability to determine the outcome of most corporate actions requiring
stockholder approval, including, among other things, the election of the board
of directors of the Company, the adoption of amendments to the Company's
certificate of incorporation and the approval of mergers and sales of all or
substantially all of the Company's assets. Approximately $33.0 million of the
proceeds of the Offering will be used to retire subordinated indebtedness
payable to Acadia. See "The Company--Acadia Partners, L.P." and "The
Company--Recapitalization."
8
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, shares of the Company's Common Stock
will be outstanding. The Common Stock offered hereby will be freely tradeable
(other than by an "affiliate" of the Company as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act")) without restriction
or registration under the Securities Act. All remaining shares may be sold under
Rule 144 under the Securities Act, subject to the volume limitations and manner
of sale and other restrictions of Rule 144. In addition, Acadia and certain of
the Company's other stockholders have the right to require registration of their
shares for public sale. However, the Company and its directors, officers,
affiliates and the current stockholders have, subject to certain exceptions,
agreed not to, directly or indirectly, sell, offer to sell, grant any option for
sale of, or otherwise dispose of, any capital stock of the Company, or any
security convertible or exchangeable into, or exercisable for, such capital
stock, or, in the case of the Company, file any registration statement with
respect to any of the foregoing, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Merrill Lynch & Co. ("Merrill
Lynch"). Sales of substantial amounts of the Common Stock or the perception that
such sales may occur in the public market after the Offering could adversely
affect the market price of the Common Stock.
ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained or that shares of Common Stock will be able to be resold at or above
the initial public offering price following the Offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Representatives of the Underwriters and may not be
indicative of the trading prices of the Common Stock after the Offering. See
"Underwriting" for a description of certain factors to be considered in
determining the initial public offering price for the Common Stock. Trading
prices for the Common Stock following the Offering may be influenced by many
factors, including the depth of the market for the Common Stock, investor
perception of the Company, fluctuations in the Company's operating results and
changes in conditions or trends in the Company's industry, changes in any
securities analysts' estimates of the Company's future performance or that of
its competitors or general market conditions. In addition, future sales of
substantial amounts of Common Stock by existing stockholders could also
adversely affect the prevailing market price of the Common Stock. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."
DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will, therefore, incur immediate and substantial
dilution of $ in the net tangible book value per share of Common Stock from
the midpoint of the initial public offering price range set forth on the cover
page of this Prospectus. See "Dilution."
9
<PAGE>
THE COMPANY
GENERAL
The Company is one of the nation's leading designers, producers and
distributors of sports trading cards. The Company offers premium value products
under numerous brands and sub-brands--differentiated by product feature, price
point, sport and distribution channel--including such well-established brands as
Score, Select, Pinnacle, Donruss, Leaf, Action Packed, Racer's Choice and
Sportflix. Based on SCMA data, for 1995 the Company had an aggregate 37% market
share in the three major team sports categories in which it competes (consisting
of a 26% market share for the Company and an 11% market share related to
products sold under licenses acquired by the Company in May 1996). The Company
believes that it has the leading market share in each of those three
sports--baseball, football and hockey. The Company is also a NASCAR licensee and
a leading producer of NASCAR auto racing cards. In addition to its sports
trading card business, the Company sells collectible and similar picture
products to consumer and food product companies for their promotional purposes.
The Company was incorporated in Texas in 1991 and was reincorporated in
Delaware the same year. The Company's principal executive offices are located at
924 Avenue J East, Grand Prairie, Texas 75050, and its telephone number is (214)
601-7000.
BACKGROUND
The Company was formed in September 1991 by a group of investors led by
Acadia Partners, L.P. to effect the acquisition of Optigraphics, Inc., a
manufacturer of baseball, football and hockey sports trading cards under the
Score brand name. At the time of the acquisition, all creative processes, sales
and marketing of the Company's products were managed under an exclusive,
perpetual contract with Major League Marketing, Inc. ("MLM"). The Company's
cutting, collating and packaging functions were performed under an exclusive
contract with Wrap-It-Corporation, an affiliate of the sellers. Finally, the
Company's distribution and customer service functions were performed by a Wm.
Wrigley Jr. Company subsidiary. Following the 1991 acquisition, MLM and
Wrap-It-Corporation continued to be responsible for the functions performed by
them prior to the acquisition and MLM assumed responsibility for the
distribution and customer service functions. The Company determined that the
division of functions among the various entities provided disparate objectives
and that coordination of such activities through consolidation of the MLM
operations was essential to the efficient design, sales, marketing and
distribution of its sports trading cards. Accordingly, in 1993 the Company
acquired MLM and gained control over the creative processes, sales, marketing
and distribution of its sports trading cards. In September 1994, the Company and
a printing company formed Performance Packaging, LLC, in which the Company holds
a 49% interest, to perform, at cost, the packaging functions previously provided
by Wrap-It Corporation. In addition, over time, the Company has outsourced all
of its production functions other than the design and artwork of its products.
As a result of these actions, the Company has been able to (i) complete
consolidation of the design, production, sales, marketing and distribution
functions for its sports trading card products under a single management team,
(ii) reduce operating expenses connected to such activities, (iii) formulate and
implement its marketing strategy and (iv) shift its focus from being a
manufacturer of sports trading cards to being a flexible designer, marketer and
distributor of collectible products. The Company believes that these actions,
together with the acquisitions described below have enabled it to gain an
increased share of the sports trading card market. See "Business--Strategy."
In April 1995, the Company acquired licenses and certain intangibles of LBC
Sports, Inc., a company which produced and distributed football and NASCAR auto
racing trading cards principally under the name Action Packed (the "Action
Packed License Acquisition"). Through this acquisition, the Company entered the
growing motor sports card market, increased its already strong presence in the
football trading card market and acquired innovative technologies.
In May 1996, the Company acquired the Donruss/Leaf baseball and hockey
trading card licenses together with certain trademarks and work-in-process
inventory needed to continue uninterrupted
10
<PAGE>
production of Donruss products under the Donruss and Leaf names. The Company
believes that the Donruss License Acquisition significantly enhances the
Company's competitive position in the trading card industry.
ACADIA PARTNERS, L.P.
Acadia Partners, L.P. is a $1.8 billion investment partnership established
in 1987 by Robert M. Bass to invest in leveraged acquisitions as well as
selected public and private securities. Since its inception, Acadia Partners,
L.P. has sponsored or co-sponsored over 20 leveraged acquisitions with a
combined value in excess of $7 billion. These investments include American
Savings Bank, Bell & Howell Company, CapStar Hotels Inc., Holophane Corporation,
Ivex Packaging Corporation, Multi-Local Media Corporation, Musicland, National
Reinsurance Corporation and Specialty Foods Corporation. Oak Hill Partners, Inc.
serves as Acadia's exclusive investment advisor.
RECAPITALIZATION
Immediately prior to the consummation of this Offering, the Company will
consummate a - for-1 stock split of the outstanding Common Stock. Except as
otherwise stated, all information in this Prospectus has been adjusted to
reflect this stock split. In addition, simultaneously with the closing of this
Offering (i) the Company will repay approximately $33.0 million of subordinated
indebtedness held by Acadia and (ii) the remaining subordinated indebtedness and
all of the 4,025 shares of Redeemable Preferred Stock held by Acadia will be
converted into 5,499,800 shares of Common Stock, using an assumed initial public
offering price of $15, the midpoint of the initial public offering price range.
See "Use of Proceeds."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the four
million shares of Common Stock offered hereby, after deducting underwriting
discounts and estimated offering expenses payable by the Company, are estimated
to be approximately $55.0 million, based on an assumed initial public offering
price of $15 per share, the midpoint of the initial public offering price range.
Approximately $22.0 million of the estimated net proceeds of this Offering
will be used to pay principal and interest outstanding under the Credit
Agreement dated as of May 29, 1996 among Pinnacle Trading Card Company, as
Borrower, Pinnacle Brands, Inc. and GSAC Holdings, Inc., as Parent Guarantors,
the Subsidiary Guarantors, the lenders named therein, Merrill Lynch & Co., as
Arranger and Syndication Agent, and Wells Fargo Bank, N.A., as Administrative
and Collateral Agent (the "Credit Agreement"), an estimated $4.0 million of
which will be used to pay down the revolving credit facility portion of the
Credit Agreement. Amounts repaid under the revolving credit facility may be
reborrowed in the future subject to the terms of such facility. Merrill Lynch &
Co. is the managing underwriter for this Offering. See "Underwriting." The
proceeds of the Credit Agreement were used to refinance existing indebtedness of
the Company and to consummate the Donruss License Acquisition. See "The
Company--Background." The remainder of the estimated net proceeds of this
Offering, approximately $33.0 million, will be used to retire a portion of the
principal and interest outstanding under subordinated indebtedness of the
Company held by Acadia (the "Subordinated Notes").
Amounts outstanding under the Credit Agreement bear interest at various
floating rates. The effective rate was 8.5% per annum as of June 30, 1996. The
term loan portions of the Credit Agreement are payable in installments, with the
final installment due on May 28, 2001 with respect to $40.0 million of
indebtedness and on May 28, 2002 with respect to $48.0 million of indebtedness.
The final maturity date for the revolving credit facility portion of the Credit
Agreement is May 27, 2001, subject to a one-year extension under certain
circumstances. As of June 30, 1996, the Company had outstanding approximately
$88.0 million under the term loan facility of under the Credit Agreement and
approximately $7.5 million under the revolving loan facility thereunder. See
"Description of Indebtedness."
The Subordinated Notes bear interest at 12% per annum, which interest is
payable through the issuance of additional Subordinated Notes. All amounts
outstanding under the Subordinated Notes mature on December 31, 2001. As of June
30, 1996, approximately $101.3 million was outstanding under the Subordinated
Notes. See "Capitalization." Simultaneously with the closing of this Offering,
the subordinated indebtedness not repaid with the proceeds of the Offering will
be converted into 5,107,467 shares of Common Stock, at an assumed initial public
offering price of $15 per share, the midpoint of the initial public offering
price range. See "The Company--Recapitalization."
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
presently intends to retain future earnings to finance its growth and
development and therefore does not anticipate the payment of any cash dividends
in the foreseeable future. In addition, the Credit Agreement restricts the
payment of cash dividends by the Company. See "Description of Indebtedness."
Payment of future dividends, if any, will depend upon future earnings and
capital requirements of the Company and other factors which the Company's Board
of Directors considers appropriate.
12
<PAGE>
DILUTION
The actual net tangible book value (deficit) of the Common Stock at June 30,
1996 was approximately $(173.5) million, or $ per share. Pro forma net
tangible book value (deficit) of the Common Stock reflecting the conversion of
the Subordinated Notes not repaid with the proceeds of this Offering and the
Redeemable Preferred Stock (the "Conversion"), was approximately $(105.2)
million, or $ per share. After giving effect to the sale of the 4,000,000
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $15 per share, the midpoint of the initial public
offering price range, and the application of the net proceeds therefrom, and
after deducting the underwriting discount and estimated offering expenses
payable by the Company, the adjusted pro forma net tangible book value of the
Company at June 30, 1996, would have been $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value per share
of $ to existing stockholders and an immediate dilution per share of $ to
new investors purchasing Common Stock in the Offering.
The following table illustrates the per share dilution described above:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $15.00
Actual net tangible book value (deficit) per share at
June 30, 1996(a)....................................
Increase per share attributable the Conversion........
Pro forma net tangible book value (deficit) per share
at June 30, 1996....................................
Increase in net tangible book value per share
attributable to the Offering(b)(c)..................
-------
Adjusted pro forma net tangible book value per share
after the Offering(c)................................
------
Net tangible book value per share dilution to new
investors(c)......................................... $
------
------
</TABLE>
----------------
<TABLE>
<C> <S>
(a) Includes $3.0 million, or $ per share, of Common Stock and common stock equivalents
subject to a put right. See "Management--Employment Agreements."
(b) Includes effect of a $ million non-cash operating expense (net of a tax benefit of
$ million), or $ per share, in connection with (i) the grant of options issued
in connection with the Offering (including options issued by Acadia), (ii) shares
contributed to the Company's 401(k) Plan and (iii) the write-off of deferred loan
costs in connection with the repayment of senior bank indebtedness; and the effect
of $ million, or $ per share, related to the estimated amount of the reversal of
a portion of the Company's deferred tax asset valuation allowance.
(c) Excludes shares subject to issuance under the 1992 Stock Option Plan and other
arrangements. See "Management--1992 Stock Option Plan."
</TABLE>
The following table sets forth, after giving effect to the recapitalization
of the Company, the number of shares of Common Stock purchased from the Company
within the last five years, the total cash consideration paid for such shares
and the average consideration paid per share by the officers, directors and
affiliates of the Company and by new investors. The following computations are
based on an assumed initial public offering price of $15 per share, the midpoint
of the initial public offering price range, before deduction of the underwriting
discount and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Officers, directors
and affiliates.... % $ 72,239,000 54.6% $
New investors(a).... 4,000,000 -- 60,000,000 45.4 15.00
---------- ------- ------------ -------
Total(b)...... 100% $132,239,000 100%
------------ -------
------------ -------
</TABLE>
----------------
<TABLE>
<C> <S>
(a) If the over-allotment option is exercised in full, sales by the Selling Stockholder
will reduce the number of shares held by officers, directors and affiliates to
, or %, and will increase the number of shares held by new investors to , or
%, of the total number of shares of Common Stock outstanding after the Offering.
See "Principal and Selling Stockholders."
(b) Excludes shares of Common Stock purchased by existing stockholders who are not
officers, directors or affiliates of the Company.
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company, on
an unaudited basis, as of June 30, 1996 and as adjusted to give effect to (i)
the issuance of 4,000,000 shares of Common Stock offered hereby and the
application of the estimated net proceeds to the Company therefrom ($22.0
million to repay secured bank borrowings and $33.0 million to repay subordinated
notes to Acadia) and (ii) the conversion of the outstanding Subordinated Notes
not repaid with the net proceeds of this Offering and all of the outstanding
Redeemable Preferred Stock to Common Stock. See "The Company--Recapitalization."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Subordinated notes payable to Acadia............................ $ 101,348 $ --
Long-term debt--all other....................................... 96,318 74,318
--------- -----------
Total long-term debt........................................ 197,666 74,318
--------- -----------
Common stock and common stock equivalents subject to put
agreement.......................................................... 3,000 3,000
Stockholders' equity:
Preferred Stock; $.01 par value; $1,000 per share liquidation
preference; 4,025 shares authorized, issued and outstanding (0
pro forma, as adjusted)....................................... -- --
Common Stock; $.01 par value; 80,000 shares authorized (
adjusted for Charter Amendment); issued and outstanding
( pro forma, as adjusted)..................................... --
Paid-in capital................................................. 5,498 (a)
Accumulated deficit............................................. (107,990) (a)(b)
--------- -----------
Total stockholders' equity (deficit)........................ (102,492)
--------- -----------
Total capitalization.................................... $ 98,174 $
--------- -----------
--------- -----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Adjusted for $ million of compensation expense related to options granted in August
1996 to purchase shares (of which were granted by Acadia) of Common Stock
at an exercise price of $ per share and for shares of Common Stock to be contributed
to the Company's 401(k) Plan.
(b) Adjusted for $ million related to the tax effect of the $ million compensation charge
and $ million write-off of deferred loan costs and for $ million related to the
estimated amount of the reversal of a portion of the Company's deferred tax asset
valuation allowance.
</TABLE>
14
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The historical selected financial data presented below as of and for the
years ended December 31, 1992, 1993, 1994 and 1995, and as of and for the three
months ended December 31, 1991 are derived from, and are qualified by reference
to, the financial statements that have been audited by Arthur Andersen LLP,
independent public accountants. The historical selected financial data presented
below for the six months ended June 30, 1995 and 1996 are derived from unaudited
interim financial statements of the Company and, in the opinion of management,
reflect a fair presentation of the Company's financial information. Results for
the six months ended June 30, 1996 are not necessarily indicative of the results
which may be expected for any other interim period or for the fiscal year ending
December 31, 1996. The data presented below should be read in conjunction with
the Company's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX MONTHS
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ----------------------------------------- -------------------
1991(A) 1992 1993 1994 1995 1995 1996
------------- -------- -------- -------- -------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales (b)....................... $35,511 $108,881 $ 62,501 $117,965 $130,183 $ 41,879 $49,905
Cost of sales....................... 25,810 73,264 41,000 78,013 90,388 29,548 34,503
------ -------- -------- -------- -------- --------- -------
Gross profit........................ 9,701 35,617 21,501 39,952 39,795 12,331 15,402
Selling, general and administrative
expenses........................... 5,119 20,222 20,972 23,506 26,310 11,480 15,659
Unusual charges (c)(d).............. -- -- 41,435 47,366 -- -- --
------ -------- -------- -------- -------- --------- -------
Operating income (loss)............. 4,582 15,395 (40,906) (30,920) 13,485 851 (257)
Interest expense--subordinated notes
payable............................ (777) (4,298) (7,198) (9,307) (11,526) (5,524) (6,034)
Interest expense--other............. (839) (5,792) (4,180) (4,509) (5,068) (2,581) (3,521)
Other income (expense), net......... (795) 252 72 730 657 42 195
------ -------- -------- -------- -------- --------- -------
Income (loss) before income taxes... 2,171 5,557 (52,212) (44,006) (2,452) (7,212) (9,617)
Income tax provision................ 1,074 2,431 -- -- -- -- --
------ -------- -------- -------- -------- --------- -------
Net income (loss) (e)............... $ 1,097 $ 3,126 $(52,212) $(44,006) $ (2,452) $ (7,212) $(9,617)
------ -------- -------- -------- -------- --------- -------
------ -------- -------- -------- -------- --------- -------
Pro forma, as adjusted, net income
(loss) (f)(g)(h)(i)................ $ 8,208 $ (29) $(1,453)
-------- --------- -------
-------- --------- -------
Pro forma, as adjusted, net income
(loss) per share (j)............... $ -- $ -- $ --
Pro forma, as adjusted, weighted
average shares outstanding.........
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED AS OF DECEMBER 31,
DECEMBER 31, ----------------------------------------- AS OF JUNE 30,
1991 1992 1993 1994 1995 1996
------------- -------- -------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital (deficit)....... $(9,737) $ 3,651 $(18,173) $ 4,967 $ 7,350 $ 11,471
Total assets........................ 104,130 134,814 111,736 70,320 88,121 129,296
Long-term debt, including current
maturities......................... 55,942 100,115 122,327 135,714 150,672 197,666
Stockholders' equity (deficit)...... 3,821 8,114 (46,417) (90,423) (92,875) (102,492)
</TABLE>
(Notes on following page)
15
<PAGE>
NOTES TO SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<C> <S>
(a) The Company was formed by a group of investors to effect the September 28, 1991
acquisition of Optigraphics, Inc. Therefore, the 1991 period includes results of
operations for the three months ended December 31, 1991.
(b) Net sales for 1992 includes sales related to "collector's sets" that were discontinued
after 1992. The Company's reported SCMA net sales for these "collector's sets" for 1992
were $17.0 million. Unlike the data contained in the table above, which reports sales of
products shipped less a provision for estimated returns of such products, reported SCMA
net sales are based on sales of products shipped less the dollar value of returns
actually received during the period.
(c) Included in operating loss for 1993 is an unusual charge of $41.4 million resulting from
events that led to the MLM Acquisition related to (i) the write-off of a $30.2 million
pre-acquisition receivable from MLM and (ii) incremental sales returns, write-offs of
unsalable inventory and other operating expenses aggregating $11.2 million.
(d) Included in operating loss for 1994 are unusual charges of $47.4 million related to (i)
a $40.0 million writedown of goodwill and (ii) incremental sales returns and write-offs
of unsalable inventory related to the Major League Baseball and National Hockey League
work stoppages.
(e) For the year ended December 31, 1993, net income (loss) as reported herein is prior to
the effect of the adoption of a new accounting principle.
(f) Presented on a pro forma basis (as if the following transactions had occurred on the
first day of the period presented, and in the case of the Balance Sheet Data, as if such
transactions had occurred on June 30, 1996) to give effect to the conversion of a
portion of the Acadia subordinated notes and all of the Redeemable Preferred Stock; plus
options granted in August 1996 to purchase Common Stock at $ per share and Common
Stock to be contributed to the Company's 401(k) Plan (assuming all such Common Stock was
outstanding for all periods presented); and as adjusted for the Offering assuming the
issuance and sale of 4,000,000 shares of Common Stock and application of the assumed net
proceeds. Of the net proceeds from the sale of shares of Common Stock offered by the
Company in the Offering, approximately $22.0 million will be used to repay senior bank
indebtedness and $33.0 million will be used to repay Acadia subordinated notes.
(g) Pro forma, as adjusted, results for the year ended December 31, 1995 give effect to (i)
decreased interest expense of $13.7 million (which consists of $2.0 million related to
senior bank borrowings, $11.5 million related to subordinated notes to Acadia, and $0.2
million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $2.0 million
(which consists of $2.3 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.3 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax provision of
$5.0 million.
(h) Pro forma, as adjusted, results for the six months ended June 30, 1995 give effect to
(i) decreased interest expense of $6.6 million (which consists of $1.0 million related
to senior bank borrowings, $5.5 million related to subordinated notes to Acadia, and
$0.1 million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $0.6 million
(which consists of $0.8 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.2 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax benefit of
$18,000.
(i) Pro forma, as adjusted, results for the six months ended June 30, 1996 give effect to
(i) decreased interest expense of $7.1 million (which consists of $1.0 million related
to senior bank borrowings, $6.0 million related to subordinated notes to Acadia, and
$0.1 million related to amortization of deferred loan costs with respect to senior bank
borrowings), (ii) decreased selling, general and administrative expenses of $0.2 million
(which consists of $0.3 million of management and consulting fees that will no longer be
incurred offset by an increase of $0.1 million in compensation expense for new
employment agreements with members of senior management), and (iii) a tax benefit of
$0.9 million.
(j) For purposes of pro forma, as adjusted, net income (loss) per share, weighted average
shares outstanding is , which is comprised of shares currently outstanding,
5,499,800 shares to be issued to give effect to the conversion of a portion of the
Acadia subordinated notes and all of the Redeemable Preferred Stock, options (net of
options granted by Acadia from its existing holdings) granted in August 1996 to
purchase Common Stock at $ per share and shares to be contributed to the Company's
401(k) Plan, and 4,000,000 shares to be issued in the Offering.
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1993, 1994 and 1995
and for the six month periods ended June 30, 1995 and 1996. This discussion
should be read in conjunction with the audited consolidated financial statements
of the Company and the related notes thereto and other financial information
included elsewhere in this Prospectus.
GENERAL
The Company's revenues are derived from the sale of sports trading cards and
similar picture products. Sports trading cards are sold principally to specialty
and mass market retailers for resale to individual consumers; other picture
products are sold generally to corporations who use the products for premium or
promotional purposes.
Sales are reported when the products are shipped. For those customers for
which return privileges exist, a provision for estimated returns of sports
trading cards (net of refundable royalties) is made in the period in which the
related sale is recorded. Because the actual amount of sports trading card
returns may differ from management's estimates, the Company's recorded liability
for estimated returns may be revised periodically to reflect actual return
experience.
Cost of sales includes both the costs to produce the products and also, in
the case of sports trading cards, royalties paid to the organizations which
represent the professional sports teams and players depicted on the Company's
sports trading cards. Costs to produce the products include materials, printing,
subcontract services, slitting, packaging and variable freight charges.
As noted elsewhere in this Prospectus, the level of sports trading card net
sales achieved by the Company is dependent, among other things, upon the
popularity of the sports for which the Company holds licenses. During 1994,
Major League Baseball canceled the last portion of its season as a consequence
of a disagreement between the league's owners and players' union. Also in 1994
the National Hockey League delayed, for approximately three months, the start of
its 1994-1995 season in order to resolve differences between the league's
players' union and team ownership. After considering the market contraction
caused by these work stoppages, as well as the 1991-1993 market correction
described elsewhere in this Prospectus, the Company determined that the carrying
value of goodwill, as reported in the Company's balance sheet, had been impaired
and recorded a $40.0 million write-down of goodwill in 1994 results of
operations. The Company also recorded other charges to 1994 results of
operations aggregating $7.4 million as a consequence of these work stoppages.
Upon consummation of the Offering, the Company will incur three significant
items of expense/income. This includes a non-cash compensation expense of
$ million (net of taxes of $ million) related to the grant of options
to purchase shares of Common Stock in August 1996 under the Company's 1992
Option Plan and other arrangements (including options granted by Acadia) and
shares of Common Stock contributed to the Company's 401(k) Plan. The
compensation charge of $ per share represents 90% of the initial public
offering price less the exercise price of $ per share. Furthermore, in
connection with the early repayment of a portion of the Company's debt
outstanding under the Credit Agreement with a portion of the proceeds of this
Offering, the Company expects to record a charge of approximately $0.4 million
(net of taxes of $0.2 million) for the write-off of a portion of unamortized
deferred loan costs related to senior bank indebtedness. In addition, the
Company will recognize a previously unrecorded benefit of $ million for tax
operating loss carryforwards as the Company expects to utilize these
carryforwards to offset income resulting from the deleveraging of the Company.
17
<PAGE>
The Company expects to record a $1.0 million non-recurring charge in the
fourth quarter of 1996 related to relocation of the Company's corporate offices
from its current facilities in Grand Prairie, Texas to new offices in Dallas,
Texas.
MAJOR DEVELOPMENTS
Growth in Company Sales. The sports trading card market experienced a
correction between 1991 and 1993, followed in late 1994 and 1995 by the negative
effects of work stoppages in baseball and hockey. Notwithstanding this
contraction in overall market size, the Company's sports trading card sales and
its market share of SCMA net sales to the sports trading card market (i.e.,
baseball, football, basketball and hockey) have each increased each year since
1993. Management believes that the Company's sales growth and market share gains
during 1994 and 1995 are consequences of the Company's execution of its business
strategy. See "Business--Strategy."
In recent years the Company's sales and gross profits have, in large part,
improved because sales made on a non-returnable basis, principally to hobby
stores, have increased both in amount and as a percentage of total revenues.
MLM Merger and Other Asset Acquisitions. During 1993, the Company acquired
the operating assets and obligations of Major League Marketing, Inc. ("MLM") in
a stock transaction. Thereafter, the Company became solely responsible for all
creative, marketing, sales and distribution functions, all of which had
previously been conducted on the Company's behalf by MLM. In connection with the
MLM stock transaction, the Company wrote off as uncollectible a $30.2 million
receivable from MLM and recorded $11.2 million in provisions for excess product
return levels and unsalable inventory for a total charge to 1993 results of
operations of approximately $41.4 million.
During the third quarter of 1995, the Company and the former MLM
stockholders reformed the original MLM acquisition in order to resolve a dispute
between the parties related to the treatment of $30.2 million of pre-acquisition
liabilities MLM owed to the Company. See Note 3 to the Consolidated Financial
Statements.
During the second quarter of 1995, the Company acquired certain licenses and
related intangible assets (the "Action Packed Licenses") for $3.0 million plus
certain contingent consideration through which the Company expanded its football
trading card product line and entered into the market for NASCAR motor sports
trading cards. During the second quarter of 1996, the Company acquired certain
licenses and related inventory and intangible assets (the "Donruss Licenses")
for $32.5 million in cash plus the assumption of approximately $8.5 million of
contractual and other liabilities through which the Company expanded its product
lines for baseball and hockey.
Refinancings. As a consequence of the 1994 baseball and hockey work
stoppages, in December 1994 and January 1995 the Company received an aggregate
of $8.0 million from Acadia, financed through the issuance of additional
subordinated debt to Acadia, to fund cash deficits triggered by the work
stoppages. In May 1995, Acadia extended the maturity of the Company's
subordinated debt obligations to Acadia, thereby enabling the Company to
refinance its secured bank obligations and to finance the purchase of the Action
Packed Licenses.
In the second quarter of 1996, the Company refinanced its secured bank
obligations, repaid $8.5 million of its outstanding subordinated debt to Acadia
and financed the purchase of the Donruss Licenses.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
the components of income and expense for the three years ended December 31,
1993, 1994 and 1995 and for the six month periods ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------------
1993 1994 1995 1995 1995 1996 1995 1996
---- ---- ---- ----------- ---- ---- ---- ----
ACTUAL (PRO FORMA) ACTUAL (PRO FORMA)
------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. 100 % 100 % 100 % 100% 100 % 100 % 100 % 100 %
Cost of sales.......................... 67 % 66 % 69 % 69% 71 % 69 % 71 % 69 %
---- ---- ---- --- ---- ---- ---- ----
Gross profit........................... 33 % 34 % 31 % 31% 29 % 31 % 29 % 31 %
SG&A expenses.......................... 33 % 20 % 21 % 19% 27 % 31 % 26 % 31 %
Unusual charges........................ 66 % 40 % 0 % 0% 0 % 0 % 0 % 0 %
---- ---- ---- --- ---- ---- ---- ----
Operating income (loss)................ (66 %) (26 %) 10 % 12% 2 % 0 % 3 % 0 %
Interest expense, net.................. (18 %) (12 %) (13 %) (2%) (19 %) (19 %) (3 %) (5 %)
Other income, net...................... 0 % 1 % 1 % 1% 0 % 0 % 0 % 0 %
---- ---- ---- --- ---- ---- ---- ----
Income/(loss) before income taxes...... (84 %) (37 %) (2 %) 11% (17 %) (19 %) 0 % (5 %)
Income tax provision................... 0 % 0 % 0 % 4% 0 % 0 % 0 % (2 %)
---- ---- ---- --- ---- ---- ---- ----
Net income/(loss)(a)................... (84 %) (37 %) (2 %) 7% (17 %) (19 %) 0 % (3 %)
---- ---- ---- --- ---- ---- ---- ----
---- ---- ---- --- ---- ---- ---- ----
</TABLE>
----------------
(a) For the year ended December 31, 1993, net income/(loss) as reported
herein is prior to the effects of the adoption of a new accounting
principle. See Note 12 to the Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
Net Sales. The Company's net sales for the six month periods ended June 30,
1996 and 1995 were $49.9 million and $41.9 million, respectively, reflecting an
increase of $8.0 million, or 19%. This increase resulted from increased
shipments of sports trading cards. This increase in sales was a direct
consequence of renewed consumer interest in baseball and hockey. Approximately
$5.9 million of this increase is attributable to product lines associated with
the Action Packed License Acquisition and the Donruss License Acquisition.
Cost of Sales. Cost of sales in the six month periods ended June 30, 1996
and 1995 was $34.5 million and $29.5 million, respectively. As a percentage of
net sales, cost of sales decreased to 69% in the 1996 period as compared with
71% in the 1995 period. This improvement resulted primarily from a lower
estimated provision for returns and a modest improvement in unit production
costs.
The provision for estimated returns of sports trading card products in the
1995 period was higher, relative to the 1996 period, because of management's
assessment that 1995 retail sales would suffer as a consequence of relatively
low consumer interest in sports trading card products in the aftermath of the
1994 work stoppages. The 1996 improvement in unit production costs, relative to
1995 levels, resulted from increased production volumes.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses were $15.7 million and $11.5 million in the
1996 and 1995 periods, respectively. As a percentage of net revenues, SG&A
expenses were 31% in the 1996 period and 27% in the 1995 period. The $4.2
million increase in 1996 spending levels primarily reflects selling, marketing
and similar costs associated with new product lines offered pursuant to the
Action Packed and Donruss/Leaf Licenses
19
<PAGE>
and increased spending for sponsorships of certain sporting events. Also, the
1996 period SG&A includes significant costs relating to recruiting, relocation
and similar expenditures arising from expansion of the Company's field sales
force, although the economic benefit of that expansion, in the form of reduced
broker commissions, will not be realized until the latter part of 1996.
Operating income (loss). The Company experienced an operating loss of $0.3
million for the six month period ended June 30, 1996, compared with operating
income of $0.9 million for the six months ended June 30, 1995, principally as a
result of the higher levels of SG&A incurred in the 1996 period in order to
produce economic benefits in subsequent periods.
Interest expense. Interest expense for the six month period ended June 30,
1996 increased by $1.5 million, or 19%, over the same period in 1995 as the
result of a $0.9 million charge to write off deferred loan costs attributable to
the 1995 secured bank facilities (refinanced in May 1996), higher levels of
secured bank debt arising from the Action Packed License Acquisition and the
Donruss License Acquisition, and higher levels of subordinated debt owed to
Acadia.
Income tax provision. No provision for income taxes was made during the six
month periods ended June 30, 1996 and 1995, as the Company reported a net loss
before income taxes and was in a net operating loss carryforward position at the
end of each such period.
Pro forma results. Pro forma results for the six month period ended June 30,
1996 include the effects of (i) decreased interest expense of $7.1 million
(which consists of $1.0 million related to senior bank indebtedness, $6.0
million related to senior subordinated debt, and $0.1 million with respect to
amortization of deferred loan costs related to senior bank indebtedness), (ii)
decreased selling, general and administrative expenses of $0.2 million (which
consists of $0.3 million of management and consulting fees that will no longer
be incurred, offset by an increase in compensation expense of $0.1 million for
the new employment agreements with members of senior management), and (iii) a
tax benefit of $0.9 million. The comparable 1995 period pro forma results
include the effects of (i) decreased interest expense of $6.6 million (which
consists of $1.0 million related to senior bank indebtedness, $5.5 million
related senior subordinated debt, and $0.1 million related to amortization of
deferred loan costs with respect to senior bank indebtedness), (ii) decreased
selling, general and administrative expenses of $0.6 million (which consists of
$0.8 million of management and consulting fees that will no longer be incurred
offset by an increase in compensation expense of $0.2 million for the new
employment agreements with members of senior management), and (iii) a tax
benefit of $0.2 million. The six month pro forma results for the 1995 and 1996
periods assume that the conversion of certain subordinated debt (the
"Conversion") and the Offering had occurred on the first day of each period
presented.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Net sales. The Company's net sales were $130.2 million in 1995 compared with
$118.0 million in 1994, a 10% increase. This increase in net sales was due to
increased shipments of sport trading cards which, in turn, resulted from sales
of football and NASCAR trading cards offered pursuant to the Action Packed
Licenses, and gains in net sales applicable to the Company's existing football,
baseball and hockey trading card products which resulted from continued
execution of the Company's business strategy.
Cost of sales. Costs of sales in 1995 totaled $90.4 million compared with
$78.0 million for 1994. The increase in cost of sales was principally
attributable to the growth in sales. In addition, during 1995 the Company
increased the provision for estimated returns of sports trading cards in
recognition of the potential that consumer demand for products would be soft
during the first half of 1995. As a consequence of this increase in 1995 return
provisions, 1995 costs of sales was 69% of net sales, whereas 1994 cost of sales
was 66% of net sales (excluding the $7.4 million in unusual charges described
below).
20
<PAGE>
Selling, general and administrative expenses. 1995 SG&A expenses were $26.3
million compared with $23.5 million in 1994, a $2.8 million increase. As a
percentage of net sales, SG&A expenses were 21% in 1995 and 20% in 1994. The
1995 increase relates principally to the Company's sponsorships of the Pinnacle
All-Star FanFest held in conjunction with Major League Baseball's 1995 All Star
Game and the 1995 NFL Quarterback Club's Quarterback Challenge, whereas no
similar sponsorships were undertaken by the Company during 1994. 1995 also
includes approximately seven months of increased operating expense incurred in
support of the new Action Packed motor sports and football product lines.
Unusual Charges. Results of operations for 1994 reflected a $7.4 million
charge, including a $5.1 million charge for excessively high return levels of
1994 product sales and a $2.3 million write-off of unsalable inventory, in each
case directly attributable to 1994's baseball and hockey work stoppages.
Results of operations for 1994 also included a $40.0 million non-cash
write-down of goodwill. Goodwill of $77.4 million was initially recorded in 1991
at the time the Company acquired Optigraphics, Inc. in a transaction
substantially financed through borrowings of long term debt. The goodwill
represented the excess of the purchase price over the valuation of the net
assets acquired in the Optigraphics acquisition. The purchase price was based on
management's expectations of future performance at the time of the Optigraphics
acquisition, considering historical experience and industry trends. These
expectations assumed moderate growth rates in revenue, planned operating and
product improvements to be implemented by new management, and sufficient cash
flow from operations to repay acquisition indebtedness.
The Company was acquired in September 1991, at the peak of the overextended
market for sports trading cards. That market experienced a correction between
1991 and 1993. In the second half of 1994, additional events occurred that led
management to reevaluate its expectations of future performance. In August, the
Major League Baseball players went on strike and one month later, Major League
Baseball canceled the remainder of its 1994 season, including the 1994 World
Series. Then, in October 1994, the National Hockey League delayed until January
1995 the start of league play in order to resolve economic differences between
team ownership and the players union. These events manifested themselves in a
significant decrease in sports trading card sales and a significant increase in
the rate of sports trading card returns. To fund the short-term cash flow
deficits triggered by these work stoppages the Company borrowed an additional $8
million in subordinated debt from Acadia. Concurrently, management of the
Company concluded that these sports' management/labor disputes would have a
material adverse effect on the future revenues of businesses (such as the
Company's) which were dependent upon the popularity of these sports. For
additional information regarding management's assessment and related
assumptions, see Note 5 to the Consolidated Financial Statements.
Operating income (loss). As a consequence of the above, 1995 operating
income was $13.5 million compared with an operating loss of $30.9 million in
1994 (including $47.4 million in unusual charges).
Interest expense. 1995 interest expense was $16.6 million compared with
$13.8 million in 1994, a $2.8 million increase. This increase arose due to
increased borrowings under the Company's subordinated debt instruments owing to
Acadia as well as moderately higher levels of borrowings under the Company's
secured bank facilities in the second half of 1995 arising from generally
increased operating activity and the Action Packed License Acquisition.
Income tax provision. As the Company incurred a loss before income taxes in
1995 and 1994 and was in a net operating loss carryforward position at the end
of each such period, no provision or benefit was made for income taxes.
Pro forma results. Pro forma results for the year ended December 31, 1995,
includes the effects of (i) decreased interest expense of $13.7 million (which
consists of $2.0 million related to secured bank indebtedness, $11.5 million
related to subordinated debt, and $0.2 million related to amortization of
21
<PAGE>
deferred loan costs with respect to secured bank indebtedness), (ii) decreased
selling, general administrative expenses of $2.0 million (which consists of $2.3
million of management and consulting fees that will no longer be incurred,
offset by an increase in compensation expenses of $0.3 million for the new
employment agreements with members of senior management), and (iii) a tax
provision of $4.3 million and assumes that the conversion of a portion of the
subordinated debt and all of the Redeemable Preferred Stock and the Offering had
both occurred on January 1, 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1993
Net sales. The Company's net sales were $118.0 million in 1994, a $55.5
million or 89% increase over the $62.5 million of net sales reported in 1993.
The 1994 increase reflects several significant events. First, 1994 sales derived
from the sale of sports trading cards increased $42.5 million over 1993 levels
as a direct consequence of management's focus on the sports trading card hobby
store market sector, plus the Company's introduction of new products, brands and
price points focused on the Company's principal target consumer group, the
sports trading card collector/consumer. Also, 1994 promotional sales increased
$13.0 million over 1993 sales as a result of focused marketing efforts which led
to significant sales to certain international consumer products companies.
Overall, 1994 sales reflected the benefits of a full year of Company managerial
control over product development, marketing and sales activities, whereas those
business functions were accomplished by MLM during the first seven months of
1993.
Cost of sales. 1994's cost of sales totaled $78.0 million (66% of net sales)
compared with 1993's cost of sales of $41.0 million (67% of net sales). The 1%
improvement in cost of sales for 1994 responds directly to the beneficial effect
of higher operating levels over fixed production costs, plus changes in product
mix which yielded increased profit margins on a per product basis.
Selling, general and administrative expenses. 1994 SG&A expenses totaled
$23.5 million compared with $21.0 million for 1993, a $2.5 million increase in
1994 over 1993. As a percentage of net sales, SG&A expenses were 20% in 1994 and
33% in 1993. This increase reflects a full year's responsibility for the sales
and marketing functions assumed from MLM in 1993, plus generally higher levels
of operating expenses required to support the 89% increase in net sales noted
above.
Unusual charges. As a result of the 1994 work stoppages discussed earlier,
the Company recorded an aggregate $7.4 million charge to 1994 results of
operations to provide for excessively high returns of 1994 products sales and to
write off unsalable sports trading card inventories. In addition, the Company
recorded a $40.0 million charge to write-down goodwill, as previously described.
1993 operating results included a charge of $41.4 million which arose as a
consequence of events which culminated in the MLM acquisition. At the date of
acquisition, MLM owed the Company approximately $30.2 million, which represented
MLM's share of expenses related to the two companies' operations during 1992 and
1993 that had been funded by the Company. Pursuant to the MLM Acquisition
agreement, the Company charged off this receivable as uncollectible.
Additionally, the Company provided $11.2 million in charges for expected
excessive levels of product returns and obsolete inventory, all arising from the
MLM transaction.
Operating loss. As a consequence of the above, the 1994 financial statements
reported a $30.9 million operating loss, compared to a $40.9 million operating
loss for 1993. Before considering unusual charges, 1994 operations yielded $16.4
million in operating income versus $0.5 million in operating income for 1993.
Interest expense. Interest expense aggregated $13.8 million in 1994,
compared to $11.4 million in 1993, a $2.4 million increase. This 21% increase in
interest expense is entirely attributable to higher levels of subordinated debt
to Acadia and secured bank debt outstanding in 1994 over 1993.
22
<PAGE>
Income tax provision. As the Company incurred a loss before income taxes in
1994 and 1993 and was in a net operating loss carryforward position at the end
of each such period, no provision or benefit was made for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow deficits from operating activities of $2.6 million, $2.6 million
and $9.0 million in 1995, 1994 and 1993, respectively, as set forth in the
Company's Consolidated Statements of Cash Flows for those years, are a direct
consequence of the Company's investment in working capital to support strong
revenue growth and also, for 1994 and 1993, the cash requirements arising from
special charges to operations during those two years. Although the Company has
generated $3.4 million of cash flow from operations for the six months ended
June 30, 1996, management believes that high revenue levels in the last half of
1996 dictate further cash resources will be needed during interim periods of the
year. Cash deficits were funded with borrowings under the Company's bank
facility and with borrowings from Acadia.
During the three years ended December 31, 1995, 1994 and 1993, the Company
invested $0.4 million, $1.5 million and $0.4 million, respectively, in purchases
of property and equipment. Through the first six months of 1996, the Company has
expended an additional $0.9 million for property and equipment, principally new
information systems hardware and software. The Company is currently committed to
spend an additional $2.0 million to $3.0 million during 1996 and 1997 for
information systems and capital expenditures to facilitate relocation of the
Company's corporate headquarters from Grand Prairie, Texas to Dallas, Texas.
Other cash expenditures arising from this relocation, which are likely to be
charged to expense in the fourth quarter of 1996, are expected to approximate $1
million. Except for the information systems and relocation capital expenditures,
management does not currently expect the Company to make significant annual
capital expenditures because the Company relies upon third party vendors,
suppliers and subcontractors for virtually all of its sport trading card
production requirements.
In May 1996, the Company refinanced its secured bank obligations. The
proceeds from this refinancing were used to retire its prior bank obligations,
repay $8.5 million of subordinated notes payable to Acadia, and fund the Donruss
License Acquisition. The refinanced credit facilities include a $15.0 million
revolving credit commitment and $88.0 million term loan. Total availability
under the revolving credit commitment is limited to 80% of eligible accounts
receivable and 50% of eligible inventory, both as defined in the credit
agreement. Outstanding borrowings under the credit facilities bear interest at
optional rates based on the prime rate or LIBOR. A specified commitment fee is
payable on unused amounts under the revolving credit facility. All outstanding
borrowings under the revolving credit commitment are payable on May 27, 2001
(extendable to May 27, 2002 under certain conditions), and the term loans are
payable in 16 quarterly payments of $500,000 and then 4 quarterly payments of
$8.0 million through May 28, 2001, on $40.0 million of term loans and in 20
quarterly payments of $500,000 and then 4 quarterly payments of $9.5 million
through May 28, 2002, on the other $48.0 million of term loans, plus additional
annual payments, beginning in 1997, based upon 50% of any excess cash flows (as
defined) generated during each preceding calendar year. The credit agreement
contains covenants requiring the maintenance of certain minimum financial ratios
and limitations on dividend payments and the issuance of equity securities. The
credit facilities are collateralized by substantially all assets of the Company.
At June 30, 1996, the Company's outstanding senior bank indebtedness was
$95.5 million and the Company had undrawn availability under its revolving
credit facility of $7.5 million.
The Company will use approximately $22.0 million of the estimated net
proceeds from this Offering to repay its secured bank indebtedness. An
additional approximately $33.0 million in estimated net proceeds will be used to
repay subordinated debt owing to Acadia. The balance of the
23
<PAGE>
subordinated debt will, immediately thereafter, be converted to shares of the
common equity of the Company. See "The Company-Recapitalization" and
"Description of Indebtedness" for further details.
As a result of the Conversion and this Offering, the Company will be
significantly deleveraged. Accordingly, the Company believes that it will begin
to generate taxable income, although there can be no assurance that the Company
will be able to do so. Although the Company's statements of operations may
reflect income before taxes and tax expense in future periods, the Company will
not be required to make income tax payments (except for any alternative minimum
taxes) until it has utilized its existing tax net operating loss carryforwards,
which were approximately $40.0 million at December 31, 1995. For financial
reporting purposes, the Company will recognize the benefit of its net operating
loss carryforwards following completion of the Offering.
The Company believes that cash from operations and borrowings under its
credit facility should provide sufficient funds to meet its currently
foreseeable debt repayment obligations and other cash needs. The Company may
seek additional debt, equity or equity-linked financing in connection with any
strategic acquisition, depending on its financial condition and market
conditions at the time of any such acquisition.
SEASONALITY
The timing of shipments of the Company's sports trading card products, and
related revenue recognition, is directly related to the playing seasons of the
various sports for which the Company holds licenses. Based on the Company's
current licenses, third and fourth quarter sales, gross profit and operating
income are generally higher than first and second quarter amounts. For example,
in 1995 the Company recognized 68% of its annual sales, 69% of its annual gross
profit and 91% of its annual operating income during the third and fourth
quarters.
In addition, within a sports season the Company continually evaluates when
to ship individual products based on a number of factors including but not
limited to consumers' demand for previously shipped products and competitors'
announced shipping dates. Accordingly, reported quarterly sports trading card
sales, gross profit and operating income may vary from historical quarterly
patterns. See "Business--Competition."
INFLATION
In general, printing costs are affected by inflation, and the effects of
such inflation may be experienced by the Company in future periods. However,
management believes that such effects have not been material during the past
three years.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued two standards which
will be applicable to the Company which the Company is required to adopt in
1996: "No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " and "No. 123, Accounting for Stock-Based
Compensation". The impairment standard is not expected to have a significant
impact on the Company. The Company has not yet determined which of the
acceptable approaches it will use under the stock compensation standard.
Adoption of certain approaches under the stock compensation standard could
result in non-cash charges which, if made, are not expected to be material. At a
minimum, the standard will require disclosures about the fair value of employee
stock options.
24
<PAGE>
BUSINESS
GENERAL
The Company is one of the nation's leading designers, producers and
distributors of sports trading cards. The Company offers premium value products
under numerous brands and sub-brands--differentiated by product feature, price
point, sport and distribution channel --including such well-established brands
as Score, Select, Pinnacle, Donruss, Leaf, Action Packed, Racer's Choice and
Sportflix. Based on SCMA data, for 1995 the Company had an aggregate 37% market
share in the three major team sports categories in which it competes (consisting
of a 26% market share for the Company and an 11% market share related to
products sold under licenses acquired by the Company in May 1996). The Company
believes that it has the leading market share in each of those three team
sports--baseball, football and hockey. The Company is also a NASCAR licensee and
a leading producer of auto racing cards. As a result of the marketing strategy
implemented by the Company beginning in 1993, the Company's net sales more than
doubled from $62.5 million in 1993 to $130.2 million in 1995, despite a decline
in overall sports trading card industry sales during that period. The Company's
net sales have increased 19% from $41.9 million for the first six months of 1995
to $49.9 million for the comparable 1996 period. Market indicators suggest that
sports trading card industry sales have begun to improve. In addition to its
sports trading card business, the Company sells collectible and similar picture
products to consumer and food product companies for their promotional purposes.
The Company has positioned itself as a leader in the industry through an
emphasis on collectibility and continual product innovation, with a reputation
for high quality products and service. Each of the Company's sports trading card
brands has its own positioning in the marketplace and is designed to appeal to a
targeted group of consumers. The Company produces different products utilizing a
variety of production technologies and distinctive features and sells these
products through multiple distribution channels at a wide range of price points.
The Company believes that it is an industry leader in innovative card design and
production technologies, as evidenced by recent awards received by the Company
including "Best Manufacturer" as awarded by Sports Collectibles Association
International, the trade association for sports collectibles and memorabilia
retailers, and "The 1995 Sports Trading Card of the Year" for the Company's
Zenith Football products by Tuff Stuff magazine. The Company's sports trading
card products consistently have among the industry's highest aftermarket trading
values, based on information provided by Beckett Monthly (the most widely
circulated sports trading card publication).
Historically, the Company relied on multiple-product brokers to sell its
products. In 1996, however, the Company established an in-house, field sales
force to market its trading card products more effectively by providing a higher
level of customer service to retail and hobby dealers. The field sales force
educates the customer about the Company's products, helps to tailor the
customer's product selection, and shares product placement and merchandising
techniques with the customer, all with the goal of enhancing the customer's
sell-through of the Company's products.
The Company utilizes what it believes to be an aggressive, cost-effective
marketing strategy concentrating on public relations events and targeted
advertising to maximize brand awareness. To increase its visibility in the
sports market, the Company has entered into multi-year commitments to be the
exclusive title sponsor of the premiere fan events for hockey and baseball,
which include the Pinnacle NHL FANtasy held in conjunction with the National
Hockey League All-Star game, and the Pinnacle All-Star FanFest held in
conjunction with the Major League Baseball All-Star game. The Company is also
the exclusive sports trading card sponsor of the NFL Quarterback Club's
Quarterback Challenge. These events serve both to increase fan interest in the
relevant sport and to provide an opportunity to introduce the Company's sports
trading cards to a large number of fans who may not be familiar with the
Company's products. In addition, these events provide significant brand
exposure, including national television and print media coverage, to a
sports-conscious target audience at a substantially lower cost than conventional
media advertising.
25
<PAGE>
The Company continually seeks to improve its profitability and the quality
and predictability of its earnings and cash flows by managing the return of
unsold product and controlling costs. The Company believes that it has been an
industry leader in the effort to minimize returns, which has historically been a
concern for the industry. The Company has increased the percentage of its sales
to the hobby distribution channel, which traditionally does not have return
privileges, and has also negotiated with some major mass market retailers to
eliminate return privileges. As a result, since 1992 the Company has tripled the
percentage of its sales made on a non-returnable basis, to more than 50%. In
addition, the Company continually evaluates cost control opportunities. The
Company has successfully identified and reduced certain significant costs
through investments in design technology and identification of more
cost-efficient vendors and sources of raw materials. In addition, since 1993 the
Company has shifted its focus from being a manufacturer of sports trading cards
to being a flexible designer, marketer and distributor of collectible products.
The Company now outsources substantially all of its production processes other
than design and artwork and does not believe that there are any significant
risks involved in outsourcing.
STRATEGY
The Company's strategy is to position its sports trading card products
principally as collectibles which are likely to have superior value in the
secondary market. This strategy has led the Company to increase its sales to
specialty retail outlets, consisting mainly of trading card hobby stores, the
retailer of choice for the serious collector/consumer. The Company believes that
success within this hobby channel, in turn, drives demand within the broader,
general retail channel. Since 1993, by consistently executing this strategy, the
Company has experienced a significant increase in net sales, as well as the
proportion of its sales attributable to the key hobby channel. The Company's
strategy encompasses the following elements:
. Continual product innovation, both technological and artistic, to
stimulate collector interest;
. Managed production quantity and quality, making less than the market
demands, to promote collectibility; and
. Tailored product distribution, packaging and sales support, customized to
each individual channel of distribution to maximize sell-through.
In order to implement its strategy, the Company intends to: (i) continue to
enhance highly recognizable brands; (ii) further enhance hobby channel
distribution; (iii) selectively expand general retail distribution; (iv)
continually evaluate and reposition products to meet both customers' and
consumers' demands and preferences; (v) maximize profitability of recent
acquisitions; (vi) pursue opportunities in promotional and related markets;
(vii) position the Company as a strong contender for additional licensing
opportunities; and (viii) evaluate opportunities for strategic acquisitions. The
Company believes that the continued implementation of its strategy will enable
it to maintain its leadership position in the sports trading card market and
achieve future growth.
Continue to Enhance Highly Recognizable Brands. The Company intends to
continue to enhance its highly recognizable brands among both
collectors/consumers and retailers. The Company has positioned itself as a
leader in the industry through an emphasis on collectibility and continued
product innovation, with a reputation for high quality products and service. The
Company has also utilized numerous media tools to maximize brand awareness,
including the recent publication of Pinnacle magazine and advertising in trade
publications. In addition, the Company has multi-year commitments to be the
title sponsor of the premiere fan events for hockey and baseball, which include
the Pinnacle NHL FANtasy held in concert with the National Hockey League
All-Star game and the Pinnacle All-Star FanFest held in conjunction with the
Major League Baseball All-Star game. The Company is also the exclusive sports
trading card sponsor of the NFL Quarterback Club's Quarterback Challenge. The
Company intends to continue using these cost-effective marketing techniques to
reinforce its brand
26
<PAGE>
image. The Company also intends to strengthen the brand image of its Donruss
products through marketing efforts separate and distinct from those used to
market Pinnacle products.
Further Enhance Hobby Channel Distribution. Since 1993, the Company has
significantly increased its penetration of the hobby channel and currently
distributes its products to over 4,000 hobby stores. The Company plans to add as
many as 300 new hobby retailers to its distribution network in 1996 and will
continue to seek additional hobby stores that have the capabilities to
effectively market the Company's products. The Company is also focused on
expanding the range and volume of the Company's products offered by hobby
stores. The Company believes that its newsletters, magazines, field sales force,
hobby-specific merchandising programs and customer service department support
the Company's attainment of these goals by assisting hobby dealers with the
marketing and merchandising of sports trading cards.
Selectively Expand General Retail Distribution. The Company intends to (i)
recruit, as new customers, general retailers whose sales goals and merchandising
practices are consistent with the Company's marketing strategy and (ii)
selectively expand its sales to its existing general retail outlets by
emphasizing "program selling" of its broad product line and retailer partnership
programs (including the use of custom packaging and special price points). See
"--Marketing and Distribution." The Company's field sales force engages in
program selling in the general retail sector, whereby the sales person assigned
to each customer works with the customer to develop a program through which the
customer commits in advance to purchase the Company's products scheduled for
release during the following six months. To date, these efforts have
successfully increased penetration of the general retail channel while still
enabling the Company to manage product return exposure associated with the
general retail channel.
Maximize Profitability of Recent Acquisitions. In May 1996, the Company
acquired from Donruss/Leaf its baseball and hockey trading card licenses as well
as certain inventory and intangibles for approximately $41.0 million. The
Company's strategy to maximize net sales and profitability of the Donruss
licensed products includes: (i) leveraging the Company's infrastructure to
maximize the contribution of the Donruss products; (ii) repositioning Donruss
products for targeted market segments; (iii) marketing Donruss products using
the Company's more effective field sales force and aggressive marketing
techniques; (iv) extending Donruss brands into football trading cards; and (v)
applying the Company's return policies to sales of Donruss products.
Continually Evaluate and Reposition Products to Meet Both Customers' and
Consumers Demands and Preferences. The Company continually evaluates customer
and consumer demand and preferences, and identifies opportunities to target
products to meet these preferences. The Company then repositions its products
through the addition of innovative trading card features, different price
points, brand concepts and sub-brands and modified product packaging, display
and similar features to support customers' merchandising practices. A recent
example is the Company's 1995 introduction of Pinnacle Zenith which is
distributed principally through the hobby market. This product, which like the
Company's Pinnacle product offers a full bleed design with an emphasis on action
photography, is enhanced to include an all-foil metallized printing technology,
heavy card stock and scarce insert sets. The 1995 premiere issue of the
Company's Pinnacle Zenith football trading card was named "The Sports Trading
Card of the Year" (among all sports and all brands) by Tuff Stuff magazine.
Pursue Opportunities in Promotional and Related Markets. The Company has
identified developing promotional products for commercial enterprises as a
market that it is qualified to service with its marketing expertise, creative
design capabilities and innovative production technologies, as well as its
existing relationships with licensors in major professional sports. For example,
the Company recently worked with McDonald's Corporation to create an innovative
and profitable hockey card promotion for all McDonald's Canadian restaurants.
The Company believes there is opportunity for future growth in this market.
27
<PAGE>
Position the Company as a Strong Contender for Additional Licensing
Opportunities. The Company intends to evaluate and pursue other licensing
opportunities where appropriate. The Company believes that it is well-positioned
to develop any such licenses, if obtained, because of its competitive strengths.
As the only member of the SCMA which does not currently have a basketball
license, the Company is seeking to position itself as the most desirable
candidate for such a license with the National Basketball Association.
Evaluate Opportunities for Strategic Acquisitions. The Company will continue
to seek strategic acquisitions which would complement its existing business
and/or take maximum advantage of the Company's core competencies. These
competencies include, among other things, retail and specialty distribution,
product development, licensing and knowledge of collectibles markets.
SPORTS TRADING CARD INDUSTRY
According to SCMA data, the 1995 sports trading card market was
approximately $560 million, which equates to approximately $900 million in
retail sales. Sales of sports trading cards are significantly influenced by the
popularity of the related sport. The Company and other producers of sports
trading cards operate pursuant to licenses with the owners' and players'
association in each relevant team sport or, in the case of auto racing, with
NASCAR and with the relevant drivers, team owners and sponsors. See "--License
Agreements and Trademarks." The major sports organizations have generally
limited the number of licensed sports trading card competitors. Sports trading
cards are sold to consumers through a variety of distribution channels,
including approximately 5,000 specialty hobby stores and over 80,000 retail
outlets such as mass merchandisers, convenience stores, grocery and drug stores
and toy stores. Sport trading cards are a highly attractive category for
retailers because of their relatively high profit margins per square foot of
shelf space.
Consumers. Studies commissioned by the Company to better understand its
ultimate consumer indicate that males over 18 years old account for
approximately half of the number of purchases and over three-quarters of the
dollars spent annually on sports trading cards. The average collector is
approximately 31 years old and owns a collection valued at over $4,000. These
studies also indicate that key product attributes valued by this
collector/consumer base include scarcity, creative design and innovative
printing and technologies. The industry utilizes insert cards (known as "chase
cards") which incorporate these attributes and which are randomly inserted into
card packs to generate further demand for sports trading cards.
Collectors/consumers seek out these cards due to their relative scarcity and
higher aftermarket values. Collector interest in sports trading cards is
evidenced by the large circulation of the various trade magazines and the
significant attendance figures at the industry's various trade shows. Beckett
Monthly, which publishes secondary market values for sports trading cards and
related information, is the largest publisher of sports trading card price
guides covering baseball, football, basketball, hockey, motor sports and future
stars. The Beckett Monthly price guides have a total circulation of 1.2 million,
which ranks them (in the aggregate) second in circulation to Sports Illustrated
among sports periodicals.
The inherent collectibility of sports trading cards is demonstrated by the
existence of an active, sophisticated secondary market for sports trading cards.
The secondary market infrastructure includes Sportsnet, a "members only"
electronic bulletin board for hobby dealers which functions as a clearing house
for advance sales of sports trading cards, plus a number of collector magazines
which publish aftermarket values. Beckett Monthly provides secondary market
values for virtually every baseball card produced since 1948.
History. The sports trading card industry experienced significant growth
between the early 1980s and 1991. The Company believes that this growth was
primarily fueled by the combined effects of new sports franchises, expanding
sports media coverage, growing levels of disposable income and an increased
number of trading card producers as a result of granting of additional licenses.
Reported
28
<PAGE>
SCMA net sales of sports trading cards grew from less than $250 million in 1988
to a peak of almost $1.1 billion in 1991. Product innovation and competition
increased significantly. Concurrently with this trend, the trading card market
experienced an influx of speculative investors who acquired cards solely in
expectation of a rapid and significant appreciation in value. Industry
publications with broad circulation, such as Beckett Monthly, were validating
these speculators' interest in the collectibility of sports trading cards by
regularly publishing updated secondary values for trading cards.
However, by 1991 the sports trading card market was overextended, with
supply levels outpacing demand. Retailers, however, continued to purchase large
quantities of trading cards from manufacturers but, not constrained by any time
limitation on sales returns, returned increasing quantities of accumulated
inventory to manufacturers. At the same time, the United States entered into a
recession. The speculative investors ceased viewing sports trading cards as an
attractive investment, and the sports trading card market contracted to its core
collector/consumer. According to SCMA data, 1992 net sales contracted slightly
to $982 million from 1991 and in 1993 net industry sales declined by 22% to
approximately $767 million.
Although SCMA net sales increased by 3% in the first half of 1994 compared
to the first half of 1993, during the second half of 1994 the industry was
negatively impacted by the Major League Baseball strike and the National Hockey
League work stoppage. These events led to a decline in SCMA net sales to
approximately $560 million in 1995. While the National Hockey League resolved
its dispute and commenced its season in January 1995, and Major League Baseball
resumed operations in April 1995 (without a written contract between the owners'
and the players' union), baseball and hockey sales remained well below
pre-strike levels throughout 1995.
Set forth below is SCMA data for the sports trading card industry and the
Company (excluding sales of Donruss products under licenses purchased by the
Company in May 1996) for the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
COMPANY NET SALES
SCMA REPORTED DATA REPORTED TO SCMA
-------------------------- --------------------------------------------
% % SHARE OF SCMA
YEAR NET SALES CHANGE NET SALES CHANGE NET SALES
- ---- --------------- ------ --------------- ------ -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS)
1993.. $ 766.7 (22%) $48.0 (51%)(a) 6%
1994.. 744.0 (3%) 79.3 65% 11%
1995.. 559.7 (25%) 102.5 29% 18%
</TABLE>
-----------------
(a) The Company's reported SCMA net sales for 1992 include $17.0 million
for "collector's sets" which were discontinued in 1993.
There are indications that sports trading card sales for the six months
ended June 15, 1996 have begun to improve. A.C. Nielsen data (which data
excludes the hobby and certain other retail distribution channels) for the 1996
year to date period indicate that consumer purchases of baseball trading cards
have increased 18%, sales of football trading cards have increased 57%, sales of
hockey trading cards have increased 18%, and sales of motor sports trading cards
have increased 70%, in each case over the comparable 1995 period.
PRODUCTS
Sports Trading Cards. The Company is engaged in the design, production and
distribution of premium value sports trading cards featuring major league
baseball players, professional football and hockey players and NASCAR auto
racing drivers, team owners and/or sponsors. The Company markets numerous sports
trading card products under a variety of brand names including Score, Select,
Pinnacle, Donruss, Leaf, Action Packed, Sportflix and Racer's Choice. The
Company's sales are derived from a broad portfolio of products. The cards
feature photographs of the athletes and generally include
29
<PAGE>
summary statistics and biographical material. The Company may issue several new
series of baseball, football, hockey and NASCAR trading cards each year. Each
season's products contain new players, different designs and photographs and
updated statistics.
The Company has positioned itself as a leader in the industry through an
emphasis on collectibility and continued product innovation, with a reputation
for high quality products and service. Each of the Company's sports trading card
brands has its own positioning in the marketplace and is designed to appeal to
targeted groups of consumers. All of the Company's sports trading cards brands
are of high quality and most feature laminated paperboard and state-of-the-art
reproduction techniques. Certain brands contain cards which use wood, leather or
plastic or are produced using the Company's lenticular printing process, which
creates 3D or magic motion effects on the sports trading cards; other brands use
holograms. Certain brands also contain foil stamping; others are packaged with
other items such as coins. The Company produces different products utilizing a
variety of production technologies and distinctive features and sells those
products through multiple distribution channels at a wide range of price points.
The Company uses a variety of chase card sets differentiated by technology,
distribution channel and price point to provide the collector/consumer with
greater value. The Company continually changes and repositions its brands to
respond to its customers needs. As of June 30, 1996, the Company's principal
brands were as follows:
<TABLE>
<CAPTION>
SUGGESTED
BRAND RETAIL PRICE BRAND DESCRIPTION AND POSITIONING
--------------- ------------ ------------------------------------------------------------
<S> <C> <C>
Score $ .99 A classic border card for the traditional collector
Racer's Choice .99 A value priced classic border card for the racing enthusiast
Donruss 1.89 A traditional full bleed product with numbered random insert
cards
Select 1.99 A premium, full bleed hobby-only card for the serious
collector
Sportflix 1.99 A retail only magic motion (lenticular) card targeted to
younger consumers
Pinnacle 2.49 A premium full bleed card with random insert cards designed
to maximize collector value
Leaf 2.99 A premium brand that uses unique materials (such as wood) in
its sequentially numbered random insert cards
Action Packed 2.99 An embossed card featuring unique materials (such as gold
leaf and diamond chips) and non-traditional photography
</TABLE>
To capitalize on the strength of these brands, the Company also issues
sub-brands--technologically advanced versions of regular cards produced in more
limited quantities--to reach niche markets. Examples of this include (i)
Pinnacle Zenith which, like Pinnacle, offers a full bleed design with an
emphasis on photography but also includes all-foil metallized printing
technology, heavier card stock and scarce insert sets (suggested retail price of
$3.99 per pack) and (ii) Select Certified, which, like Select, is a hobby-only
brand, but also includes a mirror-like finish protected by a removable plastic
film and a heavier card stock (suggested retail price of $4.99 per pack).
The Company uses a variety of chase card sets differentiated by technology,
distribution channel and price point to provide the collector/consumer with
greater value. The Company produces substantially fewer chase cards than regular
sports trading cards. Chase cards are differentiated by their innovative
technology, non-traditional photography and limited availability. Chase cards
may be die-cut and use holographic foil, or produced with DufexTM or GoldrushTM
technologies. See "--Technology." Examples of recent chase cards include (i) the
Christie Brinkley Collection, which contains photos taken by supermodel Christie
Brinkley, included in the Pinnacle Baseball II product, (ii) FanScanTM, an
insert in Action Packed Credentials Racing, which allows collectors to access
live radio communications
30
<PAGE>
between popular NASCAR drivers and their pit crews through a special toll-free
telephone number printed on the back of each card and (iii) Studs, an Action
Packed embossed card which shows famous athletes wearing their earrings--but in
this case the diamond studs are real. The Company believes that its innovative
chase card designs, random insertion and limited production reward the collector
with high aftermarket trading values. For example, according to the June 1996
issue of Beckett Monthly, the 1995 Select Artist Proofs subset is valued at
$5,000.
The dollar value of shipments of sports trading card products (excluding
sports trading cards sold by the Company to commercial customers for use as
promotional products) accounted for approximately 93%, 87% and 89% of the
Company's gross sales for the years ended December 31, 1993, 1994 and 1995,
respectively, and approximately 87% for the six months ended June 30, 1996.
Promotional Products. The Company also produces products for use by consumer
and food product companies in their promotional activities. The products include
sports trading cards and other products. The Company works with its customers to
develop promotional strategies and to produce products which employ the
Company's lenticular or other innovative technologies. For example, the Company
recently created a hockey card promotion for all McDonald's Corporation Canadian
restaurants, and has received contracts from other companies to perform similar
promotions in the United States.
The Company markets its promotional projects to several hundred customers,
who typically use these products in conjunction with one-time marketing events
or, occasionally, recurring promotional campaigns. While none of the promotional
projects conducted by the Company's commercial customers is individually
significant to the Company's revenues today, the Company believes that continued
development of products for the commercial consumer provides opportunity for
future revenue growth and creates further awareness of the Company's brands and
products.
Technology. The Company has been an innovator of trading card features
utilizing creative design and advanced production technologies. The Company
develops some technology itself and also works with various vendors to develop
technology and applications for the Company's products. See "--Product
Development and Production." The Company currently employs the following
innovative technologies:
. DufexTM, which superimposes a player's image against a laminated foil
background with UV formulated transparent inks that allow the foil
reflections to shine through.
. Action Packed embossing, which gives the look and feel of raised
typography, and 24KT gold which includes actual gold leafing.
. GoldrushTM, a process where cards are printed in gold on silver metallized
foil.
. Sportflix, a process which allows two or more images to exist on the same
piece of printed stock because of special lenticular plastic lenses that
allow the eye to see only one image at a time. The image changes if the
card is tilted.
. LaserViewTM, a new holographic product which incorporates 3 to 4 seconds
of actual National Football LeagueTM game footage into full motion cards.
. Spectrotech, an etching technique which highlights foil with a texturizing
process that gives it tactile features which complement the mirror-like
look of the foil.
31
<PAGE>
MARKETING AND DISTRIBUTION
The Company has commissioned studies of its customer base and the sports
trading card market. As a result of these studies, the Company shifted its focus
to the hobby channel and the serious collectors who purchase through that
channel, and began to develop innovative products that both attract the
collector/consumer's attention at the point of purchase and also maintain
superior value in the secondary market.
The Company's marketing strategy is based on the following premises: (i) the
collectibility of a product is determined by the market's perception of the
product's scarcity and its design features; (ii) success in the hobby channel
leads to increased demand in the broader general retail channel; (iii) strong
brand positioning is key to developing strong market position; and (iv) the
market demands continual product innovation.
To improve the collectibility of its cards, the Company manages both
production quality and quantity. While the number of the Company's brands or
sub-brands has increased, the Company has reduced the production volume per
product. This increase in products has reduced the Company's dependency on any
single product and reduced the Company's exposure to returns.
As an early demonstration of the Company's commitment to scarcity, the
Company was the first major industry player to eliminate the distribution of
"collector's sets." These sets made available, in a single purchase at the end
of the sports season, almost every card produced for the season. Although
elimination of such sets in 1993 and loss of revenues ($17.0 million in net
sales reported to SCMA in 1992) from their sales initially reduced the Company's
earnings, the Company believes that such action enhanced future sales because
sales of "collector's sets" reduced consumers' need to purchase cards throughout
the season in order to obtain an entire set. In addition, "collector's sets"
were typically priced lower than cards sold earlier in the season.
The Company meets at various times during the year with advisory boards of
hobby dealers, other retailers and consumers. These boards provide the Company
with insight into which of its products and product features are popular, and
keys to the success of its marketing techniques and sales practices within the
respective distribution channels. In addition, the Company solicits from the
advisory boards strategies that the Company, alone or together with its
customers, can employ to enhance sell-through of the Company's products.
Hobby and Retail Distribution. The Company's products are sold in hobby
stores, sports memorabilia shops, wholesale clubs, mass merchandisers,
convenience stores, variety stores, grocery and drug stores and toy stores. The
Company has aggressively pursued sales to the hobby sector, and over the last
three years has tripled its percentage of sales of sports trading cards made to
the hobby sector. The Company has focused on the hobby sector because it
believes that the effects of the market correction and work stoppages on this
sector of the market were less severe than on the general retail sector and that
demand in the hobby channel ultimately drives the more general retail sector.
See "--Sports Trading Card Industry." In addition, the terms of sale to this
sector have made such sales more attractive to the Company. Unlike most general
retail and mass merchandise customers, hobby stores are required to pay in
advance for shipments and do not have the right to return unsold products. See
"--Returns." The Company distributes its products to over 4,000 hobby stores
nationwide.
While the Company has focused on developing the hobby market, the Company
has also taken a number of steps to further develop sales in the general retail
sector. For example, the Company is the only trading card competitor to provide
its customers with tools to manage sports trading card category profitability.
One such tool, "The Team Pinnacle Category Management System Newsletter," which
is distributed to approximately 500 key buyers and merchandise managers, has
been recognized by leading retail trade publications for its valuable insights.
In addition, the Company works with its
32
<PAGE>
general retail customers to implement various trade marketing programs, such as
display merchandising and cooperative promotional advertising, to increase
sell-through of products at the retail outlets and to limit customers' product
purchases based on historical net sales, in each case with a view toward
maximizing future sales while minimizing returns. While the general retail
sector generally has had greater rights with respect to returns of the Company's
products than has the hobby sector, the Company has negotiated the elimination
of return privileges with some larger retailers and continues to pursue similar
arrangements with other retailers. See "--Returns."
Development of In-House Field Sales Force. Historically, the Company relied
on multiple-product brokers to sell its products. In 1996, however, the Company
established an in-house field sales force to market its trading card products
more effectively by providing a higher level of customer service to retail and
hobby dealers. This field sales force markets the Company's products to all of
its customers, including hobby dealers and certain large retailers, as well as
to certain distributors dedicated to particular mass merchandise retailers and,
to a lesser extent, independent distributors. In addition, the Company works
with "Authorized Pinnacle Distributors" to coordinate sales to the hobby channel
and to serve as a source of replenishment for shops in this channel.
Each customer is assigned an individual salesperson whose responsibility is
to educate the customer about the Company products, help to tailor the
retailers' product selection, and share product placement and merchandising
techniques with the customer, all with the goal of increasing the customer's
sell-through of the Company's products. The Company believes its field sales
force will gain important insights into the customer's needs, thereby enabling
the Company to be more responsive and to allocate its products on a basis that
takes into account the customer's past sales history and nature of its consumer
base. In addition, the Company has developed systems to integrate the Company's
scheduling, marketing and sales functions so as to facilitate maximum
information flow of research and sales data to and from the field sales force.
The Company's field sales force engages in program selling, particularly in the
general retail sector, in which it works with a customer to develop a program by
which the customer commits in advance to purchase the Company's products
scheduled for release during the following six months.
The Company's compensation structure for its field sales force is designed
to provide incentives to implement its marketing strategy. While the Company,
like others in the industry, had compensated its multiple-product brokers based
on gross sales with little regard to level of returns, a major component of the
Company's compensation of its field sales force is based on net sales, which
specifically takes into account sell-through and return of products.
Extension of Brand Awareness. To optimize the use of advertising and
promotional expenditures, the Company has chosen to focus its promotional
efforts on recognition of its brands rather than individual products. The
Company has done so through what it believes to be an aggressive, cost-effective
marketing strategy concentrating on public relations and targeted advertising to
maximize brand awareness. For example, the Company markets various brands
through advertising in card collectors' publications, and through the recently
published Pinnacle magazine which is currently being sold at magazine stands
throughout the United States.
To increase its visibility in the sports market, the Company has entered
into multi-year commitments to be the title sponsor of the premiere fan events
for hockey and baseball, which include the Pinnacle All-Star FANtasy, an
interactive fan event held in conjunction with the National Hockey League
All-Star Game, and the Pinnacle All-Star FanFest held in conjunction with the
Major League Baseball All-Star Game. The Company is also the exclusive sports
trading card sponsor of the NFL Quarterback Club's Quarterback Challenge. These
events serve both to increase fan interest in the relevant sport and also to
provide an opportunity to introduce the Company's sports trading cards to a
large number of fans who may not be familiar with the Company's products. In
addition, these events provide significant brand exposure, including national
television and print media coverage, to a sports-
33
<PAGE>
conscious target audience at a substantially lower cost than conventional media
advertising. The Company also obtains significant cost-effective exposure
through its production of products for use by corporate consumers in connection
with promotional activities.
RETURNS
Returns have historically been a concern for the sports trading card
industry. Traditionally, customers were allowed to return products in unlimited
amount and without regard to any time period. The Company has taken a number of
actions to limit product returns, thereby increasing its profitability and the
quality of its earnings and cash flows.
The Company has substantially increased the proportion of its sales to the
hobby channel, which does not have return privileges. The Company has also
negotiated with some large retailers to eliminate return privileges, saving the
retailer, as well as the Company, the time and expense of collecting inventory
for returns. The Company continues to pursue similar arrangements with other
significant retailers. The increase in sales to the hobby channel coupled with
the elimination of return privileges of some retailers has significantly reduced
the risks associated with return levels. In addition, beginning in late 1993 the
Company implemented six initiatives geared toward limiting returns and their
associated costs within the remainder of the retail distribution channel. These
initiatives consist of (i) limiting returns to the period from four months to
twelve months after shipment, (ii) lowering administrative costs by limiting the
number of occasions on which returns may be accepted, (iii) not providing cash
reimbursements, but instead providing a credit that can be used against future
purchases, (iv) allocating its products to the Company's customers on the basis
of the customers' historical net sales, (v) sharing with customers innovative
packaging and merchandising techniques to increase sell-through of the Company's
products and (vi) structuring compensation policies to take into account return
of products. Actions taken by the Company to eliminate or limit a retailer's
return privileges may accelerate returns of products previously sold to that
retailer. As a result of these actions, since 1992 the Company has reduced its
exposure to returns and has tripled the percentage of its sales made on a
non-returnable basis, to more than 50%.
The Company did not assume any product return liability for sports trading
card products previously sold by Donruss/Leaf in connection with the Donruss
License Acquisition. Instead the Company is indemnified by Donruss/Leaf for any
such liability. The Company's return policies have been applied to all sales of
Donruss products made by the Company.
PRODUCT DEVELOPMENT AND PRODUCTION
The Company currently outsources substantially all of its production
processes, other than the design and artwork for its sports trading cards. It
works with a limited number of vendors selected on the basis of their ability to
produce consistent quality products at an efficient price. The Company evaluates
its vendors based on their product quality, their capacity to employ existing
technology developed by the Company or others, and also their willingness to
work with the Company to develop new technologies and/or applications. The
Company's vendors generally perform research and development as part of their
overall relationship with the Company without separate charge.
The elapsed time between initial product design and shipment is typically
six months. During the initial phase of the process, which generally takes
between three and four months, the Company focuses on photography, design,
artwork and technology. Photographs are generally taken by independent
photographers. The Company next converts the photographs into a digital data
base and does both high and low resolution cleanup of the photographs (i.e., to
enhance colors, eliminate blood, stains and shadows). The Company's in-house
staff of artists designs and coordinates the artwork for the sports trading
cards. The Company works with its vendors to produce sample runs to confirm that
the processes employed will produce consistent product quality. Prior to
production, the Company must
34
<PAGE>
obtain licensor approvals of virtually all aspects of the card (i.e., design
features and other elements of presentation). See "--License Agreements and
Trademarks."
Production begins after the product has been designed and has received
necessary licensor approval. The first shipment of product typically occurs six
to eight weeks after production commences. The printing processes, which include
printing, foil stamping and UV coating, are currently performed by third party
vendors. After printing, the trading cards are then packaged, which involves
cutting, collating and wrapping the cards. The finished cards are collated in a
manner designed to avoid duplication of the same card in packages and to
implement the Company's strategy of limiting availability of certain insert and
other cards. Most of the Company's packaging requirements are performed by
Performance Packaging LLC, in which the Company holds a 49% equity interest.
In order to ensure the quality of its sports trading cards, the Company
employs quality assurance personnel who meet with the Company's vendors
regularly and who sample test products at each stage of the production process,
in some cases several times a day. The Company is not dependent on any single
vendor in the production process and in many cases uses multiple vendors to
perform particular tasks.
LICENSE AGREEMENTS AND TRADEMARKS
The Company considers its trademarks, trade names and license agreements to
be of material importance to its business. The Company's principal trademarks
have been registered in the United States, as well as in certain of the foreign
countries where its products are sold. The Company owns the following principal
trademarks: Score, Select, Pinnacle, Donruss, Action Packed, Sportflix, Racer's
Choice and Optigraphics. In addition, the Company has the right to sell sports
trading card products under the name Leaf in the United States and Canada for a
period of five years.
The Company's ability to market its sports trading cards is based on rights
under non-exclusive license agreements with the baseball, hockey and football
players' associations, and with the organizations which represent the respective
leagues and their member teams, and, in the case of NASCAR auto racing, with
NASCAR and with the relevant drivers, owners and sponsors. Each of the players'
association agreements grants the Company the right to produce and sell sports
trading cards depicting virtually every member of such association. Licenses
with individual drivers, owners and sponsors are required to produce and sell
NASCAR auto racing trading cards.
The Company's agreements with the various players' associations enable the
Company to use a player's name, picture, facsimile signature and biographical
description. The Company's agreements with the organizations representing the
various leagues and their member teams enable the Company to use the logos and
trademarks of the various sports, the leagues and the member teams. These
licenses permit the Company to produce and sell trading cards in the United
States and Canada and, for specific licenses, other countries. All of these
licenses are non-exclusive and, accordingly, the various players' associations,
leagues and team representatives are free to grant similar licenses to other
companies. See "--Competition." Generally, these licenses are granted for a two-
to five-year period. Each of the Company's licenses is subject to termination
for cause by the respective licensors and to non-renewal at the expiration of
its term. Each such agreement provides for percentage royalties based on sales
with minimum guaranteed royalty payments. The Company believes that the
royalties received by the various players' associations under their license
agreements with the Company account for a significant portion of their revenues.
35
<PAGE>
The Company holds the following material licenses for team sports:
<TABLE>
<CAPTION>
FIRST ISSUED EXPIRATION DATE
------------ ---------------
<S> <C> <C>
LICENSE
MAJOR LEAGUE BASEBALL
Pinnacle/Major League Baseball Players' Association 1987 12/31/97
Major League Baseball Properties 1987 12/31/94(a)
Donruss/Major League Baseball Players' Association 1981 12/31/97
Major League Baseball Properties 1981 12/31/98
NATIONAL FOOTBALL LEAGUE
Pinnacle/National Football League Players' Association 1988 2/28/99
National Football League Properties 1988 3/31/95(a)
Action Packed/National Football League Players' Association 1990 2/28/99
NATIONAL HOCKEY LEAGUE
Pinnacle/National Hockey League Players' Association 1989 6/30/98
National Hockey League Enterprises 1989 6/30/98
Donruss/National Hockey League Players' Association 6/30/99
National Hockey League Enterprises 6/30/96(b)
</TABLE>
----------------
(a) The Company is operating under a letter of intent with this licensor and
is currently negotiating a definitive three-year licensing agreement.
(b) The Company is in the process of negotiating a new license agreement
with this licensor.
In addition, the Company holds over 100 licenses with NASCAR and with the
NASCAR drivers, owners and sponsors (each, a "NASCAR License"). No single NASCAR
License is material to the Company's business.
Since their expiration, the Company has entered into letters of intent with
respect to the material terms of a new three-year license with each of Major
League Baseball Properties and National Football League Properties, and is in
the process of negotiating definitive license agreements. The Company is
currently negotiating a definitive license agreement with National Hockey League
Enterprises. The Company is continuing to operate under the terms of its expired
licenses and believes that it will be able to enter into new license agreements
in the near future. Since its formation, the Company has never failed to obtain
renewal of any of its team sports licenses and it anticipates that it will be
able to renew its sports trading card licenses on acceptable terms. However,
there can be no assurance that these licenses will not be terminated for cause,
that these licenses will be renewed upon their expiration or that the terms of
future sports trading card licenses will not be materially less favorable to the
Company than those currently in effect. The loss of any baseball, football or
hockey license could have a material adverse effect on the Company's results of
operations and financial condition.
The Company currently does not hold a license with the National Basketball
Association. Although the Company is seeking to obtain such a license, there can
be no assurance that such license will be granted.
Total royalty expense under the Company's sports trading card licenses for
1995 was $26.5 million. See Note 15 to the Consolidated Financial Statements for
a description of minimum guarantee payments required under the Company's
existing sports licenses.
In addition, the Company is party to an equipment sales and technical
assistance agreement with Toppan Printing (America), Inc. and Toppan Printing
Company, Ltd., pursuant to which the Company has the exclusive right to receive
technical assistance involved in producing lenticular products.
36
<PAGE>
COMPETITION
The sports trading card industry is competitive and the Company competes
with several producers of sports trading card products. The principal brands
with which the Company's products compete include Fleer/Sky Box, Topps and Upper
Deck. The Company believes its products compete primarily based upon
collectibility and brand recognition, as well as product features and pricing,
customer service, quality and creativity.
The Company's brands and those of its key competitors account for a
substantial portion of total sports trading card sales. The remaining sales are
made by numerous additional companies that produce and distribute sports trading
cards only in regional or niche markets. Presently, there are four major
licensees for sports trading cards in baseball and hockey, a total of eight
licensees for football and three for basketball. The Company is currently
unaware of any pending new licensees. However, the licensors retain the right to
grant additional licenses.
In addition to the major sports trading card competitors named above, the
Company also competes with numerous smaller distributors of sports trading
cards, with sports memorabilia and collectibles producers and with companies
that market small toys, comic books and other similar products. Certain of the
Company's competitors are significantly larger and have greater resources than
the Company. See "Risk Factors--Competition."
SEASONALITY
The timing of shipments of the Company's sports trading card products, and
related revenue recognition, is directly related to the playing seasons of the
various sports for which the Company holds licenses. For example, shipments of
the Company's 1996 season baseball sports trading cards began in December 1995
and will conclude prior to the 1996 World Series in October. Similar but more
compressed shipping cycles exist for hockey, football and motorsports. Moreover,
within a sports season the Company continually evaluates when to ship individual
products based on a number of factors including consumers' demand for previously
shipped products and competitors' announced shipping dates. Accordingly,
reported quarterly sports trading card revenues may vary from historical
quarterly patterns. As a result, quarterly reported revenues and earnings are
not necessarily an accurate predictor of future financial results.
Given its current licenses, the Company expects that approximately 20% of
the Company's sales will occur in each of the first and second quarters and 30%
will occur in each of the third and fourth quarters. A substantial portion of
the Company's selling, general and administrative expenses do not vary based on
sales. As a result, substantially all of the Company's operating income has been
generated in the second half of the year. For example, in 1995 the Company
recognized 68% of its annual sales, 69% of its annual gross profit and 91% of
its operating income during its third and fourth fiscal quarters. The Company
expects that these seasonal variations will continue, although in differing
degrees from year to year.
EMPLOYEES
The Company employs approximately 200 people, of whom approximately one half
are involved in the production and creative process. The remaining employees of
the Company perform sales, administrative and management duties. None of the
Company's employees are covered by collective bargaining agreements. The Company
considers its employee relations to be good.
PROPERTIES
The Company currently leases its 50,000 square foot headquarters facility
and a 90,000 square foot warehouse and manufacturing facility, both located in
Grand Prairie, Texas. At the expiration of the
37
<PAGE>
term of the headquarters' lease in October 1996, the Company intends to move its
corporate headquarters to an approximately 50,000 square foot facility located
in Dallas, Texas. The new lease will be for a seven-year term.
The Company also leases the office facilities located in Norwalk,
Connecticut and Charlotte, North Carolina. These leases are for approximately
4,500 and 1,000 square feet, respectively, and expire in April 1998 and August
1996, respectively.
The Company believes that its facilities are in good repair and adequate for
its needs for the foreseeable future.
ENVIRONMENT
The Company believes that it is in compliance in all material respects with
existing federal, state and local regulations relating to the protection of the
environment. Such environmental regulations have not had a material impact on
the Company's capital expenditures, earnings or competitive position.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. In December 1995, Dream Team Collectibles, Inc., a St. Louis-based
manufacturer and retailer, filed suit against the Company in the U.S. District
Court for the Eastern District of Missouri, alleging trademark infringement and
unfair competition with respect to the Company's use of the "Dream Team" name
for a line of Score chase cards the Company has produced continuously since
1990. Dream Team Collectibles, Inc. is seeking royalties from the sale of those
products using the "Dream Team" name, as well as certain other relief.
This action is in the discovery phase. In the opinion of the Company, no such
litigation has had or is likely to have a material adverse effect on the
Company's results of operations, financial condition or liquidity.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY MANAGEMENT PERSONNEL
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Jerry M. Meyer............................ 55 Chairman of the Board, Chief Executive
Officer and Director
Michael J. Cleary......................... 37 Executive Vice President, Chief Operating
Officer and Director
John S. Worth............................. 47 Chief Financial Officer, Senior Vice
President and Secretary
James Brochhausen......................... 37 Senior Vice President--Sales
Bradford E. Bernstein..................... 29 Director
Daniel L. Doctoroff....................... 38 Director
Douglas D. Wheat.......................... 45 Director
</TABLE>
Jerry M. Meyer has served as Chief Executive Officer of the Company and a
director of the Company since its formation in 1991, and has served as Chairman
of the Board since August 1996. Prior to that, he was a partner in Grauer &
Wheat Investments, a merchant banking firm associated with Acadia Partners, L.P.
that participated in the 1991 acquisition of Optigraphics, Inc. Prior to that,
Mr. Meyer held management positions with Coleman Company, Inc., Pullman, Inc.,
Garlock, Inc. and Colt Industries. Mr. Meyer is also director of City National
Bank and Specialty Food Corporation; he also serves as President of Century
Capital, a real estate and financial holding company.
Michael J. Cleary has served as Executive Vice President and Chief Operating
Officer of the Company since October 1995, and has served in various management
positions with the Company since November 1991. Prior to that, he served as
Chief Financial Officer of Coleman Company's Water Sports Holding Company from
May 1990. Mr. Cleary has served as a director of the Company since December
1995.
John S. Worth has served as Chief Financial Officer, Senior Vice President,
and Secretary of the Company since 1994. Prior to that, he was a senior partner
in the Arthur Andersen Worldwide Organization from 1986 to 1994. During that
period, Mr. Worth served, in 1989, as Chief Financial Officer of Arthur
Andersen's newly formed International Accounting, Audit and Tax Business Unit
and, after relocation to the firm's Dallas office, as a Regional Director of
Arthur Andersen's Litigation, Bankruptcy and Corporate Finance Practice from
1990 to 1994.
James Brochhausen has served as Senior Vice President-Sales of the Company
since August 1996; from 1993 to June 1996 he served as Vice President Sales of
Pinnacle Trading Card Company; prior to that he served as Vice President of
Sales for Major League Marketing, Inc. from 1992 to 1993, as North Central
Business Director at Nestle Food Company from 1991 to 1992, as Northeast
Confection Zone Manager from 1990 to 1991 and several other management positions
within Nestle since 1992.
Bradford E. Bernstein has served as a Vice President and an Associate of Oak
Hill Partners, Inc. (Acadia's investment advisor) since 1992. From 1991 until
1992, Mr. Bernstein worked at Patricof & Co. Ventures. Prior to that, from 1989
to 1991, he worked at Merrill Lynch & Co. Mr. Bernstein has served as a director
of the Company since December 1995. Mr. Bernstein serves as a director of
CapStar Hotels Inc. and Payroll Transfers, Inc.
Daniel L. Doctoroff has served as Managing Director of Oak Hill Partners,
Inc. and its predecessor since August 1987; Vice President and Director of
Acadia Partners MGP, Inc. since March 1992; Vice President of Keystone, Inc.
since March 1992; and a Managing Partner of Insurance Partners Advisors, L.P.
since February 1994. All of such entities are affiliates of Acadia Partners,
L.P. Mr Doctoroff has served as a director of the Company since 1995. Mr.
Doctoroff is also a director of Bell &
39
<PAGE>
Howell Holdings Company, CapStar Hotels Inc., National Re Corp., Payroll
Transfers, Inc., Transport Holdings, Inc., Kemper Corporation and Specialty
Foods Corporation.
Douglas D. Wheat has served as President of Haas Wheat & Partners,
Incorporated, a private investment firm, since January 1995. Prior to that, Mr.
Wheat was President of Haas Wheat & Partners from November 1992, Co-Chairman of
Grauer & Wheat, Inc., a private investment firm from April 1989 to October 1992
and Senior Vice President of Donaldson, Lufkin & Jenrette Securities Corporation
from January 1985 to March 1989. Mr. Wheat has served as a director of the
Company since 1991. Mr. Wheat is also a director of Specialty Foods Corporation
and Playtex Products, Inc.
BOARD OF DIRECTORS; COMMITTEES
The Board of Directors currently consists of five directors. Prior to the
consummation of the Offering, the Company intends to appoint three additional
directors, none of whom are officers or employees of the Company. All directors
are elected by the stockholders of the Company for a one-year term and hold
office until the next annual meeting of stockholders or until their successors
are elected and qualify.
The Board of Directors has established an Audit Committee comprising Messrs.
, and . The Audit Committee is responsible for recommending to
the Board of Directors the engagement of independent auditors of the Company and
reviewing with the independent auditors the scope and results of the audits, the
internal accounting controls of the Company, audit practices and the
professional services furnished by the independent auditors.
The Board of Directors has also established a Compensation Committee
comprising Messrs. , and . The Compensation Committee is
responsible for reviewing and approving all compensation arrangements for
officers of the Company and will be responsible for administering the 1992
Option Plan, the 1996 Option Plan and the Bonus Plan (each as defined below).
Prior to the Offering, the Company did not have a Compensation Committee.
DIRECTOR COMPENSATION
Any director who is not an employee of the Company will be paid an annual
fee of $ per annum. In addition, each such director will be paid
$ for attendance at each meeting of the Board and $ for attendance at
each meeting of a committee of the Board of which such director is a member.
Directors who are employees of the Company will not receive any fees for their
service on the Board or a committee thereof. In addition, the Company will
reimburse directors for their out-of-pocket expenses in connection with their
service on the Board.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by or
paid to the Chief Executive Officer and the three most highly paid executive
officers other than the Chief Executive Officer, who served as executive
officers of the Company as of December 31, 1995 for services rendered in all
capacities to the Company during 1995.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
----------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Jerry M. Meyer............................. $430,106 $108,654(a) $127,422(b) $3,150(c)
Chairman of the Board and Chief Executive
Officer
Michael J. Cleary........................ 250,288 104,808(a) -- 2,704(c)
Executive Vice President and Chief
Operating Officer(d)
John S. Worth............................ 244,231 104,808(a) -- 2,906(c)
Chief Financial Officer, Senior Vice
President and Secretary(d)
James Brochhausen........................ 175,000 78,365(a) -- 1,925(c)
Senior Vice President--Sales(d)
</TABLE>
- ------------
(a) Bonus represents amount paid in fiscal year for services rendered in the
prior fiscal year.
(b) Includes amounts paid for housing and auto allowances. Does not include
$1,300,000 paid to Mr. Meyer in 1996 in respect of a relocation loss.
(c) Represents matching contributions made by the Company on the officer's
behalf to the Company's 401(k) Plan.
(d) While this individual received perquisites or other personal benefits in the
year shown, in accordance with applicable regulations, the value of these
benefits is not indicated since they did not exceed in the aggregate the
lesser of $50,000 or 10% of the individual's salary and bonus of such year.
EMPLOYMENT AGREEMENTS
The Company has entered into a three-year Employment Agreement (the
"Agreement") with Jerry M. Meyer, its Chairman of the Board and Chief Executive
Officer, which will become effective upon consummation of the Offering. The
Agreement provides for an annual base salary of $600,000, which may be increased
by the Board in its sole discretion. Under the terms of the Agreement, Mr. Meyer
participates in the bonus plan described below under which he may receive awards
of up to 130% of his base salary. If Mr. Meyer's employment is terminated by the
Company without cause, he will be entitled to receive an amount equal to three
times the sum of his then base salary plus $100,000. The Agreement also provides
that Mr. Meyer may not compete with the Company during the term of the Agreement
and for one year thereafter and is entitled to customary executive benefits,
including health insurance, participation in the Company's employee benefit
plans and an automobile allowance. Acadia has granted Mr. Meyer an option (the
"Acadia Option") to purchase shares of Common Stock at an exercise price
of $ per share, on substantially the same terms as the options granted under
the Company's 1992 Option Plan. See "--1992 Stock Option Plan." In addition, Mr.
Meyer has the right (the "Put Right") to require the Company to purchase, on
November 30, 1998, all of the shares of Common Stock and options to purchase
shares of Common Stock owned by Mr. Meyer or members of his immediate family at
the time of consummation of the Offering for a purchase price of $3.0 million,
less any amounts previously realized with respect to those shares and options.
In the event the Company fails to purchase Mr. Meyer's securities upon exercise
of the Put Right, Acadia Partners, L.P. is obligated to purchase, or cause the
Company to purchase, those securities at the same price.
The Company has entered into two-year Employment Agreements with each of
Michael Cleary, John Worth and James Brochhausen, which will become effective
upon consummation of the Offering. Mr. Cleary's annual base compensation will be
$300,000, Mr. Worth's will be $275,000 and Mr. Brochhausen's will be $225,000,
in each case subject to increase by the Board in its sole discretion. Each of
these individuals participates in the bonus plan described below and may receive
the bonus awards described below. The Employment Agreements contain other
provisions similar to Mr. Meyer's (other than the Acadia Option and the Put
Right) and other provisions customary in executive employment agreements.
41
<PAGE>
BONUS PLAN
The Company has established a bonus plan in which its executive officers and
certain other employees may participate. Receipt of compensation under it will
be performance-based and will be weighted based on a combination of net income,
net cash flow, EBITDA (earnings before interest, taxes, depreciation and
amortization) and qualitative targets. Achievement of targets will be weighted
35% to the net income test, 30% to the net cash flow test, 15% to the EBITDA
test and 20% to the qualitative test. If the Company achieves 100% of these
targets, the participants in the bonus plan will receive a bonus ranging from
20% to 40% of his base compensation (depending on position), except that Mr.
Meyer's bonus will be 65% of base compensation, Mr. Cleary's bonus will be 55%
of base compensation, and Mr. Brochhausen's and Mr. Worth's bonuses will be 50%
of base compensation. If the Company meets 110% of its goals the foregoing
awards will be increased by 50% (i.e., if a participant was entitled to receive
40% of his base compensation, he would receive 60%). If the Company meets 120%
of its goals participants will be entitled to receive twice the base bonus
described above (i.e., 80% of base compensation, adjusted in the case of the
specified individuals).
1992 STOCK OPTION PLAN
In 1992, the Company's Board of Directors adopted, and the Company's
stockholders approved, the 1992 Stock Option Plan (as amended and restated in
August 1996, the "1992 Option Plan"). The 1992 Option Plan was designed to
provide employees with a more direct stake in the Company's future welfare and
an incentive to remain with the Company and to encourage qualified persons to
seek employment with the Company. Options to purchase shares of Common
Stock at an exercise price of $ per share will be granted in August 1996 under
the 1992 Plan. Upon consummation of the Offering, all of these options will be
fully vested. No additional options will be granted under the 1992 Plan.
The 1992 Option Plan provides for grants of "incentive stock options"
("ISOs") meeting the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-qualified stock options" ("NQSOs"). All
options granted under the 1992 Plan are NQSOs.
The 1992 Option Plan is administered by a stock option committee of the
Board of Directors (the "Committee") comprised of three members, each of whom
will be a "disinterested director" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), at any time
when Section 16 of the Exchange Act is applicable to the Company. The 1992
Option Plan permits the Committee to determine which employees shall receive
options and the times when options are to be granted. The Committee will also
determine the purchase price of Common Stock covered by each option, the term of
each option and the number of shares of Common Stock to be covered by each
option. The Committee will also designate whether the options shall be ISOs or
NQSOs.
Options granted to employees under the 1992 Option Plan have a maximum term
of ten years from the date of grant. Options are not transferable except by will
or pursuant to the applicable laws of descent and distribution.
The Company has agreed to register under the Securities Act of 1933 the
shares of Common Stock issuable upon exercise of stock options granted under the
1992 Option Plan (and, in the case of Mr. Meyer, the Acadia Option). 25% of the
shares issuable under the stock options granted to each holder will be
registered on the first anniversary of the consummation of the Offering, with an
additional 25% registered on each of the three succeeding anniversaries of the
Offering. However, if an option holder's employment is terminated by the Company
without cause, all of the shares of Common Stock issuable upon exercise of the
stock options granted to that employee will be registered.
In the event that an employee is terminated for any reason, the employee's
options will be exercisable until the expiration date of the option. Upon a Sale
of the Company (as defined in the 1992 Option Plan) the Committee may accelerate
the expiration date of such options.
The Board is permitted to suspend, terminate, modify or amend the 1992
Option Plan, provided that any amendment that would (i) increase the maximum
number of shares for which options may be granted, (ii) reduce the option price
below par value, (iii) extend the period during which options may
42
<PAGE>
be granted or exercised or (iv) amend the requirements as to the class of
employees eligible to receive options shall be subject to stockholder approval.
1996 INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors and stockholders have approved the 1996
Incentive Stock Option Plan (the "1996 Option Plan"). The description in this
Prospectus of the principal terms of the 1996 Option Plan is a summary, does not
purport to be complete, and is qualified in its entirety by the full text of the
1996 Option Plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Pursuant to the 1996 Option Plan, executive officers and key employees of
the Company are eligible to receive awards of stock options. Options granted
under the 1996 Option Plan may be ISOs or NQSOs.
Under the 1996 Option Plan, the Company has reserved shares of Common
Stock for issuance of awards under the 1996 Option Plan (subject to antidilution
and similar adjustments).
The 1996 Option Plan will be administered by the Compensation Committee (the
"Committee"). Subject to the provisions of the 1996 Option Plan, the Committee
will determine the type of award, when and to whom awards will be granted, the
number of shares covered by each award and the terms, provisions and kind of
consideration payable (if any), with respect to awards. The Committee may
interpret the 1996 Option Plan and may at any time adopt such rules and
regulations for the 1996 Option Plan as it deems advisable. The Committee may,
additionally, cancel or suspend awards.
In determining the persons to whom awards shall be granted and the number of
shares covered by each award the Committee shall take into account the duties of
the respective persons, their present and potential contribution to the success
of the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the 1996 Option Plan.
An option may be granted on such terms and conditions as the Committee may
approve, and generally may be exercised for a period of up to 10 years from the
date of grant. Generally, ISOs will be granted with an exercise price equal to
the "Fair Market Value" (as defined in the 1996 Option Plan) on the date of
grant. In the case of ISOs, certain limitations will apply with respect to the
aggregate value of option shares which can become exercisable for the first time
during any one calendar year, and certain additional limitations will apply to
ISOs granted to "Ten Percent Stockholders" (as defined in the 1996 Option Plan).
The Committee may provide for the payment of the option price in cash, by
delivery of other Common Stock having a Fair Market Value equal to such option
price, by a combination thereof or by such other manner as the Committee shall
determine, including a cashless exercise procedure through a broker-dealer. The
Committee may, in its discretion, make a loan to a grantee in an amount
sufficient to pay the option price payable by such grantee. Options granted
under the 1996 Option Plan will become exercisable at such times and under such
conditions as the Committee shall determine, subject to acceleration of the
exercisability of options in the event of, among other things, a "Change in
Control" (as defined in the 1996 Option Plan). Generally, stock options may not
be exercised unless the grantee is employed by the Company.
The Board may at any time and from time to time suspend, amend, modify or
terminate the 1996 Option Plan; provided, however, that, to the extent required
by Rule 16b-3 promulgated under the Exchange Act or any other law, regulation or
stock exchange rule, no such change shall be effective without the requisite
approval of the Company's stockholders. In addition, no such change may
adversely affect any award previously granted, except with the written consent
of the grantee.
No awards may be granted under the 1996 Option Plan after the tenth
anniversary of the approval of the 1996 Option Plan.
401(K) PLAN
The Company has a 401(k) defined contribution plan under which employees may
contribute up to 15% of eligible gross wages subject to certain IRS limitations.
The Company, at its option, may match a portion of each eligible employee's
contribution. Contributions are made at the discretion of the Board
43
<PAGE>
of Directors. Employer contributions vest 20% after the first year, 60% after
the second year and 100% after the third year. The Company incurred expenses of
$68,000 and $80,000 related to this plan for the years ended December 31, 1995
and 1994, respectively. Following consummation of the Offering, the Company
intends to contribute shares of Common Stock to this plan.
The Company does not provide any post-retirement or post-employment health
or welfare benefits to any of its employees, except as required by law.
44
<PAGE>
CERTAIN TRANSACTIONS
SUBORDINATED NOTES AND REDEEMABLE PREFERRED STOCK
Since 1991, the Company has borrowed funds for its operation from Acadia
pursuant to the Subordinated Notes. On June 30, 1996, $101.3 million was
outstanding. The Subordinated Notes bear interest at a rate of 12% per annum,
payable through the issuance of additional Subordinated Notes, and mature on
December 31, 2001. A portion of the proceeds of this Offering will be used to
pay down principal and accrued interest on the Subordinated Notes. See "Use of
Proceeds." In addition, in 1993 Acadia was issued 4,025 shares of Redeemable
Preferred Stock in partial consideration for funding and consent to the
acquisition of MLM. The Subordinated Notes not repaid with the proceeds of this
Offering, together with the shares of Redeemable Preferred Stock owned by
Acadia, will be converted into shares of Common Stock. See "The
Company--Recapitalization."
CONSULTING AGREEMENTS
Pursuant to a Consulting Agreement dated as of October 1, 1991 between the
Company and Penobscot-MB Partners, a New York general partnership ("Penobscot")
(as amended on November 1, 1992 the "Penobscot Consulting Agreement"), the
Company paid fees to Penobscot equal to $250,000 per year in 1994, 1995 and 1996
for management services performed for the Company by Penobscot. Penobscot, a
Delaware limited partnership, is an affiliate of Acadia. The Penobscot
Consulting Agreement is to terminate on July 30, 1996 and the Company has no
further obligations thereunder.
Pursuant to a Consulting Agreement dated as of November 1, 1992 between the
Company and Haas, Wheat & Partners Incorporated, a Delaware corporation ("Haas
Wheat") (as amended on July 30, 1993, the "Haas Wheat Consulting Agreement"),
the Company paid fees to Haas Wheat equal to $250,000 per year in 1994, 1995 and
1996 for management services performed for the Company by Haas Wheat. Douglas D.
Wheat, a director of the Company, is a managing partner of Haas Wheat. The Haas
Wheat Consulting Agreement is to terminate on July 30, 1996 and the Company has
no further obligations thereunder.
MLM SETTLEMENT
On July 30, 1993, the Company acquired, in exchange for issuance of shares
of its Class B Common Stock and Senior Preferred Stock, all the issued and
outstanding capital stock of MLM (the "1993 MLM Acquisition"). Simultaneously
with the issuance of shares to the former MLM stockholders, 4,025 shares of
Redeemable Preferred Stock was issued to Acadia in partial consideration for
additional funding and consent to the 1993 MLM Acquisition. Assets acquired
(including cash of $68,000) and liabilities assumed were $13,164,000 and
$8,557,000, respectively, which resulted in an assigned value of $4,607,000 for
the Class B common stock and Senior Preferred Stock issued to the former MLM
stockholders. Pursuant to consulting agreements entered into in connection with
the 1993 MLM Acquisition, the Company paid the former MLM stockholders an
aggregate of $3.0 million.
After the 1993 MLM Acquisition was consummated, the Company and the former
MLM stockholders disagreed as to the proper interpretation of a provision in the
agreement to effect the 1993 MLM Acquisition (the "1993 Agreement") concerning
the treatment of certain pre-acquisition liabilities owed to MLM to the Company.
To resolve the parties' differing understandings as to the effects of the 1993
Agreement, in September 1995, all of the parties agreed to a settlement (the
"1995 MLM Settlement") through which the 1993 MLM Acquisition was reformed.
Under the 1995 MLM Settlement, the former MLM stockholders returned to Pinnacle
for cancellation all of the preferred and common shares of Pinnacle stock
originally issued to them as consideration in the 1993 MLM Acquisition and the
parties exchanged releases.
45
<PAGE>
REGISTRATION RIGHTS
Following this Offering, Acadia will be entitled to require the Company to
register all or part of Acadia's shares of Common Stock (the "Acadia Shares")
under the Securities Act in accordance with an agreement with the Company
providing for demand, shelf and piggyback registration rights. Certain
stockholders have been granted "piggyback" registration rights.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
to be sold pursuant to the Offering with respect to (i) each person known by the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii) the
Selling Stockholder, (iii) each director of the Company, (iv) each of the
executive officers named in the Summary Compensation Table, and (v) all
directors and executive officers of the Company as a group. The table assumes
that the Underwriters' over-allotment option is not exercised and is based on an
assumed initial offering price of $15 per share, the midpoint of the initial
public offering price range.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME AND ADDRESSES --------------------- SHARES BEING ---------------------
OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Acadia Partners, L.P.
201 Main Street
Fort Worth, Texas 76102...... -- (a) -- % -- (a) -- %
Bradford E. Bernstein.......... -- -- -- --
Daniel L. Doctoroff............ -- (b) -- -- (b) --
Douglas D. Wheat............... -- (c) * -- (c) *
Jerry M. Meyer................. -- (d) -- -- (d) --
Michael J. Cleary.............. -- (d) -- -- (d) --
John S. Worth.................. -- (d) -- -- (d) --
James Brochhausen.............. -- (d) -- -- (d) --
All directors and executives as
a group (7 persons)..........
</TABLE>
--------------------
<TABLE>
<C> <S>
* Less than 1%.
(a) The general partner of Acadia Partners, L.P. is Acadia FW Partners, L.P. ("Acadia
FW"), the managing general partner of which is Acadia MGP, Inc. ("Acadia MGP"), a
corporation controlled by J. Taylor Crandall. As such, Acadia FW, Acadia MGP and Mr.
Crandall may be deemed to beneficially own the shares of the Common Stock held by
Acadia. Excludes shares of Common Stock held by Rosecliff-Score 1991 Partners,
L.P. ("Rosecliff-Score") and shares of Common Stock held by FWHY-Coinvestments IV
Partners, L.P. ("FWHY-IV"). The general partner of Rosecliff-Score is Steven B.
Gruber, who is also an officer and director of Acadia MGP. The general partner of
FWHY-IV is Bondo FTW, Inc. ("Bondo FTW"), a corporation controlled by David
Bonderman. Bondo FTW is the general partner of FW-HY Partners, L.P., one of two
non-managing general partners of Acadia FW. Acadia disclaims beneficial ownership of
the shares of Common Stock held by Rosecliff-Score and FWHY-IV. The address of
Acadia FW, Acadia MGP, FWHY-IV and Mr. Crandall is 201 Main Street, Suite 3100, Fort
Worth, Texas 76102, The address of Bondo FTW, FW-HY Partners, L.P. and Mr. Bonderman
is 201 Main Street, Suite 2420, Fort Worth, Texas 76102. The address of
Rosecliff-Score and Mr. Gruber is 65 East 55th Street, New York, New York
10022-3219.
(b) Mr. Doctoroff is a director of Acadia MGP (see footnote (a) above). Mr. Doctoroff
disclaims beneficial ownership of the shares of Common Stock held by Acadia.
(c) Represents options held by Haas Wheat & Partners, Incorporated, of which Mr. Wheat
is President.
(d) Represents options to purchase shares of Common Stock at $ per share.
</TABLE>
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At June 30, 1996, the outstanding capital stock of the Company consisted of
(i) 20,739.10589 shares of Class A Common Stock and (ii) 4,025 shares of
Redeemable Preferred Stock, par value $.01 per share, without giving effect to
the recapitalization. See "Capitalization." Simultaneously with the closing of
this Offering, all of the outstanding shares of Redeemable Preferred Stock will
be converted into shares of Common Stock. Upon completion of the Offering and
after giving effect to the recapitalization, the authorized capital stock will
consist of (i) 20,000,000 shares of Common Stock (of which will be
outstanding) and (ii) 2,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock") (none of which will be outstanding). See "The
Company-- Recapitalization."
The following summary description relating to the capital stock does not
purport to be complete. Reference is made to the Certificate of Incorporation
that will be in effect upon the completion of the Offering which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part for a
detailed description of the provisions thereof summarized below.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding Preferred Stock. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby when
issued will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of the Preferred Stock or any class or
series of preferred stock which the Company may issue in the future.
At present, there is no established trading market for the Common Stock. The
Company has applied for listing of its Common Stock on the New York Stock
Exchange under the symbol .
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. There is no Preferred Stock outstanding as of the date of this
Prospectus. The Board of Directors of the Company may, without further
stockholder action, issue the authorized and unissued shares of Preferred Stock
in any number of series and may establish as to each series the designation and
number of shares to be issued and the relative rights and preferences of the
shares of each series, including provisions regarding voting powers, redemption,
dividend rights, rights upon liquidation and conversion rights. The issuance of
Preferred Stock by the Board of Directors could adversely affect the rights of
holders of shares of Common Stock by, among other matters, establishing
preferential dividends, liquidation rights and voting power. Although the
Company has no present intention to do so, Preferred Stock could be issued to
discourage or defeat efforts to acquire control of the Company through the
acquisition of shares of Common Stock.
DELAWARE LAW
Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits
certain business combinations with certain stockholders for a period of three
years after they acquire 15% of the outstanding voting stock of a corporation.
The Company has expressly elected not to be governed by Section 203 of the DGCL.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
48
<PAGE>
DESCRIPTION OF INDEBTEDNESS
CREDIT AGREEMENT
Set forth below is a summary description of the terms of the Credit
Agreement. The following summary does not purport to be complete and is
qualified in its entirety by reference to the Credit Agreement, including the
definitions of certain terms therein, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Whenever particular provisions of the Credit Agreement are referred to herein,
such provisions are incorporated herein by reference, and the statements are
qualified in their entirety by such reference.
A syndicate of banks and other financial institutions have provided Pinnacle
Trading Card Company, Pinnacle's principal operating subsidiary ("Pinnacle
Trading"), with loans under the Credit Agreement in an aggregate principal
amount not to exceed $103.0 million of which (i) $88.0 million is in the form of
term loans and (ii) up to $15.0 million (including a sub-limit of $3.0 million
for letters of credit), depending upon the available Borrowing Base (as defined
therein), will be available on a revolving credit basis for general corporate
purposes of Pinnacle Trading, including certain acquisitions (up to $10.0
million).
The loans consist of (a) senior secured term loan facilities consisting of
(i) a senior secured five-year term loan facility providing for term loans in
the amount of $40.0 million (the "Term Loan A") and (ii) a senior secured
six-year term loan facility providing for term loans in the amount of $48.0
million (the "Term Loan B" and together with the Term Loan A, the "Term Loans")
and (b) a senior secured five-year revolving credit facility (which may, subject
to certain terms and conditions, be extended to a six-year revolving credit
facility) providing for revolving loans and the issuance of letters of credit in
the aggregate principal amount of $15.0 million (the "Revolving Credit
Facility"). Subject to the terms of the Revolving Credit Facility, Pinnacle
Trading may, from time to time, borrow, repay and reborrow under such facility.
Amounts borrowed under the Revolving Credit Facility are not subject to
scheduled repayment prior to the Revolving Credit Commitment Termination Date
(as defined in the Credit Agreement); however, Pinnacle Trading is required to
reduce the outstanding payment balance of the Revolving Credit Facility to $4.0
million if Pinnacle Trading has not consummated any Related Business Acquisition
(as defined in the Credit Agreement) or to $4.0 million plus the aggregate
principal amount of revolving loans outstanding (but not to exceed $6.0 million)
the proceeds of which were used to fund such acquisition if Pinnacle Trading has
consummated any such acquisition for a consecutive 30-day period during the
150-day period beginning April 1, 1997 and during the second quarter of each
fiscal year beginning in 1998.
The Term Loans will have quarterly amortization payments commencing
September 30, 1996 and continuing over their respective terms. See Note 17 to
the Consolidated Financial Statements. Under the Credit Agreement, Pinnacle will
under certain circumstances be required to make mandatory prepayments (including
in connection with this Offering) and be subject to corresponding commitment
reductions and may make optional prepayments and commitment reductions.
Obligations of Pinnacle under the Credit Agreement are jointly and severally
guaranteed by Pinnacle and its other subsidiaries. In addition, the Credit
Agreement is secured by (i) first priority security interests in virtually all
tangible and intangible assets of Pinnacle Trading, Pinnacle and its other
subsidiaries, and (ii) pledges of all capital stock of Pinnacle Trading and
Pinnacle's other subsidiaries, and all capital stock and all notes owned by
Pinnacle Trading, Pinnacle and its other subsidiaries.
Each of the Term Loans and advances under the Revolving Credit Facility bear
interest at specified margins over the applicable eurodollar rate or base rate.
49
<PAGE>
The Credit Agreement contains a number of covenants that, among other
things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, incur guarantee obligations, repay other indebtedness
or amend other debt instruments, pay dividends, create liens on assets, enter
into leases, form or acquire subsidiaries, make investments, make acquisitions,
engage in mergers or consolidations, make capital expenditures, modify certain
documents or engage in certain transactions with subsidiaries and affiliates and
otherwise restrict corporate activities. In addition, the Credit Agreement
requires compliance with certain financial tests based on consolidated results
for Pinnacle and its subsidiaries.
Under the terms of the Credit Agreement, the Company was required to seek,
and has obtained, a waiver from the banks party thereto regarding the repayment
of certain subordinated indebtedness concurrently with this Offering. See "Use
of Proceeds."
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the 4,000,000 shares of Common
Stock sold in the Offering (or a maximum of 4,600,000 shares if the
over-allotment option is exercised in full) will be freely tradeable without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company (as that term is defined in Rule 144). The remaining shares of Common
Stock outstanding upon completion of the Offering will be "restricted
securities" as that term is defined in Rule 144 ("Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 under the Securities
Act, which is summarized below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock that constitute restricted securities and have been outstanding and
not held by any "affiliate" of the Company for a period of two years may sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is given,
provided certain requirements as to the manner of sale, notice of sale and the
availability of current public information are satisfied (which requirements as
to the availability of current public information are expected to be satisfied
commencing 90 days after the date of this Prospectus). Affiliates of the Company
must comply with the foregoing restrictions and requirements of Rule 144 as to
both restricted and non-restricted securities, except that the two-year holding
period requirement does not apply to shares of Common Stock that are not
"restricted securities" (such as shares acquired by affiliates in the Offering).
Under Rule 144(k), a person who is not deemed an "affiliate" of the Company at
any time during the three months preceding a sale by such person, and who has
beneficially owned shares of Common Stock that were not acquired from the
Company or an "affiliate" of the Company within the previous three years, would
be entitled to sell such shares without regard to volume limitation, manner of
sale provisions, notification requirements or the availability of current public
information concerning the Company. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer.
The Company, the directors, officers, affiliates and current stockholders of
the Company have entered into contractual "lock-up" agreements providing that
they will not offer, sell, contract to sell or otherwise dispose of the shares
of Common Stock, except for the shares offered hereby and subject to certain
exceptions in the case of the Company relating to employee stock options and the
recapitalization of the Company, or securities convertible into or exchangeable
or exercisable for Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch. In addition,
certain individuals purchasing reserved shares may be required to agree not to
sell, offer or otherwise dispose of any shares of Common Stock for a period of
three months after the date of this Prospectus. Acadia and certain of the
Company's stockholders have the right to require registration of their shares
for public sale. See "Certain Transactions --Registration Rights." The remainder
of the shares held by existing stockholders will become eligible for sale at
various times thereafter, subject to the provisions of Rule 144.
Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that future sales of shares
of Common Stock, and options to acquire shares of Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company and the Selling Stockholder have agreed to
sell to each of the Underwriters named below, and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and are acting
as representatives (the "Representatives"), has severally agreed to purchase,
the respective number of shares of Common Stock set forth opposite its name
below.
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------ ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
---------
Total.................................................. 4,000,000
---------
---------
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the shares of Common
Stock hereby if any of such shares are purchased. In the event of a default by
an Underwriter, the Purchase Agreement provides that, in certain circumstances,
such commitments of the non-defaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Representatives of the Underwriters have advised the Company and the
Selling Stockholder that they propose initially to offer the shares of Common
Stock offered hereby to the public at the public offering price per share set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share on
sales to certain other dealers. After the initial public offering, the offering
price, discount and reallowance may be changed.
The Selling Stockholder has granted the Underwriters an option, which may be
exercised within 30 days of the date of this Prospectus, to purchase up to an
additional 600,000 shares of Common Stock to cover over-allotments, if any, at
the initial public offering price, less the underwriting discount. To the extent
that the Underwriters exercise the option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage of such shares that the number of shares of Common Stock to be
purchased by it shown on the foregoing table bears to the total number of shares
initially offered hereby.
At the request of the Company, the Underwriters have reserved up to
approximately 3.5% of the shares of the Common Stock offered hereby for sale at
the public offering price to certain directors, officers and employees of the
Company, business affiliates and related persons who have expressed an interest
in purchasing shares. The number of shares available to the general public will
be reduced to the extent persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same terms as other shares offered by this Prospectus. Certain
individuals purchasing reserved shares may be required to agree not to sell,
offer or otherwise dispose of any shares of Common Stock for a period of three
months after the date of this Prospectus.
52
<PAGE>
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters do not
intend to make sales to discretionary accounts.
The Company, its officers and directors, and the Company's current
stockholders have agreed not to sell, contract to sell or otherwise transfer or
dispose of any shares of Common Stock of the Company for a period of 180 days
after the date of this Prospectus without the prior written consent of Merrill
Lynch. See "Shares Eligible for Future Sale."
The Company has applied for listing of the Common Stock on the NYSE under
the symbol . To meet the requirements of listing the Common Stock on the
exchange, the Underwriters will undertake to sell lots of or more shares to a
minimum of beneficial holders.
Prior to this Offering, there has been no market for the Common Stock of the
Company. Accordingly, the initial public offering price will be determined by
negotiation between the Company, Acadia Partners, L.P. and the Representatives.
Among the factors to be considered in determining the initial public offering
price are the Company's record of operations, the Company's current financial
condition, its future prospects, the present state of the Company's industry in
general, the experience of its management, the general condition of the equity
securities market and the demand for similar securities of companies considered
comparable to the Company and other relevant factors. The initial public
offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
Because more than 10% of the net proceeds of the Offering, not including the
underwriting compensation, will be used to repay amounts outstanding under the
Credit Agreement for the benefit of Merrill Lynch & Co., a member of the
National Association of Securities Dealers, Inc. (the "NASD") who is
participating in the Offering as an Underwriter, the Offering is being conducted
pursuant to NASD Conduct Rule 2710(c)(8). In accordance with these provisions,
is acting as qualified independent underwriter (solely in this
capacity, the "QIU"), and the offering price of the Common Stock will be no
higher than that recommended by the QIU. The QIU has participated in the
preparation of the Registration Statement of which this Prospectus is a part and
has performed due diligence with respect thereto.
Merrill Lynch is one of the Company's lenders under the Credit Agreement and
will receive a portion of the proceeds of this Offering in connection therewith.
See "Use of Proceeds."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company by Kaye, Scholer, Fierman, Hays &
Handler, LLP, New York, New York and for the Underwriters by Shearman &
Sterling, New York, New York.
53
<PAGE>
EXPERTS
The consolidated financial statements and schedules included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included in reliance upon said firm as experts in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, which may be inspected,
without charge, at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048
and its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the Commission, upon
payment of prescribed fees.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent
accounting firm and quarterly reports containing unaudited consolidated
financial information for each of the first three fiscal quarters of each fiscal
year of the Company.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PINNACLE BRANDS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1996, and December
31, 1995.......................................................................... F-2
For the Six Months Ended June 30, 1996 and 1995:
Unaudited Condensed Consolidated Statement of Operations......................... F-3
Unaudited Condensed Consolidated Statement of Cash Flows......................... F-4
Notes to Unaudited Condensed Consolidated Financial Statements..................... F-5
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... F-8
For the Years Ended December 31, 1995, 1994, and 1993:
Consolidated Statement of Operations............................................. F-9
Consolidated Statement of Stockholders' Investment............................... F-10
Consolidated Statement of Cash Flows............................................. F-11
Notes to Consolidated Financial Statements......................................... F-12
</TABLE>
F-1
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 222,000 $ 240,000
Accounts receivable, net.................................... 22,236,000 35,862,000
Inventories................................................. 16,893,000 10,503,000
Other current assets........................................ 7,815,000 1,312,000
------------- ------------
Total current assets.................................... 47,166,000 47,917,000
PROPERTY AND EQUIPMENT, net................................... 4,145,000 3,727,000
INTANGIBLE AND OTHER ASSETS, net.............................. 77,985,000 36,477,000
------------- ------------
$ 129,296,000 $ 88,121,000
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable............................................ $ 11,449,000 $ 12,224,000
Accrued liabilities......................................... 19,673,000 15,100,000
Current maturities of long-term debt........................ 4,573,000 13,243,000
------------- ------------
Total current liabilities............................... 35,695,000 40,567,000
------------- ------------
LONG-TERM DEBT, net of current maturities..................... 91,745,000 33,615,000
SUBORDINATED NOTES PAYABLE TO MAJORITY STOCKHOLDER............ 101,348,000 103,814,000
COMMITMENTS AND CONTINGENCIES
COMMON STOCK AND COMMON STOCK EQUIVALENTS SUBJECT TO PUT
AGREEMENT................................................... 3,000,000 3,000,000
STOCKHOLDERS' INVESTMENT:
Senior preferred stock; $.01 par value; $100,000 per share
liquidation preference; 50 shares authorized; 0 shares
issued and outstanding.................................... -- --
Preferred stock; $.01 par value; $1,000 per share
liquidation preference; 4,025 shares authorized, issued
and outstanding........................................... 40 40
Class A common stock; $.01 par value; 80,000 shares
authorized; 20,739 shares issued and outstanding.......... 207 207
Class B common stock; $.01 par value; 30,000 shares
authorized; 759 shares issued and outstanding............. -- --
Paid-in capital............................................. 5,497,753 5,497,753
Accumulated deficit......................................... (107,990,000) (98,373,000)
------------- ------------
Total stockholders' investment.......................... (102,492,000) (92,875,000)
------------- ------------
$ 129,296,000 $ 88,121,000
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET SALES........................................................ $49,905,000 $41,879,000
COST OF SALES.................................................... 34,503,000 29,548,000
----------- -----------
Gross profit............................................... 15,402,000 12,331,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................... 15,659,000 11,480,000
----------- -----------
Operating income (loss).................................... (257,000) 851,000
NONOPERATING INCOME (EXPENSE):
Interest expense--subordinated notes payable................... (6,034,000) (5,524,000)
Interest expense--other........................................ (3,521,000) (2,581,000)
Other income, net.............................................. 195,000 42,000
----------- -----------
Nonoperating expense, net.................................. (9,360,000) (8,063,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................................ (9,617,000) (7,212,000)
INCOME TAX PROVISION............................................. -- --
----------- -----------
NET LOSS......................................................... $(9,617,000) $(7,212,000)
----------- -----------
----------- -----------
PRO FORMA NET LOSS PER SHARE..................................... $ $
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $ (9,617,000) $ (7,212,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization.............................. 2,722,000 2,128,000
Interest added to long-term debt........................... 6,034,000 5,524,000
Change in assets and liabilities-
Accounts receivable, net................................. 13,627,000 4,368,000
Inventories.............................................. (6,390,000) (3,754,000)
Other current assets..................................... (6,505,000) (1,293,000)
Accounts payable......................................... (1,619,000) (4,552,000)
Accrued liabilities...................................... 5,418,000 338,000
Intangible and other assets.............................. (293,000) (1,312,000)
------------ ------------
Net cash provided by (used in) operating activities.... 3,377,000 (5,765,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (940,000) (241,000)
Purchases of sports trading card licenses and tradenames..... (40,950,000) (3,025,000)
------------ ------------
Net cash used in investing activities.................. (41,890,000) (3,266,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated notes payable to majority
stockholder................................................. -- 2,000,000
Payments on subordinated notes payable to majority
stockholder................................................. (8,500,000) --
Proceeds from long-term debt................................. 101,300,000 50,973,000
Payments on long-term debt................................... (54,305,000) (46,218,000)
------------ ------------
Net cash provided by financing activities.............. 38,495,000 6,755,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................... (18,000) (2,276,000)
CASH AND CASH EQUIVALENTS, beginning of period................. 240,000 2,847,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period....................... $ 222,000 $ 571,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying interim condensed consolidated financial statements of
Pinnacle Brands, Inc. and its subsidiaries (collectively, the Company or
Pinnacle) as of June 30, 1996, and for the six months ended June 30, 1996 and
1995, are unaudited. Certain information and footnote disclosures normally
prepared in accordance with generally accepted accounting principles have been
either condensed or omitted pursuant to the rules of the Securities and Exchange
Commission. Although the Company believes these interim statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows, interim period results are not necessarily indicative of the results of
operations for a full year. As such, these financial statements should be read
in conjunction with the consolidated financial statements and the related notes
thereto for the year ended December 31, 1995, included elsewhere in this
Prospectus.
2. LONG-TERM DEBT:
In May 1996, the Company refinanced substantially all of its long-term debt.
The proceeds from this refinancing were used to retire existing senior bank
obligations, repay $8.5 million of subordinated notes payable to Acadia, and to
acquire licenses and tradenames from Donruss Trading Cards, Inc. (see Note 3
below). The refinanced credit facilities include a $15.0 million revolving
credit commitment and $88.0 million of term loans. Total availability under the
revolving credit commitment is limited to 80% of eligible accounts receivable
and 50% of eligible inventory, both as defined in the credit agreement.
Outstanding borrowings under the credit facilities bear interest at optional
rates based on the prime rate or LIBOR. A commitment fee is payable on unused
amounts under the revolving credit facility. All outstanding borrowings under
the revolving credit commitment are payable on May 27, 2001 (extendable to May
27, 2002 under certain conditions), and the term loans are payable in 16
quarterly payments of $0.5 million and then 4 quarterly payments of $8.0 million
through May 28, 2001, on $40.0 million of term loans and in 20 quarterly
payments of $0.5 million and then 4 quarterly payments of $9.5 million through
May 28, 2002, on the other $48.0 million of term loans, plus additional annual
payments, beginning in 1997, based upon 50% of any excess cash flows (as
defined) generated during each preceding calendar year. The credit agreement
contains covenants requiring the maintenance of certain minimum financial ratios
and limitations on dividend payments and the issuance of equity securities. The
credit facilities are collateralized by substantially all assets of the Company.
In connection with the senior bank debt refinancing described above, during
May 1996, the maturity dates of all principal and interest payable under the
subordinated notes and the convertible subordinated notes were extended, by
agreement of the noteholders, to December 31, 2001.
3. ACQUISITION OF DONRUSS SPORTS TRADING CARD LICENSES AND TRADENAMES:
In May 1996, the Company acquired from Donruss Trading Cards, Inc. (Donruss)
the right to use the tradenames "Donruss" and "Leaf" and Donruss' licenses
through which it produces certain baseball and hockey trading card products.
Consideration given to Donruss included $32.5 million in cash plus the
assumption of various contracts with certain professional athletes and other
obligations. In connection with this transaction, the Company recorded $41.0
million attributable to the licenses and tradenames which will be amortized over
35 years. The Company concurrently purchased certain prepaid expenses and
work-in-process inventory, and assumed certain related trade payables.
F-5
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OPERATING LEASES:
At the expiration in October 1996 of the term of its current lease, the
Company intends to move its corporate headquarters to Dallas, Texas. The new
lease has a seven year term with annual lease payments of approximately $0.8
million which approximate the annual leasehold costs on the current corporate
headquarters lease.
5. SUBSEQUENT EVENTS:
Recapitalization and Initial Public Offering
The Company has filed a registration statement with the Securities and
Exchange Commission pursuant to an initial public offering (the Offering)
whereby 4,000,000 shares are to be sold at an assumed initial public offering
price of $15 per share, the midpoint of the initial public offering price range.
Immediately prior to the completion of the Offering, (1) the Company will change
its authorized capital to include shares of Common Stock, (2) the
Company will declare a -for-1 stock split, (3) the majority stockholder
will convert all but $33.0 million of its subordinated notes payable and all
4,025 shares of its preferred stock into shares of Common Stock, and (4)
the Company will grant options to purchase shares of Common Stock at
$ per share and will contribute shares of Common Stock to the Company's
401(k) plan. In connection with these transactions, the Company expects to
record noncash expenses at the time of the Offering of approximately $ million.
Pro Forma Per Share Information
Of the assumed net proceeds from the sale of shares of Common Stock offered
by the Company in the Offering, approximately $22.0 million will be used to
repay senior bank borrowings and $33.0 million will be used to repay
subordinated notes payable to majority stockholder. Pro forma net income per
common share is calculated using the weighted average number of shares of Common
Stock outstanding during the period (after giving effect to (i) the conversion
of subordinated notes payable and preferred stock referred to above, (ii)
assuming the issuance and sale of 4,000,000 shares of Common Stock and
application of the proceeds, as described, as if these transactions had occurred
on January 1, 1995, (iii) decreased selling, general and administrative expenses
related to management and consulting fees offset by increased salaries to senior
management under new employment agreements, and (iv) tax benefits on the
resulting pro forma net losses before taxes), plus options granted in August
1996 to purchase Common Stock at $ per share and Common Stock contributed to
the Company's 401(k) plan, assuming all such Common Stock was outstanding for
all periods presented. For purposes of this computation, the weighted average
number of shares of Common Stock outstanding during each of the periods ended
June 30, 1996 and 1995, is .
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pinnacle Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Pinnacle
Brands, Inc. (formerly Grand Slam Acquisition Corp., a Delaware corporation) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' investment, and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pinnacle Brands, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 12, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," on January 1, 1993.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 7, 1996 (except with respect
to the matters discussed in Note 17,
as to which the date is July 15, 1996)
F-7
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 240,000 $ 2,847,000
Accounts receivable, net of allowance for uncollectible
accounts of $260,000 and $209,000, respectively............ 35,862,000 20,024,000
Inventories.................................................. 10,503,000 6,681,000
Other current assets......................................... 1,312,000 1,274,000
------------ ------------
Total current assets..................................... 47,917,000 30,826,000
------------ ------------
PROPERTY AND EQUIPMENT, net.................................... 3,727,000 5,131,000
INTANGIBLE AND OTHER ASSETS, net............................... 36,477,000 34,363,000
------------ ------------
$ 88,121,000 $ 70,320,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable............................................. $ 12,224,000 $ 8,613,000
Accrued liabilities.......................................... 15,100,000 13,416,000
Current maturities of long-term debt......................... 13,243,000 3,810,000
------------ ------------
Total current liabilities................................ 40,567,000 25,839,000
------------ ------------
LONG-TERM DEBT, net of current maturities...................... 33,615,000 41,616,000
SUBORDINATED NOTES PAYABLE TO MAJORITY STOCKHOLDER............. 103,814,000 90,288,000
COMMITMENTS AND CONTINGENCIES
COMMON STOCK AND COMMON STOCK EQUIVALENTS SUBJECT TO PUT
AGREEMENT.................................................... 3,000,000 3,000,000
STOCKHOLDERS' INVESTMENT:
Senior preferred stock; $.01 par value; $100,000 per share
liquidation preference; 50 shares authorized; 0 and 24
shares issued and outstanding, respectively................ -- 1
Preferred stock; $.01 par value; $1,000 per share liquidation
preference; 4,025 shares authorized, issued and outstanding. 40 40
Class A common stock; $.01 par value; 80,000 shares
authorized; 20,739 and 18,505 shares issued and
outstanding, respectively.................................. 207 185
Class B common stock; $.01 par value; 30,000 shares
authorized; 0 and 14,118 shares issued and outstanding,
respectively............................................... -- 141
Paid-in capital.............................................. 5,497,753 5,497,633
Accumulated deficit.......................................... (98,373,000) (95,921,000)
------------ ------------
Total stockholders' investment........................... (92,875,000) (90,423,000)
------------ ------------
$ 88,121,000 $ 70,320,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-8
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES........................................ $130,183,000 $117,965,000 $ 62,501,000
COST OF SALES.................................... 90,388,000 78,013,000 41,000,000
------------ ------------ ------------
Gross profit............................... 39,795,000 39,952,000 21,501,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 26,310,000 23,506,000 20,972,000
UNUSUAL CHARGES:
Sports League work stoppages................... -- 7,366,000 --
Write-down of goodwill......................... -- 40,000,000 --
Related to MLM................................. -- -- 41,435,000
------------ ------------ ------------
Operating income (loss).................... 13,485,000 (30,920,000) (40,906,000)
NONOPERATING INCOME (EXPENSE):
Interest expense--subordinated notes payable... (11,526,000) (9,307,000) (7,198,000)
Interest expense--all other.................... (5,068,000) (4,509,000) (4,180,000)
Other income, net.............................. 657,000 730,000 72,000
------------ ------------ ------------
Nonoperating expense, net.................. (15,937,000) (13,086,000) (11,306,000)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
THE ADOPTION OF A NEW ACCOUNTING PRINCIPLE..... (2,452,000) (44,006,000) (52,212,000)
INCOME TAX PROVISION............................. -- -- --
------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF THE ADOPTION OF
A NEW ACCOUNTING PRINCIPLE..................... (2,452,000) (44,006,000) (52,212,000)
CUMULATIVE EFFECT OF THE ADOPTION OF A NEW
ACCOUNTING PRINCIPLE........................... -- -- 3,926,000
------------ ------------ ------------
NET LOSS......................................... $ (2,452,000) $(44,006,000) $(56,138,000)
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA NET INCOME PER SHARE................... $
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
SENIOR
PREFERRED PREFERRED CLASS A CLASS B
STOCK STOCK COMMON STOCK COMMON STOCK
------------- ------------- ------------- -------------- RETAINED
NUMBER NUMBER NUMBER NUMBER EARNINGS TOTAL
OF PAR OF PAR OF PAR OF PAR PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL DEFICIT) INVESTMENT
------ ----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1992................... -- $-- -- $-- 15,018 $ 150 -- $-- $ 3,890,850 $ 4,223,000 $ 8,114,000
Issuance of stock in
connection with the
1993 MLM
Acquisition.......... 24 1 -- -- -- -- 14,118 141 4,606,858 -- 4,607,000
Issuance of preferred
stock to majority
stockholder at time
of the 1993 MLM
Acquisition.......... -- -- 4,025 40 -- -- -- -- (40) -- --
Issuance of put rights
on common stock and
common stock
equivalents.......... -- -- -- -- -- -- -- -- (3,000,000) -- (3,000,000)
Net loss............... -- -- -- -- -- -- -- -- -- (56,138,000) (56,138,000)
--
----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
BALANCE, December 31,
1993.................. 24 1 4,025 40 15,018 150 14,118 141 5,497,668 (51,915,000) (46,417,000)
Issuance of stock in
connection with
conversion of
subordinated notes
payable and preferred
stock................ -- -- -- -- 3,487 35 -- -- (35) -- --
Net loss............... -- -- -- -- -- -- -- -- -- (44,006,000) (44,006,000)
--
----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
BALANCE, December 31,
1994.................. 24 1 4,025 40 18,505 185 14,118 141 5,497,633 (95,921,000) (90,423,000)
Issuance of stock in
connection with
conversion of
subordinated notes
payable and preferred
stock................ -- -- -- -- 2,234 22 -- -- (22) -- --
Cancellation of stock
in connection with
the 1995 MLM
Settlement........... (24) (1) -- -- -- -- (14,118) (141) 142 -- --
Net loss............... -- -- -- -- -- -- -- -- -- (2,452,000) (2,452,000)
--
----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
BALANCE, December 31,
1995.................. -- $-- 4,025 $ 40 20,739 $ 207 -- $-- $ 5,497,753 $(98,373,000) $ (92,875,000)
--
--
----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
----- ------ ----- ------ ----- ------- ----- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (2,452,000) $(44,006,000) $(56,138,000)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization................ 4,222,000 6,657,000 7,649,000
Write-down of goodwill....................... -- 40,000,000 --
Interest added to subordinated notes payable
to majority stockholder.................... 11,526,000 9,307,000 7,198,000
Cumulative effect of the adoption of a new
accounting principle....................... -- -- 3,926,000
Change in assets and liabilities, net of
acquired balances-
Accounts receivable, net................... (15,838,000) (2,186,000) 26,016,000
Inventories................................ (3,822,000) (2,534,000) 2,487,000
Other current assets....................... (38,000) 1,116,000 2,011,000
Accounts payable........................... 3,611,000 1,822,000 727,000
Accrued liabilities........................ 1,684,000 (12,619,000) (2,049,000)
Income taxes receivable.................... -- -- 703,000
Intangible and other assets................ (1,460,000) (179,000) (1,493,000)
------------ ------------ ------------
Net cash used in operating activities.... (2,567,000) (2,622,000) (8,963,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net....... (447,000) (1,509,000) (418,000)
Purchases of sports trading card licenses and
tradenames................................... (3,025,000) -- --
Net cash balance of MLM at acquisition date.... -- -- 68,000
------------ ------------ ------------
Net cash used in investing activities.... (3,472,000) (1,509,000) (350,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated notes payable to
majority stockholder......................... 2,000,000 6,000,000 20,400,000
Proceeds from long-term debt................... 54,973,000 12,880,000 19,473,000
Payments on long-term debt..................... (53,541,000) (14,801,000) (29,025,000)
------------ ------------ ------------
Net cash provided by financing
activities............................. 3,432,000 4,079,000 10,848,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.................................... (2,607,000) (52,000) 1,535,000
CASH AND CASH EQUIVALENTS, beginning of year..... 2,847,000 2,899,000 1,364,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year........... $ 240,000 $ 2,847,000 $ 2,899,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Interest..................................... $ 4,490,000 $ 3,924,000 $ 3,672,000
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES:
Assets acquired under capital lease
arrangements................................. $ -- $ 478,000 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
In 1991, an investor group, through newly formed Pinnacle Brands, Inc.
(Pinnacle) (formerly Grand Slam Acquisition Corp.), acquired all of the issued
and outstanding capital stock of Score Group, Inc. (Score). Two years later in
1993, Pinnacle acquired all of the issued and outstanding capital stock of Major
League Marketing, Inc. (MLM) (see Note 3), concurrently merged MLM into Score,
and changed Score's name to Pinnacle Trading Card Company (formerly Pinnacle
Brands, Inc.).
Pinnacle and its operating subsidiaries are primarily engaged (under license
agreements) in the printing, marketing, and distribution of sports trading
cards, three-dimensional specialty products, and other collectibles to hobby and
retail customers primarily in North America.
The consolidated financial statements include the operations of Pinnacle and
its majority-owned subsidiaries (collectively referred to as the Company). All
significant intercompany balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are highly liquid investments having original maturities of
three months or less.
Accounts Receivable
In the normal course of business, the Company may extend unsecured credit to
certain classes of its customers. Because of the credit risk involved,
management has provided an allowance for doubtful accounts which reflects its
estimate of amounts which will eventually become uncollectible. Accounts
receivable from customers are stated net of allowances for doubtful accounts of
$260,000 and $209,000 as of December 31, 1995 and 1994, respectively.
Inventories
Inventories are stated at the lower of cost (principally weighted average
cost) or market. Inventory costs include material, labor, and manufacturing
overhead.
Property and Equipment
Property and equipment, including capitalized leases, are recorded at cost
and are depreciated over their estimated useful lives which range from five to
ten years for machinery and equipment, five to seven years for furniture and
office equipment, three years for vehicles, and over the life of the related
lease for leasehold improvements. Major additions and betterments are
capitalized and depreciated over the remaining estimated useful lives of the
related assets. Maintenance, repairs, and minor improvements are charged to
expense as incurred. Depreciation and amortization, which include amortization
F-12
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
of assets under capital leases, are computed using the straight-line method for
financial reporting purposes and accelerated methods for income tax reporting
purposes.
Intangible and Other Assets
Intangible and other assets consist primarily of goodwill, acquired licenses
and tradenames, organization costs, and deferred loan costs. Goodwill is being
amortized under the straight-line method over a period of 40 years. Acquired
licenses and tradenames are being amortized over periods ranging from 15 to 35
years. Organization costs and deferred loan costs are amortized over a period of
five years and the life of the related indebtedness, respectively.
Subsequent to its initial recording, the Company periodically evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of intangible assets may warrant revision or that the
remaining balance of the asset may not be recoverable. When factors indicate
that the recorded amount of the intangible asset should be evaluated for
possible impairment, the Company uses an estimate of the fair value of the
related asset (of the operating unit in the case of goodwill) in measuring
whether the asset is recoverable.
Net Sales
Revenue is recognized when the product is shipped. For those customers for
which return privileges exist, a provision for estimated returns of sports cards
(net of refundable royalties) is made in the period in which the related sale is
recorded. The actual amount of sports cards returns may differ from management's
estimates, however, and is dependent upon, among other things, consumer
perception of the products' desirability and scarcity, retailers' merchandising
practices, and owner-player relations in the respective professional sports
leagues. As such, the Company's recorded liability for estimated returns may be
revised periodically to reflect actual return experience. Sales of certain
sports card products and certain custom products require partial or full
deposits from customers.
Cost of Sales
Cost of sales includes materials, printing, production, slitting, packaging,
royalties, and freight. Royalties are paid primarily to organizations
representing the professional sports teams and players.
Income Taxes
Deferred income taxes are provided for temporary differences between the tax
basis of assets and liabilities and their financial reporting amounts. Deferred
taxes are recorded based upon enacted tax rates anticipated to be in effect when
these temporary differences are expected to reverse. Management provides a
valuation allowance when it is more likely than not that the deferred tax assets
will not be realized.
3. 1993 MLM ACQUISITION AND 1995 MLM SETTLEMENT:
On July 30, 1993, Pinnacle acquired all the issued and outstanding capital
stock of MLM (the 1993 MLM Acquisition) in a tax-free transaction. MLM had the
exclusive, contractual responsibility for all design, creative, marketing,
advertising, and sales/distribution activities for all of the Company's
F-13
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. 1993 MLM ACQUISITION AND 1995 MLM SETTLEMENT:--(CONTINUED)
sports trading card products. Simultaneously with the issuance of shares to the
former MLM stockholders, the Company's majority stockholder was issued 4,025
shares of preferred stock in partial consideration for additional funding and
consent to the 1993 MLM Acquisition. The acquisition was accounted for under the
purchase method of accounting. Assets acquired (including cash of $68,000) and
liabilities assumed were $13,164,000 and $8,557,000, respectively, which
resulted in an assigned value of $4,607,000 for the Class B common stock and
senior preferred stock issued to the former MLM stockholders. See additional
matters related to MLM in Note 5.
After the merger was consummated, the Company and the former MLM
shareholders disagreed as to the proper interpretation of a provision in the
1993 MLM Acquisition agreement (the 1993 Agreement) which regarded the treatment
and the tax attributes of certain pre-acquisition liabilities owed by MLM to the
Company. To resolve the parties' differing understandings as to the effects of
the 1993 Agreement, in September 1995, all of the parties agreed to a settlement
(the 1995 MLM Settlement) through which the 1993 MLM Acquisition was reformed.
Under the 1995 MLM Settlement, the former MLM shareholders returned to Pinnacle
for cancellation all of the preferred and common shares of Pinnacle stock
originally issued to them as consideration in the 1993 MLM Acquisition in
exchange for Pinnacle agreeing to amend its 1993 tax return in respect of the
treatment of the aforementioned pre-acquisition liabilities. For financial
reporting purposes, the 1995 MLM Settlement resulted in a credit to paid-in
capital and corresponding charges to Class B common stock and to senior
preferred stock to reflect the cancellation of those shares. The 1995 MLM
Settlement also resulted in a reduction of the deferred tax asset related to the
net operating loss carryforward and a corresponding reduction of the valuation
reserve (see Note 12).
4. ACQUISITION OF LICENSES AND TRADENAMES OF LBC:
During April 1995, the Company acquired from LBC Sports, Inc. and related
entities (LBC), the rights to use the trade name "Action Packed" and LBC's
licenses to produce certain motor sports and football trading card products.
Consideration given to LBC by the Company included cash and the assumption of
certain liabilities of LBC, plus performance payments, generally for a
three-year term, based on future net sales (as defined) of specified Action
Packed branded products and other criteria agreed to by the Company and LBC. In
connection with this transaction, the Company recorded $3,025,000 attributable
to the licenses and tradenames (see Note 8). Performance payments will be
expensed when they are earned. In accordance with the terms of the purchase
agreement, no performance payments were earned or payable for the period ending
December 31, 1995.
5. UNUSUAL CHARGES:
Related to Work Stoppages
During 1994, the Company incurred a substantial economic loss as a
consequence of the Major League Baseball strike and the National Hockey League
work stoppage. The 1994 financial statement
F-14
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. UNUSUAL CHARGES:--(CONTINUED)
impact of these events has been reflected as an unusual charge in the
accompanying consolidated statement of operations and is comprised of the
following:
Write-off of unsalable inventory............................... $2,300,000
Accrual for excess sales returns............................... 5,066,000
----------
$7,366,000
----------
----------
The National Hockey League resolved its dispute and commenced its season in
January 1995, and in April 1995, Major League Baseball resumed operations
(without a written contract between the owners and players union).
Related to Goodwill Write-down
In the fourth quarter of 1994, the Company recorded a $40,000,000 noncash
write-down of goodwill. Goodwill of $77.4 million was initially recorded in 1991
at the time the Company acquired Score (the Score Acquisition) in a transaction
substantially financed via borrowings of long-term debt. The goodwill
represented the excess of the purchase price over the valuation of the net
assets acquired in the Score Acquisition. The purchase price was based on
management's expectations of future performance at the time of the Score
Acquisition, considering historical experience and industry trends. These
expectations assumed moderate growth rates in revenue, planned operating and
product improvements to be implemented by new management, and sufficient cash
flow from operations to repay acquisition indebtedness.
Beginning in 1992, the sports trading cards industry began to contract
primarily as a result of prior industry overproduction which led to a reduced
perception of scarcity and collectibility. Further, in the second half of 1994,
two events occurred that led management to reevaluate its expectations of future
performance. In August, the Major League Baseball players went on strike and in
October, the National Hockey League players became involved in a work stoppage.
These events manifested themselves in a significant decrease in sports cards
sales and a significant increase in the rate of sports cards returns. Moreover,
management of the Company believed that these sports' management/labor disputes
would have a material adverse effect on future sports trading cards revenues.
As a result of the foregoing, in the fourth quarter of 1994, the Company
revised its projections of earnings before interest, taxes, depreciation and
amortization (EBITDA). The most critical assumptions used in these projections
were (i) decreases of baseball and hockey cards sales in 1995 of at least 20%
each and annual growth rates thereafter of 3-6%, (ii) no change in the Company's
market share, and (iii) annual expense inflation rate of 3%. Based on these
EBITDA projections, the Company utilized a fair value approach by discounting
(i) projected 1996--1999 EBITDA and (ii) a multiple of 1999 EBITDA, less
applicable Company long-term debt to unrelated parties. The EBITDA discount rate
and multiple used by the Company was based on transactions involving other
sports trading cards companies. In applying this methodology, the Company
concluded that the fair value of the Company indicated that the value of the
goodwill was approximately $30 million.
Consequently, and as a result of the foregoing, the Company recorded a
$40,000,000 write-down of goodwill in 1994 that has been classified as an
unusual charge in the accompanying consolidated statement of operations.
F-15
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. UNUSUAL CHARGES:--(CONTINUED)
Related to MLM
Prior to the 1993 MLM Acquisition, the Company had a receivable from MLM.
This receivable resulted from certain production costs billed to MLM for
reimbursement and from MLM's portion of certain operating costs such as sales
returns, bad debts, inventory write-offs, and unrecoverable minimum royalties.
Because of MLM's inability to pay, this receivable was written off immediately
prior to the acquisition. The Company also incurred its portion of certain of
these operating charges, all of which were in excess of normal operating levels
because of MLM operating decisions made prior to the acquisition. These charges
(which have been reflected as an unusual charge in the accompanying consolidated
statement of operations) are as follows:
Receivable due from MLM at July 30, 1993...................... $30,225,000
Incremental operating expenses absorbed by Pinnacle related to
MLM.......................................................... 11,210,000
-----------
Unusual charges related to MLM.......................... $41,435,000
-----------
-----------
6. INVENTORIES:
Inventories at December 31, 1995 and 1994, comprised the following:
1995 1994
----------- ----------
Raw materials and supplies....................... $ 877,000 $1,762,000
Work-in-process.................................. 6,299,000 2,532,000
Finished goods................................... 3,327,000 2,387,000
----------- ----------
$10,503,000 $6,681,000
----------- ----------
----------- ----------
7. PROPERTY AND EQUIPMENT:
1995 1994
----------- -----------
Vehicles, machinery, and equipment............... $ 5,352,000 $ 5,132,000
Furniture and office equipment................... 3,557,000 3,338,000
Leasehold improvements........................... 1,360,000 1,342,000
----------- -----------
10,269,000 9,812,000
Less- Accumulated depreciation................... (6,542,000) (4,681,000)
----------- -----------
$ 3,727,000 $ 5,131,000
----------- -----------
----------- -----------
The Company recorded depreciation expense of $1,861,000, $1,777,000, and
$1,589,000 in 1995, 1994, and 1993, respectively.
F-16
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets at December 31, 1995 and 1994, consisted of the
following:
1995 1994
----------- -----------
Goodwill, net of accumulated amortization of
$46,571,000 and $45,702,000, respectively...... $30,808,000 $31,671,000
Acquired sports trading card licenses and
tradenames, net of accumulated amortization of
$134,000 in 1995.............................. 2,891,000 --
Organization costs, net of accumulated
amortization of $3,695,000 and $2,715,000,
respectively.................................. 1,261,000 2,112,000
Deferred loan costs, net of accumulated
amortization of $199,000 and $2,236,000,
respectively.................................. 1,041,000 186,000
Deposits and other.............................. 476,000 394,000
----------- -----------
$36,477,000 $34,363,000
----------- -----------
----------- -----------
9. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1995 and 1994, comprised the following:
1995 1994
----------- -----------
Accrued operating expenses and other............ $ 4,112,000 $ 3,728,000
Accrued sales returns........................... 5,026,000 7,153,000
Accrued royalties payable....................... 5,962,000 2,535,000
----------- -----------
$15,100,000 $13,416,000
----------- -----------
----------- -----------
F-17
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT:
Long-term debt (including accrued but unpaid interest where applicable) at
December 31, 1995 and 1994, comprised the following:
1995 1994
------------- ------------
SENIOR BANK OBLIGATIONS
Revolving bank loans, due December 31,
1998, with variable interest (9.14% at
December 31, 1995) payable quarterly..... $ 4,700,000 $ 16,500,000
Bank term loans, due December 31, 1998,
with scheduled principal and variable
interest (9% at December 31, 1995)
payable quarterly........................ 41,000,000 26,950,000
------------- ------------
Subtotal--Senior Bank Obligations...... 45,700,000 43,450,000
------------- ------------
SUBORDINATED NOTES PAYABLE TO MAJORITY
STOCKHOLDER
Subordinated notes payable, due December
31, 1999, plus interest (at 12%) added to
the principal semiannually each January
15 and July 15........................... 103,814,000 90,288,000
------------- ------------
OTHER
Other long-term debt....................... 906,000 1,498,000
Obligations under capital leases (see Note
11)...................................... 252,000 478,000
------------- ------------
Subtotal--Other........................ 1,158,000 1,976,000
------------- ------------
Total Long-Term Debt....................... 150,672,000 135,714,000
Less-
Subordinated notes payable to majority
stockholder............................ (103,814,000) (90,288,000)
Current portion of all other long-term
debt................................... (13,243,000) (3,810,000)
------------- ------------
Long-term debt, net of current
maturities............................... $ 33,615,000 $ 41,616,000
------------- ------------
------------- ------------
During May 1995, the Company's senior bank obligations were refinanced with
a group of lenders. As refinanced, these credit facilities include a $15.0
million revolving credit commitment and a $44.0 million term loan. Total
availability under the revolving credit commitment ($10.7 million at December
31, 1995) is limited to 80% of eligible accounts receivable and 50% of eligible
inventory, both as defined in the credit agreement. Outstanding borrowings under
the credit facilities bear interest, at the Company's option, at (1) the agent
bank's prime rate plus 2% or (2) LIBOR plus 3%. A commitment fee of 1/2 of 1% is
payable quarterly on unused amounts under the revolving credit facility. All
outstanding borrowings under the revolving credit commitment are payable on
December 31, 1998, and the term loan is payable in specified quarterly
installments through December 31, 1998, plus additional annual payments,
beginning in 1997, based upon 75% of any excess cash flows (as defined)
generated during each preceding calendar year. The credit agreement contains
covenants requiring the maintenance of certain minimum financial ratios and
limitations on dividend payments and the issuance of equity securities. The
credit facilities are collateralized by substantially all assets of the Company.
F-18
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LONG-TERM DEBT:--(CONTINUED)
In connection with the senior bank debt refinancing described above, during
May 1995, the maturity dates of all principal and interest payable under the
subordinated notes payable to majority stockholder were extended, by agreement
of the noteholder, to December 31, 1999.
Scheduled principal maturities of capital lease obligations and long-term
debt (including subordinated notes payable to majority stockholder and excluding
any payments arising from excess cash flows) are as follows:
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
1996........................................................ $ 13,243,000
1997........................................................ 14,703,000
1998........................................................ 18,906,000
1999........................................................ 103,820,000
2000........................................................ --
Thereafter.................................................. --
------------
$150,672,000
------------
------------
11. LEASES:
Property and equipment includes assets under capital lease having
capitalized costs of $478,000, less accumulated depreciation of $226,000 and
$66,000 at December 31, 1995 and 1994, respectively.
At December 31, 1995, future minimum payments under capital lease
obligations and noncancelable operating leases are as follows:
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ---------------------------------------------------- -------- ----------
1996................................................ $245,000 $1,080,000
1997................................................ 61,000 200,000
1998................................................ -- 103,000
1999................................................ -- 65,000
2000................................................ -- 62,000
Thereafter.......................................... -- --
-------- ----------
Total minimum lease payments........................ 306,000 $1,510,000
----------
Less- Amounts representing interest................. 54,000
--------
Present value of future minimum lease payments...... $252,000
--------
--------
Rental expense for all operating leases for the years ended December 31,
1995, 1994, and 1993, was $1,311,000, $1,173,000, and $1,141,000, respectively.
12. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires a change from the deferred to the liability method of computing
deferred income taxes. The cumulative effect of adopting
F-19
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES:--(CONTINUED)
SFAS 109 at the beginning of 1993 was $3.9 million, which was principally a
result of providing a valuation reserve for deferred tax assets previously
recorded net-of-tax in connection with the Score Acquisition. Had the Company
elected to restate prior periods' financial statements, $3.2 million of the
cumulative effect would have been recorded as additional goodwill.
Due to the Company's losses incurred in 1995, 1994, and 1993, and due to
lack of any loss carryback opportunities, the Company had no taxes currently
payable or refundable during any of the periods presented. The effective income
tax rate differs from the statutory federal income tax rate for the following
reasons:
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
----- ----- -----
Statutory rate................................... (34.0)% (34.0)% (34.0)%
Nondeductible goodwill amortization.............. 12.0 32.4 1.3
Valuation allowance.............................. 22.6 1.6 32.8
Other............................................ (0.6) 0.0 (0.1)
----- ----- -----
Effective tax rate............................... 0.0% 0.0% 0.0%
----- ----- -----
----- ----- -----
The following table summarizes the changes in the deferred income tax assets
and (liabilities):
DEFERRED
DECEMBER 31, (PROVISION) DECEMBER 31,
1994 BENEFIT 1995
------------ ----------- ------------
Excess tax depreciation and
amortization...................... $ (370,000) $ 91,000 $ (279,000)
Nondeductible accruals............ 2,001,000 (937,000) 1,064,000
Other items....................... 90,000 258,000 348,000
Operating loss carryforward....... 21,848,000 (8,143,000) 13,705,000
------------ ----------- ------------
23,569,000 (8,731,000) 14,838,000
Valuation allowance............... (23,569,000) 8,731,000 (14,838,000)
------------ ----------- ------------
Deferred income tax asset
(liability), net................. $ -- $ -- $ --
------------ ----------- ------------
------------ ----------- ------------
The Company's tax net operating loss carryforwards of approximately $40.0
million will begin to expire in 2007, if not utilized earlier. The 1995 decrease
in the net operating loss carryforward and valuation allowance is related to the
1995 MLM Settlement (see Note 3).
Management has concluded that, based on the Company's history of losses, it
is currently more likely than not that the Company will not realize its deferred
tax asset. Therefore, the Company has provided a 100% valuation allowance on its
deferred tax asset.
13. EMPLOYEE BENEFIT PLANS:
The Company has a 401(k) defined contribution plan under which employees may
contribute up to 10% of eligible gross wages subject to certain IRS limitations.
The Company, at its option, may match a portion of each eligible employee's
contribution. Contributions are made at the discretion of the Board
F-20
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
of Directors. The Company incurred expenses of $68,000, $80,000, and $85,000
related to this plan for the years ended December 31, 1995, 1994, and 1993,
respectively.
The Company does not provide any postretirement or postemployment health or
welfare benefits to any of its employees.
14. STOCK OPTION PLAN:
During 1992, the stockholders approved a stock option plan (the "Plan") for
key employees covering 2,145 shares of Class A common stock. The Plan authorized
the issuance of both nonqualified and incentive stock options and is
administered by a committee of the Board of Directors (the "Committee"). Under
the terms of this Plan, the purchase price of shares subject to each
nonqualified stock option granted will not be less than the par value of the
common stock. The purchase price of shares subject to each incentive stock
option granted will not be less than 100% of their fair market value at the date
of grant. Unless extended by the Committee, options granted are exercisable for
a period not to exceed 10 years. As of December 31, 1995, there were 536 options
outstanding at an option price of $259 each, all of which were exercisable.
There were no options granted, exercised, canceled, or forfeited during 1995.
Further, the Board of Directors of the Company has reserved 7,558 shares of
Class A common stock for issuance to management. None of these shares has been
issued.
15. COMMITMENTS AND CONTINGENCIES:
Licensing Agreements
Sales of sports trading cards are permitted under licensing agreements with
owners' associations representing Major League Baseball, the National Football
League, the National Hockey League, and their related players' associations. The
agreements with these organizations typically require royalty payments based on
a percentage of net sports card sales (based on the regular wholesale price of
the sports cards) with guaranteed minimum annual payments that may vary by
license year. Historically, the Company has successfully renewed these license
agreements upon the expiration of the previous licenses; however, the impact on
net sales, operating income, and cash flows due to a loss of any of these
contracts would be significant. In addition to sports licensing agreements, the
Company has licensing agreements with certain manufacturers and individuals to
produce lenticular (three-dimensional) and other collectible products. The
Company pays royalty fees to these manufacturers based on net sales of these
products.
The Company's current licensing agreements (including renewal of licenses
which management believes will be executed during 1996 and one expired license
currently being negotiated for which the Company is currently operating under a
letter of intent) expire at various dates through June 30, 1998, requiring
future minimum payments aggregating $34,753,000 through 1998.
Related Parties
In addition to the financing described in Note 10, the Company also has
consulting agreements with certain stockholders and their affiliates under which
management services are provided to the Company. Total fees under these
agreements are $500,000 annually, payable through July 30, 1996.
F-21
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
The Company paid $2,000,000 and $1,000,000 in consulting payments to the
former MLM shareholders during 1995 and 1994, respectively. No further amounts
are owed to the former MLM shareholders.
Legal Matters
The Company and its subsidiaries are parties to various legal proceedings
arising in the ordinary course of business. Management believes, based upon the
advice of legal counsel responsible for the review of such matters, that there
is no proceeding, either threatened or pending, against the Company or its
subsidiaries that could result in a materially adverse effect on the business or
the financial condition of the Company.
16. STOCKHOLDERS' INVESTMENT:
During 1992, the Board of Directors authorized the issuance of 464 shares of
Class A common stock to the chief executive officer of the Company for a total
consideration of $120,300. As of December 31, 1995, these shares had not been
issued.
The Company's current authorized capital consists of an aggregate of 114,075
shares of stock, consisting of 80,000 shares designated as Class A common stock
(having 10 votes per share) (the Common Stock), 30,000 shares designated as
Class B common stock (having one vote per share), 4,025 shares designated as
redeemable preferred stock, and 50 shares designated as senior preferred stock.
In connection with the 1993 MLM Acquisition (see Note 3), the former MLM
stockholders received 14,118 shares of Class B common stock and 24 shares of
senior preferred stock in exchange for the issued and outstanding capital stock
of MLM. Simultaneously, 4,025 shares of redeemable preferred stock were issued
to the Company's majority stockholder in partial consideration for additional
funding and consent to the 1993 MLM Acquisition. In connection with the 1995 MLM
Settlement (see Note 3), in September 1995 all of the issued and outstanding
Class B common stock and senior preferred stock were returned to the Company and
canceled.
Dividends on the preferred shares accrue at the rate of $120 per year per
share (payable quarterly) and are cumulative. The preferred stock has a
liquidation preference of $1,000 per share together with all accrued but unpaid
dividends, and may be redeemed at any time, in whole or in part, by the Company
for the liquidation preference amount together with all accrued but unpaid
dividends. No dividends have been declared by the Company for the preferred
stock. Accumulated but undeclared and unpaid dividends on the preferred stock as
of December 31, 1995 and 1994, were $1,207,500 and $724,500, respectively.
Under an arrangement with the majority stockholder, the chief executive
officer of the Company has the right (the Put Right) to require the Company to
purchase on November 30, 1998, all shares of Common Stock and options owned by
such officer for a purchase price of $3,000,000, less any amounts previously
realized by such officer with respect to those shares and options. In the event
the Company fails to purchase these securities upon the exercise of the Put
Right, the majority stockholder is obligated to fulfill the commitment.
F-22
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENTS:
Refinancing of Long-Term Debt
In May 1996, the Company refinanced substantially all of its long-term debt.
The proceeds from this refinancing were used to refinance existing senior bank
obligations, repay $8.5 million of subordinated notes payable to majority
stockholder, and to acquire licenses and tradenames from Donruss Trading Cards,
Inc. (see below). The refinanced credit facilities include a $15.0 million
revolving credit commitment and $88.0 million of term loans. Total availability
under the revolving credit commitment is limited to 80% of eligible accounts
receivable and 50% of eligible inventory, both as defined in the credit
agreement. Outstanding borrowings under the credit facilities bear interest at
optional rates based on the prime rate or LIBOR. A commitment fee is payable on
unused amounts under the revolving credit facility. All outstanding borrowings
under the revolving credit commitment are payable on May 27, 2001 (extendable to
May 27, 2002 under certain conditions), and the term loans are payable in 16
quarterly payments of $0.5 million and then 4 quarterly payments of $8.0 million
through May 28, 2001, on $40 million of term loans and in 20 quarterly payments
of $0.5 million and then 4 quarterly payments of $9.5 million through May 28,
2002, on the other $48.0 million of term loans, plus additional annual payments,
beginning in 1997, based upon 50% of any excess cash flows (as defined)
generated during each preceding calendar year. The credit agreement contains
covenants requiring the maintenance of certain minimum financial ratios and
limitations on dividend payments and the issuance of equity securities. The
credit facilities are collateralized by substantially all assets of the Company.
In connection with the senior bank debt refinancing described above, during
May 1996, the maturity dates of all principal and interest payable under the
subordinated notes payable to majority stockholder were extended, by agreement
of the noteholder, to December 31, 2001.
Acquisition of Donruss Sports Trading Card Licenses and Tradenames
In May 1996, the Company acquired from Donruss Trading Cards, Inc. (Donruss)
the right to use the tradenames "Donruss" and "Leaf" and Donruss' licenses
through which it produces certain baseball and hockey trading card products.
Consideration given to Donruss included $32.5 million in cash plus the
assumption of various contracts with certain professional athletes and other
obligations. In connection with this transaction, the Company recorded $41.0
million attributable to the licenses and tradenames which will be amortized over
35 years. The Company concurrently purchased certain prepaid expenses and
work-in-process inventory, and assumed certain related trade payables.
Recapitalization and Initial Public Offering
The Company has filed a registration statement with the Securities and
Exchange Commission pursuant to an initial public offering (the Offering)
whereby 4,000,000 million shares of Common Stock are to be sold at an estimated
per share amount of $15. Immediately prior to the completion of the Offering,
(1) the Company will change its authorized capital to include 20,000,000 shares
of Common Stock, (2) the Company will declare a -for-1 stock split, (3) the
majority stockholder will convert all but $33.0 million of its subordinated
notes payable and all 4,025 shares of its preferred stock into 5,499,800 shares
of Common Stock, and (4) the Company will grant options in August 1996 to
purchase shares of Common Stock at $ per share and will contribute
shares of Common Stock to the Company's 401(k) plan. In connection with
these transactions, the Company expects to record non-cash expenses at the time
of the Offering of approximately $ million.
F-23
<PAGE>
PINNACLE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. UNAUDITED PRO FORMA PER SHARE INFORMATION:
Of the net proceeds from the sale of shares of Common Stock offered by the
Company in the Offering, approximately $22.0 million will be used to repay
senior bank borrowings and $33.0 million will be used to repay subordinated
notes payable to majority stockholder. Pro forma net income per common share is
calculated using the weighted average number of shares of Common Stock
outstanding during the period (after giving effect to (i) the conversion of
subordinated notes payable and preferred stock referred to in Note 17, (ii)
assuming the issuance and sale of 4,000,000 shares of Common Stock and
application of the proceeds, as described, as if these transactions had occurred
on January 1, 1995, (iii) decreased selling, general and administrative expenses
related to management and consulting fees offset by increased salaries to senior
management under new employment agreements, and (iv) a tax provision on the
resulting pro forma net income before taxes), plus options granted in August
1996 to purchase Common Stock at per share and Common Stock contributed to the
Company's 401(k) plan, assuming all such Common Stock was outstanding for all
periods presented. For purposes of this computation, the weighted average number
of shares of Common Stock outstanding during the period ended December 31, 1995,
is . Historical earnings (loss) per share have not been presented since
such amounts are not meaningful in light of the conversion of subordinated notes
payable and preferred stock.
F-24
<PAGE>
INSIDE BACK COVER ARTWORK:
Picture of Mickey Mantle with insets of one of the Company's Mickey Mantle
baseball trading cards and the Pinnacle logo.
<PAGE>
=========================================== ==================================
- ------------------------------------------- ----------------------------------
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT 4,000,000 SHARES
CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR PINNACLE BRANDS, INC.
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE COMMON STOCK
UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY
PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 1
Risk Factors.......................... 7 -------------------
The Company........................... 10 PROSPECTUS
Use of Proceeds....................... 12 -------------------
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Financial and Operating
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 25
Management............................ 39 MERRILL LYNCH & CO.
Certain Transactions.................. 45
Principal and Selling Stockholders.... 47
Description of Capital Stock.......... 48
Description of Indebtedness........... 49
Shares Eligible for Future Sale....... 51
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 54
Additional Information................ 54
Index to Financial Statements......... F-1 , 1996
-------------------
UNTIL , 1996 (25 DAYS FROM THE
DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=========================================== ==================================
- ------------------------------------------- ----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee) fees and expenses (other than underwriting discounts
and commissions) in connection with the offering described in this registration
statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $23,793.10
National Association of Securities Dealers, Inc. filing fee............
The New York Stock Exchange filing fee.................................
Transfer Agent and Registrar fees......................................
Blue Sky filing and counsel fees and expenses..........................
Printing and engraving costs...........................................
Legal fees and expenses................................................
Accounting fees and expenses...........................................
Miscellaneous..........................................................
Total............................................................
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Tenth of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), as provided by Section
102(b)(7) of the Delaware General Corporation Law ("Delaware Law"), enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director to a corporation or
its stockholders for violations of the director's fiduciary duty, except (i) for
any breach of a director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware Law (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the Delaware Law provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made in respect of any claim, issue or matter as to which
they shall have been adjudged to be liable to the Company, unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper. Any
such indemnification may be made by the Company only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Article Tenth of the Company's Certificate of
Incorporation entitles officers and directors of the Company to indemnification
to the fullest extent permitted by Section 145 of the Delaware Law, as the same
may be supplemented from time to time.
Reference is also made to the Company's Certificate of Incorporation, filed
as Exhibit 3.1 hereto.
II-1
<PAGE>
Reference is also made to Section of the Underwriting Agreement contained
in Exhibit 1.1 hereto, which provides certain indemnification rights to the
directors and officers of the Company in connection with this Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 30, 1993, the Company issued an aggregate of 14,117.7 shares of its
Class B Common Stock and an aggregate of 23.64 shares of its Senior Preferred
Stock to Daniel C. Shedrick, Harris A. Cahn, Barry A. Halper, Bruno Tomasi and
Franco Harris (collectively, the "MLM Stockholders") in connection with its
acquisition of MLM Marketing, Inc. In September 1995, the acquisition of MLM
Marketing, Inc. was reformed and the MLM Stockholders returned to the Company
all of the shares of Class B Common Stock and Senior Preferred Stock issued to
them in the acquisition. In connection with the acquisition, Acadia received
4,025 shares of Redeemable Preferred Stock. On March 31, 1994 and May 31, 1995,
Acadia received 3,486.90652 and 2,234.48529 shares of Class A Common Stock.
During the past three years, $73.7 million of subordinated indebtedness was
issued to Acadia, of which $28.4 million was issued for cash, $28.0 million was
issued as pay-in-kind interest and $17.3 million was issued in exchange for
maturing subordinated indebtedness.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and Merrill Lynch & Co. (1)
3.1 Form of Amended and Restated Certificate of Incorporation of the Company (1)
3.2 Amended and Restated By-Laws of the Company (1)
4.1 Form of Certificate for Common Stock (1)
4.2 Registration Rights Agreement dated as of , 1996 among the Company,
Acadia Partners, L.P. and Acadia Electra Partners, L.P. (1)
4.3 Registration Rights Agreement dated as of , 1996 between the Company
and Chase Manhattan Investment Holdings, Inc. (1)
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP (1)
*10.1 Credit Agreement dated as of May 29, 1996 among Pinnacle Brands, Inc., Grand
Slam Acquisition Corp. and GSAC Holdings, Inc., as Parent Guarantors, the
Subsidiary Guarantors, the lenders named therein, Merrill Lynch & Co., as
Arranger and Syndication Agent, and Wells Fargo Bank, N.A., as Administrative
and Collateral Agent
10.2 Grand Slam Acquisition Corp. Amended and Restated 1992 Stock Option Plan (1)
*10.3 Lease Agreement between E. Ann Flavin and John P. Flavin and Optigraphics
Corporation
10.4 Amended and Restated Employment Agreement dated as of , 1996, between the
Company and Jerry M. Meyer (1)
10.5 Amended and Restated Employment Agreement dated as of , 1996 between the
Company and Michael J. Cleary (1)
10.6 Employment Agreement dated as of , 1996 between the Company and John S.
Worth (1)
10.7 Employment Agreement dated as of , 1996 between the Company and James
Brochhausen (1)
10.8 Pinnacle Brands Inc. 1996 Incentive Stock Option Plan (1)
10.9 Actuarial Consultants, Inc. Defined Contribution Prototype Plan and Trust
Agreement
*10.10 Asset Purchase Agreement dated as of April 16, 1996 by and among Donruss Trading
Cards, Inc., Leaf, Inc. and Pinnacle Brands, Inc.
*10.11 Trademark License Agreement dated as of May 28, 1996, by and between Leaf, Inc.
and Pinnacle Brands, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------
<C> <S>
*10.12 License Agreement dated as of May 28, 1996 by and between Pinnacle Brands, Inc.
and Donruss Trading Cards, Inc.
*10.13 License Agreement dated as of May 28, 1996 by and between Pinnacle Brands, Inc.
and Donruss Trading Cards, Inc.
*10.14 Settlement Agreement dated September 15, 1995 among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., the MLM Stockholders and
Larry Lambrecht
*10.15 Settlement Agreement dated September 15, 1995 among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., the MLM Stockholders and
Larry Lambrecht
*10.16 Release dated September 15, 1995, by and among Grand Slam Acquisition Corp.,
Pinnacle Brands, Inc. and MLM Acquisition Corp.
*10.17 Release dated September 15, 1995, by and among Daniel C. Shedrick, Harris A.
Cohn, Barry A. Halper, Bruno Tomasi, Franco Harris, Larry Lambrecht, Grand
Slam Acquisition Corp., Pinnacle Brands, Inc., MLM Acquisition Corp. and the
other Releasees as listed therein.
*10.18 Release dated as of September 15, 1995, by and among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., Daniel C. Shedrick,
Harris A. Cohn, Barry A. Halper, Bruno Tomasi, Franco Harris, Larry Lambrecht
and the other Releasees as listed therein.
10.19 Retail License Agreement dated September 21, 1993 between NHL Enterprises, Inc.
and Pinnacle Brands, Inc. (2)
10.20 License Agreement dated June 3, 1996 between Donruss Trading Card Company and
the National Hockey League Players Association (2)
10.21 License Agreement dated March 19, 1993 between Score Group, Inc. and the
National Hockey League Players Association (2)
10.22 License Agreement dated December 31, 1994 between the Major League Baseball
Players Association and Donruss Trading Cards, Inc. (2)
10.23 Major League Baseball Properties, Inc. License Agreement re: Donruss Trading
Cards, Inc., dated May 23, 1996 (2)
10.24 License Agreement dated December 27, 1994 between the Major League Baseball
Players Association and Pinnacle Brands, Inc. (2)
10.25 Agreement dated March 14, 1995 between Pinnacle Brands, Inc. and the National
Football League Players, Inc. (2)
10.26 Letter of Intent dated June 29, 1995 between Pinnacle Brands, Inc. and NFL
Properties, Inc. (2)
10.27 Letter of Intent dated May 15, 1995 between Pinnacle Brands, Inc. and Major
League Baseball Properties (2)
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in Exhibit
5.1)(1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------
* Previously filed.
(1) To be filed by amendment.
(2) Confidential treatment has been requested for portions of this exhibit.
II-3
<PAGE>
(b) Consolidated Financial Statements Schedules
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Grand Prairie, State of Texas on August 21, 1996.
PINNACLE BRANDS, INC.
By: /s/ JERRY M. MEYER
..................................
Jerry M. Meyer
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated. Each person
whose signature appears below hereby authorizes each of Jerry M. Meyer, Michael
J. Cleary and John S. Worth, as attorney-in-fact, to sign and file on his or her
behalf, individually and in each capacity stated below, any pre-effective or
post-effective amendment hereto or any registration statement relating to this
offering.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ------------------
<S> <C> <C>
* Chairman of the Board, Chief August 21, 1996
..................................... Executive Officer and Director
Jerry M. Meyer (principal executive officer)
* Executive Vice President, Chief August 21, 1996
..................................... Operating Officer and Director
Michael J. Cleary
* Chief Financial Officer, Senior Vice August 21, 1996
..................................... President and Secretary (principal
John S. Worth financial and accounting officer)
* Director August 21, 1996
.....................................
Bradford E. Bernstein
* Director August 21, 1996
.....................................
Daniel L. Doctoroff
* Director August 21, 1996
.....................................
Douglas D. Wheat
</TABLE>
By /s/ JERRY M. MEYER
............................
Jerry M. Meyer
individually and as
attorney-in-fact
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pinnacle Brands Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Pinnacle Brands Inc. (formerly Grand
Slam Acquisition Corp., a Delaware Corporation) and subsidiaries included in
this registration statement and have issued our report thereon dated March 7,
1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II, Valuation and Qualifying
Accounts, is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
March 7, 1996
Dallas, Texas
S-1
<PAGE>
PINNACLE BRANDS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------- DEDUCTIONS
BALANCE AT CHARGED TO CHARGED TO ------------ NET
BEGINNING COSTS AND OTHER PRODUCT INCREASE
OF PERIOD EXPENSES ACCOUNTS RETURNS (DECREASE)
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Description
YEAR ENDED DECEMBER 31, 1995
Included in Accrued Liabilities:
Accrued Sales Returns....................... $ 7,153,000 $14,925,000 $ -- $(17,052,000) $(2,127,000)
----------- ----------- ---------- ------------ -----------
Total..................................... $ 7,153,000 $14,925,000 $ -- $(17,052,000) $(2,127,000)
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
YEAR ENDED DECEMBER 31, 1994
Included in Accrued Liabilities:
Accrued Sales Returns....................... $11,765,000 $17,037,000 $ -- $(21,649,000) $ 4,612,000
----------- ----------- ---------- ------------ -----------
Total..................................... $11,765,000 $17,037,000 $ -- $(21,649,000) $ 4,612,000
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
YEAR ENDED DECEMBER 31, 1993
Included in Accrued Liabilities:
Accrued Sales Returns....................... $ 3,276,000 $19,010,000 $ -- $(10,521,000) $ 8,489,000
----------- ----------- ---------- ------------ -----------
Total..................................... $ 3,276,000 $19,010,000 $ -- $(10,521,000) $ 8,489,000
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
<CAPTION>
BALANCE AT
END
OF PERIOD
-----------
<S> <C>
Description
YEAR ENDED DECEMBER 31, 1995
Included in Accrued Liabilities:
Accrued Sales Returns....................... $ 5,026,000
-----------
Total..................................... $ 5,026,000
-----------
-----------
YEAR ENDED DECEMBER 31, 1994
Included in Accrued Liabilities:
Accrued Sales Returns....................... $ 7,153,000
-----------
Total..................................... $ 7,153,000
-----------
-----------
YEAR ENDED DECEMBER 31, 1993
Included in Accrued Liabilities:
Accrued Sales Returns....................... $11,765,000
-----------
Total..................................... $11,765,000
-----------
-----------
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and Merrill Lynch & Co. (1)
3.1 Form of Amended and Restated Certificate of Incorporation of the Company (1)
3.2 Amended and Restated By-Laws of the Company (1)
4.1 Form of Certificate for Common Stock (1)
4.2 Registration Rights Agreement dated as of , 1996 among the Company,
Acadia Partners, L.P. and Acadia Electra Partners, L.P. (1)
4.3 Registration Rights Agreement dated as of , 1996 between the Company
and Chase Manhattan Investment Holdings, Inc. (1)
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP (1)
*10.1 Credit Agreement dated as of May 29, 1996 among Pinnacle Brands, Inc., Grand
Slam Acquisition Corp. and GSAC Holdings, Inc., as Parent Guarantors, the
Subsidiary Guarantors, the lenders named therein, Merrill Lynch & Co., as
Arranger and Syndication Agent, and Wells Fargo Bank, N.A., as Administrative
and Collateral Agent
10.2 Grand Slam Acquisition Corp. Amended and Restated 1992 Stock Option Plan (1)
*10.3 Lease Agreement between E. Ann Flavin and John P. Flavin and Optigraphics
Corporation
10.4 Amended and Restated Employment Agreement dated as of , 1996, between the
Company and Jerry M. Meyer (1)
10.5 Amended and Restated Employment Agreement dated as of , 1996 between the
Company and Michael J. Cleary (1)
10.6 Employment Agreement dated as of , 1996 between the Company and John S.
Worth (1)
10.7 Employment Agreement dated as of , 1996 between the Company and James
Brochhausen (1)
10.8 Pinnacle Brands Inc. 1996 Incentive Stock Option Plan (1)
10.9 Actuarial Consultants, Inc. Defined Contribution Prototype Plan and Trust
Agreement
*10.10 Asset Purchase Agreement dated as of April 16, 1996 by and among Donruss Trading
Cards, Inc., Leaf, Inc. and Pinnacle Brands, Inc.
*10.11 Trademark License Agreement dated as of May 28, 1996, by and between Leaf, Inc.
and Pinnacle Brands, Inc.
*10.12 License Agreement dated as of May 28, 1996 by and between Pinnacle Brands, Inc.
and Donruss Trading Cards, Inc.
*10.13 License Agreement dated as of May 28, 1996 by and between Pinnacle Brands, Inc.
and Donruss Trading Cards, Inc.
*10.14 Settlement Agreement dated September 15, 1995 among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., the MLM Stockholders and
Larry Lambrecht
*10.15 Settlement Agreement dated September 15, 1995 among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., the MLM Stockholders and
Larry Lambrecht
*10.16 Release dated September 15, 1995, by and among Grand Slam Acquisition Corp.,
Pinnacle Brands, Inc. and MLM Acquisition Corp.
*10.17 Release dated September 15, 1995, by and among Daniel C. Shedrick, Harris A.
Cohn, Barry A. Halper, Bruno Tomasi, Franco Harris, Larry Lambrecht, Grand
Slam Acquisition Corp., Pinnacle Brands, Inc., MLM Acquisition Corp. and the
other Releasees as listed therein.
*10.18 Release dated as of September 15, 1995, by and among Grand Slam Acquisition
Corp., Pinnacle Brands, Inc., MLM Acquisition Corp., Daniel c. Shedrick,
Harris A. Cohn, Barry A. Halper, Bruno Tomasi, Franco Harris, Larry Lambrecht
and the other Releasees as listed therein.
10.19 Retail License Agreement dated September 21, 1993 between NHL Enterprises, Inc.
and Pinnacle Brands, Inc. (2)
10.20 License Agreement dated June 3, 1996 between Donruss Trading Card Company and
the National Hockey League Players Association (2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------
<C> <S>
10.21 License Agreement dated March 19, 1993 between Score Group, Inc. and the
National Hockey League Players Association (2)
10.22 License Agreement dated December 31, 1994 between the Major League Baseball
Players Association and Donruss Trading Cards, Inc. (2)
10.23 Major League Baseball Properties, Inc. License Agreement re: Donruss Trading
Cards, Inc., dated May 23, 1996(2)
10.24 License Agreement dated December 27, 1994 between the Major League Baseball
Players Association and Pinnacle Brands, Inc.(2)
10.25 Agreement dated March 14, 1995 between Pinnacle Brands, Inc. and the National
Football League Players, Inc. (2)
10.26 Letter of Intent dated June 29, 1995 between Pinnacle Brands, Inc. and NFL
Properties, Inc. (2)
10.27 Letter of Intent dated May 15, 1995 between Pinnacle Brands, Inc. and Major
League Baseball Properties (2)
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in Exhibit
5.1)(1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------
* Previously filed.
(1) To be filed by amendment.
(2) Confidential treatment has been requested for portions of this exhibit.
Exhibit 10.9
Actuarial Consultants, Inc.
DEFINED CONTRIBUTION PROTOTYPE PLAN
AND
TRUST AGREEMENT
<PAGE>
TABLE OF CONTENTS
ALPHABETICAL LISTING OF DEFINITIONS . . . . . . . . . . . . . . . . . . . v
ARTICLE I, DEFINITIONS
1.01 Employer . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.02 Trustee . . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.03 Plan . . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.04 Adoption Agreement . . . . . . . . . . . . . . . . . . 1.01
1.05 Plan Administrator . . . . . . . . . . . . . . . . . . 1.02
1.06 Advisory Committee . . . . . . . . . . . . . . . . . . 1.02
1.07 Employee . . . . . . . . . . . . . . . . . . . . . . . 1.02
1.08 Self-Employed Individual/Owner-Employee . . . . . . . . 1.02
1.09 Highly Compensated Employee . . . . . . . . . . . . . . 1.02
1.10 Participant . . . . . . . . . . . . . . . . . . . . . . 1.03
1.11 Beneficiary . . . . . . . . . . . . . . . . . . . . . . 1.03
1.12 Compensation . . . . . . . . . . . . . . . . . . . . . 1.03
1.13 Earned Income . . . . . . . . . . . . . . . . . . . . . 1.05
1.14 Account . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.15 Accrued Benefit . . . . . . . . . . . . . . . . . . . . 1.05
1.16 Nonforfeitable . . . . . . . . . . . . . . . . . . . . 1.05
1.17 Plan Year/Limitation Year . . . . . . . . . . . . . . . 1.05
1.18 Effective Date . . . . . . . . . . . . . . . . . . . . 1.05
1.19 Plan Entry Date . . . . . . . . . . . . . . . . . . . . 1.05
1.20 Accounting Date . . . . . . . . . . . . . . . . . . . . 1.05
1.21 Trust . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.22 Trust Fund . . . . . . . . . . . . . . . . . . . . . . 1.05
1.23 Nontransferable Annuity . . . . . . . . . . . . . . . . 1.05
1.24 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.25 Code . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.26 Service . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.27 Hour of Service . . . . . . . . . . . . . . . . . . . . 1.06
1.28 Disability . . . . . . . . . . . . . . . . . . . . . . 1.07
1.29 Service for Predecessor Employer . . . . . . . . . . . 1.07
1.30 Related Employers . . . . . . . . . . . . . . . . . . . 1.07
1.31 Leased Employees . . . . . . . . . . . . . . . . . . . 1.08
1.32 Special Rules for Owner-Employers . . . . . . . . . . . 1.08
1.33 Determination of Top Heavy Status . . . . . . . . . . . 1.09
1.34 Paired Plans . . . . . . . . . . . . . . . . . . . . . 1.10
ARTICLE II, EMPLOYEE PARTICIPANTS
2.01 Eligibility . . . . . . . . . . . . . . . . . . . . . . 2.01
2.02 Year of Service - Participation . . . . . . . . . . . . 2.01
2.03 Break in Service - Participation . . . . . . . . . . . 2.01
i
<PAGE>
2.04 Participation upon Re-employment . . . . . . . . . . . 2.02
2.05 Change in Employee Status . . . . . . . . . . . . . . . 2.02
2.06 Election Not to Participate . . . . . . . . . . . . . . 2.02
ARTICLE III, EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 Amount . . . . . . . . . . . . . . . . . . . . . . . . 3.01
3.02 Determination of Contribution . . . . . . . . . . . . . 3.01
3.03 Time of Payment of Contribution . . . . . . . . . . . . 3.01
3.04 Contribution Allocation . . . . . . . . . . . . . . . . 3.01
3.05 Forfeiture Allocation . . . . . . . . . . . . . . . . . 3.03
3.06 Accrual of Benefit . . . . . . . . . . . . . . . . . . 3.03
3.07 - 3.16 Limitations on Allocations . . . . . . . . . . . . 3.05
3.17 Special Allocation Limitation . . . . . . . . . . . . . 3.07
3.18 Defined Benefit Plan Limitation . . . . . . . . . . . . 3.07
3.19 Definitions - Article III . . . . . . . . . . . . . . . 3.07
ARTICLE IV, PARTICIPANT CONTRIBUTIONS
4.01 Participant Nondeductible Contributions . . . . . . . . 4.01
4.02 Participant Deductible Contributions . . . . . . . . . 4.01
4.03 Participant Rollover Contributions . . . . . . . . . . 4.01
4.04 Participant Contribution - Forfeitability . . . . . . . 4.02
4.05 Participant Contribution - Withdrawal/Distribution . . 4.02
4.06 Participant Contribution - Accrued Benefit . . . . . . 4.02
ARTICLE V, TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 Normal Retirement Age . . . . . . . . . . . . . . . . . 5.01
5.02 Participant Disability or Death . . . . . . . . . . . . 5.01
5.03 Vesting Schedule . . . . . . . . . . . . . . . . . . . 5.01
5.04 Cash-Out Distributions to Partially-Vested
Participants/Restoration
of Forfeited Accrued Benefit . . . . . . . . . . . . . 5.01
5.05 Segregated Account for Repaid Amount . . . . . . . . . 5.03
5.06 Year of Service - Vesting . . . . . . . . . . . . . . . 5.03
5.07 Break in Service - Vesting . . . . . . . . . . . . . . 5.03
5.08 Included Years of Service - Vesting . . . . . . . . . . 5.03
5.09 Forfeiture Occurs . . . . . . . . . . . . . . . . . . . 5.03
ARTICLE VI, TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 Time of Payment of Accrued Benefit . . . . . . . . . . 6.01
6.02 Method of Payment of Accrued Benefit . . . . . . . . . 6.03
6.03 Benefit Payment Elections . . . . . . . . . . . . . . . 6.05
6.04 Annuity Distributions to Participants and Surviving
Spouses . . . . . . . . . . . . . . . . . . . . . . . . 6.06
6.05 Waiver Election - Qualified Joint and Survivor Annuity 6.07
6.06 Waiver Election - Preretirement Survivor Annuity . . . 6.08
ii
<PAGE>
6.07 Distributions Under Domestic Relations Orders . . . . . 6.09
ARTICLE VII, EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 Information to Committee . . . . . . . . . . . . . . . 7.01
7.02 No Liability . . . . . . . . . . . . . . . . . . . . . 7.01
7.03 Indemnity of Certain Fiduciaries . . . . . . . . . . . 7.01
7.04 Employer Direction of Investment . . . . . . . . . . . 7.01
7.05 Amendment to Vesting Schedule . . . . . . . . . . . . . 7.01
ARTICLE VIII, PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 Beneficiary Designation . . . . . . . . . . . . . . . . 8.01
8.02 No Beneficiary Designation/Death of Beneficiary . . . . 8.01
8.03 Personal Data to Committee . . . . . . . . . . . . . . 8.02
8.04 Address for Notification . . . . . . . . . . . . . . . 8.02
8.05 Assignment or Alienation . . . . . . . . . . . . . . . 8.02
8.06 Notice of Change in Terms . . . . . . . . . . . . . . . 8.02
8.07 Litigation Against the Trust . . . . . . . . . . . . . 8.02
8.08 Information Available . . . . . . . . . . . . . . . . . 8.02
8.09 Appeal Procedure for Denial of Benefits . . . . . . . . 8.02
8.10 Participant Direction of Investment . . . . . . . . . . 8.03
ARTICLE IX, ADVISORY COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
9.01 Members' Compensation, Expenses . . . . . . . . . . . . 9.01
9.02 Term . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.03 Powers . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.04 General . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.05 Funding Policy . . . . . . . . . . . . . . . . . . . . 9.02
9.06 Manner of Action . . . . . . . . . . . . . . . . . . . 9.02
9.07 Authorized Representative . . . . . . . . . . . . . . . 9.02
9.08 Interested Member . . . . . . . . . . . . . . . . . . . 9.02
9.09 Individual Accounts . . . . . . . . . . . . . . . . . . 9.02
9.10 Value of Participant's Accrued Benefit . . . . . . . . 9.02
9.11 Allocation and Distribution of Net Income Gain or Loss 9.03
9.12 Individual Statement . . . . . . . . . . . . . . . . . 9.03
9.13 Account Charged . . . . . . . . . . . . . . . . . . . . 9.03
9.14 Unclaimed Account Procedure . . . . . . . . . . . . . . 9.04
ARTICLE X, CUSTODIAN/TRUSTEE, POWERS AND DUTIES
10.01 Acceptance . . . . . . . . . . . . . . . . . . . . . . 10.01
10.02 Receipt of Contributions . . . . . . . . . . . . . . . 10.01
10.03 Investment Powers . . . . . . . . . . . . . . . . . . . 10.01
10.04 Records and Statements . . . . . . . . . . . . . . . . 10.05
10.05 Fees and Expenses from Fund . . . . . . . . . . . . . . 10.06
10.06 Parties to Litigation . . . . . . . . . . . . . . . . . 10.06
iii
<PAGE>
10.07 Professional Agents . . . . . . . . . . . . . . . . . . 10.06
10.08 Distribution of Cash or Property . . . . . . . . . . . 10.06
10.09 Distribution Directions . . . . . . . . . . . . . . . . 10.06
10.10 Third Party/Multiple Trustees . . . . . . . . . . . . . 10.06
10.11 Resignation . . . . . . . . . . . . . . . . . . . . . . 10.06
10.12 Removal . . . . . . . . . . . . . . . . . . . . . . . . 10.07
10.13 Interim Duties and Successor Trustee . . . . . . . . . 10.07
10.14 Valuation of Trust . . . . . . . . . . . . . . . . . . 10.07
10.15 Limitation on Liability - If Investment Manager,
Ancillary Trustee or Independent Fiduciary Appointed . 10.07
10.16 Investment in Group Trust Fund . . . . . . . . . . . . 10.07
10.17 Appointment of Ancillary Trustee or Independent
Fiduciary . . . . . . . . . . . . . . . . . . . . . . . 10.08
ARTICLE XI, PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 Insurance Benefit . . . . . . . . . . . . . . . . . . . 11.01
11.02 Limitation on Life Insurance Protection . . . . . . . . 11.01
11.03 Definitions . . . . . . . . . . . . . . . . . . . . . . 11.02
11.04 Dividend Plan . . . . . . . . . . . . . . . . . . . . . 11.02
11.05 Insurance Company Not a Party to Agreement . . . . . . 11.02
11.06 Insurance Company Not Responsible for Trustee's Actions 11.03
11.07 Insurance Company Reliance on Trustee's Signature . . . 11.03
11.08 Acquittance . . . . . . . . . . . . . . . . . . . . . . 11.03
11.09 Duties of Insurance Company . . . . . . . . . . . . . . 11.03
ARTICLE XII, MISCELLANEOUS
12.01 Evidence . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.02 No Responsibility for Employer Action . . . . . . . . . 12.01
12.03 Fiduciaries Not Insurers . . . . . . . . . . . . . . . 12.01
12.04 Waiver of Notice . . . . . . . . . . . . . . . . . . . 12.01
12.05 Successors . . . . . . . . . . . . . . . . . . . . . . 12.01
12.06 Word Usage . . . . . . . . . . . . . . . . . . . . . . 12.01
12.07 State Law . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.08 Employer's Right to Participate . . . . . . . . . . . . 12.01
12.09 Employment Not Guaranteed . . . . . . . . . . . . . . . 12.02
ARTICLE XIII, EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 Exclusive Benefit . . . . . . . . . . . . . . . . . . . 13.01
13.02 Amendment By Employer . . . . . . . . . . . . . . . . . 13.01
13.03 Amendment By Regional Prototype Plan Sponsor . . . . . 13.02
13.04 Discontinuance . . . . . . . . . . . . . . . . . . . . 13.02
13.05 Full Vesting on Termination . . . . . . . . . . . . . . 13.02
iv
<PAGE>
13.06 Merger/Direct Transfer . . . . . . . . . . . . . . . . 13.02
13.07 Termination . . . . . . . . . . . . . . . . . . . . . . 13.03
ARTICLE XIV, CODE Sec.401(k) AND CODE Sec.401(m) ARRANGEMENTS
14.01 Application . . . . . . . . . . . . . . . . . . . . . . 14.01
14.02 Code Sec. 401(k) Arrangement . . . . . . . . . . . . . 14.01
14.03 Definitions . . . . . . . . . . . . . . . . . . . . . . 14.02
14.04 Matching Contributions/Employee Contributions . . . . . 14.03
14.05 Time of Payment of Contributions . . . . . . . . . . . 14.03
14.06 Special Allocation Provisions - Deferral Contributions,
Matching Contributions and Qualified Nonelective
Contributions . . . . . . . . . . . . . . . . . . . . . 14.04
14.07 Annual Elective Deferral Limitation . . . . . . . . . . 14.05
14.08 Actual Deferral Percentage ("ADP") Test . . . . . . . . 14.06
14.09 Nondiscrimination Rules for Employer Matching
Contributions/Participant Nondeductible Contributions . 14.07
14.10 Multiple Use Limitation . . . . . . . . . . . . . . . . 14.09
14.11 Distribution Restrictions . . . . . . . . . . . . . . . 14.10
14.12 Special Allocation Rules . . . . . . . . . . . . . . . 14.11
ARTICLE A - APPENDIX TO BASIC PLAN DOCUMENT . . . . . . . . . . . . . A-1
v
<PAGE>
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Section Reference
(Page Number)
100% Limitation . . . . . . . . . . . . . . . . . . . . . . 3.19(l) (3.09)
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14 (1.05)
Accounting Date . . . . . . . . . . . . . . . . . . . . . . . . 1.20 (1.05)
Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . 1.15 (1.05)
Actual Deferral Percentage ("ADP") Test . . . . . . . . . . . 14.08 (14.06)
Adoption Agreement . . . . . . . . . . . . . . . . . . . . . . 1.04 (1.01)
Advisory Committee . . . . . . . . . . . . . . . . . . . . . . 1.06 (1.02)
Annual Addition . . . . . . . . . . . . . . . . . . . . . . 3.19(a) (3.07)
Average Contribution Percentage Test . . . . . . . . . . . . 14.09 (14.07)
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11 (1.03)
Break in Service for Eligibility Purposes . . . . . . . . . . . 2.03 (2.01)
Break in Service for Vesting Purposes . . . . . . . . . . . . . 5.07 (5.03)
Cash-out Distribution . . . . . . . . . . . . . . . . . . . . . 5.04 (5.01)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25 (1.06)
Code Sec.411(d)(6) Protected Benefits . . . . . . . . . . . . 13.02 (13.01)
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 (1.03)
Compensation for Code Sec.401(k) Purposes . . . . . . . . 14.03(f) (14.02)
Compensation for Code Sec.415 Purposes . . . . . . . . . . 3.19(b) (3.07)
Compensation for Top Heavy Purposes . . . . . . . . . . . 1.33(B)(3) (1.10)
Contract(s) . . . . . . . . . . . . . . . . . . . . . . . 11.03(c) (11.02)
Custodian Designation . . . . . . . . . . . . . . . . . . 10.03[B] (10.02)
Deemed Cash-out Rule . . . . . . . . . . . . . . . . . . . 5.04(C) (5.02)
Deferral Contributions . . . . . . . . . . . . . . . . . 14.03(g) (14.02)
Deferral Contributions Account . . . . . . . . . . . . . . . 14.06 (14.04)
Defined Benefit Plan . . . . . . . . . . . . . . . . . . . 3.19(i) (3.08)
Defined Benefit Plan Fraction . . . . . . . . . . . . . . . 3.19(j) (3.08)
Defined Contribution Plan . . . . . . . . . . . . . . . . . 3.19(h) (3.08)
Defined Contribution Plan Fraction . . . . . . . . . . . . 3.19(k) (3.09)
Determination Date . . . . . . . . . . . . . . . . . . . 1.33(B)(7) (1.10)
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . 1.28 (1.07)
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . 6.01 (6.01)
Distribution Restrictions . . . . . . . . . . . . . . . . 14.03(m) (14.03)
Earned Income . . . . . . . . . . . . . . . . . . . . . . . . . 1.13 (1.05)
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 1.18 (1.05)
Elective Deferrals . . . . . . . . . . . . . . . . . . . 14.03(h) (14.02)
Elective Transfer . . . . . . . . . . . . . . . . . . . . 13.06(A) (13.02)
vi
<PAGE>
Eligible Employee . . . . . . . . . . . . . . . . . . . . 14.03(c) (14.02)
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07 (1.02)
Employee Contributions . . . . . . . . . . . . . . . . . 14.03(n) (14.03)
Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 (1.01)
Employer Contribution Account . . . . . . . . . . . . . . . . 14.06 (14.04)
Employer for Code Sec.415 Purposes . . . . . . . . . . . . 3.19(c) (3.08)
Employer for Top Heavy Purposes . . . . . . . . . . . . . 1.33(B)(6) (1.10)
Employment Commencement Date . . . . . . . . . . . . . . . . . 2.02 (2.01)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24 (1.06)
Excess Aggregate Contributions . . . . . . . . . . . . . . . 14.09 (14.07)
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . 3.19(d) (3.08)
Excess Contributions . . . . . . . . . . . . . . . . . . . . 14.08 (14.06)
Exempt Participant . . . . . . . . . . . . . . . . . . . . . . 8.01 (8.01)
Forfeiture Break in Service . . . . . . . . . . . . . . . . . . 5.08 (5.03)
Group Trust Fund . . . . . . . . . . . . . . . . . . . . . . 10.16 (10.07)
Hardship . . . . . . . . . . . . . . . . . . . . . . . . 6.01(A)(4) (6.02)
Hardship for Code Sec.401(k) Purposes . . . . . . . . . . . . 14.11 (14.10)
Highly Compensated Employee . . . . . . . . . . . . . . . . . . 1.09 (1.02)
Highly Compensated Group . . . . . . . . . . . . . . . . 14.03(d) (14.02)
Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . 1.27 (1.06)
Incidental Insurance Benefits . . . . . . . . . . . . . . . . 11.01 (11.01)
Insurable Participant . . . . . . . . . . . . . . . . . . 11.03(d) (11.02)
Investment Manager . . . . . . . . . . . . . . . . . . . . 9.04(i) (9.01)
Issuing Insurance Company . . . . . . . . . . . . . . . . 11.03(b) (11.02)
Joint and Survivor Annuity . . . . . . . . . . . . . . . . 6.04(A) (6.06)
Key Employee . . . . . . . . . . . . . . . . . . . . . . 1.33(B)(1) (1.10)
Leased Employees . . . . . . . . . . . . . . . . . . . . . . . 1.31 (1.08)
Limitation Year . . . . . . . . . . . . 1.17 and 3.19(e) (1.05) and (3.08)
Loan Policy . . . . . . . . . . . . . . . . . . . . . . . . 9.04(A) (9.02)
Mandatory Contributions . . . . . . . . . . . . . . . . . . . 14.04 (14.03)
Mandatory Contributions Account . . . . . . . . . . . . . . . 14.04 (14.03)
Master or Prototype Plan . . . . . . . . . . . . . . . . . 3.19(f) (3.08)
Matching Contributions . . . . . . . . . . . . . . . . . 14.03(i) (14.02)
Maximum Permissible Amount . . . . . . . . . . . . . . . . 3.19(g) (3.08)
Minimum Distribution Incidental Benefit (MDIB) . . . . . . 6.02(A) (6.03)
Multiple Use Limitation . . . . . . . . . . . . . . . . . . . 14.10 (14.09)
Named Fiduciary . . . . . . . . . . . . . . . . . . . . . 10.03[D] (10.04)
Nonelective Contributions . . . . . . . . . . . . . . . . 14.03(j) (14.03)
Nonforfeitable . . . . . . . . . . . . . . . . . . . . . . . . 1.16 (1.05)
Nonhighly Compensated Employee . . . . . . . . . . . . . 14.03(b) (14.02)
Nonhighly Compensated Group . . . . . . . . . . . . . . . 14.03(e) (14.02)
Non-Key Employee . . . . . . . . . . . . . . . . . . . . 1.33(B)(2) (1.10)
Nontransferable Annuity . . . . . . . . . . . . . . . . . . . . 1.23 (1.05)
Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . 5.01 (5.01)
Owner-Employee . . . . . . . . . . . . . . . . . . . . . . . . 1.08 (1.02)
vii
<PAGE>
Paired Plans . . . . . . . . . . . . . . . . . . . . . . . . . 1.34 (1.10)
Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10 (1.03)
Participant Deductible Contributions . . . . . . . . . . . . . 4.02 (4.01)
Participant Forfeiture . . . . . . . . . . . . . . . . . . . . 3.05 (3.03)
Participant Loans . . . . . . . . . . . . . . . . . . . . 10.03[E] (10.05)
Participant Nondeductible Contributions . . . . . . . . . . . . 4.01 (4.01)
Permissive Aggregation Group . . . . . . . . . . . . . . 1.33(B)(5) (1.10)
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.03 (1.01)
Plan Administrator . . . . . . . . . . . . . . . . . . . . . . 1.05 (1.02)
Plan Entry Date . . . . . . . . . . . . . . . . . . . . . . . . 1.19 (1.05)
Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 (1.05)
Policy . . . . . . . . . . . . . . . . . . . . . . . . . 11.03(a) (11.02)
Predecessor Employer . . . . . . . . . . . . . . . . . . . . . 1.29 (1.07)
Preretirement Survivor Annuity . . . . . . . . . . . . . . 6.04(B) (6.06)
Qualified Domestic Relations Order . . . . . . . . . . . . . . 6.07 (6.09)
Qualified Matching Contributions . . . . . . . . . . . . 14.03(k) (14.03)
Qualified Nonelective Contributions . . . . . . . . . . . 14.03(l) (14.03)
Qualifying Employer Real Property . . . . . . . . . . . . 10.03[F] (10.05)
Qualifying Employer Securities . . . . . . . . . . . . . 10.03[F] (10.05)
Related Employers . . . . . . . . . . . . . . . . . . . . . . . 1.30 (1.07)
Required Aggregation Group . . . . . . . . . . . . . . . 1.33(B)(4) (1.10)
Required Beginning Date . . . . . . . . . . . . . . . . . . 6.01(B) (6.02)
Rollover Contributions . . . . . . . . . . . . . . . . . . . . 4.03 (4.01)
Self-Employed Individual . . . . . . . . . . . . . . . . . . . 1.08 (1.02)
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 (1.06)
Term Life Insurance Contract . . . . . . . . . . . . . . . . 11.03 (11.02)
Top Heavy Minimum Allocation . . . . . . . . . . . . . . . 3.04(B) (3.01)
Top Heavy Ratio . . . . . . . . . . . . . . . . . . . . . . . . 1.33 (1.09)
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.21 (1.05)
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02 (1.01)
Trustee Designation . . . . . . . . . . . . . . . . . . . 10.03[A] (10.01)
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22 (1.05)
Weighted Average Allocation Method . . . . . . . . . . . . . 14.12 (14.11)
Year of Service for Eligibility Purposes . . . . . . . . . . . 2.02 (2.01)
Year of Service for Vesting Purposes . . . . . . . . . . . . . 5.06 (5.03)
viii
<PAGE>
Actuarial Consultants, Inc.
---------------------------
DEFINED CONTRIBUTION PROTOTYPE PLAN AND TRUST AGREEMENT
-------------------------------------------------------
BASIC PLAN DOCUMENT # 01
------------------------
Actuarial Consultants, Inc., in its capacity as Regional Prototype Plan
---------------------------
Sponsor, establishes this Prototype Plan intended to conform to and qualify
under Sec.401 and Sec.501 of the Internal Revenue Code of 1986, as amended. An
Employer establishes a Plan and Trust under this Prototype Plan by executing an
Adoption Agreement. If the Employer adopts this Plan as a restated Plan in
substitution for, and in amendment of, an existing plan, the provisions of this
Plan, as a restated Plan, apply solely to an Employee whose employment with the
Employer terminates on or after the restated Effective Date of the Employer's
Plan. If an Employee's employment with the Employer terminates prior to the
restated Effective Date, that Employee is entitled to benefits under the Plan as
the Plan existed on the date of the Employee's termination of employment.
ARTICLE I
DEFINITIONS
1.01 "Employer" means each employer who adopts this Plan by executing an
Adoption Agreement.
1.02 "Trustee" means the person or persons who as Trustee execute the
Employer's Adoption Agreement, or any successor in office who in writing accepts
the position of Trustee. The Employer must designate in its Adoption Agreement
whether the Trustee will administer the Trust as a discretionary Trustee or as a
nondiscretionary Trustee. If a person acts as a discretionary Trustee, the
Employer also may appoint a Custodian. See Article X.
1.03 "Plan" means the retirement plan established or continued by the
Employer in the form of this Agreement, including the Adoption Agreement under
which the Employer has elected to participate in this Prototype Plan. The
Employer must designate the name of the Plan in its Adoption Agreement. An
Employer may execute more than one Adoption Agreement offered under this
Prototype Plan, each of which will constitute a separate Plan and Trust
established or continued by that Employer. The Plan and the Trust created by
each adopting Employer is a separate Plan and a separate Trust, independent from
the plan and the trust of any other employer adopting this Prototype Plan. All
section references within the Plan are Plan section references unless the
context clearly indicates otherwise.
1.01
<PAGE>
1.04 "Adoption Agreement" means the document executed by each Employer
adopting this Prototype Plan. The terms of this Prototype Plan as modified by
the terms of an adopting Employer's Adoption Agreement constitute a separate
Plan and Trust to be construed as a single Agreement. Each elective provision of
the Adoption Agreement corresponds by section reference to the section of the
Plan which grants the election. Each Adoption Agreement offered under this
Prototype Plan is either a Nonstandardized Plan or a Standardized Plan, as
identified in the preamble to that Adoption Agreement. The provisions of this
Prototype Plan apply equally to Nonstandardized Plans and to Standardized Plans
unless otherwise specified.
1.02
<PAGE>
1.05 "Plan Administrator" is the Employer unless the Employer designates
another person to hold the position of Plan Administrator. In addition to his
other duties, the Plan Administrator has full responsibility for compliance with
the reporting and disclosure rules under ERISA as respects this Agreement.
1.06 "Advisory Committee" means the Employer's Advisory Committee as from
time to time constituted.
1.07 "Employee" means any employee (including a Self-Employed Individual)
of the Employer. The Employer must specify in its Adoption Agreement any
Employee, or class of Employees, not eligible to participate in the Plan. If the
Employer elects to exclude collective bargaining employees, the exclusion
applies to any employee of the Employer included in a unit of employees covered
by an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers unless the
collective bargaining agreement requires the employee to be included within the
Plan. The term "employee representatives" does not include any organization more
than half the members of which are owners, officers, or executives of the
Employer.
1.08 "Self-Employed Individual/Owner-Employee." "Self-Employed Individual"
means an individual who has Earned Income (or who would have had Earned Income
but for the fact that the trade or business did not have net earnings) for the
taxable year from the trade or business for which the Plan is established.
"Owner-Employee" means a Self-Employed Individual who is the sole proprietor in
the case of a sole proprietorship. If the Employer is a partnership,
"Owner-Employee" means a Self-Employed Individual who is a partner and owns more
than 10% of either the capital or profits interest of the partnership.
1.09 "Highly Compensated Employee" means an Employee who, during the Plan
Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Code Sec.318, and applying the principles of Code Sec.318,
for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the Commissioner of
Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the Commissioner of
Internal Revenue for the relevant year) and is part of the top-paid 20% group
of employees (based on Compensation for the relevant year); or
1.03
<PAGE>
(d) has Compensation in excess of 50% of the dollar amount prescribed in Code
Sec.415(b)(1)(A) (relating to defined benefit plans) and is an officer of the
Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in the Plan
Year but does not satisfy clause (b), (c) or (d) during the preceding 12-month
period and does not satisfy clause (a) in either period, the Employee is a
Highly Compensated Employee only if he is one of the 100 most highly compensated
Employees for the Plan Year. The number of officers taken into account under
clause (d) will not exceed the greater of 3 or 10% of the total number (after
application of the Code Sec.414(q) exclusions) of Employees, but no more than 50
officers. If no Employee satisfies the Compensation requirement in clause (d)
for the relevant year, the Advisory Committee will treat the highest paid
officer as satisfying clause (d) for that year.
For purposes of this Section 1.09, "Compensation" means Compensation as
defined in Section 1.12, except any exclusions from Compensation elected in the
Employer's Adoption Agreement Section 1.12 do not apply, and Compensation must
include "elective contributions" (as defined in Section 1.12). The Advisory
Committee must make the determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the top paid 20%
group, the top 100 paid Employees, the number of officers includible in clause
(d) and the relevant Compensation, consistent with Code Sec.414(q) and
regulations issued under that Code section. The Employer may make a calendar
year election to determine the Highly Compensated Employees for the Plan Year,
as prescribed by Treasury regulations. A calendar year election must apply to
all plans and arrangements of the Employer. For purposes of applying any
nondiscrimination test required under the Plan or under the Code, in a manner
consistent with applicable Treasury regulations, the Advisory Committee will
treat a Highly Compensated Employee and all family members (a spouse, a lineal
ascendant or descendant, or a spouse of a lineal ascendant or descendant) as a
single Highly Compensated Employee, but only if the Highly Compensated Employee
is a more than 5% owner or is one of the 10 Highly Compensated Employees with
the greatest Compensation for the Plan Year. This aggregation rule applies to a
family member even if that family member is a Highly Compensated Employee
without family aggregation.
1.04
<PAGE>
The term "Highly Compensated Employee" also includes any former Employee who
separated from Service (or has a deemed Separation from Service, as determined
under Treasury regulations) prior to the Plan Year, performs no Service for the
Employer during the Plan Year, and was a Highly Compensated Employee either for
the separation year or any Plan Year ending on or after his 55th birthday. If
the former Employee's Separation from Service occurred prior to January 1, 1987,
he is a Highly Compensated Employee only if he satisfied clause (a) of this
Section 1.09 or received Compensation in excess of $50,000 during: (1) the year
of his Separation from Service (or the prior year); or (2) any year ending after
his 54th birthday.
1.10 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.11 "Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to (and
the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.05
<PAGE>
1.12 "Compensation" means, except as provided in the Employer's Adoption
Agreement, the Participant's Earned Income, wages, salaries, fees for
professional service and other amounts received for personal services actually
rendered in the course of employment with the Employer maintaining the plan
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses). The Employer must elect in its Adoption Agreement
whether to include elective contributions in the definition of Compensation.
"Elective contributions" are amounts excludible from the Employee's gross income
under Code Sec.Sec.125, 402(a)(8), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code Sec.401(k) arrangement, a
Simplified Employee Pension, cafeteria plan or tax-sheltered annuity. The
term "Compensation" does not include:
(a) Employer contributions (other than "elective contributions," if includible
in the definition of Compensation under Section 1.12 of the Employer's
Adoption Agreement) to a plan of deferred compensation to the extent the
contributions are not included in the gross income of the Employee for the
taxable year in which contributed, on behalf of an Employee to a Simplified
Employee Pension Plan to the extent such contributions are excludible from the
Employee's gross income, and any distributions from a plan of deferred
compensation, regardless of whether such amounts are includible in the gross
income of the Employee when distributed.
(b) Amounts realized from the exercise of a non-qualified stock option, or
when restricted stock (or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture.
(c) Amounts realized from the sale, exchange or other disposition of stock
acquired under a stock option described in Part II, Subchapter D, Chapter 1 of
the Code.
(d) Other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums are not
includible in the gross income of the Employee), or contributions made by an
Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in Code Sec.403(b) (whether or not
the contributions are excludible from the gross income of the Employee), other
than "elective contributions," if elected in the Employer's Adoption
Agreement.
1.06
<PAGE>
Any reference in this Plan to Compensation is a reference to the definition in
this Section 1.12, unless the Plan reference specifies a modification to this
definition. The Advisory Committee will take into account only Compensation
actually paid for the relevant period. A Compensation payment includes
Compensation by the Employer through another person under the common paymaster
provisions in Code Sec.Sec.3121 and 3306.
(A) Limitations on Compensation.
(1) Compensation dollar limitation. For any Plan Year beginning after
December 31, 1988, the Advisory Committee must take into account only the first
$200,000 (or beginning January 1, 1990, such larger amount as the Commissioner
of Internal Revenue may prescribe) of any Participant's Compensation. For any
Plan Year beginning prior to January 1, 1989, this $200,000 limitation (but not
the family aggregation requirement described in the next paragraph) applies only
if the Plan is top heavy for such Plan Year or operates as a deemed top heavy
plan for such Plan Year.
(2) Application of compensation limitation to certain family members. The
$200,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.09 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation,
"Compensation" for each such Participant, for purposes of the contribution and
allocation provisions of Article III, means his Adjusted Compensation. Adjusted
Compensation is the amount which bears the same ratio to the $200,000 (or
adjusted) limitation as the affected Participant's Compensation (without regard
to the $200,000 Compensation limitation) bears to the combined Compensation of
all the affected Participants in the family unit. If the Plan uses permitted
disparity, the Advisory Committee must determine the integration level of each
affected family member Participant prior to the proration of the $200,000
Compensation limitation, but the combined integration level of the affected
Participants may not exceed $200,000 (or the adjusted limitation). The combined
Excess Compensation of the affected Participants in the family unit may not
exceed $200,000 (or the adjusted limitation) minus the affected Participants'
combined integration level (as determined under the preceding sentence). If the
combined Excess Compensation exceeds this limitation, the Advisory Committee
will prorate the Excess Compensation limitation among the affected Participants
in the family unit in proportion to each such individual's Adjusted Compensation
minus his integration level. If the Employer's Plan is a Nonstandardized Plan,
the Employer may elect to use a different
1.07
<PAGE>
method in determining the Adjusted Compensation of the affected Participants by
specifying that method in an addendum to the Adoption Agreement, numbered
Section 1.12.
(B) Nondiscrimination. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.12, except: (1) the Employer may elect
to include or to exclude elective contributions, irrespective of the Employer's
election in its Adoption Agreement regarding elective contributions; and (2) the
Employer will not give effect to any elections made in the "modifications to
Compensation definition" section of Adoption Agreement Section 1.12. The
Employer's election described in clause (1) must be consistent and uniform with
respect to all Employees and all plans of the Employer for any particular Plan
Year. If the Employer's Plan is a Nonstandardized Plan, the Employer,
irrespective of clause (2), may elect to exclude from this nondiscrimination
definition of Compensation any items of Compensation excludible under Code
Sec.414(s) and the applicable Treasury regulations, provided such adjusted
definition conforms to the nondiscrimination requirements of those regulations.
1.13 "Earned Income" means net earnings from self-employment in the trade or
business with respect to which the Employer has established the Plan, provided
personal services of the individual are a material income producing factor. The
Advisory Committee will determine net earnings without regard to items excluded
from gross income and the deductions allocable to those items. The Advisory
Committee will determine net earnings after the deduction allowed to the
Self-Employed Individual for all contributions made by the Employer to a
qualified plan and, for Plan Years beginning after December 31, 1989, the
deduction allowed to the Self-Employed under Code Sec.164(f) for self-employment
taxes.
1.14 "Account" means the separate account(s) which the Advisory Committee or
the Trustee maintains for a Participant under the Employer's Plan.
1.15 "Accrued Benefit" means the amount standing in a Participant's Account(s)
as of any date derived from both Employer contributions and Employee
contributions, if any.
1.16 "Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
1.08
<PAGE>
1.17 "Plan Year" means the fiscal year of the Plan, the consecutive month
period specified in the Employer's Adoption Agreement. The Employer's Adoption
Agreement also must specify the "Limitation Year" applicable to the limitations
on allocations described in Article III. If the Employer maintains Paired Plans,
each Plan must have the same Plan Year.
1.18 "Effective Date" of this Plan is the date specified in the Employer's
Adoption Agreement.
1.19 "Plan Entry Date" means the date(s) specified in Section 2.01 of the
Employer's Adoption Agreement.
1.20 "Accounting Date" is the last day of an Employer's Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee will make all Plan
allocations for a particular Plan Year as of the Accounting Date of that Plan
Year.
1.21 "Trust" means the separate Trust created under the Employer's Plan.
1.22 "Trust Fund" means all property of every kind held or acquired by the
Employer's Plan, other than incidental benefit insurance contracts.
1.23 "Nontransferable Annuity" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral for a loan
or security for the performance of an obligation or for any purpose to any
person other than the insurance company. If the Plan distributes an annuity
contract, the contract must be a Nontransferable Annuity.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.25 "Code" means the Internal Revenue Code of 1986, as amended.
1.26 "Service" means any period of time the Employee is in the employ of the
Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy applicable
to all Employees. "Separation from Service" means the Employee no longer has an
employment relationship with the Employer maintaining this Plan.
1.09
<PAGE>
1.27 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits Hours
of Service under this paragraph (a) to the Employee for the computation period
in which the Employee performs the duties, irrespective of when paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of damages,
to which the Employer has agreed or for which the Employee has received an
award. The Advisory Committee credits Hours of Service under this paragraph
(b) to the Employee for the computation period(s) to which the award or the
agreement pertains rather than for the computation period in which the award,
agreement or payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to payment
(irrespective of whether the employment relationship is terminated), for
reasons other than for the performance of duties during a computation period,
such as leave of absence, vacation, holiday, sick leave, illness, incapacity
(including disability), layoff, jury duty or military duty. The Advisory
Committee will credit no more than 501 Hours of Service under this paragraph
(c) to an Employee on account of any single continuous period during which the
Employee does not perform any duties (whether or not such period occurs during
a single computation period). The Advisory Committee credits Hours of Service
under this paragraph (c) in accordance with the rules of paragraphs (b) and
(c) of Labor Reg. Sec.2530.200b-2, which the Plan, by this reference,
specifically incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more than one
of the above paragraphs. A computation period for purposes of this Section 1.27
is the Plan Year, Year of Service period, Break in Service period or other
period, as determined under the Plan provision for which the Advisory Committee
is measuring an Employee's Hours of Service. The Advisory Committee will resolve
any ambiguity with respect to the crediting of an Hour of Service in favor of
the Employee.
1.010
<PAGE>
(A) Method of crediting Hours of Service. The Employer must elect in its
Adoption Agreement the method the Advisory Committee will use in crediting an
Employee with Hours of Service. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
If the Employer elects to apply an "equivalency" method, for each equivalency
period for which the Advisory Committee would credit the Employee with at least
one Hour of Service, the Advisory Committee will credit the Employee with: (i)
10 Hours of Service for a daily equivalency; (ii) 45 Hours of Service for a
weekly equivalency; (iii) 95 Hours of Service for a semimonthly payroll period
equivalency; and (iv) 190 Hours of Service for a monthly equivalency.
(B) Maternity/paternity leave. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Advisory Committee must credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the Employee's absence
is due to the Employee's pregnancy, the birth of the Employee's child, the
placement with the Employee of an adopted child, or the care of the Employee's
child immediately following the child's birth or placement. The Advisory
Committee credits Hours of Service under this paragraph on the basis of the
number of Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the number
(not exceeding 501) of Hours of Service necessary to prevent an Employee's Break
in Service. The Advisory Committee credits all Hours of Service described in
this paragraph to the computation period in which the absence period begins or,
if the Employee does not need these Hours of Service to prevent a Break in
Service in the computation period in which his absence period begins, the
Advisory Committee credits these Hours of Service to the immediately following
computation period.
1.011
<PAGE>
1.28 "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the permanent
loss or loss of use of a member or function of the body, or is permanently
disfigured, and incurs a Separation from Service. The Plan considers a
Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.28 in a nondiscriminatory, consistent and uniform manner. If the Employer's
Plan is a Nonstandardized Plan, the Employer may provide an alternate definition
of disability in an addendum to its Adoption Agreement, numbered Section 1.28.
1.29 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan of a
--------------------------------
predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer. If the Employer does not
maintain the plan of a predecessor employer, the Plan does not credit service
with the predecessor employer, unless the Employer identifies the predecessor in
its Adoption Agreement and specifies the purposes for which the Plan will credit
service with that predecessor employer.
1.30 RELATED EMPLOYERS. A related group is a controlled group of corporations
-----------------
(as defined in Code Sec.414(b)), trades or businesses (whether or not
incorporated) which are under common control (as defined in Code Sec.414(c)) or
an affiliated service group (as defined in Code Sec.414(m) or in Code
Sec.414(o)). If the Employer is a member of a related group, the term
"Employer" includes the related group members for purposes of crediting Hours
of Service, determining Years of Service and Breaks in Service under Articles
II and V, applying the Participation Test and the Coverage Test under Section
3.06(E), applying the limitations on allocations in Part 2 of Article III,
applying the top heavy rules and the minimum allocation requirements of Article
III, the definitions of Employee, Highly Compensated Employee, Compensation and
Leased Employee, and for any other purpose required by the applicable Code
section or by a Plan provision. However, an Employer may contribute to the Plan
only by being a signatory to the Execution Page of the Adoption Agreement or to
a Participation Agreement to the Employer's Adoption Agreement. If one or more
of the Employer's related group members become Participating Employers by
executing a Participation Agreement to the Employer's Adoption Agreement, the
term " Employer" includes the participating related group members for all
purposes of the Plan, and "Plan
1.012
<PAGE>
Administrator" means the Employer that is the signatory to the Execution Page of
the Adoption Agreement.
If the Employer's Plan is a Standardized Plan, all Employees of the Employer
or of any member of the Employer's related group, are eligible to participate in
the Plan, irrespective of whether the related group member directly employing
the Employee is a Participating Employer. If the Employer's Plan is a
Nonstandardized Plan, the Employer must specify in Section 1.07 of its Adoption
Agreement, whether the Employees of related group members that are not
Participating Employers are eligible to participate in the Plan. Under a
Nonstandardized Plan, the Employer may elect to exclude from the definition of
"Compensation" for allocation purposes any Compensation received from a related
employer that has not executed a Participation Agreement and whose Employees are
not eligible to participate in the Plan.
1.31 LEASED EMPLOYEES. The Plan treats a Leased Employee as an Employee of the
----------------
Employer. A Leased Employee is an individual (who otherwise is not an Employee
of the Employer) who, pursuant to a leasing agreement between the Employer and
any other person, has performed services for the Employer (or for the Employer
and any persons related to the Employer within the meaning of Code
Sec.144(a)(3)) on a substantially full time basis for at least one year and
who performs services historically performed by employees in the Employer's
business field. If a Leased Employee is treated as an Employee by reason of
this Section 1.31 of the Plan, "Compensation" includes Compensation from the
leasing organization which is attributable to services performed for the
Employer.
(A) Safe harbor plan exception. The Plan does not treat a Leased Employee as an
Employee if the leasing organization covers the employee in a safe harbor plan
and, prior to application of this safe harbor plan exception, 20% or less of the
Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Sec.415(c)(3) plus elective contributions (as
defined in Section 1.12).
1.013
<PAGE>
(B) Other requirements. The Advisory Committee must apply this Section 1.31 in a
manner consistent with Code Sec.Sec.414(n) and 414(o) and the regulations
issued under those Code sections. The Employer must specify in the Adoption
Agreement the manner in which the Plan will determine the allocation of
Employer contributions and Participant forfeitures on behalf of a Participant
if the Participant is a Leased Employee covered by a plan maintained by the
leasing organization.
1.32 SPECIAL RULES FOR OWNER-EMPLOYEES. The following special provisions and
---------------------------------
restrictions apply to Owner-Employees:
(a) If the Plan provides contributions or benefits for an Owner-Employee or
for a group of Owner-Employees who controls the trade or business with respect
to which this Plan is established and the Owner-Employee or Owner-Employees
also control as Owner-Employees one or more other trades or businesses, plans
must exist or be established with respect to all the controlled trades or
businesses so that when the plans are combined they form a single plan which
satisfies the requirements of Code Sec.401(a) and Code Sec.401(d) with
respect to the employees of the controlled trades or businesses.
(b) The Plan excludes an Owner-Employee or group of Owner-Employees if the
Owner-Employee or group of Owner-Employees controls any other trade or
business, unless the employees of the other controlled trade or business
participate in a plan which satisfies the requirements of Code Sec.401(a) and
Code Sec.401(d). The other qualified plan must provide contributions and
benefits which are not less favorable than the contributions and benefits
provided for the Owner-Employee or group of Owner-Employees under this Plan,
or if an Owner-Employee is covered under another qualified plan as an
Owner-Employee, then the plan established with respect to the trade or
business he does control must provide contributions or benefits as favorable
as those provided under the most favorable plan of the trade or business he
does not control. If the exclusion of this paragraph (b) applies and the
Employer's Plan is a Standardized Plan, the Employer may not participate or
continue to participate in this Prototype Plan and the Employer's Plan
becomes an individually-designed plan for purposes of qualification reliance.
(c) For purposes of paragraphs (a) and (b) of this Section 1.32, an
Owner-Employee or group of Owner-Employees controls a trade or business if the
Owner-Employee or Owner-Employees together (1) own the entire interest in an
unincorporated trade or business, or (2) in the case of a partnership, own
more than 50% of either the capital interest or the profits interest in the
partnership.
1.014
<PAGE>
1.33 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified
---------------------------------
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The top heavy ratio is
a fraction, the numerator of which is the sum of the present value of Accrued
Benefits of all Key Employees as of the Determination Date and the denominator
of which is a similar sum determined for all Employees. The Advisory Committee
must include in the top heavy ratio, as part of the present value of Accrued
Benefits, any contribution not made as of the Determination Date but includible
under Code Sec.416 and the applicable Treasury regulations, and distributions
made within the Determination Period. The Advisory Committee must calculate the
top heavy ratio by disregarding the Accrued Benefit (and distributions, if any,
of the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee,
and by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not received credit for at least one
Hour of Service with the Employer during the Determination Period. The Advisory
Committee must calculate the top heavy ratio, including the extent to which it
must take into account distributions, rollovers and transfers, in accordance
with Code Sec.416 and the regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is terminated,
this Plan is top heavy only if it is part of the Required Aggregation Group, and
the top heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds 60%. The Advisory Committee will
calculate the top heavy ratio in the same manner as required by the first
paragraph of this Section 1.33, taking into account all plans within the
Aggregation Group. To the extent the Advisory Committee must take into account
distributions to a Participant, the Advisory Committee must include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the Determination Date. The
Advisory Committee will calculate the present value of accrued benefits under
defined benefit plans or simplified employee pension plans included within the
group in accordance with the terms of those plans, Code Sec.416 and the
regulations under that Code section. If a Participant in a defined benefit plan
is a Non-Key Employee, the Advisory Committee will determine his accrued
benefit under the accrual method, if any, which is applicable uniformly to all
defined benefit plans maintained by the Employer or, if there is no uniform
method, in accordance with the slowest accrual rate permitted under the
fractional rule accrual method described in Code Sec.411(b)(1)(C). If the
Employer maintains a defined benefit plan, the Employer must specify in
Adoption Agreement Section 3.18 the actuarial assumptions (interest and
mortality only) the Advisory Committee will use to calculate the present value
of
1.015
<PAGE>
benefits from a defined benefit plan. If an aggregated plan does not have a
valuation date coinciding with the Determination Date, the Advisory Committee
must value the Accrued Benefits in the aggregated plan as of the most recent
valuation date falling within the twelve-month period ending on the
Determination Date, except as Code Sec.416 and applicable Treasury regulations
require for the first and second plan year of a defined benefit plan. The
Advisory Committee will calculate the top heavy ratio with reference to the
Determination Dates that fall within the same calendar year.
(A) Standardized Plan. If the Employer's Plan is a Standardized Plan, the Plan
operates as a deemed top heavy plan in all Plan Years, except, if the
Standardized Plan includes a Code Sec.401(k) arrangement, the Employer may
elect to apply the top heavy requirements only in Plan Years for which the Plan
actually is top heavy. Under a deemed top heavy plan, the Advisory Committee
need not determine whether the Plan actually is top heavy. However, if the
Employer, in Adoption Agreement Section 3.18, elects to override the 100%
limitation, the Advisory Committee will need to determine whether a deemed top
heavy Plan's top heavy ratio for a Plan Year exceeds 90%.
(B) Definitions. For purposes of applying the provisions of this Section 1.33:
(1) "Key Employee" means, as of any Determination Date, any Employee or former
Employee (or Beneficiary of such Employee) who, for any Plan Year in the
Determination Period: (i) has Compensation in excess of 50% of the dollar
amount prescribed in Code Sec.415(b)(1)(A) (relating to defined benefit plans)
and is an officer of the Employer; (ii) has Compensation in excess of the
dollar amount prescribed in Code Sec.415(c)(1)(A) (relating to defined
contribution plans) and is one of the Employees owning the ten largest
interests in the Employer; (iii) is a more than 5% owner of the Employer; or
(iv) is a more than 1% owner of the Employer and has Compensation of more than
$150,000. The constructive ownership rules of Code Sec.318 (or the principles
of that section, in the case of an unincorporated Employer,) will apply to
determine ownership in the Employer. The number of officers taken into account
under clause (i) will not exceed the greater of 3 or 10% of the total number
(after application of the Code Sec.414(q) exclusions) of Employees, but no
more than 50 officers. The Advisory Committee will make the determination of
who is a Key Employee in accordance with Code Sec.416(i)(1) and the
regulations under that Code section.
(2) "Non-Key Employee" is an employee who does not meet the definition of Key
Employee.
(3) "Compensation" means Compensation as determined under Section 1.09 for
purposes of identifying Highly Compensated Employees.
1.016
<PAGE>
(4) "Required Aggregation Group" means: (i) each qualified plan of the
Employer in which at least one Key Employee participates at any time during
the Determination Period; and (ii) any other qualified plan of the Employer
which enables a plan described in clause (i) to meet the requirements of Code
Sec.401(a)(4) or of Code Sec.410.
(5) "Permissive Aggregation Group" is the Required Aggregation Group plus any
other qualified plans maintained by the Employer, but only if such group would
satisfy in the aggregate the requirements of Code Sec.401(a)(4) and of Code
Sec.410. The Advisory Committee will determine the Permissive Aggregation
Group.
(6) "Employer" means the Employer that adopts this Plan and any related
employers described in Section 1.30.
(7) "Determination Date" for any Plan Year is the Accounting Date of the
preceding Plan Year or, in the case of the first Plan Year of the Plan, the
Accounting Date of that Plan Year. The "Determination Period" is the 5 year
period ending on the Determination Date.
1.34 "Paired Plans" means the Employer has adopted two Standardized Plan
Adoption Agreements offered with this Prototype Plan, one Adoption Agreement
being a Paired Profit Sharing Plan and one Adoption Agreement being a Paired
Pension Plan. A Paired Profit Sharing Plan may include a Code Sec.401(k)
arrangement. A Paired Pension Plan must be a money purchase pension plan or a
target benefit pension plan. Paired Plans must be the subject of a favorable
opinion letter issued by the National Office of the Internal Revenue Service.
This Prototype Plan does not pair any of its Standardized Plan Adoption
Agreements with Standardized Plan Adoption Agreements under a defined benefit
prototype plan.
* * * * * * * * * * * * * * *
1.17
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee becomes a Participant in the Plan in
-----------
accordance with the participation option selected by the Employer in its
Adoption Agreement. If this Plan is a restated Plan, each Employee who was a
Participant in the Plan on the day before the Effective Date continues as a
Participant in the Plan, irrespective of whether he satisfies the participation
conditions in the restated Plan, unless otherwise provided in the Employer's
Adoption Agreement.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
-------------------------------
participation in the Plan under Adoption Agreement Section 2.01, the Plan takes
into account all of his Years of Service with the Employer, except as provided
in Section 2.03. "Year of Service" means an eligibility computation period
during which the Employee completes not less than the number of Hours of Service
specified in the Employer's Adoption Agreement. The initial eligibility
computation period is the first 12 consecutive month period measured from the
Employment Commencement Date. The Plan measures succeeding eligibility
computation periods in accordance with the option selected by the Employer in
its Adoption Agreement. If the Employer elects to measure subsequent periods on
a Plan Year basis, an Employee who receives credit for the required number of
Hours of Service during the initial eligibility computation period and during
the first applicable Plan Year will receive credit for two Years of Service
under Article II. "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for the Employer. If the Employer
elects a service condition under Adoption Agreement Section 2.01 based on
months, the Plan does not apply any Hour of Service requirement after the
completion of the first Hour of Service.
2.03 BREAK IN SERVICE - PARTICIPATION. An Employee incurs a "Break in
----------------------------------
Service" if during any 12 consecutive month period he does not complete more
than 500 Hours of Service with the Employer. The "12 consecutive month period"
under this Section 2.03 is the same 12 consecutive month period for which the
Plan measures "Years of Service" under Section 2.02.
(A) 2-year Eligibility. If the Employer elects a 2 years of service condition
for eligibility purposes under Adoption Agreement Section 2.01, the Plan treats
an Employee who incurs a one year Break in Service and who has never become a
Participant as a new Employee on the date he first performs an Hour of Service
for the Employer after the Break in Service.
2.01
<PAGE>
(B) Suspension of Years of Service. The Employer must elect in its Adoption
Agreement whether a Participant will incur a suspension of Years of Service
after incurring a one year Break in Service. If this rule applies under the
Employer's Plan, the Plan disregards a Participant's Years of Service (as
defined in Section 2.02) earned prior to a Break in Service until the
Participant completes another Year of Service and the Plan suspends the
Participant's participation in the Plan. If the Participant completes a Year of
Service following his Break in Service, the Plan restores that Participant's
pre-Break Years of Service (and the Participant resumes active participation in
the Plan) retroactively to the first day of the computation period in which the
Participant earns the first post-Break Year of Service. The initial computation
period under this Section 2.03(B) is the 12 consecutive month period measured
from the date the Participant first receives credit for an Hour of Service
following the one year Break in Service period. The Plan measures any subsequent
periods, if necessary, in a manner consistent with the computation period
selection in Adoption Agreement Section 2.02. This Section 2.03(B) does not
affect a Participant's vesting credit under Article V and, during a suspension
period, the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.11. Furthermore, this Section 2.03(B) will not
result in the restoration of any Year of Service disregarded under the Break in
Service rule of Section 2.03(A).
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
--------------------------------
with the Employer terminates will re-enter the Plan as a Participant on the date
of his re-employment, subject to the Break in Service rule, if applicable, under
Section 2.03(B). An Employee who satisfies the Plan's eligibility conditions but
who terminates employment with the Employer prior to becoming a Participant will
become a Participant on the later of the Plan Entry Date on which he would have
entered the Plan had he not terminated employment or the date of his
re-employment, subject to the Break in Service rule, if applicable, under
Section 2.03(B). Any Employee who terminates employment prior to satisfying the
Plan's eligibility conditions becomes a Participant in accordance with Adoption
Agreement Section 2.01.
2.02
<PAGE>
2.05 CHANGE IN EMPLOYEE STATUS. If a Participant has not incurred a
-------------------------
Separation from Service but ceases to be eligible to participate in the Plan, by
reason of employment within an employment classification excluded by the
Employer under Adoption Agreement Section 1.07, the Advisory Committee must
treat the Participant as an Excluded Employee during the period such a
Participant is subject to the Adoption Agreement exclusion. The Advisory
Committee determines a Participant's sharing in the allocation of Employer
contributions and Participant forfeitures, if applicable, by disregarding his
Compensation paid by the Employer for services rendered in his capacity as an
Excluded Employee. However, during such period of exclusion, the Participant,
without regard to employment classification, continues to receive credit for
vesting under Article V for each included Year of Service and the Participant's
Account continues to share fully in Trust Fund allocations under Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.06 ELECTION NOT TO PARTICIPATE. If the Employer's Plan is a Standardized
---------------------------
Plan, the Plan does not permit an otherwise eligible Employee nor any
Participant to elect not to participate in the Plan. If the Employer's Plan is a
Nonstandardized Plan, the Employer must specify in its Adoption Agreement
whether an Employee eligible to participate, or any present Participant, may
elect not to participate in the Plan. For an election to be effective for a
particular Plan Year, the Employee or Participant must file the election in
writing with the Plan Administrator not later than the time specified in the
Employer's Adoption Agreement. The Employer may not make a contribution under
the Plan for the Employee or for the Participant for the Plan Year for which the
election is effective, nor for any succeeding Plan Year, unless the Employee or
Participant re-elects to participate in the Plan. After an Employee's or
Participant's election not to participate has been effective for at least the
minimum period prescribed by the Employer's Adoption Agreement, the Employee or
Participant may re-elect to participate in the Plan for any Plan Year and
subsequent Plan Years. An Employee or Participant may re-elect to participate in
the Plan by filing his election in writing with the Plan Administrator not later
than the time specified in the Employer's Adoption Agreement. An Employee or
Participant who re-elects to participate may again elect not to participate only
as
2.03
<PAGE>
permitted in the Employer's Adoption Agreement. If an Employee is a Self-
Employed Individual, the Employee's election (except as permitted by Treasury
regulations without creating a Code Sec.401(k) arrangement with respect to that
Self-Employed Individual) must be effective no later than the date the Employee
first would become a Participant in the Plan and the election is irrevocable.
The Plan Administrator must furnish an Employee or a Participant any form
required for purposes of an election under this Section 2.06. An election timely
filed is effective for the entire Plan Year.
A Participant who elects not to participate may not receive a distribution of
his Accrued Benefit attributable either to Employer or to Participant
contributions except as provided under Article IV or under Article VI. However,
for each Plan Year for which a Participant's election not to participate is
effective, the Participant's Account, if any, continues to share in Trust Fund
allocations under Article IX. Furthermore, the Employee or the Participant
receives vesting credit under Article V for each included Year of Service during
the period the election not to participate is effective.
* * * * * * * * * * * * * * *
2.04
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
Part 1. Amount of Employer Contributions and Plan Allocations: Sections 3.01
--------------------------------------------------------------------
through 3.06
- ------------
3.01 AMOUNT. For each Plan Year, the Employer contributes to the Trust the
------
amount determined by application of the contribution option selected by the
Employer in its Adoption Agreement. The Employer may not make a contribution to
the Trust for any Plan Year to the extent the contribution would exceed the
Participants' Maximum Permissible Amounts.
The Employer contributes to this Plan on the condition its contribution is not
due to a mistake of fact and the Revenue Service will not disallow the deduction
for its contribution. The Trustee, upon written request from the Employer, must
return to the Employer the amount of the Employer's contribution made by the
Employer by mistake of fact or the amount of the Employer's contribution
disallowed as a deduction under Code Sec.404. The Trustee will not return any
portion of the Employer's contribution under the provisions of this paragraph
more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then, only to the
extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
-----------------------------
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
3.01
<PAGE>
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution
-------------------------------
for each Plan Year in one or more installments without interest. The Employer
must make its contribution to the Plan within the time prescribed by the Code or
applicable Treasury regulations. Subject to the consent of the Trustee, the
Employer may make its contribution in property rather than in cash, provided the
contribution of property is not a prohibited transaction under the Code or under
ERISA.
3.04 CONTRIBUTION ALLOCATION.
-----------------------
(A) Method of Allocation. The Employer must specify in its Adoption Agreement
the manner of allocating each annual Employer contribution to this Trust.
(B) Top Heavy Minimum Allocation. The Plan must comply with the provisions of
this Section 3.04(B), subject to the elections in the Employer's Adoption
Agreement.
(1) Top Heavy Minimum Allocation Under Standardized Plan. Subject to the
Employer's election under Section 3.04(B)(3), the top heavy minimum
allocation requirement applies to a Standardized Plan for each Plan Year,
irrespective of whether the Plan is top heavy.
(a) Each Participant employed by the Employer on the last day of the Plan
Year will receive a top heavy minimum allocation for that Plan Year. The
Employer may elect in Section 3.04 of its Adoption Agreement to apply this
paragraph (a) only to a Participant who is a Non-Key Employee.
(b) Subject to any overriding elections in Section 3.18 of the Employer's
Adoption Agreement, the top heavy minimum allocation is the lesser of 3%
of the Participant's Compensation for the Plan Year or the highest
contribution rate for the Plan Year made on behalf of any Participant for
the Plan Year. However, if the Employee participates in Paired Plans, the
top heavy minimum allocation is 3% of his Compensation. If, under Adoption
Agreement Section 3.04, the Employer elects to apply paragraph (a) only to
a Participant who is a Non-Key Employee, the Advisory Committee will
determine the "highest contribution rate" described in the first sentence
of this paragraph (b) by reference only to the contribution rates of
Participants who are Key Employees for the Plan Year.
3.02
<PAGE>
(2) Top Heavy Minimum Allocation Under Nonstandardized Plan. The top heavy
minimum allocation requirement applies to a Nonstandardized Plan only in Plan
Years for which the Plan is top heavy. Except as provided in the Employer's
Adoption Agreement, if the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed by the
Employer on the last day of the Plan Year will receive a top heavy minimum
allocation for that Plan Year, irrespective of whether he satisfies the
Hours of Service condition under Section 3.06 of the Employer's Adoption
Agreement; and
(b) The top heavy minimum allocation is the lesser of 3% of the Non-Key
Employee's Compensation for the Plan Year or the highest contribution rate
for the Plan Year made on behalf of any Key Employee. However, if a
defined benefit plan maintained by the Employer which benefits a Key
Employee depends on this Plan to satisfy the antidiscrimination rules of
Code Sec.401(a)(4) or the coverage rules of Code Sec.410 (or another plan
benefiting the Key Employee so depends on such defined benefit plan), the
top heavy minimum allocation is 3% of the Non-Key Employee's Compensation
regardless of the contribution rate for the Key Employees.
(3) Special Election for Standardized Code Sec.401(k) Plan. If the Employer's
Plan is a Standardized Code Sec.401(k) Plan, the Employer may elect in Adoption
Agreement Section 3.04 to apply the top heavy minimum allocation requirements of
Section 3.04(B)(1) only for Plan Years in which the Plan actually is a top heavy
plan.
(4) Special Definitions. For purposes of this Section 3.04(B), the term
"Participant" includes any Employee otherwise eligible to participate in the
Plan but who is not a Participant because of his Compensation level or because
of his failure to make elective deferrals under a Code Sec.401(k) arrangement or
because of his failure to make mandatory contributions. For purposes of
subparagraph (1)(b) or (2)(b), "Compensation" means Compensation as defined in
Section 1.12, except Compensation does not include elective contributions,
irrespective of whether the Employer has elected to include these amounts in
Section 1.12 of its Adoption Agreement, any exclusion selected in Section 1.12
of the Adoption Agreement (other than the exclusion of elective contributions)
does not apply, and any modification to the definition of Compensation in
Section 3.06 does not apply.
3.03
<PAGE>
(5) Determining Contribution Rates. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of all Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the entire Plan Year. However, for purposes of satisfying a Participant's top
heavy minimum allocation in Plan Years beginning after December 31, 1988, the
Participant's contribution rate does not include any elective contributions
under a Code Sec.401(k) arrangement nor any Employer matching contributions
allocated on the basis of those elective contributions or on the basis of
employee contributions, except a Nonstandardized Plan may include in the
contribution rate any matching contributions not necessary to satisfy the
nondiscrimination requirements of Code Sec.401(k) or of Code Sec.401(m).
If the Employee is a Participant in Paired Plans, the Advisory Committee will
consider the Paired Plans as a single Plan to determine a Participant's
contribution rate and to determine whether the Plans satisfy this top heavy
minimum allocation requirement. To determine a Participant's contribution rate
under a Nonstandardized Plan, the Advisory Committee must treat all qualified
top heavy defined contribution plans maintained by the Employer (or by any
related Employers described in Section 1.30) as a single plan.
(6) No Allocations. If, for a Plan Year, there are no allocations of Employer
contributions or forfeitures for any Participant (for purposes of Section 3.04
(B)(1)(b)) or for any Key Employee (for purposes of Section 3.04(B)(2)(b)), the
Plan does not require any top heavy minimum allocation for the Plan Year, unless
a top heavy minimum allocation applies because of the maintenance by the
Employer of more than one plan.
(7) Election of Method. The Employer must specify in its Adoption Agreement
the manner in which the Plan will satisfy the top heavy minimum allocation
requirement.
3.04
<PAGE>
(a) If the Employer elects to make any necessary additional contribution to
this Plan, the Advisory Committee first will allocate the Employer
contributions (and Participant forfeitures, if any) for the Plan Year in
accordance with the provisions of Adoption Agreement Section 3.04. The
Employer then will contribute an additional amount for the Account of any
Participant entitled under this Section 3.04(B) to a top heavy minimum
allocation and whose contribution rate for the Plan Year, under this Plan and
any other plan aggregated under paragraph (5), is less than the top heavy
minimum allocation. The additional amount is the amount necessary to increase
the Participant's contribution rate to the top heavy minimum allocation. The
Advisory Committee will allocate the additional contribution to the Account of
the Participant on whose behalf the Employer makes the contribution.
(b) If the Employer elects to guarantee the top heavy minimum allocation under
another plan, this Plan does not provide the top heavy minimum allocation and
the Advisory Committee will allocate the annual Employer contributions (and
Participant forfeitures) under the Plan solely in accordance with the
allocation method selected under Adoption Agreement Section 3.04.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit
---------------------
forfeited under the Plan is a Participant forfeiture. The Advisory Committee
will allocate Participant forfeitures in the manner specified by the Employer in
its Adoption Agreement. The Advisory Committee will continue to hold the
undistributed, non-vested portion of a terminated Participant's Accrued Benefit
in his Account solely for his benefit until a forfeiture occurs at the time
specified in Section 5.09 or if applicable, until the time specified in Section
9.14. Except as provided under Section 5.04, a Participant will not share in the
allocation of a forfeiture of any portion of his Accrued Benefit.
3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual
------------------
of benefit (Employer contributions and Participant forfeitures) on the basis of
the Plan Year in accordance with the Employer's elections in its Adoption
Agreement.
(A) Compensation Taken Into Account. The Employer must specify in its Adoption
Agreement the Compensation the Advisory Committee is to take into account in
allocating an Employer contribution to a Participant's Account for the Plan Year
in which the Employee first becomes a Participant. For all other Plan Years, the
Advisory Committee will take into account only the Compensation determined for
the portion of the Plan Year in which the Employee actually is a Participant.
The Advisory Committee must take into account the Employee's entire Compensation
for the Plan Year to determine whether the Plan satisfies the top heavy minimum
allocation requirement of
3.05
<PAGE>
Section 3.04(B). The Employer, in an addendum to its Adoption Agreement numbered
3.06(A), may elect to measure Compensation for the Plan Year for allocation
purposes on the basis of a specified period other than the Plan Year.
(B) Hours of Service Requirement. Subject to the applicable minimum allocation
requirement of Section 3.04, the Advisory Committee will not allocate any
portion of an Employer contribution for a Plan Year to any Participant's Account
if the Participant does not complete the applicable minimum Hours of Service
requirement specified in the Employer's Adoption Agreement.
(C) Employment Requirement. If the Employer's Plan is a Standardized Plan, a
Participant who, during a particular Plan Year, completes the accrual
requirements of Adoption Agreement Section 3.06 will share in the allocation of
Employer contributions for that Plan Year without regard to whether he is
employed by the Employer on the Accounting Date of that Plan Year. If the
Employer's Plan is a Nonstandardized Plan, the Employer must specify in its
Adoption Agreement whether the Participant will accrue a benefit if he is not
employed by the Employer on the Accounting Date of the Plan Year. If the
Employer's Plan is a money purchase plan or a target benefit plan, whether
Nonstandardized or Standardized, the Plan conditions benefit accrual on
employment with the Employer on the last day of the Plan Year for the Plan Year
in which the Employer terminates the Plan.
(D) Other Requirements. If the Employer's Adoption Agreement includes options
for other requirements affecting the Participant's accrual of benefits under the
Plan, the Advisory Committee will apply this Section 3.06 in accordance with the
Employer's Adoption Agreement selections.
3.06
<PAGE>
(E) Suspension of Accrual Requirements Under Nonstandardized Plan. If the
Employer's Plan is a Nonstandardized Plan, the Employer may elect in its
Adoption Agreement to suspend the accrual requirements elected under Adoption
Agreement Section 3.06 if, for any Plan Year beginning after December 31, 1989,
the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan
satisfies the Participation Test if, on each day of the Plan Year, the number of
Employees who benefit under the Plan is at least equal to the lesser of 50 or
40% of the total number of Includible Employees as of such day. A Plan satisfies
the Coverage Test if, on the last day of each quarter of the Plan Year, the
number of Nonhighly Compensated Employees who benefit under the Plan is at least
equal to 70% of the total number of Includible Nonhighly Compensated Employees
as of such day. "Includible" Employees are all Employees other than: (1) those
Employees excluded from participating in the Plan for the entire Plan Year by
reason of the collective bargaining unit exclusion or the nonresident alien
exclusion under Adoption Agreement Section 1.07 or by reason of the
participation requirements of Sections 2.01 and 2.03; and (2) any Employee who
incurs a Separation from Service during the Plan Year and fails to complete at
least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee"
is an Employee who is not a Highly Compensated Employee and who is not a family
member aggregated with a Highly Compensated Employee pursuant to Section 1.09 of
the Plan.
For purposes of the Participation Test and the Coverage Test, an Employee is
benefiting under the Plan on a particular date if, under Adoption Agreement
Section 3.04, he is entitled to an allocation for the Plan Year. Under the
Participation Test, when determining whether an Employee is entitled to an
allocation under Adoption Agreement Section 3.04, the Advisory Committee will
disregard any allocation required solely by reason of the top heavy minimum
allocation, unless the top heavy minimum allocation is the only allocation made
under the Plan for the Plan Year.
If this Section 3.06(E) applies for a Plan Year, the Advisory Committee will
suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Separation from Service during the Plan Year, and continuing to
suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies both the
Participation Test and the Coverage Test for the Plan Year. If two or more
Includible Employees have a Separation from Service on the same day, the
Advisory Committee will suspend the accrual requirements for all such Includible
Employees, irrespective of whether the Plan can satisfy the Participation Test
and the
3.07
<PAGE>
Coverage Test by accruing benefits for fewer than all such Includible Employees.
If the Plan suspends the accrual requirements for an Includible Employee, that
Employee will share in the allocation of Employer contributions and Participant
forfeitures, if any, without regard to the number of Hours of Service he has
earned for the Plan Year and without regard to whether he is employed by the
Employer on the last day of the Plan Year. If the Employer's Plan includes
Employer matching contributions subject to Code Sec.401(m), this suspension of
accrual requirements applies separately to the Code Sec.401(m) portion of the
Plan, and the Advisory Committee will treat an Employee as benefiting under that
portion of the Plan if he is an Eligible Employee for purposes of the Code
Sec.401(m) nondiscrimination test. The Employer may modify the operation of this
Section 3.06(E) by electing appropriate modifications in Section 3.06 of its
Adoption Agreement.
Part 2. Limitations On Allocations: Sections 3.07 through 3.19
------------------------------------------------------
[Note: Sections 3.07 through 3.10 apply only to Participants in this Plan who
do not participate, and who have never participated, in another qualified plan
or in a welfare benefit fund (as defined in Code Sec.419(e)) maintained by the
Employer.]
3.07 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount. If the amount the Employer otherwise
would contribute to the Participant's Account would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible Amount, the Employer
will reduce the amount of its contribution so the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount. If an allocation of
Employer contributions, pursuant to Section 3.04, would result in an Excess
Amount (other than an Excess Amount resulting from the circumstances described
in Section 3.10) to the Participant's Account, the Advisory Committee will
reallocate the Excess Amount to the remaining Participants who are eligible for
an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Advisory Committee will make this reallocation on the
basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer contributions.
3.08
<PAGE>
3.08 Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Advisory Committee may determine the Maximum
Permissible Amount on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee must make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contributions
(including any allocation of forfeitures) based on estimated annual Compensation
by any Excess Amounts carried over from prior years.
3.09 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum Permissible
Amount for such Limitation Year on the basis of the Participant's actual
Compensation for such Limitation Year.
3.10 If, pursuant to Section 3.09, or because of the allocation of
forfeitures, there is an Excess Amount with respect to a Participant for a
Limitation Year, the Advisory Committee will dispose of such Excess Amount as
follows:
(a) The Advisory Committee will return any nondeductible voluntary Employee
contributions to the Participant to the extent the return would reduce the
Excess Amount.
(b) If, after the application of paragraph (a), an Excess Amount still exists,
and the Plan covers the Participant at the end of the Limitation Year, then
the Advisory Committee will use the Excess Amount(s) to reduce future Employer
contributions (including any allocation of forfeitures) under the Plan for the
next Limitation Year and for each succeeding Limitation Year, as is necessary,
for the Participant. If the Employer's Plan is a profit sharing plan, the
Participant may elect to limit his Compensation for allocation purposes to the
extent necessary to reduce his allocation for the Limitation Year to the
Maximum Permissible Amount and eliminate the Excess Amount.
(c) If, after the application of paragraph (a), an Excess Amount still exists,
and the Plan does not cover the Participant at the end of the Limitation Year,
then the Advisory Committee will hold the Excess Amount unallocated in a
suspense account. The Advisory Committee will apply the suspense account to
reduce Employer Contributions (including allocation of forfeitures) for all
remaining Participants in the next Limitation Year, and in each succeeding
Limitation Year if necessary. Neither the Employer nor any Employee may
contribute to the Plan for any Limitation Year in which the Plan is unable to
allocate fully a suspense account maintained pursuant to this paragraph (c).
3.09
<PAGE>
(d) The Advisory Committee will not distribute any Excess Amount(s) to
Participants or to former Participants.
[Note: Sections 3.11 through 3.16 apply only to Participants who, in addition
to this Plan, participate in one or more plans (including Paired Plans), all of
which are qualified Master or Prototype defined contribution plans or welfare
benefit funds (as defined in Code Sec.419(e)) maintained by the Employer during
the Limitation Year.]
3.11 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount, reduced by the sum of any Annual
Additions allocated to the Participant's Accounts for the same Limitation Year
under this Plan and such other defined contribution plan. If the amount the
Employer otherwise would contribute to the Participant's Account under this Plan
would cause the Annual Additions for the Limitation Year to exceed this
limitation, the Employer will reduce the amount of its contribution so the
Annual Additions under all such plans for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.10) to the Participant's
Account, the Advisory Committee will reallocate the Excess Amount to the
remaining Participants who are eligible for an allocation of Employer
contributions for the Plan Year in which the Limitation Year ends. The Advisory
Committee will make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Account otherwise would receive the
Excess Amount is not eligible for an allocation of Employer contributions.
3.12 Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the Advisory Committee may determine the amounts
referred to in 3.11 above on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee will make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contribution
(including allocation of forfeitures) based on estimated annual Compensation by
any Excess Amounts carried over from prior years.
3.13 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the amounts referred to
in 3.11 on the basis of the Participant's actual Compensation for such
Limitation Year.
3.010
<PAGE>
3.14 If pursuant to Section 3.13, or because of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and all such other
plans result in an Excess Amount, such Excess Amount will consist of the Amounts
last allocated. The Advisory Committee will determine the Amounts last allocated
by treating the Annual Additions attributable to a welfare benefit fund as
allocated first, irrespective of the actual allocation date under the welfare
benefit fund.
3.15 The Employer must specify in its Adoption Agreement the Excess Amount
attributed to this Plan, if the Advisory Committee allocates an Excess Amount to
a Participant on an allocation date of this Plan which coincides with an
allocation date of another plan.
3.16 The Advisory Committee will dispose of any Excess Amounts attributed
to this Plan as provided in Section 3.10.
[Note: Section 3.17 applies only to Participants who, in addition to this
Plan, participate in one or more qualified plans which are qualified defined
contribution plans other than a Master or Prototype plan maintained by the
Employer during the Limitation Year.]
3.17 SPECIAL ALLOCATION LIMITATION. The amount of Annual Additions which
-----------------------------
the Advisory Committee may allocate under this Plan on behalf of any
Participant are limited in accordance with the provisions of Section 3.11
through 3.16, as though the other plan were a Master or Prototype plan, unless
the Employer provides other limitations in an addendum to the Adoption
Agreement, numbered Section 3.17.
3.18 DEFINED BENEFIT PLAN LIMITATION. If the Employer maintains a defined
-------------------------------
benefit plan, or has ever maintained a defined benefit plan which the Employer
has terminated, then the sum of the defined benefit plan fraction and the
defined contribution plan fraction for any Participant for any Limitation Year
must not exceed 1.0. The Employer must provide in Adoption Agreement Section
3.18 the manner in which the Plan will satisfy this limitation. The Employer
also must provide in its Adoption Agreement Section 3.18 the manner in which the
Plan will satisfy the top heavy requirements of Code Sec.416 after taking into
account the existence (or prior maintenance) of the defined benefit plan.
3.011
<PAGE>
3.19 DEFINITIONS - ARTICLE III. For purposes of Article III, the following
-------------------------
terms mean:
(a) "Annual Addition" - The sum of the following amounts allocated on behalf
of a Participant for a Limitation Year, of (i) all Employer contributions;
(ii) all forfeitures; and (iii) all Employee contributions. Except to the
extent provided in Treasury regulations, Annual Additions include excess
contributions described in Code Sec.401(k), excess aggregate contributions
described in Code Sec.401(m) and excess deferrals described in Code
Sec.402(g), irrespective of whether the plan distributes or forfeits such
excess amounts. Annual Additions also include Excess Amounts reapplied to
reduce Employer contributions under Section 3.10. Amounts allocated after
March 31, 1984, to an individual medical account (as defined in Code
Sec.415(l)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable years
ending after December 31, 1985, attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as defined in
Code Sec.419A(d)(3)) under a welfare benefit fund (as defined in Code
Sec.419(e)) maintained by the Employer.
(b) "Compensation" - For purposes of applying the limitations of Part 2 of
this Article III, "Compensation" means Compensation as defined in Section
1.12, except Compensation does not include elective contributions,
irrespective of whether the Employer has elected to include these amounts as
Compensation under Section 1.12 of its Adoption Agreement, and any exclusion
selected in Section 1.12 of the Adoption Agreement (other than the exclusion
of elective contributions) does not apply.
(c) "Employer" - The Employer that adopts this Plan and any related employers
described in Section 1.30. Solely for purposes of applying the limitations of
Part 2 of this Article III, the Advisory Committee will determine related
employers described in Section 1.30 by modifying Code Sec.414(b) and (c)
in accordance with Code Sec.415(h).
(d) "Excess Amount" - The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
3.012
<PAGE>
(e) "Limitation Year" - The period selected by the Employer under Adoption
Agreement Section 1.17. All qualified plans of the Employer must use the same
Limitation Year. If the Employer amends the Limitation Year to a different 12
consecutive month period, the new Limitation Year must begin on a date within
the Limitation Year for which the Employer makes the amendment, creating a
short Limitation Year.
(f) "Master or Prototype Plan" - A plan the form of which is the subject of a
favorable notification letter or a favorable opinion letter from the Internal
Revenue Service.
(g) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if greater,
one-fourth of the defined benefit dollar limitation under Code
Sec.415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the
Limitation Year. If there is a short Limitation Year because of a change in
Limitation Year, the Advisory Committee will multiply the $30,000 (or
adjusted) limitation by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------------
12
(h) "Defined contribution plan" - A retirement plan which provides for an
individual account for each participant and for benefits based solely on the
amount contributed to the participant's account, and any income, expenses,
gains and losses, and any forfeitures of accounts of other participants which
the plan may allocate to such participant's account. The Advisory Committee
must treat all defined contribution plans (whether or not terminated)
maintained by the Employer as a single plan. Solely for purposes of the
limitations of Part 2 of this Article III, the Advisory Committee will treat
employee contributions made to a defined benefit plan maintained by the
Employer as a separate defined contribution plan. The Advisory Committee also
will treat as a defined contribution plan an individual medical account (as
defined in Code Sec.415(l)(2)) included as part of a defined benefit plan
maintained by the Employer and, for taxable years ending after December 31,
1985, a welfare benefit fund under Code Sec.419(e) maintained by the Employer
to the extent there are post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code Sec.419A(d)(3)).
(i) "Defined benefit plan" - A retirement plan which does not provide for
individual accounts for Employer contributions. The Advisory Committee must
treat all defined benefit plans (whether or not terminated) maintained by the
Employer as a single plan.
3.013
<PAGE>
[Note: The definitions in paragraphs (j), (k) and (l) apply only if the
limitation described in Section 3.18 applies to the Employer's Plan.]
(j) "Defined benefit plan fraction" -
Projected annual benefit of the Participant under the defined benefit
-------------------------------------------------------------------------
plan(s)
- -----------
The lesser of (i) 125% (subject to the "100% limitation" in paragraph (l)) of
the
dollar limitation in effect under Code Sec. 415(b)(1)(A) for the Limitation
Year, or (ii) 140% of the Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Advisory Committee will
make any adjustment required under Code Sec.415(b) and will determine a Year
of Service, unless otherwise provided in an addendum to Adoption Agreement
Section 3.18, as a Plan Year in which the Employee completed at least 1,000
Hours of Service. The "projected annual benefit" is the annual retirement
benefit (adjusted to an actuarially equivalent straight life annuity if the
plan expresses such benefit in a form other than a straight life annuity or
qualified joint and survivor annuity) of the Participant under the terms of
the defined benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the defined
benefit plan, his compensation continues at the same rate as in effect in the
Limitation Year under consideration until the date of his normal retirement
age and all other relevant factors used to determine benefits under the
defined benefit plan remain constant as of the current Limitation Year for all
future Limitation Years.
Current Accrued Benefit. If the Participant accrued benefits in one or
more defined benefit plans maintained by the Employer which were in existence
on May 6, 1986, the dollar limitation used in the denominator of this fraction
will not be less than the Participant's Current Accrued Benefit. A
Participant's Current Accrued Benefit is the sum of the annual benefits under
such defined benefit plans which the Participant had accrued as of the end of
the 1986 Limitation Year (the last Limitation Year beginning before January 1,
1987), determined without regard to any change in the terms or conditions of
the Plan made after May 5, 1986, and without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued Benefit rule
applies only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Sec.415 as in effect at the end of the 1986
Limitation Year.
3.014
<PAGE>
(k) "Defined contribution plan fraction" -
The sum, as of the close of the Limitation Year, of the Annual Additions
to the Participant's Accountunder the defined contribution plan(s)
- --------------------------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service with the Employer:(i)
125%
(subject to the "100% limitation" in paragraph (l)) of the dollar limitation in
effect under
CodeSec.415(c)(1)(A) for the Limitation Year (determined without regard to
the special dollar limitations for employee stock ownership plans), or
(ii) 35% of the Participant's Compensation for the Limitation Year
For purposes of determining the defined contribution plan fraction, the
Advisory Committee will not recompute Annual Additions in Limitation Years
beginning prior to January 1, 1987, to treat all Employee contributions as
Annual Additions. If the Plan satisfied Code Sec.415 for Limitation Years
beginning prior to January 1, 1987, the Advisory Committee will redetermine
the defined contribution plan fraction and the defined benefit plan fraction
as of the end of the 1986 Limitation Year, in accordance with this Section
3.19. If the sum of the redetermined fractions exceeds 1.0, the Advisory
Committee will subtract permanently from the numerator of the defined
contribution plan fraction an amount equal to the product of (1) the excess of
the sum of the fractions over 1.0, times (2) the denominator of the defined
contribution plan fraction. In making the adjustment, the Advisory Committee
must disregard any accrued benefit under the defined benefit plan which is in
excess of the Current Accrued Benefit. This Plan continues any transitional
rules applicable to the determination of the defined contribution plan
fraction under the Employer's Plan as of the end of the 1986 Limitation Year.
(l) "100% limitation." If the 100% limitation applies, the Advisory Committee
must determine the denominator of the defined benefit plan fraction and the
denominator of the defined contribution plan fraction by substituting 100% for
125%. If the Employer's Plan is a Standardized Plan, the 100% limitation
applies in all Limitation Years, subject to any override provisions under
Section 3.18 of the Employer's Adoption Agreement. If the Employer overrides
the 100% limitation under a Standardized Plan, the Employer must specify in
its Adoption Agreement the manner in which the Plan satisfies the extra
minimum benefit requirement of Code Sec.416(h) and the 100% limitation must
continue to apply if the Plan's top heavy ratio exceeds 90%. If the Employer's
Plan is a Nonstandardized Plan, the 100% limitation applies only if: (i) the
Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is
greater than 60%, and the Employer does not elect in its Adoption Agreement
Section 3.18 to provide extra minimum benefits which satisfy Code
Sec.416(h)(2).
* * * * * * * * * * * * * * *
3.015
<PAGE>
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. This Plan does not permit
---------------------------------------
Participant nondeductible contributions unless the Employer maintains its Plan
under a Code Sec.401(k) Adoption Agreement. If the Employer does not maintain
its Plan under a Code Sec.401(k) Adoption Agreement and, prior to the adoption
of this Prototype Plan, the Plan accepted Participant nondeductible
contributions for a Plan Year beginning after December 31, 1986, those
contributions must satisfy the requirements of Code Sec.401(m). This Section
4.01 does not prohibit the Plan's acceptance of Participant nondeductible
contributions prior to the first Plan Year commencing after the Plan Year in
which the Employer adopts this Prototype Plan.
4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS. A qualified Plan may not accept
------------------------------------
Participant deductible contributions after April 15, 1987. If the Employer's
Plan includes Participant deductible contributions ("DECs") made prior to April
16, 1987, the Advisory Committee must maintain a separate accounting for the
Participant's Accrued Benefit attributable to DECs, including DECs which are
part of a rollover contribution described in Section 4.03. The Advisory
Committee will treat the accumulated DECs as part of the Participant's Accrued
Benefit for all purposes of the Plan, except for purposes of determining the top
heavy ratio under Section 1.33. The Advisory Committee may not use DECs to
purchase life insurance on the Participant's behalf.
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the
----------------------------------
Employer's written consent and after filing with the Trustee the form
prescribed by the Advisory Committee, may contribute cash or other property to
the Trust other than as a voluntary contribution if the contribution is a
"rollover contribution" which the Code permits an employee to transfer either
directly or indirectly from one qualified plan to another qualified plan. Before
accepting a rollover contribution, the Trustee may require an Employee to
furnish satisfactory evidence that the proposed transfer is in fact a "rollover
contribution" which the Code permits an employee to make to a qualified plan. A
rollover contribution is not an Annual Addition under Part 2 of Article III.
The Trustee will invest the rollover contribution in a segregated investment
Account for the Participant's sole benefit unless the Trustee (or the Named
Fiduciary, in the case of a nondiscretionary Trustee designation), in its sole
discretion, agrees to invest the rollover contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility with respect to a
Participant's segregated rollover Account. The Participant, however, from time
to
4.01
<PAGE>
time, may direct the Trustee in writing as to the investment of his segregated
rollover Account in property, or property interests, of any kind, real, personal
or mixed; provided however, the Participant may not direct the Trustee to make
loans to his Employer. A Participant's segregated rollover Account alone will
bear any extraordinary expenses resulting from investments made at the direction
of the Participant. As of the Accounting Date (or other valuation date) for each
Plan Year, the Advisory Committee will allocate and credit the net income (or
net loss) from a Participant's segregated rollover Account and the increase or
decrease in the fair market value of the assets of a segregated rollover Account
solely to that Account. The Trustee is not liable nor responsible for any loss
resulting to any Beneficiary, nor to any Participant, by reason of any sale or
investment made or other action taken pursuant to and in accordance with the
direction of the Participant. In all other respects, the Trustee will hold,
administer and distribute a rollover contribution in the same manner as any
Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility conditions,
may make a rollover contribution to the Trust to the same extent and in the same
manner as a Participant. If an Employee makes a rollover contribution to the
Trust prior to satisfying the Plan's eligibility conditions, the Advisory
Committee and Trustee must treat the Employee as a Participant for all purposes
of the Plan except the Employee is not a Participant for purposes of sharing in
Employer contributions or Participant forfeitures under the Plan until he
actually becomes a Participant in the Plan. If the Employee has a Separation
from Service prior to becoming a Participant, the Trustee will distribute his
rollover contribution Account to him as if it were an Employer contribution
Account.
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
-----------------------------------------
Benefit is, at all times, 100% Nonforfeitable to the extent the value of his
Accrued Benefit is derived from his Participant contributions described in this
Article IV.
4.02
<PAGE>
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A Participant,
--------------------------------------------------
by giving prior written notice to the Trustee, may withdraw all or any part of
the value of his Accrued Benefit derived from his Participant contributions
described in this Article IV. A distribution of Participant contributions must
comply with the joint and survivor requirements described in Article VI, if
those requirements apply to the Participant. A Participant may not exercise his
right to withdraw the value of his Accrued Benefit derived from his Participant
contributions more than once during any Plan Year. The Trustee, in accordance
with the direction of the Advisory Committee, will distribute a Participant's
unwithdrawn Accrued Benefit attributable to his Participant contributions in
accordance with the provisions of Article VI applicable to the distribution of
the Participant's Nonforfeitable Accrued Benefit.
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee
------------------------------------------
must maintain a separate Account(s) in the name of each Participant to reflect
the Participant's Accrued Benefit under the Plan derived from his Participant
contributions. A Participant's Accrued Benefit derived from his Participant
contributions as of any applicable date is the balance of his separate
Participant contribution Account(s).
* * * * * * * * * * * * * * *
4.03
<PAGE>
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. The Employer must define Normal Retirement Age
---------------------
in its Adoption Agreement. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. The Employer may elect in its
-------------------------------
Adoption Agreement to provide a Participant's Accrued Benefit derived from
Employer contributions will be 100% Nonforfeitable if the Participant's
Separation from Service is a result of his death or his disability.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, for
----------------
each Year of Service, a Participant's Nonforfeitable percentage of his Accrued
Benefit derived from Employer contributions equals the percentage in the vesting
schedule completed by the Employer in its Adoption Agreement.
(A) Election of Special Vesting Formula. If the Trustee makes a distribution
(other than a cash-out distribution described in Section 5.04) to a partially-
vested Participant, and the Participant has not incurred a Forfeiture Break in
Service at the relevant time, the Advisory Committee will establish a separate
Account for the Participant's Accrued Benefit. At any relevant time following
the distribution, the Advisory Committee will determine the Participant's
Nonforfeitable Accrued Benefit derived from Employer contributions in
accordance with the following formula: P(AB + (R x D)) - (R x D).
To apply this formula, "P" is the Participant's current vesting percentage at
the relevant time, "AB" is the Participant's Employer-derived Accrued Benefit at
the relevant time, "R" is the ratio of "AB" to the Participant's Employer-
derived Accrued Benefit immediately following the earlier distribution and "D"
is the amount of the earlier distribution. If, under a restated Plan, the Plan
has made distribution to a partially-vested Participant prior to its restated
Effective Date and is unable to apply the cash-out provisions of Section 5.04 to
that prior distribution, this special vesting formula also applies to that
Participant's remaining Account. The Employer, in an addendum to its Adoption
Agreement, numbered Section 5.03, may elect to modify this formula to read as
follows: P(AB + D) - D.
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
--------------------------------------------------------
RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI,
- ----------------------------------------
5.01
<PAGE>
a partially-vested Participant receives a cash-out distribution before he incurs
a Forfeiture Break in Service (as defined in Section 5.08), the cash-out
distribution will result in an immediate forfeiture of the nonvested portion of
the Participant's Accrued Benefit derived from Employer contributions. See
Section 5.09. A partially-vested Participant is a Participant whose
Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
(A) Restoration and Conditions upon Restoration. A partially-vested Participant
who is re-employed by the Employer after receiving a cash-out distribution of
the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the
amount of the cash-out distribution attributable to Employer contributions,
unless the Participant no longer has a right to restoration by reason of the
conditions of this Section 5.04(A). If a partially-vested Participant makes the
cash-out distribution repayment, the Advisory Committee, subject to the
conditions of this Section 5.04(A), must restore his Accrued Benefit
attributable to Employer contributions to the same dollar amount as the dollar
amount of his Accrued Benefit on the Accounting Date, or other valuation date,
immediately preceding the date of the cash-out distribution, unadjusted for any
gains or losses occurring subsequent to that Accounting Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration of
all Code Sec.411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations. The Advisory
Committee will not restore a re-employed Participant's Accrued Benefit under
this paragraph if:
(1) 5 years have elapsed since the Participant's first re-employment date with
the Employer following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as defined in
Section 5.08). This condition also applies if the Participant makes repayment
within the Plan Year in which he incurs the Forfeiture Break in Service and
that Forfeiture Break in Service would result in a complete forfeiture of the
amount the Advisory Committee otherwise would restore.
5.02
<PAGE>
(B) Time and Method of Restoration. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or gain for the
Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the extent made
under a discretionary formula.
In an addendum to its Adoption Agreement numbered 5.04(B), the Employer may
eliminate as a means of restoration any of the amounts described in clauses (1),
(2) and (3) or may change the order of priority of these amounts. To the extent
the amounts described in clauses (1), (2) and (3) are insufficient to enable the
Advisory Committee to make the required restoration, the Employer must
contribute, without regard to any requirement or condition of Section 3.01, the
additional amount necessary to enable the Advisory Committee to make the
required restoration. If, for a particular Plan Year, the Advisory Committee
must restore the Accrued Benefit of more than one re-employed Participant, then
the Advisory Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
re-employed Participants. The Advisory Committee will not take into account any
allocation under this Section 5.04 in applying the limitation on allocations
under Part 2 of Article III.
(C) 0% Vested Participant. The Employer must specify in its Adoption Agreement
whether the deemed cash-out rule applies to a 0% vested Participant. A 0% vested
Participant is a Participant whose Accrued Benefit derived from Employer
contributions is entirely forfeitable at the time of his Separation from
Service. If the Participant's Account is not entitled to an allocation of
Employer contributions for the Plan Year in which he has a Separation from
Service, the Advisory Committee will apply the deemed cash-out rule as if the 0%
vested Participant received a cash-out distribution on the date of the
Participant's Separation from Service. If the Participant's Account is entitled
to an allocation of Employer contributions or Participant forfeitures for the
Plan Year in which he has a Separation from Service, the Advisory Committee will
apply the deemed cash-out rule as if the 0% vested Participant received a cash-
out
5.03
<PAGE>
distribution on the first day of the first Plan Year beginning after his
Separation from Service. For purposes of applying the restoration provisions of
this Section 5.04, the Advisory Committee will treat the 0% vested Participant
as repaying his cash-out "distribution" on the first date of his re-employment
with the Employer. If the deemed cash-out rule does not apply to the Employer's
Plan, a 0% vested Participant will not incur a forfeiture until he incurs a
Forfeiture Break in Service.
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee
------------------------------------
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account remains a part of the
Trust, but it alone shares in any income it earns and it alone bears any expense
or loss it incurs. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.03,
-------------------------
Year of Service means any 12-consecutive month period designated in the
Employer's Adoption Agreement during which an Employee completes not less than
the number of Hours of Service (not exceeding 1,000) specified in the Employer's
Adoption Agreement. A Year of Service includes any Year of Service earned prior
to the Effective Date of the Plan, except as provided in Section 5.08.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
--------------------------
Participant incurs a "Break in Service" if during any vesting computation period
he does not complete more than 500 Hours of Service. If, pursuant to Section
5.06, the Plan does not require more than 500 Hours of Service to receive credit
for a Year of Service, a Participant incurs a Break in Service in a vesting
computation period in which he fails to complete a Year of Service.
5.04
<PAGE>
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
-----------------------------------
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except:
(a) For the sole purpose of determining a Participant's Nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a Forfeiture
Break in Service. The Participant incurs a Forfeiture Break in Service when he
incurs 5 consecutive Breaks in Service.
(b) The Plan disregards any Year of Service excluded under the Employer's
Adoption Agreement.
The Plan does not apply the Break in Service rule under Code Sec.411(a)(6)(B).
Therefore, an Employee need not complete a Year of Service after a Break in
Service before the Plan takes into account the Employee's otherwise includible
Years of Service under this Article V.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
-----------------
Benefit derived from Employer contributions occurs under the Plan on the earlier
of:
(a) The last day of the vesting computation period in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's Accrued
Benefit forfeiture, if any, under this Section 5.09 solely by reference to the
vesting schedule of Section 5.03. A Participant does not forfeit any portion of
his Accrued Benefit for any other reason or cause except as expressly provided
by this Section 5.09 or as provided under Section 9.14.
* * * * * * * * * * * * * * *
5.05
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03,
----------------------------------
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and the Participant has not attained the later
of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also
must consent, in writing, to any distribution, for which Section 6.04 requires
the spouse's consent. For all purposes of this Article VI, the term "annuity
starting date" means the first day of the first period for which the Plan pays
an amount as an annuity or in any other form. A distribution date under this
Article VI, unless otherwise specified within the Plan, is the date or dates the
Employer specifies in the Adoption Agreement, or as soon as administratively
practicable following that distribution date. For purposes of the consent
requirements under this Article VI, if the present value of the Participant's
Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500,
the Advisory Committee must treat that present value as exceeding $3,500 for
purposes of all subsequent Plan distributions to the Participant.
(A) Separation from Service For a Reason Other Than Death.
(1) Participant's Nonforfeitable Accrued Benefit Not Exceeding $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum, on the distribution date the
Employer specifies in the Adoption Agreement, but in no event later than the
60th day following the close of the Plan Year in which the Participant attains
Normal Retirement Age. If the Participant has attained Normal Retirement Age at
the time of his Separation from Service, the distribution under this paragraph
will occur no later than the 60th day following the close of the Plan Year in
which the Participant's Separation from Service occurs.
(2) Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Nonforfeitable Accrued Benefit in a form and at the time elected
by the Participant, pursuant to Section 6.03. In the absence of an election by
the
6.01
<PAGE>
Participant, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if applicable,
the normal annuity form of distribution required under Section 6.04), on the
60th day following the close of the Plan Year in which the latest of the
following events occurs: (a) the Participant attains Normal Retirement Age; (b)
the Participant attains age 62; or (c) the Participant's Separation from
Service.
(3) Disability. If the Participant's Separation from Service is because of his
disability, the Advisory Committee will direct the Trustee to pay the
Participant's Nonforfeitable Accrued Benefit in lump sum, on the distribution
date the Employer specifies in the Adoption Agreement, subject to the notice and
consent requirements of this Article VI and subject to the applicable mandatory
commencement dates described in Paragraphs (1) and (2).
(4) Hardship. Prior to the time at which the Participant may receive
distribution under Paragraphs (1), (2) or (3), the Participant may request a
distribution from his Nonforfeitable Accrued Benefit in an amount necessary to
satisfy a hardship, if the Employer elects in the Adoption Agreement to permit
hardship distributions. Unless the Employer elects otherwise in the Adoption
Agreement, a hardship distribution must be on account of any of the following:
(a) medical expenses; (b) the purchase (excluding mortgage payments) of the
Participant's principal residence; (c) post-secondary education tuition, for the
next semester or quarter, for the Participant or for the Participant's spouse,
children or dependents; (d) to prevent the eviction of the Participant from his
principal residence or the foreclosure on the mortgage of the Participant's
principal residence; (e) funeral expenses of the Participant's family member; or
(f) the Participant's disability. A partially-vested Participant may not receive
a hardship distribution described in this Paragraph (A)(4) prior to incurring a
Forfeiture Break in Service, unless the hardship distribution is a cash-out
distribution (as defined in Article V). The Advisory Committee will direct the
Trustee to make the hardship distribution as soon as administratively
practicable after the Participant makes a valid request for the hardship
distribution.
(B) Required Beginning Date. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or nonelection), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution on the Participant's Required Beginning Date, subject to the
transitional election, if applicable, under Section 6.03(D). A Participant's
Required Beginning Date is the April 1 following the close of the calendar year
in which the Participant attains age 70 1/2. However, if the Participant, prior
to incurring a Separation from Service,
6.02
<PAGE>
attained age 70 1/2 by January 1, 1988, and, for the five Plan Year period
ending in the calendar year in which he attained age 70 1/2 and for all
subsequent years, the Participant was not a more than 5% owner, the Required
Beginning Date is the April 1 following the close of the calendar year in which
the Participant separates from Service or, if earlier, the April 1 following
the close of the calendar year in which the Participant becomes a more than 5%
owner. Furthermore, if a Participant who was not a more than 5% owner attained
age 70 1/2 during 1988 and did not incur a Separation from Service prior to
January 1, 1989, his Required Beginning Date is April 1, 1990. A mandatory
distribution at the Participant's Required Beginning Date will be in lump sum
(or, if applicable, the normal annuity form of distribution required under
Section 6.04) unless the Participant, pursuant to the provisions of this
Article VI, makes a valid election to receive an alternative form of payment.
(C) Death of the Participant. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) Deceased Participant's Nonforfeitable Accrued Benefit Does Not Exceed
$3,500. The Advisory Committee, subject to the requirements of Section 6.04,
must direct the Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in a single sum, as soon as administratively practicable
following the Participant's death or, if later, the date on which the Advisory
Committee receives notification of or otherwise confirms the Participant's
death.
(2) Deceased Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. The
Advisory Committee will direct the Trustee to distribute the deceased
Participant's Nonforfeitable Accrued Benefit at the time and in the form elected
by the Participant or, if applicable by the Beneficiary, as permitted under this
Article VI. In the absence of an election, subject to the requirements of
Section 6.04, the Advisory Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the
first distribution date following the close of the Plan Year in which the
Participant's death occurs or, if later, the first distribution date following
the date the Advisory Committee receives notification of or otherwise confirms
the Participant's death.
6.03
<PAGE>
If the death benefit is payable in full to the Participant's surviving spouse,
the surviving spouse, in addition to the distribution options provided in this
Section 6.01(C), may elect distribution at any time or in any form (other than a
joint and survivor annuity) this Article VI would permit for a Participant.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
------------------------------------
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary. The Employer may elect in its Adoption
Agreement to modify the methods of payment available under this Section 6.02.
The distribution options permitted under this Section 6.02 are available only
if the present value of the Participant Nonforfeitable Accrued Benefit, at the
time of the distribution to the Participant, exceeds $3,500. To facilitate
installment payments under this Article VI, the Advisory Committee may direct
the Trustee to segregate all or any part of the Participant's Accrued Benefit in
a separate Account. The Trustee will invest the Participant's segregated Account
in Federally insured interest bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it earns,
and it alone bears any expense or loss it incurs. A Participant or Beneficiary
may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment of
all, or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit,
subject to the requirements of Section 6.04.
(A) Minimum Distribution Requirements for Participants. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code Sec.401(a)(9) and the applicable Treasury regulations. The minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the Participant's life expectancy or, if applicable, the joint
and last survivor expectancy of the Participant and his designated Beneficiary
(as determined under Article VIII, subject to the requirements of the Code
Sec.401(a)(9) regulations). The
6.04
<PAGE>
Advisory Committee will increase the Participant's Nonforfeitable Accrued
Benefit, as determined on the relevant valuation date, for contributions or
forfeitures allocated after the valuation date and by December 31 of the
valuation calendar year, and will decrease the valuation by distributions made
after the valuation date and by December 31 of the valuation calendar year. For
purposes of this valuation, the Advisory Committee will treat any portion of the
minimum distribution for the first distribution calendar year made after the
close of that year as a distribution occurring in that first distribution
calendar year. In computing a minimum distribution, the Advisory Committee must
use the unisex life expectancy multiples under Treas. Reg. Sec.1.72-9. The
Advisory Committee, only upon the Participant's written request, will compute
the minimum distribution for a calendar year subsequent to the first calendar
year for which the Plan requires a minimum distribution by redetermining the
applicable life expectancy. However, the Advisory Committee may not redetermine
the joint life and last survivor expectancy of the Participant and a nonspouse
designated Beneficiary in a manner which takes into account any adjustment to a
life expectancy other than the Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method of
payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code Sec.401(a)(9) for distributions made on
or after the Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy factor, if the MDIB
divisor is a lesser number. Following the Participant's death, the Advisory
Committee will compute the minimum distribution required by this Section
6.02(A) solely on the basis of the applicable life expectancy factor and will
disregard the MDIB factor. For Plan Years beginning prior to January 1, 1989,
the Plan satisfies the incidental benefits requirement if the distributions to
the Participant satisfied the MDIB requirement or if the present value of the
retirement benefits payable solely to the Participant is greater than 50% of the
present value of the total benefits payable to the Participant and his
Beneficiaries. The Advisory Committee must determine whether benefits to the
Beneficiary are incidental as of the date the Trustee is to commence payment of
the retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
6.05
<PAGE>
The minimum distribution for the first distribution calendar year is due by
the Participant's Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code Sec.401(a)(9) and the applicable
Treasury regulations.
(B) Minimum Distribution Requirements for Beneficiaries. The method of
distribution to the Participant's Beneficiary must satisfy Code Sec.401(a)(9)
and the applicable Treasury regulations. If the Participant's death occurs
after his Required Beginning Date or, if earlier, the date the Participant
commences an irrevocable annuity pursuant to Section 6.04, the method of
payment to the Beneficiary must provide for completion of payment over a period
which does not exceed the payment period which had commenced for the
Participant. If the Participant's death occurs prior to his Required Beginning
Date, and the Participant had not commenced an irrevocable annuity pursuant to
Section 6.04, the method of payment to the Beneficiary, subject to Section
6.04, must provide for completion of payment to the Beneficiary over a period
not exceeding: (i) 5 years after the date of the Participant's death; or (ii)
if the Beneficiary is a designated Beneficiary, the designated Beneficiary's
life expectancy. The Advisory Committee may not direct payment of the
Participant's Nonforfeitable Accrued Benefit over a period described in clause
(ii) unless the Trustee will commence payment to the designated Beneficiary no
later than the December 31 following the close of the calendar year in which
the Participant's death occurred or, if later, and the designated Beneficiary
is the Participant's surviving spouse, December 31 of the calendar year in
which the Participant would have attained age 70 1/2. If the Trustee will make
distribution in accordance with clause (ii), the minimum distribution for a
calendar year equals the Participant's Nonforfeitable Accrued Benefit as of the
latest valuation date preceding the beginning of the calendar year divided by
the designated Beneficiary's life expectancy. The Advisory Committee must use
the unisex life expectancy multiples under Treas. Reg. Sec.1.72-9 for purposes
of applying this paragraph. The Advisory Committee, only upon the written
request of the Participant or of the Participant's surviving spouse, will
recalculate the life expectancy of the Participant's surviving spouse not more
frequently than annually, but may not recalculate the life expectancy of a
nonspouse designated Beneficiary after the Trustee commences payment to the
designated Beneficiary. The Advisory Committee will apply this paragraph by
treating any amount paid to the Participant's child, which becomes payable to
the Participant's surviving spouse upon the child's attaining the age of
majority, as paid to the Participant's surviving spouse. Upon the Beneficiary's
written request, the
6.06
<PAGE>
Advisory Committee must direct the Trustee to accelerate payment of all, or any
portion, of the Participant's unpaid Accrued Benefit, as soon as
administratively practicable following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not later
-------------------------
than 30 days, before the Participant's annuity starting date, the Advisory
Committee must provide a benefit notice to a Participant who is eligible to make
an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
If a Participant or Beneficiary makes an election prescribed by this Section
6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election with the Advisory Committee at
any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
(A) Participant Elections After Separation from Service. If the present value of
a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he may elect to
have the Trustee commence distribution as of any distribution date permitted
under the Employer's Adoption Agreement Section 6.03. The Participant may
reconsider an election at any time prior to the annuity starting date and elect
to commence distribution as of any other distribution date permitted under the
Employer's Adoption Agreement Section 6.03. If the Participant is partially-
vested in his Accrued Benefit, an election under this Paragraph (A) to
distribute prior to the Participant's incurring a Forfeiture Break in Service
(as defined in Section 5.08), must be in the form of a cash-out distribution (as
defined in Article V). A Participant may not receive a cash-out distribution if,
prior to the time the Trustee actually makes the cash-out distribution, the
Participant returns to employment with the Employer. Following his attainment of
Normal Retirement Age, a Participant who has separated from Service may elect
distribution as of any distribution date, irrespective of the elections under
Adoption Agreement Section 6.03.
6.07
<PAGE>
(B) Participant Elections Prior to Separation from Service. The Employer must
specify in its Adoption Agreement the distribution election rights, if any, a
Participant has prior to his Separation from Service. A Participant must make an
election under this Section 6.03(B) on a form prescribed by the Advisory
Committee at any time during the Plan Year for which his election is to be
effective. In his written election, the Participant must specify the percentage
or dollar amount he wishes the Trustee to distribute to him. The Participant's
election relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for a
particular Plan Year greater than the dollar amount or percentage specified in
his election form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this Section
6.03(B) within the 90 day period (or as soon as administratively practicable)
after the Participant files his written election with the Trustee. The Trustee
will distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) in accordance with the other distribution provisions
of this Plan.
(C) Death Benefit Elections. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
(D) Transitional Elections. Notwithstanding the provisions of Sections 6.01 and
6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984, the Advisory Committee must distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the survivor requirements, if applicable, of
Sections 6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984
distribution designation, and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method of distribution
would have disqualified the Plan under Code Sec.401(a)(9) as in effect on
December 31, 1983; (2) the Participant did not have an Accrued Benefit as of
December 31, 1983; (3) the distribution designation does not specify the timing
and form of the distribution and the death Beneficiaries (in order of priority);
(4) the substitution of a Beneficiary modifies the payment period of the
distribution; or, (5) the Participant (or Beneficiary) modifies or revokes the
distribution designation. In the event of a revocation, the Plan must
distribute, no later than December 31 of the calendar year following the year
of revocation, the amount which the Participant would have received under
Section 6.02(A) if the
6.08
<PAGE>
distribution designation had not been in effect or, if the Beneficiary revokes
the distribution designation, the amount which the Beneficiary would have
received under Section 6.02(B) if the distribution designation had not been in
effect. The Advisory Committee will apply this Section 6.03(D) to rollovers and
transfers in accordance with Part J of the Code Sec.401(a)(9) Treasury
regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
-----------------------------------------------------------------
(A) Joint and Survivor Annuity. The Advisory Committee must direct the
Trustee to distribute a married or unmarried Participant's Nonforfeitable
Accrued Benefit in the form of a qualified joint and survivor annuity, unless
the Participant makes a valid waiver election (described in Section 6.05) within
the 90 day period ending on the annuity starting date. If, as of the annuity
starting date, the Participant is married, a qualified joint and survivor
annuity is an immediate annuity which is purchasable with the Participant's
Nonforfeitable Accrued Benefit and which provides a life annuity for the
Participant and a survivor annuity payable for the remaining life of the
Participant's surviving spouse equal to 50% of the amount of the annuity payable
during the life of the Participant. If, as of the annuity starting date, the
Participant is not married, a qualified joint and survivor annuity is an
immediate life annuity for the Participant which is purchasable with the
Participant's Nonforfeitable Accrued Benefit. On or before the annuity starting
date, the Advisory Committee, without Participant or spousal consent, must
direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in a
lump sum, in lieu of a qualified joint and survivor annuity, in accordance with
Section 6.01, if the Participant's Nonforfeitable Accrued Benefit is not greater
than $3,500. This Section 6.04(A) applies only to a Participant who has
completed at least one Hour of Service with the Employer after August 22, 1984.
(B) Preretirement Survivor Annuity. If a married Participant dies prior to his
annuity starting date, the Advisory Committee will direct the Trustee to
distribute a portion of the Participant's Nonforfeitable Accrued Benefit to the
Participant's surviving spouse in the form of a preretirement survivor annuity,
unless the Participant has a valid waiver election (as described in Section
6.06) in effect, or unless the Participant and his spouse were not married
throughout the one year period ending on the date of his death. A preretirement
survivor annuity is an annuity which is purchasable with 50% of the
Participant's Nonforfeitable Accrued Benefit (determined as of the date of the
Participant's death) and which is payable for the life of the Participant's
surviving spouse. The value of the preretirement survivor annuity is
attributable to
6.09
<PAGE>
Employer contributions and to Employee contributions in the same proportion as
the Participant's Nonforfeitable Accrued Benefit is attributable to those
contributions. The portion of the Participant's Nonforfeitable Accrued Benefit
not payable under this paragraph is payable to the Participant's Beneficiary, in
accordance with the other provisions of this Article VI. If the present value of
the preretirement survivor annuity does not exceed $3,500, the Advisory
Committee, on or before the annuity starting date, must direct the Trustee to
make a lump sum distribution to the Participant's surviving spouse, in lieu of a
preretirement survivor annuity. This Section 6.04(B) applies only to a
Participant who dies after August 22, 1984, and either (i) completes at least
one Hour of Service with the Employer after August 22, 1984, or (ii) separated
from Service with at least 10 Years of Service (as defined in Section 5.06) and
completed at least one Hour of Service with the Employer in a Plan Year
beginning after December 31, 1975.
(C) Surviving Spouse Elections. If the present value of the preretirement
survivor annuity exceeds $3,500, the Participant's surviving spouse may elect to
have the Trustee commence payment of the preretirement survivor annuity at any
time following the date of the Participant's death, but not later than the
mandatory distribution periods described in Section 6.02, and may elect any of
the forms of payment described in Section 6.02, in lieu of the preretirement
survivor annuity. In the absence of an election by the surviving spouse, the
Advisory Committee must direct the Trustee to distribute the preretirement
survivor annuity on the first distribution date following the close of the Plan
Year in which the latest of the following events occurs: (i) the Participant's
death; (ii) the date the Advisory Committee receives notification of or
otherwise confirms the Participant's death; (iii) the date the Participant would
have attained Normal Retirement Age; or (iv) the date the Participant would have
attained age 62.
6.010
<PAGE>
(D) Special Rules. If the Participant has in effect a valid waiver election
regarding the qualified joint and survivor annuity or the preretirement survivor
annuity, the Advisory Committee must direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01,
6.02 and 6.03. The Advisory Committee will reduce the Participant's
Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset
rights authorized by Section 10.03[E]) held by the Plan by reason of a
Participant loan to determine the value of the Participant's Nonforfeitable
Accrued Benefit distributable in the form of a qualified joint and survivor
annuity or preretirement survivor annuity, provided any post-August 18, 1985,
loan satisfied the spousal consent requirement described in Section 10.03[E] of
the Plan. For purposes of applying this Article VI, the Advisory Committee
treats a former spouse as the Participant's spouse or surviving spouse to the
extent provided under a qualified domestic relations order described in Section
6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply
separately to the portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the portion of the
Participant's Nonforfeitable Accrued Benefit not subject to that order.
(E) Profit Sharing Plan Election. If this Plan is a profit sharing plan, the
Employer must elect the extent to which the preceding provisions of Section 6.04
apply. If the Employer elects to apply this Section 6.04 only to a Participant
described in this Section 6.04(E), the preceding provisions of this Section 6.04
apply only to the following Participants: (1) a Participant as respects whom the
Plan is a direct or indirect transferee from a plan subject to the Code Sec.417
requirements and the Plan received the transfer after December 31, 1984, unless
the transfer is an elective transfer described in Section 13.06; (2) a
Participant who elects a life annuity distribution (if Section 6.02 or Section
13.02 of the Plan requires the Plan to provide a life annuity distribution
option); and (3) a Participant whose benefits under a defined benefit plan
maintained by the Employer are offset by benefits provided under this Plan. If
the Employer elects to apply this Section 6.04 to all Participants, the
preceding provisions of this Section 6.04 apply to all Participants described in
the first two paragraphs of this Section 6.04, without regard to the limitations
of this Section 6.04(E). Sections 6.05 and 6.06 only apply to Participants to
whom the preceding provisions of this Section 6.04 apply.
6.011
<PAGE>
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. Not earlier
------------------------------------------------------
than 90 days, but not later than 30 days, before the Participant's annuity
starting date, the Advisory Committee must provide the Participant a written
explanation of the terms and conditions of the qualified joint and survivor
annuity, the Participant's right to make, and the effect of, an election to
waive the joint and survivor form of benefit, the rights of the Participant's
spouse regarding the waiver election and the Participant's right to make, and
the effect of, a revocation of a waiver election. The Plan does not limit the
number of times the Participant may revoke a waiver of the qualified joint and
survivor annuity or make a new waiver during the election period.
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the survivor annuity is payable under the
qualified joint and survivor annuity), after the Participant has received the
written explanation described in this Section 6.05, has consented in writing to
the waiver election, the spouse's consent acknowledges the effect of the
election, and a notary public or the Plan Administrator (or his representative)
witnesses the spouse's consent, (b) the spouse consents to the alternate form of
payment designated by the Participant or to any change in that designated form
of payment, and (c) unless the spouse is the Participant's sole primary
Beneficiary, the spouse consents to the Participant's Beneficiary designation or
to any change in the Participant's Beneficiary designation. The spouse's consent
to a waiver of the qualified joint and survivor annuity is irrevocable, unless
the Participant revokes the waiver election. The spouse may execute a blanket
consent to any form of payment designation or to any Beneficiary designation
made by the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right. The
consent requirements of this Section 6.05 apply to a former spouse of the
Participant, to the extent required under a qualified domestic relations order
described in Section 6.07.
The Advisory Committee will accept as valid a waiver election which does not
satisfy the spousal consent requirements if the Advisory Committee establishes
the Participant does not have a spouse, the Advisory Committee is not able to
locate the Participant's spouse, the Participant is legally separated or has
been abandoned (within the meaning of State law) and the Participant has a court
order to that effect, or other circumstances exist under which the Secretary of
the Treasury will excuse the consent requirement. If the Participant's spouse is
legally incompetent to give consent, the spouse's legal guardian (even if the
guardian is the Participant) may give consent.
6.012
<PAGE>
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The Advisory
-----------------------------------------------------
Committee must provide a written explanation of the preretirement survivor
annuity to each married Participant, within the following period which ends
last: (1) the period beginning on the first day of the Plan Year in which the
Participant attains age 32 and ending on the last day of the Plan Year in which
the Participant attains age 34; (2) a reasonable period after an Employee
becomes a Participant; (3) a reasonable period after the joint and survivor
rules become applicable to the Participant; or (4) a reasonable period after a
fully subsidized preretirement survivor annuity no longer satisfies the
requirements for a fully subsidized benefit. A reasonable period described in
clauses (2), (3) and (4) is the period beginning one year before and ending one
year after the applicable event. If the Participant separates from Service
before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the
Advisory Committee must provide the written explanation within the period
beginning one year before and ending one year after the Separation from Service.
The written explanation must describe, in a manner consistent with Treasury
regulations, the terms and conditions of the preretirement survivor annuity
comparable to the explanation of the qualified joint and survivor annuity
required under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the preretirement survivor annuity or make a
new waiver during the election period.
A Participant's waiver election of the preretirement survivor annuity is not
valid unless (a) the Participant makes the waiver election no earlier than the
first day of the Plan Year in which he attains age 35 and (b) the Participant's
spouse (to whom the preretirement survivor annuity is payable) satisfies the
consent requirements described in Section 6.05, except the spouse need not
consent to the form of benefit payable to the designated Beneficiary. The
spouse's consent to the waiver of the preretirement survivor annuity is
irrevocable, unless the Participant revokes the waiver election. Irrespective of
the time of election requirement described in clause (a), if the Participant
separates from Service prior to the first day of the Plan Year in which he
attains age 35, the Advisory Committee will accept a waiver election as respects
the Participant's Accrued Benefit attributable to his Service prior to his
Separation from Service. Furthermore, if a Participant who has not separated
from Service makes a valid waiver election, except for the timing requirement of
clause (a), the Advisory Committee will accept that election as valid, but only
until the first day of the Plan Year in which the Participant attains age 35. A
waiver election described in this paragraph is not valid unless made after the
Participant has received the written explanation described in this Section 6.06.
6.013
<PAGE>
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
---------------------------------------------
in this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified domestic
relations order (as defined in Code Sec.414(p)). This Plan specifically permits
distribution to an alternate payee under a qualified domestic relations order at
any time, irrespective of whether the Participant has attained his earliest
retirement age (as defined under Code Sec.414(p)) under the Plan. A
distribution to an alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (1) the order specifies
distribution at that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $3,500, and the
order requires, the alternate payee consents to any distribution occurring
prior to the Participant's attainment of earliest retirement age. The Employer,
in an addendum to its Adoption Agreement numbered 6.07, may elect to limit
distribution to an alternate payee only when the Participant has attained his
earliest retirement age under the Plan. Nothing in this Section 6.07 gives a
Participant a right to receive distribution at a time otherwise not permitted
under the Plan nor does it permit the alternate payee to receive a form of
payment not otherwise permitted under the Plan.
The Advisory Committee must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Advisory Committee promptly will notify the Participant and
any alternate payee named in the order, in writing, of the receipt of the order
and the Plan's procedures for determining the qualified status of the order.
Within a reasonable period of time after receiving the domestic relations order,
the Advisory Committee must determine the qualified status of the order and must
notify the Participant and each alternate payee, in writing, of its
determination. The Advisory Committee must provide notice under this paragraph
by mailing to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
6.014
<PAGE>
If any portion of the Participant's Nonforfeitable Accrued Benefit is payable
during the period the Advisory Committee is making its determination of the
qualified status of the domestic relations order, the Advisory Committee must
make a separate accounting of the amounts payable. If the Advisory Committee
determines the order is a qualified domestic relations order within 18 months of
the date amounts first are payable following receipt of the order, the Advisory
Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Advisory Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Advisory
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Advisory Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.07 by separate benefit checks or other separate distribution to the alternate
payee(s).
* * * * * * * * * * * * * * *
6.015
<PAGE>
ARTICLE VII
EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO COMMITTEE. The Employer must supply current
--------------------------
information to the Advisory Committee as to the name, date of birth, date of
employment, annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information which
the Advisory Committee considers necessary. The Employer's records as to the
current information the Employer furnishes to the Advisory Committee are
conclusive as to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility to
------------
any of its Employees, Participants or Beneficiaries for any act of, or failure
to act, on the part of its Advisory Committee (unless the Employer is the
Advisory Committee), the Trustee, the Custodian, if any, or the Plan
Administrator (unless the Employer is the Plan Administrator).
7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and
--------------------------------
saves harmless the Plan Administrator and the members of the Advisory Committee,
and each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and does not violate
ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee
(or to a Custodian, if any) solely to the extent provided by a letter agreement
executed by the Trustee (or Custodian) and the Employer.
7.01
<PAGE>
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to
--------------------------------
direct the Trustee with respect to the investment and re-investment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit such
direction. If the Trustee consents to Employer direction of investment, the
Trustee and the Employer must execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Employer direction as respects
the investment or re-investment of any part of the Trust Fund.
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right
-----------------------------
to amend the vesting schedule at any time, the Advisory Committee will not
apply the amended vesting schedule to reduce the Nonforfeitable percentage of
any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment. An amended vesting schedule will apply to a Participant only if the
Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
If the Employer makes a permissible amendment to the vesting schedule, each
Participant having at least 3 Years of Service with the Employer may elect to
have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the Employer. The
Participant must file his election with the Advisory Committee within 60 days of
the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his receipt of a copy of the amendment. The
Advisory Committee, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant must make an election to remain under the prior vesting schedule.
The election described in this Section 7.05 does not apply to a Participant if
the amended vesting schedule provides for vesting at least as rapid at all times
as the vesting schedule in effect prior to the amendment. For purposes of this
Section 7.05, an amendment to the vesting schedule includes any Plan amendment
which directly or indirectly affects the computation of the Nonforfeitable
percentage of an Employee's rights to his Employer derived Accrued Benefit.
Furthermore, the Advisory Committee must treat any shift in the vesting
schedule, due to a change in the Plan's top heavy status, as an amendment to the
vesting schedule for purposes of this Section 7.05.
* * * * * * * * * * * * * * *
7.02
<PAGE>
ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
-----------------------
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant.
(A) Coordination with survivor requirements. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01 does not
impose any special spousal consent requirements on the Participant's Beneficiary
designation. However, in the absence of spousal consent (as required by Article
VI) to the Participant's Beneficiary designation: (1) any waiver of the joint
and survivor annuity or of the preretirement survivor annuity is not valid; and
(2) if the Participant dies prior to his annuity starting date, the
Participant's Beneficiary designation will apply only to the portion of the
death benefit which is not payable as a preretirement survivor annuity.
Regarding clause (2), if the Participant's surviving spouse is a primary
Beneficiary under the Participant's Beneficiary designation, the Trustee will
satisfy the spouse's interest in the Participant's death benefit first from the
portion which is payable as a preretirement survivor annuity.
(B) Profit sharing plan exception. If the Plan is a profit sharing plan, the
Beneficiary designation of a married Exempt Participant is not valid unless the
Participant's spouse consents (in a manner described in Section 6.05) to the
Beneficiary designation. An "Exempt Participant" is a Participant who is not
subject to the joint and survivor requirements of Article VI. The spousal
consent requirement in this paragraph does not apply if the Exempt Participant
and his spouse are not married throughout the one year period ending on the date
of the Participant's death, or if the Participant's spouse is the Participant's
sole primary Beneficiary.
8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
-----------------------------------------------
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority, unless the Employer specifies a different
order of priority in an addendum to its Adoption Agreement, to:
8.01
<PAGE>
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children, in equal
shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise or unless the Employer provides otherwise in its Adoption Agreement.
If the Plan is a profit sharing plan, and the Plan includes Exempt Participants,
the Employer may not specify a different order of priority in the Adoption
Agreement unless the Participant's surviving spouse will be first in the
different order of priority. The Advisory Committee will direct the Trustee as
to the method and to whom the Trustee will make payment under this Section 8.02.
8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary of
--------------------------
a deceased Participant must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a
------------------------
deceased Participant must file with the Advisory Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or Beneficiary,
at his last post office address filed with the Advisory Committee, or as shown
on the records of the Employer, binds the Participant, or Beneficiary, for all
purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code Sec.414(p) relating to
------------------------
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.02
<PAGE>
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
-------------------------
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
----------------------------
authorize any appropriate equitable relief to redress violations of ERISA or to
enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
---------------------
may examine copies of the Plan description, latest annual report, any
bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office, or in such
other place or places as he may designate from time to time in order to comply
with the regulations issued under ERISA, for examination during reasonable
business hours. Upon the written request of a Participant or Beneficiary the
Plan Administrator must furnish him with a copy of any item listed in this
Section 8.08. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a
---------------------------------------
Beneficiary ("Claimant") may file with the Advisory Committee a written claim
for benefits, if the Participant or Beneficiary determines the distribution
procedures of the Plan have not provided him his proper Nonforfeitable Accrued
Benefit. The Advisory Committee must render a decision on the claim within 60
days of the Claimant's written claim for benefits. The Plan Administrator must
provide adequate notice in writing to the Claimant whose claim for benefits
under the Plan the Advisory Committee has denied. The Plan Administrator's
notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the Advisory
Committee based its denial;
(c) A description of any additional material and information needed for the
Claimant to perfect his claim and an explanation of why the material or
information is needed; and
8.03
<PAGE>
(d) That any appeal the Claimant wishes to make of the adverse determination
must be in writing to the Advisory Committee within 75 days after receipt of
the Plan Administrator's notice of denial of benefits. The Plan
Administrator's notice must further advise the Claimant that his failure to
appeal the action to the Advisory Committee in writing within the 75-day
period will render the Advisory Committee's determination final, binding and
conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Advisory Committee will re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified under the
circumstances. The Advisory Committee must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Advisory Committee render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the name
of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right to
-----------------------------------
direct the Trustee with respect to the investment or re-investment of the assets
comprising the Participant's individual Account only if the Trustee consents in
writing to permit such direction. If the Trustee consents to Participant
direction of investment, the Trustee will accept direction from each Participant
on a written election form (or other written agreement), as a part of this Plan,
containing such conditions, limitations and other provisions the parties deem
appropriate. The Trustee or, with the Trustee's consent, the Advisory Committee,
may establish written procedures, incorporated specifically as part of this
Plan, relating to Participant direction of investment under this Section 8.10.
The Trustee will maintain a segregated investment Account to the extent a
Participant's Account is subject to Participant self-direction. The Trustee is
not liable for any loss, nor is the Trustee liable for any breach, resulting
from a Participant's direction of the investment of any part of his directed
Account.
8.04
<PAGE>
The Advisory Committee, to the extent provided in a written loan policy
adopted under Section 9.04, will treat a loan made to a Participant as a
Participant direction of investment under this Section 8.10. To the extent of
the loan outstanding at any time, the borrowing Participant's Account alone
shares in any interest paid on the loan, and it alone bears any expense or loss
it incurs in connection with the loan. The Trustee may retain any principal or
interest paid on the borrowing Participant's loan in an interest bearing
segregated Account on behalf of the borrowing Participant until the Trustee (or
the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it
appropriate to add the amount paid to the Participant's separate Account under
the Plan.
If the Trustee consents to Participant direction of investment of his Account,
the Plan treats any post-December 31, 1981, investment by a Participant's
directed Account in collectibles (as defined by Code Sec.408(m)) as a deemed
distribution to the Participant for Federal income tax purposes.
* * * * * * * * * * * * * * *
8.05
<PAGE>
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an Advisory
-------------------------------
Committee to administer the Plan, the members of which may or may not be
Participants in the Plan, or which may be the Plan Administrator acting alone.
In the absence of an Advisory Committee appointment, the Plan Administrator
assumes the powers, duties and responsibilities of the Advisory Committee. The
members of the Advisory Committee will serve without compensation for services
as such, but the Employer will pay all expenses of the Advisory Committee,
except to the extent the Trust properly pays for such expenses, pursuant to
Article X.
9.02 TERM. Each member of the Advisory Committee serves until the
----
appointment of his successor.
9.03 POWERS. In case of a vacancy in the membership of the Advisory
------
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filling of the vacancy.
9.04 GENERAL. The Advisory Committee has the following powers and duties:
-------
(a) To select a Secretary, who need not be a member of the Advisory Committee;
(b) To determine the rights of eligibility of an Employee to participate in
the Plan, the value of a Participant's Accrued Benefit and the Nonforfeitable
percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the proper and
efficient administration of the Plan provided the rules are not inconsistent
with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents and
documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution of the
Trust;
(f) To review and render decisions respecting a claim for (or denial of a
claim for) a benefit under the Plan;
9.01
<PAGE>
(g) To furnish the Employer with information which the Employer may require
for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to assist it
with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as defined in
ERISA Sec.3(38)), each of whom will have full power and authority to manage,
acquire or dispose (or direct the Trustee with respect to acquisition or
disposition) of any Plan asset under its control;
(j) To establish, in its sole discretion, a nondiscriminatory policy (see
Section 9.04(A)) which the Trustee must observe in making loans, if any, to
Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make credits
and charges to the account to the extent required by and in accordance with
the provisions of the Code.
The Advisory Committee must exercise all of its powers, duties and discretion
under the Plan in a uniform and nondiscriminatory manner.
(A) Loan Policy. If the Advisory Committee adopts a loan policy, pursuant to
paragraph (j), the loan policy must be a written document and must include: (1)
the identity of the person or positions authorized to administer the participant
loan program; (2) a procedure for applying for the loan; (3) the criteria for
approving or denying a loan; (4) the limitations, if any, on the types and
amounts of loans available; (5) the procedure for determining a reasonable rate
of interest; (6) the types of collateral which may secure the loan; and (7) the
events constituting default and the steps the Plan will take to preserve plan
assets in the event of default. This Section 9.04 specifically incorporates a
written loan policy as part of the Employer's Plan.
9.05 FUNDING POLICY. The Advisory Committee will review, not less often
--------------
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 MANNER OF ACTION. The decision of a majority of the members appointed
----------------
and qualified controls.
9.02
<PAGE>
9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize
--------------------------
any one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters or
other documents. The Advisory Committee must evidence this authority by an
instrument signed by all members and filed with the Trustee.
9.08 INTERESTED MEMBER. No member of the Advisory Committee may decide or
------------------
determine any matter concerning the distribution, nature or method of settlement
of his own benefits under the Plan, except in exercising an election available
to that member in his capacity as a Participant, unless the Plan Administrator
is acting alone in the capacity of the Advisory Committee.
9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or direct
--------------------
the Trustee to maintain, a separate Account, or multiple Accounts, in the name
of each Participant to reflect the Participant's Accrued Benefit under the Plan.
If a Participant re-enters the Plan subsequent to his having a Forfeiture Break
in Service, the Advisory Committee, or the Trustee, must maintain a separate
Account for the Participant's pre-Forfeiture Break in Service Accrued Benefit
and a separate Account for his post-Forfeiture Break in Service Accrued Benefit,
unless the Participant's entire Accrued Benefit under the Plan is 100%
Nonforfeitable.
The Advisory Committee will make its allocations, or request the Trustee to
make its allocations, to the Accounts of the Participants in accordance with the
provisions of Section 9.11. The Advisory Committee may direct the Trustee to
maintain a temporary segregated investment Account in the name of a Participant
to prevent a distortion of income, gain or loss allocations under Section 9.11.
The Advisory Committee must maintain records of its activities.
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
--------------------------------------
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Employer's Trust Fund which the net credit balance in
his Account (exclusive of the cash value of incidental benefit insurance
contracts) bears to the total net credit balance in the Accounts (exclusive of
the cash value of the incidental benefit insurance contracts) of all
Participants plus the cash surrender value of any incidental benefit insurance
contracts held by the Trustee on the Participant's life.
9.03
<PAGE>
For purposes of a distribution under the Plan, the value of a Participant's
Accrued Benefit is its value as of the valuation date immediately preceding the
date of the distribution. Any distribution (other than a distribution from a
segregated Account) made to a Participant (or to his Beneficiary) more than 90
days after the most recent valuation date may include interest on the amount of
the distribution as an expense of the Trust Fund. The interest, if any, accrues
from such valuation date to the date of the distribution at the rate established
in the Employer's Adoption Agreement.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A "valuation
------------------------------------------------------
date" under this Plan is each Accounting Date and each interim valuation date
determined under Section 10.14. As of each valuation date the Advisory Committee
must adjust Accounts to reflect net income, gain or loss since the last
valuation date. The valuation period is the period beginning the day after the
last valuation date and ending on the current valuation date.
(A) Trust Fund Accounts. The allocation provisions of this paragraph apply to
all Participant Accounts other than segregated investment Accounts. The Advisory
Committee first will adjust the Participant Accounts, as those Accounts stood at
the beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.14, for amounts
charged during the valuation period to the Accounts in accordance with Section
9.13 (relating to distributions) and Section 11.01 (relating to insurance
premiums), and for the cash value of incidental benefit insurance contracts. The
Advisory Committee then, subject to the restoration allocation requirements of
Section 5.04 or of Section 9.14, will allocate the net income, gain or loss pro
rata to the adjusted Participant Accounts. The allocable net income, gain or
loss is the net income (or net loss), including the increase or decrease in the
fair market value of assets, since the last valuation date.
(B) Segregated investment Accounts. A segregated investment Account receives all
income it earns and bears all expense or loss it incurs. The Advisory Committee
will adopt uniform and nondiscriminatory procedures for determining income or
loss of a segregated investment Account in a manner which reasonably reflects
investment directions relating to pooled investments and investment directions
occurring during a valuation period. As of the valuation date, the Advisory
Committee must reduce a segregated Account for any forfeiture arising under
Section 5.09 after the Advisory Committee has made all other allocations,
changes or adjustments to the Account for the Plan Year.
9.04
<PAGE>
(C) Additional rules. An Excess Amount or suspense account described in Part 2
of Article III does not share in the allocation of net income, gain or loss
described in this Section 9.11. If the Employer maintains its Plan under a Code
Sec.401(k) Adoption Agreement, the Employer may specify in its Adoption
Agreement alternate valuation provisions authorized by that Adoption Agreement.
This Section 9.11 applies solely to the allocation of net income, gain or loss
of the Trust. The Advisory Committee will allocate the Employer contributions
and Participant forfeitures, if any, in accordance with Article III.
9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting Date
--------------------
of each Plan Year, but within the time prescribed by ERISA and the regulations
under ERISA, the Plan Administrator will deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued Benefit in
the Trust as of that date and such other information ERISA requires be furnished
the Participant or Beneficiary. No Participant, except a member of the Advisory
Committee, has the right to inspect the records reflecting the Account of any
other Participant.
9.13 ACCOUNT CHARGED. The Advisory Committee will charge a Participant's
---------------
Account for all distributions made from that Account to the Participant, to his
Beneficiary or to an alternate payee. The Advisory Committee also will charge a
Participant's Account for any administrative expenses incurred by the Plan
directly related to that Account.
9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either
-----------------------------
the Trustee or the Advisory Committee to search for, or to ascertain the
whereabouts of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known address
of record with the Advisory Committee or the Employer, must notify any
Participant, or Beneficiary, that he is entitled to a distribution under this
Plan. The notice must quote the provisions of this Section 9.14 and otherwise
must comply with the notice requirements of Article VI. If the Participant, or
Beneficiary, fails to claim his distributive share or make his whereabouts known
in writing to the Advisory Committee within 6 months from the date of mailing of
the notice, the Advisory Committee will treat the Participant's or Beneficiary's
unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed
payable Accrued Benefit in accordance with Section 3.05. A forfeiture under this
paragraph will occur at the end of the notice period or, if later, the earliest
date applicable Treasury regulations would permit the forfeiture. Pending
forfeiture, the Advisory Committee, following the expiration of the notice
period, may direct the Trustee to segregate the Nonforfeitable
9.05
<PAGE>
Accrued Benefit in a segregated Account and to invest that segregated Account in
Federally insured interest bearing savings accounts or time deposits (or in a
combination of both), or in other fixed income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his Accrued
Benefit under the provisions of the first paragraph of this Section 9.14 makes a
claim, at any time, for his forfeited Accrued Benefit, the Advisory Committee
must restore the Participant's or Beneficiary's forfeited Accrued Benefit to the
same dollar amount as the dollar amount of the Accrued Benefit forfeited,
unadjusted for any gains or losses occurring subsequent to the date of the
forfeiture. The Advisory Committee will make the restoration during the Plan
Year in which the Participant or Beneficiary makes the claim, first from the
amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee must direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions of
this Section 9.14 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
* * * * * * * * * * * * * * *
9.06
<PAGE>
ARTICLE X
CUSTODIAN/TRUSTEE, POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan and
----------
agrees to perform the obligations imposed. The Trustee must provide bond for the
faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the
------------------------
Employer for the funds contributed to it by the Employer, but does not have any
duty to see that the contributions received comply with the provisions of the
Plan. The Trustee is not obliged to collect any contributions from the Employer,
nor is obliged to see that funds deposited with it are deposited according to
the provisions of the Plan.
10.03 INVESTMENT POWERS.
-----------------
[A] Discretionary Trustee Designation. If the Employer, in Adoption Agreement
Section 1.02, designates the Trustee to administer the Trust as a discretionary
Trustee, then the Trustee has full discretion and authority with regard to the
investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset properly subject to Employer, Participant or Advisory Committee
direction of investment. The Trustee must coordinate its investment policy with
Plan financial needs as communicated to it by the Advisory Committee. The
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or closed-end mutual funds, put and call options traded on a
national exchange, United States retirement plan bonds, corporate bonds,
debentures, convertible debentures, commercial paper, U.S. Treasury bills,
U.S. Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate situated
in the United States, limited partnerships, insurance contracts of any type,
mortgages, notes or other property of any kind, real or personal, to buy or
sell options on common stock on a nationally recognized exchange with or
without holding the underlying common stock, to buy and sell commodities,
commodity options and contracts for the future delivery of commodities, and to
make any other investments the Trustee deems appropriate, as a prudent man
would do under like circumstances with due regard for the purposes of this
Plan. Any investment made or retained by the
10.01
<PAGE>
Trustee in good faith is proper but must be of a kind constituting a
diversification considered by law suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem advisable to
satisfy liquidity needs of the Plan and to deposit any cash held in the Trust
Fund in a bank account at reasonable interest.
(c) To invest, if the Trustee is a bank or similar financial institution
supervised by the United States or by a State, in any type of deposit of the
Trustee (or of a bank related to the Trustee within the meaning of Code
Sec.414(b)) at a reasonable rate of interest or in a common trust fund, as
described in Code Sec.584, or in a collective investment fund, the provisions
of which govern the investment of such assets and which the Plan incorporates
by this reference, which the Trustee (or its affiliate, as defined in Code
Sec.1504) maintains exclusively for the collective investment of money
contributed by the bank (or the affiliate) in its capacity as trustee and
which conforms to the rules of the Comptroller of the Currency.
(d) To manage, sell, contract to sell, grant options to purchase, convey,
exchange, transfer, abandon, improve, repair, insure, lease for any term even
though commencing in the future or extending beyond the term of the Trust, and
otherwise deal with all property, real or personal, in such manner, for such
considerations and on such terms and conditions as the Trustee decides.
(e) To credit and distribute the Trust as directed by the Advisory Committee.
The Trustee is not obliged to inquire as to whether any payee or distributee
is entitled to any payment or whether the distribution is proper or within the
terms of the Plan, or as to the manner of making any payment or distribution.
The Trustee is accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(f) To borrow money, to assume indebtedness, extend mortgages and encumber by
mortgage or pledge.
(g) To compromise, contest, arbitrate or abandon claims and demands, in its
discretion.
(h) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights.
10.02
<PAGE>
(i) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil, gas
and other minerals; and to enter into operating agreements and to execute
division and transfer orders.
(j) To hold any securities or other property in the name of the Trustee or its
nominee, with depositories or agent depositories or in another form as it may
deem best, with or without disclosing the trust relationship.
(k) To perform any and all other acts in its judgment necessary or appropriate
for the proper and advantageous management, investment and distribution of the
Trust.
(l) To retain any funds or property subject to any dispute without liability
for the payment of interest, and to decline to make payment or delivery of the
funds or property until final adjudication is made by a court of competent
jurisdiction.
(m) To file all tax returns required of the Trustee.
(n) To furnish to the Employer, the Plan Administrator and the Advisory
Committee an annual statement of account showing the condition of the Trust
Fund and all investments, receipts, disbursements and other transactions
effected by the Trustee during the Plan Year covered by the statement and also
stating the assets of the Trust held at the end of the Plan Year, which
accounts are conclusive on all persons, including the Employer, the Plan
Administrator and the Advisory Committee, except as to any act or transaction
concerning which the Employer, the Plan Administrator or the Advisory
Committee files with the Trustee written exceptions or objections within 90
days after the receipt of the accounts or for which ERISA authorizes a longer
period within which to object.
(o) To begin, maintain or defend any litigation necessary in connection with
the administration of the Plan, except that the Trustee is not obliged or
required to do so unless indemnified to its satisfaction.
[B] Nondiscretionary Trustee Designation/Appointment of Custodian. If the
Employer, in its Adoption Agreement Section 1.02, designates the Trustee to
administer the Trust as a nondiscretionary Trustee, then the Trustee will not
have any discretion or authority with regard to the investment of the Trust
Fund, but must act solely as a directed trustee of the funds contributed to it.
A nondiscretionary Trustee, as directed trustee of the funds held by it under
the Employer's Plan, is authorized and empowered, by way of limitation, with the
following powers, rights and duties, each of which the nondiscretionary Trustee
exercises solely as directed trustee in
10.03
<PAGE>
accordance with the written direction of the Named Fiduciary (except to the
extent a Plan asset is subject to the control and management of a properly
appointed Investment Manager or subject to Advisory Committee or Participant
direction of investment):
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or closed-end mutual funds, put and call options traded on a
national exchange, United States retirement plan bonds, corporate bonds,
debentures, convertible debentures, commercial paper, U.S. Treasury bills,
U.S. Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate situated
in the United States, limited partnerships, insurance contracts of any type,
mortgages, notes or other property of any kind, real or personal, to buy or
sell options on common stock on a nationally recognized options exchange with
or without holding the underlying common stock, to buy and sell commodities,
commodity options and contracts for the future delivery of commodities, and to
make any other investments the Named Fiduciary deems appropriate.
(b) To retain in cash so much of the Trust Fund as the Named Fiduciary may
direct in writing to satisfy liquidity needs of the Plan and to deposit any
cash held in the Trust Fund in a bank account at reasonable interest,
including, specific authority to invest in any type of deposit of the Trustee
(or of a bank related to the Trustee within the meaning of Code Sec.414(b))
at a reasonable rate of interest.
(c) To sell, contract to sell, grant options to purchase, convey, exchange,
transfer, abandon, improve, repair, insure, lease for any term even though
commencing in the future or extending beyond the term of the Trust, and
otherwise deal with all property, real or personal, in such manner, for such
considerations and on such terms and conditions as the Named Fiduciary directs
in writing.
(d) To credit and distribute the Trust as directed by the Advisory Committee.
The Trustee is not obliged to inquire as to whether any payee or distributee
is entitled to any payment or whether the distribution is proper or within the
terms of the Plan, or as to the manner of making any payment or distribution.
The Trustee is accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages and encumber by
mortgage or pledge.
10.04
<PAGE>
(f) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights, provided the exercise of any such powers
is in accordance with and at the written direction of the Named Fiduciary.
(g) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil, gas
and other minerals; and to enter into operating agreements and to execute
division and transfer orders, provided the exercise of any such powers is in
accordance with and at the written direction of the Named Fiduciary.
(h) To hold any securities or other property in the name of the
nondiscretionary Trustee or its nominee, with depositories or agent
depositories or in another form as the Named Fiduciary may deem best, with or
without disclosing the custodial relationship.
(i) To retain any funds or property subject to any dispute without liability
for the payment of interest, and to decline to make payment or delivery of the
funds or property until a court of competent jurisdiction makes final
adjudication.
(j) To file all tax returns required of the Trustee.
(k) To furnish to the Named Fiduciary, the Employer, the Plan Administrator
and the Advisory Committee an annual statement of account showing the
condition of the Trust Fund and all investments, receipts, disbursements and
other transactions effected by the nondiscretionary Trustee during the Plan
Year covered by the statement and also stating the assets of the Trust held at
the end of the Plan Year, which accounts are conclusive on all persons,
including the Named Fiduciary, the Employer, the Plan Administrator and the
Advisory Committee, except as to any act or transaction concerning which the
Named Fiduciary, the Employer, the Plan Administrator or the Advisory
Committee files with the nondiscretionary Trustee written exceptions or
objections within 90 days after the receipt of the accounts or for which ERISA
authorizes a longer period within which to object.
(l) To begin, maintain or defend any litigation necessary in connection with
the administration of the Plan, except that the Trustee is not obliged or
required to do so unless indemnified to its satisfaction.
10.05
<PAGE>
Appointment of Custodian. The Employer may appoint a Custodian under the Plan,
the acceptance by the Custodian indicated on the execution page of the
Employer's Adoption Agreement. If the Employer appoints a Custodian, the
Employer's Plan must have a discretionary Trustee, as described in Section
10.03[A]. A Custodian has the same powers, rights and duties as a
nondiscretionary Trustee, as described in this Section 10.03[B]. The Custodian
accepts the terms of the Plan and Trust by executing the Employer's Adoption
Agreement. Any reference in the Plan to a Trustee also is a reference to a
Custodian where the context of the Plan dictates. A limitation of the Trustee's
liability by Plan provision also acts as a limitation of the Custodian's
liability. Any action taken by the Custodian at the discretionary Trustee's
direction satisfies any provision in the Plan referring to the Trustee's taking
that action.
Modification of Powers/Limited Responsibility. The Employer and the Custodian
or nondiscretionary Trustee, by letter agreement, may limit the powers of the
Custodian or nondiscretionary Trustee to any combination of powers listed within
this Section 10.03[B]. If there is a Custodian or a nondiscretionary Trustee
under the Employer's Plan, then the Employer, in adopting this Plan acknowledges
the Custodian or nondiscretionary Trustee has no discretion with respect to the
investment or re-investment of the Trust Fund and that the Custodian or
nondiscretionary Trustee is acting solely as custodian or as directed trustee
with respect to the assets comprising the Trust Fund.
[C] Limitation of Powers of Certain Custodians. If a Custodian is a bank which,
under its governing state law, does not possess trust powers, then paragraphs
(a), (c), (e), (f), (g) of Section 10.03[B], Section 10.16 and Article XI do not
apply to that bank and that bank only has the power and authority to exercise
the remaining powers, rights and duties under Section 10.03[B].
[D] Named Fiduciary/Limitation of Liability of Nondiscretionary Trustee or
Custodian. Under a nondiscretionary Trustee designation, the Named Fiduciary
under the Employer's Plan has the sole responsibility for the management and
control of the Employer's Trust Fund, except with respect to a Plan asset under
the control or direction of a properly appointed Investment Manager or with
respect to a Plan asset properly subject to Participant or Advisory Committee
direction of investment. If the Employer appoints a Custodian, the Named
Fiduciary is the discretionary Trustee. Under a nondiscretionary Trustee
designation, unless the Employer designates in writing another person or persons
to serve as Named Fiduciary, the Named Fiduciary under the Plan is the president
of a corporate Employer, the managing partner of a partnership Employer or the
sole proprietor, as appropriate. The Named Fiduciary will exercise its
management and control of the Trust Fund through its written
10.06
<PAGE>
direction to the nondiscretionary Trustee or to the Custodian, whichever applies
to the Employer's Plan.
The nondiscretionary Trustee or Custodian has no duty to review or to make
recommendations regarding investments made at the written direction of the Named
Fiduciary. The nondiscretionary Trustee or Custodian must retain any investment
obtained at the written direction of the Named Fiduciary until further directed
in writing by the Named Fiduciary to dispose of such investment. The
nondiscretionary Trustee or Custodian is not liable in any manner or for any
reason for making, retaining or disposing of any investment pursuant to any
written direction described in this paragraph. Furthermore, the Employer agrees
to indemnify and to hold the nondiscretionary Trustee or Custodian harmless from
any damages, costs or expenses, including reasonable counsel fees, which the
nondiscretionary Trustee or Custodian may incur as a result of any claim
asserted against the nondiscretionary Trustee, the Custodian or the Trust
arising out of the nondiscretionary Trustee's or Custodian's compliance with any
written direction described in this paragraph.
[E] Participant Loans. This Section 10.03[E] specifically authorizes the Trustee
to make loans on a nondiscriminatory basis to a Participant or to a Beneficiary
in accordance with the loan policy established by the Advisory Committee,
provided: (1) the loan policy satisfies the requirements of Section 9.04; (2)
loans are available to all Participants and Beneficiaries on a reasonably
equivalent basis and are not available in a greater amount for Highly
Compensated Employees than for other Employees; (3) any loan is adequately
secured and bears a reasonable rate of interest; (4) the loan provides for
repayment within a specified time; (5) the default provisions of the note
prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the
time the Trustee otherwise would distribute the Participant's Nonforfeitable
Accrued Benefit; (6) the amount of the loan does not exceed (at the time the
Plan extends the loan) the present value of the Participant's Nonforfeitable
Accrued Benefit; and (7) the loan otherwise conforms to the exemption provided
by Code Sec.4975(d)(1). If the joint and survivor requirements of Article VI
apply to the Participant, the Participant may not pledge any portion of his
Accrued Benefit as security for a loan made after August 18, 1985, unless,
within the 90 day period ending on the date the pledge becomes effective, the
Participant's spouse, if any, consents (in a manner described in Section 6.05
other than the requirement relating to the consent of a subsequent spouse) to
the security or, by separate consent, to an increase in the amount of security.
If the Employer is an unincorporated trade or business, a Participant who is
an Owner-Employee may not receive a loan from the Plan, unless he has obtained
a prohibited transaction exemption from the Department of Labor. If
10.07
<PAGE>
the Employer is an "S Corporation," a Participant who is a shareholder-employee
(an employee or an officer) who, at any time during the Employer's taxable year,
owns more than 5%, either directly or by attribution under Code Sec.318(a)(1),
of the Employer's outstanding stock may not receive a loan from the Plan,
unless he has obtained a prohibited transaction exemption from the Department
of Labor. If the Employer is not an unincorporated trade or business nor an
"S Corporation," this Section 10.03[E] does not impose any restrictions on the
class of Participants eligible for a loan from the Plan.
[F] Investment in qualifying Employer securities and qualifying Employer real
property. The investment options in this Section 10.03[F] include the ability to
invest in qualifying Employer securities or qualifying Employer real property,
as defined in and as limited by ERISA. If the Employer's Plan is a
Nonstandardized profit sharing plan, it may elect in its Adoption Agreement to
permit the aggregate investments in qualifying Employer securities and in
qualifying Employer real property to exceed 10% of the value of Plan assets.
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to the
----------------------
Plan must be open to the inspection of the Plan Administrator, the Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 FEES AND EXPENSES FROM FUND. A Trustee or Custodian will receive
---------------------------
reasonable annual compensation as may be agreed upon from time to time between
the Employer and the Trustee or Custodian. No person who is receiving full pay
from the Employer may receive compensation for services as Trustee or as
Custodian. The Trustee will pay from the Trust Fund all fees and expenses
reasonably incurred by the Plan, to the extent such fees and expenses are for
the ordinary and necessary administration and operation of the Plan, unless the
Employer pays such fees and expenses. Any fee or expense paid, directly or
indirectly, by the Employer is not an Employer contribution to the Plan,
provided the fee or expense relates to the ordinary and necessary administration
of the Fund.
10.08
<PAGE>
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no
---------------------
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding will be
conclusive upon the Employer, the Plan Administrator, the Advisory Committee,
the Trustee, Custodian, Participants and Beneficiaries.
10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the
-------------------
Trust Fund reasonable compensation to agents, attorneys, accountants and other
persons to advise the Trustee as in its opinion may be necessary. The Trustee
may delegate to any agent, attorney, accountant or other person selected by it
any non-Trustee power or duty vested in it by the Plan, and the Trustee may act
or refrain from acting on the advice or opinion of any agent, attorney,
accountant or other person so selected.
10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make distribution
--------------------------------
under the Plan in cash or property, or partly in each, at its fair market value
as determined by the Trustee. For purposes of a distribution to a Participant or
to a Participant's designated Beneficiary or surviving spouse, "property"
includes a Nontransferable Annuity Contract, provided the contract satisfies the
requirements of this Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution
-----------------------
made from the Trust, the Trustee must promptly notify the Advisory Committee
and then dispose of the payment in accordance with the subsequent direction of
the Advisory Committee.
10.10 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee is
-----------------------------
obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
will be conclusive in favor of any person relying on the certificate. If more
than two persons act as Trustee, a decision of the majority of such persons
controls with respect to any decision regarding the administration or investment
of the Trust Fund or of any portion of the Trust Fund with respect to which such
persons act as Trustee. However, the signature of only one Trustee is necessary
to effect any transaction on behalf of the Trust.
10.09
<PAGE>
10.11 RESIGNATION. The Trustee or Custodian may resign its position at any
-----------
time by giving 30 days' written notice in advance to the Employer and to the
Advisory Committee. If the Employer fails to appoint a successor Trustee within
60 days of its receipt of the Trustee's written notice of resignation, the
Trustee will treat the Employer as having appointed itself as Trustee and as
having filed its acceptance of appointment with the former Trustee. The
Employer, in its sole discretion, may replace a Custodian. If the Employer does
not replace a Custodian, the discretionary Trustee will assume possession of
Plan assets held by the former Custodian.
10.12 REMOVAL. The Employer, by giving 30 days' written notice in advance to
-------
the Trustee, may remove any Trustee or Custodian. In the event of the
resignation or removal of a Trustee, the Employer must appoint a successor
Trustee if it intends to continue the Plan. If two or more persons hold the
position of Trustee, in the event of the removal of one such person, during any
period the selection of a replacement is pending, or during any period such
person is unable to serve for any reason, the remaining person or persons will
act as the Trustee.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee succeeds
------------------------------------
to the title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and by filing the acceptance with the former
Trustee and the Advisory Committee without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, must execute all documents and do
all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of each
------------------
Accounting Date to determine the fair market value of each Participant's Accrued
Benefit in the Trust. The Trustee also must value the Trust Fund on such other
valuation dates as directed in writing by the Advisory Committee or as required
by the Employer's Adoption Agreement.
10.010
<PAGE>
10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER, ANCILLARY
----------------------------------------------------------
TRUSTEE OR INDEPENDENT FIDUCIARY APPOINTED. The Trustee is not liable for
- ------------------------------------------
the acts or omissions of any Investment Manager the Advisory Committee may
appoint, nor is the Trustee under any obligation to invest or otherwise manage
any asset of the Plan which is subject to the management of a properly appointed
Investment Manager. The Advisory Committee, the Trustee and any properly
appointed Investment Manager may execute a letter agreement as a part of this
Plan delineating the duties, responsibilities and liabilities of the Investment
Manager with respect to any part of the Trust Fund under the control of the
Investment Manager.
The limitation on liability described in this Section 10.15 also applies to
the acts or omissions of any ancillary trustee or independent fiduciary properly
appointed under Section 10.17 of the Plan. However, if a discretionary Trustee,
pursuant to the delegation described in Section 10.17 of the Plan, appoints an
ancillary trustee, the discretionary Trustee is responsible for the periodic
review of the ancillary trustee's actions and must exercise its delegated
authority in accordance with the terms of the Plan and in a manner consistent
with ERISA. The Employer, the discretionary Trustee and an ancillary trustee may
execute a letter agreement as a part of this Plan delineating any
indemnification agreement between the parties.
10.16 INVESTMENT IN GROUP TRUST FUND. The Employer, by adopting this Plan,
------------------------------
specifically authorizes the Trustee to invest all or any portion of the assets
comprising the Trust Fund in any group trust fund which at the time of the
investment provides for the pooling of the assets of plans qualified under Code
Sec.401(a). This authorization applies solely to a group trust fund exempt from
taxation under Code Sec.501(a) and the trust agreement of which satisfies the
requirements of Revenue Ruling 81-100. The provisions of the group trust fund
agreement, as amended from time to time, are by this reference incorporated
within this Plan and Trust. The provisions of the group trust fund will govern
any investment of Plan assets in that fund. The Employer must specify in an
attachment to its adoption agreement the group trust fund(s) to which this
authorization applies. If the Trustee is acting as a nondiscretionary Trustee,
the investment in the group trust fund is available only in accordance with a
proper direction, by the Named Fiduciary, in accordance with Section 10.03[B].
Pursuant to paragraph (c) of Section 10.03[A] of the Plan, a Trustee has the
authority to invest in certain common trust funds and collective investment
funds without the need for the authorizing addendum described in this Section
10.16.
10.011
<PAGE>
Furthermore, at the Employer's direction, the Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
10.17 APPOINTMENT OF ANCILLARY TRUSTEE OR INDEPENDENT FIDUCIARY.
---------------------------------------------------------
The Employer, in writing, may appoint any person in any State to act as
ancillary trustee with respect to a designated portion of the Trust Fund. An
ancillary trustee must acknowledge in writing its acceptance of the terms and
conditions of its appointment as ancillary trustee and its fiduciary status
under ERISA. The ancillary trustee has the rights, powers, duties and discretion
as the Employer may delegate, subject to any limitations or directions specified
in the instrument evidencing appointment of the ancillary trustee and to the
terms of the Plan or of ERISA. The investment powers delegated to the ancillary
trustee may include any investment powers available under Section 10.03 of the
Plan including the right to invest any portion of the assets of the Trust Fund
in a common trust fund, as described in Code Sec.584, or in any collective
investment fund, the provisions of which govern the investment of such assets
and which the Plan incorporates by this reference, but only if the ancillary
trustee is a bank or similar financial institution supervised by the United
States or by a State and the ancillary trustee (or its affiliate, as defined in
Code Sec.1504) maintains the common trust fund or collective investment fund
exclusively for the collective investment of money contributed by the ancillary
trustee (or its affiliate) in a trustee capacity and which conforms to the rules
of the Comptroller of the Currency. The Employer also may appoint as an
ancillary trustee, the trustee of any group trust fund designated for investment
pursuant to the provisions of Section 10.16 of the Plan.
The ancillary trustee may resign its position at any time by providing at
least 30 days' advance written notice to the Employer, unless the Employer
waives this notice requirement. The Employer, in writing, may remove an
ancillary trustee at any time. In the event of resignation or removal, the
Employer may appoint another ancillary trustee, return the assets to the control
and management of the Trustee or receive such assets in the capacity of
ancillary trustee. The Employer may delegate its responsibilities under this
Section 10.17 to a discretionary Trustee under the Plan, but not to a
nondiscretionary Trustee or to a Custodian, subject to the acceptance by the
discretionary Trustee of that delegation.
10.012
<PAGE>
If the U.S. Department of Labor ("the Department") requires engagement of an
independent fiduciary to have control or management of all or a portion of the
Trust Fund, the Employer will appoint such independent fiduciary, as directed by
the Department. The independent fiduciary will have the duties, responsibilities
and powers prescribed by the Department and will exercise those duties,
responsibilities and powers in accordance with the terms, restrictions and
conditions established by the Department and, to the extent not inconsistent
with ERISA, the terms of the Plan. The independent fiduciary must accept its
appointment in writing and must acknowledge its status as a fiduciary of the
Plan.
* * * * * * * * * * * * * * *
10.013
<PAGE>
ARTICLE XI
PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 INSURANCE BENEFIT. The Employer may elect to provide incidental life
-----------------
insurance benefits for insurable Participants who consent to life insurance
benefits by signing the appropriate insurance company application form. The
Trustee will not purchase any incidental life insurance benefit for any
Participant prior to an allocation to the Participant's Account. At an insured
Participant's written direction, the Trustee will use all or any portion of the
Participant's nondeductible voluntary contributions, if any, to pay insurance
premiums covering the Participant's life. This Section 11.01 also authorizes the
purchase of life insurance, for the benefit of the Participant, on the life of a
family member of the Participant or on any person in whom the Participant has an
insurable interest. However, if the policy is on the joint lives of the
Participant and another person, the Trustee may not maintain that policy if that
other person predeceases the Participant.
The Employer will direct the Trustee as to the insurance company and insurance
agent through which the Trustee is to purchase the insurance contracts, the
amount of the coverage and the applicable dividend plan. Each application for a
policy, and the policies themselves, must designate the Trustee as sole owner,
with the right reserved to the Trustee to exercise any right or option contained
in the policies, subject to the terms and provisions of this Agreement. The
Trustee must be the named beneficiary for the Account of the insured
Participant. Proceeds of insurance contracts paid to the Participant's Account
under this Article XI are subject to the distribution requirements of Article V
and of Article VI. The Trustee will not retain any such proceeds for the benefit
of the Trust.
The Trustee will charge the premiums on any incidental benefit insurance
contract covering the life of a Participant against the Account of that
Participant. The Trustee will hold all incidental benefit insurance contracts
issued under the Plan as assets of the Trust created under the Plan.
(A) Incidental insurance benefits. The aggregate of life insurance premiums paid
for the benefit of a Participant, at all times, may not exceed the following
percentages of the aggregate of the Employer's contributions allocated to any
Participant's Account: (i) 49% in the case of the purchase of ordinary life
insurance contracts; or (ii) 25% in the case of the purchase of term life
insurance or universal life insurance contracts. If the Trustee purchases a
combination of ordinary life insurance contract(s) and term life insurance or
universal life insurance contract(s), then the sum of one-half of the premiums
paid for the ordinary life insurance contract(s) and the premiums paid for the
term life insurance or universal life insurance
11.01
<PAGE>
contract(s) may not exceed 25% of the Employer contributions allocated to any
Participant's Account.
(B) Exception for certain profit sharing plans. If the Employer's Plan is a
profit sharing plan, the incidental insurance benefits requirement does not
apply to the Plan if the Plan purchases life insurance benefits only from
Employer contributions accumulated in the Participant's Account for at least two
years (measured from the allocation date).
11.02 LIMITATION ON LIFE INSURANCE PROTECTION. The Trustee will not
-------------------------------------------
continue any life insurance protection for any Participant beyond his annuity
starting date (as defined in Article VI). If the Trustee holds any incidental
benefit insurance contract(s) for the benefit of a Participant when he
terminates his employment (other than by reason of death), the Trustee must
proceed as follows:
(a) If the entire cash value of the contract(s) is vested in the terminating
Participant, or if the contract(s) will have no cash value at the end of the
policy year in which termination of employment occurs, the Trustee will
transfer the contract(s) to the Participant endorsed so as to vest in the
transferee all right, title and interest to the contract(s), free and clear of
the Trust; subject however, to restrictions as to surrender or payment of
benefits as the issuing insurance company may permit and as the Advisory
Committee directs;
(b) If only part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee, to the extent the Participant's interest
in the cash value of the contract(s) is not vested, may adjust the
Participant's interest in the value of his Account attributable to Trust
assets other than incidental benefit insurance contracts and proceed as in
(a), or the Trustee must effect a loan from the issuing insurance company on
the sole security of the contract(s) for an amount equal to the difference
between the cash value of the contract(s) at the end of the policy year in
which termination of employment occurs and the amount of the cash value that
is vested in the terminating Participant, and the Trustee must transfer the
contract(s) endorsed so as to vest in the transferee all right, title and
interest to the contract(s), free and clear of the Trust; subject however, to
the restrictions as to surrender or payment of benefits as the issuing
insurance company may permit and the Advisory Committee directs;
(c) If no part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee must surrender the contract(s) for cash
proceeds as may be available.
11.02
<PAGE>
In accordance with the written direction of the Advisory Committee, the
Trustee will make any transfer of contract(s) under this Section 11.02 on the
Participant's annuity starting date (or as soon as administratively practicable
after that date). The Trustee may not transfer any contract under this Section
11.02 which contains a method of payment not specifically authorized by Article
VI or which fails to comply with the joint and survivor annuity requirements, if
applicable, of Article VI. In this regard, the Trustee either must convert such
a contract to cash and distribute the cash instead of the contract, or before
making the transfer, require the issuing company to delete the unauthorized
method of payment option from the contract.
11.03 DEFINITIONS. For purposes of this Article XI:
-----------
(a) "Policy" means an ordinary life insurance contract or a term life
insurance contract issued by an insurer on the life of a Participant.
(b) "Issuing insurance company" is any life insurance company which has issued
a policy upon application by the Trustee under the terms of this Agreement.
(c) "Contract" or "Contracts" means a policy of insurance. In the event of any
conflict between the provisions of this Plan and the terms of any contract or
policy of insurance issued in accordance with this Article XI, the provisions
of the Plan control.
(d) "Insurable Participant" means a Participant to whom an insurance company,
upon an application being submitted in accordance with the Plan, will issue
insurance coverage, either as a standard risk or as a risk in an extra
mortality classification.
11.04 DIVIDEND PLAN. The dividend plan is premium reduction unless the
-------------
Advisory Committee directs the Trustee to the contrary. The Trustee must use all
dividends for a contract to purchase insurance benefits or additional insurance
benefits for the Participant on whose life the insurance company has issued the
contract. Furthermore, the Trustee must arrange, where possible, for all
policies issued on the lives of Participants under the Plan to have the same
premium due date and all ordinary life insurance contracts to contain guaranteed
cash values with as uniform basic options as are possible to obtain. The term
"dividends" includes policy dividends, refunds of premiums and other credits.
11.05 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance
------------------------------------------
company, solely in its capacity as an issuing insurance company, is a party to
this Agreement nor is the company responsible for its validity.
11.03
<PAGE>
11.06 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS.
-------------------------------------------------------
No insurance company, solely in its capacity as an issuing insurance company,
need examine the terms of this Agreement nor is responsible for any action taken
by the Trustee.
11.07 INSURANCE COMPANY RELIANCE ON TRUSTEE'S SIGNATURE. For the
-------------------------------------------------
purpose of making application to an insurance company and in the exercise of any
right or option contained in any policy, the insurance company may rely upon the
signature of the Trustee and is saved harmless and completely discharged in
acting at the direction and authorization of the Trustee.
11.08 ACQUITTANCE. An insurance company is discharged from all liability for
-----------
any amount paid to the Trustee or paid in accordance with the direction of the
Trustee, and is not obliged to see to the distribution or further application of
any moneys it so pays.
11.09 DUTIES OF INSURANCE COMPANY. Each insurance company must keep such
---------------------------
records, make such identification of contracts, funds and accounts within funds,
and supply such information as may be necessary for the proper administration of
the Plan under which it is carrying insurance benefits.
Note: The provisions of this Article XI are not applicable, and the Plan may
not invest in insurance contracts, if a Custodian signatory to the Adoption
Agreement is a bank which has not acquired trust powers from its governing state
banking authority.
* * * * * * * * * * * * * * *
11.04
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the Plan
--------
may do so by certificate, affidavit, document or other information which the
person to act in reliance may consider pertinent, reliable and genuine, and to
have been signed, made or presented by the proper party or parties. The Advisory
Committee and the Trustee are fully protected in acting and relying upon any
evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee
-------------------------------------
nor the Advisory Committee has any obligation or responsibility with respect to
any action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
the Trustee nor the Advisory Committee need inquire into or be responsible for
any action or failure to act on the part of the others, or on the part of any
other person who has any responsibility regarding the management, administration
or operation of the Plan, whether by the express terms of the Plan or by a
separate agreement authorized by the Plan or by the applicable provisions of
ERISA. Any action required of a corporate Employer must be by its Board of
Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the
------------------------
Plan Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money which
may be or becomes due to any person from the Trust Fund. The liability of the
Advisory Committee and the Trustee to make any payment from the Trust Fund at
any time and all times is limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
----------------
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to benefits
----------
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee, the Advisory
Committee, the Plan Administrator and their successors.
12.01
<PAGE>
12.06 WORD USAGE. Words used in the masculine also apply to the feminine
----------
where applicable, and wherever the context of the Employer's Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 STATE LAW. The law of the state of the Employer's principal place of
---------
business (unless otherwise designated in an addendum to the Employer's Adoption
Agreement) will determine all questions arising with respect to the provisions
of this Agreement except to the extent superseded by Federal law.
12.08 EMPLOYER'S RIGHT TO PARTICIPATE. If the Employer's Plan fails to
-------------------------------
qualify or to maintain qualification or if the Employer makes any amendment or
modification to a provision of this Plan (other than a proper completion of an
elective provision under the Adoption Agreement or the attachment of an addendum
authorized by the Plan or by the Adoption Agreement), the Employer may no longer
participate under this Prototype Plan. Furthermore, if the Employer no longer is
a client of the Regional Prototype Sponsor, subsequent amendments to this
Prototype Plan by the Regional Prototype Sponsor, pursuant to Section 13.03 of
the Plan, will result in the discontinuance of the Employer's participation in
this Prototype Plan unless it resumes its client relationship with the Regional
Prototype Sponsor. If the Employer is not entitled to participate under this
Prototype Plan, the Employer's Plan is an individually-designed plan and the
reliance procedures specified in the applicable Adoption Agreement no longer
will apply.
12.09 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
-------------------------
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
* * * * * * * * * * * * * * *
12.02
<PAGE>
ARTICLE XIII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the Employer
-----------------
has no beneficial interest in any asset of the Trust and no part of any asset in
the Trust may ever revert to or be repaid to an Employer, either directly or
indirectly; nor, prior to the satisfaction of all liabilities with respect to
the Participants and their Beneficiaries under the Plan, may any part of the
corpus or income of the Trust Fund, or any asset of the Trust, be (at any time)
used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. However, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines the Trust created under the Plan is not a qualified trust exempt from
Federal income tax, then (and only then) the Trustee, upon written notice from
the Employer, will return the Employer's contributions (and increment
attributable to the contributions) to the Employer. The Trustee must make the
return of the Employer contribution under this Section 13.01 within one year of
a final disposition of the Employer's request for initial approval of the Plan.
The Employer's Plan and Trust will terminate upon the Trustee's return of the
Employer's contributions.
13.02 AMENDMENT BY EMPLOYER. The Employer has the right at any time and
-----------------------
from time to time:
(a) To amend the elective provisions of the Adoption Agreement in any manner
it deems necessary or advisable in order to qualify (or maintain qualification
of) this Plan and the Trust created under it under the provisions of Code
Sec.401(a);
(b) To amend the Plan to allow the Plan to operate under a waiver of the
minimum funding requirement; and
(c) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment may cause or permit any portion
of the Trust Fund to revert to or become a property of the Employer. The
Employer also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee. The Employer
must make all amendments in writing. Each amendment must state the date to which
it is either
13.01
<PAGE>
retroactively or prospectively effective. See Section 12.08 for the effect of
certain amendments adopted by the Employer.
(A) Code Sec.411(d)(6) protected benefits. An amendment (including the adoption
of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code
Sec.412(c)(8), and may not reduce or eliminate Code Sec.411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
Sec.411(d)(6) protected benefits if the amendment has the effect of either (1)
eliminating or reducing an early retirement benefit or a retirement-type
subsidy (as defined in Treasury regulations), or (2) except as provided by
Treasury regulations, eliminating an optional form of benefit. The Advisory
Committee must disregard an amendment to the extent application of the
amendment would fail to satisfy this paragraph. If the Advisory Committee must
disregard an amendment because the amendment would violate clause (1) or
clause (2), the Advisory Committee must maintain a schedule of the early
retirement option or other optional forms of benefit the Plan must continue for
the affected Participants.
13.03 AMENDMENT BY REGIONAL PROTOTYPE PLAN SPONSOR. The Regional Prototype
--------------------------------------------
Plan Sponsor, without the Employer's consent, may amend the Plan and Trust, from
time to time, in order to conform the Plan and Trust to any requirement for
qualification of the Plan and Trust under the Internal Revenue Code. The
Regional Prototype Plan Sponsor may not amend the Plan in any manner which would
modify any election made by the Employer under the Plan without the Employer's
written consent. Furthermore, the Regional Prototype Plan Sponsor may not amend
the Plan in any manner which would violate the proscription of Section 13.02. A
Trustee does not have the power to amend the Plan or Trust.
13.04 DISCONTINUANCE. The Employer has the right, at any time, to suspend or
--------------
discontinue its contributions under the Plan, and to terminate, at any time,
this Plan and the Trust created under this Agreement. The Plan will terminate
upon the first to occur of the following:
(a) The date terminated by action of the Employer;
(b) The dissolution or merger of the Employer, unless the successor makes
provision to continue the Plan, in which event the successor must substitute
itself as the Employer under this Plan. Any termination of the Plan resulting
from this paragraph (b) is not effective until compliance with any applicable
notice requirements under ERISA.
13.02
<PAGE>
13.05 FULL VESTING ON TERMINATION. Upon either full or partial termination
---------------------------
of the Plan, or, if applicable, upon complete discontinuance of profit sharing
plan contributions to the Plan, an affected Participant's right to his Accrued
Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage
which otherwise would apply under Article V.
13.06 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a party
----------------------
to, any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer. The
Trustee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement plans
described in Code Sec.401(a), including an elective transfer, and to accept the
direct transfer of plan assets, or to transfer plan assets, as a party to any
such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts such a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for purposes of
sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a Participant in the Plan.
(A) Elective transfers. The Trustee, after August 9, 1988, may not consent to,
or be a party to a merger, consolidation or transfer of assets with a defined
benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate Employer
contribution Account for the benefit of the Employee on whose behalf the Trustee
accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to this Plan is an elective transfer, the Plan will
preserve all Code Sec.411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A transfer is an
elective transfer if: (1) the transfer satisfies the first paragraph of this
Section 13.06; (2) the transfer is voluntary, under a fully informed election by
the Participant; (3) the Participant has an alternative that retains his Code
Sec.411(d)(6) protected benefits (including an option to leave his benefit in
the
13.03
<PAGE>
transferor plan, if that plan is not terminating); (4) the transfer satisfies
the applicable spousal consent requirements of the Code; (5) the transferor plan
satisfies the joint and survivor notice requirements of the Code, if the
Participant's transferred benefit is subject to those requirements; (6) the
Participant has a right to immediate distribution from the transferor plan, in
lieu of the elective transfer; (7) the transferred benefit is at least the
greater of the single sum distribution provided by the transferor plan for which
the Participant is eligible or the present value of the Participant's accrued
benefit under the transferor plan payable at that plan's normal retirement age;
(8) the Participant has a 100% Nonforfeitable interest in the transferred
benefit; and (9) the transfer otherwise satisfies applicable Treasury
regulations. An elective transfer may occur between qualified plans of any type.
Any direct transfer of assets from a defined benefit plan after August 9, 1988,
which does not satisfy the requirements of this paragraph will render the
Employer's Plan individually-designed. See Section 12.08.
(B) Distribution restrictions under Code Sec.401(k). If the Plan receives a
direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code Sec.401(k)
arrangement, the distribution restrictions of Code Sec.Sec.401(k)(2) and (10)
continue to apply to those transferred elective contributions.
13.07 TERMINATION.
-----------
(A) Procedure. Upon termination of the Plan, the distribution provisions of
Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued Benefit
does not exceed $3,500, the Advisory Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit to him in lump sum
as soon as administratively practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued Benefit
exceeds $3,500, the Participant or the Beneficiary, in addition to the
distribution events permitted under Article VI, may elect to have the Trustee
commence distribution of his Nonforfeitable Accrued Benefit as soon as
administratively practicable after the Plan terminates.
13.04
<PAGE>
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2).
If the Employer's Plan is a profit sharing plan, in lieu of the preceding
provisions of this Section 13.07 and the distribution provisions of Article VI,
the Advisory Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph does not apply if: (1) the Plan
provides an annuity option; or (2) as of the period between the Plan termination
date and the final distribution of assets, the Employer maintains any other
defined contribution plan (other than an ESOP). The Employer, in an addendum to
its Adoption Agreement numbered 13.07, may elect not to have this paragraph
apply.
The Trust will continue until the Trustee in accordance with the direction of
the Advisory Committee has distributed all of the benefits under the Plan. On
each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its proportionate share
of the Trust's income, expenses, gains and losses, both realized and unrealized.
Upon termination of the Plan, the amount, if any, in a suspense account under
Article III will revert to the Employer, subject to the conditions of the
Treasury regulations permitting such a reversion. A resolution or amendment to
freeze all future benefit accrual but otherwise to continue maintenance of this
Plan, is not a termination for purposes of this Section 13.07.
13.05
<PAGE>
(B) Distribution restrictions under Code Sec.401(k). If the Employer's Plan
includes a Code Sec.401(k) arrangement or if transferred assets described in
Section 13.06 are subject to the distribution restrictions of Code Sec.401(k)(2)
and (10), the special distribution provisions of this Section 13.07 are subject
to the restrictions of this paragraph. The portion of the Participant's
Nonforfeitable Accrued Benefit attributable to elective contributions (or to
amounts treated under the Code Sec.401(k) arrangement as elective contributions)
is not distributable on account of Plan termination, as described in this
Section 13.07, unless: (a) the Participant otherwise is entitled under the Plan
to a distribution of that portion of his Nonforfeitable Accrued Benefit; or (b)
the Plan termination occurs without the establishment of a successor plan. A
successor plan under clause (b) is a defined contribution plan (other than an
ESOP) maintained by the Employer (or by a related employer) at the time of the
termination of the Plan or within the period ending twelve months after the
final distribution of assets. A distribution made after March 31, 1988, pursuant
to clause (b), must be part of a lump sum distribution to the Participant of his
Nonforfeitable Accrued Benefit.
* * * * * * * * * * * * * * *
13.06
<PAGE>
ARTICLE XIV
CODE Sec.401(k) AND CODE Sec.401(m) ARRANGEMENTS
14.01 APPLICATION. This Article XIV applies to an Employer's Plan only if the
-----------
Employer is maintaining its Plan under a Code Sec.401(k) Adoption Agreement.
14.02 CODE Sec.401(k) ARRANGEMENT. The Employer will elect in Section 3.01 of
---------------------------
its Adoption Agreement the terms of the Code Sec.401(k) arrangement, if any,
under the Plan. If the Employer's Plan is a Standardized Plan, the Code
Sec.401(k) arrangement must be a salary reduction arrangement. If the
Employer's Plan is a Nonstandardized Plan, the Code Sec.401(k) arrangement may
be a salary reduction arrangement or a cash or deferred arrangement.
(A) Salary Reduction Arrangement. If the Employer elects a salary reduction
arrangement, any Employee eligible to participate in the Plan may file a salary
reduction agreement with the Advisory Committee. The salary reduction agreement
may not be effective earlier than the following date which occurs last: (i) the
Employee's Plan Entry Date (or, in the case of a reemployed Employee, his
reparticipation date under Article II); (ii) the execution date of the
Employee's salary reduction agreement; (iii) the date the Employer adopts the
Code Sec.401(k) arrangement by executing the Adoption Agreement; or (iv) the
effective date of the Code Sec.401(k) arrangement, as specified in the
Employer's Adoption Agreement. Regarding clause (i), an Employee subject to the
Break in Service rule of Section 2.03(B) of the Plan may not enter into a salary
reduction agreement until the Employee has completed a sufficient number of
Hours of Service to receive credit for a Year of Service (as defined in Section
2.02) following his reemployment commencement date. A salary reduction agreement
must specify the amount of Compensation (as defined in Section 1.12) or
percentage of Compensation the Employee wishes to defer. The salary reduction
agreement will apply only to Compensation which becomes currently available to
the Employee after the effective date of the salary reduction agreement. The
Employer will apply a reduction election to all Compensation (and to increases
in such Compensation) unless the Employee specifies in his salary reduction
agreement to limit the election to certain Compensation. The Employer will
specify in Adoption Agreement Section 3.01 the rules and restrictions applicable
to the Employees salary reduction agreements.
(B) Cash or deferred arrangement. If the Employer elects a cash or deferred
arrangement, a Participant may elect to make a cash election against his
proportionate share of the Employer's Cash or Deferred Contribution, in
accordance with the Employer's elections in Adoption Agreement Section 3.01. A
Participant's proportionate share of the Employer's Cash or Deferred
Contribution is the percentage of the
14.01
<PAGE>
total Cash or Deferred Contribution which bears the same ratio that the
Participant's Compensation for the Plan Year bears to the total Compensation of
all Participants for the Plan Year. For purposes of determining each
Participant's proportionate share of the Cash or Deferred Contribution, a
Participant's Compensation is his Compensation as determined under Section 1.12
of the Plan (as modified by Section 3.06 for allocation purposes), excluding any
effect the proportionate share may have on the Participant's Compensation for
the Plan Year. The Advisory Committee will determine the proportionate share
prior to the Employer's actual contribution to the Trust, to provide the
Participants the opportunity to file cash elections. The Employer will pay
directly to the Participant the portion of his proportionate share the
Participant has elected to receive in cash.
(C) Election not to participate. A Participant's or Employee's election not to
participate, pursuant to Section 2.06, includes his right to enter into a salary
reduction agreement or to share in the allocation of a Cash or Deferred
Contribution, unless the Participant or Employee limits the effect of the
election to the non-401(k) portions of the Plan.
14.03 DEFINITIONS. For purposes of this Article XIV:
-----------
(a) "Highly Compensated Employee" means an Eligible Employee who satisfies the
definition in Section 1.09 of the Plan. Family members aggregated as a single
Employee under Section 1.09 constitute a single Highly Compensated Employee,
whether a particular family member is a Highly Compensated Employee or a
Nonhighly Compensated Employee without the application of family aggregation.
(b) "Nonhighly Compensated Employee" means an Eligible Employee who is not a
Highly Compensated Employee and who is not a family member treated as a Highly
Compensated Employee.
(c) "Eligible Employee" means, for purposes of the ADP test described in
Section 14.08, an Employee who is eligible to enter into a salary reduction
agreement for the Plan Year, irrespective of whether he actually enters into
such an agreement, and a Participant who is eligible for an allocation of the
Employer's Cash or Deferred Contribution for the Plan Year. For purposes of
the ACP test described in Section 14.09, an "Eligible Employee" means a
Participant who is eligible to receive an allocation of matching contributions
(or would be eligible if he made the type of contributions necessary to
receive an allocation of matching contributions) and a Participant who is
eligible to make nondeductible contributions, irrespective of whether he
actually makes nondeductible contributions. An Employee continues to be an
14.02
<PAGE>
Eligible Employee during a period the Plan suspends the Employee's right to
make elective deferrals or nondeductible contributions following a hardship
distribution.
(d) "Highly Compensated Group" means the group of Eligible Employees who are
Highly Compensated Employees for the Plan Year.
(e) "Nonhighly Compensated Group" means the group of Eligible Employees who
are Nonhighly Compensated Employees for the Plan Year.
(f) "Compensation" means, except as specifically provided in this Article XIV,
Compensation as defined for nondiscrimination purposes in Section 1.12(B) of
the Plan. To compute an Employee's ADP or ACP, the Advisory Committee may
limit Compensation taken into account to Compensation received only for the
portion of the Plan Year in which the Employee was an Eligible Employee and
only for the portion of the Plan Year in which the Plan or the Code Sec.401(k)
arrangement was in effect.
(g) "Deferral contributions" are Salary Reduction Contributions and Cash or
Deferred Contributions the Employer contributes to the Trust on behalf of an
Eligible Employee, irrespective of whether, in the case of Cash or Deferred
Contributions, the contribution is at the election of the Employee. For Salary
Reduction Contributions, the terms "deferral contributions" and "elective
deferrals" have the same meaning.
(h) "Elective deferrals" are all Salary Reduction Contributions and that
portion of any Cash or Deferred Contribution which the Employer contributes to
the Trust at the election of an Eligible Employee. Any portion of a Cash or
Deferred Contribution contributed to the Trust because of the Employee's
failure to make a cash election is an elective deferral. However, any portion
of a Cash or Deferred Contribution over which the Employee does not have a
cash election is not an elective deferral. Elective deferrals do not include
amounts which have become currently available to the Employee prior to the
election nor amounts designated as nondeductible contributions at the time of
deferral or contribution.
(i) "Matching contributions" are contributions made by the Employer on account
of elective deferrals under a Code Sec.401(k) arrangement or on account of
employee contributions. Matching contributions also include Participant
forfeitures allocated on account of such elective deferrals or employee
contributions.
14.03
<PAGE>
(j) "Nonelective contributions" are contributions made by the Employer which
are not subject to a deferral election by an Employee and which are not
matching contributions.
(k) "Qualified matching contributions" are matching contributions which are
100% Nonforfeitable at all times and which are subject to the distribution
restrictions described in paragraph (m). Matching contributions are not 100%
Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest
because of his Years of Service taken into account under a vesting schedule.
Any matching contributions allocated to a Participant's Qualified Matching
Contributions Account under the Plan automatically satisfy the definition of
qualified matching contributions.
(l) "Qualified nonelective contributions" are nonelective contributions which
are 100% Nonforfeitable at all times and which are subject to the distribution
restrictions described in paragraph (m). Nonelective contributions are not
100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable
interest because of his Years of Service taken into account under a vesting
schedule. Any nonelective contributions allocated to a Participant's Qualified
Nonelective Contributions Account under the Plan automatically satisfy the
definition of qualified nonelective contributions.
(m) "Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death, disability,
termination of employment or attainment of age 59 1/2, (2) financial hardship
satisfying the requirements of Code Sec.401(k) and the applicable Treasury
regulations, (3) a plan termination, without establishment of a successor
defined contribution plan (other than an ESOP), (4) a sale of substantially
all of the assets (within the meaning of Code Sec.409(d)(2)) used in a trade
or business, but only to an employee who continues employment with the
corporation acquiring those assets, or (5) a sale by a corporation of its
interest in a subsidiary (within the meaning of Code Sec.409(d)(3)), but only
to an employee who continues employment with the subsidiary. For Plan Years
beginning after December 31, 1988, a distribution on account of financial
hardship, as described in clause (2), may not include earnings on elective
deferrals credited as of a date later than December 31, 1988, and may not
include qualified matching contributions and qualified nonelective
contributions, nor any earnings on such contributions, credited after December
31, 1988. A plan does not violate the distribution restrictions if, instead of
the December 31, 1988, date in the preceding sentence the plan specifies a
date not later than the end of the last Plan Year ending before July 1, 1989.
A distribution described in clauses (3), (4) or (5), if made after March 31,
1988,
14.04
<PAGE>
must be a lump sum distribution, as required under Code Sec.401(k)(10).
(n) "Employee contributions" are contributions made by a Participant on an
after-tax basis, whether voluntary or mandatory, and designated, at the time
of contribution, as an employee (or nondeductible) contribution. Elective
deferrals and deferral contributions are not employee contributions.
Participant nondeductible contributions, made pursuant to Section 4.01 of the
Plan, are employee contributions.
14.04 MATCHING CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. The Employer may elect
---------------------------------------------
in Adoption Agreement Section 3.01 to provide matching contributions. The
Employer also may elect in Adoption Agreement Section 4.01 to permit or to
require a Participant to make nondeductible contributions.
(A) Mandatory contributions. Any Participant nondeductible contributions
eligible for matching contributions are mandatory contributions. The Advisory
Committee will maintain a separate accounting, pursuant to Section 4.06 of the
Plan, to reflect the Participant's Accrued Benefit derived from his mandatory
contributions. The Employer, under Adoption Agreement Section 4.05, may
prescribe special distribution restrictions which will apply to the Mandatory
Contributions Account prior to the Participant's Separation from Service.
Following his Separation from Service, the general distribution provisions of
Article VI apply to the distribution of the Participant's Mandatory
Contributions Account.
14.05 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer must make Salary
--------------------------------
Reduction Contributions to the Trust within an administratively reasonable
period of time after withholding the corresponding Compensation from the
Participant. Furthermore, the Employer must make Salary Reduction Contributions,
Cash or Deferred Contributions, Employer matching contributions (including
qualified Employer matching contributions) and qualified Employer nonelective
contributions no later than the time prescribed by the Code or by applicable
Treasury regulations. Salary Reduction Contributions and Cash or Deferred
Contributions are Employer contributions for all purposes under this Plan,
except to the extent the Code or Treasury regulations prohibit the use of these
contributions to satisfy the qualification requirements of the Code.
14.05
<PAGE>
14.06 SPECIAL ALLOCATION PROVISIONS - DEFERRAL CONTRIBUTIONS,
-------------------------------------------------------
MATCHING CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. To
- --------------------------------------------------------------
make allocations under the Plan, the Advisory Committee must establish a
Deferral Contributions Account, a Qualified Matching Contributions Account, a
Regular Matching Contributions Account, a Qualified Nonelective Contributions
Account and an Employer Contributions Account for each Participant.
(A) Deferral contributions. The Advisory Committee will allocate to each
Participant's Deferral Contributions Account the amount of Deferral
Contributions the Employer makes to the Trust on behalf of the Participant. The
Advisory Committee will make this allocation as of the last day of each Plan
Year unless, in Adoption Agreement Section 3.04, the Employer elects more
frequent allocation dates for salary reduction contributions.
(B) Matching contributions. The Employer must specify in its Adoption
Agreement whether the Advisory Committee will allocate matching contributions to
the Qualified Matching Contributions Account or to the Regular Matching
Contributions Account of each Participant. The Advisory Committee will make this
allocation as of the last day of each Plan Year unless, in Adoption Agreement
Section 3.04, the Employer elects more frequent allocation dates for matching
contributions.
(1) To the extent the Employer makes matching contributions under a fixed
matching contribution formula, the Advisory Committee will allocate the
matching contribution to the Account of the Participant on whose behalf the
Employer makes that contribution. A fixed matching contribution formula is a
formula under which the Employer contributes a certain percentage or dollar
amount on behalf of a Participant based on that Participant's deferral
contributions or nondeductible contributions eligible for a match, as
specified in Section 3.01 of the Employer's Adoption Agreement. The Employer
may contribute on a Participant's behalf under a specific matching
contribution formula only if the Participant satisfies the accrual
requirements for matching contributions specified in Section 3.06 of the
Employer's Adoption Agreement and only to the extent the matching contribution
does not exceed the Participant's annual additions limitation in Part 2 of
Article III.
(2) To the extent the Employer makes matching contributions under a
discretionary formula, the Advisory Committee will allocate the discretionary
matching contributions to the Account of each Participant who satisfies the
accrual requirements for matching contributions specified in Section 3.06 of
the Employer's Adoption Agreement. The allocation of discretionary matching
contributions to a Participant's Account is in the same proportion that each
Participant's eligible contributions bear to the total eligible
14.06
<PAGE>
contributions of all Participants. If the discretionary formula is a tiered
formula, the Advisory Committee will make this allocation separately with
respect to each tier of eligible contributions, allocating in such manner the
amount of the matching contributions made with respect to that tier. "Eligible
contributions" are the Participant's deferral contributions or nondeductible
contributions eligible for an allocation of matching contributions, as
specified in Section 3.01 of the Employer's Adoption Agreement.
If the matching contribution formula applies both to deferral contributions
and to Participant nondeductible contributions, the matching contributions apply
first to deferral contributions. Furthermore, the matching contribution formula
does not apply to deferral contributions that are excess deferrals under Section
14.07. For this purpose: (a) excess deferrals relate first to deferral
contributions for the Plan Year not otherwise eligible for a matching
contribution; and (2) if the Plan Year is not a calendar year, the excess
deferrals for a Plan Year are the last elective deferrals made for a calendar
year. Under a Standardized Plan, an Employee forfeits any matching contribution
attributable to an excess contribution or to an excess aggregate contribution,
unless distributed pursuant to Sections 14.08 or 14.09. Under a Nonstandardized
Plan, this forfeiture rule applies only if specified in Adoption Agreement
Section 3.06. The provisions of Section 3.05 govern the treatment of any
forfeiture described in this paragraph, and the Advisory Committee will compute
a Participant's ACP under 14.09 by disregarding the forfeiture.
(C) Qualified nonelective contributions. If the Employer, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Advisory Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant eligible for an allocation of that designated
contribution, as specified in Section 3.04 of the Employer's Adoption Agreement.
The Advisory Committee will make the allocation to each eligible Participant's
Account in the same ratio that the Participant's Compensation for the Plan Year
bears to the total Compensation of all eligible Participants for the Plan Year.
The Advisory Committee will determine a Participant's Compensation in accordance
with the general definition of Compensation under Section 1.12 of the Plan, as
modified by the Employer in Sections 1.12 and 3.06 of its Adoption Agreement.
14.07
<PAGE>
(D) Nonelective contributions. To the extent the Employer makes nonelective
contributions for the Plan Year which, at the time of contribution, it does not
designate as qualified nonelective contributions, the Advisory Committee will
allocate those contributions in accordance with the elections under Section 3.04
of the Employer's Adoption Agreement. For purposes of the special
nondiscrimination tests described in Sections 14.08 and 14.09, the Advisory
Committee may treat nonelective contributions allocated under this paragraph as
qualified nonelective contributions, if the contributions otherwise satisfy the
definition of qualified nonelective contributions.
14.07 ANNUAL ELECTIVE DEFERRAL LIMITATION.
-----------------------------------
(A) Annual Elective Deferral Limitation. An Employee's elective deferrals for
a calendar year beginning after December 31, 1986, may not exceed the 402(g)
limitation. The 402(g) limitation is the greater of $7,000 or the adjusted
amount determined by the Secretary of the Treasury. If, pursuant to a salary
reduction agreement or pursuant to a cash or deferral election, the Employer
determines the Employee's elective deferrals to the Plan for a calendar year
would exceed the 402(g) limitation, the Employer will suspend the Employee's
salary reduction agreement, if any, until the following January 1 and pay in
cash the portion of a cash or deferral election which would result in the
Employee's elective deferrals for the calendar year exceeding the 402(g)
limitation. If the Advisory Committee determines an Employee's elective
deferrals already contributed to the Plan for a calendar year exceed the 402(g)
limitation, the Advisory Committee will distribute the amount in excess of the
402(g) limitation (the "excess deferral"), as adjusted for allocable income, no
later than April 15 of the following calendar year. If the Advisory Committee
distributes the excess deferral by the appropriate April 15, it may make the
distribution irrespective of any other provision under this Plan or under the
Code. The Advisory Committee will reduce the amount of excess deferrals for a
calendar year distributable to the Employee by the amount of excess
contributions (as determined in Section 14.08), if any, previously distributed
to the Employee for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes elective
deferrals pursuant to a Code Sec.401(k) arrangement, elective deferrals under a
Simplified Employee Pension, or salary reduction contributions to a tax-
sheltered annuity, irrespective of whether the Employer maintains the other
plan, he may provide the Advisory Committee a written claim for excess deferrals
made for a calendar year. The Employee must submit the claim no later than the
March 1 following the close of the particular calendar year and the claim must
specify the amount of the Employee's elective deferrals under
14.08
<PAGE>
this Plan which are excess deferrals. If the Advisory Committee receives a
timely claim, it will distribute the excess deferral (as adjusted for allocable
income) the Employee has assigned to this Plan, in accordance with the
distribution procedure described in the immediately preceding paragraph.
(B) Allocable income. For purposes of making a distribution of excess
deferrals pursuant to this Section 14.07, allocable income means net income or
net loss allocable to the excess deferrals for the calendar year in which the
Employee made the excess deferral, determined in a manner which is uniform,
nondiscriminatory and reasonably reflective of the manner used by the Plan to
allocate income to Participants' Accounts.
14.08 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the
---------------------------------------
Advisory Committee must determine whether the Plan's Code Sec.401(k) arrangement
satisfies either of the following ADP tests:
(i) The average ADP for the Highly Compensated Group does not exceed 1.25
times the average ADP of the Nonhighly Compensated Group; or
(ii) The average ADP for the Highly Compensated Group does not exceed the
average ADP for the Nonhighly Compensated Group by more than two percentage
points (or the lesser percentage permitted by the multiple use limitation in
Section 14.10) and the average ADP for the Highly Compensated Group is not
more than twice the average ADP for the Nonhighly Compensated Group.
(A) Calculation of ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible
Employee's deferral contributions for the Plan Year to the Employee's
Compensation for the Plan Year. For aggregated family members treated as a
single Highly Compensated Employee, the ADP of the family unit is the ADP
determined by combining the deferral contributions and Compensation of all
aggregated family members. A Nonhighly Compensated Employee's ADP does not
include elective deferrals made to this Plan or to any other Plan maintained by
the Employer, to the extent such elective deferrals exceed the 402(g) limitation
described in Section 14.07(A).
The Advisory Committee, in a manner consistent with Treasury regulations, may
determine the ADPs of the Eligible Employees by taking into account qualified
nonelective contributions or qualified matching contributions, or both, made to
this Plan or to any other qualified Plan maintained by the Employer. The
Advisory Committee may not include qualified nonelective contributions in the
ADP test unless the allocation of nonelective contributions is
14.09
<PAGE>
nondiscriminatory when the Advisory Committee takes into account all nonelective
contributions (including the qualified nonelective contributions) and also when
the Advisory Committee takes into account only the nonelective contributions not
used in either the ADP test described in this Section 14.08 or the ACP test
described in Section 14.09. For Plan Years beginning after December 31, 1989,
the Advisory Committee may not include in the ADP test any qualified nonelective
contributions or qualified matching contributions under another qualified plan
unless that plan has the same plan year as this Plan. The Advisory Committee
must maintain records to demonstrate compliance with the ADP test, including the
extent to which the Plan used qualified nonelective contributions or qualified
matching contributions to satisfy the test.
For Plan Years beginning prior to January 1, 1992, the Advisory Committee may
elect to apply a separate ADP test to each component group under the Plan. Each
component group separately must satisfy the commonality requirement of the Code
Sec.401(k) regulations and the minimum coverage requirements of Code
Sec.410(b). A component group consists of all the allocations and other
benefits, rights and features provided that group of Employees. An Employee may
not be part of more than one component group. The correction rules described in
this Section 14.08 apply separately to each component group.
(B) Special aggregation rule for Highly Compensated Employees. To determine
the ADP of any Highly Compensated Employee, the deferral contributions taken
into account must include any elective deferrals made by the Highly Compensated
Employee under any other Code Sec.401(k) arrangement maintained by the Employer,
unless the elective deferrals are to an ESOP. If the plans containing the Code
Sec.401(k) arrangements have different plan years, the Advisory Committee will
determine the combined deferral contributions on the basis of the plan years
ending in the same calendar year.
(C) Aggregation of certain Code Sec.401(k) arrangements. If the Employer
treats two plans as a unit for coverage or nondiscrimination purposes, the
Employer must combine the Code Sec.401(k) arrangements under such plans to
determine whether either plan satisfies the ADP test. This aggregation rule
applies to the ADP determination for all Eligible Employees, irrespective of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. For Plan Years beginning after December 31, 1989, an
aggregation of Code Sec.401(k) arrangements under this paragraph does not apply
to plans which have different plan years and, for Plan Years beginning after
December 31, 1988, the Advisory Committee may not aggregate an ESOP (or the
ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a plan).
14.010
<PAGE>
(D) Characterization of excess contributions. If, pursuant to this Section
14.08, the Advisory Committee has elected to include qualified matching
contributions in the average ADP, the Advisory Committee will treat excess
contributions as attributable proportionately to deferral contributions and to
qualified matching contributions allocated on the basis of those deferral
contributions. If the total amount of a Highly Compensated Employee's excess
contributions for the Plan Year exceeds his deferral contributions or qualified
matching contributions for the Plan Year, the Advisory Committee will treat the
remaining portion of his excess contributions as attributable to qualified
nonelective contributions. The Advisory Committee will reduce the amount of
excess contributions for a Plan Year distributable to a Highly Compensated
Employee by the amount of excess deferrals (as determined in Section 14.07), if
any, previously distributed to that Employee for the Employee's taxable year
ending in that Plan Year.
(E) Distribution of excess contributions. If the Advisory Committee determines
the Plan fails to satisfy the ADP test for a Plan Year, it must distribute the
excess contributions, as adjusted for allocable income, during the next Plan
Year. However, the Employer will incur an excise tax equal to 10% of the amount
of excess contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2 1/2 months of that next Plan
Year. The excess contributions are the amount of deferral contributions made by
the Highly Compensated Employees which causes the Plan to fail to satisfy the
ADP test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess contributions. The Advisory
Committee will determine the respective shares of excess contributions by
starting with the Highly Compensated Employee(s) who has the greatest ADP,
reducing his ADP (but not below the next highest ADP), then, if necessary,
reducing the ADP of the Highly Compensated Employee(s) at the next highest ADP
level (including the ADP of the Highly Compensated Employee(s) whose ADP the
Advisory Committee already has reduced), and continuing in this manner until
the average ADP for the Highly Compensated Group satisfies the ADP test. If the
Highly Compensated Employee is part of an aggregated family group, the Advisory
Committee, in accordance with the applicable Treasury regulations, will
determine each aggregated family member's allocable share of the excess
contributions assigned to the family unit.
14.011
<PAGE>
(F) Allocable income. To determine the amount of the corrective distribution
required under this Section 14.08, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess contributions arose.
"Allocable income" means net income or net loss. To calculate allocable income
for the Plan Year, the Advisory Committee will use a uniform and
nondiscriminatory method which reasonably reflects the manner used by the Plan
to allocate income to Participants' Accounts.
14.09 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING CONTRIBUTIONS/PARTICIPANT
-----------------------------------------------------------------------
NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years beginning after December 31, 1986,
- ---------------------------
the Advisory Committee must determine whether the annual Employer matching
contributions (other than qualified matching contributions used in the ADP under
Section 14.08), if any, and the Employee contributions, if any, satisfy either
of the following average contribution percentage ("ACP") tests:
(i) The ACP for the Highly Compensated Group does not exceed 1.25 times the
ACP of the Nonhighly Compensated Group; or
(ii) The ACP for the Highly Compensated Group does not exceed the ACP for
the Nonhighly Compensated Group by more than two percentage points (or the
lesser percentage permitted by the multiple use limitation in Section 14.10)
and the ACP for the Highly Compensated Group is not more than twice the ACP
for the Nonhighly Compensated Group.
(A) Calculation of ACP. The average contribution percentage for a group is the
average of the separate contribution percentages calculated for each Eligible
Employee who is a member of that group. An Eligible Employee's contribution
percentage for a Plan Year is the ratio of the Eligible Employee's aggregate
contributions for the Plan Year to the Employee's Compensation for the Plan
Year. "Aggregate contributions" are Employer matching contributions (other than
qualified matching contributions used in the ADP test under Section 14.08) and
employee contributions (as defined in Section 14.03). For aggregated family
members treated as a single Highly Compensated Employee, the contribution
percentage of the family unit is the contribution percentage determined by
combining the aggregate contributions and Compensation of all aggregated family
members.
The Advisory Committee, in a manner consistent with Treasury regulations, may
determine the contribution percentages of the Eligible Employees by taking into
account qualified nonelective contributions (other than qualified nonelective
contributions used in the ADP test under Section 14.08) or elective deferrals,
or both, made to this Plan or to any other qualified Plan maintained by the
Employer. The Advisory Committee may not include qualified
14.012
<PAGE>
nonelective contributions in the ACP test unless the allocation of nonelective
contributions is nondiscriminatory when the Advisory Committee takes into
account all nonelective contributions (including the qualified nonelective
contributions) and also when the Advisory Committee takes into account only the
nonelective contributions not used in either the ADP test described in Section
14.08 or the ACP test described in this Section 14.09. The Advisory Committee
may not include elective deferrals in the ACP test, unless the Plan which
includes the elective deferrals satisfies the ADP test both with and without the
elective deferrals included in this ACP test. For Plan Years beginning after
December 31, 1989, the Advisory Committee may not include in the ACP test any
qualified nonelective contributions or elective deferrals under another
qualified plan unless that plan has the same plan year as this Plan. The
Advisory Committee must maintain records to demonstrate compliance with the ACP
test, including the extent to which the Plan used qualified nonelective
contributions or elective deferrals to satisfy the test. For Plan Years
beginning prior to January 1, 1992, the component group testing rule permitted
under Section 14.08(A) also applies to the ACP test under this Section 14.09.
(B) Special aggregation rule for Highly Compensated Employees. To determine
the contribution percentage of any Highly Compensated Employee, the aggregate
contributions taken into account must include any matching contributions (other
than qualified matching contributions used in the ADP test) and any Employee
contributions made on his behalf to any other plan maintained by the Employer,
unless the other plan is an ESOP. If the plans have different plan years, the
Advisory Committee will determine the combined aggregate contributions on the
basis of the plan years ending in the same calendar year.
(C) Aggregation of certain plans. If the Employer treats two plans as a unit
for coverage or nondiscrimination purposes, the Employer must combine the plans
to determine whether either plan satisfies the ACP test. This aggregation rule
applies to the contribution percentage determination for all Eligible Employees,
irrespective of whether an Eligible Employee is a Highly Compensated Employee or
a Nonhighly Compensated Employee. For Plan Years beginning after December 31,
1989, an aggregation of plans under this paragraph does not apply to plans which
have different plan years and, for Plan Years beginning after December 31, 1988,
the Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan)
with a non-ESOP plan (or non-ESOP portion of a plan).
(D) Distribution of excess aggregate contributions. The Advisory Committee
will determine excess aggregate contributions after determining excess deferrals
under Section 14.07 and excess contributions under Section 14.08. If the
Advisory Committee
14.013
<PAGE>
determines the Plan fails to satisfy the ACP test for a Plan Year, it must
distribute the excess aggregate contributions, as adjusted for allocable income,
during the next Plan Year. However, the Employer will incur an excise tax equal
to 10% of the amount of excess aggregate contributions for a Plan Year not
distributed to the appropriate Highly Compensated Employees during the first
2 1/2 months of that next Plan Year. The excess aggregate contributions are the
amount of aggregate contributions allocated on behalf of the Highly Compensated
Employees which causes the Plan to fail to satisfy the ACP test. The Advisory
Committee will distribute to each Highly Compensated Employee his respective
share of the excess aggregate contributions. The Advisory Committee will
determine the respective shares of excess aggregate contributions by starting
with the Highly Compensated Employee(s) who has the greatest contribution
percentage, reducing his contribution percentage (but not below the next highest
contribution percentage), then, if necessary, reducing the contribution
percentage of the Highly Compensated Employee(s) at the next highest
contribution percentage level (including the contribution percentage of the
Highly Compensated Employee(s) whose contribution percentage the Advisory
Committee already has reduced), and continuing in this manner until the ACP for
the Highly Compensated Group satisfies the ACP test. If the Highly Compensated
Employee is part of an aggregated family group, the Advisory Committee, in
accordance with the applicable Treasury regulations, will determine each
aggregated family member's allocable share of the excess aggregate contributions
assigned to the family unit.
(E) Allocable income. To determine the amount of the corrective distribution
required under this Section 14.09, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess aggregate contributions
arose. "Allocable income" means net income or net loss. The Advisory Committee
will determine allocable income in the same manner as described in Section
14.08(F) for excess contributions.
(F) Characterization of excess aggregate contributions. The Advisory Committee
will treat a Highly Compensated Employee's allocable share of excess aggregate
contributions in the following priority: (1) first as attributable to his
Employee contributions which are voluntary contributions, if any; (2) then as
matching contributions allocable with respect to excess contributions determined
under the ADP test described in Section 14.08; (3) then on a pro rata basis to
matching contributions and to the deferral contributions relating to those
matching contributions which the Advisory Committee has included in the ACP
test; (4) then on a pro rata basis to Employee contributions which are mandatory
contributions, if any, and to the matching contributions allocated on the basis
of those mandatory contributions; and (5) last to qualified nonelective
contributions used in the ACP test. To the extent the
14.014
<PAGE>
Highly Compensated Employee's excess aggregate contributions are attributable to
matching contributions, and he is not 100% vested in his Accrued Benefit
attributable to matching contributions, the Advisory Committee will distribute
only the vested portion and forfeit the nonvested portion. The vested portion of
the Highly Compensated Employee's excess aggregate contributions attributable to
Employer matching contributions is the total amount of such excess aggregate
contributions (as adjusted for allocable income) multiplied by his vested
percentage (determined as of the last day of the Plan Year for which the
Employer made the matching contribution). The Employer will specify in Adoption
Agreement Section 3.05 the manner in which the Plan will allocate forfeited
excess aggregate contributions.
14.10 MULTIPLE USE LIMITATION. For Plan Years beginning after December 31,
-----------------------
1988, if at least one Highly Compensated Employee is includible in the ADP test
under Section 14.08 and in the ACP test under Section 14.09, the sum of the
Highly Compensated Group's ADP and ACP may not exceed the multiple use
limitation.
The multiple use limitation is the sum of (i) and (ii):
(i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated Group
under the Code Sec.401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code Sec.401(k) arrangement.
(ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than twice the
lesser of (i)(a) or (i)(b).
The Advisory Committee, in lieu of determining the multiple use limitation as
the sum of (i) and (ii), may elect to determine the multiple use limitation as
the sum of (iii) and (iv):
(iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated Group
under the Code Sec.401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code Sec.401(k) arrangement.
(iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than twice
the greater of (iii)(a) or (iii)(b).
The Advisory Committee will determine whether the Plan satisfies the multiple
use limitation after applying the ADP test under Section 14.08 and the ACP test
under Section 14.09 and after making any corrective distributions required by
those Sections. If, after applying this Section 14.10, the Advisory Committee
determines the Plan has failed to satisfy the multiple use limitation, the
Advisory Committee will correct the failure by treating the excess amount as
14.015
<PAGE>
excess contributions under Section 14.08 or as excess aggregate contributions
under Section 14.09, as it determines in its sole discretion. This Section 14.10
does not apply unless, prior to application of the multiple use limitation, the
ADP and the ACP of the Highly Compensated Group each exceeds 125% of the
respective percentages for the Nonhighly Compensated Group.
14.11 DISTRIBUTION RESTRICTIONS. The Employer must elect in Section 6.03 the
-------------------------
Adoption Agreement the distribution events permitted under the Plan. The
distribution events applicable to the Participant's Deferral Contributions
Account, Qualified Nonelective Contributions Account and Qualified Matching
Contributions Account must satisfy the distribution restrictions described in
paragraph (m) of Section 14.03.
(A) Hardship distributions from Deferral Contributions Account. The Employer
must elect in Adoption Agreement Section 6.03 whether a Participant may receive
hardship distributions from his Deferral Contributions Account prior to the
Participant's Separation from Service. Hardship distributions from the Deferral
Contributions Account must satisfy the requirements of this Section 14.11. A
hardship distribution option may not apply to the Participant's Qualified
Nonelective Contributions Account or Qualified Matching Contributions Account,
except as provided in paragraph (3).
(1) Definition of hardship. A hardship distribution under this Section 14.11
must be on account of one or more of the following immediate and heavy financial
needs: (1) medical care described in Code Sec.213(d) incurred by the
Participant, by the Participant's spouse, or by any of the Participant's
dependents, or necessary to obtain such medical care; (2) the purchase
(excluding mortgage payments) of a principal residence for the Participant; (3)
the payment of post-secondary education tuition and related educational fees,
for the next 12-month period, for the Participant, for the Participant's
spouse, or for any of the Participant's dependents (as defined in Code
Sec.152); (4) to prevent the eviction of the Participant from his principal
residence or the foreclosure on the mortgage of the Participant's principal
residence; or (5) any need prescribed by the Revenue Service in a revenue
ruling, notice or other document of general applicability which satisfies the
safe harbor definition of hardship.
(2) Restrictions. The following restrictions apply to a Participant who
receives a hardship distribution: (a) the Participant may not make elective
deferrals or employee contributions to the Plan for the 12-month period
following the date of his hardship distribution; (b) the distribution is not in
excess of the amount of the immediate and heavy financial need (including any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably
14.16
<PAGE>
anticipated to result from the distribution); (c) the Participant must have
obtained all distributions, other than hardship distributions, and all
nontaxable loans (determined at the time of the loan) currently available under
this Plan and all other qualified plans maintained by the Employer; and (d) the
Participant agrees to limit elective deferrals under this Plan and under any
other qualified Plan maintained by the Employer, for the Participant's taxable
year immediately following the taxable year of the hardship distribution, to the
402(g) limitation (as described in Section 14.07), reduced by the amount of the
Participant's elective deferrals made in the taxable year of the hardship
distribution. The suspension of elective deferrals and employee contributions
described in clause (a) also must apply to all other qualified plans and to all
nonqualified plans of deferred compensation maintained by the Employer, other
than any mandatory employee contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans, but not
including health or welfare benefit plans (other than the cash or deferred
arrangement portion of a cafeteria plan).
(3) Earnings. For Plan Years beginning after December 31, 1988, a hardship
distribution under this Section 14.11 may not include earnings on an Employee's
elective deferrals credited after December 31, 1988. Qualified matching
contributions and qualified nonelective contributions, and any earnings on such
contributions, credited as of December 31, 1988, are subject to the hardship
withdrawal only if the Employer specifies in an addendum to this Section 14.11.
The addendum may modify the December 31, 1988, date for purposes of determining
credited amounts provided the date is not later than the end of the last Plan
Year ending before July 1, 1989.
(B) Distributions after Separation from Service. Following the Participant's
Separation from Service, the distribution events applicable to the Participant
apply equally to all of the Participant's Accounts, except as elected in Section
6.03 of the Employer's Adoption Agreement.
(C) Correction of Annual Additions Limitation. If, as a result of a reasonable
error in determining the amount of elective deferrals an Employee may make
without violating the limitations of Part 2 of Article III, an Excess Amount
results, the Advisory Committee will return the Excess Amount (as adjusted for
allocable income) attributable to the elective deferrals. The Advisory Committee
will make this distribution before taking any corrective steps pursuant to
Section 3.10 or to Section 3.16. The Advisory Committee will disregard any
elective deferrals returned under this Section 14.11(C) for purposes of Sections
14.07, 14.08 and 14.09.
14.17
<PAGE>
14.12 SPECIAL ALLOCATION RULES. If the Code Sec.401(k) arrangement provides
------------------------
for salary reduction contributions, if the Plan accepts Employee contributions,
pursuant to Adoption Agreement Section 4.01, or if the Plan allocates matching
contributions as of any date other than the last day of the Plan Year, the
Employer must elect in Adoption Agreement 9.11 whether any special allocation
provisions will apply under Section 9.11 of the Plan. For purposes of the
elections:
(a) A "segregated Account" direction means the Advisory Committee will
establish a segregated Account for the applicable contributions made on the
Participant's behalf during the Plan Year. The Trustee must invest the
segregated Account in Federally insured interest bearing savings account(s) or
time deposits, or a combination of both, or in any other fixed income
investments, unless otherwise specified in the Employer's Adoption Agreement.
As of the last day of each Plan Year (or, if earlier, an allocation date
coinciding with a valuation date described in Section 9.11), the Advisory
Committee will reallocate the segregated Account to the Participant's
appropriate Account, in accordance with Section 3.04 or Section 4.06,
whichever applies to the contributions.
(b) A "weighted average allocation" method will treat a weighted portion of
the applicable contributions as if includible in the Participant's Account as
of the beginning of the valuation period. The weighted portion is a fraction,
the numerator of which is the number of months in the valuation period,
excluding each month in the valuation period which begins prior to the
contribution date of the applicable contributions, and the denominator of
which is the number of months in the valuation period. The Employer may elect
in its Adoption Agreement to substitute a weighting period other than months
for purposes of this weighted average allocation.
* * * * * * * * * * * * * * *
14.18
<PAGE>
ARTICLE A
APPENDIX TO PLAN AND TRUST AGREEMENT
This Article is necessary to comply with the Unemployment Compensation
Amendments Act of 1992 and is an integral part of the basic plan document.
Section 12.08 applies to any modification or amendment of this Article.
A-1. APPLICATIONS. This Article applies to distributions made on or after
------------
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
A-2. DEFINITIONS.
-----------
(a) "Eligible rollover distribution." An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint expectancies) of the distributee
and the distributee's designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is required
under Code Sec.401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion of net
unrealized appreciation with respect to employer securities).
(b) "Eligible retirement plan." An eligible retirement plan is an individual
retirement account described in Code Sec.408(a), an individual retirement
annuity described in Code Sec.408(b), an annuity plan described in Code
Sec.403(a), or a qualified trust described in Code Sec.401(a), that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c) "Distributee." A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Sec.414(p),
are distributees with regard to the interest of the spouse or former spouse.
(d) "Direct rollover." A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
A-1
Exhibit 10.19
NHL Enterprises, Inc.
1633 Broadway, 40th Floor
New York, New York 10019
Tel: (212) 767-4600
Fax: (212) 767-4646
RETAIL LICENSE AGREEMENT
------------------------
No. 7304-US
Date: September 21, 1993
Licensee: Pinnacle Brands, Inc. Tel: (214) 601-7000
Address: 924 Avenue J Fax: (214) 601-7094
Grand Prairie, Tx 75050 Attn: Jerry Meyer
NHL ENTERPRISES, INC. ("NHLE") has the right to license for commercial
purposes the use of certain properties of the National Hockey League ("NHL") and
of the teams comprising said League ("Member Teams"), specifically -- the names,
nicknames, slogans, symbols, logos, emblems, insignia, colors, uniform designs
and other indicia of each of the Member Teams of the National Hockey League; the
city or regional identification of each of the National Hockey League Member
Teams in conjunction with their colors and an appropriate professional ice
hockey reference; the name, initials, insignia, colors and other indicia of the
National Hockey League, including the Conference and Division names and/or
logos; the NHL All Star Game name, logo and colors; and the name and likeness of
the Stanley Cup (the "NHL Marks"); and that except as stated in paragraph 3(a)
hereinafter, no other entity has the right to license said NHL marks for such
purposes.
LICENSEE, whose full name and address are set forth above, desires to
obtain the right from NHLE to utilize the NHL Marks in connection with the
manufacture, distribution, sale and advertising of certain products specified
hereinafter (the "Products") in accordance with the conditions and provisions
set forth in this License Agreement.
Therefore, in consideration of the promises, covenants and
undertakings contained in this License Agreement, the parties hereto agree, as
follows:
<PAGE>
1. GRANT OF LICENSE.
----------------
For purposes of this License Agreement, the definitions set forth in
paragraph numbered 2 below or otherwise herein shall be applicable and
controlling. Subject to such definitions, NHLE hereby grants to LICENSEE the
non-exclusive right to use the NHL Marks in connection with the manufacture,
distribution, sale and advertising of the Products throughout the Territory
during the Term or any Renewal Term(s) in accordance with all of the provisions,
conditions, and undertakings specified hereinafter in this Agreement.
(a) PRODUCT(S). The Products are as follows:
----------
Two-sided collectible player picture cards of current NHL players
in uniform, not to exceed two and one half inches (2.5") by three
and one half inches (3.5"). NHL Marks, including NHL team names,
marks, logos and other indicia, will appear on the front and/or
back of card. Depictions of individuals other than current NHL
players require prior written approval by NHLE.
LICENSEE will not sell, or permit the sale of, any uncut sheets
of collectible player picture cards bearing any NHL Mark(s)
manufactured by, for or on behalf of LICENSEE or otherwise in
connection with this Agreement.
Licensed brands: Score and Pinnacle (each, in a maximum of two
series).
LICENSEE will not manufacture, distribute, promote or sell, or
permit the manufacture, distribution, promotion or sale of, any
other brand of collectible player picture cards bearing any NHL
Mark(s) hereunder or more than two series of any licensed brand.
Notwithstanding any other provision hereof, LICENSEE understands
and agrees that it is LICENSEE's responsibility to secure
whatever rights may be required for the use of the names,
signatures, likenesses, statistics, and/or voices
2
<PAGE>
of any individual or group of player(s), and/or any other
proprietary matter which is not owned or controlled by NHLE, in
connection with the Products. LICENSEE further understands and
agrees that neither the execution hereof nor any grant of
approval hereunder nor any other act or omission by NHLE shall
operate or be construed as a grant by NHLE of any such rights or
as approval by NHLE of the use of any such names, signatures,
likenesses, statistics, voices or other proprietary matter in
connection with the Products in the event LICENSEE shall not have
secured such rights.
(b) TERRITORY. The Territory is the United States and Canada,
---------
including their territories and possessions and their Armed
Forces or similar Exchange Services.
(c) TERM. The Term hereof shall be for the period commencing on July
---- ----
1, 1993 and terminating on June 30, 1998. Notwithstanding any
------- -------------
other provision hereof, there shall not be any Renewal Term(s)
hereunder.
(d) LICENSEE PAYMENTS. In consideration for the rights herein
-----------------
granted to LICENSEE, LICENSEE shall pay to NHLE the following:
(i) Royalty Rate: LICENSEE will pay NHLE, at such times and
------------
otherwise as specified herein, a Royalty Payment in an
amount equal to the Royalty Rate of ** times Net Sales.
LICENSEE agrees that Royalty Payments with respect to Net
Sales of rebagged product will be made on the basis of a
price per card equal to the normal invoiced selling price
per card otherwise sold at wholesale (regardless of any
lower price per card that any rebagger
__________
** Confidential information deleted.
3
<PAGE>
may pay therefor), and at the Royalty Rate specified in the
immediately preceding sentence.
(ii) Advance and Guaranteed Minimum Payments: LICENSEE shall
---------------------------------------
make Guaranteed Minimum Payments of ** per License Year in
U.S. dollars of NHLE on or before the dates specified in the
schedule below, which payments shall be credited against
Royalty Payments due NHLE hereunder. Non-Refundable Advance
Payment due to NHLE upon execution: **.
Remainder of Guaranteed Minimum Payments to be paid to NHLE
as follows:
AMOUNT DUE DATE
------ --------
for the License Year 7/1/93
through 6/30/94 (in addition
to the Advance):
** on or before 10/20/93
** on or before 1/20/94
** on or before 4/20/94
for the License Year 7/1/94
through 6/30/95:
** on or before 10/20/94
** on or before 1/20/95
** on or before 4/20/95
for the License Year 7/1/95
through 6/30/96:
** on or before 10/20/95
** on or before 1/20/96
** on or before 4/20/96
___________
** Confidential information deleted
4
<PAGE>
for the License Year 7/1/96
through 6/30/97:
** on or before 10/20/96
** on or before 1/20/97
** on or before 4/20/97
for the License Year 7/1//97
through 6/30/98:
** on or before 10/20/97
** on or before 1/20/98
** on or before 4/20/98
TOTAL: **
-------------
(e) EXPORT LICENSE. NHLE agrees to consider any written request by
--------------
LICENSEE to sell any Product outside the Territory; provided,
--------
however, that NHLE shall not be required to allow any such sales
-------
outside the Territory; provided, further, that any such sales
-------- -------
outside the Territory must be pursuant to an export license
agreement in NHLE's standard form, which would be executed by
LICENSEE and NHLE if NHLE agrees to allow such sales outside the
Territory and LICENSEE and NHLE agree regarding the term,
territory, advance and guaranteed minimum payments and royalty
rate to be specified in such export license agreement.
(f) OTHER NHLE TRADING CARD LICENSEES. NHLE agrees that, in the
---------------------------------
event that it enters into or amends any license agreement with
Leaf, Inc., The Topps Co., Inc. or The Upper Deck Company with
respect to the sale, in the Territory, of products that are the
same as the Products, whose term commences on or around July 1,
1993, and such license agreement provides for a royalty rate or
an annual
________________
** Confidential information deleted.
5
<PAGE>
average of aggregate advance and guaranteed minimum payments that
is more favorable to such licensee than the Royalty Rate or
annual average of aggregate Guaranteed Minimum Payments (which
includes the Advance), respectively, hereunder (and in each such
event), then NHLE shall provide LICENSEE with prompt written
notice of such more favorable royalty rate or annual average, and
the Royalty Rate or annual average of aggregate Guaranteed
Minimum Payments hereunder (as the case may be) shall
automatically be adjusted so as to be on parity with such more
favorable royalty rate or annual average as of the time such more
favorable royalty rate or annual average becomes effective.
(g) OTHER TRADING CARD LICENSOR. LICENSEE agrees that,
---------------------------
notwithstanding any other provision hereof (including
paragraph 1(f)), in the event that, at any time, royalties
payable by LICENSEE to Major League Baseball Properties, Inc.
("MLBP") (or any affiliate thereof), pursuant to any license
agreement between LICENSEE and MLBP (or any such affiliate) with
respect to the sale, in the Territory, of products that are
comparable to the Products, are payable at a royalty rate which
exceeds the Royalty Rate hereunder (and in each such event), then
LICENSEE shall provide NHLE with prompt written notice of such
royalty rate, and the Royalty Rate hereunder shall automatically
be adjusted so as to be on parity with such royalty rate as of
the time such royalty rate so exceeds the Royalty Rate hereunder.
STANDARD TERMS AND CONDITIONS
-----------------------------
2. DEFINITIONS.
-----------
(a) "Territory" -- the geographical area in which LICENSEE is
---------
authorized to use the NHL Marks -- is specified in paragraph 1(b)
above.
(b) "License Year" means the period commencing on the first day of
------------
the Term and on each following July 1st and ending on the
following June 30th during the Term or any Renewal Term(s).
6
<PAGE>
(c) "Term" -- the period during which this License Agreement is in
----
effect whether or not it is renewed -- is set forth in
paragraph 1(c) above. "Renewal Term(s)," if any is/are specified
---------------
herein, are those License Year(s) immediately following the last
License Year of the Term or any prior Renewal Term as to which
LICENSEE's option to renew was exercised.
(d) "Product(s)" are identified in paragraph 1(a) above, and become
----------
"Licensed Product(s)" when LICENSEE applies or uses the licensed
-------------------
NHL Marks strictly in accordance with the provisions, conditions
and undertakings set forth in this License Agreement.
(e) "Premiums" means any product, including but not limited to
--------
Licensed Product(s), sold at any price or given away for the
purpose of promoting, publicizing or increasing the sale of any
other product or service, including but not limited to incentives
for a sales force or distributorship(s), or for trade or consumer
promotions.
(f) "Licensed Sales" means the sale of Licensed Products directly to
--------------
or for retail outlets, mail order or catalogs, including
electronic and video marketing entities, where the Licensed
Products are ultimately sold to consumers. Licensed Sales do not
include the sale of Licensed products as Premiums, which require
separate agreements executed by NHLE with both the manufacturer
and user of the premium.
(g) "Net Sales" means the gross amount of Licensed Sales of Licensed
---------
Products in U.S. dollars at the invoiced selling price net normal
and reasonable quantity discounts and returns for credit; no
deductions shall be made for cash discounts, for costs incurred
in manufacturing, selling distributing, advertising (including
cooperative and promotional allowances), or for uncollectible
accounts.
(h) "Royalty Payment" is the Royalty Rate specified in
---------------
paragraph 1(d)(i) above times Net Sales of
7
<PAGE>
Licensed Products, calculated and payable quarterly in U.S.
dollars to NHLE.
(i) "Guaranteed Minimum Payment" -- the minimum amount of Royalty
--------------------------
Payment in U.S. dollars which LICENSEE shall pay during each
License Year, irrespective of the amount of Net Sales actually
made during such period -- is specified in paragraph 1(d)(ii)
above.
(j) "Advance" -- the amount of the Guaranteed Minimum Payment in U.S.
-------
dollars which LICENSEE shall remit to NHLE upon the signing of
this License Agreement by LICENSEE -- is specified in
paragraph 1(d)(ii) above.
3. LIMITATIONS OF LICENSE.
----------------------
In addition to the provisions, conditions and undertakings set forth
in other paragraphs herein, the license granted to LICENSEE is subject to the
following understandings, limitations and conditions:
(a) Each NHL Member Team has retained the right to license its own
marks individually for products other than jackets, replica
jersey/sweaters and trading cards; the sale of Member-Team-
licensed products generally shall be restricted to within a
seventy-five mile radius of the Member Team's home arena, and no
such local license by any Member Team may be granted to LICENSEE
for the Products.
(b) This license to use the NHL Marks does not constitute and may not
be used to imply the endorsement of the Licensed Product(s) or
any other product of LICENSEE, and the NHL Marks are not licensed
herein as certification marks or an indication of a particular
standing of quality.
(c) LICENSEE may not sell, distribute or make available Licensed
Products as Premiums without a prior written license agreement
from NHLE. In the event such a license is granted to LICENSEE,
(i) the Licensed Products may only be sold to a user
specifically approved and licensed by
8
<PAGE>
NHLE for such purpose pursuant to a separate agreement and
(ii) LICENSEE shall offer to sell the Licensed Products to such
user at a price per unit not to exceed the price per unit
typically offered to LICENSEE's most preferred distributors
of such Licensed Products net such quantity discounts as are
typically offered to such distributors on orders of similar
quantities of such Licensed Products.
NHLE agrees to recommend its trading card licensees
(collectively) to its promotional licensees when its promotional
licensees seek to employ hockey trading cards in their licensed
promotions.
(d) The Licensed Products shall not knowingly be sold or distributed
for retail sale in combination with any other product for a
single price to the exclusion of the opportunity to purchase the
Licensed Products separately.
(e) LICENSEE will not sell the Licensed Products to parties whom it
knows or reasonably should know will resell or distribute the
Licensed Products outside the Territory.
(f) The license is personal to LICENSEE and LICENSEE shall not
assign, transfer or sub-license any or all of the rights granted
herein to any third party without the prior written consent of
NHLE. LICENSEE shall not pledge or encumber this license as
security or collateral for any obligation of LICENSEE.
(g) No use of the NHL Marks shall be preprinted by LICENSEE on its
stationery, envelopes, business cards, invoices, statements,
packing slips or other similar documents or materials unless
approved in advance by NHLE.
(h) LICENSEE shall not purchase or otherwise obtain the Licensed
Products it is authorized to sell under this Agreement from any
other entity without the prior written consent of NHLE, unless
such
9
<PAGE>
other entity enters into a written agreement with LICENSEE, in
the form attached as Exhibit A, which agreement limits said other
entity's rights solely to supplying LICENSEE with Licensed
Products pursuant to the written agreement.
(i) LICENSEE agrees that it will cause to appear conspicuously,
indelibly and legibly on each of the Licensed Product(s) and on
all advertising material, tags, labels and devices bearing any of
the NHL Marks, such proper trademark, copyright or other notices
of property right in the NHL Marks or other material as may
reasonably be designated by NHLE, in each case no smaller than
any similar notice of property right of any third party with
respect to the Licensed Product(s) or other similar material as
may be designated by any third party. In addition, LICENSEE
shall place a notice as reasonably requested by NHLE that the
Licensed Products are genuine merchandise officially licensed and
that the NHL Marks may not be used or reproduced in any manner
without the prior written consent of NHLE.
(j) In the event LICENSEE uses photographers or artists to create
and/or design graphics for the Licensed Products, LICENSEE shall
either use personnel within its employ so such work qualifies as
a "work for hire" under the Copyright Act (17 U.S.C.), or, if
LICENSEE engages personnel under conditions which do not give
rise to such a "work for hire," LICENSEE shall obtain an
assignment to LICENSEE of copyright rights or otherwise ensure
that, throughout the Term and any Renewal Term(s), it has the
right to use such photographs or graphics for the Licensed
Products and such right does not conflict with any agreement to
which it is a party.
(k) LICENSEE further agrees that it will not apply for nor seek to
obtain trademark, copyright or any other property right in the
NHL Marks. NHLE, NHL, and/or any or all of its Member Teams,
jointly and severally, may, at their option, apply for and obtain
in any or all of their own names trademark, copyright or other
property right protection for the NHL Marks or other matter
furnished or
10
<PAGE>
provided by NHLE for the Licensed Product(s). Upon request,
LICENSEE will furnish necessary specimens or facsimiles for such
purpose free of cost, as well as evidence of the date of first
shipment or sale of each Licensed Product(s) in commerce and
also, if earlier, in intrastate commerce. Notwithstanding the
foregoing provisions of this paragraph 3(k), LICENSEE may retain
or apply for or seek (as the case may be): (i) trademark or
similar property rights in marks or names used for the Licensed
Products, provided that said marks or names shall not comprise or
incorporate any of the NHL Marks ("Licensee Marks" (however,
"Licensee Marks" shall not include LICENSEE's primary brand
names, e.g., SCORE, PINNACLE, or subset or secondary marks which
---
are not used initially by LICENSEE in connection with NHLE
Licensed Products)); (ii) copyright or similar property rights in
the Licensed Products, provided that to the extent, if any, said
copyrights or similar property rights comprise or incorporate any
of the NHL Marks, neither LICENSEE nor any successor will claim
any right, title or interest in such NHL Mark(s). LICENSEE shall
enjoy all rights of ownership of Licensee Marks, except that
LICENSEE shall have no right to use a Licensee Mark on products
or services not under license from NHLE, if such use shall
suggest that such products or services are approved, sponsored or
licensed by NHL or its Member Teams. The burden of establishing
that any such use so suggests shall be NHLE's.
(l) If demanded by LICENSEE, NHLE shall undertake to procure and
obtain in its own name, or the name of the National Hockey League
or any or all of its Member Teams, trademark, copyright, design
patent or other property right protection of the NHL Marks or
other matter (furnished or provided by NHLE or LICENSEE) for the
Licensed Product(s) at LICENSEE's expense, including reasonable
attorneys' fees.
(m) LICENSEE agrees that if LICENSEE receives knowledge of any
manufacture or sale by anyone other than LICENSEE of products
licensed under this License Agreement or of such products as
11
<PAGE>
would be confusingly similar in the minds of the public and which
bear or are promoted in association with the NHL Marks under this
License Agreement, or any names, symbols, emblems, designs or
colors which may be confusingly similar in the minds of the
public to such NHL Marks, LICENSEE will call such fact to the
attention of NHLE. In regard to such rights which are NHLE's,
NHLE shall then have the exclusive right in its sole discretion
to prosecute any such manufacture or sale, either in its own name
or the name of the National Hockey League and/or one or more of
its Member Teams, and LICENSEE shall reasonably cooperate and
assist in the prosecution of any such action. If demanded by
NHLE, LICENSEE shall join in or reasonably cooperate in the
prosecution of any such action as may be instituted by NHLE; all
such prosecution shall be at NHLE's expense, including reasonable
attorneys' fees. The proceeds recovered in any such prosecution
in the form of damages, profits or other recovery shall belong
solely to NHLE. LICENSEE shall not commence any action of its
own to restrain or recover damages for any alleged infringements
of the NHL Marks licensed to it herein without first obtaining
express written permission to do so from NHLE.
(n) LICENSEE will not knowingly or materially harm, misuse or bring
into disrepute the NHL Marks, their reputation or that of their
owners.
(o) LICENSEE acknowledges that except as expressly provided herein,
there is no right to renew this License Agreement, and no options
to extend this License Agreement have been granted or are implied
hereunder.
(p) LICENSEE will manufacture, sell and distribute the Licensed
Product(s) in an ethical manner and in accordance with the terms
and intent of this License Agreement.
(q) LICENSEE will not incur or create any expenses chargeable to
NHLE, NHL or its Member Teams without the prior written approval
of NHLE.
12
<PAGE>
(r) LICENSEE will take all reasonable steps to ensure that it will
have all necessary permits, authorizations, approvals and
consents required to manufacture, sell and distribute the
Licensed Product(s) hereunder.
(s) LICENSEE will comply with all laws and regulations relating or
pertaining to the manufacture, sale, advertising or use of the
Licensed Product(s), shall maintain high quality and standards
commensurate with LICENSEE's market, and shall comply with any
regulatory agencies which shall have jurisdiction over the
Licensed Product(s).
(t) During the Term, any Renewal Term(s) and the two year period
following expiration or termination of this License Agreement,
LICENSEE and NHLE will not disclose any confidential and non-
public information which if acquires from the other during the
Term or any Renewal Term(s) hereof, except as required by law or
in the ordinary course of business to an affiliate (which, in the
case of NHLE, includes the NHL and the Member Teams) that agrees
to be bound by the foregoing confidentiality requirement. The
foregoing obligations in this paragraph 3(t) shall not apply to
information that has become public or generally known within the
trading card industry other than as the result of disclosure of
such information by either party in breach of its obligations to
the other under this paragraph 3(t).
4. REPORTS AND PAYMENTS.
--------------------
On or before the twentieth (20th) day following each quarter of the
Term or any Renewal Term(s), LICENSEE shall deliver to NHLE, or in accordance
with written instructions given to LICENSEE by NHLE, a full and accurate
statement showing, by country, brand and series, the quantity, description and
Net Sales (including gross sales and all deductions made therefrom in
calculating Net Sales) of each of the Licensed Products sold or distributed
during such quarter, with sales and distributions, if any, of rebagged product
separately described and accounted for, on forms to be furnished by NHLE.
Simultaneously with the delivery of such statement, LICENSEE shall remit the
Royalty Payment due on Net Sales for each such quarter by check or electronic
transfer payable to "NHL Enterprises, Inc." and
13
<PAGE>
delivered directly to NHLE (or in accordance with its instructions). Such
statements shall be delivered whether or not they reflect any Net Sales of
Licensed Products. If the amount of Royalty Payments of Net Sales paid to NHLE
during any License Year shall be less than the Guaranteed Minimum Payment due,
pursuant to Section 1(d)(ii), for such License Year, the balance shall be paid
to NHLE (or in accordance with its written instructions) within twenty (20) days
after the end of such License Year. Receipt and acceptance by NHLE or any agent
of NHLE of any statement furnished by LICENSEE or Royalty Payments paid
hereunder shall not preclude NHLE from questioning the correctness thereof at
any time within three (3) years from the end of the License Year to which such
statement relates (or, if later, within three (3) years from the date or receipt
by NHLE of such statement); in the event any errors are disclosed, such
statements shall be rectified and any differences in Royalty Payments remitted
within ten (10) days to NHLE (or in accordance with its written instructions).
LICENSEE acknowledges that time is of the essence in making payments. If any
payments to NHLE (or in accordance with its written instructions) are not
remitted on the date due, LICENSEE shall pay interest at the rate of one percent
(1.0%) per month from such date until payment thereof is made. If requested by
NHLE, LICENSEE at its own expense shall provide NHLE within sixty (60) days of
the end of each License Year a detailed statement for such License Year,
certified by an independent certified public accountant approved by NHLE,
showing, by country, brand, and series, the Net Sales (including gross sales and
all deductions made therefrom in calculating Net Sales) of each Licensed Product
sold or distributed by LICENSEE during such year, together with a computation of
Royalty Payments on Net Sales due NHLE for such year. Statements and payments
due hereunder shall be deemed to be delivered and made upon receipt.
5. CATALOG CONTRIBUTIONS.
---------------------
NHL shall have the right but not the obligation to publish catalogs,
sales sheets and brochures ("Catalogs") during any License Year in order to
promote the sale of Licensed Products. The format and style of any such Catalog
will be in NHLE's sole discretion. LICENSEE undertakes (i) to contribute to
each such Catalog by furnishing, free of charge, such samples, artwork,
photography and the like as may be available to it and reasonably requested, and
(ii) to participate in each such Catalog and pay for a minimum of one page at
NHLE's prevailing rate (not to exceed a total of ** during any License Year) to
cover the cost of such publication, including distribution costs to retailers,
wholesalers, mail order houses and other outlets
14
<PAGE>
for Licensed Products. The payment by LICENSEE for such participation will be
in addition to any Advances, Guaranteed Minimum Payments and Royalty Payments
due NHLE as specified herein.
6. BOOKS AND RECORDS.
-----------------
LICENSEE agrees to keep accurate books of account and records covering
all transactions relating to this License. NHLE and its duly authorized
representative shall have the right at all reasonable hours of the day upon
reasonable advance written notice to examine and audit such books of account and
records and all other documents and material in LICENSEE's possession or
_________________
** Confidential information deleted.
under its control with respect to the subject matter and terms of this License
Agreement, and shall have free and full access thereto for such purposes. All
such books of account and records shall be kept available (including after
expiration or termination of this License Agreement) for, with respect to any
transaction, at least three (3) years from the end of the License Year in which
such transaction occurred (or, if later, three (3) years from the date of
receipt by NHLE of a statement with respect to such transaction). LICENSEE will
designate a symbol or number which will be used exclusively in connection with
Licensed Products and with no other articles which LICENSEE may manufacture,
sell, or distribute. In the event that an audit by NHLE reveals an underpayment
by LICENSEE, LICENSEE shall immediately upon demand remit payment to NHLE (or in
accordance with written instructions given to LICENSEE by NHLE) in the amount of
such underpayment plus interest calculated at the rate of one percent (1.0%) per
month from the date such payment was actually due until the date such payment is
made. LICENSEE shall reimburse NHLE for the entire costs and expenses of such
audit if the underpayment is two percent (2%) or more than the amount required
to be paid to NHLE for the applicable License Year.
7. QUALITY CONTROL OF LICENSED PRODUCTS.
------------------------------------
LICENSEE agrees that the Licensed Product(s) shall be of high standard
and of such style, appearance and quality as
15
<PAGE>
shall be adequate and suitable to their promotion, distribution and sale to the
best advantage of LICENSEE, NHLE, NHL and its Member Teams. To this end
LICENSEE shall perform as follows:
(a) Before selling or distributing any of the Licensed Product(s),
LICENSEE shall submit without charge samples of each such
Licensed Product, including all styles, colors and variations and
all proposed verbiage to be included thereon, together with its
cartons and containers, including packaging and wrapping
material, hangtags and labels (the "Related Materials"), for
NHLE's written approval in accordance with procedures specified
hereafter. Licensee shall submit for review all Licensed
Products and Related Materials at each of the following stages of
production: 1) base art and product concepts; 2) pre-production
computer generated color proofs; 3) post production finished
products suitable for retail sale. The samples of Licensed
Products and Related Materials submitted by LICENSEE for quality
control purposes shall be delivered directly to NHLE at its
address specified first above or in accordance with written
instructions given by NHLE. The quality and style of each such
Licensed Product and its Related Materials shall be subject to
NHLE's prior approval. In the event that any item submitted to
NHLE shall not have been approved, disapproved or otherwise
commented upon within ten (10) business days after receipt
thereof by NHLE, then LICENSEE shall have the right to so notify
NHLE of such fact by telegram or telefax message. In the event
that NHLE fails to then approve, disapprove or otherwise comment
upon the submitted items within three (3) business days after
receipt by it of such communication, any items so submitted by
LICENSEE shall be deemed to have been approved. LICENSEE shall,
in addition, thereafter furnish to NHLE free of cost for its
prior written approval six (6) production samples of each such
Licensed Product, together with their Related Materials, within
fifteen (15) days of the start of each License Year that this
License Agreement is in effect.
(b) After samples of each Licensed Product(s) and Related Materials
have been approved pursuant to
16
<PAGE>
this paragraph, LICENSEE shall not depart therefrom in any
material respect without NHLE's prior written consent.
(c) NHLE shall have the right to withdraw its approval of approved
samples of Licensed Products and Related Materials if the quality
of any such item ceases to be reasonably acceptable or in the
event of some factor which, in NHLE's reasonable opinion, has a
material adverse reflection upon the professional, business or
personal reputation of NHL, its Member Teams or NHLE.
(d) Subject to the terms and conditions hereof, LICENSEE may utilize
the NHL Marks for such selling, advertising, promotional and
display materials for the Licensed Product(s) as in its judgment
will best promote the sale of said Licensed Product(s). LICENSEE
agrees that it will not use the NHL Marks or any reproduction
thereof in any advertising, promotional or display material or in
any other manner without NHLE's prior written approval. In the
event that any advertising, promotional or display material
submitted to NHLE shall not have been approved, disapproved or
otherwise commented upon within ten (10) business days after
receipt thereof by NHLE, then LICENSEE shall have the right to so
notify NHLE of such fact by telegram or telefax message. In the
event that NHLE fails to then approve, disapprove or otherwise
comment upon the submitted items within three (3) business days
after receipt by it of such telegraphic or telefax communication,
any items so submitted shall be deemed to have been approved.
Prior to use by LICENSEE, six (6) production copies of all such
advertising, promotional and display materials will be furnished
to NHLE free of charge.
8. PRODUCT DESTRUCTION.
-------------------
At the conclusion of each License Year (and upon expiration or
termination of this License Agreement), LICENSEE will be required to destroy all
uncut sheets, works in process and production plates related to Licensed
Products relating to such License Year and to present NHLE with a certificate
attesting to such, provided that LICENSEE may retain small
17
<PAGE>
quantities of uncut sheets for archival, security and quality control purposes.
LICENSEE shall not manufacture Licensed Products relating to any License Year
following the conclusion of such License Year (e.g., 1993 Pinnacle brand hockey
---
trading cards after June 30, 1994).
9. PROMOTIONAL SUPPORT OF NHL TEAMS AND
DISTRIBUTION OF LICENSED PRODUCTS
------------------------------------
(a) LICENSEE undertakes to support the National Hockey League and its
Member Teams by supplying to NHLE free of charge (and royalty) no
less than ten (10) cases of each Licensed Product per License
Year as samples. Such free samples will be distributed by NHLE
to NHL and/or the Member Teams directly or used by NHLE in its
discretion for promotions directly benefiting the Member Teams.
In addition to supplying such samples of Licensed Products free
of charge, LICENSEE also undertakes to supply NHLE at NHLE's
expense samples of Licensed Products at LICENSEE's lowest normal
wholesale price in such quantities as requested by NHLE for the
Member Teams for arena use or for promotions authorized by NHLE.
(b) LICENSEE may donate to charity up to ten (10) cases per Licensed
Product per License Year without royalties being owed with
respect thereto, provided it provides written notice to NHLE of
each donation.
(c) LICENSEE will use its best efforts to sell Licensed Products to
retail outlets owned and/or operated by NHL Member Teams: i) at
the lowest minimum quantities; ii) at the lowest prices normally
charged by LICENSEE to any other third party; and iii) at the
most advantageous credit terms and return privileges offered by
LICENSEE to any other third party; LICENSEE also agrees to
deliver new styles or designs or Licensed Products to retail
outlets owned and/or operated by NHL Member Teams on a prompt and
timely basis, and in no event later than to outlets not owned
and/or operated by NHL Member Teams, provided orders have been
placed with LICENSEE for said new styles or designs by said NHL
Team Outlets on as timely as basis as those orders placed by
other outlets and
18
<PAGE>
provided said NHL Team Outlets are current with respect to
payments to LICENSEE.
(d) LICENSEE undertakes to sell, distribute, and supply, within the
Territory, the Licensed Products in such manner as may be
required to meet
the competition by manufacturers of similar articles. LICENSEE
further undertakes to use its best efforts to make and maintain
adequate arrangements for the broadest possible distribution of
Licensed Products throughout the Territory through regular
channels of distribution consistent with Licensed Sales,
including but not limited to: companies selling through mail
order catalogs; companies consisting of or operating groups of
stores or department stores commonly known as "chains;"
independently run stores; and wholesale distributors selling to
retail outlets. LICENSEE agrees to maintain adequate inventories
of the Licensed Products as an essential part of its distribution
program. LICENSEE will not sell Licensed Products to any retail
outlet within any area to the exclusion of other retail outlets
that may desire to purchase Licensed Products and whose credit
rating and sales merchandising policies warrant such sales. In
the event LICENSEE sells or distributes other merchandise of the
same grade and quality as the Licensed Products, but which do not
bear any of the NHL Marks, LICENSEE will not discriminate in the
granting of commissions and discounts to salesmen, dealers and
distributors for the Licensed Products.
(e) LICENSEE agrees to meet with NHLE and provide, within ten (10)
days of the beginning of each License Year, a comprehensive and
detailed marketing and business plan setting forth:
(i) planned programs and expenditures for such License Year with
respect to advertising and promotion of the Licensed
Products;
(ii) sales goals and estimates for such License Year; and
(iii) actual programs, expenditures and sales for the immediately
preceding License Year.
19
<PAGE>
During each meeting between LICENSEE and NHLE held pursuant to
the immediately preceding sentence, LICENSEE shall also review
with NHLE LICENSEE's planned programs and expenditures for the
three (3) year period commencing with such License Year (or, if
fewer than three (3) years remain in the Term, through the end of
the Term) (in detail, in the case of such License Year and, in
outline form, in the case of the remainder of such three (3) year
(or lesser) period) with respect to advertising and promotion of
the Licensed Products.
LICENSEE further agrees to meet with NHLE, within ten (10) days
of the beginning of each quarter of each License Year, to discuss
with NHLE the status of the items set forth in this
subparagraph (e) above.
LICENSEE further agrees that NHLE shall have the right to comment
on any such planned programs and expenditures (for any such
quarter, License Year or three (3) year (or lesser) period) and
that LICENSEE shall give such comments due consideration, it
being understood and agreed that a significant commitment by
LICENSEE to advertising and promotion of the Licensed Products is
required in order to exploit fully the potential market for the
Licensed Products.
LICENSEE acknowledges and agrees that each of the foregoing
provisions of paragraph 9 are material provisions of this License
Agreement, it being understood that meeting deadlines shall not
be breached if they are substantially complied with.
10. GOODWILL.
--------
LICENSEE recognizes the great value of the reputation and goodwill
associated with the NHL Marks and, in such connection, acknowledges that such
goodwill exclusively belongs to NHL and its Member Teams, that LICENSEE's use of
the NHL Marks will inure to the benefit of NHL and its Member Teams, and that
the NHL Marks have acquired a secondary meaning in the mind of the purchasing
public related to NHL and its Member Teams. LICENSEE further recognizes and
acknowledges that a breach by
20
<PAGE>
LICENSEE of any of its covenants, agreements or undertakings hereunder will
cause immediate irreparable damage which cannot be readily remedied in damages
in an action at law, and which, in addition thereto, constitutes an infringement
of rights in the NHL Marks, thereby entitling NHLE, NHL and its Member Teams to
equitable remedies, costs and damages, including reasonable attorneys' fees.
11. INDEMNIFICATIONS.
----------------
(a) LICENSEE hereby indemnifies and agrees to hold harmless NHLE,
NHL, its Member Teams and their agents, servants, employees,
officers, directors and other officials from any loss, liability,
damage, cost or expense (including reasonable attorneys' fees),
arising out of the manufacture, distribution, advertising,
promotion, offering for sale and sale of the Licensed Products
including without limitation any claims or suits against any of
them by reason of or alleging any unauthorized or infringing use
by LICENSEE of any patent, process, trade secret, copyright,
trademark, or publicity right or other similar property (other
than the NHL Marks covered by this Agreement) or any alleged
defects (design, manufacturing, handling or other) or inherent
dangers in said Licensed Product(s) or the use thereof. LICENSEE
agrees to obtain, prior to the commencement of the Term hereof,
at its own expense, product liability insurance on an occurrence
basis providing adequate protection for NHLE, NHL, its Member
Teams and their agents, servants, employees, officers, directors
and other officials and LICENSEE against any such claims or suits
in amounts no less than $3,000,000 per claim or suit.
Within thirty (30) days from the commencement of the Term hereof,
LICENSEE will submit to NHLE a fully paid policy or certificate
of insurance from a New York admitted carrier with a Best's
rating of no less than AXI naming NHLE, NHL, its Member Teams and
their agents, servants, employees, officers, directors and other
officials as an insured party, providing that coverage shall
extend to all claims or suits arising out of the use of Licensed
Product(s) manufactured or sold under this Agreement, no matter
when such claim or
21
<PAGE>
suit may be asserted, and further providing that the insurer
shall not terminate or materially modify such coverage without
written notice to NHLE at least twenty (20) days in advance
thereof, and that if it terminates or materially modifies such
coverage, NHLE will have the option to pay the premiums necessary
to maintain or continue such insurance in effect and obtain
reimbursement from LICENSEE. LICENSEE agrees to provide NHLE
with renewal policies or certificates of insurance in accordance
with the terms hereof, on an annual basis, covering all periods
through the expiration of this Agreement.
(b) NHLE hereby indemnifies and agrees to hold harmless LICENSEE and
its agents, servants, employees, officers and directors from any
loss, liability, damage, cost or expense (including reasonable
attorneys' fees) arising out of any claim that the use of the NHL
Marks pursuant to this License Agreement violates or infringes
upon any trademark, copyright or other similar right of any third
party in or to the NHL Marks.
(c) The indemnifications provided for herein are conditioned upon the
indemnified party's furnishing the indemnifying party with prompt
written notice of any such claim or suit and upon the indemnified
party's furnishing of reasonable cooperation and witnesses, if
necessary, in defense of such claim or suit. In such event, the
indemnifying party shall have the option and right to undertake
and conduct the defense of any such claim or suit.
12. TERMINATION.
-----------
(a) NHLE shall have the right to terminate this License Agreement
without prejudice to any rights which it may have, whether in
law, or in equity, or otherwise, upon the occurrence of any one
or more of the following events (herein called "defaults"):
(i) If any governmental agency finds that the Licensed
Product(s) are defective in any way, manner or form (it
being understood and
22
<PAGE>
agreed that LICENSEE shall provide NHLE with prompt notice
of any such finding), and such defect shall not have been
remedied to NHLE's satisfaction within 30 days of such
finding;
(ii) If LICENSEE distributes, sells or offers to sell any
Licensed Products not made in conformity to the provisions
of Paragraph 7 of this Agreement and such nonconformity
shall not have been remedied to NHLE's satisfaction within
30 days after written notice of such nonconformity by NHLE
to LICENSEE, of if LICENSEE distributes, sells or offers to
sell any merchandise bearing a copy or simulation of any NHL
Mark other than the Products;
(iii) If LICENSEE shall be unable to pay its debts when due, or
shall make any assignment for the benefit of creditors, or
shall file any petition under the bankruptcy or insolvency
laws of any nation, jurisdiction, county or place, or shall
have or suffer a receiver or trustee to be appointed for its
business or property, or be adjudicated a bankrupt or an
insolvent;
(iv) In the event that LICENSEE does not commence in good faith
to manufacture, distribute and sell each Licensed Product
throughout the Territory within sixty (60) days of the
commencement of the Term hereof; or
(v) If there is a change in more than fifty percent (50%)
ownership or controlling interest of LICENSEE or a material
change in management of LICENSEE.
(b) In the event LICENSEE violates, breaches or defaults in
performing any of the provisions of this License Agreement other
than those identified in provision 12(a) above, and does not
fully cure such violation, breach or default within thirty (30)
days after notice from NHLE (unless such violation, breach or
default is of any payment obligation, in which case LICENSEE
shall have only ten (10) days after notice from NHLE to fully
23
<PAGE>
cure), this License Agreement shall automatically terminate. In
the event of any termination pursuant to paragraph 12(a) or (b),
LICENSEE shall pay NHLE within thirty (30) days of such
termination without further demand all amounts then due NHLE and
also shall pay therewith as liquidated damages all amounts still
due NHLE as Guaranteed Minimum Payment for the remainder of the
then current License Year. If such payments are not remitted
when due, LICENSEE consents to the entry of judgment for such
amount by a court having jurisdiction over LICENSEE or any of its
assets. In addition, NHLE shall be entitled to sue for
injunctive relief and other consequential damages, including
reasonable attorneys' fees incurred by NHLE, NHL and/or its
Member Teams as a result of any such violation, breach or default
by LICENSEE.
(c) It is agreed and recognized that the nature of the business of
NHLE, NHL and its Member Teams requires great public respect for
and trust in the reputation and integrity of NHL and its Member
Teams. Accordingly, it is agreed that in the event of some
unanticipated factor, development or event which, in NHLE's
reasonable opinion, causes continued association of NHL and/or
its Member Teams with LICENSEE or the Licensed Products to have a
materially adverse reflection upon NHL or its Member Teams, NHLE
may terminate this License unilaterally by written notice to
LICENSEE, provided, however, that, if, in NHLE's reasonable
opinion, such factor and materially adverse reflection are
susceptible to being cured, NHLE may not terminate this License
unless such factor and materially adverse reflection shall not
have been cured to NHLE's satisfaction within thirty (30) days
after written notice to LICENSEE. In the event of such
termination, LICENSEE shall be excused from all further (but not
past due or subsequently earned) royalty obligations; the pro-
rated amount of any minimum guarantee paid in advance will be
refunded to LICENSEE; and NHLE will, in the event it cannot
approve distribution of the remainder of LICENSEE's inventory and
work in process, reimburse LICENSEE for its expenses of salvage
or, for unsalvageable products, for
24
<PAGE>
LICENSEE's cost of manufacturing or acquiring the same.
(d) In the event of termination of this License Agreement pursuant to
paragraph 12 hereof, LICENSEE will refrain from further use of
the NHL Marks or any further reference to all or each of them,
direct or indirect, or any simulation of the NHL Marks. LICENSEE
agrees that the NHL Marks possess a special, unique and
extraordinary character which makes difficult the assessment of
the monetary damage sustained by unauthorized use. LICENSEE
recognizes that irreparable injury would be caused by
unauthorized use and agrees that injunctive and other equitable
relief would be appropriate in the event of a breach of this
License Agreement, provided, however, that such remedy shall not
be exclusive of other legal remedies otherwise available to NHLE,
NHL and/or its Member Teams.
13. FINAL STATEMENT.
---------------
LICENSEE shall deliver, as soon as practicable, to NHLE, following
expiration or termination of this License Agreement, a statement indicating the
number and description of Licensed Product(s) on hand. Following expiration of
this License Agreement, LICENSEE may manufacture no more Licensed Product(s) in
association with the NHL Marks but may continue to distribute and sell its
remaining inventory for a period not to exceed one hundred twenty (120) days
following such expiration, subject to payment of applicable royalties thereto,
provided, however, that LICENSEE shall have no such right if this License
Agreement is terminated pursuant to paragraph 12. Following expiration or
termination of this License Agreement for whatever reason, LICENSEE agrees to
make no use of the NHL Marks whatsoever, either in or on products or in
advertising, publicity, promotional or display materials, other than as
specifically permitted pursuant to the immediately preceding sentence. NHLE
shall have the right to conduct a physical inventory in order to ascertain or
verify such inventory and/or statement. In the event LICENSEE refuses to permit
NHLE to conduct such physical inventory, LICENSEE shall forfeit its right
hereunder to dispose of such inventory. In addition to such forfeiture, NHLE
shall have recourse to any and all other legal remedies available to it.
Notwithstanding the foregoing, in the event that NHLE terminates this License
Agreement pursuant to any
25
<PAGE>
of the provisions of this License Agreement, LICENSEE shall have no right to
dispose of its inventory beyond the effective date of such termination and shall
be subject to the payment of damages specified herein.
14. NOTICES.
-------
All notices which either party hereto is required or may desire to
give to the other shall be given by addressing the same to the other at the
address above written, or at such other address as may be designated in writing
or by telefax message by any such party in a notice to the other given in the
manner prescribed in this paragraph. All such notices shall be sufficiently
given when the same shall be received by telefax message, or after such notice
is deposited so addressed, postage prepaid, in the United States or Canadian
mail, and/or when the same shall have been delivered, so addressed, to a
telegraph or cable company toll prepaid. The date of actual receipt of such
telefax message, mail or telegraphing shall be the date such notice shall be
deemed to be effective.
15. NO PARTNERSHIP OR JOINT VENTURE ETC.
-----------------------------------
This License Agreement does not constitute and shall not be construed
as constituting a partnership, joint venture or agency between LICENSEE and any
of NHLE, NHL and/or its Member Teams. Neither party shall have any right to
obligate or bind the other party in any manner whatsoever, and nothing herein
contained shall give, or is intended to give, any rights of any kind to any
third persons.
16. CONSTRUCTION.
------------
This License Agreement shall be governed by and construed in
accordance with the laws of the State of New York of the United States of
America, without reference to the conflict of law provisions thereof.
17. WAIVER, MODIFICATION, ETC.
-------------------------
This License Agreement represents the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all previous representations, understandings or agreements
between the parties hereto. No waiver, modification or cancellation of any term
or condition of this License Agreement shall be effective unless executed in
writing by the party charged therewith. No written
26
<PAGE>
waiver shall excuse the performance of any act other than those specifically
referred to therein. NHLE makes no warranties to the LICENSEE except those
specifically expressed on the first page hereof.
18. NO ENDORSEMENT BY PLAYERS.
-------------------------
This License Agreement does not carry with it any right to use the
name, likeness, reputation, goodwill, persona, or any other aspect of the right
of privacy, personality or publicity of any individual hockey player. LICENSEE
shall not exercise the rights granted hereunder in any manner that will
constitute an endorsement of a Licensed Product by, or an exploitation of, any
individual player without the specific consent of the player; any necessary
consent by the player's Member Team is considered to be given pursuant to this
Agreement, unless LICENSEE is notified otherwise.
19. ARBITRATION.
-----------
(a) Any dispute or disagreement between the parties hereto seeking to
enjoin or restrain LICENSEE's sale or distribution of the
Licensed Products or of any other Products or merchandise bearing
NHL Marks or any copy or simulation thereof, or otherwise to use
the NHL Marks, may be determined in any forum of NHLE's choosing
in the State of New York or Texas, and LICENSEE hereby consents
to venue and personal jurisdiction in the Supreme Court of the
State of New York or any United States District Court in the
State of New York. In any such action, the forum may retain
jurisdiction to award damages, profits, attorneys' fees or costs,
as allowed by law in such matters.
(b) Any other dispute or disagreement between the parties hereto
arising out of or relating to this License Agreement shall be
settled by binding arbitration in New York City under the rules
then in effect of the American Arbitration Association, and
judgment upon the award may be entered in the courts of the State
of New York and also in any court having jurisdiction.
Arbitration shall not preempt the seeking of relief provided by
paragraph (a) hereof, and if relief is sought thereunder any
Court in which such action is commenced, not any Arbitration
panel,
27
<PAGE>
shall determine whether any particular matter is justiciable by
the Court or only arbitrable.
20. ACCEPTANCE BY NHLE.
------------------
This instrument, when signed by LICENSEE, shall be deemed an
application for a license and not a binding agreement unless and until accepted
by NHLE by signature of a duly authorized officer and the deliver of such a
signed copy to LICENSEE. The receipt and/or deposit by NHLE of any check or
other consideration given by LICENSEE and/or the delivery of any material by
NHLE to LICENSEE shall not be deemed an acceptance by NHLE of this application.
The foregoing shall apply to any documents relating to renewals or modifications
hereof.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this License
Agreement as of the day and year first above written.
NHL ENTERPRISES, INC. PINNACLE BRANDS, INC.
By: /s/ Steve Ryan By: /s/ Jerry M. Meyer
------------------------------ ------------------------------
Name: Steve Ryan Name: Jerry M. Meyer
---------------------------- ----------------------------
Title: President Title: Chairman & CEO
--------------------------- ---------------------------
29
<PAGE>
EXHIBIT A
---------
________, 1993
NHL ENTERPRISES, INC.
1633 Broadway, 40th Floor
New York, New York 10019
Dear Sirs or Madams:
Please be advised that we have been engaged by (LICENSEE), which has
entered into Retail License Agreement No. ( ) with you, as the manufacturer
in connection with the manufacture of the Licensed Product(s) (as defined in the
aforesaid Retail License Agreement). We hereby acknowledge that we have
received a copy of and are cognizant of the terms and conditions set forth in
said Retail License Agreement and hereby agree to observe those provisions of
said Retail License Agreement which are applicable to our function as
manufacturer of the Licensed Product(s).
We agree that we shall have no right to manufacture, sell or utilize
Licensed Product(s) bearing the NHL Marks (as defined in said Retail License
Agreement) except as manufacturer for (LICENSEE) and subject to the terms and
conditions of said Retail License Agreement, and further agree not to utilize
any of the Licensed Product(s) or NHL Marks to advertise, promote or publicize
ourselves or such manufacture in any manner or form.
We understand that our engagement as the manufacturer for (LICENSEE)
subject to the terms and conditions of said Retail License Agreement, is subject
to your written approval. We request, therefore, that you sign in the space
below, thereby showing your acceptance of our engagement as aforesaid.
Very truly yours,
(MANUFACTURER)
By:_________________________
Name:_______________________
Title:______________________
ACCEPTED AND AGREED:
30
<PAGE>
NHL ENTERPRISES, INC.
By:_________________________
Name: Fred Scalera
-----------------------
Title: Vice President
----------------------
Date:_______________________
We hereby confirm and agree that, notwithstanding the foregoing, we
shall remain primarily liable to NHL Enterprises, Inc. for all obligations of
Licensee under said Retail License Agreement, and shall not be relieved of any
of such obligations, including obligations relating to quality control, the
manufacture of the Licensed Product(s) and indemnification of NHL Enterprises,
Inc. and certain other persons and entities identified in said Retail License
Agreement.
(LICENSEE)
By:_________________________
Name:_______________________
Title:______________________
Date:_______________________
31
Exhibit 10.20
R-115
LICENSE AGREEMENT made the 3rd day of June, 1996
B E T W E E N:
THE DONRUSS TRADING CARD COMPANY, a corporation incorporated
under the laws of Delaware, with offices at 924 Avenue J
East, Grand Prairie, TX 75050 (the "Licensee")
OF THE FIRST PART
- and -
THE NATIONAL HOCKEY LEAGUE PLAYERS' ASSOCIATION, an
unincorporated association under the laws of Ontario, with
offices at 1 Dundas Street West, Suite 2300, Toronto,
Ontario, M5G 1Z3, (the "Licensor")
OF THE SECOND PART
WITNESSETH:
WHEREAS, the Licensor is the owner of certain proprietary rights in and to
the property described in Schedule "A" attached hereto (the "Property");
AND WHEREAS, the Licensee desires to use the Property on or in association
with the manufacture, packaging, offering for sale, sale, advertising,
promotion, shipment and distribution (the "Exploitation") of certain products
identified in Schedule "C" attached hereto (the "Licensed Products") in the
territory identified in Schedule "D" attached hereto (the "Licensed Territory");
AND WHEREAS, the Licensor is willing to grant the Licensee such right to
use the Property on the Licensed Products in the Licensed Territory in
accordance with the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, it is hereby agreed as follows:
<PAGE>
1. REPRESENTATIONS
---------------
(a) The Licensor represents that it has been duly appointed and is acting
on behalf of all active hockey players of the National Hockey League
("NHL") who have entered into a Group Licensing Authorization Agreement
with the Licensor, and that in such capacity it has the right to negotiate
this Agreement and the right to grant the rights described herein.
(b) The Licensor further represents that the Licensor has not entered into
and will not enter into any agreement, right or obligation which will
prevent the Licensee from exercising the rights granted to the Licensee
hereunder.
(c) The Licensor represents that all Major Card Licenses (a "Major Card
License" allows production of more than 20,000 equivalent cases (10,800
cards)) effective during the term of this Agreement will have a royalty
rate of no less than ** on North American sales and annual guarantees of no
less than ** U.S. and will be subject to the same number of brand and
release restrictions as set out in Schedule C. Licensor further represents
that no Major Card License shall have a more favourable royalty rate than
Licensee on sales outside of North America. The Licensor further represents
that, with the exception of Fleer Corp., all Major Card Licenses will
contain the same other material terms and conditions set out in this
Agreement. From time to time during the term of this Agreement, but no more
than once per contract year, the Licensee shall have the right during
reasonable business hours, and upon reasonable notice to the Licensor, to
have an independent auditor examine the Licensor's Major Card Licenses for
the purpose of verifying the Licensor's compliance with this paragraph
1(c). In the event a Major Card Licensee is granted a more favourable
royalty rate than Licensee for a certain territory, Licensees royalty rate
shall be reduced to the equivalent of the more favourable rate for the same
territory. Licensees new royalty rate shall be effective on the date such
rate became effective with the Major Card Licensee.
(d) The Licensor makes no further warranties or representations, other than
those expressly made herein.
2. GRANT
-----
(a) The Licensor hereby grants to the Licensee a non-exclusive,
non-transferable, non-assignable license, without the right to grant sub-
licenses, to use the Property solely on or in association with the
Exploitation of the Licensed Products solely within the Licensed Territory
(the "License"). Licensee agrees it will include at least one card in its
Licensed Products for each of at least seventy-five percent (75%) of all
active NHL players who have entered into a Group Licensing Authorization
Agreement with the Licensor
- -----------------
** Confidential information deleted.
2
<PAGE>
and it will not include the name or likeness of any individual NHL player
on more than one percent (1%) of the total number of different cards in
each set of Licensed Product without express written approval from
Licensor.
(b) The rights, licenses and privileges granted by the Licensor hereunder
shall not constitute or be used by the Licensee as a personal testimonial
or endorsement by all or any of the players or by the Licensor, of any
Licensed Product or any other product or service. In the event that
Licensee is interested in securing an individual player's personal
endorsement, it is understood and acknowledged that such endorsement will
require the personal approval of the individual player involved and a
separate payment directly to him, independent of, and in addition to, all
payments due to the Licensor under the terms of this Agreement.
(c) Licensee acknowledges and agrees that with respect to current and
former NHL players with whom Licensee may enter into endorsement,
spokesperson or promotional agreements, Licensee agrees as follows:
(i) Licensee may enter into an exclusive endorsement, spokesman or
promotional agreement with an active NHL player (or player who has
been under contract but has not yet announced his retirement),
provided that the agreement shall include the following terms and
conditions:
"Exclusive shall mean that the player shall refrain from granting
to any other manufacturer or distributor of hockey trading cards
the endorsement, as a spokesman, of the player for use in
advertising and/or promotion of trading cards or other licensed
products. The parties acknowledge and agree that the player's name
and likeness may appear on the hockey trading cards and related
products of other NHLPA-licensed manufacturers, that they will
continue to do so, and that no such grant of rights with respect
to any competing product shall constitute a breach of this
Agreement."
Licensee shall notify NHLPA prior to concluding an agreement and
provide a copy of the agreement to NHLPA within five days of
execution.
(ii) Licensor acknowledges and agrees that Licensee may enter into
an agreement with a former NHL player on an exclusive basis as to
endorsement, spokesperson or promotion rights. Licensee
acknowledges and agrees that if this former NHL player re-enters
the NHL to again become an active player, Licensee shall be bound,
with respect to such player, to the provisions of sub-paragraph
(i) above.
Licensee shall notify NHLPA prior to concluding an agreement and
provide a copy of the agreement to NHLPA within five days of
execution.
(d) Nothing contained in sub-paragraph (b) above shall prevent the Licensee
from utilizing the names and/or likenesses of the players in a
non-endorsement and/or non-testimonial manner in connection with the
3
<PAGE>
packages, cartons, advertising, point of sale and/or promotional materials
for the Licensed Products (the "Promotional and Packaging Materials") or
require any separate payment in connection therewith, provided that, unless
specifically authorized in advance by the Licensor in writing, the names
and/or likenesses of a minimum of eight (8) such players are utilized with
equal prominence on the Promotional and Packaging Materials for all
Licensed Products during the Term of this Agreement; and the Licensee
agrees to rotate the players who are so utilized in connection with such
materials so as not to highlight any particular player or group of players
to the exclusion of others.
(e) Licensee shall have no right to sell the Licensed Products in
combination with, or to include in the same package or container with the
Licensed Products, any item or product, whether of a nature similar to or
different from the Licensed Products, which does not employ the Property
and which has not been specifically approved by Licensor in advance in
writing.
(f) The Licensee agrees and acknowledges that any NHL player may elect to
be excluded from this Agreement provided that the Licensor agrees that in
each year of the Term not less than seventy-five percent (75%) of the
active NHL players on the official NHL All-Star Team will be included as
part of this Agreement, failing which the Guaranteed Minimum Annual Royalty
for that year shall be reduced in the ratio that the actual percentage of
active NHL players on the All-Star Team that year included in this
Agreement is to seventy-five (75). By way of example, if only seventy
percent (70%) of the active NHL players on the All-Star Team are included
in this Agreement, the Guaranteed Minimum Annual Royalty for that year
shall be adjusted as follows:
70 divided by 75 x Guaranteed Minimum Annual Royalty.
In addition to the provisions set forth above, in the event the general
quantity and quality of the players included as part of this Agreement in
any contract year are not consistent with the general quantity and quality
of the players included in the immediately preceding contract year, the
Licensor and the Licensee shall enter into good faith discussions to
determine whether an adjustment of the Guaranteed Minimum Annual Royalty is
appropriate.
(g) The Licensor makes no representation that it has the authority to grant
nor does it grant herein, the right to utilize team or league symbols,
insignias or logos. Accordingly, it is understood by the parties hereto
that if likenesses of players depicting any such team or league material is
to be utilized in the exercise of the license granted hereunder, it will be
the responsibility of the Licensee to obtain permission for the use of such
material.
(h) The License granted herein includes finished Licensed Products packaged
for retail sale only and does not include the right to sell Licensed
Products in unfinished state or in bulk quantities unless otherwise
approved by Licensor in advance in writing.
4
<PAGE>
(i) All rights not expressly granted to the Licensee in this Agreement are
specifically reserved to the Licensor.
3. TERM
----
The term of this Agreement shall extend from July 1, 1996 to June 30, 1999
(the "Term") unless earlier terminated in accordance with the provisions
hereof.
4. ROYALTY PAYMENT
---------------
(a) The Licensee agrees to pay the Licensor a Royalty of ** based on Net
Sales of the Licensed Products by the Licensee. Such Royalties shall accrue
when the Licensed Products are sold, shipped, distributed, billed or paid
for, whichever occurs earliest.
(b) Royalty payments shall be made by the Licensee to the Licensor on all
Licensed Products sold, shipped or distributed by the Licensee, less only
quantity discounts and returns, based upon the Licensee's usual net sales
price for such Licensed Products sold to third parties (who are not
affiliated in any way with Licensee) in the course of the Licensee's normal
distribution, shipment and sales activities.
(c) Where the billed price for any Licensed Products is less than the usual
net sales price for such Licensed Products sold to third parties in the
course of the Licensee's normal distribution, shipment and sales
activities, the Royalty payments shall be based upon the Licensee's usual
net sales price.
(d) The Licensee further agrees to pay the Licensor a non-refundable,
minimum guaranteed annual royalty of ** for its use of the rights licensed
hereunder during each year of the Term (the "Guaranteed Minimum Annual
Royalty"). The Guaranteed Minimum Annual Royalty shall be paid as follows:
(i) ** by July 2, 1996;
(ii) ** by October 15, 1996;
(iii) ** by December 15, 1996;
(iv) ** by February 15, 1997;
(v) ** by April 15, 1997;
(vi) ** by July 15, 1997;
- -------------------
** Confidential information deleted.
5
<PAGE>
(vii) ** by October 15, 1997;
(viii) ** by December 15, 1997;
(ix) ** by February 15, 1998;
(x) ** by April 15, 1998;
(xi) ** by July 15, 1998;
(xii) ** by October 15, 1998;
(xiii) ** by December 15, 1998;
(xiv) ** by February 15, 1999;
(xv) ** by April 15, 1999.
(e) The Guaranteed Minimum Royalty payments shall be made by the Licensee
as specified above, whether or not the Licensee uses the rights licensed
hereunder, and no part of such guaranteed payments shall be repayable to
the Licensee except as specifically recited herein.
(f) Royalty payments based on Net Sales made during any year of this
Agreement shall be credited against the Guaranteed Minimum Royalty due for
the year in which such Net Sales were made. In no event shall any Royalties
received in excess of the Guaranteed Minimum Royalty for the year in which
Net Sales were made be used as a credit against past or future Royalty
obligations of the Licensee nor shall any such excess be applied against
the Guaranteed Minimum Royalty for any other year of this Agreement
(g) "Net Sales" shall mean gross sales less quantity discounts and returns
actually credited, adjusted in accordance with sub-paragraph 4(b) hereof.
No deductions shall be made for cash or other discounts, for commissions,
for uncollectible accounts, for taxes, fees, assessments, impositions,
payments or expenses of any kind which may be incurred or paid by the
Licensee in connection with the Royalty payments due to the Licensor
hereunder or in connection with a transfer of funds or Royalties or with
the conversion of any currency into United States Dollars, or for any costs
incurred in the Exploitation of the Licensed Products. If any tax is
imposed on the Licensor by any country with respect to Royalties payable to
the Licensor, the Licensee shall compute and pay the Royalties due to the
Licensor hereunder on the basis of
- -----------------
** Confidential information deleted.
6
<PAGE>
the gross amount involved before the deduction of any taxes. If the
Licensee is required to withhold from any Royalty payment due to the
Licensor in an amount representing taxes imposed on the Licensor pursuant
to the laws of any country, the Licensee shall nevertheless have the
obligation to make up the amount of said tax making its Royalty payment to
the Licensor hereunder.
(h) The Licensee represents to the Licensor that it is not a resident of
Canada and has not registered in Canada for purposes of the Goods and
Services Tax.
5. STATEMENTS AND PAYMENTS
-----------------------
(a) The Licensee shall deliver to the Licensor promptly upon the 15th day
of every month during the entire Term of this Agreement, and thereafter in
accordance with paragraph 18 hereof, a complete and accurate statement in
the form attached hereto as Schedule "F", certified to be accurate by an
officer of the Licensee, showing the number, description and gross sales
price, of the Licensed Products distributed or sold by the Licensee during
the preceding calendar month ("Reporting Period") together with any returns
made during the Reporting Period. Such statements shall be furnished to the
Licensor whether or not any of the Licensed Products have been purchased
during the Reporting Period for which such statement is due. Further, the
Licensee shall pay to the Licensor on or before the 15th day of every month
during the entire Term of this Agreement, all Royalties earned under the
terms hereof for the Reporting Period. The receipt or acceptance by the
Licensor of any statement or of any Royalty paid hereunder (or the cashing
of any Royalty cheque paid hereunder) shall not preclude the Licensor from
questioning the correctness thereof at any time, and in the event that any
inconsistencies or mistakes are discovered in connection therewith, they
shall immediately be rectified and the appropriate payment made by the
Licensee to the Licensor.
(b) Time is of the essence with respect to all payments to be made
hereunder by the Licensee. Interest at a rate of the lesser of one and
one-half percent (1.5%) per month, or the maximum rate allowed by law,
shall accrue on any amount due the Licensor hereunder from and after the
date upon which the payment is due until the date of receipt of payment.
(c) All payments made hereunder with respect to sales within Canada and the
United States shall be in United States currency. All payments made
hereunder with respect to sales outside Canada and the United States shall
be calculated in accordance with sub-paragraph (d) and shall be in United
States currency.
(d) If the Licensed Territory includes countries outside the United States
and Canada, the statement shall be broken down by countries and all Net
Sales shall be stated in the currency of the country where they were made,
followed by the equivalent amount of such Net Sales in United States
currency, followed by the exchange rate applied.
7
<PAGE>
(e) All transactions under this Agreement, including without limitation,
all payments of Royalties and all notices, reports, statements, approvals
and other communications, shall be with or made payable in the name of the
Licensor, or its designated assigns, if applicable.
6. BOOKS AND RECORDS/AUDIT
-----------------------
(a) The Licensee agrees to keep accurate books of account and records at
its principal place of business covering all transactions relating to the
license being granted herein. The Licensor or any duly authorized
representative shall have the right, at all reasonable hours of the day and
upon three (3) business days' notice, to audit the Licensee's books of
account and records and all other documents and material in the possession
or under the control of the Licensee with respect to the subject matter and
the terms of this Agreement and to make copies and extracts thereof.
Licensor agrees not to disclose information obtained from audit to any
other Licensees of Licensor. In the event that any such audit reveals an
underpayment by the Licensee, the Licensee shall immediately remit payment
to the Licensor in the amount of such underpayment plus interest calculated
at the rate of the lesser of one and one-half percent (1.5%) per month, or
the maximum rate allowed by law, compounded daily, calculated from the date
such payment(s) were actually due until the date when such payment is, in
fact, actually made. Further, in the event that any such underpayment is
greater than two percent (2%) of the royalties due for any Reporting
Period, the Licensee shall reimburse the Licensor for the costs and
expenses of such audit.
(b) Upon demand by the Licensor, but not more than once each year, the
Licensee shall, at its own cost, furnish the Licensor with a detailed
statement, prepared by an independent certified public accountant of the
Licensee's choice and approved by the Licensor, which approval shall not be
unreasonably withheld, setting forth the number of Licensed Products
manufactured during the time period extending from the date of any previous
statement (or in the case of the first statement, the date of the
commencement of this Agreement) up to and including the date of the
statement and also setting forth the pricing information for all Licensed
Products (including the number and description of the Licensed Products)
shipped, distributed and sold by the Licensee during the aforementioned
time period.
(c) All books of account and records of the Licensee covering all
transactions relating to the Licensee shall be retained by the Licensee for
at least three (3) years after the expiration or termination of this
Agreement, as the case may be, for possible inspection by the Licensor.
7. QUALITY, NOTICES, APPROVALS, AND SAMPLES
----------------------------------------
(a) A list of players to be included in the Property for purposes of this
Agreement shall be established and, specifically subject to the provisions
of paragraph 2(e) above, may be modified in the following manner:
8
<PAGE>
(i) The Licensee and the Licensor shall agree upon a list of players'
names at least sixty (60) days prior to the start of each hockey
season during the Term of this Agreement.
(ii) The Licensor shall notify the Licensee from time to time of any
NHL players who are added or excluded from the Property for purposes
of this Agreement and the Licensee shall use its best efforts to
remove such players' cards from the set at the earliest possible
time.
(b) The quality of the Licensed Products as well as the quality of all
Promotional and Packaging Material shall be at least as high as the best
quality of similar products and promotional, advertising and packaging
material presently shipped, distributed, sold or used by the Licensee in
the Licensed Territory and shall be in full conformance with all applicable
laws and regulations.
(c) The Licensee may not Exploit any Licensed Product nor any Promotional
and Packaging Material until it has received written approval of same in
the manner provided herein from the Licensor. Such approval may be granted
or withheld as the Licensor, in its sole discretion, may determine. Should
the Licensor fail to approve in writing any of the submissions furnished to
it by the Licensee within fourteen (14) days from the date of submission
thereof, such failure shall be considered to be a disapproval thereof.
(d) Before commencing or authorizing third parties to commence the design
or development of Licensed Products or of Promotional and Packaging
Material which have not been previously approved in writing by the
Licensor, the Licensee shall submit at its own cost to the Licensor, for
approval, a description of the concept of the same, including full
information on the nature and function of the proposed item and a general
description of how the Property and other material will be used thereon.
The Licensee shall next submit at its own cost to the Licensor, for
approval, complete layouts and descriptions of the proposed Licensed
Products and Promotional and Packaging Material showing exactly how and
where the Property and all other artwork and wording will be used.
Thereafter, the Licensee shall submit at its own cost to the Licensor, for
approval, pre-production models or prototype samples of the proposed
Licensed Products and Promotional and Packaging Material. Finally, the
Licensee shall submit at its own cost to the Licensor, for approval, actual
production samples of the proposed Licensed Products and Promotional and
Packaging Material (the "Production Samples"). The Licensee shall not
proceed beyond any of the above stages where approval is required without
first securing the prior express written approval of the Licensor.
(e) The Licensee agrees that all Licensed Products and all Promotional and
Packaging Material shall contain appropriate legends, markings and notices
as required from time to time by the Licensor, in order to give appropriate
notice to the consuming public of the Licensor's right, title and interest
thereto. The Licensee agrees that, unless otherwise expressly approved in
writing by the Licensor, each usage of the trademarks set forth in Schedule
"B" (the "Trademarks") shall be followed by either the TM or the R
Trademark Notice symbol, as directed by Licensor. Additionally, the
Licensee shall place or cause to be placed the following legends at least
once on each Licensed Product and on each piece of Promotional and
Packaging Material:
9
<PAGE>
Copyright or (C) NHLPA (year - date) tm and R Designate Trademarks of
Licensor and are used, under license, by Donruss Trading Card Company
provided that the Licensee may identify itself as the owner of the
copyright in the Licensed Product.
(f) The Licensee shall further imprint or cause to be imprinted on every
Licensed Product and on each piece of Promotional and Packaging Material
the logo of the Licensor, as illustrated in Schedule "E" of this Agreement,
and also the following:
"Officially Licensed Product of the National Hockey League Players
Association".
(g) Where patent protection is either pending or has been granted for any
portion of the Property, the Licensee shall further include the appropriate
patent notice on all Licensed Products and on all pieces of Promotional and
Packaging Material.
(h) The Licensee shall use no markings, legends or notices on or in
association with the Licensed Products or on or in association with the
Promotional and Packaging Material other than those specified above or such
other markings, legends or notices as may from time to time be specified by
the Licensor, without first obtaining the Licensor's prior express written
approval in the manner provided herein, which approval may not be
unreasonably withheld.
(i) Upon commencement of manufacture, shipment and distribution of the
Licensed Products and Promotional and Packaging Material after all required
approvals have been given by the Licensor, the Licensee shall submit, at
its own cost, an additional five (5) sets of the aforementioned Production
Samples of the Licensed Products and copies of all Promotional and
Packaging Material to the Licensor.
(j) The Licensor may, from time to time during the Term of this Agreement,
require that the Licensee submit to the Licensor, at no cost to the
Licensor, up to five (5) additional sets of Production Samples of the
Licensed Products or the Promotional and Packaging Material for subsequent
review of the quality of and copyright, patent and trademark usage and
notice on same and for any other purpose that the Licensor, in its sole
discretion, deems appropriate.
(k) After the required approval of the Production Samples has been secured,
the Licensee shall not depart therefrom in any respect without first
obtaining the express prior written approval of the Licensor. The Licensee
shall make submissions to the Licensor and obtain approvals in the manner
required above each time new or revised concept, layouts, descriptions,
artwork, models, prototype samples or Production Samples are created,
developed or adopted by or for the Licensee. It is acknowledged that the
Licensor is approving of the Licensed Product and the Promotional and
Packaging Material as part of its overall
10
<PAGE>
licensing program and may in its discretion refuse to consent to any change
or modification to a Licensed Product or to the Promotional and Packaging
Material even if such change or modification improves the quality or
standard of the Licensed Product or the Promotional or Packaging Material.
(l) To assure that the provisions of this Agreement are being observed, the
Licensee agrees that it will allow the Licensor or its designates to enter
the Licensee's premises and use its best efforts to allow Licensor to enter
the premises where the Licensed Products or the Promotional and Packaging
Materials are being manufactured during regular business hours and upon not
less than two (2) days notice, for the purpose of inspecting the Licensed
Products and the Promotional and Packaging Material and the facilities in
which the Licensed Products and Promotional and Packaging Material are
being manufactured and in which the Licensed Products are being packaged.
(m) In the event that the quality standards or trademark, patent and
copyright usage and notice requirements hereinabove referred to are not met
or maintained throughout the various stages of Exploitation of any Licensed
Products hereunder, then, upon receipt of written notice from the Licensor,
the Licensee shall immediately discontinue any and all of those stages of
Exploitation of the Licensed Products in connection with which the said
quality standards or trademark, patent and copyright usage and notice
requirements have not been met.
(n) The Licensee shall adhere to the Approvals Format set forth in Schedule
"H" attached hereto. Requests for approvals shall be submitted sufficiently
in advance to allow the Licensor the time provided in the Approvals Format
within which to consider the request. Licensee may submit any number of
approval requests at the same time and does not have to wait until a
previous approval request has been answered before submitting a subsequent
approval request. If the Licensee requests any approval (not including
minor revisions resulting from partial disapproval of earlier approval
request) on an expedited basis abridging the time for approvals set forth
in the Approvals Format, subject to prior notice from the Licensor, such
request shall be accompanied by a payment to the Licensor to help defray
the extra costs of the Licensor in the amount of Seven Thousand Five
Hundred Dollars ($7,500.00 U.S.) if approval is required within twenty-four
(24) hours of request, Five Thousand Dollars ($5,000.00 U.S.) if approval
is required within forty-eight (48) hours of request and Two Thousand Five
Hundred Dollars ($2,500.00 U.S.) if approval is required within seventy-two
(72) hours of request. The Licensor may at its option comply with the
Licensee's request for expedited approval but nothing herein, including
receipt of the amounts specified above, shall obligate or bind the Licensor
to do so. If Licensor is unable to comply with Licensee's request for
expedited approval, Licensor shall return the payment (or whatever portion
thereof, for example where 24 hour request approved within 72 hours) made
by Licensee for such expedited approval.
8. OWNERSHIP OF RIGHTS
-------------------
(a) It is understood and agreed that the Licensor is the sole and exclusive
owner of all right, title and interest in and to the Property.
11
<PAGE>
(b) Nothing contained in this Agreement shall be construed as an assignment
to the Licensee of any right, title or interest in and to the Property or
any part thereof, it being understood that all right, title and interest
relating thereto are expressly reserved by the Licensor except for the
rights that are expressly licensed hereunder.
(c) No license as to any products other than with respect to the Licensed
Products and only in the Licensed Territory is being granted hereunder and
Licensor reserves for its own use, all rights of any kind whether now known
or subsequently discovered other than the rights herein licensed to the
Licensee. Licensee recognizes that Licensor may already have entered into,
and may in the future enter into, license agreements with respect to the
Property for products which fall into the same general product category as
one or more of the Licensed Products and which may be similar to but not
the same as one or more of the Licensed Products in terms of use, function,
or otherwise, and the Licensee hereby expressly concedes that the existence
of said licenses does not and shall not constitute a breach of this
Agreement by the Licensor.
(d) The Licensee shall not use the Licensor's name or the Property other
than as permitted hereunder and, in particular, shall not incorporate the
Licensor's name or the Property in the Licensee's corporate or business
name in any manner whatsoever. The Licensee agrees that in using the
Property, it will in no way represent that it has any rights, title or
interest in or to the Property other than those expressly granted herein.
The Licensee further agrees that it will not use or authorize the use,
either during or after the Term of this Agreement of any configuration,
trademark, trade name or other designation confusingly similar to the
Licensor's name or the Property.
9. GOODWILL AND PROMOTIONAL VALUE
------------------------------
(a) The Licensee recognizes the value of the goodwill associated with the
Property and acknowledges that the Property and all rights therein and the
goodwill pertaining thereto, belong exclusively to the Licensor. The
Licensee further recognizes and acknowledges that the Property has acquired
secondary meaning in the mind of the public. The Licensee agrees that
during any Term of this Agreement and thereafter, it will not attack the
title of any rights of the Licensor in and to the Property or the validity
of the license being granted herein.
(b) The Licensee agrees that its use of the Property shall enure to the
benefit of the Licensor and that the Licensee shall not, at any time,
acquire any rights in or to the Property by virtue of any use it may make
of the Property.
(c) The Licensee acknowledges that the Licensor is entering into this
Agreement not only in consideration of the Royalties paid hereunder but
also for the promotional value to be secured by the Licensor in the
Property as a result of the Exploitation of the Licensed Products by the
Licensee. Accordingly, the Licensee acknowledges that its failure to
Exploit the Licensed Products in accordance with
12
<PAGE>
the provisions of this Agreement or to fulfil the Licensee's obligations
under the provisions thereof will result in immediate and irreparable
damages to the Licensor in connection with the promotion of the Property
and that the Licensor will have no adequate remedy at law for the failure
by the Licensee to abide by such provisions of this Agreement. Accordingly,
the Licensee agrees that in the event of any breach by the Licensee, the
Licensor, in addition to all other remedies available to it hereunder,
shall be entitled to injunctive relief against any such breach as well as
such other relief as any court with jurisdiction may deem just and proper.
10. TRADEMARK, PATENT, AND COPYRIGHT PROTECTION
-------------------------------------------
(a) The License granted hereunder is conditioned upon the Licensee's full
and complete compliance with the provisions of the trademark, patent, and
copyright laws of Canada and the United States and the foreign country or
countries in the Licensed Territory. The Licensee agrees to keep records of
and advise the Licensor when each of the Licensed Products is first sold in
each country in the Licensed Territory.
(b) The Licensor has the right, but not the obligation, to obtain at its
own cost, appropriate trademark, patent, and copyright protection for the
Property.
(c) The Licensee shall cooperate with the Licensor in protecting and
defending the Property. In the event that any claim or problem arises with
respect to the protection of the Property in the Licensed Territory, the
Licensee shall promptly advise the Licensor in writing of the nature and
extent of same. The Licensor has no obligation to take any action
whatsoever in the event that any claim or problem arises with respect to
the protection of the Property. The Licensor shall have the election,
however, to proceed with counsel of its own choice. Alternatively, the
Licensor may, at the Licensor's own expense, have the Licensee proceed on
its behalf with respect to any such claim or problem, provided, however,
that the Licensor's prior express written permission shall be obtained by
the Licensee prior to incurring any costs chargeable to the Licensor in
connection therewith.
(d) The Licensee agrees that it shall not any time apply for any copyright,
trademark or patent protection which would affect the Licensor's ownership
of any rights in the Property nor file any document with any governmental
authority or take any other action which could potentially affect the
Licensor's ownership of the Property, or aid or abet anyone else in doing
so.
11. INFRINGEMENTS
-------------
(a) The Licensee agrees to assist the Licensor in the enforcement of any
rights of the Licensor in the Property. The Licensor, if it so desires, may
commence or prosecute any claims or suits in its own name or in the name of
the Licensee or join the Licensee as a party thereto. The Licensee agrees
to notify the Licensor in writing of any infringements or imitations by
third parties of the Property, the Licensed Products or the Promotional and
Packaging Material which may come to the Licensee's attention. The Licensor
shall
13
<PAGE>
have the sole right to determine whether or not any action shall be taken
on account of any such infringement or imitation. The Licensee agrees not
to contact the third party, not to make any demands or claims, not to
institute any suit nor take any other action on account of such
infringements or imitations without first obtaining the prior express
written permission of the Licensor, which permission shall not be
unreasonably withheld. All costs and expenses, including attorneys' fees,
incurred in connection with any suit instituted by the Licensee without the
consent of the Licensor shall be borne solely by the Licensee.
(b) With respect to all claims and suits, including suits in which the
Licensee is joined as a party, the Licensor shall have the sole right to
employ counsel of its choosing and to direct the handling of the litigation
and any settlement thereof. The Licensor and Licensee shall share equally
in all amounts awarded as damages, profits or otherwise in connection with
such suits. All costs and expenses, including legal fees and disbursements,
incurred in connection with any suit instituted by the Licensee shall be
borne solely by the Licensee.
12. INDEMNIFICATION
---------------
(a) Licensee hereby agrees to be solely responsible for, defend, hold
harmless and indemnify the Licensor and its directors, officers, employees
and agents from and against any claims, demands, suits, losses, damages and
expenses thereof (including reasonable attorneys' fees and disbursements)
arising out of, or resulting from:
(i) the acts or omissions of Licensee;
(ii) breach of this Agreement by Licensee;
(iii) the use of team symbols, names, insignias, logos or marks;
(iv) allegations of unauthorized use of any patent, process, idea,
method, material or device by the Licensee relating to Licensee's
design or Exploitation of the Licensed Products or the Promotional and
Packaging Material; or
(v) alleged defects in the Licensed Products or Promotional and
Packaging Material or of any other products or services of the
Licensee;
Licensee shall be given prompt written notice of and shall have the right
to undertake and conduct the defense of any such claim, demand, suit or
cause of action. The Licensor shall have the right to defend any such
claim, demand, suit or cause of action with attorneys of its own selection.
In any instance to which the foregoing indemnities pertain, Licensee shall
keep Licensor fully advised of all developments and shall not enter into a
settlement of such claim or action without Licensor's prior written
approval, which shall not be unreasonably withheld.
14
<PAGE>
(b) Licensor hereby agrees to be solely responsible for, defend, hold
harmless and indemnify Licensee, its directors, officers, employees and
agents from and against any losses, damages and expenses thereof (including
reasonable attorneys' fees and disbursements) arising out of, or resulting
from:
(i) a judgment resulting from a claim that the use of the Property as
authorized in this Agreement violates or infringes upon the trademark,
copyright or other rights of a third party in or to the Property; or
(ii) a breach of this Agreement by Licensor.
Licensor shall be given prompt written notice of and shall have the right
to undertake and conduct the defense of any such claim, demand, suit or
cause of action. The Licensee shall have the right to defend any such
claim, demand, suit or cause of action with attorneys of its own selection.
In any instance to which the foregoing indemnities pertain, Licensor shall
keep Licensee fully advised of all developments and shall not enter into a
settlement of such claim or action without Licensee's prior written
approval, which shall not be unreasonably withheld.
13. INSURANCE
---------
The Licensee shall, throughout the Term of this Agreement, obtain and
maintain at its own cost and expense from a qualified insurance company
acceptable to the Licensor acting reasonably, standard Product Liability
Insurance, the form of which must be acceptable to the Licensor, naming the
Licensor as an additional named insured. Such policy shall provide
protection against any and all claims, demands and causes of action arising
out of any defects or failure to perform, alleged or otherwise, of the
Licensed Products or any material used in connection therewith or any use
thereof. The amount of coverage shall be a minimum of Two Million Dollars
($2,000,000) combined single limit, with no deductible amount, for each
single occurrence for bodily injury and for property damage. The policy
shall provide for ten (10) days notice to the Licensor from the insurer by
Registered or Certified Mail, return receipt requested, in the event of any
modification, cancellation or termination. The Licensee agrees to furnish
the Licensor a certificate of insurance evidencing same within thirty (30)
days after execution of this Agreement and in no event shall the Licensee
Exploit the Licensed Products prior to receipt by the Licensor of such
evidence of insurance.
14. EXPLOITATION BY THE LICENSEE
----------------------------
(a) The Licensee agrees to commence distribution, shipment and sale of at
least one brand of the Licensed Products in commercially reasonable
quantities in North America by November 1, 1996.
(b) The Licensee further agrees that during the entire Term of this
Agreement, the Licensee will continue to diligently and continuously
distribute, ship and sell the Licensed Products throughout North
15
<PAGE>
America and that it will use its best reasonable efforts to make and
maintain adequate arrangements for the distribution, shipment and sale
necessary to meet the demand for all such Licensed Products throughout
North America. The Licensee further agrees to exercise all reasonable
efforts to advertise and promote the Licensed Products at its own expense
throughout the Term as widely as practicable within North America to the
advantage and enhancement of the Property.
(c) The Licensee agrees that the Licensed Products will be sold, shipped
and distributed outright, at a competitive price that does not exceed the
price generally and customarily charged in the particular trade, and not on
an approval or consignment basis. The Licensee will not discriminate
against the Licensed Products by granting commissions or discounts to
salesmen, dealers or distributors in favor of Licensee's other products.
The Licensee further agrees that the Licensed Products will only be sold to
jobbers, wholesalers and distributors for sale, shipment and distribution
to retail stores and merchants or to retail stores and merchants for sale,
shipment and distribution direct to the public.
(d) The Licensee agrees to provide Licensor, at least thirty (30) days
before the release or distribution of any Licensed Products, with a written
forecast of the projected sales of such Licensed Products.
(e) The Licensee agrees to provide Licensor, free of charge and within
seven (7) days of Licensee's initial shipment of the Licensed Products, one
hundred (100) copies of each card in the entire set of cards produced by
the Licensee pursuant to this License along with the equivalent of ten (10)
cases (each case containing twenty (20) boxes with thirty-six (36) packs
per box) of each of the Licensed Products.
(f) The Licensee further agrees to sell to the Licensor, if requested to do
so by the Licensor, up to ten (10) cases of each of said Licensed Products
at fifty percent (50%) of Licensee's customary net selling price for such
Licensed Product.
15. PREMIUMS, PROMOTIONS AND SECONDS
--------------------------------
(a) The Licensee shall not utilize or license third parties to utilize any
of the Licensed Products in connection with any premium, giveaway, mail
order, sales at arenas, promotional arrangement or fan club without the
prior written approval of the Licensor.
(b) Except where their trading card requirements are previously satisfied,
the Licensor shall refer and recommend its trading card licensees to actual
and potential promotional licensees seeking to employ trading cards in
their promotions. The Licensor shall further provide its trading card
licensees with notification of the issuance of promotional licenses which
authorize the use of trading cards in promotional activities.
(c) The Licensee agrees not to offer for sale, sell, ship, advertise,
promote, distribute or use for any purpose whatsoever or to permit any
third party to offer for sale, sell, ship, advertise, promote, distribute
or use for any purpose whatsoever any Licensed Product or Promotional and
Packaging Material relating to
16
<PAGE>
the Licensed Products which is (i) damaged, defective, seconds or otherwise
fails to meet the specifications and quality standards or trademark, patent
and copyright usage and notice requirements of this Agreement, or (ii) to
be sold as a package with, tied to or in conjunction with any other
products or services.
16. ASSIGNABILITY AND SUBLICENSING
------------------------------
(a) The License granted hereunder is and shall be personal to the Licensee
and shall not be assigned by any act of the Licensee or by operation of law
or otherwise encumbered. Any transfer of a controlling interest in Licensee
shall be deemed an assignment prohibited by the preceding sentence. The
Licensee shall not have the Licensed Products manufactured for the Licensee
by a third party or grant any sublicense unless the Licensee first obtains
the Licensor's prior written approval and such manufacturer shall have
signed an agreement in the form attached hereto as Schedule "G". Any
attempt on the part of Licensee to arrange for manufacture by a third party
or to sublicense or assign to third parties its rights under this Agreement
without the prior written approval of the Licensor shall constitute a
material breach of this Agreement and shall result in the right of the
Licensor to immediately terminate this Agreement at its option.
(b) The Licensor shall have the right to assign its rights and obligations
under this Agreement without the approval of the Licensee.
17. TERMINATION
-----------
The following termination rights are in addition to the termination rights
provided elsewhere in this Agreement:
(a) Immediate Right of Termination - The Licensor shall have the right to
------------------------------
immediately terminate this Agreement by giving written notice to the
Licensee if the Licensee does any of the following:
(i) Exploits in any way any Licensed Product or Promotional and
Packaging Material without having the prior written approval of the
Licensor as provided for by the provisions of this Agreement or
continues to Exploit in any way any Licensed Product or Promotional and
Packaging Material after receipt of notice from the Licensor
disapproving or withdrawing approval of same;
(ii) Becomes subject to any voluntary or involuntary order of any
governmental agency involving the recall of any of the Licensed
Products or Promotional and Packaging Material because of safety,
health or other hazards or risks to the public;
(iii) Breaches any of the provisions of this Agreement relating to the
unauthorized assertion of rights in the Property;
17
<PAGE>
(iv) Fails to make timely payment, for two consecutive months, of
Royalties or Guaranteed Minimum Royalty when due or fails to make
timely submissions of Royalty statements when due;
(v) Breaches any of the provisions of this Agreement prohibiting the
Licensee from directly or indirectly arranging for manufacture by
third parties, assigning, transferring, sublicensing or otherwise
encumbering this Agreement or any of its rights or obligations
thereunder;
(vi) Fails to obtain the insurance required by the provisions of this
Agreement; or
(vii) Files a petition in bankruptcy or is adjudicated a bankrupt, or
if a petition in bankruptcy is filed against the Licensee or if the
Licensee becomes insolvent, or makes an assignment for the benefit of
its creditors or an arrangement pursuant to any bankruptcy laws, or if
Licensee discontinues its business, or if a receiver is appointed for
it or its business. In the event of such termination, neither Licensee
nor its receivers, representatives, trustees, agents, administrators,
successors or assigns shall have any right to sell, exploit or in any
way deal with the rights granted hereunder or with any Licensed
Product or Promotional and Packaging Material.
(b) Right to Terminate on Notice - On the occurrence of one of the
------------------------------
following events, this Agreement may be terminated by either party upon
thirty (30) days written notice to the other party, provided that during
the thirty (30) day period, the defaulting party fails to cure the breach:
(i) The Licensor shall have the right to terminate the portion(s) of
this Agreement relating to any Licensed Products and any country or
countries in the Licensed Territory if the Licensee, for any reason,
after the commencement of Exploitation of such Licensed Products in
such country or countries, fails to continue to Exploit such Licensed
Products in commercially acceptable quantities in such country or
countries for two consecutive Reporting Periods.
(ii) The Licensor shall have the right to terminate this Agreement if
the Licensee violates any of its obligations under this Agreement
including, without limitation, its payment obligations.
(iii) Either party shall have the right to terminate this Agreement in
the event that the other party commits a material breach of any other
provision of this Agreement and said material breach is not cured
within the thirty (30) day notice period.
(iv) The Licensor shall have the right to terminate this Agreement if
the Licensee or its controlling shareholders or any of its officers,
directors or employees take any actions in connection with the
Exploitation of the Licensed Products or the Promotional and Packaging
Material which in the reasonable opinion of the Licensor, damages or
reflects adversely upon the Licensor or the Property;
18
<PAGE>
(v) The Licensor shall have the right to terminate the portion(s) of
this Agreement relating to any Licensed Product(s) and any country or
countries in the Licensed Territory in connection with which the
Licensee, for any reason, fails to commence sale, shipment and
distribution of any such Licensed Product(s) in any such country or
countries in accordance with the terms of this Agreement
18. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS
------------------------------------------------------
(a) If this Agreement is terminated under paragraph 17(a) and/or (b), the
Licensee and its receivers, representatives, trustees, agents,
administrators, successors and permitted assigns of the Licensee shall have
no right to Exploit the Licensed Products or to use in any way any
Promotional and Packaging Material relating to the Licensed Products.
(b) Upon termination, or expiration of this Agreement, as the case may be,
notwithstanding anything to the contrary herein, all Royalties on sales,
shipments and/or distributions theretofore made shall become immediately
due and payable and no Guaranteed Minimum Royalty paid to Licensor shall be
refunded.
(c) After termination or expiration of this Agreement, as the case may be,
under any provision other than paragraph 17(a) or 17(b), the Licensee shall
immediately cease to manufacture the Licensed Product, provided that the
Licensee may dispose or liquidate the Licensed Products which are on hand
at the time notice of termination is received or upon the expiration of the
then in effect Term, but only in the normal course of business and within
20% of regular wholesale prices, for a period of ninety (90) days after
notice of termination or such expiration, as the case may be, and further
provided that the Royalties with respect to that period are paid and the
appropriate statements are furnished for that period in accordance with the
terms of this Agreement. During such ninety (90) day period, the Licensor
may itself use or license the use of the Property in any manner and at any
time anywhere in the world, as the Licensor sees fit.
(d) After the expiration or termination of this Agreement, all rights
granted to the Licensee shall forthwith revert to the Licensor who shall be
free to license others to use the Property in connection with the
Exploitation of the Licensed Products and the Licensee shall refrain from
further use of the Property or any further reference to it, either directly
or indirectly, in connection with any use of any of the Licensee's
products. The Licensee shall further turn over to the Licensor all artwork,
films, transparencies, separations, printing plates and molds and other
materials which reproduce the Licensed Products and Promotional and
Packaging Material relating to the Licensed Products or shall give the
Licensor satisfactory evidence of their destruction or storage for
safekeeping with express written approval of Licensor. The Licensee shall
be responsible to the Licensor for any damages caused by the unauthorized
use by the Licensee or by others of such artwork, films, transparencies,
separations, printing plates and molds or reproduction materials which are
not turned over to the Licensor.
(e) The Licensee acknowledges that its failure to cease the Exploitation of
the Licensed Products or use in any way of the Promotional and Packaging
Material relating to the Licensed Products at the
19
<PAGE>
termination or expiration of this Agreement will result in immediate and
irreparable damage to the Licensor and to the rights of any subsequent
licensee of the Licensor. The Licensee acknowledges and admits that there
is not an adequate remedy at law for failure to cease such activities and
the Licensee agrees that in the event of such failure, the Licensor shall
be entitled to equitable relief by way of injunctive relief and such other
relief as any court with jurisdiction may deem just and proper.
19. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
----------------------------------------------
Within fifteen (15) days after termination or expiration of this Agreement,
as the case may be, the Licensee shall deliver to the Licensor a statement
indicating the number and description of the Licensed Products which it had
on hand or in the process of manufacturing as of the expiration or
termination date. The Licensor shall have the option of conducting a
physical inventory during normal business hours at the time of expiration
or termination or at a later date in order to ascertain or verify such
statement. In the event that the Licensee refuses to permit the Licensor to
conduct such physical inventory, the Licensee shall forfeit its rights
hereunder to dispose of such inventory. In addition to such forfeiture, the
Licensor shall have recourse to all other remedies available to it.
20. CONFIDENTIALITY
---------------
Each party agrees not to divulge, permit or cause its employees or agents
to publicize or divulge to any third party any information or materials
reasonably designated in writing as "confidential", except as may be
required by law or to fulfil contractual obligations, without the prior
written consent of the other party. The foregoing obligations shall not
apply to information that has become generally known in the industry or
independently received from a third party under no duty not to disclose
such information.
21. RECITALS CORRECT
----------------
The parties hereto acknowledge and agree that the recitals contained in
this Agreement are true and correct as of the date first above written.
22. NOTICES
-------
All notices or other communications or deliveries required or desired to be
sent to either party shall be in writing and sent by Registered or
Certified Mail, postage prepaid, return receipt requested, or by facsimile
or telegram charges prepaid to the following addresses:
20
<PAGE>
If to the Licensor: NHLPA
One Dundas Street West
Suite 2300
Toronto, Ontario
M5G 1Z3
Attention: Ted Saskin
If to the Licensee: Donruss Trading Card Company
924 Avenue J East
Grand Prairie, TX 75050
Attention: Jerry M. Meyer
Either party may change such address by notice in writing to the other
party.
23. RELATIONSHIP OF THE PARTIES
---------------------------
This Agreement does not create a partnership or joint venture between the
parties and the Licensee shall have no power to obligate or bind the
Licensor in any manner whatsoever.
24. APPLICABLE LAW AND DISPUTES
---------------------------
(a) Choice of Law. This Agreement shall be governed by the law of
---------------
Ontario, Canada. It is further agreed that all disputes, controversies or
differences whatsoever arising under, in connection with or incident to the
business relationship of which the Agreement is a part shall be governed
exclusively by the laws of Ontario, Canada, except to the extent forbidden
by the public policy of the Licensee's home province or state; Licensee
hereby expressly waives any other benefit, use or right to which it might
otherwise be entitled under the laws of any province, state or nation other
than Ontario, Canada.
(b) Choice of Forum.
----------------
(i) It is hereby agreed by and between the parties to this Agreement
that, subject to the exception set forth in subparagraph (ii) hereof,
all disputes, controversies or differences whatsoever arising under,
in connection with or incident to this Agreement or the business
relationship of which the Agreement is a part shall be litigated, if
at all, exclusively in and before a court located in the Province of
Ontario, Canada, and in no other court of any other province, state
or nation. Further, Licensee hereby attorns to the jurisdiction and
judgment of the courts of the Province of Ontario, Canada, and agrees
that any judgment or other ruling issued by an Ontario court shall be
enforceable in any other jurisdiction in which the Licensee may be
found.
21
<PAGE>
(ii) Licensor may bring suit against Licensee in a forum other than
Ontario, Canada, provided that (a) such suit is solely for an
injunction to enforce the terms and conditions of this Agreement and
is not for damages; and (b) such suit is brought against Licensee in
a Canadian province or territory, or in an American state or
district, in which Licensee is doing business; and (c) Licensee is
not a citizen of Ontario and would not otherwise be directly subject
to an injunction issued by an Ontario court.
25. CAPTIONS
--------
The captions used in connection with the paragraphs and subparagraphs of
this Agreement are inserted only for purpose of reference. Such captions
shall not be deemed to govern, limit, modify or in any other manner affect
the scope, meaning or intent of the provisions of this Agreement or any
part thereof nor shall such captions otherwise be given any legal effect.
26. WAIVER
------
(a) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver by such party of a subsequent breach or default of a like
or similar nature.
(b) Resort by either party hereto to any remedies referred to in this
Agreement or arising by reason of a breach of this Agreement by the other
party shall not be construed as a waiver by the non-breaching party of its
right to resort to any and all other legal and equitable remedies available
to such party. Further, failure on the part of either party to resort to
any remedies referred to herein shall not be construed as a waiver of any
other rights and remedies to which such party is entitled, whether under
the terms of this Agreement or otherwise.
27. SURVIVAL OF THE RIGHTS
----------------------
Notwithstanding anything to the contrary contained herein, such obligations
which remain executory after expiration of the Term of this Agreement shall
remain in full force and effect until discharged by performance and such
rights as pertain thereto shall remain in force until their expiration.
28. SEVERABILITY
------------
In the event that any term or provision of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term
or provision and this Agreement shall be interpreted and construed as if
such term or provision, to the extent that same shall have been held to be
invalid, illegal or unenforceable, had never been contained herein.
22
<PAGE>
29. TIME OF THE ESSENCE
-------------------
Time is of the essence with respect to all aspects of this Agreement.
Extension, waiver or variation of any provision of this Agreement shall not
be deemed to affect this provision and there shall be no implied waiver of
this provision.
30. ENTIRE AGREEMENT
----------------
This Agreement represents the entire understanding between the parties
hereto with respect to the subject matter hereof and this Agreement
supersedes all previous representations, understandings or agreements, oral
or written, between the parties with respect to the subject matter hereof
and cannot be modified except by a written instrument signed by the parties
hereto.
By their execution below, the parties hereto have agreed to all of the
terms and conditions of this Agreement.
DONRUSS TRADING CARD COMPANY
per: /s/ Jerry M. Meyer
---------------------------------------
THE NATIONAL HOCKEY LEAGUE
PLAYERS' ASSOCIATION
per: /s/ Ted Saskin
-----------------------------------
Ted Saskin
Senior Director
Business Affairs and Licensing
23
<PAGE>
SCHEDULE A
----------
DESCRIPTION OF THE PROPERTY
The trademarks of the Licensor as set forth in Schedule "B" and the names,
likenesses, pictures, photographs, facsimiles, signatures, descriptions, playing
records, nicknames, and biographical sketches of all active NHL players who have
executed a Group Licensing Authorization Agreement.
24
<PAGE>
SCHEDULE B
----------
LIST OF TRADEMARKS
NHLPA
National Hockey League Players Association
[logo]
25
<PAGE>
SCHEDULE C
----------
LIST OF LICENSED PRODUCTS
1. Up to two (2) releases per season of The Leaf Set brand hockey player
trading cards bearing likenesses of NHLPA members.*
2. Up to two (2) releases per season of DonRuss brand (or equivalent type)
hockey player trading cards bearing likenesses of NHLPA members.*
* Only identical versions of each brand may be sold throughout North America
(language translations require written approval of Licensor). Limited print run
insert sets may vary by distribution channel and territory.
26
<PAGE>
SCHEDULE D
----------
LICENSED TERRITORY
Worldwide
27
<PAGE>
SCHEDULE E
----------
LOGO OF LICENSOR
28
<PAGE>
SCHEDULE F - PAGE 1
ROYALTY REPORT FOR THE NATIONAL HOCKEY LEAGUE PLAYERS' ASSOCIATION
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
LICENSEE: _________________ Date Prepared: ____________________ Prepared By: ___________________
ADDRESS: __________________ Period Covered: ____________________ Signature: ___________________
__________________ Contract Term: _____________________ Print Name: ___________________
<CAPTION>
Month Royalty Due Royalty Due Royalty Due Royalty Due Total Minimum Total Royalty
95/96 Product 96/97 Product 97/98 Product 98/99 Product Royalty Due Guarantee Paid Due
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July
August
September
October
November
December
January
February
March
April
May
June
TOTALS:
</TABLE>
<PAGE>
SCHEDULE F - PAGE 2
ROYALTY REPORT FOR THE NATIONAL HOCKEY LEAGUE PLAYERS' ASSOCIATION
- ------------------------------------------------------------------
TOTALS
- ------
LICENSEE: _________________ Date Prepared: ________ Prepared By: __________
ADDRESS: _________________ Period Covered: ________ Signature: __________
_________________ Contract Term: _________ Print Name: ___________
- ---------------
Month Gross Sales Discounts Returns Net Sales
July
August
September
October
November
December
January
February
March
April
May
June
TOTALS:
SCHEDULE F - PAGE 3
ROYALTY REPORT FOR THE NATIONAL HOCKEY LEAGUE PLAYERS' ASSOCIATION
- ------------------------------------------------------------------
LICENSEE: _________________ Date Prepared: ________ Prepared By: __________
ADDRESS: _________________ Period Covered: ________ Signature: __________
_________________ Contract Term: _________ Print Name: ___________
- ---------------
- ---------------
<TABLE>
Item Description Stock Wholesale Quantity Gross Sales Less Returns Less Permitted Net Sales Royalty Royalty Due
95/96 Product Number Price Per Shipped Discounts Rate
Unit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
TOTALS:
<PAGE>
SCHEDULE G
----------
MANUFACTURER'S AGREEMENT
------------------------
Licensee: The DonRuss Trading Card Company
Licensed Territory: Worldwide
Licensed Products:
The undersigned understands that the National Hockey League Players Association
("NHLPA") has authorized the above-named Licensee to manufacture the above-named
Licensed Products utilizing certain names, logos, symbols, likenesses,
signatures and pictures which are the property of NHLPA ("the Rights"). In order
to induce NHLPA to consent to the manufacture of the Licensed Products by the
undersigned, the undersigned agrees that, without the prior written consent of
NHLPA in each instance, it will not manufacture the Licensed Products for anyone
but the Licensee; that it will not sell the Licensed Products to anyone but the
Licensee; that it will not knowingly manufacture the Licensed Products for
distribution in any territory other than the above-named Licensed Territory;
that it will not (unless NHLPA otherwise consents in advance in writing)
manufacture any other merchandise utilizing any aspect of the Rights; that it
will permit such representatives as NHLPA may from time to time designate to
inspect the activities of the undersigned with relation to its manufacture of
the Licensed Products; and that whenever the Licensee ceases to require the
undersigned to manufacture the Licensed Products, the undersigned will return to
the Licensee any molds, plates, engravings, or other devices used to reproduce
any of the Rights or at the direction of the Licensee will give satisfactory
evidence of the destruction thereof. NHLPA shall be entitled to invoke any
remedy permitted by law for violation of this agreement by the undersigned.
[NAME OF MANUFACTURER]:
By: ____________________________
Title: ___________________________
<PAGE>
SCHEDULE H
----------
APPROVALS FORMAT
I. (a) Submission of Set Outline
-------------------------
- subsets
- proposed packaging
- proposed advertising, sales materials and point of sale
marketing plans
- number of cards in the set
- commingling requests
(b) NHLPA Approval
--------------
- two (2) weeks after receipt of each item
II. (a) Submission of Player List
-------------------------
- companies to set out a player usage chart identifying each
proposed use of any player in, but not limited to, the following:
regular cards, subsets, advertisements, point of sale materials.
(b) NHLPA Approval
--------------
- two (2) weeks after receipt of each item
III. (a) Submission of Photos and Biographical Descriptions
--------------------------------------------------
- all text copy, statistics, and biographical descriptions
- color photos
(b) NHLPA Approval
--------------
- two (2) weeks after receipt of each item
IV. (a) Submission of Bluelines/Chromalins/Matchprints
----------------------------------------------
- both front and backs in final colour
<PAGE>
(b) NHLPA Approvals
---------------
- two (2) weeks after receipt of each item
V. (a) Submission of Packaging - Point of Sale/Final Artwork
-----------------------------------------------------
(b) NHLPA Approvals
---------------
- ten (10) days after receipt of each item
VI. (a) Submission of Press Release/Advertisements including
----------------------------------------------------
Television Advertisements
-------------------------
(b) NHLPA Approvals
---------------
- ten (10) days after receipt of each item
EXHIBIT 10.21
R-36
LICENSE AGREEMENT made the 19th day of March, 1993
B E T W E E N:
SCORE GROUP, INC., a corporation incorporated under the
laws of Delaware with offices at 924 Avenue J East,
Grand Prairie, Texas, 75050 (the "Licensee")
OF THE FIRST PART
- and -
THE NATIONAL HOCKEY LEAGUE PLAYERS ASSOCIATION, an
unincorporated association under the laws of Ontario,
with offices at 1 Dundas Street West, Suite 2406,
Toronto, Ontario, M5G 1Z3, (the "Licensor")
OF THE SECOND PART
WITNESSETH:
WHEREAS, the Licensor is the owner of certain proprietary rights in
and to the property described in Schedule "A" attached hereto (the "Property");
AND WHEREAS, the Licensee desires to use the Property on or in
association with the manufacture, packaging, offering for sale, sale,
advertising, promotion, shipment and distribution (the "Exploitation") of
certain products identified in Schedule
<PAGE>
"C" attached hereto (the "Licensed Products") in the territory identified in
Schedule "D" attached hereto (the "Licensed Territory");
AND WHEREAS, the Licensor is willing to grant the Licensee such right
to use the Property on the Licensed Products in the Licensed Territory in
accordance with the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants
and conditions herein contained, it is hereby agreed as follows:
1. REPRESENTATIONS
---------------
(a) The Licensor represents that it has been duly appointed and is acting
on behalf of all active hockey players of the National Hockey League ("NHL") who
have entered into a Group Licensing Authorization Agreement with the Licensor,
and that in such capacity it has the right to negotiate this Agreement and the
right to grant the rights described herein.
(b) The Licensor further represents that the Licensor has not entered
into and will not enter into any agreement, right or obligation which will
prevent the Licensee from exercising the rights granted to the Licensee
hereunder.
(c) The Licensor represents that all Major Card Licenses (a "Major Card
License" allows production of more than 20,000 equivalent cases (10,800 cards))
effective during the term of this Agreement will have a royalty rate of no less
than ** on North American sales and annual guarantees of no less than ** U.S.
and will be subject to the same number of brand and release restrictions as set
out in Schedule C. Licensor further represents that no Major Card License shall
have a more favorable royalty rate than Licensee on sales outside of North
America. The Licensor further represents that, with the exception of Fleer
Corp., all Major Card Licenses will contain the same other material terms and
conditions set out in this
_______________
** Confidential information deleted.
2
<PAGE>
Agreement. From time to time during the term of this Agreement, but no more
than once per contract year, the Licensee shall have the right during reasonable
business hours, and upon reasonable notice to the Licensor, to have an
independent auditor examine the Licensor's Major Card Licenses for the purpose
of verifying the Licensor's compliance with this paragraph 1(c). In the event a
Major Card Licensee is granted a more favorable royalty rate than Licensee for a
certain territory, Licensee's royalty rate shall be reduced to the equivalent of
the more favorable rate for the same territory. Licensees new royalty rate
shall be effective on the date such rate became effective with the Major Card
Licensee.
(d) The Licensor makes no further warranties or representations, other
than those expressly made herein.
2. GRANT
-----
(a) The Licensor hereby grants to the Licensee a non-exclusive, non-
transferable, non-assignable license, without the right to grant sub-licenses,
to use the Property solely on or in association with the Exploitation of the
Licensed Products solely within the Licensed Territory (the "License").
Licensee agrees it will include at least one card in its Licensed Products for
each of at least seventy-five percent (75%) of all active NHL players who have
entered into a Group Licensing Authorization Agreement with the Licensor and it
will not include the name or likeness of any individual NHL player on more than
one percent (1%) of the total number of different cards in each set of Licensed
Product without express written approval from Licensor.
(b) The rights, licenses and privileges granted by the Licensor hereunder
shall not constitute or be used by the Licensee as a personal testimonial or
endorsement by all or any of the players or by the Licensor, of any Licensed
Product or any other product or service. In the event that Licensee is
interested in securing an individual player's personal endorsement, it is
understood and acknowledged that such endorsement will require the personal
approval of the individual player involved and a separate payment directly to
him, independent of, and in addition to, all payments due to the Licensor under
the terms of this Agreement.
3
<PAGE>
(c) Licensee acknowledges and agrees that with respect to current and
former NHL players with whom Licensee may enter into endorsement, spokesperson
or promotional agreements, Licensee agrees as follows:
(i) Licensee may enter into an exclusive endorsement, spokesman or
promotional agreement with an active NHL player (or player who
has been under contract but has not yet announced his
retirement), provided that the agreement shall include the
following terms and conditions:
"Exclusive shall mean that the player shall refrain from
granting to any other manufacturer or distributor of hockey
trading cards the endorsement, as a spokesman, of the player for
use in advertising and/or promotion of trading cards or other
licensed products. The parties acknowledge and agree that the
Player's name and likeness may appear on the hockey trading
cards and related products of other NHLPA-licensed
manufacturers, that they will continue to do so, and that no
such grant of rights with respect to any competing product shall
constitute a breach of this Agreement."
Licensee shall notify NHLPA prior to concluding an agreement and
provide a copy of the agreement to NHLPA within five days of
execution.
(ii) Licensor acknowledges and agrees that Licensee may enter into an
agreement with a former NHL player on an exclusive basis as to
endorsement, spokesperson or promotion rights. Licensee
acknowledges and agrees that if this former NHL player re-enters
the NHL to again become an active player, Licensee shall be
bound, with respect to such player, to the provisions of
sub-paragraph (i) above.
Licensee shall notify NHLPA prior to concluding an agreement and
provide a copy of the agreement to NHLPA within five days of
execution.
4
<PAGE>
(d) Nothing contained in sub-paragraph (b) above shall prevent the
Licensee from utilizing the names and/or likenesses of the players in a non-
endorsement and/or non-testimonial manner in connection with the packages,
cartons, advertising, point of sale and/or promotional materials for the
Licensed Products (the "Promotional and Packaging Materials") or require any
separate payment in connection therewith, provided that, unless specifically
authorized in advance by the Licensor in writing, the names and/or likenesses of
a minimum of eight (8) such players are utilized with equal prominence on the
Promotional and Packaging Materials for all Licensed Products during the Term of
this Agreement; and the Licensee agrees to rotate the players who are so
utilized in connection with such materials so as not to highlight any particular
player or group of players to the exclusion of others.
(e) Licensee shall have no right to sell the Licensed Products in
combination with, or to include in the same package or container with the
Licensed Products, any item or product, whether of a nature similar to or
different from the Licensed Products, which does not employ the Property and
which has not been specifically approved by Licensor in advance in writing.
(f) The Licensee agrees and acknowledges that any NHL player may elect to
be excluded from this Agreement provided that the Licensor agrees that in each
year of the Term not less than seventy-five percent (75%) of the active NHL
players on the official NHL All-Star Team will be included as part of this
Agreement, failing which the Guaranteed Minimum Annual Royalty for that year
shall be reduced in the ratio that the actual percentage of active NHL players
on the All-Star Team that year included in this Agreement is to seventy-five
(75). By way of example, if only seventy percent (70%) of the active NHL
players on the All-Star Team are included in this Agreement, the Guaranteed
Minimum Annual Royalty for that year shall be adjusted as follows:
70 divided by 75 x Guaranteed Minimum Annual Royalty.
In addition to the provisions set forth above, in the event the general quantity
and quality of the players included as part of
5
<PAGE>
this Agreement in any contract year are not consistent with the general quantity
and quality of the players included in the immediately preceding contract year,
the Licensor and the Licensee shall enter into good faith discussions to
determine whether an adjustment of the Guaranteed Minimum Annual Royalty is
appropriate.
(g) The Licensor makes no representation that it has the authority to
grant nor does it grant herein, the right to utilize team or league symbols,
insignias or logos. Accordingly, it is understood by the parties hereto that if
likenesses of players depicting any such team or league material is to be
utilized in the exercise of the license granted hereunder, it will be the
responsibility of the Licensee to obtain permission for the use of such
material.
(h) The License granted herein includes finished Licensed Products
packaged for retail sale only and does not include the right to sell Licensed
Products in unfinished state or in bulk quantities unless otherwise approved by
Licensor in advance in writing.
(i) All rights not expressly granted to the Licensee in this Agreement
are specifically reserved to the Licensor.
3. TERM
----
The Term of this Agreement shall extend from July 1, 1993 to June 30,
1998 (the "Term") unless earlier terminated in accordance with the provisions
hereof.
4. ROYALTY PAYMENT
---------------
(a) The Licensee agrees to pay the Licensor a Royalty of ** based on Net
Sales of the Licensed Products by the Licensee. Such Royalties shall accrue
when the Licensed Products are sold, shipped, distributed, billed or paid for,
whichever occurs earliest.
__________________
** Confidential information deleted.
6
<PAGE>
(b) Royalty payments shall be made by the Licensee to the Licensor on all
Licensed Products sold, shipped or distributed by the Licensee, less only
quantity discounts and returns, based upon the Licensee's usual net sales price
for such Licensed Products sold to third parties (who are not affiliated in any
way with Licensee) in the course of the Licensee's normal distribution, shipment
and sales activities.
(c) Where the billed price for any Licensed Products is less than the
usual net sales price for such Licensed Products sold to third parties in the
course of the Licensee's normal distribution, shipment and sales activities, the
Royalty payments shall be based upon the Licensee's usual net sales price.
(d) The Licensee further agrees to pay the Licensor a non-refundable,
minimum guaranteed annual royalty of ** for its use of the rights licensed
hereunder during each year of the Term (the "Guaranteed Minimum Annual
Royalty"). The Guaranteed Minimum Annual Royalty shall be paid as follows:
(i) ** by July 2, 1993;
(ii) ** by October 15,
(iii) ** by December 15,
(iv) ** by February 15,
(v) ** by April 15,
(vi) ** by July 15, 1994;
(vii) ** by October 15,
(viii) ** by December 15,
(ix) ** by February 15,
______________
** Confidential information deleted.
7
<PAGE>
(x) ** by April 15,
(xi) ** by July 15, 1995;
(xii) ** by October 15,
(xiii) ** by December 15,
(xiv) ** by February 15,
(xv) ** by April 15,
(xvi) ** by July 15, 1996;
(xvii) ** by October 15,
(xviii) ** by December 15,
(xix) ** by February 15,
(xx) ** by April 15,
(xxi) ** by July 15, 1997;
(xxii) ** by October 15,
(xxiii) ** by December 15,
(xxiv) ** by February 15,
(xxv) ** by April 15,
(e) The Guaranteed Minimum Royalty payments shall be made by the Licensee
as specified above, whether or not the Licensee uses the rights licensed
hereunder, and no part of such guaranteed payments shall be repayable to the
Licensee except as specifically recited herein.
_______________
** Confidential information deleted.
8
<PAGE>
(f) Royalty payments based on Net Sales made during any year of this
Agreement shall be credited against the Guaranteed Minimum Royalty due for the
year in which such Net Sales were made. In no event shall any Royalties received
in excess of the Guaranteed Minimum Royalty for the year in which Net Sales were
made be used as a credit against past or future Royalty obligations of the
Licensee nor shall any such excess be applied against the Guaranteed Minimum
Royalty for any other year of this Agreement.
(g) "Net Sales" shall mean gross sales less quantity discounts and
returns actually credited, adjusted in accordance with sub-paragraph 4(b)
hereof. No deductions shall be made for cash or other discounts, for
commissions, for uncollectible accounts, for taxes, fees, assessments,
impositions, payments or expenses of any kind which may be incurred or paid by
the Licensee in connection with the Royalty payments due to the Licensor
hereunder or in connection with a transfer of funds or Royalties or with the
conversion of any currency into United States Dollars, or for any costs incurred
in the Exploitation of the Licensed Products. If any tax is imposed on the
Licensor by any country with respect to Royalties payable to the Licensor, the
Licensee shall compute and pay the Royalties due to the Licensor hereunder on
the basis of the gross amount involved before the deduction of any taxes. If
the Licensee is required to withhold from any Royalty payment due to the
Licensor in an amount representing taxes imposed on the Licensor pursuant to the
laws of any country, the Licensee shall nevertheless have the obligation to make
up the amount of said tax making its Royalty payment to the Licensor hereunder.
(h) The Licensee represents to the Licensor that it is not a resident of
Canada and has not registered in Canada for purposes of the Goods and Services
Tax.
(i) It is acknowledged that it is the preference of the Licensor to grant
licenses for a term of no more than three (3) years. However, at the request of
the Licensee, the Licensor is willing to and has granted the license herein for
a term longer than three (3) years on the condition, and both parties so agree,
9
<PAGE>
that after three (3) years of the Term, the Licensor may at its option upon
notice to the Licensee re-open the issue of the royalty percentage provided for
in paragraph 4(a) hereof. Forthwith after such notice, the parties shall
discuss in good faith whether it is appropriate to amend such royalty percentage
having regard to the then-current market conditions such as the royalty
percentage then being charged by the Licensor to other trading card licensees
and the royalty percentages being charged by other licensors in similar
circumstances; provided that nothing herein shall in any way obligate the
Licensee to agree to or pay a different royalty rate than that specified in this
Agreement.
5. STATEMENTS AND PAYMENTS
-----------------------
(a) The Licensee shall deliver to the Licensor promptly upon the 15th day
of every month during the entire Term of this Agreement, and thereafter in
accordance with paragraph 18 hereof, a complete and accurate statement in the
form attached hereto as Schedule "F", certified to be accurate by an officer of
the Licensee, showing the number, description and gross sales price, of the
Licensed Products distributed or sold by the Licensee during the preceding
calendar month ("Reporting Period") together with any returns made during the
Reporting Period. Such statements shall be furnished to the Licensor whether or
not any of the Licensed Products have been purchased during the Reporting Period
for which such statement is due. Further, the Licensee shall pay to the
Licensor on or before the 15th day of every month during the entire Term of this
Agreement, all Royalties earned under the terms hereof for the Reporting Period.
The receipt or acceptance by the Licensor of any statement or of any Royalty
paid hereunder (or the cashing of any Royalty check paid hereunder) shall not
preclude the Licensor from questioning the correctness thereof at any time, and
in the event that any inconsistencies or mistakes are discovered in connection
therewith, they shall immediately be rectified and the appropriate payment made
by the Licensee to the Licensor.
(b) Time is of the essence with respect to all payments to be made
hereunder by the Licensee. Interest at a rate of the lesser of one and one-half
percent (1.5%) per month, or the maximum rate
10
<PAGE>
allowed by law, shall accrue on any amount due the Licensor hereunder from and
after the date upon which the payment is due until the date of receipt of
payment.
(c) All payments made hereunder with respect to sales within Canada and
the United States shall be in United States currency. All payments made
hereunder with respect to sales outside Canada and the United States shall be
calculated in accordance with sub-paragraph (d) and shall be in United States
currency.
(d) If the Licensed Territory includes countries outside the United
States and Canada, the statement shall be broken down by countries and all Net
Sales shall be stated in the currency of the country where they were made,
followed by the equivalent amount of such Net Sales in United States currency,
followed by the exchange rate applied.
(e) All transactions under this Agreement, including without limitation,
all payments of Royalties and all notices, reports, statements, approvals and
other communications, shall be with or made payable in the name of the Licensor,
or its designated assigns, if applicable.
6. BOOKS AND RECORDS/AUDIT
-----------------------
(a) The Licensee agrees to keep accurate books of account and records at
its principal place of business covering all transactions relating to the
license being granted herein. The Licensor or any duly authorized
representative shall have the right, at all reasonable hours of the day and upon
three (3) business days' notice, to audit the Licensee's books of account and
records and all other documents and material in the possession or under the
control of the Licensee with respect to the subject matter and the terms of this
Agreement and to make copies and extracts thereof. Licensor agrees not to
disclose information obtained from audit to any other Licensees of Licensor. In
the event that any such audit reveals an underpayment by the Licensee, the
Licensee shall immediately remit payment to the Licensor in the amount of such
underpayment plus interest calculated at the rate of the lesser of one and one-
half percent (1.5%) per month, or the maximum rate allowed by
11
<PAGE>
law, compounded daily, calculated from the date such payment(s) were actually
due until the date when such payment is, in fact, actually made. Further, in
the event that any such underpayment is greater than two percent (2%) of the
royalties due for any Reporting Period, the Licensee shall reimburse the
Licensor for the costs and expenses of such audit.
(b) Upon demand by the Licensor, but not more than once each year, the
Licensee shall, at its own cost, furnish the Licensor with a detailed statement,
prepared by an independent certified public accountant of the Licensee's choice
and approved by the Licensor, which approval shall not be unreasonably withheld,
setting forth the number of Licensed Products manufactured during the time
period extending from the date of any previous statement (or in the case of the
first statement, the date of the commencement of this Agreement) up to and
including the date of the statement and also setting forth the pricing
information for all Licensed Products (including the number and description of
the Licensed Products) shipped, distributed and sold by the Licensee during the
aforementioned time period.
(c) All books of account and records of the Licensee covering all
transactions relating to the Licensee shall be retained by the Licensee for at
least three (3) years after the expiration or termination of this Agreement, as
the case may be, for possible inspection by the Licensor.
7. QUALITY, NOTICES, APPROVALS, AND SAMPLES
----------------------------------------
(a) A list of players to be included in the Property for purposes of this
Agreement shall be established and, specifically subject to the provisions of
paragraph 2(e) above, may be modified in the following manner:
(i) The Licensee and the Licensor shall agree upon a list of
players' names at least sixty (60) days prior to the start
of each hockey season during the Term of this Agreement.
(ii) The Licensor shall notify the Licensee from time to time of
any NHL players who are added or excluded
12
<PAGE>
from the Property for purposes of this Agreement and the
Licensee shall use its best efforts to remove such players'
cards from the set at the earliest possible time.
(b) The quality of the Licensed Products as well as the quality of all
Promotional and Packaging Material shall be at least as high as the best quality
of similar products and promotional, advertising and packaging material
presently shipped, distributed, sold or used by the Licensee in the Licensed
Territory and shall be in full conformance with all applicable laws and
regulations.
(c) The Licensee may not Exploit any Licensed Product nor any Promotional
and Packaging Material until it has received written approval of same in the
manner provided herein from the Licensor. Such approval may be granted or
withheld as the Licensor, in its sole discretion, may determine. Should the
Licensor fail to approve in writing any of the submissions furnished to it by
the Licensee within fourteen (14) days from the date of submission thereof, such
failure shall be considered to be a disapproval thereof.
(d) Before commencing or authorizing third parties to commence the design
or development of Licensed Products or of Promotional and Packaging Material
which have not been previously approved in writing by the Licensor, the Licensee
shall submit at its own cost to the Licensor, for approval, a description of the
concept of the same, including full information on the nature and function of
the proposed item and a general description of how the Property and other
material will be used thereon. The Licensee shall next submit at its own cost to
the Licensor, for approval, complete layouts and descriptions of the proposed
Licensed Products and
13
<PAGE>
Promotional and Packaging Material showing exactly how and where the Property
and all other art work and wording will be used. Thereafter, the Licensee shall
submit at its own cost to the Licensor, for approval, pre-production models or
prototype samples of the proposed Licensed Products and Promotional and
Packaging Material. Finally, the Licensee shall submit at its own cost to the
Licensor, for approval, actual production samples of the proposed Licensed
Products and Promotional and Packaging Material (the "Production Samples"). The
Licensee shall not proceed beyond any of the above stages where approval is
required without first securing the prior express written approval of the
Licensor.
(e) The Licensee agrees that all Licensed Products and all Promotional
and Packaging Material shall contain appropriate legends, markings and notices
as required from time to time by the Licensor, in order to give appropriate
notice to the consuming public of the Licensor's right, title and interest
thereto. The Licensee agrees that, unless otherwise expressly approved in
writing by the Licensor, each usage of the trademarks set forth in Schedule "B"
(the "Trademarks") shall be followed by either the TM or the R Trademark Notice
symbol, as directed by Licensor. Additionally, the Licensee shall place or cause
to be placed the following legends at least once on each Licensed Product and on
each piece of Promotional and Packaging Material:
Copyright or (C) NHLPA (year - date) tm and R
Designate Trademarks of Licensor and are used,
under license, by Score Group, Inc.
provided that the Licensee may identify itself as the owner of the copyright in
the Licensed Product.
(f) The Licensee shall further imprint or cause to be imprinted on every
Licensed Product and on each piece of Promotional and Packaging Material the
logo of the Licensor, as illustrated in Schedule "E" of this Agreement, and also
the following:
"Officially Licensed Product of the National Hockey League
Players Association".
(g) Where patent protection is either pending or has been granted for any
portion of the Property, the Licensee shall further include the appropriate
patent notice on all Licensed Products and on all pieces of Promotional and
Packaging Material.
(h) The Licensee shall use no markings, legends or notices on or in
association with the Licensed Products or on or in association with the
Promotional and Packaging Material other
14
<PAGE>
than those specified above or such other markings, legends or notices as may
from time to time be specified by the Licensor, without first obtaining the
Licensor's prior express written approval in the manner provided herein, which
approval may not be unreasonably withheld.
(i) Upon commencement of manufacture, shipment and distribution of the
Licensed Products and Promotional and Packaging Material after all required
approvals have been given by the Licensor, the Licensee shall submit, at its own
cost, an additional five (5) sets of the aforementioned Production Samples of
the Licensed Products and copies of all Promotional and Packaging Material to
the Licensor.
(j) The Licensor may, from time to time during the Term of this
Agreement, require that the Licensee submit to the Licensor, at no cost to the
Licensor, up to five (5) additional sets of Production Samples of the Licensed
Products or the Promotional and Packaging Material for subsequent review of the
quality of and copyright, patent and trademark usage and notice on same and for
any other purpose that the Licensor, in its sole discretion, deems appropriate.
(k) After the required approval of the Production Samples has been
secured, the Licensee shall not depart therefrom in any respect without first
obtaining the express prior written approval of the Licensor. The Licensee shall
make submissions to the Licensor and obtain approvals in the manner required
above each time new or revised concept, layouts, descriptions, art work, models,
prototype samples or Production Samples are created, developed or adopted by or
for the Licensee. It is acknowledged that the Licensor is approving of the
Licensed Product and the Promotional and Packaging Material as part of its
overall licensing program and may in its discretion refuse to consent to any
change or modification to a Licensed Product or to the Promotional and Packaging
Material even if such change or modification improves the quality or standard of
the Licensed Product or the Promotional or Packaging Material.
(l) To assure that the provisions of this Agreement are being observed,
the Licensee agrees that it will allow the Licensor or
15
<PAGE>
its designates to enter the Licensee's premises and use its best efforts to
allow Licensor to enter the premises where the Licensed Products or the
Promotional and Packaging Materials are being manufactured during regular
business hours and upon not less than two (2) days notice, for the purpose of
inspecting the Licensed Products and the Promotional and Packaging Material and
the facilities in which the Licensed Products and Promotional and Packaging
Material are being manufactured and in which the Licensed Products are being
packaged.
(m) In the event that the quality standards or trademark, patent and
copyright usage and notice requirements hereinabove referred to are not met or
maintained throughout the various stages of Exploitation of any Licensed
Products hereunder, then, upon receipt of written notice from the Licensor, the
Licensee shall immediately discontinue any and all of those stages of
Exploitation of the Licensed Products in connection with which the said quality
standards or trademark, patent and copyright usage and notice requirements have
not been met.
(n) The Licensee shall adhere to the Approvals Format set forth in
Schedule "H" attached hereto. Requests for approvals shall be submitted
sufficiently in advance to allow the Licensor the time provided in the Approvals
Format within which to consider the request. Licensee may submit any number of
approval requests at the same time and does not have to wait until a previous
approval request has been answered before submitting a subsequent approval
request. If the Licensee requests any approval (not including minor revisions
resulting from partial disapproval of earlier approval request) on an expedited
basis abridging the time for approvals set forth in the Approvals Format,
subject to prior notice from the Licensor, such request shall be accompanied by
a payment to the Licensor to help defray the extra costs of the Licensor in the
amount of Seven Thousand Five Hundred Dollars ($7,500.00) if approval is
required within twenty-four (24) hours of request, Five Thousand Dollars
($5,000.00) if approval is required within forty-eight (48) hours of request and
Two Thousand Five Hundred Dollars ($2,500.00) if approval is required within
seventy-two (72) hours of request. The Licensor may at its option comply with
the Licensee's request for expedited approval but nothing herein, including
receipt of the amounts
16
<PAGE>
specified above, shall obligate or bind the Licensor to do so. If Licensor is
unable to comply with Licensee's request for expedited approval, Licensor shall
return the payment (or whatever portion thereof, for example where 24 hour
request approved within 72 hours) made by Licensee for such expedited approval.
8. OWNERSHIP OF RIGHTS
-------------------
(a) It is understood and agreed that the Licensor is the sole and exclusive
owner of all right, title and interest in and to the Property.
(b) Nothing contained in this Agreement shall be construed as an
assignment to the Licensee of any right, title or interest in and to the
Property or any part thereof, it being understood that all right, title and
interest relating thereto are expressly reserved by the Licensor except for the
rights that are expressly licensed hereunder.
(c) No license as to any products other than with respect to the Licensed
Products and only in the Licensed Territory is being granted hereunder and
Licensor reserves for its own use, all rights of any kind whether now known or
subsequently discovered other than the rights herein licensed to the Licensee.
Licensee recognizes that Licensor may already have entered into, and may in the
future enter into, license agreements with respect to the Property for products
which fall into the same general product category as one or more of the Licensed
Products and which may be similar to but not the same as one or more of the
Licensed Products in terms of use, function, or otherwise, and the Licensee
hereby expressly concedes that the existence of said licenses does not and shall
not constitute a breach of this Agreement by the Licensor.
(d) The Licensee shall not use the Licensor's name or the Property other
than as permitted hereunder and, in particular, shall not incorporate the
Licensor's name or the Property in the Licensee's corporate or business name in
any manner whatsoever. The Licensee agrees that in using the Property, it will
in no way represent that it has any rights, title or interest in or to the
17
<PAGE>
Property other than those expressly granted herein. The Licensee further agrees
that it will not use or authorize the use, either during or after the Term of
this Agreement of any configuration, trademark, trade name or other designation
confusingly similar to the Licensor's name or the Property.
9. GOODWILL AND PROMOTIONAL VALUE
------------------------------
(a) The Licensee recognizes the value of the goodwill associated with the
Property and acknowledges that the Property and all rights therein and the
goodwill pertaining thereto, belong exclusively to the Licensor. The Licensee
further recognizes and acknowledges that the Property has acquired secondary
meaning in the mind of the public. The Licensee agrees that during any Term of
this Agreement and thereafter, it will not attack the title of any rights of the
Licensor in and to the Property or the validity of the license being granted
herein.
(b) The Licensee agrees that its use of the Property shall enure to the
benefit of the Licensor and that the Licensee shall not, at any time, acquire
any rights in or to the Property by virtue of any use it may make of the
Property.
(c) The Licensee acknowledges that the Licensor is entering into this
Agreement not only in consideration of the Royalties paid hereunder but also for
the promotional value to be secured by the Licensor in the Property as a result
of the Exploitation of the Licensed Products by the Licensee. Accordingly, the
Licensee acknowledges that its failure to Exploit the Licensed Products in
accordance with the provisions of this Agreement or to fulfil the Licensee's
obligations under the provisions thereof will result in immediate and
irreparable damages to the Licensor in connection with the promotion of the
Property and that the Licensor will have no adequate remedy at law for the
failure by the Licensee to abide by such provisions of this Agreement.
Accordingly, the Licensee agrees that in the event of any breach by the
Licensee, the Licensor, in addition to all other remedies available to it
hereunder, shall be entitled to injunctive relief against any such breach as
well as such other relief as any court with jurisdiction may deem just and
proper.
18
<PAGE>
10. TRADEMARK, PATENT, AND COPYRIGHT PROTECTION
-------------------------------------------
(a) The License granted hereunder is conditioned upon the Licensee's full
and complete compliance with the provisions of the trademark, patent, and
copyright laws of Canada and the United States and the foreign country or
countries in the Licensed Territory. The Licensee agrees to keep records of and
advise the Licensor when each of the Licensed Products is first sold in each
country in the Licensed Territory.
(b) The Licensor has the right, but not the obligation, to obtain at its
own cost, appropriate trademark, patent, and copyright protection for the
Property.
(c) The Licensee shall cooperate with the Licensor in protecting and
defending the Property. In the event that any claim or problem arises with
respect to the protection of the Property in the Licensed Territory, the
Licensee shall promptly advise the Licensor in writing of the nature and extent
of same. The Licensor has no obligation to take any action whatsoever in the
event that any claim or problem arises with respect to the protection of the
Property. The Licensor shall have the election, however, to proceed with counsel
of its own choice. Alternatively, the Licensor may, at the Licensor's own
expense, have the Licensee proceed on its behalf with respect to any such claim
or problem, provided, however, that the Licensor's prior express written
permission shall be obtained by the Licensee prior to incurring any costs
chargeable to the Licensor in connection therewith.
(d) The Licensee agrees that it shall not any time apply for any
copyright, trademark or patent protection which would affect the Licensor's
ownership of any rights in the Property nor file any document with any
governmental authority or take any other action which could potentially affect
the Licensor's ownership of the Property, or aid or abet anyone else in doing
so.
19
<PAGE>
11. INFRINGEMENTS
-------------
(a) The Licensee agrees to assist the Licensor in the enforcement of any
rights of the Licensor in the Property. The Licensor, if it so desires, may
commence or prosecute any claims or suits in its own name or in the name of the
Licensee or join the Licensee as a party thereto. The Licensee agrees to notify
the Licensor in writing of any infringements or imitations by third parties of
the Property, the Licensed Products or the Promotional and Packaging Material
which may come to the Licensee's attention. The Licensor shall have the sole
right to determine whether or not any action shall be taken on account of any
such infringement or imitation. The Licensee agrees not to contact the third
party, not to make any demands or claims, not to institute any suit nor take any
other action on account of such infringements or imitations without first
obtaining the prior express written permission of the Licensor, which permission
shall not be unreasonably withheld. All costs and expenses, including attorneys'
fees, incurred in connection with any suit instituted by the Licensee without
the consent of the Licensor shall be borne solely by the Licensee.
(b) With respect to all claims and suits, including suits in which the
Licensee is joined as a party, the Licensor shall have the sole right to employ
counsel of its choosing and to direct the handling of the litigation and any
settlement thereof. The Licensor and Licensee shall share equally in all amounts
awarded as damages, profits or otherwise in connection with such suits. All
costs and expenses, including legal fees and disbursements, incurred in
connection with any suit instituted by the Licensee shall be borne solely by the
Licensee.
12. INDEMNIFICATION
---------------
(a) Licensee hereby agrees to be solely responsible for, defend, hold
harmless and indemnify the Licensor and its directors, officers, employees and
agents from and against any claims, demands, suits, losses, damages and expenses
thereof (including reasonable attorneys' fees and disbursements) arising out of,
or resulting from:
20
<PAGE>
(i) the acts or omissions of Licensee;
(ii) breach of this Agreement by Licensee;
(iii) the use of team symbols, names, insignias, logos or marks;
(iv) allegations of unauthorized use of any patent, process, idea,
method, material or device by the Licensee relating to
Licensee's design or Exploitation of the Licensed Products or
the Promotional and Packaging Material; or
(v) alleged defects in the Licensed Products or Promotional and
Packaging Material or of any other products or services of the
Licensee;
Licensee shall be given prompt written notice of and shall have the
right to undertake and conduct the defense of any such claim, demand, suit
or cause of action. The Licensor shall have the right to defend any such
claim, demand, suit or cause of action with attorneys of its own
selection. In any instance to which the foregoing indemnities pertain,
Licensee shall keep Licensor fully advised of all developments and shall
not enter into a settlement of such claim or action without Licensor's
prior written approval, which shall not be unreasonably withheld.
(b) Licensor hereby agrees to be solely responsible for, defend, hold
harmless and indemnify Licensee, its directors, officers, employees and agents
from and against any losses, damages and expenses thereof (including reasonable
attorneys' fees and disbursements) arising out of, or resulting from:
(i) a judgment resulting from a claim that the use of the Property
as authorized in this Agreement violates or infringes upon the
trademark, copyright or other rights of a third party in or to
the Property; or
(ii) a breach of this Agreement by Licensor.
21
<PAGE>
Licensor shall be given prompt written notice of and shall have the
right to undertake and conduct the defense of any such claim, demand, suit
or cause of action. The Licensee shall have the right to defend any such
claim, demand, suit or cause of action with attorneys of its own
selection. In any instance to which the foregoing indemnities pertain,
Licensor shall keep Licensee fully advised of all developments and shall
not enter into a settlement of such claim or action without Licensee's
prior written approval, which shall not be unreasonably withheld.
13. INSURANCE
---------
(a) The Licensee shall, throughout the Term of this Agreement, obtain and
maintain at its own cost and expense from a qualified insurance company
acceptable to the Licensor acting reasonably, standard Product Liability
Insurance, the form of which must be acceptable to the Licensor, naming the
Licensor as an additional named insured. Such policy shall provide protection
against any and all claims, demands and causes of action arising out of any
defects or failure to perform, alleged or otherwise, of the Licensed Products or
any material used in connection therewith or any use thereof. The amount of
coverage shall be a minimum of Two Million Dollars ($2,000,000) combined single
limit, with no deductible amount, for each single occurrence for bodily injury
and for property damage. The policy shall provide for ten (10) days notice to
the Licensor from the insurer by Registered or Certified Mail, return receipt
requested, in the event of any modification, cancellation or termination. The
Licensee agrees to furnish the Licensor a certificate of insurance evidencing
same within thirty (30) days after execution of this Agreement and in no event
shall the Licensee Exploit the Licensed Products prior to receipt by the
Licensor of such evidence of insurance.
14. EXPLOITATION BY THE LICENSEE
----------------------------
(a) The Licensee agrees to commence distribution, shipment and sale of at
least one brand of the Licensed Products in commercially reasonable quantities
in North America by November 1, 1993.
22
<PAGE>
(b) The Licensee further agrees that during the entire Term of this
Agreement, the Licensee will continue to diligently and continuously distribute,
ship and sell the Licensed Products throughout North America and that it will
use its best reasonable efforts to make and maintain adequate arrangements for
the distribution, shipment and sale necessary to meet the demand for all such
Licensed Products throughout North America. The Licensee further agrees to
exercise all reasonable efforts to advertise and promote the Licensed Products
at its own expense throughout the Term as widely as practicable within North
America to the advantage and enhancement of the Property.
(c) The Licensee agrees that the Licensed Products will be sold, shipped
and distributed outright, at a competitive price that does not exceed the price
generally and customarily charged in the particular trade, and not on an
approval or consignment basis. The Licensee will not discriminate against the
Licensed Products by granting commissions or discounts to salesmen, dealers or
distributors in favor of Licensee's other products. The Licensee further agrees
that the Licensed Products will only be sold to jobbers, wholesalers and
distributors for sale, shipment and distribution to retail stores and merchants
or to retail stores and merchants for sale, shipment and distribution direct to
the public.
(d) The Licensee agrees to provide Licensor, at least thirty (30) days
before the release or distribution of any Licensed Products, with a written
forecast of the projected sales of such Licensed Products.
(e) The Licensee agrees to provide Licensor, free of charge and within
seven (7) days of Licensee's initial shipment of the Licensed Products, one
hundred (100) copies of each card in the entire set of cards produced by the
Licensee pursuant to this License along with the equivalent of ten (10) cases
(each case containing twenty (20) boxes with thirty-six (36) packs per box) of
each of the Licensed Products.
(f) The Licensee further agrees to sell to the Licensor, if requested to
do so by the Licensor, up to ten (10) cases of each
23
<PAGE>
of said Licensed Products at fifty percent (50%) of Licensee's customary net
selling price for such Licensed Product.
15. PREMIUMS, PROMOTIONS AND SECONDS
--------------------------------
(a) The Licensee shall not utilize or license third parties to utilize
any of the Licensed Products in connection with any premium, giveaway, mail
order, sales at arenas, promotional arrangement or fan club without the prior
written approval of the Licensor.
(b) Except where their trading card requirements are previously
satisfied, the Licensor shall refer and recommend its trading card licensees to
actual and potential promotional licensees seeking to employ trading cards in
their promotions. The Licensor shall further provide its trading card licensees
with notification of the issuance of promotional licenses which authorize the
use of trading cards in promotional activities.
(c) The Licensee agrees not to offer for sale, sell, ship, advertise,
promote, distribute or use for any purpose whatsoever or to permit any third
party to offer for sale, sell, ship, advertise, promote, distribute or use for
any purpose whatsoever any Licensed Product or Promotional and Packaging
Material relating to the Licensed Products which is (i) damaged, defective,
seconds or otherwise fails to meet the specifications and quality standards or
trademark, patent and copyright usage and notice requirements of this Agreement,
or (ii) to be sold as a package with, tied to or in conjunction with any other
products or services.
16. ASSIGNABILITY AND SUBLICENSING
------------------------------
(a) The License granted hereunder is and shall be personal to the
Licensee and shall not be assigned by any act of the Licensee or by operation of
law or otherwise encumbered. Any transfer of a controlling interest in Licensee
shall be deemed an assignment prohibited by the preceding sentence. The
Licensee shall not have the Licensed Products manufactured for the Licensee by a
third party or grant any sublicense unless the Licensee first obtains the
Licensor's prior written approval and such
24
<PAGE>
manufacturer shall have signed an agreement in the form attached hereto as
Schedule "G". Any attempt on the part of Licensee to arrange for manufacture by
a third party or to sublicense or assign to third parties its rights under this
Agreement without the prior written approval of the Licensor shall constitute a
material breach of this Agreement and shall result in the right of the Licensor
to immediately terminate this Agreement at its option.
(b) The Licensor shall have the right to assign its rights and
obligations under this Agreement without the approval of the Licensee.
17. TERMINATION
-----------
The following termination rights are in addition to the termination
rights provided elsewhere in this Agreement:
(a) Immediate Right of Termination - The Licensor shall have the right to
------------------------------
immediately terminate this Agreement by giving written notice to the Licensee if
the Licensee does any of the following:
(i) Exploits in any way any Licensed Product or Promotional and
Packaging Material without having the prior written
approval of the Licensor as provided for by the provisions
of this Agreement or continues to Exploit in any way any
Licensed Product or Promotional and Packaging Material
after receipt of notice from the Licensor disapproving or
withdrawing approval of same;
(ii) Becomes subject to any voluntary or involuntary order of
any governmental agency involving the recall of any of the
Licensed Products or Promotional and Packaging Material
because of safety, health or other hazards or risks to the
public;
25
<PAGE>
(iii) Breaches any of the provisions of this Agreement relating
to the unauthorized assertion of rights in the Property;
(iv) Fails to make timely payment, for two consecutive months,
of Royalties or Guaranteed Minimum Royalty when due or
fails to make timely submissions of Royalty statements when
due;
(v) Breaches any of the provisions of this Agreement
prohibiting the Licensee from directly or indirectly
arranging for manufacture by third parties, assigning,
transferring, sublicensing or otherwise encumbering this
Agreement or any of its rights or obligations thereunder;
(vi) Fails to obtain the insurance required by the provisions of
this Agreement; or
(vii) Files a petition in bankruptcy or is adjudicated a
bankrupt, or if a petition in bankruptcy is filed against
the Licensee or if the Licensee becomes insolvent, or makes
an assignment for the benefit of its creditors or an
arrangement pursuant to any bankruptcy laws, or if Licensee
discontinues its business, or if a receiver is appointed
for it or its business. In the event of such termination,
neither Licensee nor its receivers, representatives,
trustees, agents, administrators, successors or assigns
shall have any right to sell, exploit or in any way deal
with the rights granted hereunder or with any Licensed
Product or Promotional and Packaging Material.
(b) Right to Terminate on Notice - On the occurrence of one of the
----------------------------
following events, this Agreement may be terminated by either party upon thirty
(30) days written notice to the other party, provided that during the thirty
(30) day period, the defaulting party fails to cure the breach:
26
<PAGE>
(i) The Licensor shall have the right to terminate the
portion(s) of this Agreement relating to any Licensed
Products and any country or countries in the Licensed
Territory if the Licensee, for any reason, after the
commencement of Exploitation of such Licensed Products in
such country or countries, fails to continue to Exploit
such Licensed Products in commercially acceptable
quantities in such country or countries for two consecutive
Reporting Periods.
(ii) The Licensor shall have the right to terminate this
Agreement if the Licensee violates any of its obligations
under this Agreement including, without limitation, its
payment obligations.
(iii) Either party shall have the right to terminate this
Agreement in the event that the other party commits a
material breach of any other provision of this Agreement
and said material breach is not cured within the thirty
(30) day notice period.
(iv) The Licensor shall have the right to terminate this
Agreement if the Licensee or its controlling shareholders
or any of its officers, directors or employees take any
actions in connection with the Exploitation of the Licensed
Products or the Promotional and Packaging Material which in
the reasonable opinion of the Licensor, damages or reflects
adversely upon the Licensor or the Property;
(v) The Licensor shall have the right to terminate the
portion(s) of this Agreement relating to any Licensed
Product(s) and any country or countries in the Licensed
Territory in connection with which the Licensee, for any
reason, fails to commence sale, shipment and distribution
of any such Licensed Product(s) in any such country or
countries in accordance with the terms of this Agreement.
27
<PAGE>
18. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS
------------------------------------------------------
(a) If this Agreement is terminated under paragraph 17(a) and/or
(b), the Licensee and its receivers, representatives, trustees, agents,
administrators, successors and permitted assigns of the Licensee shall have no
right to Exploit the Licensed Products or to use in any way any Promotional and
Packaging Material relating to the Licensed Products.
(b) Upon termination, or expiration of this Agreement, as the case
may be, notwithstanding anything to the contrary herein, all Royalties on sales,
shipments and/or distributions theretofore made shall become immediately due and
payable and no Guaranteed Minimum Royalty paid to Licensor shall be refunded.
(c) After termination or expiration of this Agreement, as the case
may be, under any provision other than paragraph 17(a) or 17(b), the Licensee
shall immediately cease to manufacture the Licensed Product, provided that the
Licensee may dispose or liquidate the Licensed Products which are on hand at the
time notice of termination is received or upon the expiration of the then in
effect Term, but only in the normal course of business and within 20% of regular
wholesale prices, for a period of ninety (90) days after notice of termination
or such expiration, as the case may be, and further provided that the Royalties
with respect to that period are paid and the appropriate statements are
furnished for that period in accordance with the terms of this Agreement. During
such ninety (90) day period, the Licensor may itself use or license the use of
the Property in any manner and at any time anywhere in the world, as the
Licensor sees fit.
(d) After the expiration or termination of this Agreement, all
rights granted to the Licensee shall forthwith revert to the Licensor who shall
be free to license others to use the Property in connection with the
Exploitation of the Licensed Products and the Licensee shall refrain from
further use of the Property or any further reference to it, either directly or
indirectly, in connection with any use of any of the Licensee's products. The
Licensee shall further turn over to the Licensor all artwork, films,
transparencies, separations, printing plates and molds and other materials which
reproduce the Licensed Products and
28
<PAGE>
Promotional and Packaging Material relating to the Licensed Products or shall
give the Licensor satisfactory evidence of their destruction or storage for
safekeeping with express written approval of Licensor. The Licensee shall be
responsible to the Licensor for any damages caused by the unauthorized use by
the Licensee or by others of such artwork, films, transparencies, separations,
printing plates and molds or reproduction materials which are not turned over to
the Licensor.
(e) The Licensee acknowledges that its failure to cease the
Exploitation of the Licensed Products or use in any way of the Promotional and
Packaging Material relating to the Licensed Products at the termination or
expiration of this Agreement will result in immediate and irreparable damage to
the Licensor and to the rights of any subsequent licensee of the Licensor. The
Licensee acknowledges and admits that there is not an adequate remedy at law
for failure to cease such activities and the Licensee agrees that in the event
of such failure, the Licensor shall be entitled to equitable relief by way of
injunctive relief and such other relief as any court with jurisdiction may deem
just and proper.
19. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
----------------------------------------------
Within fifteen (15) days after termination or expiration of this
Agreement, as the case may be, the Licensee shall deliver to the Licensor a
statement indicating the number and description of the Licensed Products which
it had on hand or in the process of manufacturing as of the expiration or
termination date. The Licensor shall have the option of conducting a physical
inventory during normal business hours at the time of expiration or termination
or at a later date in order to ascertain or verify such statement. In the event
that the Licensee refuses to permit the Licensor to conduct such physical
inventory, the Licensee shall forfeit its rights hereunder to dispose of such
inventory. In addition to such forfeiture, the Licensor shall have recourse to
all other remedies available to it.
29
<PAGE>
20. CONFIDENTIALITY
---------------
Each party agrees not to divulge, permit or cause its employees or
agents to publicize or divulge to any third party any information or materials
reasonably designated in writing as "confidential", except as may be required by
law or to fulfil contractual obligations, without the prior written consent of
the other party. The foregoing obligations shall not apply to information that
has become generally known in the industry or independently received from a
third party under no duty not to disclose such information.
21. RECITALS CORRECT
----------------
The parties hereto acknowledge and agree that the recitals contained
in this Agreement are true and correct as of the date first above written.
22. NOTICES
-------
All notices or other communications or deliveries required or desired
to be sent to either party shall be in writing and sent by Registered or
Certified Mail, postage prepaid, return receipt requested, or by facsimile or
telegram charges prepaid to the following addresses:
If to the Licensor: NHLPA
1 Dundas Street West
Suite 2406
Toronto, Ontario
M5G 1Z3
Attention: Ted Saskin
If to the Licensee: Score Group, Inc.
924 Avenue J East
Grand Prairie, TX
75050
Attention: Jerry Meyer
Either party may change such address by notice in writing to the other party.
30
<PAGE>
23. RELATIONSHIP OF THE PARTIES
---------------------------
This Agreement does not create a partnership or joint venture between
the parties and the Licensee shall have no power to obligate or bind the
Licensor in any manner whatsoever.
24. APPLICABLE LAW AND DISPUTES
---------------------------
(a) Choice of Law. This Agreement shall be governed by the law of
--------------
Ontario, Canada. It is further agreed that all disputes, controversies or
differences whatsoever arising under, in connection with or incident to the
business relationship of which the Agreement is a part shall be governed
exclusively by the laws of Ontario, Canada, except to the extent forbidden by
the public policy of the Licensee's home province or state; Licensee hereby
expressly waives any other benefit, use or right to which it might otherwise be
entitled under the laws of any province, state or nation other than Ontario,
Canada.
(b) Choice of Forum.
----------------
(i) It is hereby agreed by and between the parties to this
Agreement that, subject to the exception set forth in
subparagraph (ii) hereof, all disputes, controversies or
differences whatsoever arising under, in connection with
or incident to this Agreement or the business
relationship of which the Agreement is a part shall be
litigated, if at all, exclusively in and before a court
located in the Province of Ontario, Canada, and in no
other court of any other province, state or nation.
Further, Licensee hereby attorns to the jurisdiction and
judgment of the courts of the Province of Ontario,
Canada, and agrees that any judgment or other ruling
issued by an Ontario court shall be enforceable in any
other jurisdiction in which the Licensee may be found.
(ii) Licensor may bring suit against Licensee in a forum
other than Ontario, Canada, provided that
31
<PAGE>
(a) such suit is solely for an injunction to enforce the
terms and conditions of this Agreement and is not for
damages; and (b) such suit is brought against Licensee
in a Canadian province or territory, or in an American
state or district, in which Licensee is doing business;
and (c) Licensee is not a citizen of Ontario and would
not otherwise be directly subject to an injunction
issued by an Ontario court.
25. CAPTIONS
--------
The captions used in connection with the paragraphs and subparagraphs
of this Agreement are inserted only for purpose of reference. Such captions
shall not be deemed to govern, limit, modify or in any other manner affect the
scope, meaning or intent of the provisions of this Agreement or any part thereof
nor shall such captions otherwise be given any legal effect.
26. WAIVER
------
(a) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver by such party of a subsequent breach or default of a like or
similar nature.
(b) Resort by either party hereto to any remedies referred to in this
Agreement or arising by reason of a breach of this Agreement by the other party
shall not be construed as a waiver by the non-breaching party of its right to
resort to any and all other legal and equitable remedies available to such
party. Further, failure on the part of either party to resort to any remedies
referred to herein shall not be construed as a waiver of any other rights and
remedies to which such party is entitled, whether under the terms of this
Agreement or otherwise.
27. SURVIVAL OF THE RIGHTS
----------------------
Notwithstanding anything to the contrary contained herein, such
obligations which remain executory after expiration of the Term of this
Agreement shall remain in full force and effect
32
<PAGE>
until discharged by performance and such rights as pertain thereto shall remain
in force until their expiration.
28. SEVERABILITY
------------
In the event that any term or provision of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision and this Agreement shall be interpreted and construed as if such term
or provision, to the extent that same shall have been held to be invalid,
illegal or unenforceable, had never been contained herein.
29. TIME OF THE ESSENCE
-------------------
Time is of the essence with respect to all aspects of this Agreement.
Extension, waiver or variation of any provision of this Agreement shall not be
deemed to affect this provision and there shall be no implied waiver of this
provision.
30. ENTIRE AGREEMENT
----------------
This Agreement represents the entire understanding between the
parties hereto with respect to the subject matter hereof and this Agreement
supersedes all previous representations, understandings or agreements, oral or
written, between the parties with respect to the subject matter hereof and
cannot be modified except by a written instrument signed by the parties hereto.
33
<PAGE>
By their execution below, the parties hereto have agreed to all of
the terms and conditions of this Agreement.
SCORE GROUP, INC.
per: /s/ Jerry M. Meyer
-------------------------------
Jerry Meyer,
Chairman
THE NATIONAL HOCKEY LEAGUE
PLAYERS' ASSOCIATION
per: /s/ Ted Saskin
-------------------------------
Ted Saskin,
Director of Licensing
34
<PAGE>
SCHEDULE A
----------
DESCRIPTION OF THE PROPERTY
The trademarks of the Licensor as set forth in Schedule "B" and the
names, likenesses, pictures, photographs, facsimiles, signatures, descriptions,
playing records, nicknames, and biographical sketches of all active NHL players
who have executed a Group Licensing Authorization Agreement.
35
<PAGE>
SCHEDULE B
----------
LIST OF TRADEMARKS
NHLPA
National Hockey League Players Association
[logo]
36
<PAGE>
SCHEDULE C
----------
LIST OF LICENSED PRODUCTS
1. Up to two (2) releases per season of Score Pinnacle brand hockey player
trading cards bearing likenesses of NHLPA members. *
2. Up to two (2) releases per season of Score basic brand hockey player
trading cards bearing likenesses of NHLPA members. *
* Only identical versions of each brand may be sold throughout North America
(language translations require written approval of Licensor). Limited
print run insert sets may vary by distribution channel and territory.
37
<PAGE>
SCHEDULE D
----------
LICENSED TERRITORY
Worldwide
38
<PAGE>
SCHEDULE E
----------
LOGO OF LICENSOR
39
<PAGE>
SCHEDULE F
Royalty Report for: National Hockey League Players' Association
One Dundas Street West
Suite 2406
Toronto, Ontario
M5G 1Z3
(416) 408-4040
Licensee: ___________________________________ Date: ______________________
___________________________________
___________________________________ Period Covered: ___________
<TABLE><CAPTION>
LESS
STOCK WHOLESALE QUANTITY PERMITTED LESS NET ROYALTY ROYALTY
NUMBER ITEM DESCRIPTION PRICE PER UNIT SHIPPED GROSS SALES DISCOUNTS RETURNS SALES RATE DUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
/ /We had no sales for the period TOTAL ROYALTY DUE: __________
but our product is scheduled LESS QUARANTEED: _________
to start shipping_____________________ ROYALTIES PAID TO DATE: _____
(DATE) AMOUNT DUE: ______________
THIS ROYALTY REPORT
WAS CERTIFIED BY: _________________________________
(Signature)
_______________________
(Title)
40
<PAGE>
SCHEDULE G
MANUFACTURER'S AGREEMENT
------------------------
Licensee: Score Group Inc.
Licensed Territory: Worldwide
Licensed Products:
The undersigned understands that the National Hockey League Players
Association ("NHLPA") has authorized the above-named Licensee to manufacture the
above-named Licensed Products utilizing certain names, logos, symbols,
likenesses, signatures and pictures which are the property of NHLPA ("the
Rights"). In order to induce NHLPA to consent to the manufacture of the
Licensed Products by the undersigned, the undersigned agrees that, without the
prior written consent of NHLPA in each instance, it will not manufacture the
Licensed Products for anyone but the Licensee; that it will not sell the
Licensed Products to anyone but the Licensee; that it will not knowingly
manufacture the Licensed Products for distribution in any territory other than
the above-named Licensed Territory; that it will not (unless NHLPA otherwise
consents in advance in writing) manufacture any other merchandise utilizing any
aspect of the Rights; that it will permit such representatives as NHLPA may from
time to time designate to inspect the activities of the undersigned with
relation to its manufacture of the Licensed Products; and that whenever the
Licensee ceases to require the undersigned to manufacture the Licensed Products,
the undersigned will return to the Licensee any molds, plates, engravings, or
other devices used to reproduce any of the Rights or at the direction of the
Licensee will give satisfactory evidence of the destruction thereof. NHLPA
shall be entitled to invoke any remedy permitted by law for violation of this
agreement by the undersigned.
[NAME OF MANUFACTURER]:
By:
-------------------------
Title:
----------------------
41
SCHEDULE H
----------
APPROVALS FORMAT
I. (a) Submission of Set Outline
-------------------------
- - subsets
- - proposed packaging
- - proposed advertising, sales materials and point of sale marketing plans
- - number of cards in the set
- - commingling requests
(b) NHLPA Approval
--------------
- - two (2) weeks after receipt of each item
II. (a) Submission of Player List
-------------------------
- - companies to set out a player usage chart identifying each proposed use of
any player in, but not limited to, the following: regular cards, subsets,
advertisements, point of sale materials
(b) NHLPA Approval
--------------
- - two (2) weeks after receipt of each item
III. (a) Submission of Photos and Biographical Descriptions
--------------------------------------------------
- - all text copy, statistics, and biographical descriptions
- - color photos
(b) NHLPA Approvals
---------------
- - two (2) weeks after receipt of each item
42
<PAGE>
IV. (a) Submission of Bluelines/Chromalins/Matchprints
----------------------------------------------
- - both front and backs in final color
(b) NHLPA Approvals
---------------
- - two (2) weeks after receipt of each item
V. (a) Submission of Packaging - Point of Sale/Final Artwork
-----------------------------------------------------
(b) NHLPA Approvals
---------------
- - ten (10) days after receipt of each item
VI. (a) Submission of Press Release/Advertisements including Television
---------------------------------------------------------------
Advertisements
--------------
(b) NHLPA Approvals
---------------
- - ten (10) days after receipt of each item
43
EXHIBIT 10.22
LICENSE AGREEMENT
THIS AGREEMENT is made as of the 31st day of December, 1994, in New
York, New York, by and between the Major League Baseball Players Association, an
unincorporated association under the laws of the State of New York, with offices
at 12 East 49th Street, New York, New York 10017 (hereinafter "MLBPA") and
DONRUSS TRADING CARDS, INC., a Delaware corporation, with offices located at 500
North Field Drive, Lake Forest, Illinois 60045.
WHEREAS, MLBPA is acting on behalf of all of the active baseball
players of the National League and the American League who have entered into a
commercial Authorization Agreement with the MLBPA (hereinafter "players"), and
who, upon being polled by the MLBPA, have not indicated they have granted a
license for products which would conflict with the license granted herein; and
WHEREAS, MLBPA in such capacity has the right to negotiate this
Agreement and to grant rights in and to the logo, name and symbol of MLBPA
identified in Schedule A hereto (the "Trademarks"), and the names, nicknames,
likenesses, signatures, pictures, playing records, and/or biographical data of
each
<PAGE>
player described in Schedule A hereto as part of a group (hereinafter "the
Rights"); and
WHEREAS, Licensee desires to use the Rights and/or the Trademarks on
or in association with the manufacture, offering for sale, sale, advertising,
promotion, and distribution of certain products identified in Schedule B (the
"Licensed Products") in the countries identified in Schedule B (the "Licensed
Territory"); and
WHEREAS, MLBPA is willing to grant Licensee such right to use the
Rights and/or the Trademarks on the Licensed Products in the Licensed Territory
in accordance with the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, it is hereby agreed as follows:
1. GRANT.
-----
(a) MLBPA hereby grants to Licensee and Licensee hereby accepts the
non-exclusive, non-transferable, non-assignable license, without the right to
grant sublicenses, to use the Rights and the Trademarks solely within the
Licensed Territory on the Licensed Products and/or in association with the
manufacture, offering for sale, sale, advertising, promotion,
2
<PAGE>
shipment and distribution of the Licensed Products (i) to jobbers, wholesalers
and distributors for resale, shipment and/or distribution to retail stores and
merchants; and/or (ii) to retail stores and merchants for sale, shipment and
distribution direct to the public; and/or (iii) direct to the public. Licensee
shall not knowingly distribute or sell the Licensed Products outside of the
Licensed Territory, nor shall Licensee sell any Licensed Products to any person,
firm or entity which Licensee has reason to believe will resell such Licensed
Products outside the Licensed Territory.
(b) MLBPA represents and warrants that it has the authority to grant
the rights licensed herein. MLBPA makes no representation that it has the
authority to grant, nor does it grant herein, the right to utilize team symbols,
insignias or logos, or the name, symbol, or logo of any other licensee of MLBPA,
or reproductions of any products produced by or for any other licensee of MLBPA.
Accordingly, it is understood by the parties hereto that if any of the foregoing
are to be utilized in connection with the exercise of the license granted
hereunder, including without limitation the likenesses of players utilizing team
logos, symbols or insignias, it will be the responsibility
3
<PAGE>
of Licensee to obtain all necessary permissions for the use of such material.
(c) Unless specifically authorized in advance by MLBPA in writing,
Licensee agrees to utilize with substantially equal prominence the names and
likenesses of a minimum of one hundred (100) players or, at MLBPA's direction, a
minimum of five (5) players per major league team, on Licensed Products during
the License Period (as defined herein). Licensee must provide the MLBPA with
thirty (30) days' written notice of the names of all players Licensee intends to
use on the Licensed Products prior to manufacture of such Licensed Products, and
Licensee may not use the name or likeness of any player on the Licensed Products
without the prior written consent of MLBPA, which shall not be unreasonably
withheld.
(d) The license granted by MLBPA to Licensee hereunder does not
include the right to, and Licensee shall not in any manner, use (or purport to
grant others the right to use) the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products as specifically approved by MLBPA pursuant hereto. The license granted
by MLBPA to Licensee herein does not include, and shall not be used by Licensee
so as to imply, a testimonial for or
4
<PAGE>
endorsement of the Licensed Products or any other product or service by all or
any of the players, or by the MLBPA. Nor does this license convey the right to
feature or highlight any individual player without the express written
permission of MLBPA. In the event Licensee is interested in highlighting any
player or in securing the personal endorsement or testimonial of any player,
Licensee understands and agrees that such will require execution of a separate
Highlight Agreement with such player and a separate payment to such player which
shall be made through the MLBPA and which shall be independent of and in
addition to all payments due to the MLBPA pursuant to this Agreement.
(e) Nothing contained in Subsection l(d) shall prevent Licensee from
utilizing the names and/or likenesses of the players in a non-endorsement and/or
non-testimonial manner in connection with the packages, cartons, advertising,
point-of-sale and/or promotional materials for the Licensed Products (the
"Promotional and Packaging Material") or require any separate payment in
connection therewith; provided that unless specifically authorized otherwise in
advance by MLBPA in writing, the names and/or likenesses of a minimum of eight
(8) such players will be utilized with equal prominence on the Promotional
5
<PAGE>
and Packaging Material for all Licensed Products during the License Period as
provided herein; and further provided that Licensee agrees to rotate the players
who are utilized in connection with such materials so as not to highlight any
particular player or group of players to the exclusion of others.
(f) Licensee shall have no right to sell the Licensed Products in the
same retail package or retail container with any other item or product, whether
of a nature similar to or different from the Licensed Products, which does not
employ the Rights without the express permission of MLBPA in advance in writing.
(g) The license granted herein authorizes the sale only of finished
Licensed Products packaged for retail sale only, and does not authorize the sale
of Licensed Products in unfinished state or in uncut, uncollated or bulk
quantities, unless otherwise approved by MLBPA in advance in writing, which
approval shall not be unreasonably withheld.
(h) Notwithstanding any other provision of this Agreement, Licensee
shall not be prohibited from including the Licensed Products with
6
<PAGE>
Licensee's other products on Licensee's order sheets, or from shipping the
Licensed Products with Licensee's other products on the same vehicle or in the
same shipping carton.
(i) Notwithstanding any other provision of this Agreement, the
license granted herein by MLBPA includes the exclusive right to manufacture,
ship, distribute, offer for sale, sell, advertise and promote puzzles in the
same retail package with baseball trading cards.
(j) All rights in and to the Rights and/or the Trademarks not
expressly granted to Licensee in this Agreement are specifically reserved to
MLBPA.
2. TERM AND OPTIONS.
----------------
(a) This Agreement shall be effective and shall continue for the
License Period set forth on Schedule B, unless sooner terminated pursuant to a
provision of this Agreement.
(b) Licensee and MLBPA hereby acknowledge that there is no right to
renew this Agreement, nor have any options to extend this Agreement been granted
or implied. Notwithstanding the foregoing, however, Licensee must provide MLBPA
with written notice of its desire to enter into a new license agreement with
MLBPA and such written notice must be received by MLBPA no earlier than three
hundred sixty-five (365) days and no later than two hundred seventy (270) days
prior to the expiration of
7
<PAGE>
the License Period. MLBPA will respond to Licensee within thirty (30) days of
receipt of such notice from Licensee concerning its interest in entering into
negotiations for an extension or renewal of this Agreement.
3. ROYALTIES.
---------
(a) Licensee agrees to pay MLBPA a royalty at the percentage set
forth on Schedule B based on Net Sales (as defined in Subsection 3(b) below) of
the Licensed Products employing the Rights and/or the Trademarks by Licensee
(the "Actual Royalty"). Such Actual Royalty shall accrue when the Licensed
Products are shipped and invoiced by Licensee or a Licensee Affiliate to a third
party not affiliated with Licensee. For purposes of this Agreement,
"affiliated" or "Licensee Affiliate" includes without limitation any person or
entity in which Licensee has any direct or indirect beneficial or ownership
interest or is a joint venture partner. Licensee warrants and represents to
MLBPA that all Licensed Products distributed in any manner by Licensee, whether
by means of sale, free samples, or promotional or other arrangement, will be
simultaneously "shipped and invoiced" by Licensee or a Licensee Affiliate for
purposes of this subsection.
(b) "Net Sales" shall mean gross sales to third parties not
affiliated with Licensee at Licensee's regular price,
8
<PAGE>
less returns actually credited. "Regular price" shall mean the published or
stated price at which Licensee regularly sells the Licensed Product to its
wholesale customers, however, if Licensee also sells the Licensed Product
directly to consumers, the regular price for such sales shall be the price
applicable to such consumers. No other deductions shall be permitted. For
example, there shall be no deductions made for discounts, allowances,
commissions, royalties, uncollectible accounts, taxes, fees, assessments,
impositions, payments or expenses of any kind which may be incurred or paid by
Licensee in connection with the royalty payments due to MLBPA hereunder, or for
any other costs incurred by Licensee in the manufacture, offering for sale,
sale, advertising, promotion, shipment, handling, distribution, fulfillment
and/or exploitation of the Licensed Products. Licensee's regular price shall
include the royalty amount.
(c) Actual Royalty payments shall be made by Licensee to MLBPA on all
Licensed Products sold, shipped and/or distributed by Licensee, even if not
billed (such as in the case of introductory offers, samples, exceeding fifty
(50) cases per Licensed Product, donations exceeding a total of two hundred
(200) cases of all Licensed Product per year to tax-exempt
9
<PAGE>
charitable organizations under Section 501(c)(3) of the Internal Revenue Code,
promotions and the like and sales, shipments and/or distributions to individuals
and/or companies which are affiliates or subsidiaries of Licensee), or if billed
at less than Licensee's regular price for such Licensed Products, based upon
Licensee's regular Net Sales price for such Licensed Products sold to third
parties not affiliated with Licensee in the course of Licensee's normal
distribution, shipment and sales activities.
(d) Where the invoiced price for any Licensed Products is less than
the regular Net Sales price for such Licensed Products sold to third parties not
affiliated with Licensee in the course of Licensee's normal distribution,
shipment and sales activities, the Actual Royalty payment shall be based upon
Licensee's regular Net Sales price.
(e) For each year during the term of this Agreement, Licensee agrees
to pay MLBPA a non-refundable guaranteed minimum royalty in the amount(s) and in
the manner set forth on Schedule B (the "Guaranteed Minimum Royalty"). If, upon
the expiration or termination of this Agreement, the total royalties paid and/or
payable by Licensee to MLBPA during each such year is less than the Guaranteed
Minimum Royalty, Licensee shall promptly pay the
10
<PAGE>
amount of such difference to MLBPA. Actual Royalty payments based on Net Sales
made during any year of this Agreement shall be credited against the Guaranteed
Minimum Royalty due for the year in which such Net Sales were made.
4. STATEMENTS AND PAYMENTS.
-----------------------
(a) Licensee shall deliver to MLBPA, at its offices in New York, New
York, or to such other address as MLBPA may direct, on the forty-fifth (45th)
day following the end of each calendar month, except December and on the
thirtieth (30th) day following the end of each December during the term of this
Agreement, and on the thirtieth (30th) day of the month following termination or
expiration of this Agreement, a complete and accurate statement of its Net Sales
of Licensed Products, differentiated by country, brand and product, for the
immediately preceding calendar month of portion thereof) (the "Royalty Period").
Said statement shall be certified as accurate by an officer of Licensee and
shall include information for each product consisting of stock or product
number, item description, price per unit, quantity shipped, gross sales, returns
actually credited, computation of Net Sales and royalty due, and any other
information MLBPA may from time to time reasonably request. Such statements
shall be furnished to MLBPA whether or not any Licensed Products have been
11
<PAGE>
shipped, distributed and/or sold, and whether or not Actual Royalties have been
earned during the Royalty Period. Such statements shall specifically set forth
any products distributed free of charge or at a reduced price and shall indicate
the quantities so distributed. Statements shall be in a form acceptable to
MLBPA and consistent with Schedule C hereto.
(b) The amount in United States dollars shown in Licensee's royalty
statements as being due MLBPA shall be paid by wire transfer to an account
designated in writing by MLBPA on the dates provided herein for submission of
such statements. In the event that the amount credited for returns during any
Royalty Period exceeds Licensee's royalty obligation to MLBPA for such period,
Licensee may use such amount as a credit against future royalty obligations of
Licensee during the License Period of this Agreement. In no event, however,
shall the amount credited for returns during any Royalty Period be used upon
termination or expiration of this Agreement as a credit against past royalty
obligations of or royalty payments made by Licensee. In no circumstances shall
MLBPA be obligated to pay any amount to Licensee upon termination or expiration
of this Agreement on account of credits accrued by Licensee for returns.
12
<PAGE>
(c) Licensee's royalty statements and all amounts payable to MLBPA by
Licensee shall be submitted to:
Major League Baseball Players Association
12 East 49th Street
New York, NY 10017
or such other address as the MLBPA may direct.
(d) The receipt and/or acceptance by MLBPA of any of the statements
furnished or royalties paid hereunder to MLBPA shall not preclude MLBPA from
questioning the correctness thereof at any time within three (3) years of the
due date for such payment and, in the event that any errors are discovered in
such statements, they shall promptly be rectified by Licensee and the
appropriate payment shall be made by Licensee within fifteen (15) days of
receipt of written notice thereof.
(e) All payments made hereunder shall be in United States dollars
from a United States bank, unless otherwise specifically agreed upon by the
parties.
(f) Time is of the essence with respect to all payments to be made
hereunder by Licensee. Interest at the rate of one percent (1%) over the
average prime rate for the period during which any sum is due shall accrue on
any amount due MLBPA hereunder from and after the date upon which the payment is
due until the date of receipt of payment. Collection of interest by
13
<PAGE>
MLBPA shall be without prejudice to any other rights or remedies available to
MLBPA.
5. AUDIT.
-----
(a) Licensee agrees to keep accurate books of account and records at
its principal place of business, or such other reasonable locations as Licensee
may designate in writing to MLBPA, covering all transactions relating to the
license granted herein and pertaining to the items required to be shown in
Licensee's royalty statements to be submitted pursuant hereto, including without
limitation, invoices, correspondence, banking, financial and other records.
MLBPA and its duly authorized representatives shall have the right, upon
reasonable notice, at all reasonable hours of the day, to audit Licensee's books
of account and records, and all other such documents and material in the
possession or under the control of Licensee, with respect to the subject matter
and the terms of this Agreement that are reasonably necessary in the judgment of
MLBPA, and to make copies and extracts thereof. In the event that any such
audit reveals an underpayment by Licensee, Licensee shall promptly upon demand
(and in no event later than fifteen (15) days from receipt of written notice
from MLBPA) remit payment to MLBPA in the amount of such underpayment plus
interest calculated at the rate set
14
<PAGE>
forth in Subsection 4(f), calculated from the date such payment(s) were actually
due until the date such payment is actually made. Collection of interest by
MLBPA shall be without prejudice to any other rights or remedies available to
MLBPA. In the event that any such underpayment is greater than Ten Thousand
Dollars ($10,000), Licensee shall reimburse MLBPA for the costs and expenses of
such audit.
(b) All books of account and records of Licensee concerning
transactions relating to the license granted herein shall be retained by
Licensee for at least three (3) years after the end of the year in which such
transaction occurs for possible inspection by MLBPA in accordance with the terms
hereof.
6. QUALITY, NOTICES, APPROVALS, AND SAMPLES.
----------------------------------------
(a) The Licensed Products and the Promotional and Packaging Material
shall be of high quality in design, material and workmanship so as to be suited
to the favorable advantage, protection and enhancement of the Trademarks and the
Rights, in no event shall be of lesser quality than the best quality of similar
products and promotional, advertising, and packaging material presently shipped,
distributed, sold and/or used by Licensee in the Licensed Territory, shall not
reflect adversely upon MLBPA, the Trademarks or the players, shall be safe and
15
<PAGE>
suitable for their intended purpose, and shall be manufactured, sold and/or
distributed in full conformance with all applicable laws and regulations.
(b) Licensee may not manufacture, use, offer for sale, sell,
advertise, promote, ship and/or distribute any Licensed Products, or any
Promotional and Packaging Material relating to the Licensed Products, or any
other item or product in combination with the Licensed Products, or any other
trademark on or in connection with the Licensed Products, until it has received
written approval of same in the manner provided herein from MLBPA. Should MLBPA
fail to approve in writing any of the submissions furnished it by Licensee
within fourteen (14) business days from the date of submission thereof, such
failure shall be considered to be a disapproval thereof.
(c) Before commencing or authorizing third parties to commence the
design or development of Licensed Products or Promotional and Packaging Material
which have not been previously approved in writing by MLBPA, Licensee shall
submit at its own cost to MLBPA, for approval, a comprehensive written
description of the concept of such Licensed Product and/or Promotional and
Packaging Material, including full information on the nature and function of the
proposed item and a general description of how
16
<PAGE>
the Rights and/or the Trademarks and other material will be used thereon.
Licensee also shall submit at its own cost to MLBPA, for approval, complete
layouts and descriptions of the proposed Licensed Products and/or Promotional
and Packaging Material showing exactly how and where the Rights and the
Trademarks and all other art work and wording will be used, and pre-production
models or prototype samples (mechanicals or "blue-lines") of the proposed
Licensed Products and/or Promotional and Packaging Material. Finally, Licensee
shall submit at its own cost to MLBPA, for approval, actual proofs or final pre-
production samples (chromalines) of the proposed Licensed Products and/or
Promotional and Packaging Material. Licensee shall not proceed beyond the
mechanical or chromaline stage without first securing the express written
approval of MLBPA.
(d) Except as provided in Subsection 6(h), upon commencement of
manufacture, shipment and distribution of the Licensed Products and/or
Promotional and Packaging Material relating to the Licensed Products after all
required approvals have been given by MLBPA, Licensee shall submit, at its own
cost, to MLBPA twelve (12) sets of the Licensed Products and two (2) sets of the
Promotional and Packaging Material.
17
<PAGE>
(e) MLBPA may periodically at reasonable intervals during the term of
this Agreement require that Licensee submit to MLBPA, at no cost to MLBPA, up to
twelve (12) additional sets of the Licensed Products, and the Promotional and
Packaging Material relating to the Licensed Products, for subsequent review of
the quality of and copyright and trademark usage and notice on same and for any
other purpose that MLBPA deems appropriate, provided that such product is
available to Licensee.
(f) After the required approval has been secured from MLBPA pursuant
to Subsection 6(c) above, Licensee shall not depart from the specifications,
quality or appearance thereof in any respect without first obtaining the express
written approval of MLBPA. Licensee shall make submissions to MLBPA and obtain
approvals in the manner required above each time new or revised concept,
layouts, descriptions, artwork, models, prototype samples and/or production
samples are adopted by Licensee for use in connection with the Rights and/or the
Trademarks.
(g) Subject to reasonable obligations of confidentiality by MLBPA,
Licensee agrees that, to assure that the provisions of this Agreement are being
observed, upon at least two (2) working days' written notice, it will allow
MLBPA or its designees to enter Licensee's premises and/or the premises
18
<PAGE>
where the Licensed Products are being manufactured and/or packaged, during
regular business hours, for the purpose of inspecting the Licensed Products and
the Promotional and Packaging Material relating to the Licensed Products.
(h) In order to ensure that the Licensed Products and the Promotional
and Packaging Materials are manufactured, offered for sale, sold, advertised,
promoted, shipped and/or distributed as required herein, in the event that the
quality standards and/or trademark and copyright usage and notice requirements
herein referred to are not met, or in the event that said quality standards
and/or trademark and copyright usage and notice requirements are not maintained
in all material respects throughout the period of manufacture, offering for
sale, sale, advertising, promotion, shipment and/or distribution of any Licensed
Products hereunder, then, in addition to any other rights available to MLBPA
under this Agreement or otherwise, Licensee shall upon receipt of written notice
from MLBPA immediately discontinue any and all manufacture, offering for sale,
sale, advertising, promotion, shipment and distribution of such Licensed
Products and/or Promotional and Packaging Material in connection with which the
said quality standards and/or
19
<PAGE>
trademark and copyright usage and notice requirements have not been met.
(i) Notwithstanding the provision of Subsections 6(c) and (d), or any
other provision herein, with respect to special limited edition products which,
for purposes of this Agreement only, are defined as individually numbered
baseball cards or puzzles of which fifty thousand (50,000) or fewer are produced
for distribution to the public or trade, in lieu of final samples of finished
product, Licensee shall be obligated only to provide MLBPA with facsimiles.
7. ARTWORK.
-------
(a) The form and content of all artwork for use in any media shall be
subject to the express written approval of MLBPA prior to its use by Licensee in
connection with the Licensed Products or the Promotional and Packaging Material.
If Licensee desires to use artwork previously approved by MLBPA on a different
Licensed Product or on different Promotional and Packaging Material, Licensee
shall first submit samples of such proposed use to MLBPA for approval thereof.
(b) Following the expiration or termination of this Agreement, except
as provided in Subsection 19(c), and notwithstanding any rights otherwise
granted to Licensee by state
20
<PAGE>
or federal trademark law, copyright law or other applicable law, Licensee shall
not without express prior written permission of MLBPA directly or indirectly
use, or authorize other to use, in any manner whatsoever other than to enforce
legal rights of Licensee against infringement or misuse by others, any of the
artwork or designs or other material embodying the Rights and/or Trademarks, or
any reproductions thereof, notwithstanding their creation or use by Licensee.
8. OWNERSHIP OF RIGHTS.
-------------------
(a) It is understood and agreed that MLBPA is the sole and exclusive
holder of all right, title and interest in and to the Rights and/or the
Trademarks for the duration of this Agreement.
(b) Nothing contained in this Agreement shall be construed as an
assignment to Licensee of any right, title and/or interest in or to the Rights
and/or the Trademarks, it being understood that all right, title and interest
relating thereto are expressly reserved by MLBPA except for the rights being
licensed hereunder.
(c) No license is being granted hereunder for any purpose or as to
any products, services or material not expressly authorized herein. MLBPA
reserves for such use as it may
21
<PAGE>
determine all rights of any kind in the Rights and the Trademarks, other than
the rights herein licensed to Licensee.
(d) Licensee shall not use the Rights and/or the Trademarks other
than as permitted herein and, in particular, shall not incorporate the Rights
and/or the Trademarks in Licensee's corporate or business name or in any of
Licensee's other trademarks or service marks in any manner whatsoever. Licensee
agrees that in using the Rights and Trademarks, it will in no way represent that
it has any rights, title and/or interest in and/or to the Rights and/or the
Trademarks other than those expressly granted under the terms of this Agreement.
Licensee further agrees that it will not use and/or authorize the use, either
during or after the term of this Agreement, of any configuration, trademark,
trade name or other designation which is likely to cause confusion with any of
the Trademarks.
9. GOODWILL AND PROMOTIONAL VALUE.
------------------------------
(a) Licensee recognizes the value of the goodwill associated with the
Rights and/or the Trademarks and acknowledges that as between the parties hereto
all rights in the Trademarks and the Rights and the goodwill associated
therewith belong exclusively to MLBPA. Licensee further recognizes and
acknowledges that the Rights and/or the Trademarks have acquired
22
<PAGE>
secondary meaning in the mind of the public. Licensee agrees that during the
License Period and thereafter, it will not dispute or attack the title of any
rights of MLBPA in and to the Rights and/or the Trademarks or the validity of
the grant of license made herein, except that nothing herein shall preclude
Licensee from asserting any breach of any warranty provided herein.
(b) Licensee agrees that its use of the Rights and/or the Trademarks
shall inure to the benefit of MLBPA and that Licensee shall not, at any time,
acquire any rights in the Rights and/or the Trademarks by virtue of any use it
may make of the Rights and/or of the Trademarks. Licensee hereby assigns to
MLBPA any and all trademarks and trademark rights in the Trademarks and/or
Rights created by such use, together with the goodwill of the business in
connection with which the Trademarks are used and which is represented by the
Trademarks.
(c) Licensee acknowledges that MLBPA is entering into this Agreement
not only in consideration of the royalties to be paid hereunder but also in
recognition of the intrinsic benefit to proper maintenance of the image and
reputation of MLBPA and the players as a result of the manufacture, offering for
sale, sale, advertising, promotion, shipment and distribution of the
23
<PAGE>
Licensed Products by Licensee in accordance with the provisions of this
Agreement. Accordingly, Licensee acknowledges that its material failure to
manufacture, offer for sale, sell, advertise, promote, ship and distribute the
Licensed Products in accordance with this Agreement, may result in immediate and
irreparable damage to MLBPA in connection with promotion of the Rights and/or
the Trademarks and/or to its members, and that there will be no adequate remedy
at law for the failure by Licensee to abide by such provisions of this
Agreement. Accordingly, Licensee agrees that in the event of any material
breach by Licensee, in addition to all other remedies available to it hereunder,
MLBPA may at its sole option commence an action in any court having jurisdiction
or an arbitration proceeding, and upon proof thereof shall be entitled to
injunctive relief against any such breach as well as such other relief as any
arbitrator(s) or court with jurisdiction may deem just and proper. Licensee
waives all requirements of a bond in connection therewith.
10. PROMOTIONAL CONTRIBUTION.
------------------------
Although MLBPA is not obligated to do so, it is the current intention
of MLBPA to develop a national advertising and/or promotional program featuring
the Rights and/or the Trademarks and to consult with Licensee about the
development of
24
<PAGE>
such program. Licensee agrees that MLBPA shall have the right, at its
discretion and in a manner and style of its choice, to print catalogues,
brochures, advertisements or other promotional materials wherein representative
merchandise from Licensee and other licensees of MLBPA shall be displayed. In
this regard, Licensee agrees that in addition to all other payments and without
credit against the Guaranteed Minimum Royalty required herein, Licensee shall
share in the cost of such materials at least once annually by payment within ten
(10) days after receiving an invoice therefor in an amount not to exceed Five
Thousand Dollars ($5,000).
11. TRADEMARK AND COPYRIGHT PROTECTION.
----------------------------------
(a) The license granted herein is conditioned upon Licensee's full
and complete compliance with the provisions of the trademark and copyright laws
of the United States and any foreign country or countries in the Licensed
Territory.
(b) Licensee agrees to permanently affix to all Licensed Products and
all Promotional and Packaging Material the MLBPA logo and appropriate legends,
markings and/or notices as required by MLBPA, to give appropriate notice to the
consuming public of MLBPA's right, title and interest in the Trademarks and the
Rights. Licensee agrees that, unless otherwise specified in
25
<PAGE>
writing by MLBPA, each usage of the Trademarks shall be followed by either the
"TM" or the Trademark Notice symbol, as designated by MLBPA. The following
legends shall appear at least once on each Licensed Product and on each piece of
Promotional and Packaging Material as is commercially reasonable and practical:
Copyright or (C) MLBPA (year-date)
Licensee also shall include on the Licensed Products, and on each piece of
Promotional and Packaging Material, the following notice: Official Licensee --
Major League Baseball Players Association
(c) Licensee agrees that it will not distribute or sell any Licensed
Products or use or distribute any Promotional or Packaging Materials which do
not carry notices meeting the requirements of this Agreement.
(d) Licensee shall use no markings, legends and/or notices on or in
association with the Licensed Products or the Promotional and Packaging Material
other than those specified above and such other markings, legends and/or notices
as may be specified by MLBPA, without first obtaining MLBPA's express written
approval.
(e) MLBPA has the right, but not the obligation, to obtain at its own
cost, appropriate trademark and copyright
26
<PAGE>
protection for the Rights and/or the Trademarks in association with the Licensed
Products in any and all countries of the Licensed Territory, in the name of
MLBPA or in the name of any third party selected by MLBPA.
(f) Licensee shall keep reasonable business records, relating to the
dates when each of the Licensed Products is first placed on sale or sole in each
country of the Licensed Territory, and the dates of first use in each country of
each different Trademark and/or of the Rights on the Licensed Products and
Promotional and Packaging Material. If requested to do so by MLBPA, Licensee
also agrees to supply MLBPA with samples, facsimiles or photographs of such
usages of the Rights and/or Trademarks and other information, if such exists,
which will enable MLBPA to complete trademark applications or to evaluate or
oppose any trademark or design applications, registrations, or uses of third
parties.
(g) Licensee agrees that it shall not at any time within the Licensed
Territory or anywhere else in the world apply for any copyright or trademark
protection which would adversely affect MLBPA's ownership of any rights in the
Rights and/or the Trademarks, nor file any document with any governmental
authority or assert directly or indirectly any right or take any other
27
<PAGE>
action which would adversely affect MLBPA's ownership of the Rights and/or the
Trademarks, or the publicity rights of the players, or knowingly aid or abet
anyone else in doing so.
(h) Licensee agrees to cooperate in all reasonable respects with
MLBPA in protecting and defending the Rights and/or the Trademarks. In the
event that Licensee becomes aware of any claim or problem arising with respect
to the protection of the Rights and/or the Trademarks in the Licensed Territory,
Licensee shall promptly advise MLBPA in writing of the nature and extent of
same. MLBPA has no obligation to take any action whatsoever in the event that
any claim or problem arises with respect to the protection of the Rights and/or
the Trademarks.
(i) MLBPA acknowledges Licensee's ownership of its own copyrights,
moral rights and other related rights associated with the authorship and
creation of each of the Licensed Products. Although Licensee's right to use the
Rights and/or the Trademarks are at all times subject to MLBPA's rights therein
and the terms of the grant of this Agreement, nothing in this Agreement shall be
construed as granting, transferring or conveying any of Licensee's aforesaid
rights to MLBPA.
(j) As between the parties hereto, MLBPA acknowledges Licensee's
ownership of Licensee's trademark and trade identity
28
<PAGE>
rights created through Licensee's use of, inter alia, its trademarks LEAF and
DONRUSS, and other trademarks or Licensee, on Licensed Products as approved by
MLBPA. Nothing in this Agreement shall be construed as granting, transferring
or conveying to MLBPA any of Licensee's aforesaid trademark rights or the
goodwill represented thereby.
12. INFRINGEMENTS.
-------------
(a) Licensee agrees to provide reasonable assistance to MLBPA in the
enforcement of MLBPA's right in the Rights and/or the Trademarks. Licensee
agrees to promptly notify MLBPA in writing of any violations by third parties of
the Rights and/or the Trademarks which become known to Licensee. MLBPA shall
have the sole right to determine whether or not any action shall be taken on
account of any violation of the Rights and/or the Trademarks. MLBPA, if it so
desires, may commence or prosecute any claims or suits respecting such
violations in its own name or in the name of Licensee, or join Licensee as a
party thereto, provided that nothing in this section shall require Licensee to
incur more than nominal out-of-pocket expense. Licensee agrees not to make any
demands or claims, and not to institute any suit on account of such violations
without obtaining the prior express written permission of MLBPA.
29
<PAGE>
(b) With respect to all claims and suits involving the Rights and/or
the Trademarks, including without limitation suits in which Licensee is joined
as a party, MLBPA shall have the sole right to employ counsel of its choosing
and to direct the handling of the litigation and any settlement thereof. MLBPA
shall be entitled to receive and retain all amounts awarded to MLBPA as damages,
profits or otherwise as a result of such claims.
13. INDEMNIFICATION.
---------------
Licensee hereby agrees to defend, indemnify and hold harmless MLBPA,
its members, officers, directors, employees and agents, from and against any and
all claims, demands, causes of action and judgments ("Claims") arising out of or
in connection with:
(a) Licensee's design, manufacture, distribution, shipment,
advertising, promotion, offering for sale and/or sale of the Licensed Products
and/or the Promotional and Packaging Material, including but not limited to any
allegedly unauthorized use by Licensee of any trademark, copyright, patent,
process, idea, method, device, logo, symbol, insignia, name, term or material
other than those licensed herein, but excluding any
30
<PAGE>
claims respecting any allegedly unauthorized use by Licensee of the Rights
and/or the Trademarks as authorized herein;
(b) Licensee's use of any logos, symbols, insignias, names, terms or
other material claimed to be the property of any Major League Baseball club(s)
or any other entity affiliated directly or indirectly with any Major League
Baseball club(s); and
(c) any alleged defect(s) of the Licensed Products and/or Promotional
and Packaging Material.
With respect to the foregoing indemnity, Licensee agrees to defend and hold
harmless MLBPA, its members, officers, directors, employees and agents, at no
cost or expense to them whatsoever, including, but not limited to, attorneys'
fees and court costs. Under no circumstances shall Licensee have the right to
settle or otherwise compromise any claim without the prior written consent of
MLBPA. MLBPA and its members shall have the right to defend themselves in any
such action or proceeding with attorneys of MLBPA's own selection.
14. INSURANCE.
---------
Throughout the License Period and for three (3) years after expiration
or termination of this Agreement, Licensee shall obtain and maintain at its own
cost and expense from a qualified
31
<PAGE>
insurance company acceptable to MLBPA, or self-insurance as authorized by law, a
standard comprehensive general liability insurance policy naming MLBPA and its
members as an additional insured. Such policy shall provide protection against
any and all claims, demands and causes of action arising out of any defect or
failure to perform, alleged or otherwise, of the Licensed Products or any
material used in connection therewith or any use thereof. The amount of primary
and secondary coverage shall be a minimum of One Million Dollars ($1,000,000)
for each single occurrence. The policy shall provide for twenty (20) days'
notice to MLBPA from the insurer by Registered or Certified Mail, return receipt
requested, in the event of any modification, cancellation or termination. The
terms of such policy are subject to MLBPA's prior written approval and such
approval shall not be withheld unreasonably. Licensee agrees to furnish MLBPA a
certificate of insurance evidencing same or satisfactory evidence of self-
insurance within thirty (30) days after execution of this Agreement, and in no
event shall Licensee manufacture, offer for sale, sell, advertise, promote, ship
and/or distribute the Licensed Products or Promotional and Packaging Material
prior to receipt by MLBPA of such evidence of insurance.
32
<PAGE>
15. EXPLOITATION BY LICENSEE.
------------------------
(a) Licensee agrees that during the License Period it will continue
to diligently distribute, ship and sell each of the Licensed Products in
sufficient quantities to meet the reasonably anticipated demand therefor
throughout the Licensed Territory and that it will use its best efforts to make
and maintain adequate arrangements for the distribution, shipment and sale
necessary to meet Licensee's sales goals for all such Licensed Products.
Licensee further agrees to exercise all reasonable efforts in the exercise of
sound business judgment to advertise and promote the Licensed Products at its
own expense throughout the term of this Agreement as widely as practicable
within the Licensed Territory, to the best advantage and enhancement of the
Trademarks and the Rights.
(b) Licensee will not discriminate against any of the Licensed
Products by granting commissions/discounts to salesmen, dealers and/or
distributors in favor of Licensee's other similar products.
16. PREMIUMS, PROMOTIONS, COMBINATION PROGRAMS AND SECONDS.
------------------------------------------------------
(a) Under no circumstances other than in connection with the sale of
Licensed Products or as expressly approved by MLBPA in writing shall Licensee
have any right to sell or
33
<PAGE>
otherwise utilize the Licensed Products as premiums or promotional items. MLBPA
shall have and retain the sole and exclusive right to utilize or license third
parties to utilize any of the Trademarks and Rights granted herein in connection
with any premium, giveaway, fund raising, promotional arrangement or fan club
(collectively referred to as "Promotional Products"), which retained right may
be exercised by MLBPA concurrently with the rights granted to Licensee
hereunder.
(b) Licensee agrees not to sell the Licensed Products in combination
with any other products ("Combination Program") for one price without the prior
written consent of MLBPA.
(c) Licensee agrees not to offer for sale, sell, ship, and/or
distribute, and/or to knowingly assist any third party to offer for sale, sell,
ship, advertise, promote, distribute and/or use for any purpose whatsoever, any
Licensed Products and/or Promotional and Packaging Material relating to the
Licensed Products which are materially damaged or defective, or which otherwise
materially fail to meet the specifications and/or quality standards and/or
trademark and copyright notice usage requirements of this Agreement.
34
<PAGE>
17. ASSIGNABILITY AND SUBLICENSING.
------------------------------
The license granted hereunder is and shall be personal to Licensee and
shall not be assigned by any act of Licensee or by operation of law or otherwise
encumbered. Licensee shall not have the Licensed Products or any portion
thereof manufactured for Licensee by a third party unless Licensee first obtains
the express written approval of MLBPA, and such manufacturer shall have signed
an agreement in the form attached hereto as Schedule D. Licensee shall have no
right to grant any sublicenses without MLBPA's prior express written approval.
Any attempt on the part of Licensee to arrange for manufacture by a third party
or to sublicense (except as provided herein), assign, encumber or alter its
rights under this Agreement by operation of law or otherwise, including without
limitation entry by Licensee into any joint venture arrangement, or any material
change in the ownership, control or key management of Licensee, without
reasonable notice to and prior written approval by MLBPA shall result in the
automatic termination of this Agreement, and all rights granted hereunder shall
immediately revert to MLBPA.
35
<PAGE>
18. TERMINATION.
-----------
(a) MLBPA's Right of Termination.
----------------------------
(i) Immediate Right of Termination. In addition to the
------------------------------
automatic termination provisions and/or termination rights provided elsewhere in
this Agreement, and notwithstanding any attempts by Licensee to cure defaults,
MLBPA shall have the right immediately to terminate this Agreement by giving
written notice to Licensee if Licensee does any of the following:
a. Manufactures, offers for sale, sells, advertises,
promotes, ships, distributes and/or uses in any way any Licensed Product and/or
Promotional and Packaging Material without having the prior written approval of
MLBPA as provided for in this Agreement;
b. Continues to manufacture, offer for sale, sell,
advertise, promote, ship, distribute and/or use in any way any Licensed Product
and/or Promotional and Packaging Material after receipt of notice from MLBPA
disapproving of same;
c. Fails to carry on the Licensed Products or Promotional
or Packaging Material the notices specified by MLBPA, as required herein;
d. Becomes subject to any voluntary or involuntary order
of any governmental agency involving the recall
36
<PAGE>
or citation of any of the Licensed Products and/or Promotion and Packaging
Material because of safety, health or other hazards or risks to the public;
e. Directly or indirectly through its controlling
shareholders or any of its officers, directors or employees, takes any action in
connection with the manufacture, offering for sale, sale, advertising,
promotion, shipment and/or distribution of the Licensed Products and/or the
Promotional and Packaging Material which materially damages or materially
reflects adversely upon MLBPA, the Rights and/or the Trademarks;
f. Makes an unauthorized assertion of rights in the Rights
and/or the Trademarks as prohibited in this Agreement;
g. Two or more times during a twelve-month period fails to
make timely payment of royalties when due or fails to make timely submission of
royalty statements when due;
h. Uses the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products without the express prior consent of MLBPA in writing; or
i. Fails to obtain or maintain insurance as required by
the provisions of this Agreement.
37
<PAGE>
ii. Curable Breaches by Licensee. If Licensee commits a
----------------------------
material breach of any other terms of this Agreement; files a petition in
bankruptcy or is adjudicated a bankrupt or insolvent; or makes an assignment for
the benefit of creditors, or an arrangement pursuant to any bankruptcy law; or
discontinues its business; or if a receiver is appointed for it or its business
and is not discharged within thirty (30) days, and Licensee fails to cure such
default and furnish reasonable proof of its cure to MLBPA within fifteen (15)
days after receiving written notice of breach and a demand to cure from MLBPA,
MLBPA shall have the right to terminate this Agreement by giving written notice
to Licensee.
(b) Licensee's Right of Termination. If MLBPA commits an act or
-------------------------------
omission which constitutes a material breach of any of the terms of this
Agreement and fails to cease the noticed acts or omissions and furnish
reasonable proof of such cure to Licensee within fifteen (15) days after
receiving written notice of breach and a demand to cure from Licensee, Licensee
shall have the right to terminate this Agreement by giving written notice to
MLBPA. Termination of this Agreement shall not relieve Licensee of any royalty
obligations which have accrued prior to termination.
38
<PAGE>
19. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS.
------------------------------------------------------
(a) Except as provided in Section 19(c) below, upon termination of
this Agreement, Licensee and its receivers, representatives, trustees, agents,
administrators, successors and/or permitted assigns shall have no right to
manufacture, offer for sale, sell, ship, advertise, promote and/or distribute
Licensed Products or to use in any way the Rights, the Trademarks, or any
Promotional and Packaging Material relating to the Licensed Products.
(b) Upon expiration of this Agreement or upon termination by MLBPA,
notwithstanding anything to the contrary herein, all royalties on sales,
shipments and/or distributions theretofor made shall become immediately due and
payable and no Guaranteed Minimum Royalty paid to MLBPA shall be refunded.
(c) Upon expiration of this Agreement without renewal or entry into a
new agreement, or upon termination of this Agreement for any reason except those
set forth in Section 17 or Section 18(a) above, subject to the requirements of
this Agreement with respect to payment and reporting of royalties, Licensee may,
for a period of ninety (90) days, dispose of all finished Licensed Products
which are on hand upon the expiration of the License Period then in effect,
provided that the royalties
39
<PAGE>
with respect to that period are paid and the appropriate statements are
furnished for that period. Licensee shall not accelerate or increase the
manufacture or production of Licensed Products in anticipation of expiration of
this Agreement. During such ninety (90) day period, MLBPA itself may use or
license the use of the Rights and/or the Trademarks in any manner at any time
anywhere in the world as MLBPA sees fit.
(d) Subject to Subsection 19(c) above, after the expiration or
termination of this Agreement, Licensee shall refrain from further use of the
Rights and/or the Trademarks or any further claim to the use thereof, either
directly or indirectly, in connection with the manufacture, offering for sale,
sale, advertising, promotion, shipment and/or distribution of any products,
Promotional Material or otherwise. Licensee shall be responsible to MLBPA for
any damages caused by the unauthorized use by Licensee or by others of any
materials created by or for Licensee and embodying the Rights and/or the
Trademarks following expiration or termination of this Agreement. In the event
of any such unauthorized use of any such materials by Licensee or others,
Licensee shall pay MLBPA for liquidated damages and not as a penalty or as
damages for any breach of this
40
<PAGE>
Agreement or as a substitute for other payments due to MLBPA and the sum of Five
Hundred Thousand Dollars ($500,000).
(e) Licensee acknowledges that its failure to cease the manufacture,
offering for sale, sale, advertising, promotion, shipment and/or distribution of
the Licensed Products and/or use in any way of the Promotional and Packaging
Material relating to the Licensed Products after the termination or expiration
of this Agreement in accordance with the terms hereof will result in immediate
and irreparable damage to MLBPA and/or to the players and to the rights of other
licensees of MLBPA. Licensee acknowledges and admits that there is no adequate
remedy at law for failure to cease such activities and Licensee agrees that in
the event of such failure, in addition to all other remedies available to it
hereunder, MLBPA at its sole option may commence an action in any court having
jurisdiction or an arbitration proceeding, and shall be entitled to equitable
relief by way of injunctive relief and such other relief as any arbitrator(s) or
court with jurisdiction may deem just and proper. Licensee waives all
requirement of a bond in connection with MLBPA's pursuit of injunctive relief.
41
<PAGE>
20. FINAL STATEMENT UPON TERMINATION OR EXPIRATION.
----------------------------------------------
Within thirty (30) days after termination or expiration of this
Agreement, as the case may be, Licensee shall deliver to MLBPA a statement
indicating the number and description of the finished Licensed Products which it
had on hand as of the expiration or termination date. MLBPA shall have the
option, upon two (2) working days' notice and during regular business hours, of
conducting a physical inventory at the time of expiration or termination and/or
at a later date in order to ascertain or verify such statement. In the event
that Licensee refuses to permit MLBPA or its authorized representative to
conduct such physical inventory, Licensee shall forfeit any rights hereunder to
dispose of such inventory. In addition to such forfeiture, MLBPA shall have
recourse to all other remedies available to it.
21. NOTICES.
-------
All notices or other communications required or desired to be sent to
either party shall be in writing and sent by Registered or Certified Mail,
postage prepaid, return receipt requested, or by facsimile or telegram, charges
prepaid. Such notices, including facsimile or telegram, shall be effective on
the date sent, provided that any notice sent by facsimile also
42
<PAGE>
shall be sent by regular mail. The addresses for MLBPA and Licensee shall be as
set forth on Schedule B. Either party may change its address by notice in
writing to the other party.
22. RELATIONSHIP OF THE PARTIES.
---------------------------
This Agreement does not create a partnership or joint venture between
the parties and neither party shall have any power to obligate or bind the other
in any manner whatsoever.
23. APPLICABLE LAW.
--------------
This Agreement is made within the State of New York and shall be
construed in accordance with the laws of the United States and the State of New
York. Licensee hereby expressly waives any right to the benefits of remedial
legislation, if any, of Licensee's home state.
24. REMEDIES.
--------
(a) Except as otherwise provided herein, any dispute or disagreement
between the parties hereto arising out of or relating to this Agreement shall be
settled by final and binding arbitration, in New York City, under the Commercial
Arbitration Rules then obtaining of the American Arbitration Association. The
parties hereto expressly stipulate that the arbitrator(s) shall have full
subpoena power and full powers to fashion appropriate remedies, including
without limitation the power to
43
<PAGE>
grant equitable and/or injunctive and/or declaratory relief. Judgment upon the
award may be entered in any court having jurisdiction.
(b) Licensee recognizes the unique nature of the Rights and the
Trademarks, and the possibility that breaches of this Agreement by Licensee may
require preliminary or extraordinary relief beyond that available in
arbitration, and the possibility that breaches of this Agreement may involve
third parties or witnesses or issues which are beyond the practical jurisdiction
of arbitrators. Accordingly, notwithstanding the provisions of Section 24(a),
MLBPA (but not Licensee) may, at its sole and exclusive option, as an
alternative to arbitration, elect to commence an action or proceeding in any
court of competent jurisdiction to enforce this Agreement or protect the Rights
and the Trademarks. MLBPA may also require the termination of a previously-
commenced arbitration proceeding so as to permit a dispute between the parties
to be resolved in an action or proceeding in a court of competent jurisdiction,
so long as MLBPA has theretofore not waived its right to do so by taking
substantial steps to prosecute or defend the arbitration proceeding.
44
<PAGE>
25. CAPTIONS.
--------
The captions used in connection with the sections, and subsections of
this Agreement are inserted only for purpose of reference. Such captions shall
not be deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this Agreement or any part thereof, nor
shall such captions otherwise be given any legal effect.
26. WAIVER.
------
(a) No waiver by either party of a breach or a default hereunder
shall be deemed a waiver by such party of a subsequent breach or default of a
like or similar nature.
(b) Resort by either party to any remedies referred to in this
Agreement or arising by reason of a breach of this Agreement by the other party
shall not be construed as a waiver by the former of its right to resort to any
and all other legal and equitable remedies available to it.
27. SURVIVAL OF THE RIGHTS.
----------------------
Any rights and obligations created by this Agreement and which by
necessary implication continue after its expiration or termination shall survive
such expiration or termination.
45
<PAGE>
28. SEVERABILITY.
------------
In the event that any term or provision of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision, and this Agreement shall be interpreted and construed as if such term
or provision, to the extent the same shall have been held to be invalid, illegal
or unenforceable, had never been contained herein.
29. CONFIDENTIALITY.
---------------
MLBPA acknowledges that all of the information relating to the
creation, authorship, production, manufacturing, advertising, marketing, sale
and distribution of the Licensed products by Licensee which Licensee is, or may
be, required to provide to MLBPA under the terms and conditions of this
Agreement and which is not publicly disclosed by Licensee is confidential
commercial information and is the exclusive property of Licensee. Such
confidential information includes, without limitation, all proprietary
information which MLBPA obtains as a result of any audit, inspection, plant
visit or similar inspection as provided by this Agreement. Such confidential
information is provided to MLBPA only to effectuate the purposes of this
Agreement. MLBPA
46
<PAGE>
shall maintain such information on a need to know basis only and may not
disclose any such information to any third party without Licensee's express
written consent.
30. INTEGRATION.
-----------
This Agreement represents the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, understandings or agreements, oral or written, between the
parties with respect to the subject matter hereof. This Agreement cannot be
modified except by a written instrument signed by the parties hereto.
By their execution below, the parties hereto have agreed to all of the
terms and conditions of this Agreement.
MAJOR LEAGUE BASEBALL DONRUSS TRADING CARDS, INC.
PLAYERS ASSOCIATION
By: /s/ Judith S. Heeter By:
--------------------- ---------------------------
Date: 12/31/94 Date: 12/19/94
------------------- -------------------------
LEAF, INC. and HUHTAMAKI OY hereby acknowledge that they have read and
understand each of the provisions of the foregoing License Agreement including
the Schedules and Addenda thereto and agree to be bound by its terms.
LEAF, INC. HUHTAMAKI OY
By: By:
---------------------- ---------------------------
Date: 12/19/94 Date: 10/1/95
--------------------- -------------------------
47
<PAGE>
SCHEDULE A
----------
TRADEMARKS
MLBPA
Major League Baseball Players Association
MLBPA logo
THE RIGHTS
The names, nicknames, likenesses, signatures, pictures, playing records
and/or biographical data of all active baseball players of the National League
and the American League who have entered into a Commercial Authorization
Agreement with the MLBPA.
48
<PAGE>
SCHEDULE B
----------
LICENSED PRODUCTS:
(1) Printed matter in the form of a group collection of baseball trading
cards, each of a size not larger than eight inches by ten inches (8" x 10"),
sold alone or in combination with portions of jigsaw puzzles which do not
contain the name, nickname, likeness, picture, signature, description and/or
biographical sketch of any active Major League Baseball player.
(2) Printed matter in the form of hard or soft cover booklets, each of a
size no larger than eight and one-half inches by eleven inches (8 1/2" x 11")
and containing sheets of active player trading cards.
The rights hereunder shall further include collector aids products,
including, but not limited to, display pieces, albums, and storage devices, for
use in connection with the foregoing products.
LICENSE PERIOD:
January 1, 1995 to December 31, 1997.
LICENSED TERRITORY:
The United States, its territories and possessions and military installations
throughout the world, Canada, the Caribbean Islands, Dominican Republic, Puerto
Rico, Mexico, Japan, Australia and New Zealand.
ADDITIONAL CONDITIONS:
The International Addendum attached hereto and incorporated by reference herein
shall apply to all activities of Licensee with respect to the Licensed Products
outside the United States.
Licensee agrees to give MLBPA prompt notice in writing as far in advance as
possible prior to advertising or selling any Licensed Product in any country
outside the United States and Canada.
49
<PAGE>
ACTUAL ROYALTY:
1995: **
1996: **
1997: **
GUARANTEED MINIMUM ROYALTY:
** per calender year payable in equal quarterly installments on each January 20,
April 20, July 20 and October 20 during the term hereof.
ADDRESSES FOR NOTICES:
MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION
12 East 43rd Street
New York, NY 10017
Attn: Judith S. Heeter
DONRUSS TRADING CARDS, INC.
500 North Field Drive
Lake Forest, IL 60045
Attn: Ronald Izewski
Acknowledged and Approved:
MAJOR LEAGUE BASEBALL DONRUSS TRADING CARDS, INC.
PLAYERS ASSOCIATION
By: /s/ Judith S. Heeter By:
------------------------ ---------------------------
Date: 12/31/94 Date: 12/19/94
---------------------- -------------------------
_____________
** Confidential information deleted.
50
<PAGE>
SCHEDULE C
----------
Royalty Report for: Major League Baseball Players Association
12 East 49th Street
New York, NY 10017
(212) 826-0809
<TABLE>
<S> <C>
LICENSEE: DATE:
----------------------------------- --------------------
PERIOD COVERED:
----------------------------------- ----------
-----------------------------------
Licensee: ___________________________________ Date: ______________________
___________________________________
___________________________________ Period Covered: ___________
</TABLE>
<TABLE><CAPTION>
STOCK ITEM WHOLESALE QUANTITY GROSS LESS NET ROYALTY ROYALTY
NUMBER DESCRIPTION PRICE PER UNIT SHIPPED SELLING PRICE RETURNS SALES RATE DUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
/ /We had no sales for the period TOTAL ROYALTY DUE: __________
but our product is scheduled LESS GUARANTEED _________
to start shipping_____________________ ROYALTIES PAID TO DATE: _____
(DATE) AMOUNT DUE: ______________
THIS ROYALTY REPORT
WAS CERTIFIED BY: _________________________________
(Signature)
_______________________
(Title)
51
<PAGE>
SCHEDULE D
----------
MANUFACTURER'S AGREEMENT
------------------------
Licensee: DONRUSS TRADING CARDS, INC.
Licensed Territory:
Licensed Products:
The undersigned understands that the Major League Baseball Players
Association ("MLBPA") has authorized the above-named Licensee to manufacture the
above-named Licensed products utilizing certain names, logos, symbols,
likenesses, signatures and pictures which are the property of MLBPA ("the
Rights"). In order to induce MLBPA to consent to the manufacture of the
Licensed Products by the undersigned, the undersigned agrees that it will not
manufacture the Licensed Products for anyone but the Licensee; that it will not
sell the Licensed Products to anyone but the Licensee; that it will not
knowingly manufacture the Licensed Products for distribution in any territory
other than the above-named Licensed Territory; that it will not (unless MLBPA
otherwise consents in advance in writing) manufacture any other merchandise
utilizing any aspect of the Rights; that it will permit such representatives as
MLBPA may from time to time designate to inspect the activities of the
undersigned with relation to its manufacture of the Licensed Products; and that
52
<PAGE>
whenever the Licensee ceases to require the undersigned to manufacture the
Licensed Products, the undersigned will return to the Licensee or to MLBPA any
models, plates, engravings, or other devices used to reproduce any of the
Rights, or at the direction of MLBPA or Licensee will give satisfactory evidence
of the destruction thereof. MLBPA shall be entitled to invoke any remedy
permitted by law for the violation of this agreement by the undersigned.
[Name of Manufacturer]:
By:
---------------------------
Title:
------------------------
53
<PAGE>
INTERNATIONAL ADDENDUM
----------------------
I. With respect to sales in any portion of the Licensed Territory outside
the United States, Licensee shall deliver its royalty statements and make
payments to MLBPA as required by Section 4 on the thirtieth (30th) day of the
month following the month during which such royalties accrued.
II. In calculating "Net Sales" with respect to sales in any portion of the
Licensed Territory outside the United States, there shall be no deduction made
in connection with the transfer of funds or royalties or with the conversion of
any currency into United States dollars.
III. If any tax is imposed on MLBPA by any foreign country with respect to
any amount payable to MLBPA, Licensee shall compute any pay the amount due to
MLBPA pursuant to this Agreement on the basis of the gross amount involved
before the deduction of any taxes. If Licensee is required to withhold from any
payment due to MLBPA an amount representing taxes imposed on MLBPA pursuant to
the laws of any foreign country, Licensee shall nevertheless have the obligation
to make up the amount of said tax in making its payment to MLBPA hereunder.
IV. With respect to any countries in the Licensed Territory outside the
United States, the statements provided to MLBPA
54
<PAGE>
pursuant to this Agreement shall be broken down by countries and all Net Sales
shall be stated in the currency of the country where they were made, followed by
the equivalent amount for such Net Sales in United States currency, followed by
the exchange rate applied. The rate of exchange shall be the actual rate of
exchange prevailing on the last day of the month prior to the date on which
payment is due to MLBPA. The parties agree to cooperate in facilitating the
exportation of royalties by legal means from any country which imposes currency
or other restrictions upon the payment of royalties; provided, however, that
upon the request of MLBPA, Licensee agrees to deposit the full amount, or any
portion, of any and all amounts due MLBPA, in United States or foreign currency,
in an account within such country for the benefit of MLBPA as instructed by CPA.
If several currencies are involved in any reporting category, that category
shall be broken down by each such currency.
V. With respect to those countries which require applications to register
Licensee as a Permitted User or Registered User of a trademark or trademarks
used on or in connection with the rights granted under this Agreement, or which
require the recordation of this Agreement, Licensee agrees to execute and
deliver to MLBPA such applications agreements, or
55
<PAGE>
other documents as may be necessary and as are furnished by MLBPA for such
purposes. In the event such agreements are entered into between MLBPA and
Licensee, this Agreement rather than such agreements will govern any disputes
between MLBPA and Licensee and in the event that this Agreement is terminated
for any reason, any such Registered User or Permitted User agreements also shall
be deemed to be terminated.
VI. It shall be Licensee's sole responsibility at its expense to obtain
all approvals of any foreign authorities which may be necessary in connection
with Licensee's performance under this Agreement in such portion(s) of the
Licensed Territory. Licensee shall take whatever steps may be reasonably
required to effect the remission of funds from abroad; to minimize or eliminate
the incidence of foreign taxes, fees, or assessments which may be imposed; to
protect its investments in foreign territories, to enable it to commence or
continue doing business in any foreign territory; and to comply in, any and all
respects with all applicable laws and regulations.
MAJOR LEAGUE BASEBALL DONRUSS TRADING CARDS, INC.
PLAYERS ASSOCIATION
By: /s/ Judith S. Heeter By:
--------------------- ---------------------------
Date: 12/31/94 Date: 12/19/94
------------------- -------------------------
56
EXHIBIT 10.23
Contract No. ML-0198C
-----
MAJOR LEAGUE BASEBALL PROPERTIES, INC.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT by and between Major League Baseball Properties,
Inc., 350 Park Avenue, New York, NY 10022 (hereinafter referred to as
"Licensor"), as agent for the Major League Baseball Clubs (the "Clubs"), and
Donruss Trading Cards, Inc., a subsidiary of Leaf, Inc., 500 North Field Drive,
Lake Forest, IL 60045 (hereinafter referred to as "Licensee"). This Agreement
is not effective until signed by the parties hereto.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Licensor grants to Licensee for the term of this
Agreement, subject to the terms and conditions hereinafter contained, the non-
exclusive license to utilize the names, characters, symbols, designs, likenesses
and visual representations described in Schedule A attached hereto (herein such
names, characters, symbols, designs, likenesses and visual representations are
collectively called "Logos"), to be used solely in connection with the
manufacture, distribution, promotion, advertisement and sale of the article or
articles specified in Schedule B attached hereto (herein such article or
articles are called "Licensed Product(s)"). This license does not constitute
and may not be used so as to imply the endorsement of the Licensed Product(s) or
any other product of Licensee by Licensor, the Office of the Commissioner of
Baseball, the American or National League of Professional Baseball Clubs
(hereinafter referred to as the "Leagues") or the Clubs. While the Logos
licensed herein may be used as trademarks subject to the terms of this License
Agreement, the Logos are not licensed herein for use as certification marks or
indications of a particular standard of quality. Any exclusivity granted
hereunder shall be subject to presently outstanding agreements granted by the
Clubs. Further, any exclusivity granted hereunder shall pertain only to the
extent of the items described and, if given, at the price set forth in Schedule
E. Licensor warrants and represents that as the agent for the Clubs, pursuant
to authority granted by the Clubs, it has the full authority to license the
Logos in connection with the manufacture, distribution, promotion, advertisement
and sale of the Licensed Product(s).
2. TERRITORY: Licensee shall be entitled to use the license granted
hereunder only in the territory described in Schedule C attached hereto (herein
such territory is called "Licensed Territory"). Licensee will not make use of
or authorize any use of this license or the Licensed Product(s) outside the
Licensed Territory or distribute or sell the Licensed Product(s) directly or
through others to retailers outside the Licensed Territory.
3. LICENSE PERIOD: The license granted hereunder shall be effective and
terminate as of the dates specified in Schedule D attached hereto, unless sooner
terminated or renewed in accordance with the terms and conditions hereof.
<PAGE>
4. PAYMENT: A. Advance and Guaranteed Compensation: Licensee agrees to
pay Licensor the sums specified in Schedule E attached hereto, as advance
minimum compensation (herein called "Advance Compensation") and as guaranteed
minimum compensation (herein called "Guaranteed Compensation"). The Advance
Compensation shall be paid as set forth in Schedule E, and shall apply against
Percentage Compensation as defined below. The Guaranteed Compensation shall be
paid as provided in Schedule E except to the extent that paid Advance
Compensation and annual cumulative payments of Percentage Compensation shall
theretofore have offset all or a portion of the total of such Guaranteed
Compensation. Notwithstanding the foregoing, no part of Percentage Compensation
which may be attributable to premium sales (as defined hereunder) of the
Licensed Product(s) shall serve to offset any part of the Total Guaranteed
Compensation specified in Schedule E. No part of such Advance Compensation and
no part of such Guaranteed Compensation shall be repayable to Licensee in any
event, except as is expressly provided for herein.
B. Percentage Compensation: Licensee agrees to pay Licensor a sum equal
to the percentage specified in Schedule E (or Licensor's prevailing rate, if
greater) of all net sales (as defined below) by Licensee or any of its
affiliated, associated or subsidiary entities of the Licensed Product(s) covered
by this Agreement. (Such percentage of net sales is herein called "Percentage
Compensation.") Percentage Compensation shall be payable concurrently with the
periodic statements required in the following paragraph, except to the extent
offset by Guaranteed Compensation theretofore remitted. The term "net sales"
shall mean gross sales based on the wholesale price to the retail trade less
quantity discounts and actual returns, but no deduction shall be made for
uncollectible accounts, commissions, taxes, discounts other than quantity
discounts, such as cash discounts and discounts attributable to the issuance of
a letter of credit, or any other amount. No costs incurred in the manufacture,
sale, distribution, promotion or advertisement of the Licensed Product(s) shall
be deducted from any Percentage Compensation payable by Licensee. Said
Percentage Compensation shall also be paid by Licensee to Licensor on all
Licensed Product(s) (including, without limitation, any irregulars, seconds,
etc. distributed pursuant to the provisions of Paragraph 10 of this Agreement)
distributed by Licensee or any of its affiliated, associated or subsidiary
entities even if not billed or billed at less than usual net sales price for
such Licensed Product(s), and shall be based upon the usual net sales price for
such Licensed Product(s) sold to the trade by Licensee. Any late payments of
Advance Compensation, Guaranteed Compensation or Percentage Compensation shall
require Licensee to pay Licensor, in addition to the amounts due, interest at
one percent (1%) per month or the highest prime lending rate of Chemical Bank
during the period such amounts are delinquent, whichever is greater, on the
amounts delinquent for the period of the delinquency, without prejudice to any
other rights of Licensor in connection therewith.
C. Catalog Contribution: Licensee agrees that Licensor shall have the
right in its sole discretion and in a style and manner in which it chooses, to
print catalogs, sales sheets or brochures (hereinafter "catalogs") wherein
representative merchandise from licensees of Licensor shall be displayed. In
this regard, Licensee agrees it will purchase from Licensor, at prevailing
rates, a minimum of one page in every catalog published during the term of this
Agreement in order to promote the Licensed Product(s), unless Licensee's
purchase obligation is excused by
<PAGE>
Licensor in writing. Licensee shall promptly pay all amounts due upon invoicing
and shall timely furnish materials necessary to the publication of the catalogs.
All payments made by Licensee in connection with the publication of the catalogs
shall be in addition to all other payments, and shall not be credited against
Advance Compensation, Guaranteed Compensation or Percentage Compensation
otherwise required hereunder.
5. PERIODIC STATEMENTS: Within thirty (30) days after the first day of
the license period, and promptly on the 15th day of every calendar month
thereafter, Licensee shall furnish to Licensor complete and accurate statements,
certified to be accurate by Licensee, or if a corporation, by an officer of
Licensee, showing the sales volume of each Licensed Product (itemized by Club,
for each applicable Licensed Product), gross sales price, itemized deductions
from gross sales price, and net sales price of the Licensed Product(s)
distributed and/or sold by Licensee during the preceding calendar month,
together with any returns made during the preceding calendar month. Such
statements shall be furnished to Licensor whether or not any of the Licensed
Product(s) have been sold, or any payment is shown to be due Licensor, during
the calendar months in which such statements are due. Licensee shall furnish to
Licensor sufficient background information so as to make such statements
intelligible to Licensor, and on an annual basis, a complete list of Licensee's
customers to whom Licensed Product(s) have been sold. Licensor agrees that it
will not divulge said customer list to any other licensee, to any other
competitor licensing organization, or to any competitor of Licensee. Receipt or
acceptance by Licensor of any of the statements furnished pursuant to this
Agreement or of any sums paid hereunder shall not preclude Licensor from
questioning the correctness thereof at any time, and in the event that any
inconsistencies or mistakes are discovered in such statements or payments, they
shall immediately be rectified and the appropriate payments made by Licensee.
Late payment penalties, if any, shall be made pursuant to Paragraph 4.B. Upon
demand of Licensor, Licensee shall at its own expense, but not more than once in
any twelve (12) month period, furnish to Licensor a detailed statement certified
by an independent certified public accounting firm approved by Licensor showing
the sales volume of each Licensed Product (itemized by Club, for each applicable
Licensed Product), gross sales price, itemized deductions from gross sales price
and net sales price of the Licensed Product(s) covered by this Agreement
distributed and/or sold by Licensee to the date of the Licensor's demand. All
amounts payable pursuant to this Agreement shall be in U.S. dollars only.
6. BOOKS AND RECORDS: Licensee shall keep, maintain and preserve in its
principal place of business for at least two (2) years following termination or
expiration of this Agreement or any renewal thereof, complete and accurate
records and accounts covering all transactions relating to this Agreement and
pertaining to the various items required to be shown on the statements to be
submitted by Licensee, including, without limitation, invoices, correspondence
and banking, financial and other records in Licensee's possession or under its
control. Such records and accounts shall be available for inspection and audit
(and copying at Licensor's expense) at any time or times during or after the
term or terms of this Agreement during reasonable business hours and upon
reasonable notice by Licensor or its representatives. Licensee agrees not to
cause or permit any interference with Licensor or representatives of Licensor in
the performance of their duties of inspection and audit.
3
<PAGE>
The exercise by Licensor, in whole or in part or at any time or times, of
the right to audit records and accounts or of any other right herein granted,
the acceptance by Licensor of any statement or statements or the receipt and
deposit by Licensor of any payment tendered by or on behalf of Licensee shall be
without prejudice to any rights or remedies of Licensor and shall not estop or
prevent Licensor from thereafter disputing the accuracy of any such statement or
payment.
If pursuant to its right hereunder to audit and inspect Licensor causes an
audit and inspection to be instituted which thereafter discloses a deficiency of
three percent (3%) or more between the amount found to be due to Licensor and
the amount actually paid or credited to Licensor, then Licensee shall be
responsible for payment of the entire deficiency, together with interest thereon
at the then current prime rate of Chemical Bank or its successor from the date
such amount became due until the date of payment, and the costs and expenses of
such audit and inspection. If the audit discloses a deficiency of less than
three percent (3%) between the amount found to be due to Licensor and the amount
actually paid or credited to Licensor, and if the amount actually paid or
credited to Licensor plus the deficiency exceeds the Guaranteed Compensation for
the period covered by the deficiency, then Licensee shall pay Licensor the
amount the deficiency plus interest as calculated above.
7. INDEMNIFICATIONS AND PROTECTIONS: A. Licensor hereby agrees to
indemnify, defend and hold Licensee and its owners, shareholders, directors,
officers, employees, agents, representatives, successors and assigns harmless
from any claims, suits, damages or costs (including reasonable attorneys' fees
and expenses) arising from (i) challenges to Licensor's authority as agent for
and pursuant to authority granted by the Clubs to license the Logos in
connection with the manufacture, distribution, promotion, advertisement and sale
of the Licensed Product(s) or (ii) assertions to any claim of right or interest
in or to the Logos as authorized and used on the Licensed Products, provided in
each case that Licensee shall give prompt written notice, cooperation and
assistance to Licensor relative to any such claim or suit, and provided further
in each case that Licensor shall have the option to undertake and conduct the
defense of any suit so brought and to engage in settlement thereof at its sole
discretion.
B. Licensee shall assist Licensor, to the extent necessary, in the
procurement of any protection or to protect any of Licensor's rights to the
Logos, and Licensor, if it so desires and in its sole discretion, may commence
or prosecute any claims or suits in its own name or in the name of Licensee or
join Licensee as a party thereto. Licensee shall notify Licensor in writing of
any infringements or imitations by others of the Logos of which it is aware.
Licensor shall have the sole right to determine whether or not any action shall
be taken on account of such infringements or imitations. Licensee shall not
institute any suit or take any action on account of any such infringements or
imitations without first obtaining the written consent of Licensor to do so.
Licensee agrees that it is not entitled to share in any proceeds received by
Licensor (by settlement or otherwise) in connection with any formal or informal
action brought by Licensor hereunder.
4
<PAGE>
C. Licensee hereby agrees to indemnify, defend and hold Licensor, the
Clubs, the Leagues and the Office of the Commissioner of Baseball and their
respective owners, shareholders, directors, officers, employees, agents,
representatives, successors and assigns harmless from any claims, suits, damages
and costs (including reasonable attorneys' fees and expenses) arising out of (i)
any unauthorized use of or infringement of any trademark, service mark,
copyright, patent, process, method or device by Licensee in connection with the
Licensed Product(s) covered by this Agreement, (ii) alleged defects or
deficiencies in said Licensed Product(s) or the use thereof, or false
advertising, fraud, misrepresentation or other claims related to the Licensed
Product(s) not involving a claim of right to the Logos, (iii) the unauthorized
use of the Logos or any breach by Licensee of this Agreement, (iv) libel or
slander against, or invasion of the right of privacy, publicity or property of,
or violation or misappropriation of any other right of any third party, and/or
(v) agreements or alleged agreements made or entered into by Licensee to
effectuate the terms of this Agreement. Licensor shall give Licensee notice of
the making of any claim or the institution of any action hereunder and Licensor
may at its option participate in any action. The indemnifications hereunder
shall survive the expiration or termination of this Agreement.
8. INSURANCE: Licensee agrees to obtain, at its own cost and expense,
comprehensive general liability insurance including product liability insurance
from an insurance company acceptable to Licensor, providing adequate protection
for Licensor, the Clubs, the Leagues, the Office of the Commissioner of Baseball
and Licensee against any claims or suits arising out of any of the circumstances
described in Paragraph 7C above for which insurer is able to provide insurance,
in an amount no less than $5,000,000.00 (five million dollars) per incident or
occurrence, or Licensee's standard insurance policy limits, whichever is
greater, and with a reasonable deductible in relation thereto. Such insurance
shall remain in force at all times during the license period and for a period of
five years thereafter. Within thirty (30) days from the date hereof, Licensee
will submit to Licensor a fully paid policy or certificate of insurance naming
Licensor, the Leagues and the Office of the Commissioner of Baseball as
additional insured parties and requiring that the insurer shall not terminate or
materially modify such policy or certificate of insurance without written notice
to Licensor at least thirty (30) days in advance thereof.
9. COPYRIGHT AND TRADEMARK NOTICES AND REGISTRATIONS: Licensee further
agrees that in any instance wherein the Logos of the Clubs and/or the Leagues
are used, the following general notice shall be included (i.e., on the product,
on a label, on the packaging material or on a separate slip of paper attached to
the product): "The Major League Club insignias depicted on this product are
trademarks which are the exclusive property of the respective Major League Clubs
and may not be reproduced without their written consent." Further, all products
containing the Logos shall contain a hangtag and label with Licensee's name
stating "Genuine Merchandise" and containing the Major League Baseball
silhouetted batter logo and, where appropriate, the Major League Baseball
Cooperstown Collection logo or Major League Baseball Authentic Diamond
Collection logo. All Licensed Product(s) shall contain a permanently affixed
label that displays Licensee's name. All Licensed Product(s) components which
bear any of the Logos (embroidered emblems, cloth or paper labels, hangtags,
etc.) shall
5
<PAGE>
be manufactured in-house by Licensee or shall be obtained only from one or more
suppliers officially authorized by Licensor to produce those components. All
Licensee advertisements displaying the Logos, all retailer advertisements
featuring Licensed Product(s) and of which Licensee has knowledge or any
Licensed Product(s), shall contain the words "Genuine Merchandise" and the
silhouetted batter logo. Licensee shall require those to whom it sells Licensed
Product(s) directly or indirectly to display the words "Genuine Merchandise" (or
such other appropriate notice as directed by Licensor) and the silhouetted
batter logo in all advertisements. All uses of the Logos shall also include any
designations legally required or useful for enforcement of copyright, trademark
or service mark rights (e.g., "(c)," "(R)" or "TM"). Licensee shall submit a
copy of its specifications for all of the above notices (including copies of its
artwork, layouts or mold blueprints) to Licensor for its review. Licensor shall
have the right to revise the above notice requirements and to require such other
notices as shall be reasonably necessary to protect the interests of Licensor,
the Clubs and/or the Leagues in the respective Logos. Licensee agrees to advise
Licensor of the initial date of the marketing of each Licensed Product, and upon
request, to deliver to Licensor the required number and type of specimen samples
of the Licensed Product, labels or the like upon which the Logos are used for
use in procuring copyright, trademark and/or service mark registrations in the
name of and at the expense of the person, firm, corporation or other legal
entity owning the Logos, in compliance with any laws relating to copyright,
trademark and service mark registrations. Except to the extent set forth in any
schedules attached to this Agreement, Licensor, the Clubs and/or the Leagues
shall be solely responsible for taking such action as it or they deem
appropriate to obtain such copyright, trademark or service mark registrations
for its or their Logos. If it shall be necessary for Licensee to be the
applicant to effect any such registrations, Licensee shall and hereby does
assign all of its rights in each such application and any resulting registration
to Licensor or any other appropriate owner thereof, and further agrees to
execute all papers necessary to effectuate and/or confirm such assignments.
Licensee shall perform all acts necessary and execute all documents necessary to
effectuate its registration as a user of the Logos where such registration is
needed.
Licensee also agrees that, in any case where it employs the services of
photographers or artists in connection with the production, promotion, marketing
or distribution of the Licensed Product(s), it will require each such
photographer or artist to agree that the photographic or artistic works he or
she produces for Licensee shall be "works made for hire" for the purposes of the
copyright laws, and that to the extent such photographic or artistic works may
not qualify as "works made for hire," the copyright in each such work is
assigned to Licensee.
10. APPROVALS: Licensor shall have absolute approval of the Licensed
Product(s) and of all packaging, advertising and promotional material at all
stages of the development thereof. Licensee agrees to furnish in a timely
manner to Licensor, free of cost, for its written approval as to quality and
style, designs of each Licensed Product and samples of each Licensed Product
before its manufacture, sale, promotion, advertisement or distribution,
whichever first occurs, and samples of all advertising, point-of sale displays,
catalogs, sales sheets and other items that display or picture the Logos, and no
such Licensed Product or other such materials shall be manufactured, sold,
promoted, advertised or distributed by Licensee without such prior
6
<PAGE>
written approval. In particular, no use of any Logo or Logos shall be made on
stationery of Licensee (specifically including, without limitation, letterhead,
envelopes, business cards, shopping bags, invoices, statements, packing slips,
etc.) without Licensor's express written approval in advance of any such use.
In addition, no irregulars, seconds or other Licensed Products which do not
conform in all material respects to the approved samples may be distributed or
sold without the express written advance consent of Licensor. All such sales,
if made, shall bear Percentage Compensation as set forth in Paragraph 4.B.
Subject, in each instance, to the prior written approval of Licensor, Licensee
or its agents may use textual and/or pictorial matter pertaining to the Logos on
such promotional display and advertising material as may, in its judgment,
promote the sale of the Licensed Product(s). All promotional display and
advertising material must contain and prominently display the official logo of
Licensor. Ten samples of each Licensed Product shall be supplied free of cost
to Licensor, and one to each Club whose Logos are used on such Licensed
Product(s). From time to time subsequent to final approval, a reasonable number
of production samples shall periodically be sent to Licensor free of cost. Such
samples shall also be sent upon any change in design, style or quality, which
shall necessitate subsequent approvals by Licensor. Additional samples shall be
supplied to Licensor upon request at no more than cost. Licensor shall also
have the right to inspect Licensee's plants, warehouses or storage facilities at
any reasonable time without notice.
In the event that any item or matter submitted to Licensor under this
Agreement for approval or consent shall not have been approved or consented to,
disapproved or denied, or commented upon within twenty (20) Licensor business
days after receipt thereof by Licensor (both Licensing Director and Licensed
Product Compliance), and Licensor (both Licensing Director and Licensed Product
Compliance) shall have received notice from Licensee that comment is overdue by
telegram or other written communication, and Licensor shall not have commented
within five (5) additional Licensor business days of receipt of such notice, any
items or matters so submitted shall be deemed approved and consented to.
In any instance where any matter is required to be submitted to Licensor
for Licensor's approval, that approval shall be granted or withheld in
Licensor's sole discretion.
11. DISTRIBUTION: Licensee shall sell the Licensed Product(s) to jobbers,
wholesalers, distributors or retailers for sale or resale and distribution to
retail stores and merchants for their resale and distribution or directly to the
public. In the event Licensee sells or distributes a Licensed Product at a
special price directly or indirectly to itself, including, without limitation,
any subsidiary of Licensee, or to any other person, firm or corporation related
in any manner to Licensee or its officers, directors or major stockholders,
Licensee shall pay compensation with respect to such sales or distribution based
upon the price generally charged the trade by Licensee.
12. GOODWILL: Licensee recognizes the great value of the publicity and
goodwill associated with the Logos and, in such connection, acknowledges that
such goodwill belongs exclusively to Licensor, the Clubs, the Office of the
Commissioner of Baseball and/or the
7
<PAGE>
Leagues and that the Logos have acquired a secondary meaning in the minds of the
purchasing public.
13. SPECIFIC UNDERTAKINGS OF LICENSEE: During the license period, each
additional license period if any and thereafter, Licensee agrees that:
A. It will not acquire any rights in the Logos as a result of its use
thereof and all use of the Logos shall inure to Licensor's benefit;
B. It will not, directly or indirectly, attack the title of Licensor, the
Clubs, the Office of the Commissioner of Baseball and/or the Leagues in and to
the Logos or any copyright, trademark or service mark pertaining thereto, nor
will it attack the validity of the license granted hereunder, nor will it use
the Logos in any manner other than as licensed hereunder;
C. It will not at any time apply for any registration of any copyright,
trademark, service mark or other designation which would affect the ownership of
the Logos, or file any document with any governmental authority or take any
action which would affect the ownership of the Logos or aid or abet anyone in
doing so;
D. It will not harm, misuse or bring into disrepute the Logos;
E. It will manufacture, sell, promote, advertise and distribute the
Licensed Product(s) in a legal and ethical manner and in accordance with the
terms and intent of this Agreement;
F. It will not create any expenses chargeable to Licensor without the
prior written approval of Licensor;
G. It will protect to the best of its ability the right to manufacture,
sell and distribute the Licensed Product(s) hereunder;
H. It will not use the Licensed Product(s) for combination sales, as
self-liquidating or free giveaways or for any similar method of merchandising
without the prior written consent of Licensor and will exercise due care that
its customers likewise will refrain from making such use of the Licensed
Product(s);
I. It will not, without the prior written consent of Licensor, enter into
any sublicense or agency agreement for the manufacture, sale, promotion,
advertisement or distribution of the Licensed Product(s);
J. It will not engage in tying practices, illegal restraints of trade, or
selling practices that exclude any members of the retail trade for any reason
other than poor credit history, known lack of integrity or disregard for the
rights of Licensor or Major League Baseball. Nothing in the preceding sentence
shall be deemed to require Licensee to violate any other term of this Agreement;
8
<PAGE>
K. It will not use, or knowingly permit the use of, the Licensed
Product(s) as a premium, except with the prior written consent of Licensor and
the specific negotiation of a higher royalty payment therefor. For purposes of
this subparagraph and Paragraph 19 below, the term "premium" shall be defined as
including, but not necessarily limited to, free or self-liquidating items
offered to the public in conjunction with the sale or promotion of a product or
service, including traffic building or continuity visits by the
consumer/customer, or any similar scheme or device, the prime intent of which is
to use the Licensed Product(s) in such a way as to promote, publicize and/or
sell the products, services or business image of the third party company or
manufacturer. "Premium" use shall also specifically include distribution of the
Licensed Product(s) for retail sale through distribution channels (including,
without limitation, catalogs) offering earned discounts or "bonus" points based
upon the extent of usage of the offeror's product or service;
L. It will comply with such guidelines and/or requirements as Licensor
may announce from time to time. It will comply with all laws, regulations and
standards relating or pertaining to the manufacture, sale, advertising or use of
the Licensed Product(s) and shall maintain the highest quality and standards,
and shall comply with the requirements of any regulatory agencies (including,
without limitation, the United States Consumer Safety Commission) which shall
have jurisdiction over the Licensed Product(s);
M. It guarantees that Licensor, Clubs, official Club and/or Licensor
retail stores, Club in-stadium concessionaires and the Clubs belonging to The
National Association of Professional Baseball Leagues ("NAPBL Clubs") will
obtain the Licensed Product(s) for retail sale at lowest possible wholesale
prices and shall receive prompt shipments and/or deliveries of the Licensed
Product(s), without regard to the relatively small volume their orders may
represent. Licensor, Clubs and NAPBL Clubs may obtain the Licensed Product(s)
for their use, but not resale, at the manufacturer's lowest possible price,
which shall in no event be greater than its lowest wholesale price;
N. It will furnish to Licensor, upon request of Licensor (which shall be
made only for reasonable cause and no more often than one per year), a list of
all its distributors, sales representatives and jobbers for the Licensed
Product(s), as well as a list of all its "trade names," said list to include the
company name, address, telephone number, territorial representation and key
contact name. Licensor agrees that it will not divulge any information provided
to it under this paragraph to any other competitor licensing organization;
O. Concurrently with its execution of this Agreement, it will provide
Licensor with the names, addresses, telephone numbers and names of principal
contacts of each party (hereinafter referred to as "Manufacturer"), both
domestic and foreign, that Licensee desires or intends to have produced one or
more of the Licensed Products in the event Licensee desires not to be the
manufacturer of such Licensed Product(s). This information shall be set out in
Schedule F of this Agreement and Licensee shall specify the Licensed Product(s)
Manufacturer will produce. In the event Licensee wishes to substitute a
Manufacturer for those listed in Schedule F or wishes to add to the number of
Manufacturers, Licensee shall first provide
9
<PAGE>
Licensor with the information set out in Schedule F regarding the proposed new
Manufacturers for Licensor's written approval of such Manufacturers. Licensee's
failure to do so may result in termination of this Agreement and/or confiscation
and seizure of the Licensed Product(s). Licensee shall ensure that:
(a) Manufacturer produces no merchandise bearing the Logos other than
the Licensed Product(s) described in Schedule F of this Agreement unless
authorized by Licensor;
(b) Manufacturer produces the Licensed Product(s) only as and when
directed by Licensee and in accordance with the terms herein and in
compliance with all laws, regulations and governmental rules applicable to
the Licensed Product(s) and/or their manufacture;
(c) Manufacturer does not supply the Licensed Product(s) to any
person, firm, corporation or business entity other than Licensee or to such
entities as may be authorized by Licensee and Licensor jointly; and
(d) Manufacturer does not delegate in any manner whatsoever its
obligations with respect to the Licensed Product(s).
Prior to the delivery of the Licensed Product(s) from Manufacturer to Licensee,
Licensee shall submit to Licensor, free of cost, for its written approval as to
quality and style, at least two samples of the Licensed Product(s) produced by
Manufacturer;
P. It will not manufacture or allow the manufacture, or accumulate
inventory, of the Licensed Product(s), at a rate greater than its average rate
during the license period as the end of the license period approaches;
Q. It will not sell the Licensed Product(s) to parties whom it knows or
reasonably should know will resell or distribute such Product(s) outside the
Licensed Territory;
R. It will not disclose any confidential, private, restricted or
otherwise nonpublic information concerning Major League Baseball which, it
acknowledges, it may become privy to during the term of this Agreement;
S. It will not grant to any third person or entity a security interest in
the Licensed Product(s) without Licensor's prior written approval;
T. It has not had and does not have an investment or interest in casinos,
any other form of legalized gambling enterprise, or any activity that Licensor
or any other Major League Baseball related entity has made unauthorized or which
is contrary to official policy of Major League Baseball; and
10
<PAGE>
U. With respect to any Licensed Products manufactured outside the United
States, (i) it will take receipt of goods at U.S. ports of entry, (ii) it will
not allow any entity in the United States, including but not limited to
distributors, wholesalers and retailers, to accept shipment of the Licensed
Products from any non-U.S. manufacturer of such Products, and (iii) it will
distribute such Products to third parties, including but not limited to
distributors, wholesalers and retailers, from Licensee's principal place of
business only.
14. APPROVAL OF MANUFACTURER, ETC.: Nothing contained herein may be
construed so as to imply endorsement of Manufacturer by Licensor, the Office of
the Commissioner of Baseball, the Leagues or the Clubs. Licensee shall seek
Licensor's written approval of Manufacturer prior to Licensee's engagement of
Manufacturer. Any approval of Manufacturer granted by Licensor relates solely
to the manufacturing of the Licensed Product(s) and shall not constitute a grant
of any right, title or interest in or to the Logos, nor to any copyrights,
service marks, trademarks or other property rights associated therewith.
Licensor hereby reserves the right to terminate in its discretion the engagement
of Manufacturer at any time. Additionally, Licensor may confiscate goods or
samples imported by Licensee or shipped by Manufacturer that bear any of the
Logos and that have not been approved by Licensor as to quality.
15. ACKNOWLEDGEMENT OF RIGHTS: Licensee hereby acknowledges the
proprietary nature of all names and logos of the Major League Baseball Clubs,
the Leagues, the Office of the Commissioner of Baseball or Licensor and
acknowledges that all rights, title and interest to such names or logos belong
to the individual Clubs, the Leagues, the Office of the Commissioner of Baseball
and/or Licensor, as the case may be. Licensee represents that it has not made
any unauthorized use of names or logos of the Major League Baseball Clubs, the
Leagues, the Office of the Commissioner of Baseball or Licensor and agrees that
it will make no use of any such names or logos, other than as provided in this
Agreement, without the prior written consent of Licensor, the Office of the
Commissioner of Baseball or the appropriate individual League or Club. Any use
Licensee has made or will make of such names and logos has not conferred or will
not confer, as the case may be, any rights or benefits upon it whatsoever, and
any rights created by such use shall inure to the benefit of the individual
Clubs, the Leagues, the Office of the Commissioner of Baseball and/or Licensor,
as the case may be.
16. TERMINATION: A. Immediate Termination: Licensor shall have the
right to terminate this Agreement immediately upon the occurrence of any one or
more of the following events (herein called "defaults"):
(i) If Licensee fails to deliver to Licensor or to maintain in full
force and effect the insurance referred to in Paragraph 8 hereof; or
(ii) If any governmental agency or court of competent jurisdiction finds
that the Licensed Product(s) are defective in any way, manner or form; or
11
<PAGE>
(iii) If Licensee shall breach any one of the following undertakings set
forth in Paragraph 13 hereof: 13A through F, H through J, Q, R or T; or
(iv) If Licensee shall undergo a change in majority or controlling
ownership.
B. Termination With Cure Period: Licensor shall have the right to
terminate this Agreement upon the occurrence of any one or more of the following
defaults, and Licensee's failure to cure such default(s) completely within ten
(10) business days from Licensee's receipt of notice from Licensor:
(i) If Licensee fails to make any payment due hereunder on the date due,
at which time all monies which are owed during the current term or renewal
referred to in Schedule E of this Agreement shall become due and payable to
Licensor; or
(ii) If Licensee fails to deliver any of the statements hereinabove
referred to or to give access to the premises and/or license records pursuant to
the provisions hereof to Licensor's authorized representatives for the purposes
permitted hereunder; or
(iii) If Licensee is unable to pay its debts when due, or makes any
assignment for the benefit of creditors or an arrangement pursuant to any
bankruptcy law, or files or has filed against it any petition under the
bankruptcy or insolvency laws of any jurisdiction, county or place, or shall
have or suffer a receiver or trustee to be appointed for its business or
property, or be adjudicated a bankrupt or an insolvent. In the event the
license granted hereunder is terminated pursuant to this Paragraph 16(B)(iii),
neither Licensee nor its receivers, representatives, trustees, agents,
administrators, successors and/or assigns shall have any right to sell, exploit
or otherwise deal with or in the Licensed Product(s) without the prior written
consent of Licensor; or
(iv) If Licensee does not commence in good faith to manufacture,
distribute and sell each Licensed Product throughout the Licensed Territory
within any twelve (12) month period, but such default and Licensor's resultant
right of termination shall apply only to the specific Licensed Product(s) and/or
the specific territory(ies) which or wherein Licensee fails to meet said
requirements; or
(v) If Licensee shall discontinue its business as it is now conducted;
or
(vi) If Licensee shall breach any of the undertakings set forth in
Paragraph 13 hereof, except as otherwise provided in Paragraph 16(A)(iii) above;
or
(vii) If Licensee shall breach any of the terms of this Agreement; or
(viii) If, in the periodic statements furnished pursuant to Paragraph 5
hereof, the amounts owed to Licensor are significantly or consistently
understated.
12
<PAGE>
Licensor's right to terminate this Agreement shall be without prejudice to
any other rights which it may have, whether under the provisions of this
Agreement, in law or in equity or otherwise. In the event any of these defaults
occurs and Licensor desires to exercise its right of termination under the terms
of this Paragraph 16, Licensor shall give notice of termination in writing to
Licensee. Any and all payments then or later due from Licensee hereunder
(including Advance Compensation) shall then become promptly due and payable in
full to Licensor and without set off of any kind; i.e., no portion of any prior
payments made to Licensor shall be repayable to Licensee. Until payment to
Licensor of any monies due it, Licensor shall have a lien on any units of the
Licensed Product(s) not then disposed of by Licensee and on any monies due
Licensee from any jobber, wholesaler, distributor, sublicensee or other third
parties with respect to sales of the Licensed Product(s). Upon termination or
expiration of the term hereof, all rights, licenses and privileges granted to
Licensee hereunder shall automatically revert to Licensor and Licensee shall
execute any and all documents evidencing such automatic reversion.
17. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Licensee shall
deliver to Licensor, as soon as practicable, following expiration or termination
of this Agreement, a statement indicating the number and description of the
Licensed Product(s) on hand. Following expiration or termination Licensee may
manufacture no more Licensed Product(s), but may continue to distribute its
remaining inventory for a period not to exceed ninety (90) days, subject to the
terms of Paragraph 13(P) hereof and payment of applicable royalties relative
thereto; provided, however, that such royalties shall not be applicable against
Advance Compensation or Guaranteed Compensation. Notwithstanding the foregoing,
Licensee shall not manufacture, sell or distribute any Licensed Product(s) after
the expiration or termination of this Agreement because of (a) the failure of
Licensee to cause the appropriate statutory notice of copyright, trademark,
service mark or user registration to appear wherever the Logos are used; (b) the
departure of Licensee from the quality and style approved by Licensor under the
terms of Paragraph 10 hereof; (c) the failure of Licensee to obtain the approval
of Licensor under the terms of Paragraph 10 hereof; or (d) the occurrence of an
event of default under the terms of Paragraph 16 hereof. Licensor shall have
the option to conduct physical inventories before termination and continuing
until the end of the 90-day sell-off period in order to ascertain or verify such
inventories and/or statement. Immediately upon expiration of the sell-off
period, Licensee shall furnish Licensor a detailed statement certified by an
officer of Licensee showing the number and description of Licensed Products on
hand in its inventory and shall dispose of such inventory at Licensor's
direction and at Licensee's expense. In the event Licensee refuses to permit
Licensor to conduct such physical inventory, Licensee shall forfeit its right
hereunder to dispose of such inventory. In addition to such forfeiture,
Licensor shall have recourse to all other remedies available to it.
18. INJUNCTION: Licensee acknowledges that its failure to perform any of
the terms or conditions of this Agreement, or its failure upon the expiration or
termination of this Agreement to cease the manufacture of the Licensed
Product(s) and limit their distribution and sale as provided in Paragraph 17
hereof, shall result in immediate and irreparable damage to Licensor. Licensee
also acknowledges that there may be no adequate remedy at law for such
13
<PAGE>
failures and that in the event thereof Licensor shall be entitled to equitable
relief in the nature of an injunction and to all other available relief, at law
and/or in equity.
19. RESERVATION OF RIGHTS: Licensor retains all rights not expressly and
exclusively conveyed herein, and Licensor may license firms, individuals,
partnerships or corporations to use the Logos, artwork and textual matter in
connection with other products, including other products identical to the
Licensed Product(s) contemplated herein. Licensor reserves the right to use, or
license others to use and/or manufacture, identical items as premiums.
20. PAYMENTS AND NOTICES: All notices and statements provided for herein
shall be in writing, and all notices hereunder are to be sent to Major League
Baseball Properties, Inc., 350 Park Avenue, New York, New York 10022,
Attention: President. All statements and payments shall be made to Major
League Baseball Properties and sent to an address designated by Licensor.
21. WAIVER, MODIFICATION, ETC.: No waiver, modification or cancellation
of any term or condition of this Agreement shall be effective unless executed in
writing by the party charged therewith. No written waiver shall excuse the
performance of any act other than those specifically referred to therein. No
waiver by either party hereto of any breach of this Agreement shall be deemed to
be a waiver of any preceding or succeeding breach of the same or any other
provision hereof. The exercise of any right granted to either party hereunder
shall not operate as a waiver. The normal expiration of the term of this
Agreement shall not relieve either party of its respective obligations accruing
prior thereto, nor impair or prejudice the respective rights of either party
against the other, which rights by their nature survive such expiration.
Licensor makes no warranties or representations to Licensee except those
specifically expressed herein.
22. NO PARTNERSHIP, ETC.: This Agreement does not constitute and shall
not be construed as constituting an agency, partnership or joint venture
relationship between Licensee and Licensor and/or the Clubs. Licensee shall
have no right to obligate or bind Licensor in any manner whatsoever, and nothing
herein contained shall give or is intended to give any rights of any kind to any
third persons.
23. NON-ASSIGNABILITY: Licensee acknowledges and recognizes: (a) that it
has been granted the license described in Paragraph 1 because of its particular
expertise, knowledge, judgement, skill and ability; (b) that it has substantial
and direct responsibilities to perform this Agreement in accordance with all of
the terms contained herein; (c) that Licensor is relying on Licensee's unique
knowledge, experience and capabilities to perform this Agreement in a specific
manner consistent with the high standards of integrity and quality associated
with Major League Baseball as a national sport and with Major League Baseball
licensed merchandise; and (d) that the granting of the license under this
Agreement creates a relationship of confidence and trust between Licensee and
Licensor. This Agreement is personal to Licensee, and Licensee shall not
sublicense or franchise any of its rights hereunder, and neither this Agreement
nor any of the
14
<PAGE>
rights of Licensee hereunder shall be sold, transferred or assigned by Licensee
without Licensor's prior written approval and no rights hereunder shall devolve
by operation of law or otherwise upon any assignee, receiver, liquidator,
trustee or other party. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
successors and assigns.
24. PARAGRAPH HEADINGS: Paragraph headings contained in this Agreement
are for convenience only and shall not be considered for any purpose in
governing, limiting, modifying, construing or affecting the provisions of this
Agreement and shall not otherwise be given any legal effect.
25. CONSTRUCTION: This Agreement shall be construed in accordance with
the laws of the State of New York, which shall be the sole jurisdiction for any
disputes.
26. SEVERABILITY: The determination that any provision of this Agreement
is invalid or unenforceable shall not invalidate this Agreement, and the
remainder of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
27. TIME OF THE ESSENCE: Time is of the essence of all parts of this
Agreement.
28. ACCEPTANCE BY LICENSOR: This instrument, when signed by Licensee or a
duly authorized officer of Licensee if Licensee is a corporation, shall be
deemed an application for a license and not a binding agreement unless and until
signed by a duly authorized officer of Licensor. The receipt and/or deposit by
Licensor of any check or other consideration given by Licensee and/or the
delivery of any material by Licensor to Licensee shall not be deemed an
acceptance by Licensor of this application. The foregoing shall also apply to
any documents relating to renewals or modifications hereof.
29. INTEGRATION: This Agreement, when fully executed, shall represent the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersedes all previous representations, understandings or
agreements, oral or written, between the parties with respect to the subject
matter hereof.
30. SURVIVAL OF PROVISIONS: Paragraphs 2, 6, 7C, 8, 12, 13A, B, C, D, F,
H, I, K, Q and R, 15, 17, 18, 19, 21, 22, 24, 25, 26, 30 and 31 shall survive
any termination or expiration of this Agreement.
31. MISCELLANEOUS: By signing below, Licensee acknowledges that this
Agreement is for the term specified in Schedule D only and that neither the
existence of this Agreement nor anything contained herein shall impose on
Licensor any obligation to renew or otherwise extend this Agreement after
expiration of the license period.
15
<PAGE>
SCHEDULE A
----------
LOGOS
- -----
The names, characters, symbols, designs, likenesses, visual representations
and such other similar or related identifications (but such similar or related
identifications must be approved in writing by Licensor in advance of use) of
the following noted organizations in connection with the marketing, promotion
and sale of that described in Schedule B hereof: (1) Major League Baseball
Properties, Inc., (2) the American League, (3) the National League and (4) the
following Clubs: Arizona Diamondbacks, Tampa Bay Devil Rays, Baltimore Orioles,
Boston Red Sox, California Angels, Chicago White Sox, Cleveland Indians, Detroit
Tigers, Kansas City Royals, Milwaukee Brewers, Minnesota Twins, New York
Yankees, Oakland Athletics, Seattle Mariners, Texas Rangers, Toronto Blue Jays,
Atlanta Braves, Chicago Cubs, Cincinnati Reds, Colorado Rockies, Florida
Marlins, Houston Astros, Los Angeles Dodgers, Montreal Expos, New York Mets,
Philadelphia Phillies, Pittsburgh Pirates, St. Louis Cardinals, San Diego Padres
and San Francisco Giants.
SCHEDULE B
----------
LICENSED PRODUCT(S)
- -------------------
*** ALL LICENSED PRODUCTS SHALL CONFORM TO LICENSOR'S
THEN-CURRENT LABELING REQUIREMENTS. ***
1. 2 1/2" x 3 1/2" to 5" x 7" multi-color trading cards printed on paper
stock and featuring photographs, biographies and statistics of current
Major League Baseball players and marketed under Licensee's brand name
"Donruss."
2. 2 1/2" x 3 1/2" multi-color trading cards printed on paper stock and
featuring photographs and statistics of current Major League Baseball
players and marketed under Licensee's brand name "Leaf Set."
3. 2 1/2" x 3 1/2" multi-color trading cards printed on paper stock and
featuring portrait style black and white photographs of current Major
League Baseball players and marketed under Licensee's brand name
"Studio Set."
4. Multi-color jigsaw puzzle pieces no larger than 5" x 7" in size and
featuring photographs of current Major League Baseball players, to be
sold alone or in sets with Licensed Products Nos. 1, 2 and 3,
respectively.
5. 2 1/2" x 3 1/2" limited edition four-color trading cards (3,000 cases
produced, each case containing 10 boxes with 36 packs of cards per
box), printed on paper stock, featuring photographs and statistics of
current Major League Baseball
16
<PAGE>
players, marketed under Licensee's "Leaf Limited" brand name, and
distributed to baseball card hobby retailers only.
6. 2 1/2" x 3 1/2" limited edition four-color trading cards (15,000 units
produced per year), to be distributed at the Major League Baseball
All-Star FanFest event occurring in the year for which such trading
cards are produced only, depicting, in the 1995 edition, former Major
League Baseball player Nolan Ryan, and in the 1996 edition, former
Major League Baseball player Steve Carlton, and, for subsequent years,
such other current or former players as may be approved by Licensor
for use in each such respective year's edition.
Rights to utilize the players' names and/or likenesses are not granted
under this Agreement. Licensee must present to Licensor written evidence of
having obtained the proper authorization to utilize the players' names and
likenesses.
SCHEDULE C
----------
LICENSED TERRITORY
- ------------------
The fifty United States of America, the District of Columbia, Puerto
Rico, U.S. territories and possessions, including U.S. military bases worldwide,
and Canada.
SCHEDULE D
----------
LICENSE PERIOD
- --------------
January 1, 1995 - December 31, 1998; provided, however, that Licensed
Products featuring names and/or likenesses of Major League Baseball players for
the Arizona Diamondbacks or Tampa Bay Devil Rays shall not be sold or otherwise
distributed until January 1, 1998.
SCHEDULE E
----------
COMPENSATION
- ------------
TOTAL GUARANTEED COMPENSATION: **
PAYABLE AS:
________________
** Confidential information deleted.
17
<PAGE>
(i) NON RETURNABLE ADVANCE COMPENSATION due upon signing:
**
Total 1995 Guarantee.... **
(ii) REMAINDER OF GUARANTEED COMPENSATION due as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
January 1, 1996........ ** January 1, 1998....... ** January 1, 1997..... **
March 1, 1996.......... ** March 1, 1997........ ** March 1, 1998....... **
June 1, 1996........... ** June 1, 1997......... ** June 1, 1998........ **
September 1, 1996...... ** September 1, 1997.... ** September 1, 1998... **
</TABLE>
Total 1996 Guarantee. . ** Total 1997 Guarantee. **
Total 1998 Guarantee. **
PERCENTAGE COMPENSATION:
- -----------------------
For Percentage Compensation earned in Calendar Years 1995 and 1996:
- ------------------------------------------------------------------
** of net sales as defined in Paragraph 4B. Percentage Compensation shall
be applied against Guaranteed Compensation payable in the same calendar year
only, without carryover. Percentage Compensation attributable to premium sales
of the Licensed Products shall not be applied against Total Guaranteed
Compensation.
For Percentage Compensation earned in Calendar Year 1997:
- --------------------------------------------------------
The then prevailing rate of net sales as defined in Paragraph 4B, not to
exceed **. The relevant prevailing rate with respect to a Licensed Product
shall be based on the rate charged Licensor's other, similarly situated, trading
card licensees for products similar to such Licensed Product. For purposes of
this Agreement, a similarly situated licensee is a licensee who has been granted
rights similar to the rights granted to Licensee hereunder, whose license period
under its agreement is identical to Licensee's license period under this
Agreement, and whose commitments to the baseball trading card industry are, in
Licensor's reasonable opinion, similar to Licensee's commitments hereunder.
Percentage Compensation shall be applied against Guaranteed Compensation payable
in the same calendar year only, without carryover. Percentage Compensation
attributable to premium sales of the Licensed Products shall not be applied
against Total Guaranteed Compensation.
For Percentage Compensation earned in Calendar Year 1998:
- --------------------------------------------------------
The then prevailing rate of net sales as defined in Paragraph 4B, not to
exceed **. The relevant prevailing rate with respect to a Licensed Product
shall be based on the rate charged Licensor's other, similarly situated, trading
card licensees for products similar to such Licensed
________________
** Confidential information deleted.
18
<PAGE>
Product. For purposes of this Agreement, a similarly situated licensee is a
licensee who has been granted rights similar to the rights granted to Licensee
hereunder, whose license period under its agreement is identical to Licensee's
license period under this Agreement, and whose commitments to the baseball
trading card industry are, in Licensor's reasonable opinion, similar to
Licensee's commitments hereunder. Percentage Compensation shall be applied
against Guaranteed Compensation payable in the same calendar year only, without
carryover. Percentage Compensation attributable to premium sales of the
Licensed Products shall not be applied against Total Guaranteed Compensation.
19
<PAGE>
SCHEDULE F
----------
MANUFACTURER:
- ------------
Licensee agrees that at no time during the license or sell-off periods
shall it sell, directly or indirectly, to any of the Manufacturers listed
below, or to any individual or entity affiliated in any manner with any of
such Manufacturers, any Licensed Products for subsequent sale or
distribution, without prior written approval of Licensor.
1) Licensed Product(s): __________________________
Name of Manufacturer: ________________________
Address: _____________________________________
Telephone: ___________________________________
Principal Contact: ___________________________
Approved by Major League Baseball
Properties, Inc.:
__________________________
Initials/Title
___________________________
Date
20
<PAGE>
2) Licensed Product(s): __________________________
Name of Manufacturer: ________________________
Address: _____________________________________
Telephone: ___________________________________
Principal Contact: ___________________________
Approved by Major League Baseball
Properties, Inc.:
__________________________
Initials/Title
__________________________
Date
3) Licensed Product(s): __________________________
Name of Manufacturer: ________________________
Address: _____________________________________
Telephone: ___________________________________
Principal Contact: ___________________________
Approved by Major League Baseball
Properties, Inc.:
__________________________
Initials/Title
__________________________
Date
21
<PAGE>
SCHEDULE G
----------
Product Credit:
- --------------
1. Licensee shall provide to Licensor merchandise credit in the amount of
$5,000.00 (wholesale value) during each year of the license period. Licensee
shall ship at Licensor's direction such merchandise as Licensor shall request
from time to time under this merchandise credit.
2. Licensee shall provide to Major League Baseball Properties Canada Inc.
("MLBPC") merchandise credit in the amount of $500.00 (wholesale value) during
each year of the license period. Licensee shall ship at MLBPC's direction such
merchandise as MLBPC shall request from time to time under this merchandise
credit.
Advertising:
- -----------
Licensee acknowledges that under this Agreement it is obligated to promote
the Licensed Products. Accordingly, Licensee represents and warrants to the
following:
(i) during each year of the license period, it shall purchase at
prevailing rates, and produce, at no cost or expense to Licensor, one full-
page four-color advertisement in each All-Star Game program, one full-page
full-color advertisement in each League Championship Series program and one
full-page four-color advertisement in each World Series Souvenir Scorebook.
(ii) on or before May 1 of each of calendar years 1996, 1997 and 1998, it
shall pay Licensor the annual amount of $75,000.00 to participate in
Licensor's cooperative advertising program.
(iii) during each year of the license period, it shall purchase at
prevailing rates, and produce, at no cost or expense to Licensor, six
(6) full-page advertisements in the Major League Baseball for Kids
magazine.
(iv) during each year of the license period, it shall purchase at
prevailing rates, but not to exceed $15,000.00 during any year of the
license period, and produce, at no cost or expense to Licensor, one full-
page four-color advertisement in each Major League Baseball All-Star
FanFest program.
(v) during each year of the license period, Licensee acknowledges that it
must spend at least ** of its "Sports Budget" (as set forth in the
marketing plan submitted pursuant to Miscellaneous, No. 2, below and as
--------------------
defined herein), on promoting the Licensed Products. For the purposes of
this Agreement, "Sports Budget" shall mean for each year during the license
period, all monies budgeted and/or spent on the marketing, promotion and/or
___________
** Confidential information deleted.
22
<PAGE>
advertisement (including public relations expenses relating thereto) of
Licensee's sports-themed products (which shall include, without limitation,
products featuring the trademarks or service marks of the professional
sports leagues and/or their member clubs or their subsidiaries or
affiliates, the National Association for Stock Car Racing ("NASCAR"), and
all sports-themed comics, and/or the players or other individuals or
characters participating or depicted in such leagues, clubs, NASCAR or
comics).
Strike Clause/Game Cancellations:
- --------------------------------
In the event of a players strike or other labor-related dispute which
results in the cancellation of regular season games for more than 21 consecutive
days, Licensee shall have an opportunity to demonstrate that its sales of
Licensed Products suffered as a result thereof and that Licensee will not be
able to earn its minimum Guaranteed Compensation under this Agreement. Subject
to Licensee demonstrating such adverse effects on its sales of Licensed
Products, Licensor and Licensee will agree on a reduction of the minimum
Guaranteed Compensation amount to reflect the damage suffered by Licensee.
Miscellaneous:
- -------------
1. Licensee represents that in each calendar year of the license period
it shall purchase a sponsorship in the annual Major League Baseball All-Star
FanFest ("FanFest") event. In connection therewith, Licensee shall pay Licensor
** annually, execute Licensor's standard FanFest Sponsorship agreement in
connection therewith, and otherwise participate in FanFest to the extent
mutually agreed upon by Licensee and Licensor.
2. On or before September 30 of each year of the license period, Licensee
shall submit to Licensor for Licensor's prior review and written approval,
Licensee's marketing plans for the upcoming year with regard to the Licensed
Products. Each marketing plan submitted hereunder shall additionally set forth
Licensee's "Sports Budget" (as defined in Schedule G, Advertising (iv), above)
----------------------------
for the upcoming year.
3. All Licensed Products and related marketing campaigns shall contain a
positive message for youths and must be submitted to Licensor for its prior
review and written approval.
4. During each of calendar years 1996, 1997 and 1998, Licensee represents
that it shall pay Licensor at least ** to participate in one (1) Major League
Baseball retail promotion conducted during each such year.
______________
** Confidential information deleted.
23
<PAGE>
5. Licensee shall account separately for sales in the fifty
United States, the District of Columbia, Puerto Rico and U.S. territories and
possessions, including U.S. military bases worldwide, and Canada, pursuant to
the requirements of Paragraph 5 of this Agreement. With regard to non-U.S.
sales, Licensee shall pay Percentage Compensation on the price of the Licensed
Products including "GST" and any duty and shall submit all statements and
Percentage Compensation payments to such party designated by Licensor and as
required by this Agreement.
6. In the event that Licensee or its products are advertised on
television, Licensee agrees, for each year of the license period, to promote the
Licensed Products through the purchase of two (2) television advertising spots
during Major League Baseball games broadcast by national over-the-air or cable
television network rightsholders designated by Licensor. Each spot shall be
produced by Licensee, at its sole cost and expense.
7. Licensee acknowledges that any expansion of the Licensed Territory set
forth in Schedule C of this Agreement will be subject to additional guaranteed
compensation, the prior written approval of Licensor (which shall be granted or
denied in its sole and absolute discretion), and execution of an amendment to
the License Agreement.
8. Licensee agrees to comply with the following guidelines regarding use
of Logos on trading cards:
(a) the name and/or Logo of the Club (for whom the player featured
will be playing in the upcoming year) must be featured in a
prominent manner on the front and/or back of the card and
separate from any use of the Club's name in the statistics and/or
editorial copy included in that card.
(b) The name and/or Logo of the Club must be separate and distinct
from the player's name and any other corporate identification
(including, without limitation, the Licensee's name and/or logo)
featured on the card.
(c) Each pack of trading cards must specify the number of cards
contained therein, each box the number of packs and each case the
number of boxes.
(d) Any corporate identification featured in or adjacent to the copy
lines on a card or the packaging of cards may be no larger than
the Major League Baseball silhouetted batter Logo or Club Logo
featured in or adjacent to the copy lines on the card or package,
as the case may be.
9. Licensor shall provide Licensee with written notification of any
change in Percentage Compensation rates no later than June 30th of the year
preceding that in which such change would take effect.
10. Notwithstanding anything contained in Paragraph 16 of this Agreement,
in the event Licensee does not obtain proper authorization to utilize the
players' names and/or
24
<PAGE>
likenesses at any time during the license period, Licensor shall have the right
to terminate this Agreement immediately. Upon such termination, Licensee shall
comply with all terms and conditions of this Agreement, including those set
forth in Paragraphs 16 and 17 hereof.
11. Licensee shall cause the current principal owner of Leaf Inc. ("Leaf")
to sign below to acknowledge Leaf's agreement to fully guarantee the Advance and
Guaranteed Compensation payments referred to in Schedule E of this Agreement.
LEAF INC.
By: /s/ Juha Salonen
--------------------
Print Name: Juha Salonen
Vice President, General Counsel
12. Concurrently with its execution of this Agreement, Licensee will list
below the brand names that Licensee desires or intends to use on the Licensed
Products.
Brand Names:
- -----------
1) Licensed Product(s) Nos.: __________________________
Brand Name(s): ____________________________________
Approved by Major League Baseball
Properties, Inc.:
_______________________________
Initials/Title
_______________________________
Date
2) Licensed Product(s) Nos.: __________________________
Brand Name(s): ____________________________________
Approved by Major League Baseball
Properties, Inc.:
_______________________________
Initials/Title
_______________________________
Date
25
<PAGE>
3) Licensed Product(s) Nos.: __________________________
Brand Name(s): ____________________________________
Approved by Major League Baseball
Properties, Inc.:
______________________________
Initials/Title
______________________________
Date
In the event Licensee wishes to substitute a brand name for those listed
above or wishes to add to the number of brand names, Licensee shall first obtain
Licensor's written approval of such brand names.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement:
MAJOR LEAGUE BASEBALL PROPERTIES, INC., as agent for the Clubs
BY: _____________________________________
Title
DATE: ___________________________________
LICENSEE: DONRUSS TRADING CARDS, INC., a subsidiary of Leaf, Inc.
BY: /s/ Juha Salonen Vice President
--------------------------------------------------------
Title
DATE: May 23, 1996
-----------------------------------------------------------
26
EXHIBIT 10.24
LICENSE AGREEMENT
THIS AGREEMENT is made as of the 27th day of December, 1994, in New
York, New York, by and between the Major League Baseball Players Association, an
unincorporated association under the laws of the State of New York, with offices
at 12 East 49th Street, New York, New York 10017 (hereinafter "MLBPA") and
Pinnacle Brands, Inc., a Delaware corporation, with offices located at 924
Avenue J East, Grand Prairie, Texas 75050 (hereinafter "Licensee").
WHEREAS, MLBPA is acting on behalf of all of the active baseball
players of the National League and the American League who have entered into a
commercial Authorization Agreement with the MLBPA (hereinafter "players"), and
who, upon being polled by the MLBPA, have not indicated they have granted a
license for products which would conflict with the license granted herein; and
WHEREAS, MLBPA in such capacity has the right to negotiate this
Agreement and to grant rights in and to the logo, name and symbol of MLBPA
identified in Schedule A hereto (the "Trademarks"), and the names, nicknames,
likenesses, signatures, pictures, playing records, and/or biographical data of
each player described in Schedule A hereto as part of a group (hereinafter "the
Rights"); and
WHEREAS, Licensee desires to use the Rights and/or the Trademarks on
or in association with the manufacture, offering for sale, sale, advertising,
promotion, and distribution of certain products identified in Schedule B (the
"Licensed Products") in the countries identified in Schedule B (the "Licensed
Territory"); and
<PAGE>
WHEREAS, MLBPA is willing to grant Licensee such right to use the
Rights and/or the Trademarks on the Licensed Products in the Licensed Territory
in accordance with the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, it is hereby agreed as follows:
1. GRANT
-----
(a) MLBPA hereby grants to Licensee and Licensee hereby accepts the
non-exclusive, non-transferable, non-assignable license, without the right to
grant sublicenses, to use the Rights and the Trademarks solely within the
Licensed Territory on the Licensed Products and/or in association with the
manufacture, offering for sale, sale, advertising, promotion, shipment and
distribution of the Licensed Products (i) to jobbers, wholesalers and
distributors for resale, shipment and/or distribution to retail stores and
merchants; and/or (ii) to retail stores and merchants for sale, shipment and
distribution direct to the public; and/or (iii) direct to the public. Licensee
shall not knowingly distribute or sell the Licensed Products outside of the
Licensed Territory, nor shall Licensee sell any Licensed Products to any person,
firm or entity which Licensee has reason to believe will resell such Licensed
Products outside the Licensed Territory.
(b) MLBPA represents and warrants that it has the authority to grant
the rights licensed herein. MLBPA makes no representation that it has the
authority to grant, nor does it grant herein, the right to utilize team symbols,
insignias or logos, or the name, symbol, or logo of any other licensee of MLBPA,
or reproductions of any products produced by or for any other licensee of MLBPA.
Accordingly, it is understood by the parties hereto that if any of the foregoing
are to be utilized in connection with the exercise of the license granted
hereunder, including without
<PAGE>
limitation the likenesses of players utilizing team logos, symbols or insignias,
it will be the responsibility of Licensee to obtain all necessary permissions
for the use of such material.
(c) Unless specifically authorized in advance by MLBPA in writing,
Licensee agrees to utilize with substantially equal prominence the names and
likenesses of a minimum of one hundred (100) players or, at MLBPA's direction, a
minimum of five (5) players per major league team, on Licensed Products during
the License Period (as defined herein). Licensee must provide the MLBPA with
thirty (30) days' written notice of the names of all players Licensee intends to
use on the Licensed Products prior to manufacture of such Licensed Products, and
Licensee may not use the name or likeness of any player on the Licensed Products
without the prior written consent of MLBPA, which shall not be unreasonably
withheld.
(d) The license granted by MLBPA to Licensee hereunder does not
include the right to, and Licensee shall not in any manner, use (or purport to
grant others the right to use) the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products as specifically approved by MLBPA pursuant hereto. The license granted
by MLBPA to Licensee herein does not include, and shall not be used by Licensee
so as to imply, a testimonial for or endorsement of the Licensed Products or any
other product or service by all or any of the players, or by the MLBPA. Nor
does this license convey the right to feature or highlight any individual player
without the express written permission of MLBPA. In the event Licensee is
interested in highlighting any player or in securing the personal endorsement or
testimonial of any player, Licensee understands and agrees that such will
require execution of a separate Highlight Agreement with such player and a
separate payment to such player which shall
3
<PAGE>
be made through the MLBPA and which shall be independent of and in addition to
all payments due to the MLBPA pursuant to this Agreement.
(e) Nothing contained in Subsection l(d) shall prevent Licensee from
utilizing the names and/or likenesses of the players in a non-endorsement and/or
non-testimonial manner in connection with the packages, cartons, advertising,
point-of-sale and/or promotional materials for the Licensed Products (the
"Promotional and Packaging Material") or require any separate payment in
connection therewith; provided that unless specifically authorized otherwise in
advance by MLBPA in writing, the names and/or likenesses of a minimum of eight
(8) such players will be utilized with equal prominence on the Promotional and
Packaging Material for all Licensed Products during the License Period as
provided herein; and further provided that Licensee agrees to rotate the players
who are utilized in connection with such materials so as not to highlight any
particular player or group of players to the exclusion of others.
(f) Licensee shall have no right to sell the Licensed Products in the
same retail package or retail container with any other item or product, whether
of a nature similar to or different from the Licensed Products, which does not
employ the Rights without the express permission of MLBPA in advance in writing.
(g) The license granted herein includes finished Licensed Products
packaged for retail sale only, and does not include the right to sell Licensed
Products in unfinished state or in bulk quantities, unless otherwise approved by
MLBPA in advance in writing.
(h) All rights not expressly granted to Licensee in this Agreement
are specifically reserved to MLBPA.
4
<PAGE>
2. TERM AND OPTIONS
----------------
(a) This Agreement shall be effective and shall continue for the
License Period set forth on Schedule B, unless sooner terminated pursuant to a
provision of this Agreement.
(b) Licensee and MLBPA hereby acknowledge that there is no right to
renew this Agreement, nor have any options to extend this Agreement been granted
or implied. Notwithstanding the foregoing, however, Licensee must provide MLBPA
with written notice of its desire to enter into a new license agreement with
MLBPA and such written notice must be received by MLBPA no earlier than three
hundred sixty-five (365) days and no later than two hundred seventy (270) days
prior to the expiration of the License Period. MLBPA will respond to Licensee
within thirty (30) days of receipt of such notice from Licensee concerning its
interest in entering into negotiations for an extension or renewal of this
Agreement.
3. ROYALTIES
---------
(a) Licensee agrees to pay MLBPA a royalty at the percentage set
forth on Schedule B based on Net Sales (as defined in Subsection 3(b) below) of
the Licensed Products employing the Rights and/or the Trademarks by Licensee
(the "Actual Royalty"). Such Actual Royalty shall accrue when the Licensed
Products are shipped and invoiced by Licensee or a Licensee Affiliate to a third
party not affiliated with Licensee. For purposes of this Agreement,
"affiliated" or "Licensee Affiliate" includes without limitation any person or
entity in which Licensee has any direct or indirect beneficial or ownership
interest or is a joint venture partner. Licensee warrants and represents to
MLBPA that all Licensed Products distributed in any manner by Licensee,
whether by means of sale, free samples, or promotional or other arrangement,
will be simultaneously "shipped and invoiced" by Licensee or a Licensee
Affiliate for purposes of this subsection.
5
<PAGE>
(b) "Net Sales" shall mean gross sales to third parties not
affiliated with Licensee at Licensee's regular price, less returns actually
credited. "Regular price" shall mean the published or stated price at which
Licensee regularly sells the Licensed Product to its wholesale customers,
however, if Licensee also sells the Licensed Product directly to consumers, the
regular price for such sales shall be the price applicable to such consumers.
No other deductions shall be permitted. For example, there shall be no
deductions made for discounts, allowances, commissions, royalties, uncollectible
accounts, taxes, fees, assessments, impositions, payments or expenses of any
kind which may be incurred or paid by Licensee in connection with the royalty
payments due to MLBPA hereunder, or for any other costs incurred by Licensee in
the manufacture, offering for sale, sale, advertising, promotion, shipment,
handling, distribution, fulfillment and/or exploitation of the Licensed
Products. Licensee's regular price shall include the royalty amount.
(c) Actual Royalty payments shall be made by Licensee to MLBPA on all
Licensed Products sold, shipped and/or distributed by Licensee, even if not
billed (such as in the case of introductory offers, samples in excess of fifty
(50) cases per Licensed Product, donations exceeding a total of two hundred
(200) cases of all Licensed Product per year to a tax-exempt charitable
organization under Section 501(c)(3) of the Internal Revenue Code, promotions
and the like and sales, shipments and/or distributions to individuals and/or
companies which are affiliates or subsidiaries of Licensee), or if billed at
less than Licensee's regular price for such Licensed Products, based upon
Licensee's regular Net Sales price for such Licensed Products sold to third
parties not affiliated with Licensee in the course of Licensee's normal
distribution, shipment and sales activities.
6
<PAGE>
(d) Where the invoiced price for any Licensed Products is less than
the regular Net Sales price for such Licensed Products sold to third parties not
affiliated with Licensee in the course of Licensee's normal distribution,
shipment and sales activities, the Actual Royalty payment shall be based upon
Licensee's regular Net Sales price.
(e) For each year during the term of this Agreement, Licensee agrees
to pay MLBPA a non-refundable guaranteed minimum royalty in the amount(s) and in
the manner set forth on Schedule B (the "Guaranteed Minimum Royalty"). If, upon
the expiration or termination of this Agreement, the total royalties paid and/or
payable by Licensee to MLBPA during each such year is less than the Guaranteed
Minimum Royalty, Licensee shall promptly pay the amount of such difference to
MLBPA. Actual Royalty payments based on Net Sales made during any year of this
Agreement shall be credited against the Guaranteed Minimum Royalty due for the
year in which such Net Sales were made.
4. STATEMENTS AND PAYMENTS
-----------------------
(a) Licensee shall deliver to MLBPA, at its offices in New York, New
York, or to such other address as MLBPA may direct, on the forty-fifth (45th)
day following the end of each calendar month, except December and on the
thirtieth (30th) day following the end of each December during the term of this
Agreement, and on the thirtieth (30th) day of the month following termination or
expiration of this Agreement, a complete and accurate statement of its Net Sales
of Licensed Products, differentiated by country, brand and product, for the
immediately preceding calendar month portion thereof) (the "Royalty Period").
Said statement shall be certified as accurate by an officer of Licensee and
shall include information for each product consisting of stock or product
number, item description, price per unit, quantity shipped, gross sales, returns
actually
7
<PAGE>
credited, computation of Net Sales and royalty due, and any other information
MLBPA may from time to time reasonably request. Such statements shall be
furnished to MLBPA whether or not any Licensed Products have been shipped,
distributed and/or sold, and whether or not Actual Royalties have been earned
during the Royalty Period. Such statements shall specifically set forth any
products distributed free of charge or at a reduced price and shall indicate the
quantities so distributed. Statements shall be in a form acceptable to MLBPA
and consistent with Schedule C hereto.
(b) The amount in United States dollars shown in Licensee's royalty
statements as being due MLBPA shall be paid by wire transfer to an account
designated in writing by MLBPA on the dates provided herein for submission of
such statements. In the event that the amount credited for returns during any
Royalty Period exceeds Licensee's royalty obligation to MLBPA for such period,
Licensee may use such amount as a credit against future royalty obligations of
Licensee during the License Period of this Agreement. In no event, however,
shall the amount credited for returns during any Royalty Period be used upon
termination or expiration of this Agreement as a credit against past royalty
obligations of or royalty payments made by Licensee. In no circumstances shall
MLBPA be obligated to pay any amount to Licensee upon termination or expiration
of this Agreement on account of credits accrued by Licensee for returns.
(c) Licensee's royalty statements and all amounts payable to MLBPA by
Licensee shall be submitted to:
Major League Baseball Players Association
12 East 49th Street
New York, NY 10017
8
<PAGE>
or such other address as the MLBPA may direct, with a copy to:
Mike Schechter
Mike Schechter Associates, Inc.
10012 N. Dale Mabry, Suite 213
Tampa, FL 33618
(d) The receipt and/or acceptance by MLBPA of any of the statements
furnished or royalties paid hereunder to MLBPA shall not preclude MLBPA from
questioning the correctness thereof at any time within three (3) years of the
due date for such payment and, in the event that any errors are discovered in
such statements, they shall promptly be rectified by Licensee and the
appropriate payment shall be made by Licensee within fifteen (15) days of
receipt of written notice thereof.
(e) All payments made hereunder shall be in United States dollars
from a United States bank, unless otherwise specifically agreed upon by the
parties.
(f) Time is of the essence with respect to all payments to be made
hereunder by Licensee. Interest at the rate of one percent (1%) over the
average prime rate for the period during which any sum is due shall accrue on
any amount due MLBPA hereunder from and after the date upon which the payment is
due until the date of receipt of payment. Collection of interest by MLBPA shall
be without prejudice to any other rights or remedies available to MLBPA.
5. AUDIT
-----
(a) Licensee agrees to keep accurate books of account and records at
its principal place of business, or such other reasonable locations as Licensee
may designate in writing to MLBPA, covering all transactions relating to the
license granted herein and pertaining to the items required to be shown in
Licensee's royalty statements to be submitted pursuant hereto, including without
limitation, invoices, correspondence, banking, financial and other records.
MLBPA and its
9
<PAGE>
duly authorized representatives shall have the right, upon reasonable notice, at
all reasonable hours of the day, to audit Licensee's books of account and
records, and all other such documents and material in the possession or under
the control of Licensee, with respect to the subject matter and the terms of
this Agreement that are reasonably necessary in the judgment of MLBPA, and to
make copies and extracts thereof. In the event that any such audit reveals an
underpayment by Licensee, Licensee shall promptly upon demand (and in no event
later than fifteen (15) days from receipt of written notice from MLBPA) remit
payment to MLBPA in the amount of such underpayment plus interest calculated at
the rate set forth in Subsection 4(f), calculated from the date such payment(s)
were actually due until the date such payment is actually made. Collection of
interest by MLBPA shall be without prejudice to any other rights or remedies
available to MLBPA. In the event that any such underpayment is greater than
Five Thousand Dollars ($5,000), Licensee shall reimburse MLBPA for the costs and
expenses of such audit.
(b) All books of account and records of Licensee concerning
transactions relating to the license granted herein shall be retained by
Licensee for at least three (3) years after the end of the year in which such
transaction occurs for possible inspection by MLBPA in accordance with the terms
hereof.
6. QUALITY, NOTICES, APPROVALS, AND SAMPLES
----------------------------------------
(a) The Licensed Products and the Promotional and Packaging Material
shall be of high quality in design, material and workmanship so as to be suited
to the favorable advantage, protection and enhancement of the Trademarks and the
Rights, in no event shall be of lesser quality than the best quality of similar
products and promotional, advertising, and packaging material presently shipped,
distributed, sold and/or used by Licensee in the Licensed Territory, shall not
10
<PAGE>
reflect adversely upon MLBPA, the Trademarks or the players, shall be safe and
suitable for their intended purpose, and shall be manufactured, sold and/or
distributed in full conformance with all applicable laws and regulations.
(b) Licensee may not manufacture, use, offer for sale, sell,
advertise, promote, ship and/or distribute any Licensed Products, or any
Promotional and Packaging Material relating to the Licensed Products, or any
other item or product in combination with the Licensed Products, or any other
trademark on or in connection with the Licensed Products, until it has received
written approval of same in the manner provided herein from MLBPA. Should MLBPA
fail to approve in writing any of the submissions furnished it by Licensee
within fourteen (14) business days from the date of submission thereof, such
failure shall be considered to be a disapproval thereof.
(c) Before commencing or authorizing third parties to commence the
design or development of Licensed Products or Promotional and Packaging Material
which have not been previously approved in writing by MLBPA, Licensee shall
submit at its own cost to MLBPA, for approval, a comprehensive written
description of the concept of such Licensed Product and/or Promotional and
Packaging Material, including full information on the nature and function of the
proposed item and a general description of how the Rights and/or the Trademarks
and other material will be used thereon. Licensee also shall submit at its own
cost to MLBPA, for approval, complete layouts and descriptions of the proposed
Licensed Products and/or Promotional and Packaging Material showing exactly how
and where the Rights and the Trademarks and all other art work and wording will
be used, and low resolution QMS proofs, of the proposed Licensed Products and/or
Promotional and Packaging Material. Licensee shall not proceed beyond the
mechanical or chromaline stage without first securing the express written
approval of MLBPA.
11
<PAGE>
(d) Except as provided in Subsection 6(h), upon commencement of
manufacture, shipment and distribution of the Licensed Products and/or
Promotional and Packaging Material relating to the Licensed Products after all
required approvals have been given by MLBPA, Licensee shall submit, at its own
cost, to MLBPA twelve (12) sets of the Licensed Products and two (2) sets of the
Promotional and Packaging Material.
(e) MLBPA may periodically at reasonable intervals during the term of
this Agreement require that Licensee submit to MLBPA, at no cost to MLBPA, up to
twelve (12) additional sets of the Licensed Products, and the Promotional and
Packaging Material relating to the Licensed Products, for subsequent review of
the quality of and copyright and trademark usage and notice on same and for any
other purpose that MLBPA deems appropriate, provided that such product is
available to Licensee.
(f) After the required approval has been secured from MLBPA pursuant
to Subsection 6(c) above, Licensee shall not depart from the specifications,
quality or appearance thereof in any respect without first obtaining the express
written approval of MLBPA. Licensee shall make submissions to MLBPA and obtain
approvals in the manner required above each time new or revised concept,
layouts, descriptions, artwork, models, prototype samples and/or production
samples are adopted by Licensee for use in connection with the Rights and/or the
Trademarks.
(g) Subject to reasonable obligations of confidentiality by MLBPA,
Licensee agrees that, to assure that the provisions of this Agreement are being
observed, upon at least two (2) working days' written notice, it will allow
MLBPA or its designees to enter Licensee's premises and/or the premises where
the Licensed Products are being manufactured and/or packaged, during
12
<PAGE>
regular business hours, for the purpose of inspecting the Licensed Products and
the Promotional and Packaging Material relating to the Licensed Products.
(h) In order to ensure that the Licensed Products and the Promotional
and Packaging Materials are manufactured, offered for sale, sold, advertised,
promoted, shipped and/or distributed as required herein, in the event that the
quality standards and/or trademark and copyright usage and notice requirements
herein referred to are not met, or in the event that said quality standards
and/or trademark and copyright usage and notice requirements are not maintained
in all material respects throughout the period of manufacture, offering for
sale, sale, advertising, promotion, shipment and/or distribution of any Licensed
Products hereunder, then, in addition to any other rights available to MLBPA
under this Agreement or otherwise, Licensee shall upon receipt of written notice
from MLBPA immediately discontinue any and all manufacture, offering for sale,
sale, advertising, promotion, shipment and distribution of such Licensed
Products and/or Promotional and Packaging Material in connection with which the
said quality standards and/or trademark and copyright usage and notice
requirements have not been met.
7. ARTWORK
-------
(a) The form and content of all artwork for use in any media shall be
subject to the express written approval of MLBPA prior to its use by Licensee in
connection with the Licensed Products or the Promotional and Packaging Material.
If Licensee desires to use artwork previously approved by MLBPA on a different
Licensed Product or on different Promotional and Packaging Material, Licensee
shall first submit samples of such proposed use to MLBPA for approval thereof.
(b) Following the expiration or termination of this Agreement, except
as provided in Subsection l9(c), and notwithstanding any rights otherwise
granted to Licensee by state or federal
13
<PAGE>
trademark law, copyright law or other applicable law, Licensee shall not without
express prior written permission of MLBPA directly or indirectly use, or
authorize others to use, in any manner whatsoever other than to enforce legal
rights of Licensee against infringement or misuse by others, any of the artwork
or designs or other material embodying the Rights and/or Trademarks, or any
reproductions thereof, notwithstanding their creation or use by Licensee.
8. OWNERSHIP OF RIGHTS
-------------------
(a) It is understood and agreed that MLBPA is the sole and exclusive
holder of all right, title and interest in and to the Rights and/or the
Trademarks for the duration of this Agreement.
(b) Nothing contained in this Agreement shall be construed as an
assignment to Licensee of any right, title and/or interest in or to the Rights
and/or the Trademarks, it being understood that all right, title and interest
relating thereto are expressly reserved by MLBPA except for the rights being
licensed hereunder.
(c) No license is being granted hereunder for any purpose or as to
any products, services or material not expressly authorized herein. MLBPA
reserves for such use as it may determine all rights of any kind in the Rights
and the Trademarks, other than the rights herein licensed to Licensee.
(d) Licensee shall not use the Rights and/or the Trademarks other
than as permitted herein and, in particular, shall not incorporate the Rights
and/or the Trademarks in Licensee's corporate or business name or in any of
Licensee's other trademarks or service marks in any manner whatsoever. Licensee
agrees that in using the Rights and Trademarks, it will in no way represent that
it has any rights, title and/or interest in and/or to the Rights and/or the
Trademarks
14
<PAGE>
other than those expressly granted under the terms of this Agreement. Licensee
further agrees that it will not use and/or authorize the use, either during or
after the term of this Agreement, of any configuration, trademark, trade name or
other designation which is likely to cause confusion with any of the Trademarks.
9. GOODWILL AND PROMOTIONAL VALUE
------------------------------
(a) Licensee recognizes the value of the goodwill associated with the
Rights and/or the Trademarks and acknowledges that as between the parties hereto
all rights in the Trademarks and the Rights and the goodwill associated
therewith belong exclusively to MLBPA. Licensee further recognizes and
acknowledges that the Rights and/or the Trademarks have acquired secondary
meaning in the mind of the public. Licensee agrees that during the License
Period and thereafter, it will not dispute or attack the title of any rights of
MLBPA in and to the Rights and/or the Trademarks or the validity of the grant of
license made herein, except that nothing herein shall preclude Licensee from
asserting any breach of any warranty provided herein.
(b) Licensee agrees that its use of the Rights and/or the Trademarks
shall inure to the benefit of MLBPA and that Licensee shall not, at any time,
acquire any rights in the Rights and/or the Trademarks by virtue of any use it
may make of the Rights and/or of the Trademarks. Licensee hereby assigns to
MLBPA any and all trademarks and trademark rights in the Trademarks and/or
Rights created by such use, together with the goodwill of the business in
connection with which the Trademarks are used and which is represented by the
Trademarks.
(c) Licensee acknowledges that MLBPA is entering into this Agreement
not only in consideration of the royalties to be paid hereunder but also in
recognition of the intrinsic benefit to proper maintenance of the image and
reputation of MLBPA and the players as a result of the
15
<PAGE>
manufacture, offering for sale, sale, advertising, promotion, shipment and
distribution of the Licensed Products by Licensee in accordance with the
provisions of this Agreement. Accordingly, Licensee acknowledges that its
material failure to manufacture, offer for sale, sell, advertise, promote, ship
and distribute the Licensed Products in accordance with this Agreement, may
result in immediate and irreparable damage to MLBPA in connection with promotion
of the Rights and/or the Trademarks and/or to its members, and that there will
be no adequate remedy at law for the failure by Licensee to abide by such
provisions of this Agreement. Accordingly, Licensee agrees that in the event of
any material breach by Licensee, in addition to all other remedies available to
it hereunder, MLBPA may at its sole option commence an action in any court
having jurisdiction or an arbitration proceeding, and upon proof thereof shall
be entitled to injunctive relief against any such breach as well as such other
relief as any arbitrator(s) or court with jurisdiction may deem just and proper.
Licensee waives all requirements of a bond in connection therewith.
10. PROMOTIONAL CONTRIBUTION
------------------------
Although MLBPA is not obligated to do so, it is the current intention of
MLBPA to develop a national advertising and/or promotional program featuring the
Rights and/or the Trademarks and to consult with Licensee about the development
of such program. Licensee agrees that MLBPA shall have the right, at its
discretion and in a manner and style of its choice, to print catalogues,
brochures, advertisements or other promotional materials wherein representative
merchandise from Licensee and other licensees of MLBPA shall be displayed. In
this regard, Licensee agrees that in addition to all other payments and without
credit against the Guaranteed Minimum Royalty required herein, Licensee shall
share in the cost of such materials at least once annually by payment within
16
<PAGE>
ten (10) days after receiving an invoice therefor in an amount not to exceed
Five Thousand Dollars ($5,000).
11. TRADEMARK AND COPYRIGHT PROTECTION
----------------------------------
(a) The license granted herein is conditioned upon Licensee's full
and complete compliance with the provisions of the trademark and copyright laws
of the United States and any foreign country or countries in the Licensed
Territory.
(b) Licensee agrees to permanently affix to all Licensed Products and
all Promotional and Packaging Material the MLBPA logo and appropriate legends,
markings and/or notices as required by MLBPA, to give appropriate notice to the
consuming public of MLBPA's right, title and interest in the Trademarks and the
Rights. Licensee agrees that, unless otherwise specified in writing by MLBPA,
each usage of the Trademarks shall be followed by either the "TM" or the
Trademark Notice symbol, as designated by MLBPA. The following legends shall
appear in close proximity to the Trademarks at least once on each Licensed
Product and on each piece of Promotional and Packaging Material as is
commercially reasonable and practical:
Copyright or (C) MLBPA (year-date)
Licensee also shall include on the Licensed Products, and on each piece of
Promotional and Packaging Material, the following notice:
Official Licensee -- Major League Baseball Players Association
(c) Licensee agrees that it will not distribute or sell any Licensed
Products or use or distribute any Promotional or Packaging Materials which do
not carry notices meeting the requirements of this Agreement.
17
<PAGE>
(d) Licensee shall use no markings, legends and/or notices on or in
association with the Licensed Products or the Promotional and Packaging Material
other than those specified above and such other markings, legends and/or notices
as may be specified by MLBPA, without first obtaining MLBPA's express written
approval.
(e) MLBPA has the right, but not the obligation, to obtain at its own
cost, appropriate trademark and copyright protection for the Rights and/or the
Trademarks in association with the Licensed Products in any and all countries of
the Licensed Territory, in the name of MLBPA or in the name of any third party
selected by MLBPA.
(f) Licensee shall keep reasonable business records, relating to the
dates when each of the Licensed Products is first placed on sale or sold in each
country of the Licensed Territory, and the dates of first use in each country of
each different Trademark and/or of the Rights on the Licensed Products and
Promotional and Packaging Material. If requested to do so by MLBPA, Licensee
also agrees to supply MLBPA with samples, facsimiles or photographs of such
usages of the Rights and/or Trademarks and other information, if such exists,
which will enable MLBPA to complete trademark applications or to evaluate or
oppose any trademark or design applications, registrations, or uses of third
parties.
(g) Licensee agrees that it shall not at any time within the Licensed
Territory or anywhere else in the world apply for any copyright or trademark
protection which would adversely affect MLBPA's ownership of any rights in the
Rights and/or the Trademarks, nor file any document with any governmental
authority or assert directly or indirectly any right or take any other action
which would adversely affect MLBPA's ownership of the Rights and/or the
Trademarks, or the publicity rights of the players, or knowingly aid or abet
anyone else in doing so.
18
<PAGE>
(h) Licensee agrees to cooperate in all reasonable respects with
MLBPA in protecting and defending the Rights and/or the Trademarks. In the
event that Licensee becomes aware of any claim or problem arising with respect
to the protection of the Rights and/or the Trademarks in the Licensed Territory,
Licensee shall promptly advise MLBPA in writing of the nature and extent of
same. MLBPA has no obligation to take any action whatsoever in the event that
any claim or problem arises with respect to the protection of the Rights and/or
the Trademarks.
12. INFRINGEMENTS
-------------
(a) Licensee agrees to provide reasonable assistance to MLBPA in the
enforcement of MLBPA's right in the Rights and/or the Trademarks. Licensee
agrees to promptly notify MLBPA in writing of any violations by third parties of
the Rights and/or the Trademarks which become known to Licensee. MLBPA shall
have the sole right to determine whether or not any action shall be taken on
account of any violation of the Rights and/or the Trademarks. MLBPA, if it so
desires, may commence or prosecute any claims or suits respecting such
violations in its own name or in the name of Licensee, or join Licensee as a
party thereto, provided that nothing in this section shall require Licensee to
incur more than nominal out-of-pocket expense. Licensee agrees not to make any
demands or claims, and not to institute any suit on account of such violations
without obtaining the prior express written permission of MLBPA.
(b) With respect to all claims and suits involving the Rights and/or
the Trademarks, including without limitation suits in which Licensee is joined
as a party, MLBPA shall have the sole right to employ counsel of its choosing
and to direct the handling of the litigation and any settlement thereof. MLBPA
shall be entitled to receive and retain all amounts awarded to MLBPA as damages,
profits or otherwise as a result of such claims.
19
<PAGE>
13. INDEMNIFICATION
---------------
Licensee hereby agrees to defend, indemnify and hold harmless MLBPA,
its members, officers, directors, employees and agents, from and against any and
all claims, demands, causes of action and judgments ("Claims") arising out of or
in connection with:
(a) Licensee's design, manufacture, distribution, shipment,
advertising, promotion, offering for sale and/or sale of the Licensed Products
and/or the Promotional and Packaging Material, including but not limited to any
allegedly unauthorized use by Licensee of any trademark, copyright, patent,
process, idea, method, device, logo, symbol, insignia, name, term or material
other than those licensed herein, but excluding any claims respecting any
allegedly unauthorized use by Licensee of the Rights and/or the Trademarks as
authorized herein;
(b) Licensee's use of any logos, symbols, insignias, names, terms or
other material claimed to be the property of any Major League Baseball club(s)
or any other entity affiliated directly or indirectly with any Major League
Baseball club(s); and
(c) any alleged defect(s) of the Licensed Products and/or Promotional
and Packaging Material.
With respect to the foregoing indemnity, Licensee agrees to defend and hold
harmless MLBPA, its members, officers, directors, employees and agents, at no
cost or expense to them whatsoever, including, but not limited to, attorneys'
fees and court costs. Under no circumstances shall Licensee have the right to
settle or otherwise compromise any claim without the prior written consent of
MLBPA. MLBPA and its members shall have the right to defend themselves in any
such action or proceeding with attorneys of MLBPA's own selection.
20
<PAGE>
14. INSURANCE
---------
Throughout the License Period and for three (3) years after expiration
or termination of this Agreement, Licensee shall obtain and maintain at its own
cost and expense from a qualified insurance company acceptable to MLBPA, or
self-insurance as authorized by law, a standard comprehensive general liability
insurance policy naming MLBPA and its members as an additional insured. Such
policy shall provide protection against any and all claims, demands and causes
of action arising out of any defect or failure to perform, alleged or otherwise,
of the Licensed Products or any material used in connection therewith or any use
thereof. The amount of primary and secondary coverage shall be a minimum of Two
Million Dollars ($2,000,000) for each single occurrence. The policy shall
provide for twenty (20) days' notice to MLBPA from the insurer by Registered or
Certified Mail, return receipt requested, in the event of any modification,
cancellation or termination. The terms of such policy are subject to MLBPA's
prior written approval and such approval shall not be withheld unreasonably.
Licensee agrees to furnish MLBPA a certificate of insurance evidencing same or
satisfactory evidence of self-insurance within thirty (30) days after execution
of this Agreement, and in no event shall Licensee manufacture, offer for sale,
sell, advertise, promote, ship and/or distribute the Licensed Products or
Promotional and Packaging Material prior to receipt by MLBPA of such evidence of
insurance.
15. EXPLOITATION BY LICENSEE
------------------------
(a) Licensee agrees that during the License Period it will continue
to diligently distribute, ship and sell each of the Licensed Products in
sufficient quantities to meet the reasonably anticipated demand therefor
throughout the Licensed Territory and that it will use its best efforts to make
and maintain adequate arrangements for the distribution, shipment and sale
necessary to meet
21
<PAGE>
Licensee's sales goals for all such Licensed Products. Licensee further agrees
to exercise all reasonable efforts in the exercise of sound business judgment to
advertise and promote the Licensed Products at its own expense throughout the
term of this Agreement as widely as practicable within the Licensed Territory,
to the best advantage and enhancement of the Trademarks and the Rights.
(b) Licensee will not discriminate against any of the Licensed
Products by granting commissions/discounts to salesmen, dealers and/or
distributors in favor of Licensee's other similar products.
16. PREMIUMS, PROMOTIONS, COMBINATION PROGRAMS AND SECONDS.
------------------------------------------------------
(a) Under no circumstances other than in connection with the sale of
Licensed Products or as expressly approved by MLBPA in writing shall Licensee
have any right to sell or otherwise utilize the Licensed Products as premiums or
promotional items. MLBPA shall have and retain the sole and exclusive right to
utilize or license third parties to utilize any of the Trademarks and Rights
granted herein in connection with any premium, giveaway, fund raising,
promotional arrangement or fan club (collectively referred to as "Promotional
Products"), which retained right may be exercised by MLBPA concurrently with the
rights granted to Licensee hereunder.
(b) Licensee agrees not to sell the Licensed Products in combination
with any other products ("Combination Program") for one price without the prior
written consent of MLBPA.
(c) Licensee agrees not to offer for sale, sell, ship, and/or
distribute, and/or to knowingly assist any third party to offer for sale, sell,
ship, advertise, promote, distribute and/or use for any purpose whatsoever, any
Licensed Products and/or Promotional and Packaging Material relating to the
Licensed Products which are materially damaged or defective, or which otherwise
22
<PAGE>
materially fail to meet the specifications and/or quality standards and/or
trademark and copyright notice usage requirements of this Agreement.
17. ASSIGNABILITY AND SUBLICENSING
------------------------------
The license granted hereunder is and shall be personal to Licensee and
shall not be assigned by any act of Licensee or by operation of law or otherwise
encumbered. Licensee shall not have the Licensed Products or any portion
thereof manufactured for Licensee by a third party unless Licensee first obtains
the express written approval of MLBPA, and such manufacturer shall have signed
an agreement in the form attached hereto as Schedule D. Licensee shall have no
right to grant any sublicenses without MLBPA's prior express written approval.
Any attempt on the part of Licensee to arrange for manufacture by a third party
or to sublicense (except as provided herein), assign, encumber or alter its
rights under this Agreement by operation of law or otherwise, including without
limitation entry by Licensee into any joint venture arrangement, or any material
change in the ownership, control or key management of Licensee, without
reasonable notice to and prior written approval by MLBPA shall result in the
automatic termination of this Agreement, and all rights granted hereunder shall
immediately revert to MLBPA.
18. TERMINATION
-----------
(a) MLBPA's Right of Termination
----------------------------
(i) Immediate Right of Termination. In addition to the
------------------------------
automatic termination provisions and/or termination rights provided elsewhere in
this Agreement, and notwithstanding any attempts by Licensee to cure defaults,
MLBPA shall have the right immediately to terminate this Agreement by giving
written notice to Licensee if Licensee does any of the following:
23
<PAGE>
a. Manufactures, offers for sale, sells, advertises,
promotes, ships, distributes and/or uses in any way any Licensed Product and/or
Promotional and Packaging Material without having the prior written approval of
MLBPA as provided for in this Agreement;
b. Continues to manufacture, offer for sale, sell,
advertise, promote, ship, distribute and/or use in any way any Licensed Product
and/or Promotional and Packaging Material after receipt of notice from MLBPA
disapproving of same;
c. Fails to carry on the Licensed Products or Promotional
or Packaging Material the notices specified by MLBPA, as required herein;
d. Becomes subject to any voluntary or involuntary order
of any governmental agency involving the recall or citation of any of the
Licensed Products and/or Promotion and Packaging Material because of safety,
health or other hazards or risks to the public;
e. Directly or indirectly through its controlling
shareholders or any of its officers, directors or employees, takes any action in
connection with the manufacture, offering for sale, sale, advertising,
promotion, shipment and/or distribution of the Licensed Products and/or the
Promotional and Packaging Material which materially damages or materially
reflects adversely upon MLBPA, the Rights and/or the Trademarks;
f. Makes an unauthorized assertion of rights in the Rights
and/or the Trademarks as prohibited in this Agreement;
g. Two or more times during a twelve-month period fails to
make timely payment of royalties when due or fails to make timely submission of
royalty statements when due;
24
<PAGE>
h. Uses the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products without the express prior consent of MLBPA in writing; or
i. Fails to obtain or maintain insurance as required by
the provisions of this Agreement.
(ii) Curable Breaches by Licensee. If Licensee commits a
----------------------------
material breach of any other terms of this Agreement; files a petition in
bankruptcy or is adjudicated a bankrupt or insolvent; or makes an assignment for
the benefit of creditors, or an arrangement pursuant to any bankruptcy law; or
discontinues its business; or if a receiver is appointed for it or its business
and is not discharged within thirty (30) days, and Licensee fails to cure such
default and furnish reasonable proof of its cure to MLBPA within fifteen (15)
days after receiving written notice of breach and a demand to cure from MLBPA,
MLBPA shall have the right to terminate this Agreement by giving written notice
to Licensee.
(b) Licensee's Right of Termination. If MLBPA commits an act or
-------------------------------
omission which constitutes a material breach of any of the terms of this
Agreement and fails to cease the noticed acts or omissions and furnish
reasonable proof of such cure to Licensee within fifteen (15) days after
receiving written notice of breach and a demand to cure from Licensee, Licensee
shall have the right to terminate this Agreement by giving written notice to
MLBPA. Termination of this Agreement shall not relieve Licensee of any royalty
obligations which have accrued prior to termination.
25
<PAGE>
19. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS
------------------------------------------------------
(a) Except as provided in Section l9(c) below, upon termination of
this Agreement, Licensee and its receivers, representatives, trustees, agents,
administrators, successors and/or permitted assigns shall have no right to
manufacture, offer for sale, sell, ship, advertise, promote and/or distribute
Licensed Products or to use in any way the Rights, the Trademarks, or any
Promotional and Packaging Material relating to the Licensed Products.
(b) Upon expiration of this Agreement or upon termination by MLBPA,
notwithstanding anything to the contrary herein, all royalties on sales,
shipments and/or distributions theretofore made shall become immediately due and
payable and no Guaranteed Minimum Royalty paid to MLBPA shall be refunded.
(c) Upon expiration of this Agreement without renewal or entry into a
new agreement, or upon termination of this Agreement for any reason except those
set forth in Section 17 or Section 18(a) above, subject to the requirements of
this Agreement with respect to payment and reporting of royalties, Licensee may,
for a period of ninety (90) days, dispose of all finished Licensed Products
which are on hand upon the expiration of the License Period then in effect,
provided that the royalties with respect to that period are paid and the
appropriate statements are furnished for that period. Licensee shall not
accelerate or increase the manufacture or production of Licensed Products in
anticipation of expiration of this Agreement. During such ninety (90) day
period, MLBPA itself may use or license the use of the Rights and/or the
Trademarks in any manner at any time anywhere in the world as MLBPA sees fit
(d) Subject to Subsection l9(c) above, after the expiration or
termination of this Agreement, Licensee shall refrain from further use of the
Rights and/or the Trademarks or any
26
<PAGE>
further claim to the use thereof, either directly or indirectly, in connection
with the manufacture, offering for sale, sale, advertising, promotion, shipment
and/or distribution of any products, Promotional Material or otherwise.
Licensee shall be responsible to MLBPA for any damages caused by the
unauthorized use by Licensee or by others of any materials created by or for
Licensee and embodying the Rights and/or the Trademarks following expiration or
termination of this Agreement. In the event of any such unauthorized use of any
such materials by Licensee or others, Licensee shall pay MLBPA for liquidated
damages and not as a penalty or as damages for any breach of this Agreement or
as a substitute for other payments due to MLBPA and the sum of Five Hundred
Thousand Dollars ($500,000).
(e) Licensee acknowledges that its failure to cease the manufacture,
offering for sale, sale, advertising, promotion, shipment and/or distribution of
the Licensed Products and/or use in any way of the Promotional and Packaging
Material relating to the Licensed Products after the termination or expiration
of this Agreement in accordance with the terms hereof will result in immediate
and irreparable damage to MLBPA and/or to the players and to the rights of other
licensees of MLBPA. Licensee acknowledges and admits that there is no adequate
remedy at law for failure to cease such activities and Licensee agrees that in
the event of such failure, in addition to all other remedies available to it
hereunder, MLBPA at its sole option may commence an action in any court having
jurisdiction or an arbitration proceeding, and shall be entitled to equitable
relief by way of injunctive relief and such other relief as any arbitrator(s) or
court with jurisdiction may deem just and proper. Licensee waives all
requirement of a bond in connection with MLBPA's pursuit of injunctive relief.
27
<PAGE>
20. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
----------------------------------------------
Within thirty (30) days after termination or expiration of this
Agreement, as the case may be, Licensee shall deliver to MLBPA a statement
indicating the number and description of the finished Licensed Products which it
had on hand as of the expiration or termination date. MLBPA shall have the
option, upon two (2) working days' notice and during regular business hours, of
conducting a physical inventory at the time of expiration or termination and/or
at a later date in order to ascertain or verify such statement. In the event
that Licensee refuses to permit MLBPA or its authorized representative to
conduct such physical inventory, Licensee shall forfeit any rights hereunder to
dispose of such inventory. In addition to such forfeiture, MLBPA shall have
recourse to all other remedies available to it.
21. NOTICES
-------
All notices or other communications required or desired to be sent to
either party shall be in writing and sent by Registered or Certified Mail,
postage prepaid, return receipt requested, or by facsimile or telegram, charges
prepaid. Such notices, including facsimile or telegram, shall be effective on
the date sent, provided that any notice sent by facsimile also shall be sent by
regular mail. The addresses for MLBPA and Licensee shall be as set forth on
Schedule B. Either party may change its address by notice in writing to the
other party.
22. RELATIONSHIP OF THE PARTIES
---------------------------
This Agreement does not create a partnership or joint venture between
the parties and neither party shall have any power to obligate or bind the other
in any manner whatsoever.
28
<PAGE>
23. APPLICABLE LAW
--------------
This Agreement is made within the State of New York and shall be
construed in accordance with the laws of the United States and the State of New
York. Licensee hereby expressly waives any right to the benefits of remedial
legislation, if any, of Licensee's home state.
24. REMEDIES
--------
(a) Except as otherwise provided herein, any dispute or disagreement
between the parties hereto arising out of or relating to this Agreement shall be
settled by final and binding arbitration, in New York City, under the Commercial
Arbitration Rules then obtaining of the American Arbitration Association. The
parties hereto expressly stipulate that the arbitrator(s) shall have full
subpoena power and full powers to fashion appropriate remedies, including
without limitation the power to grant equitable and/or injunctive and/or
declaratory relief. Judgment upon the award may be entered in any court having
jurisdiction.
(b) Licensee recognizes the unique nature of the Rights and the
Trademarks, and the possibility that breaches of this Agreement by Licensee may
require preliminary or extraordinary relief beyond that available in
arbitration, and the possibility that breaches of this Agreement may involve
third parties or witnesses or issues which are beyond the practical jurisdiction
of arbitrators. Accordingly, notwithstanding the provisions of Section 24(a),
MLBPA (but not Licensee) may, at its sole and exclusive option, as an
alternative to arbitration, elect to commence an action or proceeding in any
court of competent jurisdiction to enforce this Agreement or protect the Rights
and the Trademarks. MLBPA may also require the termination of a
previously-commenced arbitration proceeding so as to permit a dispute between
the parties to be resolved in an action or
29
<PAGE>
proceeding in a court of competent jurisdiction, so long as MLBPA has
theretofore not waived its right to do so by taking substantial steps to
prosecute or defend the arbitration proceeding.
25. CAPTIONS
--------
The captions used in connection with the sections, and subsections of
this Agreement are inserted only for purpose of reference. Such captions shall
not be deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this Agreement or any part thereof, nor
shall such captions otherwise be given any legal effect.
26. WAIVER
------
(a) No waiver by either party of a breach or a default hereunder
shall be deemed a waiver by such party of a subsequent breach or default of a
like or similar nature.
(b) Resort by either party to any remedies referred to in this
Agreement or arising by reason of a breach of this Agreement by the other party
shall not be construed as a waiver by the former of its right to resort to any
and all other legal and equitable remedies available to it.
27. SURVIVAL OF THE RIGHTS
----------------------
Any rights and obligations created by this Agreement and which by
necessary implication continue after its expiration or termination shall survive
such expiration or termination.
28. SEVERABILITY
------------
In the event that any term or provision of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision, and this Agreement shall be interpreted and construed as if such term
or provision, to the extent the same shall have been held to be invalid, illegal
or unenforceable, had never been contained herein.
30
<PAGE>
29. CONFIDENTIALITY
---------------
MLBPA agrees to treat confidentially and to use solely for its own
internal purposes all non-public, proprietary information furnished to it by
Licensee in connection with this Agreement, including without limitation new
product concepts, marketing plans, royalty reports, customer lists, artwork,
advertising, promotional and publicity materials, and Licensee's individual
contracts with current and former baseball players.
30. INTEGRATION
-----------
This Agreement represents the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, understandings or agreements, oral or written, between the
parties with respect to the subject matter hereof. This Agreement cannot be
modified except by a written instrument signed by the parties hereto.
By their execution below, the parties hereto have agreed to all of the
terms and conditions of this Agreement.
MAJOR LEAGUE BASEBALL PINNACLE BRANDS, INC.
PLAYERS ASSOCIATION
By: /s/ Donald Fehr By: /s/ Jerry M. Meyer
----------------------------------------- -----------------------
Date: 12/27/94 Date: 12/20/94
--------------------------------------- -----------------------
31
<PAGE>
SCHEDULE A
----------
TRADEMARKS
MLBPA
Major League Baseball Players Association
MLBPA logo
THE RIGHTS
The names, nicknames, likenesses, signatures, pictures, playing records
and/or biographical data of all active baseball players of the National League
and the American League who have entered into a Commercial Authorization
Agreement with the MLBPA.
32
<PAGE>
SCHEDULE B
----------
LICENSED PRODUCTS:
(1) 4-, 5-, 6-, or 7-color trading cards printed on paper stock, plastic
or vinyl, two and one-half inches by three and one-half inches (2 1/2" x 3 1/2")
in size and featuring photographs, statistics and biographical information of
current Major League Baseball players.
(2) Said baseball trading cards may be sold in conjunction with printed
matter of a size equal to or smaller than three and one-third inches by four and
two-thirds inches (3 1/3" x 4 2/3"), in the form of rectangular-shaped,
square-shaped, circular-shaped, oval-shaped or star-shaped lenticular cards
which contain baseball-related trivia-type information, but not player
pictures or likenesses, or with baseball trading cards of a size not to exceed
eight inches by ten inches (8" x 10") in size.
The rights granted hereunder shall further include collector aids products,
including but not limited to, display pieces, albums and storage devices, for
use in connection with the foregoing products.
LICENSE PERIOD:
January 1, 1995 to December 31, 1997.
LICENSED TERRITORY:
Worldwide.
ADDITIONAL CONDITIONS:
The International Addendum attached hereto and incorporated by reference
herein shall apply to all activities of Licensee with respect to the Licensed
Products outside the United States.
Licensee agrees to give MLBPA at least six (6) months notice in writing prior to
advertising or selling any Licensed Product in any country outside the United
States and Canada.
33
<PAGE>
ANNUAL ROYALTY:
1995: **
1996: **
1997: **
GUARANTEED MINIMUM ROYALTY:
** per calendar year payable in equal quarterly installments on each January
20, April 20, July 20 and October 20 during the term hereof.
ADDRESSES FOR NOTICES:
MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION
12 East 49th Street
New York, NY 10017
Attn: Judith S. Heeter
MIKE SCHECHTER ASSOCIATES, INC.
10012 North Dale Mabry
Tampa, FL 33618
Attn: Mike Schechter
PINNACLE BRANDS, INC.
924 Avenue J East
Grand Prairie, Texas 70050
Attn: Jerry Meyer, President
Acknowledged and Approved:
MAJOR LEAGUE BASEBALL PINNACLE BRANDS, INC.
PLAYERS ASSOCIATION
By: /s/Donald Fehr By:/s/ Jerry M. Meyer
-------------------------------------------- ----------------------
Date: 12/27/94 Date: 12/20/94
-------------------------------------------- --------------------
_______________
** Confidential information deleted.
34
<PAGE>
SCHEDULE C
----------
Royalty Report for: Major League Baseball Players Association
12 East 49th Street
New York, NY 10017
(212) 826-0809
<TABLE>
<S> <C>
LICENSEE: DATE:
------------------------- --------------------------------------------------
PERIOD COVERED:
------------------------- ----------------------------------------
-------------------------
Licensee: ___________________________________ Date: ______________________
___________________________________
___________________________________ Period Covered: ___________
</TABLE>
<TABLE><CAPTION>
STOCK ITEM WHOLESALE QUANTITY GROSS LESS NET ROYALTY ROYALTY
NUMBER DESCRIPTION PRICE PER UNIT SHIPPED SELLING PRICE RETURNS SALES RATE DUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
/ /We had no sales for the period TOTAL ROYALTY DUE: __________
but our product is scheduled LESS GUARANTEED __________
to start shipping_____________________ ROYALTIES PAID TO DATE: _____
(DATE) AMOUNT DUE: ______________
THIS ROYALTY REPORT
WAS CERTIFIED BY: _________________________________
(Signature)
_______________________
(Title)
35
<PAGE>
SCHEDULE D
----------
MANUFACTURER'S AGREEMENT
------------------------
Licensee: Pinnacle Brands, Inc.
Licensed Territory: United States, its territories and possessions, and
Canada.
Licensed Products:
The undersigned understands that the Major League Baseball Players
Association ("MLBPA") has authorized the above-named Licensee to manufacture the
above-named Licensed Products utilizing certain names, logos, symbols,
likenesses, signatures and pictures which are the property of MLBPA ("the
Rights"). In order to induce MLBPA to consent to the manufacture of the
Licensed Products by the undersigned, the undersigned agrees that it will not
manufacture the Licensed Products for anyone but the Licensee; that it will not
sell the Licensed Products to anyone but the Licensee; that it will not
knowingly manufacture the Licensed Products for distribution in any territory
other than the above-named Licensed Territory; that it will not (unless MLBPA
otherwise consents in advance in writing) manufacture any other merchandise
utilizing any aspect of the Rights; that it will permit such representatives as
MLBPA may from time to time designate to inspect the activities of the
undersigned with relation to its manufacture of the Licensed Products and audit
the books and records of the undersigned with regard to the manufacture and sale
of the Licensed Products; and that whenever the Licensee ceases to require the
undersigned to manufacture the Licensed Products, the undersigned will return to
the Licensee or to MLBPA any molds, plates, engravings, or other devices used to
reproduce any of the Rights or at the direction of MLBPA or Licensee will give
satisfactory evidence of the destruction thereof. MLBPA shall be entitled to
invoke any remedy permitted by law for violation of this agreement by the
undersigned.
[Name of Manufacturer]:
By:
-------------------------
Title:
-----------------------
36
<PAGE>
INTERNATIONAL ADDENDUM
----------------------
I. With respect to sales in any portion of the Licensed Territory outside
the United States, Licensee shall deliver its royalty statements and make
payments to MLBPA as required by Section 4 on the thirtieth (30th) day of the
month following the month during which such royalties accrued.
II. In calculating "Net Sales" with respect to sales in any portion of the
Licensed Territory outside the United States, there shall be no deduction made
in connection with the transfer of funds or royalties or with the conversion of
any currency into United States dollars.
III. If any tax is imposed on MLBPA by any foreign country with respect to
any amount payable to MLBPA, Licensee shall compute and pay the amount due to
MLBPA pursuant to this Agreement on the basis of the gross amount involved
before the deduction of any taxes. If Licensee is required to withhold from any
payment due to MLBPA an amount representing taxes imposed on MLBPA pursuant to
the laws of any foreign country, Licensee shall nevertheless have the obligation
to make up the amount of said tax in making its payment to MLBPA hereunder.
IV. With respect to any countries in the Licensed Territory outside the
United States, the statements provided to MLBPA pursuant to this Agreement shall
be broken down by countries and all Net Sales shall be stated in the currency of
the country where they were made, followed by the equivalent amount for such Net
Sales in United States currency, followed by the exchange rate applied. The
rate of exchange shall be the actual rate of exchange prevailing on the last day
of the month prior to the date on which payment is due to MLBPA. The parties
agree to cooperate in facilitating the exportation of royalties by legal means
from any country which imposes currency or other restrictions upon the payment
of royalties; provided, however, that upon the request of MLBPA, Licensee agrees
to deposit the full amount, or any portion, of any and all amounts due
37
<PAGE>
MLBPA, in United States or foreign currency, in an account within such country
for the benefit of MLBPA as instructed by MLBPA. If several currencies are
involved in any reporting category, that category shall be broken down by each
such currency.
V. With respect to those countries which require applications to register
Licensee as a Permitted User or Registered User of a trademark or trademarks
used on or in connection with the rights granted under this Agreement, or which
require the recordation of this Agreement, Licensee agrees to execute and
deliver to MLBPA such applications, agreements, or other documents as may be
necessary and as are furnished by MLBPA for such purposes. In the event such
agreements are entered into between MLBPA and Licensee, this Agreement rather
than such agreements will govern any disputes between MLBPA and Licensee and in
the event that this Agreement is terminated for any reason, any such Registered
User or Permitted User agreements also shall be deemed to be terminated.
VI. It shall be Licensee's sole responsibility at its expense to obtain
all approvals of any foreign authorities which may be necessary in connection
with Licensee's performance under this Agreement in such portion(s) of the
Licensed Territory. Licensee shall take whatever steps may be reasonably
required to effect the remission of funds from abroad; to minimize or eliminate
the incidence of foreign taxes, fees, or assessments which may be imposed; to
protect its investments in foreign territories, to enable it to commence or
continue doing business in any foreign territory; and to comply in any and all
respects with all applicable laws and regulations.
MAJOR LEAGUE BASEBALL PINNACLE BRANDS, INC.
PLAYERS ASSOCIATION
By: /s/ Donald Fehr By: /s/ Jerry M. Meyer
------------------------------------- ----------------------
38
Exhibit 10.25
A G R E E M E N T
This Agreement is made and entered into this 14th day of March, 1995, by and
between Pinnacle Brands, Inc., with offices at 924 Avenue J East, Grand Prairie,
TX 75050 (hereinafter, "Licensee"), and NATIONAL FOOTBALL LEAGUE PLAYERS
INCORPORATED, a corporation with offices at 2021 L Street, N.W., Washington,
D.C. 20036 (hereinafter, "Players Inc" or "Licensor"). This Agreement shall be
effective as of March 1, 1995.
WITNESSETH:
1.REPRESENTATIONS.
(A)Players Inc represents that it has been duly appointed and is acting on
behalf of the football players of the National Football League who have entered
into a Group Licensing Authorization which has been assigned to Players Inc,
either in the form attached hereto as Attachment "A" or through the assignment
contained in Paragraph 4(b) of the NFL Player Contract, and that in such
capacity it has the right to negotiate this contract and the right to grant
rights and licenses described herein. Licensee acknowledges that Players Inc
also on occasion secures authorization for inclusion in Players Inc licensing
programs from players who have not entered into such Group Licensing
Authorization, but who, nevertheless, authorize Players Inc to represent such
players for designated Players Inc licensed programs.
(B) Players Inc makes no representation that it has the authority to
grant, nor does it grant herein, the right to utilize any symbols, insignias,
logos, or other identifying names or marks of the National Football League
(hereinafter "NFL") and/or any of its member clubs. Accordingly, it is
understood by the parties hereto that if likenesses of players are to be used by
Licensee in conjunction with any symbols, insignia, or logos of the NFL or any
of its member clubs, in the exercise of the License granted hereunder, it will
be the responsibility of Licensee to obtain such permission as may be necessary
for the use of such material from the NFL or the club(s) in question. Licensor
retains all rights not expressly and exclusively granted to Licensee hereunder.
2. GRANT OF LICENSE.
(A) Upon the terms and conditions hereinafter set forth, Players Inc
hereby grants to Licensee and Licensee hereby accepts the non-exclusive right,
license and privilege of utilizing the logo(s), name(s), and symbol(s) of
Players Inc and the names, likenesses, pictures, photographs, voices, facsimile
signatures, descriptions, and/or biographical sketches of the NFL players listed
in Attachment "B", for product(s) in the form of trading cards and collectors'
aids products (hereinafter referred to as "the licensed
<PAGE>
product(s)"). Provided, however, that the specific manner in which the
rights licensed hereunder are to be used on the licensed product(s) in question
shall require the prior written consent of Players Inc.
(B) The rights, licenses and privileges granted by Players Inc hereunder
shall not constitute or be used by Licensee as a testimonial or an endorsement
of any product, service, or event by all or any of the players, or by Players
Inc. In the event Licensee is interested in securing an individual player's
personal endorsement, Licensee agrees and acknowledges that such endorsement
will require the personal approval of the individual player and Players Inc and
a separate payment made through Players Inc to such player. Licensee agrees and
acknowledges that any player who is committed individually by contract for
products or services competitive with those of Licensee may be required to cease
from further inclusion in this Agreement. Licensee shall only exercise its
rights under the preceding sentence if it is exercising similar rights with
respect to other licensees of football player trading cards (to the extent
practicable in view of production timing requirements.)
3. RETAIL LICENSE ONLY. The above-referenced Grant of Rights applies only to
the manufacture and distribution of licensed product(s) for retail sale, and
shall not permit the use of licensed product(s) as "premium items" to be
included with non-licensed product(s), services or events to promote the sale of
such non-licensed product(s), services or events; provided, however, that
Licensee shall be permitted to promote the sale of licensed product(s), subject
to prior written approval by Players Inc and in a manner consistent with the
provisions of the Agreement. Any such premium promotion using the licensed
product(s) herein shall require a separate agreement between Players Inc and any
sponsor of the promotion, with separate terms and conditions, and nothing
contained herein shall obligate either Players Inc or Licensee to enter into
such an agreement.
4. TERRITORY. Licensee shall have the right to utilize the rights granted
hereunder for distribution of the licensed product(s) in the following
territory: United States, its territories and possessions, and Canada.
5. TERM.
(A) The term of this Agreement shall extend from March 1, 1995 to February
28, 1997 (hereinafter referred to as Original License Period) unless terminated
in accordance with the provisions hereof. Licensee may renew this Agreement for
an Additional License Period from March 1, 1997 to February 28, 1999, provided
Licensee has faithfully fulfilled its obligations hereunder in the Original
License Period. Notice of desire to renew shall be given by Licensee no later
than January 1, 1997 in the Original License Period.
(B) Licensee acknowledges and agrees that Licensee has and shall have no
right to extend or renew this Agreement beyond the term and renewal options, if
any, stated herein. No conduct by either Licensor or Licensee (including
without limitation, any
<PAGE>
approvals granted pursuant to Paragraph 12 hereof) shall create, imply or infer
a new license agreement or an extension of the stated term and renewal options,
if any, of this Agreement, unless same is specifically set forth in a written
agreement signed by both Licensor and Licensee. Licensee's agreement that this
Agreement is subject to the term and renewal options, if any, stated herein, in
all events whatsoever, is a material inducement for Licensor to enter into this
Agreement.
6. ROYALTY PAYMENT.
(A) Licensee agrees to pay Players Inc a guaranteed royalty of ** for
its use of the rights licensed hereunder for the Original License Period and a
guaranteed royalty of ** for the Additional License Period, if applicable. The
guaranteed royalty shall be paid as follows:
(i) For the Original License Period, ** on or before March
1, 1995, and ** on or before September 1, 1995, and ** on or before
March 1, 1996, and ** on or before September 1, 1996.
(ii) For the Additional License Period, if applicable, **
on or before March 1, 1997, and ** on or before September 1, 1997, **
on or before March 1, 1998 and ** on or before September 1, 1998.
(B) Such guaranteed royalty payments shall be made by Licensee as
specified hereinabove whether or not Licensee uses the rights licensed
hereunder, and no part of such guaranteed payments shall be repayable to
Licensee.
(C) Licensee shall also pay to Players Inc an amount equal to ** of the
gross sales of the licensed product(s) covered by this Agreement, less the
guaranteed payments specified above for the applicable license period. The
guaranteed payments for the Original License Period shall be calculated annually
and separately at the rate of ** for the period of March 1, 1995 through
February 28, 1996 and ** for the period of March 1, 1996 through February 28,
1997. For example, the ** royalty shall be paid in the first year of the
Agreement less only the guarantee of ** for such first year and similarly for
the second year of the Original License Period. Similarly, the guaranteed
payments for the Additional License Period shall be calculated annually and
separately at the rate of ** for the period March 1, 1997 through February 28,
1998, and ** for the period March 1, 1998 through February 28, 1999. Royalties
shall be calculated on a quarterly basis and shall be due as of the last day of
each May, August, November, and February of this Agreement and must be paid no
later than fifteen (15) days following such due dates. Gross sales shall be
calculated based on the standard price(s) charged by Licensee to the retailer
directly or to the wholesaler in an arms' length transaction. Licensee shall
transact no sale, the effect of which is to reduce the royalty paid by Licensee
to Players Inc; provided, however, that
- --------------------
** Confidential information deleted.
3
<PAGE>
Licensee shall be permitted to provide arms length discounts, allowances and
returns which are normal and customary. Gross sales shall exclude only such
normal and customary discounts, allowances and returns.
In addition to all other rights contained in this Agreement, Players Inc shall
be entitled to collect and Licensee shall pay daily interest at the rate of one
and one-half percent (1 1/2%) monthly, or the maximum interest permitted by law
if less, on all guarantee or royalty payments not timely made to Players Inc by
Licensee.
7. PERIODIC STATEMENTS.
(A) Licensee shall furnish to Players Inc, no later than fifteen (15) days
following the last day of each May, August, November, and February of this
Agreement, a complete and accurate statement certified to be accurate by an
officer of Licensee, showing the number, description and gross purchase price,
of the licensed product(s) distributed by Licensee during the preceding
quarterly reporting period described in Paragraph 6(C) herein, together with any
returns made during such reporting period. Once in every twelve-month period,
Licensee shall furnish Players Inc with a detailed statement certified by an
officer of Licensee, showing the number of gross sales of the licensed
product(s) covered by this Agreement.
(B) Such statements shall be furnished to Players Inc whether or not any
of the licensed product(s) have been purchased during the reporting period for
which such statement is due. The receipt or acceptance by Players Inc of any
statement or of any royalty paid hereunder (or the cashing of any royalty check
paid hereunder) shall not preclude Players Inc from questioning the correctness
thereof at any time, and in the event any inconsistencies or mistakes are
discovered in connection therewith, they shall immediately be rectified and the
appropriate payment made by Licensee.
8. BOOKS AND RECORDS.
(A) For a period of two (2) years following the termination or expiration
of this Agreement, Licensee shall maintain accurate books and records for itself
and any subsidiary or affiliated entity with respect to its sale of licensed
product(s) under this Agreement. Said books and records shall be subject to
inspection and audit by Players Inc or its duly authorized representative at
reasonable times upon reasonable notice from Players Inc to Licensee. In
addition and similarly, Licensee shall cause any entity from which it contracts
for services or production of product to cause its books and records to be
available for audit and inspection by Players Inc to the extent necessary to
confirm the audit of Licensee. Licensee shall not interfere with such
inspections and audits in any way.
(B) The cost of such inspections and audits shall be paid by Licensee if
the result of such inspections and audits indicates a difference of 2% or more,
when compared to the statement certified to be accurate by an officer of
Licensee, as required by Paragraph 7(A)
4
<PAGE>
of this Agreement, for the twelve-month period covered by such statement, or
shall be paid by Players Inc if such difference is less than 2%.
(C) In the event any inconsistencies or mistakes are discovered as a
result of such inspections and audits, they shall immediately be rectified and
the appropriate payment made by Licensee.
9. PAYMENT AND NOTICES. All transactions under this Agreement, including
without limitation all payment of royalties and all notices, reports,
statements, approvals and other communications, shall be with or made payable in
the name of NATIONAL FOOTBALL LEAGUE PLAYERS, INCORPORATED, 2021 L Street,
N.W., Washington, D.C. 20036, or its assignee where applicable. All
correspondence, notices, approvals and other communications to Licensee shall be
with Pinnacle Brands, Inc., 924 Avenue J East, Grand Prairie, TX 75050.
10. INDEMNIFICATION.
(A) Licensee agrees that it will not during the term of this Agreement, or
thereafter, attack the rights of Players Inc in and to the logo(s), name(s) and
symbol(s) of Players Inc or any of the rights licensed hereunder, or attack the
validity of this Agreement.
(B) Licensee further agrees to assist Players Inc to the extent necessary
in the procurement of any protection or to protect any of the rights conveyed
hereunder, and Players Inc, if it so desires, may commence or prosecute at its
own expense any claims or suits in its own name or in the name of Licensee or
join Licensee as a party thereto. Licensee shall notify Players Inc in writing
of any infringement by others of the rights covered by this Agreement which may
come to Licensee's attention, and Players Inc shall have the sole right to
determine whether or not any action shall be taken on account of any such
infringement. Licensee shall not institute any suit or take any action on
account of any such infringement without first obtaining the written consent of
Players Inc to do so and Players Inc shall reasonably consider any such request.
(C) Licensee for its own acts hereby indemnifies Players Inc and
undertakes to defend Players Inc from and against any claims, suits, losses,
damages, and expenses (including reasonable attorney's fees and expenses)
arising out of the manufacture, marketing, sale, distribution, or use of the
licensed product(s) which are the subject of this Agreement. Licensee agrees to
obtain, at its own expense, product liability insurance, providing adequate
protection for Licensee and Players Inc against any such claims or suits in
amounts not less than Three Million Dollars ($3,000,000.00). Within thirty (30)
days from the date hereof, Licensee shall submit to Players Inc a fully paid
policy or certificate of insurance naming Players Inc as an insured party,
requiring that insurer will not terminate or materially modify such without
written notice to Players Inc at least twenty (20) days in advance thereof.
5
<PAGE>
(D) Players Inc hereby indemnifies Licensee and undertakes to defend
Licensee against, and hold Licensee harmless from any liabilities, losses,
damages, and expenses (including reasonable attorney's fees and expenses)
resulting from claims made or suits brought against Licensee based upon the use
by Licensee of the logo or the rights strictly as authorized in this Agreement.
11. COPYRIGHT AND TRADEMARK NOTICES.
(A) Licensee shall prominently place or cause to be placed Licensor's
registered trademark on the licensed products and on packaging, wrapping,
advertising (both print and media), and any other material, including trade show
booths and exhibits in connection with such licensed product(s) publicly
distributed under this Agreement.
(B) Licensor's registered trademark appearing on the licensed product(s)
and on all materials in connection with the licensed product(s) shall be the
mark provided to Licensee by Licensor in precisely the form supplied, without
variation, with the letter R enclosed within a circle. Further, Licensee shall
provide to Licensor the date of the first use of such licensed product(s) in
intrastate and interstate commerce.
(C) Additionally, Licensee shall imprint or cause to be imprinted the
following text on any such licensed product(s) and/or materials therefor:
"Officially Licensed Product of the
National Football League Players",
or
"Officially Licensed Product of
Players Inc"
The specific text imprinted shall be subject to Licensor's sole discretion.
12. APPROVALS.
(A) Attachment "B" hereto shall be established and may be modified in the
following manner:
(i) Upon execution of this Agreement, and thereafter annually by
December 15 of each calendar year covered by this Agreement, Licensee
shall submit to Players Inc a proposed list of players' names for
inclusion in Attachment "B" for the upcoming football season.
6
<PAGE>
(ii) Players Inc shall respond to such submissions in writing to
Licensee, signifying approval or disapproval in the case of each
player's name so requested.
(iii) Licensee may submit requests in writing to Players Inc for
additions, deletions, or substitutions of players' names contained in
Attachment "B" and Players Inc shall respond to such requests within a
reasonable period of time.
(B) The Licensee agrees to furnish Players Inc free of cost for its
written approval as to quality and style, samples of each of the licensed
product(s), together with their packaging, hangtags, and wrapping material,
before their manufacture, sale or distribution, whichever occurs first, and no
licensed product(s) shall be manufactured, sold or distributed by the Licensee
without such written approval. Players Inc shall respond in writing to requests
for such approval from Licensee within 15 business days. Any request by
Licensee for such approval which is received by Players Inc and is not responded
to within 15 business days shall be deemed approved by Players Inc. Subsequent
to final approval, a reasonable number of production samples of licensed
product(s) will periodically be sent to Players Inc to insure quality control,
and should Players Inc require additional samples for any reason, Players Inc
may purchase such at Licensee's cost.
Licensee shall also provide to Players Inc free of charge the following:
(i) Prior to November 1 of each License Period, for each player
included in Attachment "B", 150 copies of his individual regular card and
one complete set of all player cards produced for that License Period; and
30 copies of any special cards.
(ii) Prior to November 1 of each License Period for Players Inc, three
cases of count goods and three dozen complete sets of all player cards
produced for that License Period.
(C) Licensee may choose to use player names and/or likenesses on or in any
material pertaining to packaging, hangtags, wrapping material, print ads,
flyers, point-of-purchase displays, press releases, catalogues, trade show
booths and exhibits or any other written material which incorporates player
names and/or likenesses; provided, however, that such use shall require the
prior written approval of Players Inc. The number of players included in any
such use, if approved, shall be a minimum of six and a maximum of twenty, and
shall be selected from Attachment "B". Player names and/or likenesses so used
shall be written or displayed with equal prominence.
(D) Licensee may choose to use player names and/or likenesses (including,
without limitation, action footage) in radio or television commercials;
provided, however, that such use shall require the prior written approval of
Players Inc. The number of players
7
<PAGE>
included in such commercials, if approved, shall be a minimum of six and a
maximum of twenty and shall be selected from Attachment "B". The players used
in such commercials shall be shown with equal prominence. Licensee agrees to
furnish Players Inc all scripts and story boards for proposed radio and
television commercials in connection with the promotion of the licensed
product(s), and the content of such scripts and story boards shall require the
prior written approval of Players Inc before any commercials shall be made or
shall be contracted for by Licensee.
(E) Players whose names and/or likenesses are used in accordance with this
Paragraph 12, in any radio or television commercials, print ads, point-of-
purchase displays, packaging, hangtags, wrapping material, press releases,
catalogues, flyers, trade show booths and exhibits or any other written material
or medium, to promote licensed product(s), shall be paid individually, separate
from and in addition to any guarantees or royalty payments contained in this
Agreement. The amount of such payment shall be subject to mutual agreement by
Players Inc. and Licensee and payment shall be sent to Players Inc. All
contacts with such players or their agents shall be made by Players Inc.
(F) Notwithstanding anything to the contrary hereinabove, Licensee shall
be permitted, without additional separate payment to Players Inc for players, to
show on counter card boxes: (1) six or more examples of the football trading
cards licensed herein, and/or (2) a list of six or more players' names whose
images or likenesses are used on the football trading cards licensed herein;
provided, however, that such cards are shown with equal prominence, and provided
further, however, that Players Inc shall retain all rights to prior written
approval contained hereinabove.
(G) In the event Licensee wishes to secure individual players to make
appearances or perform other services to promote licensed product(s) or to
autograph licensed product(s) the selection of such player(s) and the separate
fee to be paid to such player(s) shall be subject to mutual agreement between
Licensee and Players Inc. Players Inc will attempt to secure the services of
player(s) requested, and all contact with requested player(s) or their agents
shall be made by Players Inc. Once the player(s) has made the appearance or
performed such other services, payment shall be made to Players Inc. Any such
payments to player(s) shall be separate from and in addition to any royalties
paid by Licensee under this Agreement.
13. NON-INTERFERENCE. Licensee agrees and acknowledges that it shall not
secure or seek to secure, directly from any player who is under contract or
seeking to become under contract to an NFL club, or from such player's agent,
permission or authorization for the use of such player's name, facsimile
signature, image, likeness, photograph or biography in conjunction with the
licensed product(s) herein.
8
<PAGE>
14. GOODWILL.
(A) Licensee recognizes the great value of the goodwill associated with
the logo(s), name(s), and symbol(s) of Players Inc, and acknowledges that such
goodwill belongs exclusively to Players Inc and that said logo(s), name(s), and
symbol(s) have a secondary meaning in the mind of the public.
(B) Licensee agrees that all elements (including all material of any
nature utilizing in any way the rights licensed hereunder, including but not by
way of limitation, all packages, cartons, point of sale material, newspaper and
magazine advertisements) of the licensed product(s) shall be of high standard
and of such style, appearance and quality as to be adequate and suited to the
best advantage and to the protection and enhancements of such rights; that the
marketing of the licensed product(s) will be conducted in accordance with all
applicable federal, state and local laws; and that the licensed product(s) and
their exploitation shall be of high standard and to the best advantage and that
the same in no manner reflect adversely upon the good name of Players Inc.
15. SPECIFIC UNDERTAKINGS OF LICENSEE.
(A) Licensee agrees that every use of the rights licensed hereunder by
Licensee shall inure to the benefit of Players Inc and that Licensee shall not
at any time acquire any title or interest in such rights by virtue of any use
Licensee may make of such rights hereunder.
(B) All rights relating to the rights licensed hereunder are specifically
reserved by Players Inc except for the License herein granted to Licensee to use
the rights as specifically and expressly provided in this Agreement.
(C) Upon expiration or termination of this Agreement, all rights granted
hereunder shall immediately revert to Players Inc, and Licensee will refrain
from further use of such rights or any further reference thereto, direct or
indirect, except as provided in Paragraph 16(E) below. Licensee acknowledges
that its failure to cease the use of such rights at the termination or
expiration of this Agreement will result in immediate and irreparable damage to
Licensor, and/or individual National Football League player(s), and to the
rights of any subsequent licensee(s).
(D) Licensee agrees to spend the following total amounts on activities
which stimulate and promote the market for licensed product(s), subject to prior
written approval by Players Inc of such activities:
**during the period March 1, 1995 to February 28, 1996 in
the Original License Period;
- --------------------
** Confidential information deleted.
9
<PAGE>
** during the period March 1, 1996 to February 28, 1997 in
the Original License Period;
** during the period March 1, 1997 to February 28, 1998 in
the Additional License Period, if applicable;
** during the period March 1, 1998 to February 28, 1999 in
the Additional License Period, if applicable.
Such activities shall include, but not be limited to, sponsorships,
promotions, player appearances, and special events. Licensee shall provide
documentation that such approved expenditures have been made. The expenditure
documentation shall be provided on a quarterly basis and shall be certified by
an officer of Licensee. Such documentation shall be subject to inspection and
audit by Players Inc on the same basis as Licensee's books and records.
16. TERMINATION BY PLAYERS INC.
(A) In the event Licensee does not commence in good faith to cause the
manufacture, distribution, and sale of the licensed product(s), in substantial
quantities on or before August 1, 1995, Players Inc, in addition to all other
remedies available to it, shall have the option to terminate the License granted
hereunder upon written notice of such termination to Licensee.
(B) In the event Licensee files a petition in bankruptcy or is adjudicated
as bankrupt, or if a petition in bankruptcy is filed against Licensee or if
Licensee becomes insolvent, or makes an assignment for the benefit of its
creditors or an arrangement pursuant to any bankruptcy laws, or if Licensee
discontinues its business, or if a receiver is appointed for it or its business,
all rights granted hereunder, without notice, shall terminate automatically upon
the occurrence of any such event. In the event of such termination, neither
Licensee nor its receivers, representatives, trustees, agents, administrators,
successors, and/or assigns shall have any right to sell, exploit or in any way
deal with the rights granted hereunder or with any licensed product(s), or any
carton, container, packaging or wrapping material, advertising, promotional or
display material pertaining to any licensed product(s).
(C) If Licensee shall violate any of its other obligations under the terms
of this Agreement, Players Inc shall have the right to terminate this Agreement
upon fifteen (15) days' notice in writing, and such notice of termination shall
become effective unless
______________
** Confidential information deleted.
10
<PAGE>
Licensee shall completely remedy the violation within the fifteen (15) day
period and shall provide reasonable proof to Players Inc that such violation has
been remedied. If this Agreement is terminated under this paragraph, all
royalties theretofore accrued shall
become due and payable immediately to Players Inc, and Players Inc shall not be
obligated to reimburse Licensee for any royalties paid by Licensee to Players
Inc.
(D) Failure to resort to any remedies referred to herein shall not be
construed as a waiver of any other rights and remedies to which Players Inc is
entitled under this Agreement or otherwise.
(E) Upon termination of this Agreement, Licensee shall have one hundred
twenty (120) days to dispose of and liquidate all inventory. This inventory
shall not be available to consumers after this one hundred twenty (120) day
period expires. Such disposition shall conform to this Agreement in all
respects. Players Inc shall have right to conduct a physical inventory at the
time of termination if it so elects.
17. PARTNERSHIP. Nothing herein contained shall be construed to place Players
Inc and Licensee in the relationship of partners or joint venturers, and
Licensee shall have no power to obligate or bind Players Inc in any manner
whatsoever.
18. WAIVER AND/OR MODIFICATION. None of the terms of this Agreement shall be
waived or modified except by an express agreement in writing signed by both
parties. There are no representations, promises, warranties, covenants or
undertakings other than those contained in this Agreement, which represents the
entire understanding of the parties. No written waiver shall excuse the
performance of an act other than those specified therein. The failure of either
party hereto to enforce, or delay by either party in enforcing any of its rights
under this Agreement shall not be deemed a continuing waiver or modification
thereof and either party may, within the time provided by applicable law,
commence appropriate legal proceedings(s) to enforce any or all of such rights.
19. NON-ASSIGNABILITY. This Agreement and all rights and duties hereunder are
personal to Licensee and shall not, without written consent of Players Inc, be
assigned, mortgaged, sublicensed or otherwise encumbered by Licensee or by
operation of law to any other person or entity. Upon any such attempted
unapproved assignment, mortgage, license, sublicense or other encumbrance this
Agreement shall terminate and all rights granted to Licensee hereunder shall
immediately revert to Players Inc. In addition, Players Inc may terminate this
Agreement, at its sole discretion, in the event that Licensee is merged,
consolidated, transfers all or substantially all of its assets, or implements or
suffers any material change in executive management or control, or upon any
transfer of more than twenty-five percent (25%) of its voting control. If, in
its sole discretion, Players Inc shall exercise such termination, all rights
granted to Licensee hereunder shall immediately revert to Players Inc.
11
<PAGE>
20. CONSTRUCTION. This Agreement is made within the District of Columbia and
shall be construed in accordance with the laws of the District of Columbia and
the United States of America.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and date written first above.
The Foregoing is Acknowledged:
NATIONAL FOOTBALL LEAGUE PINNACLE BRANDS, INC.
PLAYERS INCORPORATED
By: /s/ Douglas F. Allen By: /s/ Jerry M. Meyer
------------------------------- -------------------------------
Title: President Title: Chairman and CEO
----------------------- -------------------------------
12
<PAGE>
ATTACHMENT "A"
TEAM:
---------------
NFL PLAYERS ASSOCIATION
GROUP LICENSING ASSIGNMENT
--------------------------
The undersigned player, a member of the National Football League
Players Association ("NFLPA"), hereby assigns to the NFLPA and its licensing
affiliates, if any, the exclusive right to use and to grant to persons, firms or
corporations (collectively, "licensees") the right to use his name, signature
facsimile, voice, picture, photograph, likeness and/or biographical information
(collectively, "image") in group licensing programs. Group licensing programs
are defined as those licensing programs in which a licensee utilizes a total of
six (6) or more NFL player images in conjunction with or on products that are
sold at retail or used as promotional or premium items. The undersigned player
retains the right to grant permission to a licensee to utilize his image if that
licensee is not concurrently utilizing the images of five (5) or more other NFL
players in conjunction with or on products that are sold at retail or are used
as promotional or premium items. If the undersigned player's inclusion in a
particular NFLPA program is precluded by an individual exclusive endorsement
agreement, and the undersigned player provides the NFLPA with timely notice of
that preclusion, the NFLPA agrees to exclude the undersigned player from that
particular program.
In consideration for this assignment of right, the NFLPA agrees to use
the revenues it receives from group licensing programs to support the
objectives as set forth in the By-laws of the NFLPA. The NFLPA further agrees
to use its best efforts to promote the use of NFL player image in group
licensing programs, to provide group licensing opportunities to all NFL players
and to ensure that no entity engages in a group licensing program without first
obtaining a license from the NFLPA. The NFLPA makes no representations
regarding group licensing other than those expressed herein. This agreement
shall be construed under New York law.
<PAGE>
This assignment shall expire on December 31, 1998 and may not be
revoked or terminated by the undersigned player until such date.
Dated:
------------------- -------------------------
Player's Signature
Agreed to by the NFLPA:
-------------------------
Player's Name (PLEASE PRINT)
- --------------------
Name
- --------------------
Title
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
------------------------------
This Amendment is made and entered into as of this 14th day of March, 1995
by and between Pinnacle Brands, Inc. ("Licensee") and the National Football
League Players Incorporated ("Players Inc").
1. This Amendment shall serve as an amendment to the License
Agreement entered into by Licensee and Players Inc on March 14th, 1995 (the
"License Agreement"). This Amendment shall be effective as of March 1, 1995 and
shall expire on February 28, 1996.
2. Licensee hereby reaffirms that Paragraph 13 of the License
Agreement, titled Non-Interference (hereinafter referenced as the "Non-
Interference Clause"), has been, and continues to be, a valid and binding
provision of the License Agreement. Nothing set forth in this Amendment shall
be construed in any way as a waiver, repudiation, or nullification of the Non-
Interference Clause by Players Inc or Licensee.
3. In accordance with the settlement of an action brought by the
NFLPA against NFL Properties in Federal Court in The Southern District of New
York, styled National Football League Players Association v. National Football
-------------------------------------------- -----------------
League Properties, et al., 90 Civ. 4244 (MJL), Players Inc agrees that Licensee
- -------------------------
may, pursuant to and without thereby violating the License Agreement,
manufacture, market, distribute, and sell the licensed product(s) for the
current license period utilizing the image, likeness, photograph, facsimile
signature and/or biographical information of the members of the NFL Quarterback
Club listed on Exhibit A hereto in conjunction with the licensed products;
provided, however, that any licensed products produced by Licensee which contain
players listed on Exhibit A hereto are subject to the terms contained in the
License Agreement, including, but not limited to, Paragraph 12 -- APPROVALS.
All such licensed products must relate directly to the 1995 football season.
NFL Properties has agreed, as part of the settlement of the Properties action,
----------
to license the players listed on Exhibit A hereto to Licensee on a royalty free
basis.
4. Licensee shall pay the full royalties owed to Players Inc in
accordance with the License Agreement, including, without limitation, royalties
for any licensed products sold by Licensee that utilize the identities of the
players listed on Exhibit A hereto and, subject only to Paragraph 6 of the
License Agreement, shall make no deduction nor pro-ration, of those royalties
for any reason whatsoever.
5. Licensee expressly warrants and represents that prior to
inclusion in licensed products of the players listed on Exhibit A for the
current license period, it will obtain from NFL Properties, agent for the NFL
Quarterback Club, the non-exclusive right to utilize the image, likeness,
photograph, facsimile signature and/or biographical information of the players
listed on Exhibit A hereto. To obtain such right Licensee must:
<PAGE>
(i) deal directly with NFL Properties, on behalf of the NFL Quarterback Club;
and (ii) accept NFL Properties standard form licensing agreement for NFL
Quarterback Club licenses; provided, however, that such form licensing agreement
shall not provide for or require Licensee to make any payment to any entity or
person for such right.
6. Licensee indemnifies Players Inc and undertakes to defend Players
Inc against, and hold Players Inc harmless from, any liabilities, losses,
damages and expenses (including reasonable attorney's fees and cost of suit)
resulting from any and all claims, causes of action or suits brought against
Players Inc based upon the exercise by Licensee of the rights obtained by it to
manufacture, market and sell any licensed products utilizing the players listed
on Exhibit A hereto. Players Inc shall have the right to approve of counsel
selected pursuant to this Paragraph 6, which approval shall not unreasonably be
withheld.
7. Licensee agrees that it will continue to abide by all terms of
the License Agreement.
8. It is hereby agreed that to the extent that this Amendment shall
conflict with the License Agreement, the terms of this Amendment shall govern.
In all other respects, the parties hereto agree that the License Agreement shall
remain in full force and effect.
9. Each party hereto acknowledges: (i) that it is voluntarily
entering into this Amendment; (ii) that it has had the benefit of counsel of its
choice in connection with the negotiation and execution of this Amendment; and
(iii) that it has neither sought nor obtained any inducements or other
consideration beyond that which is contained herein.
10. This Amendment may not be amended, modified or altered except by
a writing executed by duly-authorized officers of each party.
11. This Amendment shall be governed by, and construed in accordance
with, the law of the District of Columbia. Any dispute or litigation arising
out of or relating to this Amendment may be brought in the Superior Court of the
District of Columbia, which the parties hereby agree shall have jurisdiction and
venue over any such claim.
12. If any portion of this Amendment is deemed void or unenforceable
for any reason whatsoever, the remaining terms and conditions of this Amendment
shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and date written first above.
PINNACLE BRANDS, INC.
By:/s/ Jerry M. Meyer
----------------------------------------------
Title:Chairman & CEO
-------------------------------------------
NATIONAL FOOTBALL LEAGUE PLAYERS INCORPORATED
By: /s/ Douglas F. Allen
----------------------------------------------
Title:President
-------------------------------------------
3
<PAGE>
EXHIBIT A
NFL QUARTERBACK CLUB MEMBERS
BUFFALO BILLS MIAMI DOLPHINS
------------- --------------
Jim Kelly Dan Marino
Bernie Kosar
CINCINNATI BENGALS MINNESOTA VIKINGS
------------------ -----------------
David Klinger Warren Moon
CLEVELAND BROWNS NEW ENGLAND PATRIOTS
---------------- --------------------
Mark Rypien Drew Bledsoe
DALLAS COWBOYS NEW ORLEANS SAINTS
-------------- ------------------
Troy Aikman Jim Everett
Michael Irvin
Emmitt Smith
DENVER BRONCOS NEW YORK GIANTS
-------------- ---------------
John Elway Phil Simms
DETROIT LIONS NEW YORK JETS
------------- -------------
Barry Sanders Boomer Esiason
GREEN BAY PACKERS PHILADELPHIA EAGLES
----------------- -------------------
Brett Favre Randall Cunningham
Bubby Brister
INDIANAPOLIS COLTS PITTSBURGH STEELERS
------------------ -------------------
Jim Harbaugh Neil O'Donnell
LOS ANGELES RAIDERS SAN FRANCISCO 49ERS
------------------- -------------------
Jeff Hostetler Steve Young
Jerry Rice
LOS ANGELES RAMS SEATTLE SEAHAWKS
---------------- ----------------
Chris Miller Rick Mirer
EXHIBIT 10.26
June 29, 1995
Mr. Michael Cleary
PINNACLE
924 Avenue J East
Grand Prairie, TX 75050
Dear Michael:
SUBJECT: PINNACLE NEW LICENSING AGREEMENT
--------------------------------
This letter will serve as your letter of intent for NFL Properties to renew
Pinnacle's license to manufacture and distribute NFL trading cards. The terms
and conditions outlined below include the transfer of license for Action Packed.
NFL Properties approves and acknowledges your recent purchase of Action Packed
and a consolidation of their existing NFL license with your renewal.
The following are the terms and conditions of your new license:
Term: 4/1/95 - 3/31/96
4/1/96- 3/31/97
4/1/97- 3/31/98
Term I Advance: **
Guarantee: **
Ad Co-Op: **
SB Card Show/: **
NFL Publications
Brands: Score, Pinnacle, Select, Sportflix,
QB Club, 3 Action Packed releases
Term II: Advance: **
Guarantee: **
Ad Co-Op: **
SB Card Show/: **
NFL Publications
Brands: Score, Pinnacle, Select, Sportflix,
QB Club, 3 Action Packed releases
_______________
** Confidential information deleted.
<PAGE>
Term III: Advance: **
Guarantee: **
Ad Co-Op: **
SB Card Show/: **
NFL Publications
Brands: Score, Pinnacle, Select, Sportflix,
QB Club, 3 Action Packed releases
Royalty Rate: **
Territory: United States and Canada
Royalty Reports: Monthly
Pinnacle will only be able to do a QB Club set in the third term if they retain
their rights as the exclusive trading card sponsor of the Club. Additionally
Pinnacle will be required to spend the ** that Action Packed would have paid
NFLP in required spending for this coming season on a mutually agreeable NFLP
development program in 1996.
Your recent international proposal is under review. If approved this will
require a separate license, and therefore is not included on this letter of
intent. If you have any questions, please do not hesitate to call.
Sincerely,
NFL PROPERTIES, INC.
/s/ Colin Hagen
---------------------------------
Colin Hagen
Senior Licensing Manager
cc: J. Connelly, G. Goldberg
________________
** Confidential information deleted.
2
EXHIBIT 10.27
[MAJOR LEAGUE BASEBALL PROPERTIES]
May 15, 1995
Mr. Jerry Meyer
Pinnacle Brands
924 Avenue J East
Grand Prairie, TX 75050
Dear Jerry,
To review, Major League Baseball Properties, Inc. has agreed to grant Pinnacle a
non-exclusive national retail product license for Major League Baseball cards
subject to approval by the 28 Clubs and execution of our standard form licensing
agreement. The following terms and conditions will be contained in such a
license agreement:
Term: January 1, 1995 - December 31, 1998
Royalty Rate: 1995 - 1996 - **
1997 - ** or prevailing rate, whichever is greater;
provided however, prevailing rate shall not exceed
**
1998 - ** or prevailing rate, whichever is greater,
provided however, prevailing rate shall not exceed
**.
Prevailing Rate - Licensor agrees that during the license period the Percentage
Compensation payable on the sales of the Licensed Products shall be no higher
than the royalty rate payable on the sale of similar trading cards sold by
Licensor's other, similarly situated, trading card licensees. For purposes of
this Agreement, a similarly situated licensee is a licensee who has been granted
rights similar to the rights granted to Licensee hereunder, whose license period
under its agreement is identical to Licensee's license period under this
Agreement, and whose commitments to the baseball trading card industry are, in
Licensor's reasonable opinion, similar to Licensee's commitments hereunder.
Minimum Guarantee: 1995 - **
1996 - **
1997 - **
1998 - **
___________________
** Confidential information deleted.
<PAGE>
Payment Schedule: 1/1/95 - ** 1/1/96 - **
3/1/95 - ** 3/1/96 - **
6/1/95 - ** 6/1/96 - **
9/1/95 - ** 9/1/96 - **
1/1/97 - ** 1/1/98 - **
3/1/97 - ** 3/1/98 - **
6/1/97 - ** 6/1/98 - **
9/1/97 - ** 9/1/98 - **
Reporting Schedule: 1995 - Quarterly
1996 - 1998 - Monthly
**
Territory: The fifty states comprising the United States of
America, the District of Columbia, U.S. Territories and
Possessions and Canada.
Insurance: $5 million product liability insurance
FanFest Participation: Presenting sponsor in each year of the contract
Advertising
Commitment: 1 P4C ad in each of the All-Star Game, LCS and World
Series Programs in each year of the agreement.
1 P4C ad in FanFest Program (not to exceed $15,000 in
any year)
Three spreads or six pages in Major League Baseball for
Kids Magazine in each year of the agreement.
If licensee uses television as part of its advertising
mix, licensee will be required to purchase 2 spots on
TBN or MLB Network partner in each year of the
agreement.
Coop Advertising: ** per year due on May 1st of each year in 1996, 1997
and 1998.
Product Credit: U.S. - $5,000 in each year of the contract (wholesale
value) Canada - $500 in each year of contract
(wholesale value)
Other: 1) Licensee agrees to spend ** of total company
advertising and promotion budget against baseball.
________________
** Confidential information deleted.
<PAGE>
2) Marketing plans for each year are due on September
30th of the prior year.
3) Licensee must include a positive youth message in
each card set issued.
4) Licensee must participate in one MLB generated
retail promotion in 1996-1998 (minimum cash value
of **)
5) Royalties must be accounted for separately for the
U.S. and Canada. Sales to other countries must be
reported and accounted for separately. Additional
guarantees may be necessary for additional
countries.
6) Rights to player likenesses are not covered under
this agreement.
7) Logo usage:
a. The name and/or logo of the Club (for whom
the player featured will be playing in the
upcoming year) must be featured in a
prominent manner on the front and/or the back
of the card and separate from any use of the
Club's name in the statistics and/or
editorial copy included in that card.
b. The name and/or logo of the Club must be
separate and distinct from the player's name
and any other corporate identification
(including, without limitation, the
licensee's name and/or logo) featured on the
card.
c. Each pack of trading cards must specify the
number of cards contained therein, each box
the number of packs, and each case the number
of boxes.
d. Any corporate identification featured in or
adjacent to the copy lines on a card or the
packaging of cards may be no larger than the
Major League Baseball silhouetted batter logo
or Club logo featured in or adjacent to the
copy lines on the card or package, as the
case may be.
________________
** Confidential information deleted.
3
<PAGE>
Additional specific terms and conditions will be included in the contract to
follow reconfirmation of the general terms of this proposed agreement by your
office. Please sign below and return to me via fax and hard copy to indicate
your concurrence with the foregoing.
We look forward to hearing from you. In the interim please feel free to contact
me with any questions you may have.
Sincerely,
/s/ Mary LaBanca
Mary LaBanca
Licensing Manager
Agreed and Accepted:
By:
--------------------
Title:
--------------------
Date:
--------------------
MLB/mc
cc: D. Gibson
T. Duffy
4
Exhibit 21.1
Subsidiaries of the Company
---------------------------
PINNACLE BRANDS, INC.
(Delaware)
100% 100%
FLAPCO, INC. GSAC HOLDINGS,
(Delaware) INC.
(Delaware)
100%
PINNACLE TRADING
CARD COMPANY
(Delaware)
100% 100%
MLM DONRUSS
ACQUISITION TRADING
CORP. CARD
(Delaware) COMPANY
(Delaware)
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
August 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS OF PINNACLE BRANDS INC. AND SUBSIDIARIES, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1996
<CASH> 222,000 240,000
<SECURITIES> 0 0
<RECEIVABLES> 22,236,000 35,862,000
<ALLOWANCES> 341,000 260,000
<INVENTORY> 16,893,000 10,503,000
<CURRENT-ASSETS> 47,166,000 47,917,000
<PP&E> 11,209,000 10,269,000
<DEPRECIATION> 7,064,000 6,542,000
<TOTAL-ASSETS> 129,296,000 88,121,000
<CURRENT-LIABILITIES> 35,695,000 40,567,000
<BONDS> 193,093,000 137,429,000
3,000,000 3,000,000
40 40
<COMMON> 207 207
<OTHER-SE> (102,492,000) (92,875,000)
<TOTAL-LIABILITY-AND-EQUITY> 129,296,000 88,121,000
<SALES> 49,905,000 130,183,000
<TOTAL-REVENUES> 49,905,000 130,183,000
<CGS> 34,503,000 90,388,000
<TOTAL-COSTS> 34,503,000 90,388,000
<OTHER-EXPENSES> 15,659,000 26,310,000
<LOSS-PROVISION> 180,000 324,000
<INTEREST-EXPENSE> 9,555,000 16,594,000
<INCOME-PRETAX> (9,617,000) (2,452,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,617,000) (2,452,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,617,000) (2,452,000)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
