<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997
REGISTRATION NO. 333-33409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TOYMAX INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5092 11-3391335
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(516) 391-9898
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------
STEVEN A. LEBENSFELD
PRESIDENT
125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(516) 391-9898
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JOEL M. HANDEL, ESQ. LAWRENCE B. FISHER, ESQ.
Baer Marks & Upham LLP Orrick, Herrington & Sutcliffe LLP
805 Third Avenue 666 Fifth Avenue
New York, NY 10022 New York, NY 10103
(212) 702-5700 (212) 506-5000
(212) 702-5941 (facsimile) (212) 506-5151 (facsimile)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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. /X/
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock (2)................................ 3,105,000 $9.00 $27,945,000 $8,468.18
Representatives' Warrants....................... 195,750 $.001 $195.75 --(3)
Common Stock Underlying the Representatives'
Warrants(4).................................... 195,750 $10.80 $2,114,100 640.64
Total........................................... -- -- 30,059,295.75 9,108.82(5)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) Includes 405,000 shares of Common Stock that may be issued upon exercise of
a 30 day option granted to the Underwriters solely to cover over-allotments,
if any.
(3) No fee required pursuant to Rule 457(g).
(4) Pursuant to Rule 416, the Registration Statement also covers such additional
shares of common stock as may be issued as a result of the antidilution
provisions of the Representatives' Warrants.
(5) A fee of $7,496.97 was paid to the Commission on August 12, 1997.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-1 ITEM CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page......................... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Page
3 Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4 Use of Proceeds.................................. Use of Proceeds
5 Determination of Offering Price.................. Front Cover Page; Underwriting
6 Dilution......................................... Dilution
7 Selling Security Holders......................... Inapplicable
8 Plan of Distribution............................. Front Cover Page; Underwriting
9 Description of Securities to be
Registered....................................... Dividend Policy; Description of Securities
10 Interests of Named Experts and Counsel........... Legal Matters; Experts
11 Information With Respect to the Registrant....... Front Cover Page; Prospectus Summary; The
Reorganization; Use of Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Relationships and Related Transactions;
Description of Securities; Index to Consolidated
Financial Statements; Consolidated Financial
Statements
12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Inapplicable
</TABLE>
<PAGE>
Subject to Completion, Dated September 23, 1997
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>
PROSPECTUS
DATED , 1997
2,700,000 SHARES
[LOGO]
TOYMAX INTERNATIONAL, INC.
COMMON STOCK
------------------
Toymax International, Inc. (the "Company") is hereby offering 2,700,000
shares of common stock, par value $0.01 per share (the "Common Stock"). Prior to
this offering (the "Offering"), there has been no public market for the Common
Stock and there can be no assurance that a market will develop. The Company
currently expects that the initial public offering price will be between $8.00
and $9.00 per share of Common Stock. The initial public offering price of the
Common Stock will be determined by negotiations between the Company, Fahnestock
& Co. Inc. and Wedbush Morgan Securities Inc. (the "Representatives"). For
information regarding the factors considered in determining the initial public
offering price of the Common Stock, see "Underwriting." Following the closing of
this Offering, the Company's senior management will beneficially own
approximately 58.5% of the Company's outstanding Common Stock (56.3% if the
Underwriter's over-allotment option is exercised in full). Accordingly, these
stockholders will have the ability to control the outcome of stockholder votes,
which will include the ability to elect all of the Company's directors, control
the adoption or amendment of provisions in the Company's Certificate of
Incorporation and Bylaws, and approve certain mergers and other significant
corporate transactions. See "Principal Stockholders" and "Description of
Securities." The Company has applied to have the Common Stock quoted on the
Nasdaq National Market (the "NMS") under the symbol TMAX.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 8 AND "DILUTION" ON PAGE 18.
---------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................... $ $ $
Total (3)........................... $ $ $
</TABLE>
(1) See "Underwriting" for information concerning the compensation and
indemnification of Underwriters and other information.
(2) Before deducting estimated expenses payable by the Company, including the
Representatives' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 405,000 additional shares of Common Stock, on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered severally by the Underwriters subject
to prior sale when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and certain other
conditions. The Underwriters have the right to withdraw, cancel or modify this
Offering and to reject any order in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor at
the principal offices of Fahnestock & Co. Inc., 110 Wall Street, New York, New
York 10005, on or about , 1997.
FAHNESTOCK & CO. INC. WEDBUSH MORGAN SECURITIES
<PAGE>
[Photos of representative brand logos, products and product output of the
Company will be located here, including:
1. Brand logos--Toymax, Metal Molder, Kiln Crafts, Creepy Crawlers, Precious
Metals, Laser Challenge, Power Mites, The Original Toolmaster Workshop, Brush N'
Magic, Magic Angels, Magic Twinkles, Mosaic Magic, Talking Tina, Tattoo Graphix,
Bubble Tots, Magic Maker, Foil Art, Fuzz Art, Magic Grow and Sand Bag Pets.
2. Products--Creepy Crawlers Creature Creator Oven, Plasti-Goop compound,
Metal Molder Die Cast Factory, Precious Metals Boutique, Kiln Crafts Center and
Laser Challenge laser, vest, robot, super laser and Laser Trap.
3. Product Output--Kiln Craft clay figures, Metal Molder metal figures,
Precious Metals metal figures and Creepy Crawlers bugs.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
TOYMAX-REGISTERED TRADEMARK-, CREEPY CRAWLERS-REGISTERED TRADEMARK-, LASER
CHALLENGE-TM-, METAL MOLDER-TM-, PRECIOUS METALS-TM-, KILN CRAFTS-TM-, MAGIC
MAKER-REGISTERED TRADEMARK-, POWER MITES-REGISTERED TRADEMARK-, BRUSH N'
MAGIC-TM-, TOOLMASTER WORKSHOP-REGISTERED TRADEMARK-, MAGIC TWINKLES-TM-, MOSAIC
MAGIC-TM-, FOIL ART-TM-, MAGIC GROW PAINTS-TM-, FUZZ ART-TM-, SAND BAG PETS-TM-,
TALKING TINA-REGISTERED TRADEMARK-, TATTOO GRAPHIX-TM- AND BUBBLE TOTS-TM- ARE
TRADEMARKS OF TOYMAX INC.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITER'S OVERALLOTMENT OPTION AND (II) HAS BEEN ADJUSTED TO
GIVE EFFECT TO THE REORGANIZATION DESCRIBED UNDER "THE REORGANIZATION" AND A
STOCK SPLIT OF 16.67 SHARES OF COMMON STOCK FOR EACH OUTSTANDING SHARE OF COMMON
STOCK EFFECTED IMMEDIATELY PRIOR TO THE DATE OF THIS PROSPECTUS. AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE TERMS "COMPANY" AND
TOYMAX REFER TO THE TOYMAX GROUP (AS DEFINED HEREIN) AS OF DATES AND PERIODS
PRIOR TO THE CLOSING OF THE REORGANIZATION AND, THEREAFTER, COLLECTIVELY, TOYMAX
INTERNATIONAL, INC. AND ITS SUBSIDIARIES. AS USED HEREIN, THE TERM "FISCAL" OR
"FISCAL YEAR" REFERS TO THE COMPANY'S FISCAL YEAR ENDED OR ENDING MARCH 31.
THE COMPANY
The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The Company has focused on
developing and marketing children's activity toys, including Creepy
Crawlers-Registered Trademark-, Metal Molder-Registered Trademark- and Magic
Maker-Registered Trademark-, girls' toys, such as Talking
Tina-Registered Trademark-, and action toys, such as Laser Challenge-TM-, one of
FAMILY FUN magazine's Toys of the Year in 1996 and currently among the leading
selling toys in the U.S. Management believes that major strengths of the Company
include creativity in the development of new toys, such as Metal Molder, which
was named one of the top children's vacation products of 1997 by DR. TOY, and
the redevelopment and reintroduction of successful toy lines from the past, such
as Creepy Crawlers, which was named one of the top toys of 1996 by SESAME STREET
MAGAZINE.
Toymax was founded in 1990 by four experienced toy industry executives:
David Chu, the Company's Chairman, Steven Lebensfeld, its President, Harvey
Goldberg, its Executive Vice President, and Kenneth Price, its Senior Vice
President of Sales and Marketing. Since the early 1980s these executives have
worked together in managing or founding toy companies or in customer-supplier
relationships. Each individual brings particular strengths to the management
team: Mr. Chu in manufacturing, Mr. Lebensfeld in product development, and
Messrs. Goldberg and Price in sales and marketing. In addition, these executives
have built a team of knowledgeable, highly skilled management and employees
whose collective toy industry experience enhances the Company's ability to
effectively execute its business plan.
Toymax conducts its sales activities through its wholly-owned subsidiaries,
Toymax Inc. and Toymax (H.K.) Limited ("Toymax HK"). Following the closing of
the Offering, sales previously conducted through Toymax HK will be conducted
through Toymax (Bermuda) Limited. U.S. domestic sales, conducted by Toymax Inc.,
consist of sales of the Company's promotional product lines to U.S. customers
pursuant to customer purchase orders ("U.S. Domestic Sales"). Customers
purchasing products on this basis include Toys "R" Us, Kay-Bee Toys, F.A.O.
Schwarz, Wal-Mart, Kmart and Target. Sales conducted by Toymax HK ("Toymax HK
Sales") consist of sales on an FOB Hong Kong basis which are generally based on
letters of credit and which include sales of lower priced basic products to U.S.
and international retailers, including Toys "R" Us International, Lojas
Americanas (Brazil) and Blokker (Holland) and sales of the Company's promotional
product lines to approximately 40 international distributors (including Mattel
Inc. and Hasbro Inc.). The Company's products are sold in over 50 countries
around the world. In fiscal 1997, U.S. Domestic Sales constituted 70.9% of net
sales, with the balance being Toymax HK Sales.
The Company has generated net profits in four out of the last five fiscal
years. For the fiscal year ended March 31, 1997, Toymax had net sales of $54.7
million and a net income of $3.3 million. In fiscal 1996, the Company
experienced a net loss of $9.8 million. This was due principally to the
cancellation of orders and the failure by retailers to place re-orders during
the 1995 holiday season. As a result, the Company had to sell the excess
inventory at discounted prices which impacted both gross sales and net profits.
In order to lessen its exposure to any similar industry and retailer
developments in the future, in
3
<PAGE>
calendar 1996, the Company improved its operations by: (i) limiting purchasing
commitments on new products to foster increased product sell-through rates at
the retail level and to reduce inventory risks, (ii) enhancing its inventory
management system, with improved electronic data interchange tracking and sales
analysis with major retail customers, and (iii) expanding its product concept
preview process with selected retailers and distributors. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
The Company uses a variety of methods to market its existing and new
products, such as demonstrating its products at international toy shows to many
of its current and prospective customers. In addition, the Company is able to
reach its primary audience of children on a large scale in an efficient manner
through television advertising. The Company also relies on public relations,
promotional programs and such traditional methods as in-store demonstrations and
couponing to support its sales and marketing efforts.
Toymax currently contracts for all of its manufacturing requirements. Tai
Nam Industrial Company Limited ("Tai Nam"), based in Hong Kong, serves as the
Company's purchasing agent and, through an affiliated company, Jauntiway
Investments Limited ("Jauntiway"), manufactures a majority of the Company's
products. Jauntiway is an OEM toy manufacturer with two manufacturing facilities
in southern China, including an ISO 9002 factory. Tai Nam and Jauntiway are
owned by David Chu, the Chairman and a principal stockholder of the Company. The
Company believes that these relationships give it several competitive
advantages, such as better quality control on merchandise, greater operating and
financial flexibility, and improved reliability and scheduling.
The Company's objective is to increase sales and improve profitability by
implementing the following elements of its growth strategy:
EXTEND PRODUCT LINES OF EXISTING CORE BRANDS. The Company intends to
capitalize on the success of its existing core brands by building a pipeline of
complementary products and accessories. Product line extensions under the
Company's brands are intended to provide greater sales and stability. For
example, during 1997, the Company introduced the girl's version of Metal Molder,
called Precious Metals-TM-, and added new products to its Creepy Crawlers
product line. In addition, the Company capitalized on the success of its Laser
Challenge brand with the introduction of a number of accessories, games and
products which enhance the play experience.
EXPAND INTO NEW CORE PRODUCT CATEGORIES. The Company intends to expand into
new core product categories through (i) the creation of new toys by its product
development team, (ii) the acquisition of rights to toys developed by
independent designers, (iii) the acquisition of businesses or product lines with
proven products or concepts, and (iv) the re-design and re-introduction of old
"classic" toy products in recognition of cyclical patterns in the toy industry.
For example, the Company entered the action toy category in 1996 with Laser
Challenge and recently formed Craft Expressions, Inc. to enter the adult craft
market. During the past three fiscal years, 82.7% of the Company's net sales
have been generated from internally developed toys. In addition, senior
management has been in the toy business for over two decades and has developed a
large network of free-lance toy inventors and other independent designers from
which to acquire the rights to market toys developed by these designers.
Finally, the Company intends to pursue acquisitions of toy companies and product
lines which either complement or enhance the Company's current products or allow
the Company to expand into new market segments.
EXPAND INTO TRADITIONAL SPRING TOYS. The Company recognizes the importance
of decreasing its reliance on sales made in the third and fourth quarters of the
calendar year by expanding into product categories with traditionally strong
sales in the first half of the calendar year. In the first two calendar quarters
of 1997, the Company had net sales of $22.8 million as compared to net sales of
approximately $10.1 million for the same period in 1996, primarily as a result
of the introduction of Laser Challenge. The
4
<PAGE>
Company plans to evaluate opportunities for new products, particularly in the
categories of action toys and water toys.
DEVELOP AND PENETRATE NEW MARKETS. The Company intends to expand the market
for its existing and new toys by increasing its penetration of international
markets and targeting the broadening demographics of toy consumers. The Company
believes that as the global economy continues to expand, significant growth
opportunities exist internationally, especially in Europe, South America and
Southeast Asia. The Company intends to capitalize on management's experience,
its established sales and distribution network and its relationships with
foreign distributors and retailers to further expand its international sales. By
marketing products globally, the Company can offer a greater diversity of
products and potentially extend product life cycles. In addition, due to the
advent of video and computer games, the demographics of toy consumers have
changed. The ages of consumers of traditional toy products has decreased, while
the market for toys incorporating sophisticated technology has extended beyond
the traditional age groups of toy consumers. The Company intends to capitalize
on the success of Laser Challenge and Metal Molder to produce products which
appeal to the broader demographic for such toys.
CONTINUE TO LICENSE RECOGNIZED BRAND NAMES AND CHARACTERS. The Company
intends to continue to license recognized brand names to enhance sales of its
product lines. Currently, the Company markets products pursuant to licensing
agreements with companies such as Disney Enterprises, Inc., Universal Studios
Licensing, Inc. and the Chevrolet Motor Division of General Motors. The Company
intends to continue to seek appropriate licenses for its existing product lines
as well as licenses which will allow the Company to expand into new product
categories.
The Company's principal offices are located at 125 East Bethpage Road,
Plainview, New York 11803. The Company's telephone number is (516) 391-9898. In
addition, the Company maintains a worldwide web site
(http://www.laserchallenge.com) on the Internet. Information contained on the
Company's web site is not a part of this prospectus and must not be relied upon
in evaluating the Company, its products or business or an investment in the
Common Stock offered hereby.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 2,700,000 shares
Common Stock to be Outstanding After the
Offering................................... 10,200,000 shares(1)
To repay bank indebtedness, to pay trade
payables to certain affiliates and for
working capital and general corporate
purposes, including potential acquisitions.
See "Use of Proceeds."
Use of Proceeds..............................
The Offering involves a high degree of risk
and immediate and substantial dilution.
Prospective investors should review and
consider the information set forth under
"Risk Factors."
Risk Factors.................................
Proposed Nasdaq National Market Symbol....... TMAX
</TABLE>
- ------------------------
(1) Does not include (i) 750,000 shares of Common Stock reserved for issuance
upon exercise of options granted (414,000 will be granted prior to
consummation of the Offering, all at an exercise price equal to at least the
initial public offering price of the Common Stock in the Offering) or which
may be granted under the Company's 1997 Stock Option Plan; and (ii) 195,750
shares of Common Stock reserved for issuance upon exercise of the
Representatives' Warrants. See "Management -- 1997 Stock Option Plan" and
"Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993(1) 1994 1995 1996 1997 1996(1) 1997(1)
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
Cost of goods sold............ 18,730 37,518 42,640 30,601 33,837 2,367 3,784
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................. 14,663 34,913 27,983 13,021 20,846 312 3,307
Selling and administrative
expenses.................... 9,112 21,525 27,121 24,641 18,026 2,833 3,664
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....... 5,551 13,388 862 (11,620) 2,820 (2,521) (357)
--------- --------- --------- --------- --------- --------- ---------
Other income (expense), net... (273) (225) (332) 300 228 222 (51)
Interest expense, net......... (418) (483) (460) (738) (394) (41) (131)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority
interest.................... 4,860 12,680 70 (12,058) 2,654 (2,340) (539)
Provision (benefit) for income
taxes....................... 1,398 4,818 (198) (2,254) (681) (922) (152)
Net income (loss)............. $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,347 $ (1,418) $ (369)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common
share (2)................... $ .46 $ 1.05 $ .04 $ (1.31) $ .45 $ (0.19) $ (0.05)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average common shares
outstanding (2)............. 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................... $ (2,546) $ 17,940
Total assets............................................................................ 22,536 32,036
Total debt (including short term and current maturities)................................ 5,201 201
Total stockholders' equity.............................................................. 73 20,558
</TABLE>
- ------------------------
(1) Unaudited.
(2) See Note 1 to the "Consolidated Financial Statements."
(3) As adjusted to give effect to the Offering at an assumed offering price of
$8.50 per share and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward- looking statements. Such factors include, among others, the following:
general economic and business conditions; prospects for the industry;
competition; changes in business strategy or development plans; the loss of key
personnel; the availability of capital; and other factors referenced in this
Prospectus, including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and "Certain Relationships and
Related Transactions." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, AS WELL AS ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
BEFORE PURCHASING ANY COMMON STOCK:
NO ASSURANCE OF PROFITABILITY. The Company has generated positive net
income in four of the last five fiscal years. In fiscal 1996, however, the
Company incurred net losses of $9.8 million due, in large part, to the
cancellation of orders and the failure by retailers to place re-orders during
the 1995 holiday season. As a result, the Company had to sell the excess
inventory at discounted prices which impacted both net sales and net profits.
Although management has taken steps to lessen its exposure to similar industry
and retailer developments, there can be no assurance that such losses will not
reoccur or that the Company will operate profitably in the future. Future
operating results will depend on a number of factors, including demand for the
Company's current products, the Company's ability to introduce new products,
market acceptance of new products and the general state of the economy in the
U.S. and other major markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CHANGING CONSUMER PREFERENCES; SUBSTANTIAL RELIANCE ON NEW PRODUCT
INTRODUCTIONS. The toy market is characterized by changing consumer preferences
and frequent new product introductions which reduce the length of product life
cycles. There can be no assurance that any of the Company's current products or
product lines will be popular with consumers for any period of time.
Furthermore, sales of the Company's existing products are expected to decline
over time and may decline at rates faster than expected. The Company's success
is dependent upon the Company's ability to enhance existing product lines and
develop new products and product lines. Historically, a significant portion of
the gross sales each year were derived from new products. The failure of the
Company's existing and new products and product lines to achieve and sustain
market acceptance and to produce acceptable margins could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Products" and "Business--Product Development."
RISKS ASSOCIATED WITH INVENTORY MANAGEMENT. Most of the Company's largest
retail customers utilize an electronic inventory management system to track
sales of products and rely on reorders being rapidly filled by the Company and
distributors rather than maintaining large product inventories. These types of
systems put pressure on suppliers like the Company to promptly fill customer
orders and shift some of the inventory risk from retailer to suppliers. The
Company generally places orders with manufacturers based in part on advance,
non-binding, estimates of orders from its major retail clients. Such estimates
may deviate substantially from actual orders. In the event that subsequent
orders fall short of original estimates, the Company may be left with excess
inventory. Significant excess inventory could result in price discounts and
increased inventory carrying costs for the Company. Similarly, if the Company
fails to have an adequate supply of products manufactured on a timely basis, the
Company may, as a result, lose sales opportunities. Despite the Company's
efforts to adjust its production schedule based on market activities, including
participating in electronic data interchange ("EDI") programs with its largest
retail customers, there can be no assurance that the Company will maintain
appropriate inventory levels. Such occurrences may have a material adverse
effect on the Company's financial condition and results of operations. See
"Business-- Sales and Distribution" and "--Purchasing and Manufacturing."
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS. The Company's five largest
customers accounted for approximately 69% and 63% of the Company's net sales for
fiscal 1997 and the quarter ended June 30, 1997, respectively. Only sales to
Toys "R" Us exceeded 10% of the Company's net sales during the same periods. The
Company expects to continue to rely on a relatively small number of customers
for a significant percentage of sales for the foreseeable future. Because of the
large portion of the Company's sales to the Company's five largest customers and
the significant market share for toy sales to consumers represented by these
same customers, the loss of any one of them as a customer, or a significant
reduction
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in sales, would have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Customers."
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company's sales are seasonal in
that a substantial portion of net sales is made to retailers in anticipation of
the Christmas holiday season. During fiscal 1997, approximately 66.4% of the
Company's net sales and profits were made during the Company's second and third
fiscal quarters (July through December) in connection with retail sales for the
Christmas holiday season. Adverse business or economic conditions during these
periods may adversely affect results of operations for the full year. Such
seasonality causes the Company's quarterly operating results and working capital
requirements to fluctuate. As a result of the seasonality of the Company's net
sales, the Company could incur a loss in the first quarter of each fiscal year
for the foreseeable future. The Company's financial results for a particular
quarter may not be indicative of results for an entire year, and the Company's
revenues and/or expenses will vary from quarter to quarter. In addition, in the
event that the Company's results of operations for any period are below the
expectation of market analysts and investors, the market price of the Common
Stock could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality" and
"Business--Seasonality."
DEPENDENCE ON LIMITED NUMBER OF PRODUCT LINES, PARTICULARLY LASER
CHALLENGE. The Company derives a substantial portion of its revenue from a
limited number of product lines. A decrease in the popularity of a particular
product line or key products within a given product line during any year could
have a material adverse effect on the Company's business, financial condition
and results of operations. Sales of the Laser Challenge, Metal Molders, Creepy
Crawlers, and Magic Maker product lines represented 71.7% and 90.0% of the
Company's revenue in fiscal 1997 and for the quarter ended June 30, 1997,
respectively. In particular, the Company relies heavily on its Laser Challenge
product line. Sales for this product line accounted for 48.6% and 74.6% of the
Company's sales in fiscal 1997 and for the quarter ended June 30, 1997,
respectively and are expected to account for a significantly greater percentage
of fiscal 1998 sales than fiscal 1997 sales. There can be no assurance that any
of these product lines will retain their historical levels of popularity or
increase in popularity. Decreased sales from any one of these product lines
without a corresponding increase in sales from other existing or newly
introduced products would have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Products."
SALES ALLOWANCES. The Company has, in certain instances, provided sales
allowances to retailers for promotions and for purposes of reducing the levels
of inventory carried by the retailer. The Company expects that it will continue
to be required to make such accommodations in the future. Any significant
increase in the amounts of these sales allowances could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business--Sales and Marketing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON SINGLE AFFILIATED MANUFACTURER AND POTENTIAL CONFLICT OF
INTEREST. During fiscal 1997 and for the quarter ended June 30, 1997, one
manufacturer, Jauntiway Investments Limited ("Jauntiway") accounted for
approximately 85% and 94%, respectively, of the Company's purchases of products.
Jauntiway and the Company's purchasing agent, Tai Nam Industrial Company Limited
("Tai Nam"), are owned by David Chu, the Chairman and a principal stockholder of
Toymax. In consideration of an agency fee equal to seven percent (7%) of the
gross invoiced value of products purchased by the Company, Tai Nam provides
various services to the Company including arranging for the manufacturing of the
Company's products based on purchase orders placed with Tai Nam by the Company.
Jauntiway manufactures a majority of such products in addition to subcontracting
certain manufacturing requirements to unaffiliated third parties. The loss of
Jauntiway, or a substantial interruption of the Company's manufacturing
arrangements with Jauntiway, could cause a delay in production of the Company's
products for delivery to its customers and could have a material adverse effect
on the Company. In addition, from time to time, Tai
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<PAGE>
Nam has provided the Company with payment terms longer than the stated 30 day
period and Tai Nam has agreed to do so for the balance of fiscal 1998. Although
management believes that such extended terms will not be necessary after fiscal
1998, there can be no assurance that extended terms will not be necessary or
that they will be available if needed. While the Company believes that many
alternate manufacturers exist, there can be no assurance that alternate
arrangements could be provided in a timely manner on terms or with the level of
support currently provided by Tai Nam and Jauntiway to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Purchasing and
Manufacturing," "Principal Stockholders" and "Certain Relationships and Related
Transactions."
PARTIAL RELIANCE ON IMPORTS FROM TAIWAN. The basic raw materials used by
Jauntiway in manufacturing the Company's products are petrochemical resin
derivatives. A large portion of Jauntiway's petrochemical derivates are imported
from Taiwan via Hong Kong. Any disruption of trade between Taiwan and the PRC
may have a significant adverse impact on Jauntiway's operations and therefore
could have a significant adverse impact on the Company's results of operations.
See "Business--Purchasing and Manufacturing."
RELIANCE ON MANUFACTURERS BASED IN CHINA; TRADE RELATIONS. To date, most of
the Company's products have been manufactured by Hong Kong-based manufacturers
at facilities located in the People's Republic of China (the "PRC"). According
to reports published by the Toy Manufacturers Association ("TMA"), an industry
trade group, the PRC is the world's largest producer of toys and is the source
of a majority of toys imported into the U.S. There is uncertainty surrounding
the political and economic consolidation of Hong Kong with the PRC and the
extent to which such consolidation could disrupt business in Hong Kong or
elsewhere in the PRC. In the event of any such disruption or other political,
legal or economic change in Hong Kong or elsewhere in the PRC affecting the
Company's business, the Company could be required to seek alternative
manufacturing sources. The Company currently does not have in place plans or
arrangements for securing alternative manufacturing sources in the event that
its present relationship with Tai Nam and Jauntiway prove impracticable to
maintain, and there can be no assurance that there would be sufficient
alternative facilities to meet the increased demand for production that would
likely result from a disruption of manufacturing operations in the PRC.
Furthermore, such a shift to alternative facilities would likely result in
increased manufacturing costs and could subject the Company's products to
increased duties, tariffs or other restrictions. See "Business--Purchasing and
Manufacturing" and "Business--Tariffs and Duties."
The PRC's Most Favored Nation ("MFN") trade status must be renewed annually.
In June 1997, Congress renewed the PRC's MFN status through July 3, 1998.
Because the PRC currently has MFN status, most toys imported into the United
States from the PRC are not subject to import duties. Recently, however, the
United States and the PRC have been in disagreement over trade and politics.
There can be no assurance that in the future trade relations between the United
States and the PRC will not deteriorate, that Congress will renew the PRC's MFN
status in 1998 or that the PRC's MFN status will not be altered or revoked at
any time such that, as a result, the United States would impose duties, quotas
or other trade sanctions that would affect the cost and quantity of toys
imported from the PRC. The imposition of such duties would have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Tariffs and Duties."
RISKS INHERENT IN INTERNATIONAL OPERATIONS; INTELLECTUAL PROPERTY RISKS; AND
CURRENCY RISKS. A significant percentage of the Company's business, including
substantially all of its product manufacturing, is conducted outside of the
United States. As a result, the Company's operations are subject to various
risks such as the possibility of the loss of revenue, property or equipment due
to expropriation, nationalization, war, insurrection, terrorism or civil
disturbance, the instability of foreign economies, currency fluctuations and
devaluations, adverse tax policies and governmental activities that may limit or
disrupt markets, restrict payments or the movement of funds or goods or result
in the deprivation of contract
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<PAGE>
rights. Additionally, the ability of the Company to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from vendors in, a particular
jurisdiction. The Company is subject to taxation in a number of jurisdictions,
and the final determination of its tax liabilities involves the interpretation
of the statutes and requirements of various domestic and foreign taxing
authorities. There can be no assurance that any of these risks will not have an
adverse effect on the Company's financial condition and results of operations.
The application and enforcement of intellectual property laws in the PRC
protecting patents, trademarks and copyrights does not currently provide a level
of protection for such property equivalent to those found in more developed
countries. Because the Company's products are manufactured in the PRC, there may
be some additional risk of improper use or theft of the Company's intellectual
property, especially for use within the PRC.
Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on the cost of such goods. Although the value
of the Hong Kong dollar has been tied to the value of the United States dollar
since the early 1980s, there can be no assurance that Hong Kong dollar will
continue to be tied to the United States dollar or that historical exchange
rates will continue to be maintained. Furthermore, appreciation of Chinese
currency values relative to the Hong Kong dollar could increase the cost to the
Company of the products manufactured in the PRC, and thereby have a negative
impact on the Company's margins and a material adverse effect on the Company's
financial condition and results of operations. The Company has not engaged in
currency hedging transactions and currently has no intention to do so. See
"Business--Purchasing and Manufacturing."
RELIANCE ON KEY PERSONNEL; PART-TIME SERVICES OF CHAIRMAN. The Company's
future success will be dependent on the continued efforts of its senior
management team which consists of David Chu, Steven Lebensfeld, Harvey Goldberg,
and Kenneth Price. These individuals will beneficially own 58.2% (70.4% if the
shares held by a trust for the benefit of Mr. Goldberg's family were included)
of the Company's outstanding shares of Common Stock following the closing of the
Offering. Mr. Chu is also an officer and director of other companies, and he is
not expected to devote to the Company's affairs more than such portion of his
business time and attention as he or the Company's Board of Directors may deem
necessary. The Company has entered into employment and non-competition
agreements with Mr. Lebensfeld, Mr. Goldberg and Mr. Price. The loss of the
services of any of these individuals could have a material adverse effect on the
Company. The Company maintains key man insurance on the lives of Messrs. Chu,
Lebensfeld and Goldberg in the amount of $1.0 million each. The Company's
success is also dependent on the Company's ability to attract and/or retain key
managerial, sales, marketing, product development and other personnel. There can
be no assurance that the Company will be successful in attracting and/or
retaining such personnel. See "Management--Employment Agreements."
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. As
part of its growth strategy, the Company intends to pursue acquisitions of
businesses or product lines and investments in, and strategic alliances with,
entities that complement or expand the Company's current operations or
production and marketing capabilities. Any acquisitions, investments, strategic
alliances or related efforts will be accompanied by the risks commonly
encountered in such transactions or efforts. Such risks include, among others,
the identification of appropriate candidates, the assimilation of operations and
personnel of the respective entities, the potential disruption of the Company's
ongoing business, the inability of management to capitalize on the opportunities
presented by acquisitions, investments, strategic alliances or related efforts,
the failure to successfully incorporate licensed or acquired technology and
rights into the Company's services, the inability to maintain uniform standards,
controls, procedures and policies and the impairment of relationships with
employees and customers as a result of changes in management or otherwise.
Further, to the extent that any such transaction involves operations located
outside the United States, the transaction would involve numerous risks
associated with international operations, including
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<PAGE>
regulatory obstacles. There can be no assurance that the Company would be
successful in overcoming these risks or any other difficulties encountered with
respect to such acquisitions, investments, strategic alliances or related
efforts. See "--Risks Associated with International Operations" and "Business--
Business Strategy."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. There can be no assurance that
the Company's recent growth will continue or that the Company will be able to
maintain its present level of net sales or profitability. Furthermore, future
growth, if achieved, might place a strain on the Company's management and
financial control systems, and there can be no assurance that management of the
Company would be able to manage such growth effectively. Failure to manage any
future growth experienced by the Company could have a material adverse effect on
the Company's financial condition and results of operations.
CHANGES IN THE RETAIL AND TOY INDUSTRIES. The retail industry has
periodically experienced consolidation and other ownership changes. Major
retailers in the United States and in foreign markets may in the future
consolidate, undergo restructurings or realign their affiliations which could
decrease the number of stores that sell the Company's products or increase the
ownership concentration within the retail industry. While such changes in the
retail industry to date have not had a material adverse effect on the Company's
business or financial condition, there can be no assurance as to the future
effect of any such changes. The toy industry is also experiencing a shift toward
greater consolidation of retail distribution channels, such as large specialty
toys stores and discount retailers, including Toys "R" Us, Wal-Mart, Kmart and
Target, which have increased their overall share of the retail market. This
consolidation has resulted in an increased reliance among retailers on the large
toy companies because of their financial stability and ability to support
products through advertising and promotion and to distribute products on a
national basis. Such consolidation may have a negative impact on the ability of
smaller toy companies, such as the Company, to compete. See "Business--The Toy
Industry," "--Competition" and "--Customers."
COMPETITION. The toy industry is highly competitive. Many of the Company's
competitors have longer operating histories, broader product lines and greater
financial resources and advertising budgets than the Company. In addition, the
toy industry has low barriers to entry. Competition is based primarily on the
ability to design and develop new toys, procure licenses for popular products,
characters and trademarks, and successfully market products. Many of the
Company's competitors offer similar products or alternatives to the Company's
products. The Company's products compete with other products for retail shelf
space. There can be no assurance that shelf space in retail stores will continue
to be available to support the Company's existing products or any expansion of
the Company's products and product lines. There can be no assurance that the
Company will be able to continue to compete effectively in this marketplace. See
"Business--Competition."
PROPRIETARY RIGHTS. The Company relies on patent, trademark, copyright and
trade secret protection, nondisclosure agreements and licensing arrangements to
establish, protect and enforce proprietary rights in its products. Despite the
efforts of the Company and its licensors to safeguard and maintain their
proprietary rights, there can be no assurance that the Company or its licensors
will be successful in so doing. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent or in
the same manner as the laws of the United States. Although the Company and its
licensors continue to implement protective measures and intend to defend their
proprietary rights vigorously, there can be no assurance that these efforts will
be successful. Furthermore, the Company cannot guarantee that it possesses all
of the rights purportedly granted under its licensing agreements and cannot
guarantee that such licensing agreements are and will be enforceable.
The Company does not believe that any of its products infringe on the
proprietary rights of third parties. However, existing or future intellectual
property claims against the Company, if proven, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Although such claims could ultimately prove to be without merit, the necessary
management attention to, and legal costs associated with, litigation or other
resolution of such claims could have a material adverse
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<PAGE>
effect on the Company's business, financial condition and results of operations.
See "Business--Product Development and Licensing" and "--Legal Proceedings."
GOVERNMENT REGULATION; PRODUCT SAFETY. The Company's operations in the
United States are subject to various laws, rules and regulations, including the
Federal Hazardous Substances Act, the Consumer Product Safety Act, the Flammable
Fabrics Act and the regulations promulgated under each such Act. Such laws
empower the United States Consumer Product Safety Commission ("CPSC") to protect
children from hazardous toys and other articles. The CPSC has the authority to
exclude from the market products that are found to be hazardous and to require a
manufacturer to repurchase such products under certain circumstances. Similar
laws and regulations exist in most countries in which the Company's products are
sold. While the Company oversees a quality control program designed to ensure
that its products comply in all material respects with such regulations, no
assurance can be made that defects will not be found in the Company's products,
resulting in product liability claims, loss of revenue, diversion of resources,
damage to the Company's reputation or increased warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government and Industry
Regulation."
Products that have been or may be developed or sold by the Company may
expose the Company to potential liability from personal injury or property
damage claims by consumers. The Company currently maintains product liability
insurance coverage in the amount of $26 million per occurrence, with a $52
million aggregate product liability policy. There can be no assurance that the
Company will be able to maintain such coverage or obtain additional coverage on
acceptable terms, or that such insurance will provide adequate coverage against
all potential claims. Moreover, even if the Company maintains adequate
insurance, any claim could divert management time and materially and adversely
affect the reputation and prospects of the Company.
HOLDING COMPANY STRUCTURE. The Company is a holding company and
substantially all of its operations are conducted through subsidiaries.
Consequently, the Company will rely principally on dividends or advances from
its subsidiaries. The ability of such subsidiaries to pay dividends is subject
to applicable local law and certain other restrictions. Future borrowings may
require collateral and/or guarantees from affiliated companies. See "The
Reorganization."
BROAD DISCRETION AS TO USE OF PROCEEDS; BENEFITS TO INSIDERS. The Company
plans to allocate the net proceeds it receives from this Offering to repay
funded indebtedness, to pay down trade payables and for working capital and
other general corporate purposes, including potential future acquisitions.
Accordingly, management will have broad discretion with respect to the
expenditure of the net proceeds of this Offering. Although the Company intends
to use a portion of the proceeds from the Offering to acquire additional
licenses and to acquire product lines and other toy businesses, there can be no
assurance that suitable acquisitions can be located, that any such acquisitions
can be consummated or that such acquisitions will be successfully integrated
into the Company's operations. The personal guarantees of certain officers of
the Company and corporate guarantees of certain affiliated companies, including
Tai Nam, on the Company's existing credit facility with State Street Bank are
expected to be terminated upon the closing of the Offering. In addition,
approximately 29.2% of the proceeds will be used by the Company to pay
manufacturing-related trade payables owed to Tai Nam and Concentric Toys
Limited, each of which is owned by Mr. David Chu, the Company's Chairman and one
of its principal stockholders. See "Use of Proceeds."
NO DIVIDENDS. Although the Company declared dividends to its stockholders
in 1993, 1994 and 1995, the Company intends to retain its earnings, if any, to
finance the operation and expansion of its business and, therefore, does not
expect to pay any cash dividends in the foreseeable future. See "Dividend
Policy."
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DILUTION. The purchasers of Common Stock in this Offering will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock of $6.49 or 76.3% per share. See "Dilution."
CONTROL BY EXISTING STOCKHOLDERS. Following the closing of this Offering,
the Company's current stockholders will beneficially own approximately 73.5% of
the Company's outstanding Common Stock (70.7% if the Underwriter's
over-allotment option is exercised in full). Accordingly, these stockholders
will have the ability to control the outcome of stockholder votes, which will
include the ability to elect all of the Company's directors, control the
adoption or amendment of provisions in the Company's Certificate of
Incorporation and Bylaws, and approve certain mergers and other significant
corporate transactions. See "Principal Stockholders" and "Description of
Securities."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock by
existing stockholders pursuant to Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933 (the "Securities Act"), or otherwise, could have an
adverse effect on the price of the shares of Common Stock. Upon completion of
the Offering, the Company will have 10,200,000 shares of Common Stock
outstanding (10,605,000 shares if the Underwriter's over-allotment option is
exercised in full). In addition, the Company has reserved for issuance 750,000
shares of Common Stock upon exercise of options which may be granted under the
Company's 1997 Stock Option Plan (the "Stock Option Plan").
The 2,700,000 shares of Common Stock offered in the Offering (3,105,000 if
the Underwriter's over-allotment option is exercised in full) will be freely
transferable without restriction or further registration under the Securities
Act except for any shares purchased by an "affiliate" of the Company within the
meaning of Rule 144. The remaining 7,500,000 shares of Common Stock currently
outstanding are "restricted securities," as that term is defined in Rule 144,
and may only be sold pursuant to a registration statement under the Securities
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144. No prediction can be made as to the effect that
future sales of Common Stock, or the availability of shares of Common Stock for
future sales, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital through
the future sale of equity securities. The holders of all shares of Common Stock
issued and outstanding at the effective date have agreed not to offer, sell,
contract to sell, assign, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock, held by them, for a period of not less
than nine (9) months following the Effective Date without the prior written
consent of the Representatives. See "Management," "Principal Stockholders,"
"Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE. Prior to the Offering, there has been no public
trading market for the Common Stock and there can be no assurance that an active
public market for the Common Stock will develop or continue following the
Offering. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Factors
considered in such negotiations, in addition to prevailing market conditions,
include the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors deemed relevant.
Therefore, the public offering price of the Common Stock does not necessarily
bear any relationship to the Company's net asset value, net working capital or
other established criteria of value, and should not be considered indicative of
the actual value of the Common Stock and may bear no relationship to the price
at which the Common Stock will trade after completion of the Offering. There can
be no assurance that the market price of the Common Stock will not decline below
the initial public offering price. See "Underwriting."
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The market price for the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to quarterly variations in
operations, financial results, announcements with respect to sales and earnings,
technological innovations, new product developments, the sale or attempted sale
of a large amount of securities in the public market, regulatory developments
and other events or factors which cannot be foreseen or predicted by the
Company.
CERTAIN ANTI-TAKEOVER CONSIDERATIONS. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation and Bylaws may discourage,
defer or prevent a change of control of the Company. These provisions (1)
classify the Company's Board of Directors into three classes, each of which
serves for a different three-year period, (2) provide that only the Board of
Directors, the Chairman or at least 10% of the stockholders of the Company
entitled to vote may call special meetings of the stockholders, (3) establish
certain advanced notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at stockholders'
meetings and (4) authorize preferred stock, the terms of which may be determined
by the Board of Directors and which may be issued without stockholder approval.
Each of these provisions, as well as certain provisions of the Delaware Business
Combination Act to which the Company is subject, could have the effect of
delaying or preventing an acquisition or change in control of the Company. In
addition, the employment agreements of the executive officers of the Company
contain certain provisions entitling them to enhanced compensation in the event
of a change of control. See "Description of Securities--Delaware Law and Certain
Charter and By-law Provisions" and "Management--Employment Agreements."
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THE REORGANIZATION
Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax Inc., a New York corporation ("Toymax
NY"), Toymax (H.K.) Limited, a private limited company organized under the laws
of Hong Kong ("Toymax HK"), Toymax (Bermuda) Limited, a company organized under
the laws of Bermuda ("Toymax Bermuda"), Toymax (Canada) Limited, a corporation
organized under the laws of the Province of Ontario ("Toymax Canada") and Toymax
(U.K.) Limited, a company organized under the laws of England and Wales ("Toymax
UK" and collectively, the "Toymax Group"). Toymax HK and Toymax NY, historically
the Company's principal operating entities, were each formed in 1990. Toymax
Canada was formed in August 1997 and Toymax (Bermuda) will be formed prior to
the closing of the Offering and will continue the business previously carried
out by Toymax HK on a going forward basis. Prior to closing of the Offering, the
Company will complete the reorganization pursuant to which: (i) Toymax HK will
contribute all of the outstanding capital stock of its wholly-owned
subsidiaries, Toymax NY and Toymax UK, to the Company and (ii) the stockholders
of Toymax HK will exchange their ordinary shares of Toymax HK stock for
shares of Common Stock of the Company and shares of Preferred
Stock of Toymax HK for shares of Common Stock of the Company (the
"Reorganization"). Following the Reorganization, Toymax NY, Toymax HK, Toymax
Bermuda, Toymax Canada and Toymax UK will be direct or indirect wholly-owned
subsidiaries of Toymax. Following the Reorganization and prior to completing the
Offering, the Company will effect a 16.67 to one stock split. See "Risk Factors
- -- Holding Company Structure."
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,700,000
shares of Common Stock offered hereby, at an assumed Offering price of $8.50 per
share, are estimated to be approximately $20.5 million ($23.7 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and other estimated expenses of the
Offering. The Company intends to use the net proceeds as follows (all figures
are approximate):
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
OF NET PROCEEDS APPROXIMATE PERCENTAGE
(IN MILLIONS) OF NET PROCEEDS
--------------------- -----------------------
<S> <C> <C>
Payment of Bank Indebtedness......................................... $ 10.0 48.8%
Payment of Trade Payables to Affiliates.............................. 6.0 29.2%
Working Capital and General Corporate Purposes....................... 4.5 22.0%
----- -----
Total............................................................ $ 20.5 100.0%
----- -----
----- -----
</TABLE>
PAYMENT OF BANK INDEBTEDNESS. Approximately $10.0 million will be used by
the Company to make partial repayment on its existing Credit Facility Agreement
with State Street Bank (the "State Street Credit Facility"). The Company's
outstanding indebtedness under the State Street Credit Facility was $5.1 million
at June 30, 1997 and it is anticipated that such outstanding indebtedness will
be $15.6 million upon the closing of the Offering. Outstanding indebtedness
bears interest at the U.S. prime rate plus one-half percent (8.5% at June 30,
1997). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
Purchasing and Manufacturing."
PAYMENT OF TRADE PAYABLES TO AFFILIATES. Approximately $6.0 million will be
used by the Company to make partial repayment on outstanding trade payables to
the Company's current and former purchasing agents Tai Nam and Concentric Toys
Limited ("Concentric"), respectively. Tai Nam and Concentric are owned by David
Chu, Chairman and a principal stockholder of Toymax. Outstanding payables to
these companies was $9.3 million at June 30, 1997 and it is anticipated that
such outstanding payables will increase to $21.0 million as of the closing of
the Offering. The Company will use this portion of the proceeds to shorten the
payment cycle on products purchased from Tai Nam. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Purchasing and Manufacturing."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The balance of
approximately $4.5 million will be used by the Company and its operating
subsidiaries for general working capital purposes, which may include strategic
acquisitions. The Company intends to pursue acquisitions of toy companies and
product lines which either complement or enhance the Company's current products
or allow the Company to expand into new market segments. While the Company
engages from time to time in discussions with respect to potential investments
or acquisitions, the Company presently has no plans, commitments or agreements
with respect to any such acquisitions.
Management intends to use the estimated net proceeds as indicated above. In
the event that the Company's plans change, or if the proceeds of this Offering
or internal cash flow otherwise prove to be insufficient to fund operations, the
Company may find it necessary or advisable to reallocate some of the proceeds
within the categories noted above or may be required to seek additional
financing which may be dilutive to existing shareholders. If the Underwriters
exercise the underwriters' over-allotment option in full, the Company will
realize additional net proceeds of $3.2 million, which will be used to reduce
bank indebtedness. Pending application of the net proceeds described herein,
such amounts may be invested in short-term, investment-grade, interest-bearing
securities. See "Risk Factors -- Broad Discretion as to Use of Proceeds."
The Company believes that the net proceeds of this Offering, together with
its existing capital resources and anticipated revenues from operations will be
sufficient to enable it to maintain its current and planned operations for a
period of at least 12 months after consummation of the Offering. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations."
17
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of Common Stock in the Offering exceeds the net
tangible book value per share of Common Stock after the Offering. The net
tangible book value per share of Common Stock is determined by subtracting the
total liabilities of the Company from the total book value of the tangible
assets of the Company and dividing the difference by the number of shares of
Common Stock deemed to be outstanding on the date as of which such book value is
determined.
As of June 30, 1997, the Company had a net tangible book value of $0.1
million, or $0.01 per share of Common Stock. Net tangible book value represents
the amount of total assets, less any intangible assets and total liabilities.
Assuming no changes in the net tangible book value after June 30, 1997, other
than to give effect to the sale by the Company of 2,700,000 shares of Common
Stock offered hereby at an assumed initial offering price of $8.50 per share and
after deducting underwriting discounts, the non-accountable expense allowance
and other estimated offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of June 30, 1997 would have been $20.5
million, or $2.01 per share. This represents an immediate increase in net
tangible book value of $2.00 per share to existing stockholders and an immediate
dilution of $6.49 per share to new investors purchasing shares of Common Stock
in the Offering. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial offering price per share...................... 8.50
Net tangible book value per share before the Offering......... $ 0.01
Increase per share attributable to sale of shares to new
investors................................................... 2.00
---------
Net tangible book value per share after the Offering.......... 2.01
---------
Dilution per share to new investors........................... $ 6.49
---------
---------
</TABLE>
The following table sets forth as of June 30, 1997, the number of shares of
Common Stock purchased or to be purchased from the Company, the total effective
cash consideration to be paid to the Company, and the average price per share
paid by existing stockholders and by new investors purchasing shares sold by the
Company in the Offering at an assumed initial offering price of $8.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
Existing stockholders............................... 7,500,000 73.5% $ 57,692 0.3% $ .01
New investors....................................... 2,700,000 26.5 22,950,000 99.7 8.50
---------- ----- ------------- -----
Total........................................... 10,200,000 100.0% $ 23,007,692 100.0% $ 2.26
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
DIVIDEND POLICY
The Company intends to retain earnings, if any, to finance the development
and expansion of its business and does not anticipate declaring or paying any
cash dividends in the foreseeable future. In deciding whether or not to declare
or pay dividends in the future, the Board of Directors will consider all
relevant factors, including the Company's ability to generate earnings, need for
capital, overall financial condition and any restrictions contained in any then
existing financing or other agreements.
18
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997, and as adjusted to give effect to the Offering (at an assumed
initial public offering price of $8.50 per share and after deducting
underwriting discounts, the non-accountable expense allowances and other
estimated offering expenses payable by the Company) and the initial application
of the net proceeds therefrom. See "Use of Proceeds." The information set forth
below should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................................................... $ 1,550 $ 11,062
--------- -----------
--------- -----------
Total debt, including short-term debt and current maturities............................... 5,201 201
--------- -----------
Stockholders' equity (deficit):
Preferred Stock
$.01 par value, 5,000,000 shares authorized, none outstanding.......................... 0 0
Common Stock
$.01 par value, 50,000,000 shares authorized; 7,500,000 issued and outstanding, actual,
and 10,200,000 issued and outstanding, as adjusted(1)................................ 58 84
Additional paid-in-capital............................................................... 187 20,646
Retained earnings........................................................................ (157) (157)
Foreign currency translation adjustment.................................................. (15) (15)
--------- -----------
Total stockholders' equity................................................................. 73 20,558
--------- -----------
Total capitalization................................................................... $ 5,274 $ 20,759
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Does not include (i) 750,000 shares of Common Stock reserved for issuance
upon exercise of options granted (414,000 will be granted prior to
consummation of the Offering, all at an exercise price equal to at least the
initial public offering price of the Common Stock in the Offering) or which
may be granted under the Company's 1997 Stock Option Plan; and (ii) 195,750
shares of Common Stock reserved for issuance upon exercise of the
Representatives' Warrants. See "Management -- 1997 Stock Option Plan" and
"Underwriting."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data of the Company for the two fiscal
years ended March 31, 1994 and 1995 and the balance sheet as of March 31, 1993
have been derived from the consolidated financial statements of the Company,
which were audited by Deloitte Touche Tohmatsu, independent auditors. The
selected consolidated financial data of the Company for the two fiscal years
ended March 31, 1996 and 1997 have been derived from the consolidated financial
statements of the Company, which were audited by BDO Seidman, LLP, independent
certified public accountants. The consolidated statement of operations data for
the year ended March 31, 1993 and the consolidated financial data for the three
months ended June 30, 1996 and 1997 are derived from the unaudited consolidated
financial statements of the Company. In the opinion of management, the unaudited
consolidated financial statements have been prepared on the same basis as the
Company's audited consolidated financial statements in conformity with U.S.
generally accepted accounting principles, and includes all adjustments and
consists only of normal recurring accruals necessary for a fair presentation of
the results of operations for such periods. The Selected Consolidated Financial
Data should be read in conjunction with the Consolidated Financial Statements of
the Company and the Notes thereto, "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 33,393 $ 72,431 $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
Cost of goods sold................ 18,730 37,518 42,640 30,601 33,837 2,367 3,784
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 14,663 34,913 27,983 13,021 20,846 312 3,307
Selling and administrative
expenses........................ 9,112 21,525 27,121 24,641 18,026 2,833 3,664
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........... 5,551 13,388 862 (11,620) 2,820 (2,521) (357)
Other income, (expense)........... (273) (225) (332) 300 228 222 (51)
Interest expense, net............. (418) (483) (460) (738) (394) (41) (131)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and minority interest........... 4,860 12,680 70 (12,058) 2,654 (2,340) (539)
Provision (benefit) for income
taxes........................... 1,398 4,818 (198) (2,254) (681) (922) (152)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest in net loss of
subsidiary...................... 3,462 7,862 268 (9,804) 3,335 (1,418) (387)
Minority interest in net loss of
subsidiary...................... 0 0 0 0 12 -- 18
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................. $ 3,462 $ 7,862 $ 268 $ (9,804) $ 3,347 $ (1,418) $ (369)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common
share........................... $ .46 $ 1.05 $ .04 $ (1.31) $ .45 $ (.19) $ (.05)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash dividends declared per common
share........................... $ .22 $ .18 $ .09 $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average common shares
outstanding..................... 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (1,288) $ 3,532 $ 1,479 $ (6,123) $ (2,135) $ (2,546)
Total assets.............................................. 13,062 27,659 25,542 22,127 26,278 22,536
Short-term debt........................................... 644 3,448 2,487 4,013 8,447 5,104
Long-term obligations (including current portion)......... 35 182 206 119 46 97
Total stockholders' equity (deficit)...................... 631 7,144 6,712 (3,092) 255 73
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The toy industry has
historically been impacted by rapidly changing consumer preferences resulting in
the need to continually create and market new products. Further, the industry is
characterized by intense competition, a concentration of customers and a high
degree of seasonality. The majority of the Company's sales are made in the
second and third quarters of its fiscal year. In fiscal 1995, 1996 and 1997, the
Company's sales in its second and third fiscal quarters represented between
66.4% and 84.1% of total net sales. As a result, the Company expects that the
operating results and demand for working capital will vary significantly from
quarter to quarter.
Toymax conducts its sales activities through its wholly-owned subsidiaries,
Toymax NY and Toymax HK. Following the closing of the Offering, sales previously
conducted through Toymax HK will be conducted through Toymax Bermuda. U.S.
domestic sales, conducted by Toymax Inc., consist of sales of the Company's
promotional product lines to U.S. customers pursuant to customer purchase orders
("U.S. Domestic Sales"). Sales conducted by Toymax HK ("Toymax HK Sales")
consist of sales on an FOB Hong Kong basis which are generally based on letters
of credit and which include sales of lower priced basic products to U.S. and
international retailers. U.S. Domestic Sales constituted 78.3%, 61.8% and 70.9%
of net sales in fiscal 1995, 1996 and 1997, respectively, with the balance
comprised of Toymax HK Sales.
Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax NY, Toymax HK, Toymax Bermuda, Toymax
Canada, and Toymax UK (collectively, the "Toymax Group"). Toymax HK and Toymax
NY, historically the Company's principal operating entities, were each formed in
1990. Toymax Canada was formed in August 1997 and Toymax Bermuda will be formed
prior to the closing of the Offering and will continue the business previously
carried out by Toymax HK on a going forward basis. Prior to closing of the
Offering, the Company will complete the Reorganization pursuant to which Toymax
NY, Toymax HK, Toymax Bermuda, Toymax Canada and Toymax UK will become direct or
indirect wholly-owned subsidiaries of Toymax. From and after the date of the
Reorganization, all the assets and businesses of the Toymax Group will be owned
and conducted by Toymax. See "The Reorganization."
The historical consolidated financial statements of the Company include the
accounts of the Company, its two wholly-owned subsidiaries and its majority
owned subsidiary, Craft Expressions (since its inception on November 25, 1996).
Sales are recorded on shipment, FOB from point of shipment. The Company's U.S.
Domestic Sales are made on trade terms which provide for payment at dates
subsequent to the date of shipment. The Company factors most of these sales to
eliminate the credit risk and to provide a borrowing base for its credit
facility. Most of the Toymax HK Sales are based on orders accompanied by letters
of credit that entitle the Company to draw funds upon shipment.
The Company provides reserves for sales allowances including promotional
allowances and allowances for anticipated defective product returns at the time
of shipment. These reserves are determined as a percentage of sales based upon
either historical experience or on estimates agreed upon by its customers. Costs
of sales include all product related costs including inbound freight,
amortization of the costs of molds and provisions for obsolescence.
The largest portion of the Company's selling and administrative expenses is
advertising. A significant portion of the Company's advertising costs are spent
on advertising on children-oriented television. Research and development
expenses represent another significant cost to the Company, consistent with its
emphasis on, and history of, internally generated products. In addition, product
royalties paid on licensed products and to independent inventors as well as
sales commissions paid to its outside sales representatives constitute
significant expense categories for the Company.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages of net sales of certain
income and expense items of the Company for the last three fiscal years and for
the quarters ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
PERCENTAGE OF NET SALES JUNE 30,
------------------------------- ------------------------
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................................................ 60.4 70.2 61.9 88.4 53.4
--------- --------- --------- ----------- -----------
Gross profit ...................................................... 39.6 29.8 38.1 11.6 46.6
Selling and administrative expenses................................ 38.4 56.5 33.0 105.7 51.7
--------- --------- --------- ----------- -----------
Operating income (loss)............................................ 1.2 (26.7) 5.1 (94.1) (4.9)
Other income (expense), net........................................ (0.4) 0.7 0.4 8.3 (0.7)
Interest expense, net.............................................. (0.7) (1.7) (0.7) (1.5) (1.8)
Income tax benefit ................................................ 0.3 5.2 1.3 34.4 2.1
--------- --------- --------- ----------- -----------
Net income (loss).................................................. 0.4% (22.5)% 6.1% (52.9)% (5.3)%
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
FOR PURPOSES OF THE FISCAL YEAR COMPARISONS BELOW, FIGURES REFERRING TO THE
FINANCIAL PERFORMANCE OF TOYMAX NY (WHICH HAS CONDUCTED THE COMPANY'S U.S.
DOMESTIC SALES) ARE REFERRED TO AS THE "U.S. DOMESTIC OPERATION" AND THOSE
REFERRING TO THE PERFORMANCE OF TOYMAX HK (WHICH HAS CONDUCTED THE TOYMAX HK
SALES) ARE REFERRED TO AS THE "FOB HONG KONG OPERATION."
FIRST QUARTER ENDED JUNE 30, 1997 COMPARED WITH FIRST QUARTER ENDED JUNE 30,
1996
NET SALES. Net sales for the quarter ended June 30, 1997 increased by
approximately $4.4 million, or 164.7%, to approximately $7.1 million from $2.7
million for the quarter ended June 30, 1996.
Net sales of the U.S. Domestic Operation increased 349.2% to $4.5 million,
or 62.9% of total net sales, in the quarter ended June 30, 1997, from $1.0
million, or 37.1% of total net sales, for the quarter ended June 30, 1996. Net
sales of the FOB Hong Kong Operation increased 56.1% to $2.6 million, or 37.1%
of total net sales, in the quarter ended June 30, 1997 from $1.7 million, or
62.9% of total net sales, in the quarter ending June 30, 1996. The increase in
sales, in both operations, was mainly attributable to the introduction of the
Laser Challenge and Metal Molder product lines which were initially shipped to
customers in the quarter ended September 30, 1996.
GROSS PROFIT. Gross Profit for the quarter ended June 30, 1997, increased
by approximately $3.0 million, or 959.2%, to approximately $3.3 million, or
46.6% of net sales, from approximately $0.3 million, or 11.6% of net sales, for
the quarter ended June 30, 1996. The increase in gross profit as a percentage of
net sales was mainly attributable to an improvement in the U.S. Domestic
Operation which was primarily due to higher product margins on invoiced sales
and to lower manufacturing costs as a result of closing the U.S. domestic
manufacturing operation in fiscal 1997.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended June 30, 1997 increased by approximately $0.9 million, or
29.3%, to approximately $3.7 million, or 51.7% of net sales, from approximately
$2.8 million, or 105.8% of net sales, for the quarter ended June 30, 1996. The
increase in selling and administrative expenses was mainly attributable to
greater (i) payroll expenses of $0.3 million, (ii) research and development
expenses of $0.1 million, and (iii) sales commissions, royalty expenses and
warehouse storage expenses totalling $0.2 million as a direct result of
increased sales. In addition, the Company recognized $0.2 million in non-cash
compensation expense in connection with the sale of shares by the principal
shareholder of the Company in the quarter ended June 30, 1997.
22
<PAGE>
Selling and administrative expenses as a percentage of net sales decreased
to 51.7% for the quarter ended June 30, 1997. The lower percentage of expenses
was due primarily to the improvement in net sales. The largest improvement was
achieved in payroll and advertising expenses. Payroll expenses as a percentage
of net sales decreased to 16.7% for the quarter ended June 30, 1997 as compared
to 30.9% for the quarter ended June 30, 1996. Advertising expenses, as a
percentage of net sales, decreased to 7.1% as compared to 21.4% for the quarter
ended June 30, 1996.
OPERATING INCOME (LOSS). As a result of the foregoing, operating loss for
the quarter ended June 30, 1997 decreased by approximately $2.2 million to
approximately $0.3 million from a loss of approximately $2.5 million for the
quarter ended June 30, 1996.
NET INTEREST EXPENSE. Net interest expense for the quarter ended June 30,
1997 increased by approximately $91,000, or 222.3%, to approximately $0.1
million from approximately $41,000 for the quarter ended June 30, 1996. The
increase in net interest expense was mainly due to higher interest costs
reflecting an increase in average borrowings under the Company's credit
facility.
OTHER INCOME, NET. Other income for the quarter ended June 30, 1997
decreased by approximately $215,000, or 87.1%, to $32,000 from $247,000 for the
quarter ended June 30, 1996. The decrease in other income is primarily the
result of the termination of an agency agreement between Toymax (H.K.) and
another unaffiliated international toy distributor on December 31, 1996.
INCOME (LOSS) BEFORE TAXES. The loss before taxes for the quarter ended
June 30, 1997 decreased by approximately $1.8 million to a loss of approximately
$0.5 million from a loss of approximately $2.3 million for the quarter ended
June 30, 1996
INCOME TAX BENEFIT. Income tax benefit for the quarter ending June 30, 1997
decreased by approximately $0.8 million, or 83.5%, to a benefit of approximately
$0.1 million from a benefit of approximately $0.9 million for the quarter ended
June 30, 1996.
NET INCOME (LOSS). As a result of the foregoing, net income for the quarter
ended June 30, 1997 increased by approximately $1.0 million, or 74.0%, to a net
loss of approximately $0.4 million from a net loss of approximately $1.4 million
for the quarter ended June 30, 1996.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1996
NET SALES. Net sales for fiscal 1997 increased by approximately $11.1
million, or 25.4%, to approximately $54.7 million from $43.6 million for fiscal
1996. This increase in sales was mainly attributable to the introduction of the
Laser Challenge, Metal Molder and the licensed Goosebumps product lines which
accounted for approximately 62% of net sales in fiscal 1997, partially offset by
a decrease in net sales of the Creepy Crawlers and Dollymaker product lines.
Net sales of the U.S. Domestic operation increased 43.9% to $38.8 million,
or 70.9% of total net sales, in fiscal 1997, from $27.0 million, or 61.8% of
total net sales, in fiscal 1996. Net sales of the FOB Hong Kong Operation
decreased 4.7% to $15.9 million, or 29.1%, of total net sales in fiscal 1997
from $16.7 million, or 38.2% of total net sales, in fiscal 1996. The relatively
late introduction of the new products in the FOB Hong Kong Operation resulted in
their having less impact on FOB Hong Kong Operation net sales which are
generally ordered and shipped earlier than in the U.S. Domestic Operation.
GROSS PROFIT. Gross profit for fiscal 1997, increased by approximately $7.8
million, or 60.1%, to approximately $20.8 million, or 38.1% of net sales, from
approximately $13.0 million, or 29.8%, of net sales for fiscal 1996. The
increase in gross profit was mainly due to the increased net sales and an
increase in gross profit as a percentage of net sales. The increase in gross
profit as a percentage of net sales was mainly attributable to an increase of
approximately 14.1% as a percentage of net sales in the U.S. Domestic Operation
partially offset by a decrease of 2.5% as a percentage of net sales in the FOB
Hong Kong
23
<PAGE>
Operation. The increase in the U.S. Domestic Operation was due to improved
product margins related to lower manufacturing costs and customer allowances as
percentages of net sales. The reduction in manufacturing costs resulted mainly
from the Company's decision to close its remaining U.S. manufacturing operations
and shift production to a lower cost manufacturer with a factory in China. See
"Business-- Purchasing and Manufacturing" and "Certain Relationships and Related
Transactions." The decrease in customer allowances was mainly due to better
inventory controls, an improved retail environment and a stronger product line
which resulted in the Company having to discount fewer of its products and to
provide lower sales allowances to retailers.
The decline for the FOB Hong Kong Operation was primarily due to the
lowering of prices on products sold to the United Kingdom and France which had
been increased in fiscal 1996 to compensate for an increase in promotional
programs in those countries. These programs were discontinued for fiscal 1997 on
new product lines.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for fiscal 1997 decreased by approximately $6.6 million, or 26.8%, to
approximately $18.0 million, or 33.0% of net sales, from approximately $24.6
million, or 56.5% of net sales, for fiscal 1996. The decrease in selling and
administrative expenses was mainly attributable to decreases in advertising and
public relations expenses of $5.7 million due to improved expense controls and a
decrease of $1.4 million in the FOB Hong Kong Operation and bad debt expense of
$0.9 million due to a provision that was set up in fiscal 1996 for goods
delivered and later returned by an international customer; partially offset by
an increase in royalty expenses of $0.7 million. The increase in royalty
expenses resulted from increased sales of licensed products including the new
Goosebumps product line.
OPERATING INCOME. As a result of the foregoing, operating income for fiscal
1997 increased by approximately $14.4 million to approximately $2.8 million from
a loss of approximately $11.6 million for fiscal 1996.
NET INTEREST EXPENSE. Net interest expense for fiscal 1997 decreased by
approximately $0.3 million, or 46.6%, to approximately $0.4 million from
approximately $0.7 million for fiscal 1996. The decrease in net interest expense
was mainly due to lower interest costs reflecting a decrease in average
borrowings under the Company's credit facility and a decrease in average
borrowing rates of approximately 0.6%.
INCOME (LOSS) BEFORE TAXES. Income (loss) before taxes for fiscal 1997,
increased by approximately $14.7 million to income of approximately $2.7 million
from a loss of approximately $12.1 million for fiscal 1996.
INCOME TAX BENEFIT. Income tax benefit for fiscal 1997 decreased by
approximately $1.6 million, or 69.8%, to a benefit of approximately $0.7 million
from a benefit of approximately $2.3 million for fiscal 1996. The benefit in
fiscal 1996 was mainly due to the utilization of a net operating loss carryback
which was available to partially offset the pre-tax loss on the U.S. Domestic
Operation. The benefit in fiscal 1997 was mainly due to the reduction in a
valuation allowance that was established in fiscal 1996.
NET INCOME (LOSS). As a result of the foregoing, net income for fiscal 1997
increased by approximately $13.2 million, or 134.1%, to net income of
approximately $3.3 million from a net loss of approximately $9.8 million for
fiscal 1996.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1995
NET SALES. Net sales for fiscal 1996 decreased by approximately $27.0
million, or 38.2%, to approximately $43.6 million from $70.6 million for fiscal
1995. This decrease in net sales was mainly attributable to a decrease in sales
of the Creepy Crawlers and Incredible Edibles product lines partially offset by
an increase in the Dollymaker, Talking Tina and Everglo product lines.
24
<PAGE>
Net sales of the U.S. Domestic Operation decreased 51.2% to $27.0 million,
or 61.8% of total net sales, in fiscal 1996 from $55.3 million, or 78.3% of net
sales, in fiscal 1995. Net sales of the FOB Hong Kong Operation increased 8.5%
to $16.7 million, or 38.2% of total net sales, from $15.4 million, or 21.7% of
total net sales, in fiscal 1995.
The decrease in U.S. Domestic Sales was mainly attributable to the decrease
in net sales of its Creepy Crawlers product line. In addition, the holiday
season of calendar year 1995 was difficult for the major toy retailers resulting
in late orders and late cancellation of orders from manufacturers and
distributors. Ultimately, retailers' orders tended to be narrowly focused on
heavily promoted hot products to the detriment of the broader and more basic
product lines such as the Company's Creepy Crawlers. The Company had orders
cancelled late in the season and did not receive anticipated orders after it had
produced and warehoused sufficient product to meet those orders. In an effort to
reduce its inventory levels, within the compressed selling season, management
provided the retailers with significant discounts off list prices. In addition,
retailers received significant sales allowances.
The increase in net sales of the FOB Hong Kong Operation was mainly due to
the introduction of the Dollymaker and Everglo product lines and increased sales
in the Talking Tina product line. Such increase was partially offset by a
decrease in sales of the Toolmaster product line. The FOB Hong Kong Operation
was not significantly affected by the problems that the U.S. Domestic Operation
encountered with U.S. retailers due to earlier shipping requirements and because
approximately 70.6% and 76.2% of its sales for fiscal 1995 and 1996,
respectively, were to countries outside of the United States.
GROSS PROFIT. Gross profit for fiscal 1996 decreased by approximately $15.0
million, or 53.5%, to approximately $13.0 million, or 29.8% of net sales, from
approximately $28.0 million, or 39.6% of net sales, for fiscal 1995.
The decrease in gross profit as a percentage of net sales was attributable
to a decrease in the U.S. Domestic Operation which achieved a gross profit of
25.6% in fiscal 1996 as compared to 41.7% in fiscal 1995. The decrease in the
U.S. Domestic Operation's gross profit percentage was mainly due to increased
sales discounts and allowances provided to the Company's customers and lower
product margins. Sales discounts and allowances were 20.1% of net sales in
fiscal 1996 as compared to 9.7% in fiscal 1995. These concessions were required
to move the excess inventories that resulted from late order cancellations and a
difficult holiday season for the Company's retail customers. The lower product
margins in fiscal 1996 were mainly due to an increase in manufacturing costs as
a percentage of net sales. The higher manufacturing costs as a percentage of net
sales were mainly attributable to the U.S. Domestic manufacturing operation.
These operations included certain fixed overhead costs that were established in
anticipation of the higher sales levels that did not materialize.
Gross profit as a percentage of net sales for the FOB Hong Kong Operation
increased to 36.7% in fiscal 1996 as compared to 31.4% in fiscal 1995. The
improvement was mainly due to increased product margins on products lines sold
to the United Kingdom and France which offset the increase in promotional
programs in such countries.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for fiscal 1996 decreased by approximately $2.5 million, or 9.1%, to
approximately $24.6 million, or 56.5% of sales, from approximately $27.1
million, or 38.4% of sales, for fiscal 1995. The decrease was mainly
attributable to (i) a decrease in royalty expenses of $2.4 million due to the
decrease in the sales of licensed products, (ii) a decrease in sales commission
expenses of $1.0 million due to the decrease in sales subject to commission,
(iii) a decrease in research and development expenses of $1.5 million due to
anticipated lower sales levels and to more efficient utilization of outside
resources, (iv) a decrease in professional fees of $1.0 million, (v) an increase
in advertising and public relations expenses of $1.2 million due to
non-cancelable commitments made in fiscal 1996 and (vi) an increase in bad debt
expense of $0.9 million due to goods delivered to, and later returned by, an
international customer.
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<PAGE>
Selling and administrative expenses as a percentage of net sales increased
to 56.5% in fiscal 1996. The higher percentage of expenses was mainly due to an
increase in advertising and public relations expenses as a percentage of net
sales to 24.4% of net sales in fiscal 1996 as compared to 13.3% in fiscal 1995.
In addition, expenses were not reduced in proportion to lower sales levels.
Excluding advertising and public relations expenses, total selling and
administrative expenses decreased approximately 20.9%, while net sales decreased
approximately 38.2% for fiscal 1996 as compared to fiscal 1995. The inability to
proportionately reduce expenses to meet lower net sales was mainly due to the
timing of the cancellation of orders and anticipated orders just prior to the
main selling season.
OPERATING INCOME (LOSS). As a result of the foregoing, operating income for
fiscal 1996 decreased by approximately $12.5 million to a loss of approximately
$11.6 million from income of approximately $0.9 million for fiscal 1995.
NET INTEREST EXPENSE. Net interest expense for fiscal 1996 increased by
approximately $0.3 million or 60.4% to approximately $0.7 million from
approximately $0.5 million for fiscal 1995. The increase in net interest expense
was mainly due to an increase in average borrowings under the Company's credit
facility as well as an increase in average borrowing rates of approximately
1.1%.
INCOME (LOSS) BEFORE TAXES. Income before taxes for fiscal 1996 decreased
by approximately $12.1 million to a loss of approximately $12.1 million from
income of approximately $0.1 million for fiscal 1995.
INCOME TAX BENEFIT. Income tax benefit for fiscal 1996 increased by
approximately $2.1 million to approximately $2.3 million from approximately $0.2
million for fiscal 1995. The increase is mainly attributable to losses before
income taxes in fiscal 1996 compared to income before taxes in fiscal 1995.
NET INCOME (LOSS). As a result of the foregoing, net income for fiscal 1996
decreased by approximately $10.1 million to a net loss of approximately $9.8
million from net income of approximately $0.3 million for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995 and 1996 and the first quarter of fiscal 1998, the
Company satisfied the cash requirements of its business through cash flow from
operations and, in fiscal 1996 and 1997, through cash flow from operations and
financing activities. Cash was used principally for operating activities in
fiscal 1997, for purchases of property and equipment in all three years, for
repayment of bank borrowings in fiscal 1995 and the first quarter of fiscal 1998
and for payment of dividends in fiscal 1996 which were declared in fiscal 1995.
During the quarter ended June 30, 1997, the Company received $4.6 million
from operating activities, mainly due to changes in operating assets and
liabilities of $4.7 million, which included decreases in accounts receivable and
amounts due from factor of $9.5 million partially offset by increases in
inventories of $3.2 million and prepaid expenses and other assets of $1.1
million. Cash received from operating activities was reduced by a net loss of
$0.4 million. The Company used cash for investing activities of $0.3 million,
mainly for the acquisition of property and equipment. The Company also used cash
for financing activities in the amount of $3.3 million, mainly to reduce amounts
due under its credit facility with State Street Bank & Trust Company, Hong Kong
Branch. As a result of the foregoing, cash and cash equivalents increased during
the quarter by $1.0 million.
During fiscal 1997, the Company used cash of $4.7 million for operating
activities, mainly for changes in operating assets and liabilities of $8.5
million, which included increases in accounts receivable and amounts due from
factor of $10.4 million, and decreases in accounts payable and accruals of $3.5
million, partially offset by decreases in income tax refunds receivable of $4.2
million and decreases in inventories of $1.0 million. Cash used for changes in
operating assets and liabilities was partially offset by net income of
26
<PAGE>
$3.3 million adjusted for a total of $0.5 million from non-cash items including
depreciation and amortization of $1.5 million, partially offset by changes in
deferred income taxes of $1.2 million. The Company used cash for investing
activities of $0.8 million, mainly for the acquisition of property and
equipment. The Company received cash from financing activities of $4.8 million,
mainly from increases in borrowing under its credit facility with State Street
Bank & Trust Company, Hong Kong Branch. As a result of the foregoing, cash and
cash equivalents decreased during the fiscal year by $0.7 million.
During fiscal 1996, the Company received $0.7 million from operating
activities, mainly due to changes in operating assets and liabilities of $6.2
million, which included increases in amounts due to affiliates of $4.0 million,
decreases in amounts due from affiliates of $1.1 million, decreases in inventory
of $2.2 million, increases in accounts payable and accruals of $1.5 million, and
decreases in accounts receivable and amounts due from factor of $1.0 million
partially offset by increases in income tax refunds receivable of $3.8 million.
These increases in cash were partially offset by a net loss of $9.8 million
adjusted for non-cash items including depreciation of $1.8 million, changes in
deferred income taxes of $1.7 million and bad debt expenses of $0.9 million. The
Company used cash for investing activities of $0.7 million including $1.1
million for the acquisition of property and equipment partially offset by
proceeds from the disposal of fixed assets. Financing activities resulted in
increase in cash of $0.7 million including net increase in bank borrowings of
$1.5 million partially offset by the payment of dividends of $0.7 million. As a
result of the foregoing, cash and cash equivalents increased during the fiscal
year by $0.7 million.
During fiscal 1995, the Company received $1.5 million from operating
activities, mainly due to net income of $0.3 million adjusted for non-cash items
of $1.5 million including depreciation of $1.3 million. These increases in cash
were partially offset by decreases from changes in operating assets and
liabilities of $0.2 million including decreases in accounts receivable and
amounts due from factor of $2.0 million, increases in net amounts due from
affiliates of $0.8 million, and decreases in income taxes payable of $1.3
million, partially offset by an increase in accounts payable and accruals of
$1.1 million. The Company used cash for investment purposes of $2.4 million
primarily for the acquisition of property and equipment. Financing activities
used cash of $1.2 million mainly to reduce bank borrowings by $1.0 million. As a
result of the foregoing, cash and cash equivalents decreased during the fiscal
year by $2.1 million.
The Company experienced significant growth in net sales in fiscal 1997 as
compared to fiscal 1996. Future growth of the Company will result in increased
working capital requirements, mainly inventory and accounts receivable. In
fiscal 1997, the Company's working capital benefitted from extended payment
terms on merchandise purchases provided by its purchasing agent, then
Concentric, and currently Tai Nam, both affiliates of David Chu, the Chairman
and a principal stockholder of the Company. These terms were stated as 30 days,
but averaged approximately 110 days, during fiscal 1997. A portion of the
proceeds of the Offering (approximately $6.0 million) are intended to be used to
reduce the amounts due on trade payables due to Concentric and Tai Nam
(totalling $9.5 million as of June 30, 1997 and expected to total approximately
$21.0 million upon the closing of the Offering) to a level that is closer to
stated terms. Tai Nam has agreed to continue to provide extended payment terms
to the Company through the end of fiscal 1998. While management believes there
is no indication that such favorable terms will be needed by the Company after
fiscal 1998, there can be no assurance that such favorable terms will be
available after such date. See "Risk Factors--Reliance on Single Affiliated
Manufacturer and Potential Conflict of Interest" and "Certain Relationships and
Related Transactions".
The Company expects to fund its near-term cash requirements from a
combination of the net proceeds from the Offering, cash flow from operations and
borrowings under its credit facility with State Street Bank & Trust. The Company
expects to finance its longer term growth primarily from cash flow from
operations and with externally generated funds which will likely include
borrowings under its existing or future credit facilities. There can be no
assurance that sufficient cash flow from operations will materialize or that
financing under a credit facility will be available in amounts, or at rates, or
on terms and conditions acceptable to the Company. In such event, additional
funding would be required. See "Risk Factors-No Assurance of Profitability."
27
<PAGE>
CREDIT FACILITIES
Toymax NY, Toymax HK, and Tai Nam maintain a line of credit facility ("State
Street Credit Facility") with State Street Bank & Trust Company, Hong Kong
Branch ("State Street"). The State Street Credit Facility is subdivided into
three sub-facilities: (i) a $25.0 million Factoring-Cum-Financing Facility for
Toymax NY ("Factoring Facility"), (ii) a $5.0 million Inventory Financing
Facility ("Inventory Facility") for Toymax NY and (iii) a $1.0 million Trade
Facility ("Trade Facility") for Toymax HK and its affiliate, Tai Nam. At June
30, 1997, the outstanding balance under the State Street Credit Facility was
$5.1 million as compared to $8.4 million, $4.0 million and $2.5 million at March
31, 1997, 1996 and 1995, respectively. In June 1997, the maximum borrowing limit
under State Street Credit Facility was increased from $12.5 million to $26.0
million. The Company expects the balance at the closing of the Offering to be
approximately $15.6 million. The Company intends to pay down its indebtedness
under the State Street Credit Facility using a portion (approximately $10.0
million) of the proceeds of the Offering. The State Street Credit Facility is
terminable by State Street at any time at its sole discretion, at which time the
Company's obligations to State Street would become due and payable.
Pursuant to the Factoring Facility, the Company may borrow up to $25.0
million against seventy percent (70%) of the Company's accounts receivable
factored by Congress Talcott Corporation ("CTC"). Borrowings under the Factoring
Facility bear interest at State Street's U.S. prime rate (8.5% at March 31,
1997) plus 1/2% per annum. At June 30, 1997, the Company's outstanding
indebtedness under the Factoring Facility was $3.6 million.
Under the Inventory Facility, the Company may borrow up to $5.0 million
against 50% of the Company's current inventory. All loans outstanding under this
facility are due September 15, 1997. Borrowings under the Inventory Facility
bears interest at State Street's U.S. prime rate plus 1/2% per annum. Total
loans made to the Company under the Inventory Facility and Factoring Facility
shall not exceed $25.0 million. At June 30, 1997, the Company's outstanding
indebtedness under the Inventory Facility was $1.5 million.
The Inventory Facility and Factoring Facility are secured by an assignment
of the proceeds of the CTC Factoring Agreement (defined below), a first lien on
the Company's inventory and accounts receivable, and a dilution reserve account
not to exceed $6.0 million. The Inventory Facility and Factoring Facility are
guaranteed, personally and severally by David Chu, Steven Lebensfeld and Harvey
Goldberg and by Tai Nam, Tai Nam Industrial Co. (an affiliate of Tai Nam),
Juantiway, Concentric and Toymax HK. Mr. Chu is the Chairman and a principal
stockholder of the Company and the owner of Tai Nam, Tai Nam Industrial Co.,
Jauntiway and Concentric. Messrs. Lebensfeld and Goldberg are also executive
officers of the Company. Following the closing of the Offering, the Company
expects that each of these guarantees will be terminated.
The Trade Facility provides for up to $1.0 million in letters of credit or
export bills for Toymax HK and/or Tai Nam. At June 30, 1997, there was no
outstanding indebtedness under the Trade Facility. Borrowings under the Trade
Facility bear interest at State Street's U.S. prime rate plus 3/4% per annum.
The Company is a party to a Collection Factoring Agreement, dated June 5,
1991, as amended through April 4, 1994 (the "CTC Factoring Agreement") with CTC.
Pursuant to the CTC Factoring Agreement, the Company assigned its rights to
substantially all accounts receivable, contract rights, and other customer
obligations for the payment of money arising out of the sale of the Company's
products. In exchange for such assignment, and upon delivery of the Company's
goods to its customers, CTC purchases the accounts and bears the credit risk
associated therewith. In return for such services, CTC charges a finance charge
of 1.25% on the first $7.5 million of factored sales. For sales in excess of
$7.5 million in any given fiscal year, the finance charge is reduced to 3/4%.
For sales in excess of $50 million in any given fiscal year, the finance charge
is reduced to 1/2%. As collateral for the agreement, the Company has given CTC a
security interest in its accounts receivables and certain other assets (not
including inventory). The CTC Factoring Agreement is terminable by CTC upon the
happening of certain events. In connection with the
28
<PAGE>
State Street Credit Facility, all payments by CTC under the CTC Factoring
Agreement are made directly to State Street.
Since the Company's inception, Toymax has utilized either Concentric or Tai
Nam as its primary purchasing agent. David Chu, the Chairman and a principal
stockholder of the Company, owns Tai Nam and Concentric. Pursuant to the Agency
Agreement, Tai Nam serves as purchasing agent and receives an agency fee equal
to seven percent (7%) of the gross invoiced value of products purchased by
Toymax NY (based on the factory purchase price of the merchandise). Until April
1997, the Company utilized Concentric as its purchasing agent on similar terms.
In fiscal 1997, the Company paid Concentric $824,992 in such agency fees and in
the three months ended June 30, 1997 paid Tai Nam $488,124 in agency fees. Tai
Nam's duties include arranging for the manufacturing of the Company's products
based on purchase orders placed with Tai Nam by the Company. In addition, Tai
Nam handles shipping documents, letters of credit, bills and payments, serves as
liaison with other vendors and performs quality control functions for the
Company. Pursuant to the Agency Agreement, Toymax purchases products from Tai
Nam at FOB Yien Tian prices. The Company pays all expenses associated with the
making of molds for new products and such molds are assets of the Company. The
term of the Agency Agreement ends on March 31, 1999.
In fiscal 1997, the Company purchased products from Tai Nam and Concentric
totalling $13.5 million and $20.6 million, respectively. The majority of the
Company's products are manufactured by Jauntiway, which is also owned by Mr.
Chu. In fiscal 1997, approximately 85% of the Company's products were
manufactured by Jauntiway (including some utility subcontractors) and such
production constituted approximately 85% of Jauntiway's overall production. See
"Business--Purchasing and Manufacturing."
Tai Nam and Concentric have historically provided extended payment terms to
the Company (longer than net 30 days). Historically, the Company has, from time
to time, relied on such extended payment terms. Tai Nam has agreed to continue
to provide such terms for the balance of fiscal 1998.
The Company believes that available borrowings under the State Street Credit
Facility, cash from operations and the net proceeds from the Offering to the
Company will be sufficient to meet the Company's working capital and capital
expenditure requirements and provide it with adequate liquidity to meet its
anticipated operating needs for the foreseeable future. The Company expects
approximately $1.0 million in capital expenditures in fiscal 1998.
As a part of the Company's strategy, the Company will evaluate potential
acquisitions of other toy businesses or product lines which the Company believes
would complement its existing business. As of the date of this Prospectus, the
Company has no present understanding or agreement with respect to any
acquisitions.
In connection with any future cash needs or acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors.
SEASONALITY
The Company's sales are seasonal in that a substantial portion of net sales
are made to retailers in anticipation of the Christmas holiday selling season.
Over the last three fiscal years, the net sales recorded in the second and third
quarters ranged between 66.4% and 84.1% of the total net sales in those fiscal
years. This pattern is expected to continue for the foreseeable future.
Differences in seasonal sales patterns between the U.S. Domestic Operation and
FOB Hong Kong Operation impact the gross profit percentage among quarters as
they each have differing gross profit percentages. For example, the FOB Hong
Kong Operation represented between 12.3% and 62.9% of net sales within quarters
while it represented 29.1% for the entire fiscal 1997 year. Selling and
administrative expenses include certain expenses that do not relate directly to
sales for the quarterly periods.
29
<PAGE>
The result of these differences is that operating results are expected to
vary significantly by quarter and net losses are expected in the first quarter
of the fiscal year for the foreseeable future. Therefore, the Company's
financial results for a particular quarter may not be indicative of results for
the entire year.
The following table provides certain unaudited financial information for the
Company for each quarter in fiscal 1996 and 1997 and the quarter ended June 30,
1997. In management's opinion, this information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996 1996 1996 1996 1997
----------- --------------- ------------- ------------- ----------- --------------- ------------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.... $ 4,151 $ 20,545 $ 11,472 $ 7,454 $ 2,679 $ 14,921 $ 21,398 $ 15,685
Gross
profit..... 423 5,963 4,112 2,523 312 5,934 7,817 6,783
Operating
income
(loss)..... (6,097) 353 (4,240) (1,636) (2,521) 2,198 784 2,359
Income (loss)
before
income
taxes...... (6,213) 522 (4,047) (2,320) (2,340) 2,317 611 2,078
<CAPTION>
<S> <C>
JUNE 30,
1997
-----------
<S> <C>
Net sales.... $ 7,091
Gross
profit..... 3,307
Operating
income
(loss)..... (357)
Income (loss)
before
income
taxes...... (521)
</TABLE>
INFLATION
The Company does not believe that the relatively moderate rates of inflation
in the United States in recent years have had a significant effect on its
operations. Although recent rates of inflation in Asia have resulted in an
increase in the cost of manufacturing the Company's products and such increased
costs have had a modest impact on margins, the Company does not believe that
inflation in Asia has had a materially adverse effect on its results of
operations.
EXCHANGE RATES
Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on cost of goods. However, since 1983, the
value of Hong Kong dollar has been tied to the value of the United States
dollar, eliminating fluctuations between the two currencies. Despite the recent
announcement by Hong Kong's Financial Secretary that the Hong Kong Government is
determined to maintain such fixed exchange rate, there can be no assurance that
the Hong Kong dollar will continue to be tied to the United States dollar in the
future. Furthermore, appreciation of Chinese currency values relative to the
Hong Kong dollar could increase the cost to the Company of the products
manufactured in China, and thereby have a negative impact on the Company. See
"Risk Factors--Risks Inherent in International Operations; Currency Risks."
NEW ACCOUNTING STANDARD
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE." This pronouncement provides for the
calculation of Basic and Diluted earnings per share which is different from the
current calculation of Primary and Fully Diluted earnings per share. The effect
of adopting this new standard is not expected to be material.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
30
<PAGE>
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
31
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company creates, designs and develops innovative toys, which it markets
and sells in the U.S. and throughout the world. The Company has focused on
developing and marketing children's activity toys, including Creepy Crawlers,
Metal Molder and Magic Maker, girls' toys, such as Talking Tina, and action
toys, such as Laser Challenge, one of FAMILY FUN magazine's Toys of the Year in
1996 and currently among the leading selling toys in the U.S. Major strengths of
the Company include creativity in the development of new toys, such as Metal
Molder, which was named one of the top children's vacation products of 1997 by
DR. TOY, and the redevelopment and reintroduction of successful toy lines from
the past, such as Creepy Crawlers, which was named one of the top toys of 1996
by SESAME STREET MAGAZINE.
Toymax was founded in 1990 by four experienced toy industry executives:
David Chu, the Company's Chairman, Steven Lebensfeld, its President, Harvey
Goldberg, its Executive Vice President, and Kenneth Price, its Senior Vice
President of Sales and Marketing. Since the early 1980s these executives have
worked together in managing or founding toy companies or in customer-supplier
relationships. Each individual brings particular strengths to the management
team, Mr. Chu in manufacturing, Mr. Lebensfeld in product development, and
Messrs. Goldberg and Price in sales and marketing. In addition, these executives
have built a team of knowledgeable, highly skilled management and employees
whose collective toy industry experience enhances the Company's ability to
effectively execute its business plan.
Toymax conducts its sales activities through its wholly-owned subsidiaries,
Toymax NY and Toymax HK. Following the closing of the Offering, sales previously
conducted through Toymax HK will be conducted through Toymax Bermuda. U.S.
domestic sales, conducted by Toymax Inc., consist of sales of the Company's
promotional product lines to U.S. customers pursuant to customer purchase orders
("U.S. Domestic Sales"). Customers purchasing products on this basis include
Toys "R" Us, Kay-Bee Toys, F.A.O. Schwarz, Wal-Mart Stores, Inc., Kmart
Corporation and Target Stores, Inc. Sales conducted by Toymax HK Limited
("Toymax HK Sales") consist of sales on an FOB Hong Kong basis which are
generally based on letters of credit and which include sales of lower priced
basic products to U.S. and international retailers, including Toys "R" Us
International, Lojas Americanas (Brazil) and Blokker (Holland) and sales of the
Company's promotional product lines to approximately 40 international
distributors (including Mattel Inc. and Hasbro Inc.). The Company's products are
sold in over 50 countries around the world. In fiscal 1995, 1996 and 1997. U.S.
Domestic Sales constituted 78.3%, 61.8% and 70.9% of net sales, respectively,
with the balance being Toymax HK Sales.
The Company has generated net profits in four out of the last five fiscal
years. For the fiscal year ended March 31, 1997, Toymax had net sales of $54.7
million and a net income of $3.3 million. In fiscal 1996, the Company
experienced a net loss of $9.8 million. This was due principally to the
cancellation of orders and the failure by retailers to place re-orders during
the 1995 holiday season. As a result, the Company had to sell the excess
inventory at discounted prices which impacted both gross sales and net profits.
In order to lessen its exposure to any similar industry and retailer
developments in the future, in calendar 1996 the Company improved its operations
by: (i) limiting purchasing commitments on new products to foster increased
product sell-through rates at the retail level and to reduce inventory risks,
(ii) enhancing its inventory management system, with improved EDI tracking and
sales analysis with major retail customers, and (iii) expanding its product
concept preview process with selected retailers and distributors. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
The Company uses a variety of methods to market its existing and new
products, such as demonstrating its products at international toy shows to many
of its current and prospective customers. In addition, the Company is able to
reach its primary audience of children on a large scale in an efficient manner
through television advertising. The Company also relies on public relations,
promotional programs and
32
<PAGE>
such traditional methods as in-store demonstrations and couponing to support its
sales and marketing efforts.
Toymax currently contracts for all of its manufacturing requirements. Tai
Nam, based in Hong Kong, serves as the Company's purchasing agent and, through
an affiliated company, Jauntiway, manufactures a majority of the Company's
products. Jauntiway is an OEM toy manufacturer with two manufacturing facilities
in the southern portion of the People's Republic of China (the "PRC"), including
an ISO 9002 factory. Tai Nam and Jauntiway are owned by David Chu, the Chairman
and a principal stockholder of the Company. The Company believes that these
relationships give it several competitive advantages, such as better quality
control on merchandise, greater operating and financial flexibility, and
improved reliability and scheduling.
THE TOY INDUSTRY
According to the TMA, total domestic shipments of toys, excluding video
games and accessories, were approximately $13.9 billion in 1996 representing a
3.5% growth from $13.4 billion in 1995. According to the TMA, the United States
is the world's largest toy market, followed by Japan and Western Europe. The
three largest U.S. toy companies in 1996 were Mattel, Inc. ("Mattel"), Hasbro,
Inc. ("Hasbro") and Tyco Toys, Inc. ("Tyco") (which merged into Mattel in March
1997). In recent years, the toy industry has experienced a period of
consolidation, both at the retail and manufacturing level. However, many smaller
companies continue to compete in the design and development of new toys, the
procurement of licenses, the improvement and expansion of previously introduced
products and product lines and the marketing and distribution of toy products.
Many factors influence the success of a given toy or product line including
product design, play value, pricing, marketing, in-store exposure and product
availability. While the success of some toy categories vary from year to year,
other toy categories consistently perform well. Toys which form the backbone of
the toy business, are generally referred to as "evergreens", "core" or "staple"
toys. Toys with relatively successful but short life cycles are generally
referred to as "fad" items. Along with providing opportunities for fun and
learning, toys traditionally mirror technological progress, changes in social
attitudes and current customs and values from the adult world. Many of the toys
which garner the most attention reflect the latest technological advances,
incorporate characters made popular in other mediums or are innovative
extensions of core toy products.
Toy production is a labor intensive process requiring molding and shaping or
cutting and sewing, coloring, painting or detailing, assembling, inspecting,
packaging, shipping and warehousing. The substantial majority of the toys sold
in the U.S. are manufactured, either in whole or in part, overseas where labor
rates are comparatively lower than in the U.S. The largest foreign manufacturing
market is the PRC, followed by Japan and Taiwan. Most foreign production is
performed by independent contractors which use tools, molds and designs provided
by U.S. toy companies and which manufacture products under exclusive contracts.
While foreign manufacturing operations generally have relatively inexpensive
labor costs, such operations require greater lead times than domestic
manufacturing operations and also result in greater shipping costs particularly
for larger toys. The design, production and sales of toy products in the U.S.
are subject to various regulations.
Toy manufacturers sell their products either directly to retailers or to
wholesalers who carry the product lines of many manufacturers. There are
thousands of retail outlets in the United States which sell toys and games.
These outlets include: mass merchandisers, small, independent toy stores; gift
and novelty shops; warehouse clubs and mail order catalogues. Despite the broad
number of toy outlets, retail toy sales have become increasingly generated by a
small number of large chains, such as Toys "R" Us, Wal-Mart, Kmart and Target.
These chains generally feature a large selection of toys, some at discount
prices, and seek to maintain lean inventories to reduce their own inventory
risk. This concentration has tended to favor larger manufacturers which are able
to offer these retail chains broader product offerings, higher
33
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levels of advertising and marketing support, and consistent product support
through electronic data interchange and just-in-time delivery programs. The
Company believes that the leading toy retailers desire to have a greater number
of toy suppliers which offer a variety of quality, branded product lines and
which have the financial strength to support the retailers' product distribution
requirements.
While toys are sold year round, toy industry retail sales are heavily
weighted toward calendar third and fourth quarters when many toys are purchased
as holiday gifts. Each calendar year begins with a major international toy fair
held in Hong Kong in the first week in January. This trade show is expanded and
repeated in New York in the middle of February. During the January/February
period, additional toy fairs are held in London, Paris, Milan, Nuremberg,
Valencia and Dallas. The toy fairs allow manufacturers to display their current
lines and begin the process of generating purchase orders for the important
holiday season. Due to the seasonality and long lead times required for foreign
production, retailer buying activity tends to significantly lead production and
shipment.
Licensing is a major influence on the toy industry affecting virtually all
product categories. Licensing is the business of leasing the right to use a
legally protected name, graphic, logo, saying or likeness in conjunction with a
product, promotion or service. Licensing is usually accomplished by a formal
agreement between the owner or agent of the licensed property (the licensor) and
the prospective licensee and typically defines the limits of the license, the
standards to be maintained and the compensation (royalties) to be paid for the
license.
The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toys stores and
discount retailers, including Toys "R" Us, Wal-Mart, Kmart and Target, which
have increased their overall share of the retail market. This consolidation has
resulted in an increased reliance among retailers on the large toy companies
because of their financial stability and ability to support products through
advertising and promotion and to distribute products on a national basis. Such
consolidation may have a negative impact on smaller toy manufacturer such as the
Company. See "Risk Factors -- Changes in the Retail and Toy Industries."
STRATEGY
The Company has been successful in achieving market penetration, with
revenue of $54.7 million in fiscal 1997 and has been profitable in four of the
past five fiscal years. With an established infrastructure now in place, the
Company is poised to grow utilizing the proceeds from the Offering. The key
elements of the Company's growth strategy are to capitalize on its existing
successful core brands by extending its product lines, expand into new core
product categories, expand into traditional spring toys, develop and penetrate
new markets and continue to license recognized brand names and characters to
incorporate in its products.
EXTEND PRODUCT LINES OF EXISTING CORE BRANDS. The Company intends to
capitalize on the success of its existing core brands by building a pipeline of
complementary products and accessories. Product line extensions under the
Company's brands are intended to provide increased sales and stability. For
example, during 1997, the Company introduced the girl's version of Metal Molder,
called Precious Metals, and added new products to its Creepy Crawlers product
line. In addition, the Company capitalized on the success of its Laser Challenge
brand with the introduction of a number of accessories, games and products which
enhance the play experience.
EXPAND INTO NEW CORE PRODUCT CATEGORIES. The Company intends to expand into
new core product categories through (i) the creation of new toys by its product
development team, (ii) the acquisition of rights to toys developed by
independent designers, (iii) the acquisition of businesses or product lines with
proven products or product concepts, and (iv) the re-design and re-introduction
of old "classic" toy products in recognition of cyclical patterns in the toy
industry. One of the Company's major strengths is its creativity in developing
new toys and toy concepts. Led by its President, Steven Lebensfeld, the Company
continually seeks to create and develop new toys for new product categories. For
example, the Company
34
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entered the action toy category in 1996 with Laser Challenge and recently formed
Craft Expressions, Inc. to enter the adult craft and activities market. During
the past three fiscal years, 82.7% of the Company's net sales have been
generated from internally developed toys. In addition, senior management has
been in the toy business for over two decades and has developed a large network
of free-lance toy inventors and other independent designers from which to
acquire the rights to market toys developed by these designers. Finally, the
Company intends to pursue acquisitions of toy companies and product lines which
either complement or enhance the Company's current products or allow the Company
to expand into new market segments.
EXPAND INTO TRADITIONAL SPRING TOYS. The Company recognizes the importance
of decreasing its reliance on sales made in the third and fourth quarters of the
calendar year by expanding into product categories with traditionally strong
sales in the first and second calendar quarters and thereby further leveraging
its distribution channels. In the first two calendar quarters of 1997, the
Company had net sales of $22.8 million as compared to net sales of approximately
$10.1 million for the same period in 1996, primarily as a result of the
introduction of Laser Challenge. Opportunities for new products will be
evaluated particularly in the categories of action toys and water toys.
DEVELOP AND PENETRATE NEW MARKETS. The Company intends to expand the market
for its existing and new toys by increasing its penetration of international
markets and targeting the broadening demographics of toy consumers. The Company
believes that as the global economy continues to expand, significant growth
opportunities exist internationally, especially in Europe, South America and
Southeast Asia. The Company intends to capitalize on management's experience,
its established sales and distribution network and its relationships with
foreign distributors and retailers to further expand its international sales. By
marketing products globally, the Company can offer a greater diversity of
products and potentially extend product life cycles. In addition, due to the
advent of video and computer games, the demographics of toy consumers have
changed. The ages of consumers of traditional toy products has decreased, while
the market for toys incorporating sophisticated technology has extended beyond
the traditional age groups of toy consumers. The Company intends to capitalize
on the success of Laser Challenge and Metal Molder to produce products which
appeal to the broader demographic for such toys.
CONTINUE TO LICENSE RECOGNIZED BRAND NAMES AND CHARACTERS. The Company
intends to continue to license recognized brand names to enhance sales of its
product lines. Currently, the Company markets products pursuant to licensing
agreements with companies such as Disney Enterprises, Inc., Universal Studios
Licensing, Inc. and the Chevrolet Motor Division of General Motors. The Company
intends to continue to seek appropriate licenses for its existing product lines
as well as licenses which will allow the Company to expand into new product
lines.
PRODUCTS
Toymax focuses on developing and marketing innovative toy products in a
number of categories including action toys, children's activity toys and girls'
toys. The Company established itself in each of these categories by
incorporating sophisticated technology into a number of its toy products,
thereby enhancing the play experience and broadening the demographics to which
such products appeal. The Company's innovative use of sophisticated technology
includes the incorporation of voice microchips in its line of dolls, the
development of Laser Challenge's infra-red technology and the use of metal alloy
beads which
35
<PAGE>
melt at relatively low temperatures in Metal Molder products. The following
table depicts the Company's net sales, as a percentage of total net sales, by
product category for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
------------------------------- ---------------
PRODUCT CATEGORY 1995 1996 1997 JUNE 30, 1997
- ---------------------------------------------------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Action Toys......................................... 0.0% 0.0% 48.6% 74.6%
Children's Activity Toys............................ 87.3 83.0 34.4 18.4
Girls' Toys......................................... 3.4 12.9 7.8 4.2
Other............................................... 9.3 4.1 9.2 2.8
--------- --------- --------- -----
TOTAL............................................... 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
The Company's major products are as follows:
<TABLE>
<CAPTION>
1997-98 PRODUCT
CATEGORY CURRENT PRODUCTS AND BRANDS INTRODUCTIONS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Action Toys LASER CHALLENGE-TM- LASER CHALLENGE-TM-
Patrol Set EX-D Super Laser; Back Sensor; Super
Dual Target Set Comp Set; Shoot Back B.A.R.T.; Laser
Team Force Set Trap; Capture the Flag; Laser Alley
LASER CHALLENGE PRO-TM-
Competition Pack; Clash Pack
Children's Activity Toys CREEPY CREEPY
CRAWLERS-Registered Trademark- CRAWLERS-Registered Trademark-
Creature The Lost World: Jurassic
Creator-Registered Trademark- Park-Registered Trademark- Mold
Workshop Paks; Eerie Species Mold Paks;
3-D Creature Kit Mold Packs; Mutant Squad Mold Packs
Plasti-Goop-Registered Trademark-
Compounds
METAL MOLDER-TM- METAL MOLDER-TM-
Die Cast Factory The Lost World: Jurassic
Molding Kit Assortment Park-Registered Trademark-Molding
Kit; Classic Chevrolet Molding Kit;
Blister Carded Assortment; Detailing
Kit
PRECIOUS METALS-TM-
Boutique; Molding Kit Assortment
MAGIC MAKER-Registered Trademark- MAGIC MAKER-Registered Trademark-
Tattoo Graphix; Super Sealer; Krinkle Art
Embosser; Bead Art; Soap Maker Magic Crystals
Fuzz Art
Foil Art
Magic Grow Art
ORIGINAL TOOLMASTER
WORKSHOP-Registered Trademark-
Pocketools-Registered Trademark-
Power Mites-Registered Trademark-
Girls' Toys TALKING TINA-Registered Trademark- BRUSH 'N MAGIC-REGISTERED TRADEMARK-
TWINKLES-Registered Trademark-
BUBBLE TOTS-TM-
</TABLE>
36
<PAGE>
ACTION TOYS
The Company entered the Action Toys category with the introduction of Laser
Challenge in 1996. In addition to appealing to the traditional target market of
boys between the age of four and nine, Laser Challenge's appeal has extended
beyond that age range, as well as to girls, thus offering an expanded universe
of potential consumers.
Since its introduction, the Laser Challenge line has found acceptance among
retailers and consumers and has become the Company's strongest brand. Based upon
this initial success, the Company introduced a number of line extensions at the
International Toy Fair in February 1997 to enhance the play experience and
broaden the targeted age group. These products have staggered introduction dates
throughout 1997. The Company has recently introduced Laser Challenge Pro, an
enhanced version of the original Laser Challenge product, to retailers and
anticipates customer shipment in the fall of 1997.
LASER CHALLENGE. The Laser Challenge brand was developed to capitalize on
the growing worldwide popularity of indoor laser game arenas. The features of
this product permit an expanded play experience including outdoor play, and
broadens the appeal to older consumers. In designing the Laser Challenge system,
the Company has developed an advanced infra-red light technology which is
effective at longer firing distances. The original Laser Challenge system
consisted of a vest incorporating a target and scoring system, a handheld laser
and B.A.R.T., a roaming robot target. Currently, the Company has two patents
pending for design and utility covering the Laser Challenge system. In 1996,
Laser Challenge was honored as one of the top Toys of the Year by FAMILY FUN
MAGAZINE and was presented with an Honors Award by the 1996 NATIONAL ASSOCIATION
OF PARENTING PUBLICATIONS AWARDS. As of May 1997, the Laser Challenge Team Force
set was the top selling outdoor sports activity toy in the U.S. (TRSTS Report).
The basic Laser Challenge set, consisting of one handheld laser and one target,
retails for approximately $20.00.
The line extensions for Laser Challenge in 1997 include the following
products: (i) the Laser Challenge Pro Series (discussed below), (ii) Laser Trap,
a timed laser blaster that fires over 25 feet in 360 degrees to extend a
player's firing range and add to the element of surprise; (iii) Back Sensor,
which connects to the existing vest and scoring system to increase the number of
hit zones; (iv) EX-D Super Laser, which emits 25 rapid fire shots over 200 feet
for a faster and broader game play; (v) Capture the Flag, an electronic version
of the familiar kids game; and (vi) Laser Alley, the Laser Challenge version of
an arcade shooting and target game with lights and sound.
LASER CHALLENGE PRO. Consistent with the Company's efforts to continually
extend its successful products, the Company recently introduced the Laser
Challenge Pro system, a technologically advanced, higher priced version of the
Company's Laser Challenge brand. Laser Challenge Pro has been named a finalist
for 1997 Toy of the Year by FAMILY FUN MAGAZINE. In addition to appealing to
current Laser Challenge customers, the look and features of this system are
intended to have broad appeal to a number of additional consumer segments
including older indoor laser game arena enthusiasts. The Laser Challenge Pro
allows for firing distances of up to 300 hundred feet, and permits a large
number of game playing features to be programmed into the equipment. The
strategic thinking and planning required to use these features heighten the
intensity and excitement of the game play. Furthermore, the Laser Challenge Pro
is compatible with the Laser Challenge product line, allowing customers of both
products to play together. The Laser Challenge Pro is offered in both single and
dual handheld laser and vest packages, with the basic set, the Competitor Pack,
retailing for up to $70.00.
CHILDREN'S ACTIVITY TOYS
Children's Activity Toys is the Company's most expansive product segment
which focuses on children between the ages of four and ten. As evidenced by the
success of Creepy Crawlers, Metal Molder and Magic Maker, the Company has shown
the ability to extend product lines with accessories and related products.
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<PAGE>
CREEPY CRAWLERS. In 1992, the Company introduced the Creepy Crawlers brand,
a re-designed version of the classic and well-known children's toy from the
1960's. The basic product consists of a real working oven powered by a light
bulb, creature and insect molds and Plasti-Goop compound. After the Plasti-Goop
compound is poured into the mold and baked in the oven for approximately 10
minutes, it turns into a plastic toy creature. The oven is child safe and
Underwriters Laboratories approved. The Company owns or controls a number of
patents which cover the design and process of Creepy Crawlers. In 1996, Creepy
Crawlers was among the top toys identified by SESAME STREET MAGAZINE.
Since 1992, the Company has sold over three million Creepy Crawlers ovens.
Due to the Company's introduction of extension products, such as new play packs,
over 20 different molds and multi-color and textured Plasti-Goop compound,
children retain their interest in the toy for a longer than average period.
Sales of accessories, which range in price from approximately $6.00 to $13.00,
provide re-occurring sales (on average approximately four additional accessory
purchases for each oven sold).
The Company constantly strives to keep the Creepy Crawlers brand fresh and
exciting. Among the strategies followed is the application of carefully selected
licensed properties. In 1994, the Company successfully expanded the brand to
include licensed character mold sets such as POWER RANGERS, LOONEY TUNES, BATMAN
and SPIDERMAN. In 1997, the Company will market an assortment of mold packs
under the THE LOST WORLD: JURASSIC PARK license. In 1996, the Company
re-designed, re-packaged and reduced the price point of the Creepy Crawlers oven
to insure that the brand was current with pricing sensitivities and the evolving
interests of children.
Based on the success of the Creepy Crawlers brand name to date, the Company
has entered into a licensing agreement with Farley's Foods, a major candy
manufacturer, to market Creepy Crawlers Fruit Snacks. In addition to licensing
revenues which contribute to seasonal and non-seasonal revenue for the Company,
management believes that greater brand awareness amongst consumers of Creepy
Crawlers increases sales of this product line. The Fruit Snacks packaging is
also a vehicle for the Company to cost effectively implement cross-promotions.
METAL MOLDER. Introduced in 1996, the Metal Molder Die Cast Factory enables
children to create die-cast collectible figures and vehicles utilizing a child
safe electric oven, molds and metal alloy beads. Previously, there had never
been a product with this concept available in the retail market. Metal Molder
was named one of DR. TOY'S BEST CHILDREN'S VACATION PRODUCTS for 1996. The
Company has two patents pending on the Metal Molder for utility and design.
Since the product was introduced, the Company has sold over 165,000 ovens. Metal
Molder's appeal extends to boys older than the core user base for activity toys.
Based on the success of the brand, the Company has expanded the product line for
1997 to include CLASSIC CHEVROLET and THE LOST WORLD: JURASSIC PARK molding
kits. The basic Molder Die Cast Factory has a retail price of approximately
$30.00.
PRECIOUS METALS. Based upon the success of the Metal Molder Die Cast
Factory, the Company introduced the Precious Metals Boutique to retailers at Toy
Fair in February 1997 and anticipates customer shipment in the third quarter of
calendar year 1997. This product, which utilizes the same technology as Metal
Molder, is designed to appeal to girls. With the Precious Metals Boutique, girls
will be able to make die-cast metal jewelry and collectible pieces in a wide
range of traditional styles including animals, angels and contemporary shapes
like peace symbols and "best friend" heart necklaces. The retail price for this
product is approximately $30.00.
MAGIC MAKER. Magic Maker is the umbrella brand name for a complete line of
activity toys, priced to sell year round and to be merchandised together as a
category. This line consists of a range of products including TATTOO
GRAPHIX-TM-, with which children create water color based tattoos which are
removable with soap and water. This product, currently entering into its fourth
year of sales, is available in five different sets including one featuring THE
LOST WORLD: JURASSIC PARK license. This product has a retail price of
approximately $10.00. Other products include BEAUTY SOAP MAKER-TM-, a craft
activity kit which molds soap
38
<PAGE>
into a variety of shapes; BEAD ART-TM-, a craft activity kit which decorates
various shaped figures with colored beads; SUPER SEALER-TM-, LAMINATION STATION,
a product designed for laminating pictures, baseball cards and other items
children want to protect; THE EMBOSSER-TM-, an activity kit which creates a
variety of paper objects with embossed figures and lettering; MAGIC GROW-TM-
Paint activity set creates a 3-D picture; FUZZ ART-TM- activity sets allows
children to create either "fuzzy" pictures or figurines; FOIL ART-TM- activity
sets create pictures with shimmery foil; MAGIC CRYSTALS-TM-, which creates
jewelry and other items using the Magic Crystals and water; and KRINKLE ART-TM-
activity set creates a vast variety of paper creations. These products, several
of which are available in both regular and deluxe versions, are offered at
retail prices of between $5.00 and $10.00.
TOOLS. Tools fulfill a basic role-play pattern. The Company has three
distinctive product lines which address this play pattern; THE ORIGINAL
TOOLMASTER WORKSHOP, POCKETOOLS and POWER MITES. The Original Toolmaster
Workshop combines six of the most popular power tools into one childsafe
workshop which enables children to complete real woodworking projects. This
product retails for approximately $20.00. Pocketools are die cast metal,
miniaturized working replicas of a complete set of tool box tools. There are a
total of eight different tools, with a retail price of $1.99 each. Power Mites
are an assortment of junior sized, battery operated power tools, each of which
works just like a full-sized version. Power Mites are offered at retail prices
of under $10.00.
GIRLS' TOYS
The girls' fantasy play and doll marketplace is highly competitive and
promotional in nature. According to the TMA, dolls posted the largest percentage
increase in shipments over any other toy category in 1996. The Company's
strategy has been to develop products which have features that can be
demonstrated at the store level, such as through "Try Me" packaging or through
packaging visuals, rather than to compete through advertising.
TALKING TINA AND OTHER DOLLS. Talking Tina is a complete line of 11 1/2
inch talking fashion dolls and accessories. Using microchip technology which was
introduced in 1993, the Company is able to offer Talking Tina dolls which speak
one of fourteen different languages. The line is updated every year to remain
current with all of the latest fashion and style trends. The Company also offers
a complete line of soft furniture, scaled to fit Talking Tina. In addition, the
Company offers other competitive fashion dolls. The dolls retail for between
$6.00 and $10.00 and the furniture for approximately $8.00 to $10.00 per set.
TINY TWINKLES. The Tiny Twinkles product incorporates the traditionally
popular elements of motion and light into a line of 3 1/2 inch dolls. In
addition to offering moveable heads and arms, Tiny Twinkle's fiber optic
technology allows a child to light up parts of the doll with the touch of a
button. Currently, there are six assorted styles of Tiny Twinkles with retail
prices that range from approximately $5.00 to $6.00.
BRUSH N' MAGIC. Using its knowledge of microchip voice technology, the
Company recently introduced this line of 16 inch "talking" dolls. Each doll is
programmed with ten different sayings, which are activated by brushing the
doll's hair with her special brush, or holding the doll's hand. Retail prices
for the doll range from approximately $13.00 to $17.00.
BUBBLE TOTS. The Bubble Tots product is a small posable doll which blows
endless streams of bubbles and incorporates the popular play element of hair
play. The dolls are "kid-powered" requiring no batteries or external power
source for operation. These dolls are offered at retail prices of less than
$10.00.
ADULT CRAFTS AND ACTIVITIES
In 1996, the Company formed Crafts Expressions, Inc. to develop and market
adult craft and activity products. The Company believes that the adult crafts
and activities market presents an opportunity to capitalize on the Company's
success with activity toys while expanding into a new product category, thus
offering the Company a broader market segment.
39
<PAGE>
CREATIVE CASTINGS-TM-. The Creative Castings Sandstone Casting Kit allows
craft lovers to participate in the entire process of sandstone sculpting, from
designing the mold to casting the finished piece. Users can make exact replicas
of their favorite home decor items such as picture frames and wall plaques.
Creative Casting kits are sold in two sizes and offer up to twelve decorative
colors of sandstone compound. The basic kit retails for approximately $10.00
while the enhanced product retails for approximately $15.00.
LIQUID CERAMICS-TM-. Liquid Ceramics is a new compound and molding system
which allows adults to bake a special liquid, thereby creating an assortment of
decorative items. The product comes in five different craft kits, each offering
the ability to create intricate ceramic-like items such as mosaic picture
frames, solid-casted Christmas ornaments, door and drawer knobs, and other home
decoratives. Liquid Ceramics retails for between $13.00 and $20.00.
PRODUCT DESIGN AND DEVELOPMENT
The Company believes that one of its greatest strengths is in new product
development. The Company's product development efforts are led by Steven
Lebensfeld, the Company's President. Mr. Lebensfeld has worked in the toy
industry for over 20 years. In that time he has developed numerous innovative
and successful products. Based on his experience, Mr. Lebensfeld has helped the
Company to build a knowledgeable in-house product development team and a network
of independent designers to create new products. The Company's Research and
Development Department is comprised of fourteen employees. Total
Company-sponsored research and development expenses for fiscal 1995, 1996 and
1997 were $3.7 million, $2.1 million and $1.8 million, respectively and
approximately $0.3 million and $0.5 million for the three months ended June 30,
1996 and June 30, 1997, respectively.
INTERNAL DEVELOPMENT. The Company has been successful in coordinating the
efforts of its Marketing and Research and Development Departments to design and
develop the majority of its toy concepts and products. The Company combines the
disciplines of graphic design, ergonomics, engineering and child psychology to
create products which are intended to maximize the play value for children.
Further, the Company has been a leader in utilizing current technologies to
redesign and redevelop major brands and toy products from the past, E.G. Creepy
Crawlers. Internally developed products represented 82.1%, 85.2% and 81.6% of
net sales in fiscal 1995, 1996 and 1997, respectively, and 85.3% for the quarter
ended June 30, 1997. See "Business -- Products."
The Company uses several consumer market research techniques to test product
concepts and prototypes, including focus groups. In addition, the Company meets
with its largest retail customers and distributors to preview products and
determine the level of interest before production. Management believes the
involvement and commitment of the retail customers in the early stages of
product development benefit the Company and mitigates the risk of a lack of
market acceptance for new products.
The Company has issued patents and patents pending covering the following
products: Creepy Crawlers Workshop oven, Creature Creator oven, Laser Challenge
and Metal Molder.
INDEPENDENT DESIGNERS. The Company recognizes the importance of independent
designers as a source for new product concepts. As a result, the Company
continually evaluates new product ideas generated by a number of outside
designers to maintain access to a wide range of development talent. When a
product is developed based on the idea presented by an independent designer, the
Company enters into a license agreement with the designer. Typically, the
license agreement provides for the payment of royalties between 3.0% and 7.0% of
the net sales of the new product.
LICENSING
Although the Company has not significantly relied on entertainment-related
licenses, the Company has marketed and continues to market versions of its core
product lines based on licensed popular children's characters and trademarks
from major entertainment companies and other widely-known
40
<PAGE>
corporate trademarks. Currently, the Company has license agreements with
Universal Studios Licensing, Inc., for the use of the THE LOST WORLD: JURASSIC
PARK name, Disney Enterprises Inc., for the use of the 101 DALMATIANS and TOY
STORY name, and the Chevrolet Motor Division of General Motors, for the use of
the CHEVROLET, CORVETTE and CAMARO brand names. The Company intends to continue
to develop its licensed product line by targeting licensing opportunities where
it can take advantage of licensor advertising, publicity and media exposure. The
Company has also granted licenses based upon its Creepy Crawlers brand for which
it receives royalties. Currently, Farley Foods candy is marketing a Creepy
Crawlers Fruit Snack in a number of fruit flavors.
In return for the use of the licensed character or brand name, the Company
typically pays licensing fees of up to 16% of net sales from products marketed
under the subject license. Furthermore, the acquisition of a license involves
the payment of non-refundable guarantees.
Sales of products utilizing licenses accounted for approximately 12% and 10%
of the Company's net sales during fiscal 1996 and fiscal 1997, respectively, and
2.5% for the quarter ended June 30, 1997. Though development of products under
entertainment licenses can lead to ready acceptance in the marketplace, such
success may be limited by the short life cycle of most popularly licensed
characters and brand names. Accordingly, the Company generally looks to
establish a product in the marketplace prior to expanding upon the product's
success by introducing versions under licensed names.
SALES AND DISTRIBUTION
The Company's sales are comprised of (i) U.S. Domestic Sales and (ii) Toymax
HK Sales, which are comprised of sales to international retailers and
distributors and to U.S. retailers on an FOB Hong Kong basis. The following
table depicts the Company's net sales in these two categories for the last three
fiscal years:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE
FISCAL YEAR 30,
------------------------------- --------------------
(IN THOUSANDS)
-----------------------------------------------------
SALES 1995 1996 1997 1996 1997
- ------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Domestic Sales.......................................... $ 55,264 $ 26,951 $ 38,793 $ 993 $ 4,459
Toymax HK Sales.............................................. 15,359 16,671 15,890 1,686 2,632
--------- --------- --------- --------- ---------
Net Sales.................................................... $ 70,623 $ 43,622 $ 54,683 $ 2,679 $ 7,091
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
U.S. DOMESTIC SALES. The Company's U.S. sales activities are conducted
through its nationwide network of independent sales representatives and, with
respect to certain major accounts, by senior management. Comprised of more than
31 sales executives and nine sales organizations at June 30, 1997, this sales
network maintains close customer relationships, develops new accounts and
presents new products to its established customers. The Company's leading U.S.
customers (not including FOB Hong Kong sales to the U.S.) include major toy
retailers, mass merchandisers, department stores and catalog companies. See
"Business-Customers." Major toy retailers including Toys "R" Us and Kay-Bee Toys
accounted for 66.5% and 58.5% of sales in fiscal 1997 and for the quarter ended
June 30, 1997, respectively. Mass merchandisers including Wal-Mart, Kmart and
Target accounted for 26.3% and 19.8% of sales for the same periods. Department
stores and catalog companies including JC Penney and Service Merchandise
accounted for another 1.9% and 2.6% of sales in fiscal 1997 and for the quarter
ended June 30, 1997, respectively. The Company's top three U.S. Domestic
accounts for fiscal 1997, Toys "R" Us, Wal-Mart and Kay-Bee, accounted for 74.7%
of sales for Fiscal 1997. U.S. Domestic Sales constituted 78.3%, 61.8% and 70.9%
of net sales in fiscal 1995, 1996 and 1997, respectively and 37.1% and 62.9% of
net sales for the quarters ended June 30, 1996 and June 30, 1997, respectively.
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TOYMAX HK SALES. Toymax HK Sales are comprised of sales to international
retailers and distributors and to certain U.S. retailers. Such sales are
conducted on an FOB Hong Kong basis and generally require the opening of a
letter of credit. Since its inception in 1990, Toymax has emphasized
international sales, and today Toymax's products are sold in over 50 countries
worldwide. The Company's international sales network consists of 40
international distributors and nine international sales representative
organizations. For fiscal 1997, 50.8% of Toymax HK Sales were made to
distributors while the balance of such sales were made to retailers through
sales representative organizations. Management believes that the toy market in
many countries is less mature than the U.S. market and provides the Company with
significant growth opportunities. In fiscal 1995, 1996 and 1997, Toymax HK Sales
accounted for 21.7%, 38.2% and 29.1% of net sales, respectively. Toymax HK sales
accounted for 62.9% and 37.1% of net sales for the quarters ended June 30, 1996
and June 30, 1997, respectively.
The Company's international distributors are based in over 40 countries,
including Argentina, Australia, Bahrain, Belgium, Brazil, Canada, Colombia,
Costa Rica, Cypress, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador,
Finland, France, Greece, Guatemala, Hong Kong, Holland, Israel, Italy, Jordan,
Kuwait, Lebanon, Mexico, Norway, Panama, Peru, the Philippines, Portugal, Qatar,
Saudi Arabia, Singapore, South Africa, Spain, Sweden, Turkey, U.K., Uruguay and
Venezuela. Pursuant to the Company's distribution agreements, orders by most
distributors must be secured by the issuance of letters of credit to the
Company. Each of the distribution agreements generally cover one or more product
lines and have termination dates between December 1997 and December 1999.
The Company maintains "house accounts" which involve direct sales by the
Company to certain major international retailers. Such "house accounts" are not
covered by the Company's distribution agreements or sales representative
agreements. Major international retailers to which the Company sells directly
include Toys "R" Us International, Lojas Americanas, Intertoys (in Holland) and
Woolworth (in the U.K.)
SALES AND CUSTOMER SUPPORT
The Company employs a number of methods to bolster sales of its products.
Toymax encourages the consumer to contact the Company, rather than the retailer,
upon discovery of a problem with a product. In furtherance of this policy, there
is a 24 hour toll free customer service telephone line available to answer
questions related to the Company's products. In certain instances, the Company
has selectively provided price protection to retailers by making any price
reductions (i.e. discounts) effective as to certain products then held by
retailers in inventory.
CUSTOMERS
The Company made sales, directly or indirectly through distributors, to over
100 retailers in approximately 50 countries during fiscal 1997. The following
table sets forth certain of the Company's current customers:
<TABLE>
<CAPTION>
MASS
MERCHANDISERS TOY STORES DEPARTMENT STORES WAREHOUSE CLUBS CATALOG DRUG STORES
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Wal-Mart Toys "R" Us JC Penney Price Club Service CVS
Kmart Kay-Bee Toys Sears Sams Club Merchandise Rite Aid
Target FAO Schwarz Bradlees Costco
Caldor BJs
Ames
Hills
</TABLE>
The Company's top five customers accounted for approximately 69.0% and 62.6%
of the Company's net sales in fiscal 1997 and for the quarter ended June 30,
1997, respectively. Only Toys "R" Us accounted for more than 10% of net sales
during such periods.
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<PAGE>
MARKETING
The Company employs a variety of methods to market its existing and new
products. New toys, existing toys and line extensions are marketed primarily by
members of the Company's executive and sales management at the Company's
showrooms in Hong Kong and New York during major international toy shows. The
Company is represented at additional toy shows both domestically and
internationally. The Company believes that most of its current and prospective
customer base is very active at these toy shows and, therefore, the Company
spends significant resources in the development of its marketing program for
these shows.
In addition, color product catalogs are used to assist in marketing the
Company's core product lines and new product introductions. The catalogs, which
include a detailed price list, are used by the Company's sales representatives
to make follow-up customer presentations, take orders and develop new business
opportunities.
Product packaging and placement is a large part of the Company's overall
marketing strategy. The Company's products are sold in brightly colored,
eye-catching packages with strong brand identity. All packaging must meet strict
guidelines for communication effectiveness and for their ability to stand out
from the competitive clutter. Furthermore, the Company seeks prime shelf space
(including end caps and "power walls") in the stores of its major retail
customers.
The Company currently allocates a significant portion of its marketing
resources to television advertising, which it believes is the most cost
effective way to reach its primary target audience of children. The commercials
are run on national television and in local spot television markets to support
the promotional efforts and distribution patterns of its key retailers. The
Company's internal marketing team produces commercials, plans and executes media
buys in conjunction with outside consultants who are experts in their respective
fields.
The Company also relies on public relations and promotional programs to
generate excitement about its key brands. The Company currently is sponsoring
promotional demonstrations and free samples of its Laser Challenge product at
Major League Baseball games around the country, and has or currently is
participating in sampling programs with the Boys and Girls Clubs of America,
selected summer camps which belong to the American Camping Association, and is
part of a traveling road show visiting key food retailers and events around the
country. In addition, the Company has been running a Creepy Crawlers Collectors
Club for four years, and has just established the Laser Challenge League, a fan
club devoted to encouraging interest in the Laser Challenge system.
The Company has a worldwide web site (http://www.laserchallenge.com) on the
Internet which features its products and provides information about new products
including release dates. In addition, the website allows the Company to gather
important marketing information directly from consumers. Information contained
on the Company's website is not a part of this Prospectus and must not be relied
upon in evaluating the Company, its products or business or an investment in the
Common Stock offered hereby.
The Company also employs traditional marketing methods such as couponing and
in-store demonstrations adjacent to its products.
PURCHASING AND MANUFACTURING
PURCHASING
The Company currently contracts for all of its manufacturing requirements.
Management believes that this practice provides the Company with the most
efficient use of its capital at this time. Tai Nam, which is based in Hong Kong,
serves as the Company's purchasing agent pursuant to an Agency Agreement dated
April 1, 1997, as amended (the "Agency Agreement") between Tai Nam and Toymax
NY. Since the Company's founding, Tai Nam or its affiliate, Concentric Toys
Limited ("Concentric"), have served as the Company's purchasing agent. Tai Nam
and Concentric are owned by David Chu, the Chairman and a principal stockholder
of the Company. As the Company's purchasing agent, Tai Nam arranges for the
manufacturing of the Company's products based on purchase orders placed with Tai
Nam by the Company.
43
<PAGE>
In addition, Tia Nam handles all shipping documents, letters of credit, bills
and payments, serves as liaison with other vendors and performs quality control
functions. For these services, Tai Nam receives an agency fee of 7% of the gross
invoiced value of products purchased by the Company. In fiscal 1997, Concentric
served as the Company's purchasing agent and was paid agency fees of $824,992 by
the Company. For the first quarter ended June 30, 1997, the Company paid Tai Nam
agency fees of $488,124.
The Company believes that it has a favorable marketer-supplier relationship
with Tai Nam. Prior to the formation of Toymax in 1990, Steven Lebensfeld,
President of the Company, and Harvey Goldberg, the Executive Vice President of
the Company, each had a marketer-supplier relationship with Tai Nam. The Company
believes that the price, quality of merchandise, reliability, and the ability of
Tai Nam to meet the Company's timing requirements for delivery have been
comparable to, if not better than those available from unaffiliated third
parties.
The Company considers the terms of the Agency Agreement to be at least as
favorable to the Company as those which are customary in the industry. Upon the
closing of the Offering, all of the Company's affiliated transactions, including
those with Tai Nam, will be subject to the approval of the independent directors
of the Company's Board of Directors.
MANUFACTURING
As purchasing agent, Tai Nam arranges for the manufacturing of the Company's
products based on purchase orders placed with Tai Nam by the Company. The
majority of such products have been and are currently manufactured by Jauntiway
Investments Limited ("Jauntiway"). Jauntiway is an OEM toy manufacturer with two
manufacturing facilities in the southern portion of the PRC, including an ISO
9002 factory. Jauntiway is also owned by Mr. Chu. Since the Company's inception,
Jauntiway has been the Company's most important manufacturer and the Company has
been Jauntiway's leading customer. In fiscal 1997, the Company's payments to Tai
Nam and Concentric for product purchases totalled $13.5 million and $20.6
million, respectively. For the quarter ended June 30, 1997, the Company's
payments to Tai Nam for product purchases totalled $6.9 million. In fiscal 1997,
approximately 85% of the Company's products were manufactured by Jauntiway (some
utilizing subcontractors), and such production constituted approximately 85% of
Jauntiway's overall production. In the quarter ended June 30, 1997, Jauntiway
manufactured 94% of the Company's products. The Company has entered into a
Manufacturing Agreement with Tai Nam and Jauntiway dated September 22, 1997.
This agreement contains standard manufacturing terms as well as providing that
the Company shall not be required to provide a letter of credit or other
security to Tai Nam or Jauntiway in connection with its purchase orders.
Jauntiway owns two manufacturing plants in the PRC. The first is located in
Pingshan Township, Shenzhen, and the second is located in a new facility in the
Township of Qingxi, approximately 30 miles north of Hong Kong in Dongguan,
Province of Canton. The Pingshan facility was opened in 1985 and was one of the
first modern factories opened in the Pingshan which is now home to a large
number of toy factories. The Pingshan facility is a 130,000 square foot ISO 9002
factory employs up to 1,500 workers. It offers a broad array of product
development and manufacturing capabilities, including model-making, extrusion,
vacuum, blow and injection plastic molding processes, as well as assembly,
sealing and warehousing operations. Jauntiway's second facility is a new 500,000
square foot factory located in Qingxi. This factory, which opened in 1997,
provides Jauntiway with significant additional production capacity as well as
additional capabilities by virtue of its in-house mold making and tooling
capabilities and large warehouse capacity. The new factory currently employs
approximately 1,000 people and is expected to employ up to 4,000 people when
fully completed in late 1997.
The Company considers the terms it receives from Jauntiway (through Tai Nam)
to be at least as favorable to the Company as those which are customary in the
industry. Upon the closing of the Offering, all of the Company's affiliated
transactions, including those with Tai Nam and Jauntiway, will be subject to the
approval of the independent directors of the Company's Board of Directors.
Manufacturing commitments are made on a purchase order basis. The Company
bases its production schedules on customer estimates and orders, historical
trends, the results of market research and current
44
<PAGE>
market information. The actual shipments of products ordered and the order
cancellation rate are affected by consumer acceptance of the product line, the
strengths of competing products, marketing strategies of retailers and overall
economic conditions. Unexpected changes in these factors can result in a lack of
product availability or excess inventory in a particular product line. As a
result, the Company closely monitors market activity and adjusts production
schedules accordingly. The Company utilizes EDI programs maintained by certain
of its largest customers, which allows the Company to monitor actual store
inventories, and thereby to schedule its production to meet anticipated
re-orders. See "Risk Factors -- Risks Associated with Inventory Management."
Tai Nam and Jauntiway also source products or components from other
independent manufacturers located principally in the southern portion of the
PRC, particularly during peak production periods. These suppliers are selected
based on the quality of their products, prices and service. Tai Nam closely
monitors its suppliers' manufacturing operations, including quality control,
production scheduling and order fulfillment. Pursuant to the Agency Agreement,
the Company owns the tooling and molds for its products.
In June 1997, the United States extended the PRC's "MFN" status for one year
which allows products imported into the United States from the PRC to be
accorded normal import duties. The loss of Most Favored Nation status by the PRC
could result in a substantial increase in import duty for the Company's products
produced there and imported to the United States, which could adversely
materially affect the Company's business. See "Risk Factors -- Reliance on
Manufacturers Based in China; Trade Relations."
Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and accordingly, fluctuations in Hong Kong
monetary rates may have an impact on cost of goods. However, since the early
1980s, the value of the Hong Kong dollar has been tied to the value of the
United States dollar, reducing fluctuations between the two currencies. There
can be no assurance that Hong Kong dollar will continue to be tied to the United
States dollar. Furthermore, appreciation of Chinese currency values relative to
the Hong Kong dollar could increase the cost to the Company of the products
manufactured in the PRC, and thereby have a negative impact on the Company's
margins and a material adverse effect on the Company's financial condition and
results of operations. The exchange rate as of July 28, 1997 was HK$7.7398 to
US$1.00. See "Risk Factors -- Risks Inherent in International Operations."
The basic raw materials used by Jauntiway in manufacturing the Company's
products are petrochemical resin derivatives. Costs of petrochemical derivatives
are affected by demand and supply as well as the value of the United States
dollar in relation to foreign currencies, and have been subject to volatility in
recent years. There can be no assurance as to the timing or extent to which the
Company will be able to pass on any raw material price increases to its
customers.
In addition, a large portion of Jauntiway's petrochemical derivates are
imported from Taiwan via Hong Kong. Any disruption of trade between Taiwan and
the PRC may have a significant adverse impact on Jauntiway's operations and
therefore could have a significant adverse impact on the Company's results of
operations. See "Risk Factors- Reliance on Single Affiliated Manufacturer and
Potential Conflict of Interest" and "--Partial Reliance on Imports from Taiwan."
COMPETITION
The toy industry is highly competitive. Competition within the industry is
based on consumer preferences, order fulfillment, pricing and new product
development. In recent years, the toy industry has experienced rapid
consolidation, evidenced most recently by the acquisition of Tyco by Mattel. The
Company competes with many toy companies that have greater financial resources,
greater name recognition, larger sales, marketing and product development
departments and greater economies of scale. The largest United States toy
companies are Mattel and Hasbro. In addition, the Company considers Tiger
Electronics, Rose Art and Toy Biz, Inc. ("Toy Biz") to be among its major
competitors. Due to the low barriers to entry into the toy industry, the Company
also competes with smaller domestic and foreign toy manufacturers, importers and
marketers.
45
<PAGE>
The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toys stores and
discount retailers, including Toys "R" Us, Wal-Mart, Kmart and Target, which
have increased their overall share of the retail market. This consolidation has
resulted in an increased reliance among retailers on the large toy companies
because of their financial stability and ability to support products through
advertising and promotions and to distribute products on a national basis. Such
consolidation may have a negative impact on the ability of smaller toy
manufacturers such as the Company to compete. See "Risk Factors -- Changes in
the Retail Industry."
SEASONALITY
Traditionally, the toy industry is a third and fourth calendar quarter
business. As such, the Company is subject to the seasonal nature of the
industry. In order to minimize its dependence on third and fourth quarter
calendar sales, the Company seeks to expand into product categories which are
traditionally popular in the first and second calendar quarters. Currently, the
Company markets the Toss 'N Splatter-TM-, Quick Bombs-TM-, Ballerina Shower
Tower-TM-, Laser Challenge accessories and Bubble Tots in an effort to boost
sales in this traditionally weak time of year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
BACKLOG
The Company generally ships products to customers within three to six months
of the date an order is received. The Company's backlog, at August 31, 1997, was
approximately $39.4 million, compared to $24.3 million at August 31, 1996.
Because customer orders may be cancelled at any time without penalty, the
Company believes that backlog may not accurately indicate sales for any future
period. See "Risk Factors -- Risks Associated with Inventory Management."
GOVERNMENT AND INDUSTRY REGULATION
The Company is subject to the provisions of the Federal Hazardous Substances
Act, Federal Consumer Product Safety Act, the Flammable Fabrics Act and the
regulations promulgated under each such act. Such Acts empower the CPSC to
protect the public from hazardous goods. The CPSC has the authority to exclude
from the market goods that are found to be hazardous and require a manufacturer
to repurchase such goods under certain circumstances. The Company sends samples
of all of its marketed products to independent laboratories to test for
compliance with the CPSC's rules and regulations, as well as with the product
standards of the TMA. The Company is not required to comply with the product
standards of the TMA, but voluntarily does so. Similar consumer protection laws
exist in state and local jurisdictions within the United Sates as well as
certain foreign countries. The Company designs its products to exceed the
highest safety standards imposed or recommended either by government or industry
regulatory authorities. To date, the Company has not been found to be in
material violation of any governmental product standard with respect to the
Company's products.
The Company is not required by the U.S. government to obtain any quality or
safety approvals prior to sales in the U.S. However, prior to shipment, the
Company's products are tested by independent laboratories on behalf of the
Company and major retailers. The Company, however, is required to have and has
obtained CE approval, European's toy safety Standard, for its products sold in
Europe. In addition, the Company, together with Tai Nam, has obtained the
Chinese quality license for export commodities from the Chinese Import and
Export Commodity Inspection Bureau. Such license will expire on June 28, 1999.
INSURANCE
The Company currently maintains product liability insurance and an umbrella
liability policy. However, though the Company maintains what it considers to be
adequate insurance, any successful claim could materially and adversely affect
the reputation, prospects and results of operations of the Company. A successful
claim against the Company's insurance coverage could have a material adverse
effect on the Company's business and operations.
46
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TARIFFS AND DUTIES
In December 1994, the United States approved a trade agreement pursuant to
which import duties on toys, games, dolls and other specified items were
eliminated effective January 1, 1995 from products manufactured in all MFN
countries (including the PRC). Increases in quotas, duties, tariffs or other
changes or trade restrictions which may be imposed in the future would have a
material adverse effect on the Company's financial condition, operating results
or ability to import products. In particular, the Company's costs would be
increased if the PRC's MFN status is revoked. The loss of MFN status for the PRC
would result in substantial duties on the cost of toy products manufactured in
the PRC and imported into the United States.
In 1996, the United States government proposed retaliatory trade sanctions
against the PRC, which would have included increased duties on selected
products, but would not have included the Company's products originating in the
PRC. The United States and PRC eventually agreed on settlement terms avoiding
these sanctions. Any future imposition of trade sanctions by the United States
and subsequent retaliatory actions by the Chinese government could result in
supply disruptions and higher merchandise costs to the Company. The Company
could attempt to mitigate the effects of an increase in duties by shifting its
manufacturing to other countries, but there can be no assurance that the Company
would be successful in this regard. See "Risk Factors--Reliance on Manufacturers
Based in China; Trade Relations."
In February 1997, the European Union (the "EU") adopted quotas on the
importation of certain toys as well as other products manufactured in China.
Such restriction has no effect on the Company's operations. On the other hand,
in 1995, Canada eliminated its tariffs on all dolls and most toy categories,
with the exception of certain toy sets and board games which will have their
duties eliminated over 10 years. Both the EU and Japan began implementing
Uruguay Round tariff reductions that, by 1999, will lower tariffs on several
other toy categories over a period of 10 years.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company owns or controls numerous patents and trademarks which limit the
ability of third parties to directly compete with Company in its major brands.
Key patents cover both the Creepy Crawlers Workshop oven as well as the Creature
Creator oven. Key trademarks include Creepy Crawlers-Registered Trademark-,
Plasti-Goop-Registered Trademark-, Talking Tina-Registered Trademark-, Laser
Challenge-TM-, Metal Molder-TM-, Tattoo Graphix-Registered Trademark- and Magic
Maker-Registered Trademark-. The Company has patents pending with regard to the
Metal Molder and Laser Challenge product lines.
Certain of the Company's product lines also incorporate concepts or
technologies created by outside designers, some of which are patented by such
licenses. In addition, many of the Company's products incorporate intellectual
property rights, such as characters or brand names, that are proprietary to
third parties. The Company typically enters into a license agreement to acquire
the rights to the concepts, technologies or other rights for use with the
Company's products. These license agreements typically provide for the retention
of ownership of the technology, concepts or other intellectual property by the
licensor and the payment of a royalty to the licensor. Such royalty payments
generally are based on the net sales of the licensed product for the duration of
the license and, depending on the revenues generated from the sale of the
licensed product, may be substantial. In addition, such agreements often provide
for an advance payment of royalties and may require the Company to guarantee
payment of a minimum level of royalties that may exceed the actual royalties
generated from net sales of the licensed product. Some of these agreements have
fixed terms and may need to be renewed or renegotiated prior to their expiration
in order for the Company to continue to sell the licensed product.
To protect its proprietary know-how and technology, the Company requires its
employees and consultants to execute confidentiality agreements that prohibit
the disclosure of confidential information to anyone outside the Company. These
agreements also require disclosure and assignment to the Company of discoveries
and inventions made by such persons while employed by the Company. There can be
no assurance that these agreements will not be breached, that the Company will
have adequate remedies for
47
<PAGE>
any such breach or that the Company's confidential information will not
otherwise become known or be independently developed by competitors or others.
PROPERTY
The Company leases approximately 20,000 square feet of space in Plainview,
New York for its corporate offices. The lease has an annual rental obligation
which ranges from $315,000 in the first year to $365,171 in the sixth year,
followed by a decrease to $313,620 in the seventh year. This lease expires on
April 30, 2004.
In addition, the Company leases approximately 3,270 square feet of space at
the Toy Center-200 Fifth Avenue, New York, New York, to house its New York City
Showroom facilities. This lease has an annual rental obligation of $115,020 and
expires on April 30, 2003.
The Company rents approximately 1,628 square feet of space in Kowloon, Hong
Kong from David Chu, Chairman of the Company, which it uses as showroom
facilities. The monthly rent under this lease is $5,900 (HK $45,584). The lease
expires on August 1, 1998.
Pursuant to a lease expiring on September 30, 1997, the Company leases
approximately 48,943 square feet of space in Westbury, New York for warehousing
purposes. The lease has an annual rental obligation of $60,000.
The Company utilizes public warehousing facilities in Long Beach, California
and Tacoma, Washington and is charged based upon its usage of the facilities.
EMPLOYEES
At June 30, 1997, the Company had 54 full time employees based at its
Plainview, New York, headquarters. Of these, 23 of such employees worked in
operations and research and development, 17 worked in sales and marketing and 14
worked in finance and administration. The Company is not subject to any
collective bargaining agreements. Management believes that the Company's
relationship with its employees is satisfactory.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings and claims incident to
the normal conduct of its business. The Company believes that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations.
In April 1997, Link Group International, a developer of toy games, filed a
complaint against the Company in the United States District Court for the
District of Connecticut, alleging breach of express and implied contracts,
unjust enrichment, misappropriation, conversion and tortious interference with
contract and seeking damages of $1.0 million. The substance of the allegations
are that the Company orally agreed to pay royalties to Link Group relating to a
laser action game allegedly conceived by Link Group, and then developed its own
game using ideas provided by Link Group. Upon motion to the court, the Company
has been granted an extension for its response. The Company intends to defend
the action vigorously, though there can be no assurance as to the outcome of
this lawsuit.
In April 1996, the Company filed a complaint against Saban Entertainment,
Inc. and Saban International, NY in the United States District Court for the
Southern District of New York. The Company alleged eight claims of breach of
contract and misrepresentation, seeking compensatory damages of $20 million. The
substance of the Company's allegations are that the defendants failed to
properly promote the Creepy Crawlers cartoon series in Europe, and failed to
adequately market the Creepy Crawlers property, as was required by an agreement
between the two parties. In addition, the Company alleged three claims of
misrepresentation and breach of contract, arising from the defendants alleged
breach of a license agreement between the parties. In connection with these
additional claims, the Company sought $2 million. In July 1996, the defendants
filed counterclaims against the Company, alleging breach of contract, an
accounting, a constructive trust, unjust enrichment and conversion, seeking in
excess of $750,000.
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Discovery in these matters is ongoing and the Company intends to prosecute and
defend these actions vigorously.
In November 1996, 4Kids Entertainment, Inc. ("4Kids") filed a complaint
against the Company in the Supreme Court of New York, New York County, alleging
breach of a Representation Agreement between the parties and seeking unspecified
damages. 4Kids alleges that the Company failed to pay royalties on a licensing
agreement with a candy manufacturer that 4Kids had allegedly procured for the
Company. In January 1997, the Company filed a counterclaim seeking $1.5 million
in damages, alleging breach of the Representation Agreement and fraudulent
misrepresentation. The Company intends to defend and prosecute these actions
vigorously.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and certain other key employees of Toymax
are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David Ki Kwan Chu.................................... 50 Chairman of the Board
Steven A. Lebensfeld................................. 44 President and Director
Harvey Goldberg...................................... 45 Executive Vice President and Director
Kenneth Price........................................ 35 Senior Vice President--Sales and Marketing
Carmine Russo........................................ 38 Chief Operating Officer
Andrew B. Stein...................................... 43 Vice President--International Sales
Amy L. Weltman....................................... 47 Vice President--Marketing
William A. Johnson, Jr............................... 44 Chief Financial Officer and Treasurer
Sanford B. Frank..................................... 44 General Counsel and Secretary
Jonathan Muir........................................ 36 Controller
Oren Asher........................................... 44 Director-elect*
Joel M. Handel....................................... 61 Director-elect*
</TABLE>
- ------------------------
* Prior to the consummation of the Offering, Messrs. Asher and Handel will be
appointed to the Company's Board of Directors.
The business experience, principal occupations and employment, as well as
period of service, of each of the directors, executive officers and certain
other key employees of the Company during at least the last five years are set
forth below.
DAVID KI KWAN CHU, CHAIRMAN OF THE BOARD. Mr. Chu is a co-founder of Toymax
and has served as Chairman of Toymax (H.K.) Limited since its inception in 1990.
In this capacity, Mr. Chu, who is based in Hong Kong, is the senior executive in
charge of all of the Company's sourcing, manufacturing and strategic planning
activities. Mr. Chu became involved in the toy industry in 1966 when he joined
his father's plastic manufacturing plant. Under his influence, the manufacturing
plant diversified into the toy business. In 1972, he was named president of his
father's company and grew the manufacturing plant into one of Hong Kong's
leading OEM toy manufacturers. Mr. Chu serves as Chairman of Pingshan
Manufacturing Association, a local federation organized by a group of
manufacturers operating factories in Pingshan, and as the Vice Chairman of
Shenzhen Toys Association, a quasi-governmental organization devoted to
fostering toy industry development in China's Shenzhen Special Economic Zone.
Mr. Chu and his wife, Francis Shuk Kuen Leung, own and manage Tai Nam, the
Company's purchasing agent, and Jauntiway, the Company's leading manufacturer.
See "Business--Purchasing and Manufacturing" and "Certain Relationships and
Related Transactions."
STEVEN A. LEBENSFELD, PRESIDENT AND DIRECTOR. Mr. Lebensfeld is a
co-founder of Toymax and has served as the President and a Director of Toymax
Inc. since May 1990 and as a director of Toymax (H.K.) Limited since December
1995. Mr. Lebensfeld is the senior executive in charge of the Company's toy
design and development activities. In his 20 years of experience in the toy
industry, Mr. Lebensfeld has an
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extensive track record of founding and growing small businesses. In addition,
Mr. Lebensfeld holds over 13 patents for toy design as well as process
technologies. In 1992, he was responsible for the revitalization of the Creepy
Crawlers trademark, creating a core brand of activity products. Prior to his
involvement with Toymax, Mr. Lebensfeld founded and was President of Toy Biz
from 1987 to 1989. During his tenure there, Mr. Lebensfeld was responsible for
the exclusive arrangement of Toy Biz to license the rights for action figures
and accessories from the first Batman movie from Warner Bros. and for SPIDERMAN
and X-MEN action figures and accessories from the Marvel Comics group. Mr.
Lebensfeld started the Kidworks (H.K.) Ltd., FOB division of Panosh Place, Inc.
("Panosh") in 1985, and was responsible for the development of character
licensed product in Hong Kong which was distributed worldwide. In 1986, Mr.
Lebensfeld moved to the domestic side of Panosh's operations and created
successful product lines such as Zap-It and Laser Combat. Between 1984 and 1986,
Mr. Lebensfeld was Managing Director of HG Toys (H.K.) Ltd. During this time, he
created numerous toy product lines incorporating key licenses, such as CABBAGE
PATCH KIDS and DISNEY CLASSICS. These licenses were the cornerstone of the
international and domestic sales for the company, whose sales grew to $12
million in two years. Between 1979 and 1984, Mr. Lebensfeld was affiliated with
Regent Toys, a company he and Mr. Goldberg founded.
HARVEY GOLDBERG, EXECUTIVE VICE PRESIDENT AND DIRECTOR. Mr. Goldberg is a
co-founder of Toymax. He has been a director of Toymax (H.K.) Limited since
December 1995 and has served as Executive Vice President of Toymax Inc. since
September 1995. In this capacity, Mr. Goldberg is the senior executive in charge
of all of the Company's sales activities and both of Toymax's domestic and
interntional vice presidents of sales report to him. Prior to joining Toymax,
Mr. Goldberg served as a senior sales and marketing executive for Toy Biz, H-G
Toys (HK) Ltd., Regent Toys, H-G Canada and Grand Toys. Mr. Goldberg is a
director of MGI Software Corp., a public company traded on the Canadian
over-the-counter market.
KENNETH PRICE, SENIOR VICE PRESIDENT OF SALES AND MARKETING. Mr. Price is a
co-founder of Toymax. From its inception in May 1990 through September 1995,
Mr. Price served as Secretary of Toymax Inc., as well as holding key sales and
marketing positions with the Company. From September 1995 through May 1996, Mr.
Price served as Vice President of Sales and Marketing. Since May 1996, Mr. Price
has served as Senior Vice President of Sales and Marketing. In such capacity,
Mr. Price is in charge of the day-to-day domestic sales activities including
working directly with Toys "R" Us and Kay-Bee Toys and managing the Company's
domestic sales representative firms. Mr. Price supervises the Company's domestic
sales and marketing activities and is closely involved in the development and
distribution of Toymax's promotional television commercial advertising. Mr.
Price is also the Company's senior executive in charge of securing, negotiating
and maintaining licenses. Prior to joining Toymax, Mr. Price served as a
marketing and sales executive for Toy Biz and H-G Toys (HK) Ltd.
CARMINE RUSSO, CHIEF OPERATING OFFICER. Mr. Russo has served as Chief
Operating Officer for the Company since April 1997. In this capacity, Mr. Russo
reports directly to Mr. Lebensfeld and is responsible for the day-to-day
management of all operational and research and development activities including
design, development, purchasing, sourcing, production, shipping, and
warehousing. Prior to that position, Mr. Russo served as Vice President of
Operations and R&D for Toymax from December 1994 through March 1997. From
December 1987 to December 1994, Mr. Russo held various senior management
positions at Buddy L, a subsidiary of SLM International where he served as
Senior Vice President-Operations and was a member of their Operating Committee.
In this position, Mr. Russo was in charge of all Far East Operations for the
company, including toys, sporting goods, fitness products and apparel. Before
joining Buddy L, Mr. Russo was a development and production executive for H-G
Toys from January 1984 to November 1987. In this capacity, Mr. Russo lived in
Hong Kong and ran the Far East Operations for H-G Toys.
ANDREW B. STEIN, VICE PRESIDENT OF INTERNATIONAL SALES. Mr. Stein has
served as Vice President of International Sales for Toymax since March 1993. In
this capacity, Mr. Stein is responsible for managing all
51
<PAGE>
of the day-to-day international sales activities, including calling on existing
customers, developing new business accounts, managing sales representative firms
and working closely with the Company's research and development department in
connection with the development of new products. From December 1990 to March
1993, Mr. Stein served in a similar capacity at Tyco Playtime where he
contributed to the increase in international sales from $3 million to $12
million. Prior to that, Mr. Stein served as Vice President of International
Sales and Marketing at Nasta International. Mr. Stein has also served as an
executive for H-G Toys, Inc., Amtoy and Ideal Toy Corporation.
AMY L. WELTMAN, VICE PRESIDENT--MARKETING. Ms. Weltman has served as Vice
President of Marketing of Toymax Inc. since January 1996. Ms. Weltman has
day-to-day responsibility for advertising, public relations, licensing, sales
promotion, marketing and merchandising programs, and research. She is involved
in the development and execution of brand strategies, and in short and long term
strategic planning and product development. Prior to serving as Vice President
for the Company, Ms. Weltman served as a consultant to Toymax from July 1994 to
December 1996. From 1982 to 1994, Ms. Weltman was Senior Vice President of
Account Services at TSR Advertising, where she was responsible for the following
accounts; Galoob Toys, Cap Toys, CBS Toys and Ideal Toys. Ms. Weltman was
awarded an EFFIE from the American Marketing Association for her work on the
Micro Machines brand and is a member of the Board of Directors of Women In Toys.
WILLIAM A. JOHNSON, JR., CHIEF FINANCIAL OFFICER AND TREASURER. Mr. Johnson
has served as Chief Financial Officer and Treasurer of the Company since March
1997. In this capacity, Mr. Johnson is the senior executive in charge of the
Company's finance, treasury, accounts receivable, customer service department,
as well as all MIS functions. From July 1987 to January 1997, Mr. Johnson was
employed by Noodle Kidoodle, Inc., ("Noodle Kidoodle") and from May 1989, served
as Vice President, Chief Financial Officer and Secretary. Noodle Kidoodle is a
NASDAQ traded company currently operating a retail toy business specializing in
educationally oriented products. Under its former name, Greenman Bros. Inc., the
company operated as many as 330 retail specialty toy stores and was the largest
distributor of toy, houseware and stationery products to retailers in the United
States. Mr. Johnson was responsible for all corporate financial functions and
administration including Securities and Exchange Commission and shareholder
relations matters. From January 1976 to April 1982, and then again from January
1987 to July 1987, Mr. Johnson was employed by Deloitte & Touche, serving in
various capacities, most recently as Audit Manager and Consultant. From July
1982 to January 1987, Mr. Johnson was employed by Associated Dry Goods (ADG) as
Divisional Vice President of Corporate Accounting. ADG was a $5 billion retail
holding company that owned Lord & Taylor, Caldor, Loehmann's and other
department store operations. ADG was purchased by May Department Stores in late
1996.
SANFORD B. FRANK, GENERAL COUNSEL AND SECRETARY. Mr. Frank has served as
General Counsel for the Company since April 1994 and as Secretary since
September 1995. In this capacity, Mr. Frank reports directly to Mr. Lebensfeld
and is responsible for overseeing all legal affairs of the Company. Prior to
joining Toymax, Mr. Frank served as Vice President and General Counsel for Tyco
Playtime, a division of Tyco, from September 1990 to December 1993. From 1980 to
1990, Mr. Frank was in private practice.
JONATHAN MUIR, CONTROLLER. Mr. Muir has served as controller of Toymax Inc.
since July 1995. In this capacity, Mr. Muir is responsible for the day-to-day
operations of the Finance Department including the preparation of financial
statements, budgets and forecasts, accounting, accounts payable and accounts
receivables. Mr. Muir joined Toymax in September 1993 as Assistant Controller.
Prior to his association with Toymax, Mr. Muir served as Controller of
Balducci's Inc. from 1989 to 1993.
OREN ASHER, DIRECTOR. Mr. Asher has been the Chairman of MGI Software Corp.
("MGI"), a leading developer of photo and video software, since January 2, 1996.
Prior to joining MGI, Mr. Asher was President and CEO of Ditek Software Corp., a
graphics software development company which he founded in 1985 and which
specializes in computer-aided design and drafting (CADD). Mr. Asher continues to
hold the office of Chairman with Ditek Software Corp.
52
<PAGE>
JOEL M. HANDEL, DIRECTOR. Mr. Handel has been a partner in the law firm of
Baer Marks & Upham LLP, which serves as counsel to the Company, since 1968. From
April 1987 through March 1997, Mr. Handel was a member of the Board of Directors
of Tyco Toys, Inc., a company for which Baer Marks & Upham LLP also served as
counsel.
The Board of Directors currently consists of three members. Prior to the
closing of the Offering, Messrs. Asher and Handel will be appointed to the Board
of Directors. Neither of Mr. Asher nor Mr. Handel is an officer or employee of
the Company or any of its affiliates. Following the completion of the Offering,
the Company intends to appoint two additional independent directors to the Board
of Directors, each of whom shall be satisfactory to the Company and Fahnestock.
The Company's Board of Directors will be divided into three classes.
Directors of each class will be elected at the annual meeting of stockholders
held in the year in which the term for such class expires and will serve
thereafter for three years. Having a classified Board of Directors may be viewed
as inhibiting a change of control in the Company and impeding an attempt to take
over the Company. See "Description of Securities--Delaware Law and Certain
Charter and By-law Provisions."
COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS
Directors of the Company who are not officers or full-time employees of the
Company will each receive annual compensation of $12,000 and each will be
granted options to purchase up to 15,000 shares of Common Stock under the Stock
Option Plan.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The functions of the Audit Committee are to recommend annually to the
Board of Directors the appointment of the independent auditors of the Company,
review the scope of their annual audit and other services they are asked to
perform, review the report on the Company's financial statements following the
audit, review the accounting and financial policies of the Company, review
management's procedures and policies with respect to the Company's internal
accounting controls and review related party transactions. Effective upon the
closing of the Offering, the members of the Audit Committee will be Messrs. Chu,
Asher and Handel. The two additional independent directors who will be appointed
to the Board of Directors following completion of the Offering will also become
members of the Audit Committee.
The functions of the Compensation Committee are to set compensation levels
and employee benefits of all officers of the Company. The Compensation Committee
administers and makes awards under the Stock Option Plan. Effective upon the
closing of the Offering, the members of the Compensation Committee will be
Messrs. Chu, Asher and Handel.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the fiscal year ended March
31, 1997 by the Chief Executive Officer and the Company's four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 during any such year.
53
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------
<S> <C> <C> <C> <C> <C>
OTHER
ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ------------------------------------------------------ ------ --------- --- ----------- ---------
David Ki Kwan Chu, Chairman (1)....................... 1997 $ 0 0 $240,000 $ 0
Steven A. Lebensfeld, President....................... 1997 $ 253,500(2) -- 6,000(3) 867
Harvey Goldberg, Executive Vice President............. 1997 $ 240,300(2)(4) -- 6,000(3) 544
Kenneth Price, Senior Vice President.................. 1997 $ 265,000 -- 6,500(3) 399
Carmine Russo, Chief Operating Officer................ 1997 $ 160,000(2) -- 6,000(3) 268
</TABLE>
- ------------------------
(1) Mr. Chu received no salary from the Company but did receive directors fees
of $240,000.
(2) Commencing April 1, 1997, the salaries of Mr. Lebensfeld, Mr. Goldberg and
Mr. Russo were increased to $300,000, $300,000 and $185,000, respectively.
(3) Constitutes car allowances.
(4) Mr. Goldberg's salary in fiscal 1997 included $157,000 in directors fees
from Toymax HK.
EMPLOYMENT AGREEMENTS
Prior to the closing of the Offering, the Company intends to enter into
separate employment agreements effective October 1, 1997 with Messrs.
Lebensfeld, Goldberg, Russo, Price, Johnson and Stein (individually and
collectively, the "Employment Agreements"). The Employment Agreements with
Messrs. Lebensfeld and Goldberg each have a term of three years with annual
automatic one-year extensions unless six months advance notice of nonextension
is furnished by either party. The Employment Agreements with Messrs. Russo and
Price each has a term of three years with one-year automatic extensions unless
two months advance notice of nonextension is furnished by either party. The
Employment Agreements with Messrs. Johnson and Stein each has a term of two
years.
Pursuant to the Employment Agreements, Messrs. Lebensfeld, Goldberg, Price,
Russo, Johnson and Stein will receive base salaries of $315,000, $315,000,
$278,250, $265,000, $155,000, and $185,000, respectively, and are entitled to
participate in the Executive Bonus Plan and the Stock Option Plan. Messrs.
Lebensfeld's and Goldberg's Employment Agreements provide for a 10% (or greater,
as determined by the Board of Directors of the Company) increase in base salary
effective January 1, 1999 and each subsequent January 1 of the term thereof. The
Employment Agreements with Messrs. Russo and Price provide for a 5% (or greater,
as determined by the Board of Directors of the Company) increase in base salary
effective January 1, 1999 and each subsequent January 1 of the term thereof.
Each of the Employment Agreements with Messrs. Lebensfeld and Goldberg also
provide an annual "Stock Appreciation Bonus" of 1% of the appreciation of the
value of the outstanding common stock of the Company during the immediately
preceding year.
Under the Employment Agreements, the Company may terminate each executive
officer's employment upon notice to the executive officer. Each executive
officer may resign and terminate the Employment Agreement at any time. If the
executive officer's employment is terminated at death, or by resignation or for
"Good Cause" (as defined in the applicable Employment Agreement) the Company has
no obligation to the executive except for payment of compensation and benefits
accrued but unpaid at the time of termination.
In the cases of Messrs. Lebensfeld and Goldberg, if during the term of the
applicable Employment Agreement, the Company terminates the executive officer's
employment without "Good Cause" or if the
54
<PAGE>
executive officer resigns with "Good Reason" (as defined in the applicable
Employment Agreement), in addition to accrued but unpaid compensation and
benefits, the executive officer is entitled to the payment of his base salary
and continued participation in the Executive Bonus Plan, payment of the Stock
Appreciation Bonus, and medical, health, dental and life insurance coverage for
the remaining term of the applicable Employment Agreement. In the cases of
Messrs. Russo, Price, Johnson and Stein, if during the term of the applicable
Employment Agreement, the Company terminates the executive officer's employment
without "Good Cause," in addition to accrued but unpaid compensation and
benefits, the executive officer is entitled to the payment of his base salary
for twelve months (six months in the cases of Messrs. Johnson and Stein)
following termination of employment.
The Employment Agreements with Messrs. Lebensfeld, Goldberg, Russo, Price
and Johnson provide for enhanced compensation in the event of termination of
employment in the context of a "Change of Control" of the Company, as defined in
the applicable Employment Agreement. Under each of these Employment Agreements,
a Change of Control includes (i) the acquisition by a person or group of 20% or
more of the Company's voting stock, (ii) a merger or consolidation resulting in
a change in ownership of at least 80% of the Company's voting stock, and (iii)
the sale of substantially all of the Company's assets. Under the Employment
Agreements with Messrs. Lebensfeld and Goldberg, in addition to the events
described above, a Change of Control also includes (a) the Company or its
shareholders entering into an agreement to perform a transaction described
above, if such transaction is ultimately consummated, and (b) circumstances
under which individuals who, as of the date the Employment Agreements are
adopted constitute the Board of Directors of the Company, cease for any reason
to constitute at least a majority thereof, unless the election of each new
director was approved by a majority of the directors then still in office who
were directors as of the date the Employment Agreements were adopted. The
Employment Agreements with Messrs. Russo and Price provide that, in the event
that following a Change of Control (as defined in the applicable Employment
Agreement), the executive officer's employment is terminated without Good Cause,
in lieu of the twelve months' continuation of base salary otherwise due the
executive officer on account of termination without Good Cause, the executive
officer is entitled to 24 months' continuation of base salary. Mr. Johnson's
Employment Agreement provides that in the event he is terminated without Good
Cause following a Change of Control (as defined in the applicable Employment
Agreement), he is entitled to a total of twelve months' continuation of base
salary, rather than six months'.
The Employment Agreements with Messrs. Lebensfeld and Goldberg provide that
in the event that the executive officer resigns within six months following a
Change of Control (as defined in the applicable Employment Agreement), or
following a Change of Control, the executive officer's employment is terminated
without Good Cause, then in lieu of the continuation of base salary due the
executive officer (but in addition to all other compensation and benefits due in
the event of termination for Good Reason or without Good Cause), the executive
officer is entitled to (1) a lump sum cash payment equal to three times his
average compensation (i.e., base salary, Stock Appreciation Bonuses and
Executive Bonus Plan awards) for the two prior calendar years, and (2) an amount
equal to any additional income and excise taxes that will be payable by the
executive officer on account of "excess parachute payments" (within the meaning
of Section 280G of the Internal Revenue Code).
1997 STOCK OPTION PLAN
Prior to the closing of the Offering, it is expected that the Board of
Directors will have adopted and the stockholders of the Company will have
approved the Stock Option Plan. The Stock Option Plan will provide for the grant
to qualified employees (including officers and directors) of the Company of
options to purchase shares of Common Stock. A total of 750,000 shares of Common
Stock will be reserved by the Company for issuance upon exercise of stock
options granted or which may be granted under the Stock Option Plan.
The Stock Option Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee has complete discretion to
select the optionee and to establish the terms and conditions of each option,
subject to the provisions of the Plan. Options granted under the Stock Option
Plan may or may not be "incentive stock options" as defined in Section 422 of
the Code ("Incentive Options") depending upon the terms established by the Board
or Committee at the time of
55
<PAGE>
grant, but the exercise price of Incentive Options granted may not be less than
100% of the fair market value of the Common Stock as of the date of the grant
(110% of the fair market value if the grant is an Incentive Option to an
employee who owns more than 10% of the outstanding voting power of the Company).
Options may not be exercised more than 10 years after the grant (five years if
the grant is an Incentive Option to any employee who owns more than 10% of the
outstanding voting power of the Company). Options granted under the Stock Option
Plan are not transferable and may be exercised only by the respective grantees
during their lifetime or by their heirs, executors or administrators in the
event of death. Under the Stock Option Plan, shares subject to cancelled or
terminated options will be reserved for subsequently granted options. The number
of options outstanding and the exercise price thereof will be subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.
Prior to the closing of the Offering, the Company intends to grant options
to purchase an aggregate of 414,000 shares of Common Stock under the Stock
Option Plan to officers, directors and other employees of the Company. Messrs
Chu, Lebensfeld, Goldberg, Price, Russo, Stein and Johnson will receive options
to purchase 60,000, 60,000, 60,000, 46,000, 46,000, 28,000 and 28,000 shares of
Common Stock, respectively. In addition, Directors of the Company who are not
officers or full-time employees (Messrs. Asher and Handel) will each receive
options to purchase 15,000 shares of Common Stock. Options granted to executive
officers will vest 20% per year over a five year period commencing on the date
of the grant. Options granted to Messrs. Asher and Handel will vest 50% per year
over a two year period commencing on the date of the grant.
EXECUTIVE BONUS PLAN
Prior to the closing of the Offering, it is expected that the Board of
Directors will have adopted, and the shareholders will have approved, the Toymax
International, Inc. Executive Bonus Plan (the "Bonus Plan"). The primary purpose
of the Bonus Plan is to enable the Company to attract, motivate and retain key
management employees upon whose judgment, initiative and efforts the Company's
successful conduct, development and growth depend.
The Bonus Plan will be administered by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
will determine whether to maintain the Bonus Plan with respect to any fiscal
year of the Company, the key management employees of the Company who will be
eligible to participate in the Bonus Plan for such fiscal year, and the amount,
if any, of each participant's award under the Bonus Plan for such fiscal year,
based on such participant's performance during such year. The aggregate amount
of awards made under the Bonus Plan for a fiscal year may not exceed an amount
equal to (i) 15% percent of the profit of the Company and its designated
affiliates for such year (determined before taxation and Bonus Plan awards),
reduced by (ii) 15% of the shareholders' equity of the Company and such
affiliates during such year, all as determined by the Compensation Committee
(the "Bonus Pool"). In addition, no award under the Bonus Plan may exceed the
lesser of (i) 75% of the participant's base salary for the fiscal year for which
the award is being made, or (ii) the participant's target percentage of the
Bonus Pool for such fiscal year.
Any awards under the Bonus Plan are paid, in cash, during the first pay
period in June following the close of the fiscal year of the Company for which
the Bonus Plan is maintained. Unless otherwise agreed in a writing between the
Company and the participant, awards may be paid only to a participant who was an
employee in good standing on the last day of such fiscal year, or, at the
discretion of the Compensation Committee, who terminated employment prior to
such date due to death, permanent and total disability or retirement after age
65.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of 2,700,000 shares of Common Stock offered by the
Company hereby, certain information, with respect to the beneficial ownership of
Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each director, (ii) each executive
officer named in the Summary Compensation Table and (iv) all directors and
executive officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
OWNED
------------------------
<S> <C> <C> <C>
AMOUNT AND NATURE OF
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1)(2) OFFERING OFFERING
- ----------------------------------------------------------------------- -------------------- ----------- -----------
David Ki Kwan Chu(3)(6)................................................ 4,330,083 57.7% 42.5%
Steven Lebensfeld(4)................................................... 1,312,500 17.5 12.9
Harvey Goldberg(4)(5).................................................. 70,667 0.9 0.7
Goldberg Family Trust(7)............................................... 1,241,883 16.6 12.2
Frances Shuk Kuen Leung (3)(6)......................................... 4,330,083 57.7 42.5
Kenneth Price.......................................................... 225,000 3.0 2.2
Carmine Russo.......................................................... 18,750 0.3 0.2
All directors and executive officers as a group (8 persons)............ 5,962,000 79.5% 58.5%
</TABLE>
- ------------------------
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that
are held by such person (but not those held by any other person) are
exercisable within 60 days from the date hereof have been exercised.
(2) The equity accounts of the Company have been retroactively adjusted to
reflect a recapitalization to effect a stock split of 16.67 shares of Common
Stock, par value $0.01, for one share of Common Stock, par value $0.01.
(3) Mr. Chu's and Ms. Leung's address is: Units A and B, CDW Building, 382-392
Castle Peak Road, Tsuen Wan, N.T., Hong Kong.
(4) Messrs. Lebensfeld, Price and Russo's address is: 125 East Bethpage Road,
Plainview, New York 11803.
(5) Mr. Goldberg's address is 8 Northbank Court, Thornhill, Ontario L3T 959,
Canada. In addition, 1,241,833 shares of Common Stock are beneficially owned
by a trust for the benefit of Mr. Goldberg's wife and children. The trustee
of this trust is not affiliated with Mr. Goldberg and Mr. Goldberg disclaims
beneficial ownership of such shares.
(6) Includes 4,330,083 shares of Common Stock held by Best Phase Limited, a
British Virgin Islands corporation, of which Mr. Chu and Ms. Leung own 100%
of the outstanding shares. The address of Best Phase Limited is Units A and
B, CDW Building, 382-392 Castle Peak Road, Tsuen Wan, N.T., Hong Kong.
Frances Shuk Kuen Leung is the wife of Mr. Chu and they are deemed to be the
beneficial owners of each other's shares of Common Stock of the Company.
(7) The Goldberg Family Trust's address is: c/o CIBC West Indies Offshore
Banking Corporation, as trustee, International Centre, Warrens, St. Michael,
P.O. Box 405, Bridgetown, Barbados, West Indies.
57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASING AND MANUFACTURING
Tai Nam Industrial Company Limited ("Tai Nam"), which is based in Hong Kong,
serves as the Company's purchasing agent pursuant to an Agency Agreement dated
April 1, 1997, as amended (the "Agency Agreement") between Tai Nam and Toymax
Inc. Since the Company's founding, Tai Nam and its affiliate, Concentric, have
served as the Company's purchasing agent. Tai Nam and Concentric are owned by
David Chu, the Chairman and a principal stockholder of the Company. As the
Company's purchasing agent, Tai Nam arranges for the manufacturing of the
Company's products based on purchase orders placed with Tai Nam by the Company.
In addition, Tai Nam handles all shipping documents, letters of credit, bills
and payments, serves as liaison with other vendors and performs quality control
functions.
Pursuant to the Agency Agreement, Tai Nam receives an agency fee equal to
seven percent (7%) of the gross invoiced value of products purchased by Toymax
Inc. (based on the factory purchase price of the merchandise). Until April 1997,
the Company utilized Concentric as its purchasing agent on similar terms. In
fiscal 1997, the Company paid Concentric $824,992 in agency fees and in the
three months ended
June 30, 1997 paid Tai Nam $488,124 in agency fees. Tai Nam's duties include
handling purchase orders for, and acting as liaison to, manufacturers and
vendors for the Company. Pursuant to the Agency Agreement, Toymax purchases
products at FOB Yien Tian prices. The Company pays all expenses associated with
the making of molds for new products and such molds are assets of the Company.
The term of the Agency Agreement ends on March 31, 1999. The terms granted to
the Company and the historical willingness of Tai Nam to permit the Company to
delay payments at certain times, has benefited the Company.
In fiscal 1997, the Company's payments to Tai Nam and Concentric for product
purchases totalled $13.5 million and $20.6 million, respectively. The majority
of the Company's products are manufactured by Jauntiway, which is also owned by
Mr. Chu. In fiscal 1997, approximately 85% of the Company's products were
manufactured by Jauntiway (some using subcontractors) and such production
constituted approximately 85% of Jauntiway's overall production.
In April 1997, Toymax NY entered into an Agency Agreement with Tai Nam under
which Toymax NY acts as Purchasing Agent for Tai Nam in the United States in
exchange for a fee equal to 5% of such purchases. During the quarter ending June
30, 1997 such fees amounted to $20,207.
The Company rents approximately 1,628 square feet of space in Kowloon, Hong
Kong from David Chu, Chairman of the Company which it uses as showroom
facilities. The monthly rent under this lease is $5,900 (HK $45,584). The lease
expires on August 1, 1998.
The Company, Tai Nam and Mr. Chu have agreed that following completion of
the Offering, all transactions with affiliates, including Tai Nam and Jauntiway,
will be subject to the approval of the independent directors of the Company's
Board of Directors.
A portion of the proceeds of the Offering (approximately $6.0 million) will
be used to pay down trade payables owed to Tai Nam and Concentric and to shorten
payment cycles to Tai Nam. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
GUARANTEES AND LOANS
Toymax NY, Toymax HK, and Tai Nam maintain a line of credit facility with
State Street Bank & Trust Company, Hong Kong Branch (the "State Street Credit
Facility"). The State Street Credit Facility is subdivided into three
sub-facilities: (i) a $25.0 million Factoring-Cum-Financing Facility for Toymax
NY ("Factoring Facility"), (ii) a $5.0 million Inventory Financing Facility for
Toymax NY ("Inventory Facility") and (iii) a $1.0 million Trade Facility for
Toymax HK and its affiliate Tai Nam ("Trade Facility"). At March 31, 1997 the
Company's outstanding balance under the State Street Credit Facility was $8.4
million. In June 1997, the maximum borrowing limit under the State Street Credit
Facility was increased from $12.5
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million to $26.0 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Inventory Facility and the Factoring Facility are each guaranteed,
personally and severally by David Chu, Steven Lebensfeld and Harvey Goldberg and
by Tai Nam, Tai Nam Industrial Co., Juantiway, Concentric and Toymax HK. Mr. Chu
is the Chairman and a principal stockholder of the Company. Messrs. Lebensfeld
and Goldberg are executive officers of the Company. David Chu is the owner of
Tai Nam, Tai Nam Industrial Co., Jauntiway and Concentric. Following the closing
of the Offering, the Company expects that each of these guarantees will be
terminated.
Toymax HK is the guarantor of Tai Nam's obligations under a $4.68 million
credit facility in Hong Kong.
As of June 30, 1997, Mr. Lebensfeld, the Company's President, was indebted
to the Company in the amount of $198,080. The maximum balance of the
indebtedness of Mr. Lebensfeld to the Company since the beginning of fiscal 1997
was $216,910. These amounts represented expense and salary advances and do not
bear interest. Mr. Lebensfeld intends to repay all such outstanding advances.
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DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, of which, as of the date of this Prospectus, 7,500,000
shares are outstanding. Holders of shares of Common Stock are entitled to one
vote for each share hold of record on all matters to be voted on by
stockholders. There are no preemptive, subscription, conversion or redemption
rights pertaining to the shares of Common Stock. Holders of shares of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefore and to share ratably in the
assets of the Company available upon liquidation, dissolution or winding up. The
holders of shares of Common Stock do not have cumulative voting rights for the
election of directors and, accordingly, the holders of more than 50% of the
shares of Common Stock are able to elect all directors. See "Risk Factors --
Control by Existing Stockholders." All of the outstanding shares of Common Stock
are, and the Common Stock offered hereby, upon issuance and when paid for, will
be, duly authorized, validly issued, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined by the Board of Directors at
the time of issuance without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of any such preferred stock could
materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. The ability of the Board
of Directions to issue preferred stock could have the effect of delaying
deferring or preventing a change in control of the Company. See "Risk Factors --
Certain Anti-Takeover Provisions."
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Delaware General Corporation Law and of the
Amended and Restated Certificate of Incorporation and By-Laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders. See "Risk Factors -- Certain
Anti-Takeover Provisions."
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested stockholder
unless (i) prior to the date of the business combination, the transaction is
approved by the board of directors of the corporation, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
restrictions of Section 203 do not apply, among other things, if a corporation,
by action of its stockholders, adopts an amendment to its certificate of
incorporation or by-laws expressly electing not to be governed by Section 203,
provided that, in addition to any other vote required by law, such amendment to
the certificate of incorporation or by-laws must be approved by the
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affirmative vote of a majority of the shares entitled to vote. Moreover, an
amendment so adopted is not effective until twelve months after its adoption and
does not apply to any business combination between the corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. The Company's Certificate of Incorporation and By-laws do not
currently contain any provisions electing not to be governed by Section 203 of
the Delaware General Corporation Law. The provisions of Section 203 of the
Delaware General Corporation Law may have a depressive effect on the market
price of the Common Stock because they could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided
into three classes of directors serving staggered terms. One class of directors
will be elected at each annual meeting of stockholders for a three-year term.
Having a classified Board of Directors may be viewed as inhibiting a change of
control in the Company and impending an attempt to take over the Company. See
"Management -- Board of Directors."
PREFERRED STOCK. The Company is authorized to issue 5,000,000 shares of
undesignated Preferred Stock. Under certain circumstances, the issuance of
Preferred Stock could be utilized as a method of discouraging, delaying or
preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering there will be 10,200,000 Shares
outstanding, of which 7,500,000 shares will be "restricted securities," as such
term is defined under Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act or an applicable exemption,
including the exemption contained in Rule 144. Under Rule 144, as amended, a
person (or persons, whose shares are aggregated) who has beneficially owned
shares of Common Stock for at least one year may, under certain circumstances,
sell, within any three-month period, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the number of the then outstanding
shares or (ii) the average weekly trading volume of such shares during the four
calendar weeks preceding such sale. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the restricted securities for
the last two years is entitled to sell all such shares without regard to the
volume limitations, current public information requirements, manner of sale
provisions and notice requirements of Rule 144. No predictions can be made as to
the effect, if any, that market sales of restricted shares of Common Stock or
their eligibility for sale under Rule 144 will have on the market price of the
Common Shares prevailing from time to time. Nevertheless, sales of substantial
amounts of the restricted shares of Common Stock on the public market could
adversely affect such market price and could impair the Company's future ability
to raise capital through the sale of equity securities. Any shares of Common
Stock to be sold through Rule 144 or otherwise by the holders of shares of
Common Stock issued and outstanding at the Effective Date shall be executed
through the Representatives at market prices.
The stockholders of the Company have agreed not to offer, sell, contract to
sell, assign, transfer or otherwise dispose of, directly or indirectly, any of
the shares of Common Stock held by them without the Representatives' prior
written consent for a period of nine (9) months from the Effective Date.
The holders of the Representatives' Warrants have been granted certain
registration rights with respect to the Representatives' Warrants and the
195,750 Shares issuable upon exercise of the warrants included in the
Representatives' Warrants. The sale, or availability for sale, of the
outstanding shares of
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Common Stock underlying the Representatives' Warrants in the public market
subsequent to the Offering could adversely affect the prevailing market price of
the shares of Common Stock.
CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion summarizes certain material federal income tax
consequences expected to apply to a holder with respect to the purchase,
ownership and disposition of shares of Common Stock ("Shares"). This discussion
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed United States Treasury regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof, all as in effect as of the date of this Prospectus. The consequences to
any particular holder may differ from those described below by reason of that
holder's particular circumstances. This summary does not address the
considerations that may be applicable to particular classes of holders,
including financial institutions, broker-dealers, tax-exempt organizations,
banks, insurance companies and persons who are not citizens or residents of the
United States, or who, as to the United States, are foreign corporations,
foreign partnerships or foreign estates or trusts. In addition, this summary is
limited to persons that will hold Shares as "capital assets" within the meaning
of Section 1221 of the Code.
The following discussion does not constitute, and should not be considered
as, legal or tax advice to prospective holders. Each potential holder should
consult with its own tax adviser before determining whether to purchase Shares,
including the effects of applicable state, local, foreign or other tax laws and
possible changes in the tax laws including, but not limited to, changes
contained in the Taxpayer Relief Act of 1997.
DIVIDENDS
Dividends paid on the Shares will be taxable as ordinary income to the
extent paid out of the Company's current or accumulated earnings and profits (as
defined for United States federal income tax purposes). Dividends received by
corporations out of such earnings and profits will generally qualify for the 70
percent dividends-received deduction, so long as the holder has held its Shares
for a sufficient time and certain other conditions are met. A stockholder will
not be entitled to claim the dividends received deduction if he holds the shares
for 45 days or less during the 90-day period beginning on the date which is 45
days before the date on which such shares become ex-dividend with respect to
such dividend, or to the extent the stockholder is under an obligation to make
related payments with respect to positions in substantially similar or related
property. The 70 percent dividends-received deduction may be reduced for holders
who borrow funds directly attributable to the purchase of its Shares. Where the
dividends-received deduction is available, a portion of the amount deducted may
have to be included by a corporation in computing its possible liability for
alternative minimum tax. The amount of any distribution in excess of the
Company's current and accumulated earnings and profits will first be applied to
reduce the holder's tax basis in the Shares, and any amount in excess of tax
basis will be treated as gain from the sale or exchange of the Shares.
DISPOSITIONS OF SHARES
Subject to the discussion below relating to the potential application of
Code Section 1248, a U.S. stockholder will, upon the sale or exchange of any
Shares, recognize a gain or loss for federal income tax purposes equal to the
difference between the amount realized upon such sale or exchange and the
stockholder's basis in the Shares. If the stockholder's holding period for such
Shares is more than 18 months, such gain will be taxed as long-term capital gain
and generally will be taxed at the rate of 20%. If the stockholder's holding
period is more than one year but not more than 18 months, such gain would
generally be subject to tax at a 28% rate. In addition, for tax years beginning
after December 31, 2000, the maximum capital gain rates for assets which are
held for more than 5 years is 18%. However, this 18% rate only applies to assets
for which the holding period begins after December 31, 2000. A taxpayer holding
a
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capital asset on January 1, 2001 may elect to treat the asset as having been
sold on such date for its fair market value, and will be required to recognize
gain, if any, measured by the fair market value of the shares on such date over
the taxpayer's basis in such asset. A taxpayer who makes such election will be
deemed to have reacquired the asset on such date.
Code Section 1248 provides that if a U.S. person disposes of stock in a
foreign corporation and such person owned directly, indirectly or constructively
10% or more of the voting shares of the corporation at any time during the
five-year period ending on the date of disposition when the corporation was a
"controlled foreign corporation" ("CFC"), any gain from the sale or exchange of
the shares may be treated as ordinary income to the extent of the CFC's earnings
and profits during the period that the stockholder held the shares (with certain
adjustments). Holders who acquire Shares in this Offering will own stock in a
U.S. corporation. However, certain subsidiaries of the Company, such as the
Toymax HK and Toymax Bermuda subsidiaries will qualify as CFCs and will be
wholly-owned subsidiaries of the Company. Code Section 1248(e) provides that if
a United States person, who owns 10% or more of the stock of a U.S. corporation,
sells or exchanges stock of such U.S. corporation and such U.S. corporation was
formed or availed of principally for the holding, directly or indirectly, of
stock of one or more foreign corporations, then all or part of the United States
person's gain from the sale of the stock of the U.S. corporation could be
subject to Code Section 1248. The determination of whether such U.S. corporation
was formed principally for such purpose is a facts and circumstances analysis.
The Company believes that because of the Company's dispersion of the ownership
of Shares being offered in this Offering, no stockholder who acquires Shares in
this Offering will own 10% or more of the voting shares of the Company and
therefore Section 1248(e) should not apply to such stockholders. Even if such a
stockholder owns, directly or through attribution, 10% or more of the voting
shares of the Company, Code Section 1248(e) should not apply to such stockholder
since, in the Company's view, it was not formed nor will be availed of
principally for the holding, directly or indirectly, of stock of its foreign
subsidiaries. However, U.S. persons who might, directly or through attribution,
acquire 10% or more of the voting Shares of the Company should consider the
possible application of Code Section 1248(e). In all events, a corporate
stockholder is not currently subject to Code Section 1248(e) because the federal
income tax rate at which capital gain and ordinary income are taxed is the same.
BACKUP WITHHOLDING
Certain noncorporate holders may be subject to backup withholding at a rate
of 31 percent on dividends. Generally, backup withholding applies only when the
taxpayer fails to furnish or certify a proper Taxpayer Identification Number or
when the taxpayer is notified by the IRS that the taxpayer has failed to report
payments of interest and dividends properly. Holders should consult their tax
advisers regarding their qualification for exemption for backup withholding and
the procedure for obtaining any applicable exemption.
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UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Fahnestock & Co.
Inc. ("Fahnestock") and Wedbush Morgan Securities Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES PURCHASED
- -------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Fahnestock & Co. Inc..................................................................
Wedbush Morgan Securities Inc. .......................................................
TOTAL.............................................................................
-------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions and that the Underwriters are committed to
purchase all of the shares (other than those covered by the over-allotment) if
any are purchased. The Underwriting Agreement provides that the Company will
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not to exceed $ per share. The Underwriters may allow, and such
dealers may reallow, a concession of not more than $ to certain other
dealers. After the public offering, the offering price, the concession to
certain dealers and other selling terms may be changed by the Representatives.
The Underwriters have agreed not to confirm sales of Common Stock offered hereby
to any account over which they exercise discretionary authority without the
prior written approval of the customer.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to a maximum of
405,000 additional shares of Common Stock solely to cover over-allotments, if
any, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase approximately the same proportion of additional shares
as the number of shares to be purchased by it shown in the foregoing table bears
to the total number of shares of Common Stock initially offered hereby.
The Company's directors, officers and beneficial owners of 5% or more of the
Company's outstanding Common Stock have agreed not to offer, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company, other than the
over-allotment shares, if any, for a period of nine (9) months from the date of
this Prospectus, without the prior written consent of the Representatives.
The Company and Fahnestock will enter into an investment banking agreement
which, amongst other things, will grant Fahnestock a right of first refusal for
a period of fifteen (15) months after the Effective Date for any investment
banking services. In addition, Fahnestock shall have Board of Directors
information and obligation rights. The Company has also agreed to pay Fahnestock
a non-accountable expense allowance of $75,000, $40,000 of which has been paid
to date.
In connection with this Offering, the Company has agreed to grant to the
Representatives warrants to purchase up to 195,750 shares of Common Stock (the
"Representatives' Warrants"). The Representatives' Warrants, which warrants (and
the underlying shares of Common Stock) are being registered pursuant to the
Registration Statement filed with respect to the Common Stock offered hereby,
shall be exercisable at any time during a period of four (4) years commencing at
the beginning of the second year after their
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issuance and provide for an exercise price equaling one hundred twenty percent
(120%) of the initial public offering price set forth herein. The
Representatives' Warrants are non-transferable during the term, except to
affiliates of the Representatives, and grant to the holder thereof certain
registration rights for the securities issuable upon the exercise thereof.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiations between the Company and the Representatives and does not
necessarily bear any relationship to the Company's assets, book value, revenues
or other established criteria of value. The initial public offering price should
not be considered indicative of the actual value of the Company. Among the
factors considered in such negotiations were the history and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management, the Company's capital structure, past and present
operations and earnings and earnings prospects, the general condition of the
securities markets at the time of the Offering and the market prices and
earnings of similar securities of comparable companies at the time of the
Offering.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 405,000 shares of Common Stock, by
exercising the over-allotment option referred to above. In addition, the
Representatives may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Baer Marks & Upham, LLP, New York, New York.
Joel M. Handel, a partner of Baer Marks & Upham, will become a Director of the
Company prior to the consummation of the Offering. Each Director who is not an
officer or full-time employee of the Company, including Mr. Handel, will receive
annual compensation of $12,000 and will be granted options to purchase up to
15,000 shares of Common Stock. Orrick Herrington & Sutcliffe LLP, New York, New
York has acted as counsel to the Underwriters in connection with this Offering.
EXPERTS
The consolidated financial statements as of and for the years ended March
31, 1996 and March 31, 1997 included in this Prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the period set forth in their report appearing herein, and are included in
reliance upon the authority of said firm as experts in auditing and accounting.
The consolidated financial statements for the year ended March 31, 1995
included in this Prospectus have been audited by Deloitte Touche Tohmatsu,
independent auditors, as stated in their report appearing
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herein, and are included in reliance upon the report of such firm given upon
their authority as experts in auditing and accounting.
On March 15, 1996, the Company engaged the services of BDO Seidman LLP
("BDO") as its new independent accountants effective with the audit of its
fiscal year ended March 31, 1996. Prior to engaging BDO, the Company's
independent accountants were Deloitte Touche Tohmatsu. Deloitte Touche
Tohmatsu's reports on the financial statements of the Company for each of the
two years in the period ended March 31, 1995 contain no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
approved by the Board of Directors of the Company. Prior to the change in
accountants, there were no reportable events (as defined in the regulations of
the Securities and Exchange Commission) or disagreements with the former
accountants on any matters of accounting principles or practices, financial
statement disclosure or auditing scope.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") Washington, D.C., a Registration Statement on Form S-1 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 and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and the Exhibits and schedules thereto, and may be
inspected without charge at the Commissions's principal office at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies of all or any
part thereof may be obtained from such office upon payment of fees prescribed by
the Commission. In addition, the Commission maintains a web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. If the Company's Common Stock is listed on
the Nasdaq National Market after the Offering, such information may also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C.
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TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONTENTS
---------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
INDEPENDENT AUDITORS' REPORT F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets as of March 31, 1996 and 1997; June 30, 1997
(unaudited) F-4
Consolidated statements of operations for the three years
in the period ended March 31, 1997; three months ended June 30, 1996 and
1997 (unaudited) F-5
Consolidated statements of stockholders' equity (deficit)
for the three years in the period ended March 31, 1997; three months ended
June 30, 1996 and 1997 (unaudited) F-6
Consolidated statements of cash flows for the three years
in the period ended March 31, 1997; three months ended June 30, 1996 and
1997 (unaudited) F-7
Notes to consolidated financial statements F-8--F-22
</TABLE>
F-1
<PAGE>
(THE FOLLOWING IS THE FORM OF OPINION WE WILL BE
IN A POSITION TO ISSUE UPON THE COMPLETION
OF THE EVENTS DESCRIBED IN NOTES 1 AND 12)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Toymax International, Inc.
We have audited the accompanying consolidated balance sheets of Toymax
International, Inc. and subsidiaries as of March 31 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the two year period ended March 31,
1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Toymax
International, Inc. and its subsidiaries at March 31, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the two
year period ended March 31, 1997, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Mitchel Field, New York
July 31, 1997, except for Notes 1 and 12
which are as of , 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Toymax International, Inc.
We have audited the accompanying consolidated statement of operations,
stockholders' equity (deficit) and cash flows of Toymax International, Inc. and
subsidiaries for the year ended March 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the result of operations and cash flows of Toymax
International, Inc. and its subsidiaries for the year ended March 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte Touche Tohmatsu
Hong Kong
November 11, 1995, except for Note 1
as to which the date is
, 1997
The accompanying financial statements retroactively reflect the formation of
the Company and its combination with Toymax (H.K.) Limited and Toymax, Inc.
which is to be effected prior to the effective date of this Registration
Statement. The above opinion is in the form which will be signed by Deloitte
Touche Tohmatsu upon consummation of such formation and combination, which is
described in Note 1 of Notes to Consolidated Financial Statements, and assuming
that from November 11, 1995, to the date of the formation and combination, no
other events shall have occurred that would affect the accompanying financial
statements and notes thereto.
Deloitte Touche Tohmatsu
Hong Kong
September 19, 1997
F-3
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
---------------------------- -------------
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT:
Cash.............................................................. $ 1,269,434 $ 564,659 $ 1,550,782
Due from Factor (Notes 2 and 5)................................... 5,514,779 14,311,369 5,431,992
Accounts receivable, less allowance for doubtful accounts of
$811,969, $739,219 and $722,095 (Notes 2 and 5)................. 619,015 2,226,845 1,658,410
Prepaid expenses and current assets............................... 1,276,770 795,869 1,715,076
Inventories (Notes 3 and 5)....................................... 5,835,805 4,797,452 8,037,018
Income tax refunds receivable (Note 7)............................ 4,199,999 -- 215,484
Due from affiliates (Note 6)...................................... 3,564 4,367 51,793
Due from officers (Note 6)........................................ 164,831 171,689 200,380
Deferred income taxes (Note 7).................................... -- 1,007,350 1,007,350
------------- ------------- -------------
TOTAL CURRENT ASSETS.......................................... 18,884,197 23,879,600 19,868,285
PROPERTY AND EQUIPMENT, NET (NOTE 4)................................ 3,023,213 2,190,861 2,228,260
DEFERRED INCOME TAXES (NOTE 7)...................................... -- 57,228 57,228
OTHER ASSETS........................................................ 219,278 150,153 382,158
------------- ------------- -------------
$ 22,126,688 $ 26,277,842 $ 22,535,931
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
Bank credit facility (Note 5)..................................... $ 4,012,795 $ 8,447,087 $ 5,103,708
Accounts payable.................................................. 4,736,921 1,648,405 3,417,385
Accrued expenses.................................................. 3,071,712 2,919,735 1,702,086
Accrued rebate and allowances..................................... 1,608,760 1,425,759 1,394,090
Income taxes payable.............................................. 733,421 275,145 249,728
Due to affiliates (Note 6)........................................ 10,728,495 10,756,471 10,101,262
Due to officer (Note 6)........................................... 48,466 504,032 397,420
Current portion of long-term obligations (Note 8)................. 66,846 37,714 48,285
------------- ------------- -------------
TOTAL CURRENT LIABILITIES..................................... 25,007,416 26,014,348 22,413,964
LONG-TERM OBLIGATIONS (NOTE 8)...................................... 51,836 8,300 49,041
DEFERRED INCOME TAXES (NOTE 7)...................................... 159,772 -- --
------------- ------------- -------------
TOTAL LIABILITIES............................................. 25,219,024 26,022,648 22,463,005
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value $.01 per share; 50,000,000 shares
authorized;
7,500,000 shares issued and outstanding (Note 1)................ 57,692 57,692 57,692
Additional paid-in capital.......................................... -- -- 187,000
Retained earnings (accumulated deficit)............................. (3,134,876) 212,654 (156,614)
Cumulative foreign currency translation adjustment.................. (15,152) (15,152) (15,152)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).......................... (3,092,336) 255,194 72,926
------------- ------------- -------------
$ 22,126,688 $ 26,277,842 $ 22,535,931
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
NET SALES (NOTES 6 AND 9).................... $ 70,622,912 $ 43,621,599 $ 54,682,635 $ 2,678,914 $ 7,090,862
------------- ------------- ------------- ------------- ------------
COST AND EXPENSES:
Cost of goods sold (Notes 6 and 8)......... 42,639,900 30,600,599 33,836,513 2,366,696 3,783,717
Selling and administrative (Notes 4 and
8)....................................... 27,121,111 24,640,633 18,026,004 2,833,295 3,664,051
------------- ------------- ------------- ------------- ------------
69,761,011 55,241,232 51,862,517 5,199,991 7,447,768
------------- ------------- ------------- ------------- ------------
Operating income (loss).................. 861,901 (11,619,633) 2,820,118 (2,521,077) (356,906)
------------- ------------- ------------- ------------- ------------
OTHER INCOME (EXPENSES):
Other income, net.......................... 247,138 685,427 726,037 246,953 31,856
Interest income............................ 101,439 31,577 89,556 10,452 17,587
Interest expense........................... (561,148) (769,465) (483,380) (51,165) (148,810)
Finance charges (Note 2)................... (579,345) (385,721) (498,137) (25,404) (83,168)
------------- ------------- ------------- ------------- ------------
(791,916) (438,182) (165,924) 180,836 (182,535)
------------- ------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND
MINORITY INTEREST IN NET LOSS OF
SUBSIDIARY................................. 69,985 (12,057,815) 2,654,194 (2,340,241) (539,441)
INCOME TAX BENEFIT (NOTE 7).................. 198,175 2,253,732 681,200 922,097 152,187
------------- ------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY......................... 268,160 (9,804,083) 3,335,394 (1,418,144) (387,254)
MINORITY INTEREST IN NET LOSS OF
SUBSIDIARY................................. -- -- 12,136 -- 17,986
------------- ------------- ------------- ------------- ------------
NET INCOME (LOSS)............................ $ 268,160 $ (9,804,083) $ 3,347,530 (1,418,144) (369,268)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
EARNINGS (LOSS) PER SHARE (NOTE 1)........... $ .04 $ (1.31) $ .45 $ (0.19) $ (0.05)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE STOCKHOLDERS'
--------------------- PAID-IN (ACCUMULATED TRANSLATION EQUITY
THREE YEARS ENDED MARCH 31, 1997 SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT (DEFICIT)
- ----------------------------------- ---------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1994............. 7,500,000 $ 57,692 -- $7,101,047 $ (15,152) $7,143,587
Net income....................... -- -- -- 268,160 -- 268,160
Dividend declared................ -- -- -- (700,000) -- (700,000)
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1995............ 7,500,000 57,692 -- 6,669,207 (15,152) 6,711,747
Net loss......................... -- -- -- (9,804,083) -- (9,804,083)
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1996............ 7,500,000 57,692 -- (3,134,876) (15,152) (3,092,336)
Net income....................... -- -- -- 3,347,530 -- 3,347,530
---------- --------- ---------- ------------ ----------- ------------
BALANCE, March 31, 1997............ 7,500,000 57,692 -- 212,654 (15,152) $ 255,194
Net loss for the three months ended
June 30, 1997 (unaudited)........ -- -- -- (369,268) -- (369,268)
Compensation for shares sold to
employees below fair value
(unaudited)...................... -- -- 187,000 -- -- 187,000
---------- --------- ---------- ------------ ----------- ------------
Balance June 30, 1997
(unaudited)...................... 7,500,000 $ 57,692 $ 187,000 $ (156,614) $ (15,152) $ 72,926
---------- --------- ---------- ------------ ----------- ------------
---------- --------- ---------- ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 268,160 $(9,804,083) $ 3,347,530 (1,418,144) (369,268)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 1,316,352 1,825,502 1,510,661 352,058 277,888
Bad debts.......................................... -- 880,409 16,312 1,804 --
Non-cash compensation.............................. -- -- -- -- 187,000
Loss on disposal of property and equipment......... 5,493 2,685 15,070 -- --
Changes in deferred income taxes................... 131,383 1,650,303 (1,224,350) -- --
Minority interest in net loss of subsidiary........ -- -- (12,136) -- (17,986)
Changes in operating assets and liabilities:
Due from Factor and accounts receivable.......... 1,978,901 79,005 (10,420,732) 3,654,441 9,464,124
Due from affiliates.............................. (904,029) 1,056,117 (803) (24,354) (47,426)
Inventories...................................... (581,963) 2,182,705 1,038,353 527,962 (3,239,566)
Income tax refunds receivable.................... (392,649) (3,807,350) 4,199,999 (947,193) (215,484)
Prepaid expenses and other assets................ (184,846) 1,048,635 562,162 (297,010) (1,133,226)
Accounts payable and accruals.................... 1,060,325 1,473,396 (3,334,494) (435,036) 519,662
Due to affiliates................................ 69,572 4,021,808 27,976 572,510 (655,209)
Income taxes payable............................. (1,278,661) 99,049 (458,276) (33,279) (25,417)
----------- ----------- ------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES..................................... 1,488,038 708,181 (4,732,728) 1,953,759 4,745,092
----------- ----------- ------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (2,348,291) (1,055,182) (703,697) (74,713) (268,838)
Proceeds from disposals of property and equipment.... 12,226 367,838 10,318 -- --
Advances to officers................................. -- (22,828) (114,919) -- (28,921)
Repayment from officers.............................. -- 957 19,061 230 230
----------- ----------- ------------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.......... (2,336,065) (709,215) (789,237) (74,483) (297,529)
----------- ----------- ------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank credit facility.......... (961,015) 1,525,772 4,434,292 (3,128,097) (3,343,379)
Repayments of long--term obligations................. (83,425) (87,614) (72,668) (16,220) (11,449)
----------- ----------- ------------- ----------- -----------
Payment of dividends payable......................... -- (700,000) -- -- --
Repayments of loan from officers..................... (574,116) (962,997) (387,401) (134,555) (157,096)
Loans from officers.................................. 373,227 925,453 842,967 622,593 50,484
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES..................................... (1,245,329) 700,614 4,817,190 (2,656,279) (3,461,440)
----------- ----------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (2,093,356) 699,580 (704,775) 777,003 986,123
CASH AND CASH EQUIVALENTS, beginning of year........... 2,663,210 569,854 1,269,434 1,269,434 564,659
----------- ----------- ------------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................. $ 569,854 $ 1,269,434 $ 564,659 $ 492,431 $ 1,550,782
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................ $ 510,638 $ 723,869 $ 440,267 $ 45,040 $ 118,412
----------- ----------- ------------- ----------- -----------
Income taxes paid.................................... $ 1,341,752 $ 853,389 $ 552,057 $ -- $ 1,200
----------- ----------- ------------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Capital lease obligation incurred.................... $ 106,891 $ -- $ -- $ -- $ 65,434
Offset of Accrued Officer's Salary
Net of Taxes, Applied Against Advances to Officers... $ -- $ -- $ 89,000 $ 89,000 $ --
----------- ----------- ------------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
Toymax International, Inc., a Delaware corporation ("Toymax" and the
"Company") was organized in Delaware on August 6, 1997 to acquire and continue
the various businesses conducted by Toymax, Inc., a New York corporation
("Toymax NY"), Toymax (H.K.) Limited, a private limited company organized under
the laws of Hong Kong ("Toymax HK"), Toymax (Bermuda) Limited, a company
organized under the laws of Bermuda ("Toymax Bermuda"), Toymax (Canada) Limited,
a corporation organized under the laws of Ontario ("Toymax Canada") and Toymax
(U.K.) Limited ("Toymax UK") (collectively, the "Toymax Group"). Toymax HK and
Toymax NY, historically the Company's principal operating entities, were each
formed in 1990. Toymax Bermuda will be formed prior to closing of the Company's
proposed public offering under the laws of Bermuda and will continue the
business previously carried out by Toymax HK. Toymax NY owns a 75% interest in
Craft Expression, Inc. ("Craft"), a New York corporation. Prior to closing of
the Offering, the Company will complete the Reorganization pursuant to which
Toymax NY, Toymax HK, Toymax Bermuda, Toymax Canada and Toymax UK will become
direct or indirect wholly-owned subsidiaries of Toymax. After the date of the
Reorganization, all the assets and businesses of the Toymax Group will be owned
and conducted by Toymax.
The Reorganization has been accounted for as a reorganization of entities
under common control in a manner similar to a pooling of interests. The
financial statements present the results of the Company and its subsidiaries as
if the Company had been combined for all periods presented.
BUSINESS
Toymax HK and Toymax NY are involved in the designing, marketing and
distribution of toy products. Craft is involved in the designing, producing,
marketing and distributing of arts and craft products. Craft was substantially
inactive during the year ended March 31, 1997. Toymax UK was inactive during the
years ended March 31, 1995, 1996 and 1997 and the three months ended June 30,
1997.
RECAPITALIZATION
The equity accounts of the Company have been retroactively adjusted as if
the Reorganization described above had occurred. The recapitalization will
include an exchange of each share of Toymax HK capital stock for $.01 par value
common stock and a subsequent 16.67 to 1 stock split by the Company (see Note
12).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of intercompany accounts and
transactions. The consolidated financial statements are presented in U.S.
dollars.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes investments with original maturities of
three months or less at the date of acquisition. Such investments are stated at
cost, which approximates market value, and amounted to $180,000, $490,000 and
$140,000 at March 31, 1996, March 31, 1997 and June 30, 1997, respectively.
F-8
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Inventories consist principally of purchased finished goods. Prior to
1997, the Company maintained a small quantity of raw material inventory which
was used by a subcontractor to manufacture some of the Company's finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost. Depreciation of
machinery, equipment and molds, and furniture and fixtures, is computed by the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized by the straight-line method over the shorter of their
economic lives or the terms of the leases.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Substantially all assets and liabilities of the Company are translated at
year end exchange rates, while income and expenses are translated at average
exchange rates for the year. Gains and losses resulting from translation of
foreign currency financial statements are deferred and classified as a separate
component of stockholders' equity.
INCOME TAXES
Deferred income taxes are recognized based on the differences between the
tax bases of assets and liabilities and their reported amounts in the financial
statements which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax law or rate changes are included in income
as part of deferred tax expense or benefits in the period that includes the
enactment date. A valuation allowance is recognized if it is more likely than
not that some portion of, or all of, a deferred tax asset will not be realized.
REVENUE RECOGNITION
Sales are recorded upon shipment, free on board from the point of shipment.
The Company provides for anticipated returns and allowances on defective
merchandise based on known claims and an estimate of additional returns.
ADVERTISING
Advertising costs are charged to operations as incurred. Advertising
expenses for the years ended March 31, 1995, 1996 and 1997 were $9,343,011,
$10,837,349 and $6,341,591, respectively. Advertising expenses for the three
months ended June 30, 1996 and 1997 were $3,459,485 and $651,778, respectively.
ROYALTIES
Minimum guaranteed royalties, as well as royalties in excess of minimum
guarantees, are expensed based on the sales of related products. The
realizability of minimum guaranteed royalties paid is evaluated by the Company
based on the projected sales of the related products.
F-9
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to operations as incurred.
Research and development expenses for the years ended March 31, 1995, 1996, and
1997 were $3,674,031, $2,128,923 and $1,845,468, respectively. Research and
development expenses for the three months ended June 30, 1996 and 1997 were
$268,914 and $468,342, respectively.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of certain financial instruments, including cash, due
from factor, accounts receivable and accounts payable, approximate fair value as
of March 31, 1996, March 31, 1997 and June 30, 1997 because of the relatively
short-term maturity of these instruments. The carrying value of the bank credit
facility and long-term debt, including the current portion, approximates fair
value as of March 31, 1996 and 1997 based upon the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities. Fair value of the amounts due to or from affiliates cannot be
readily determined because of the nature of the terms.
EARNINGS (LOSS) PER SHARE
Per share data is calculated using the weighted average number of common
shares outstanding during the period.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In 1997, the Company adopted the Statement of Financial Accounting Standard
No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF." The effect of adopting this standard was
insignificant.
NEW ACCOUNTING STANDARD
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE". This pronouncement provides for the
calculation of Basic and Diluted earnings per share which is different from the
current calculation of Primary and Fully Diluted earnings per share. The effect
of adopting this new standard is not material.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Standards (SFAS) No. 130, REPORTING COMPREHENSIVE
INCOME, establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
F-10
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE, establishes standards for the way that public enterprises
report information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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
reporting period. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful accounts
receivable, allowance for returns, and the deferred tax asset valuation
allowance. Actual results could differ from those and other estimates.
CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash balances deposited in
financial institutions which exceed FDIC insurance limits, due from Factor and
accounts receivable not sold to a factor.
The Company established an allowance for accounts receivable based upon
factors surrounding the credit risk of specific customers historical trends and
other information. See Note 9 for information relating to the concentration of
sales to major customers.
RECLASSIFICATIONS
Certain March 31, 1996 amounts were reclassified to conform to the March 31,
1997 presentation.
INTERIM PERIODS
The Financial statements and related notes thereto as of June 30, 1997 and
for the three months ended June 30, 1996 and 1997 are unaudited and have been
prepared on the same basis as the audited financial statements included herein.
In the opinion of management, such unaudited financial statements include all
adjustments necessary to present fairly the information set forth therein. These
adjustments consist solely of normal recurring accruals. The interim results are
not necessarily indicative of the results for any future period.
F-11
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
2. DUE FROM FACTOR AND ACCOUNTS RECEIVABLE
In the normal course of business, Toymax NY sells substantially all of its
accounts receivable, without recourse, to a factor, which is a subsidiary of a
major financial institution, and receives payment from the Factor when the
accounts are collected. Finance charges are charged at 0.75% for sales below $50
million and 0.50% for sales in excess of $50 million.
The amount due from factor is pledged as security to the Bank (see Note 5).
Pursuant to an agreement among Toymax NY, the Bank and the Factor, Toymax NY
does not receive any advances from the Factor.
Accounts receivable consist mainly of sales not factored and amounts charged
back by the Factor as a result of disputes primarily relating to unearned
discounts and damaged shipments, net of reserves for sales allowances and
doubtful accounts, which Toymax NY is attempting to collect. Reserves for sales
allowances and doubtful accounts were $811,969, $739,219 and $722,095 as of
March 31, 1996, March 31, 1997 and June 30, 1997, respectively. Write-offs for
bad debts were $549,457, $146,835 and $89,062 for the years ended March 31,
1995, 1996 and 1997, respectively. Write-offs were $1,804 and $0 for the three
months ended June 30, 1996 and 1997, respectively.
3. INVENTORIES
Inventories are pledged as security to the Bank and Congress Talcott
Corporation ("CTC") (see Note 5). During 1997 an advertising agency which
provides services to Toymax NY, held a subordinated security interest in a
portion of Toymax NY's inventory, after the Bank. As of July 14, 1997, the
advertising agency no longer has or requires a security interest in the
subsidiary's inventory.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
LIFE IN -------------------------- ------------
YEARS 1996 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Machinery, equipment and molds........................... 2-5 $ 5,604,332 $ 6,215,874 $ 6,385,157
Furniture and fixtures................................... 5-10 369,513 310,480 311,477
Leasehold improvements................................... 2-8 435,330 493,211 614,970
------------ ------------ ------------
6,409,175 7,019,565 7,311,604
Less accumulated depreciation and amortization........... 3,385,962 4,828,704 5,083,344
------------ ------------ ------------
$ 3,023,213 $ 2,190,861 $ 2,228,260
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation and amortization charged to operations were $1,316,352
$1,825,502 and $1,510,661 in 1995, 1996 and 1997, respectively. Depreciation and
amortization charged to operations were $352,059 and $277,888 for the three
months ended June 30, 1996 and 1997, respectively.
The Company changed the estimated useful life of certain molds to conform to
anticipated usage as of April 1, 1996. The change in estimate resulted in
additional operating income of $121,801 for the year ended March 31, 1997. In
addition, the Company wrote off molds with a net book value of approximately
F-12
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
$48,000 in the year ended March 31, 1997. During the year ended March 31, 1996,
the Company sold molds at book value which totaled $349,296, to one of its
affiliates, DHS Holdings (see Note 6).
5. BANK CREDIT FACILITY
Toymax, HK, Toymax NY and Tai Nam Industrial Company Limited (see Note 6)
are parties to a credit facility agreement (the "Agreement") with State Street
Bank and Trust Company, Hong Kong Branch (the "Bank") and CTC. The Agreement, as
amended in July 1997, provides for a credit facility not to exceed $26 million
at any one time. The amounts available within this total include:
a. A revolving credit facility (the "Financing Facility") for use by Toymax NY
in the amount of the lesser of 70% of factored accounts receivable or $25
million. The amount due from factor is pledged as security to the Bank (see
Note 2).
b. A seasonal inventory credit facility (the "Seasonal Facility") of $5
million, whereby Toymax NY can borrow up to 50% of the current season's
inventory. Toymax NY's inventory is pledged as security to the Bank and CTC.
The total borrowings under the Financing Facility and the Seasonal Facility
cannot exceed $25 million.
c. A trade facility (the "Trade Facility") for use by Tai Nam Industrial
Company Limited, and/or Toymax HK in the amount of $1 million for letters of
credit and export bills.
The Financing Facility is jointly and severally guaranteed by three of the
Company's stockholders, and is also guaranteed by Tai Nam Industrial Company
Limited, Jauntiway Investments Limited, Concentric Toys Limited, and Toymax NY
(see Note 6) and requires a cash reserve of 12% of collection proceeds net of
chargebacks which is not to exceed $6 million. As of March 31, 1997, there was
no cash reserve requirement. The Trade Facility is guaranteed by Toymax HK, Tai
Nam Industrial Company Limited and by a stockholder of the Company and of Tai
Nam Industrial Company Limited. No fees are charged to the Company for the
guarantees.
Borrowings under the Agreement are due on demand and bear interest at the
Bank's United States prime rate (8.5% at March 31, 1997) plus 1/2% for the
Financing Facility and the Seasonal Facility and at the Bank's United States
prime rate plus 3/4% for the Trade Facility. At March 31, 1996, March 31, 1997
and June 30, 1997, the Company had borrowings of $4,012,795, $8,447,087, and
$5,103,708, respectively. At June 30, 1997, additional borrowing availability
was approximately $5,574,000.
6. DUE TO/FROM AFFILIATES
The majority stockholder of the Company owns significant interests in
several other companies, including Tai Nam Industrial Company Limited ("Tai
Nam"), Concentric Toys Limited ("Concentric"), Fun Maker Limited, ("Fun Maker"),
DHS Holdings, Children Entertainment (U.S.A.) Ltd., Sportmax Ltd. and Jauntiway
Investment Limited ("Jauntiway"). A portion of the Toymax NY's products were
assembled by Hot Items Specialties Inc. ("Hot Items"), a company owned by a
family member of one of the Company's stockholders. Factory space was shared
with Hot Items by Toymax NY. In July 1996, this arrangement was terminated.
Since that time, Toymax NY has purchased the majority of its merchandise
directly from either Concentric or Tai Nam. The majority of the merchandise is
manufactured in China by an affiliate (Jauntiway).
F-13
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
6. DUE TO/FROM AFFILIATES (CONTINUED)
The Company has significant transactions with Tai Nam and Concentric. These
transactions include purchases of the majority of the Company's and its
subsidiary's merchandise and certain sales of the subsidiary's products. These
affiliates have provided extended payment terms for these purchases and have
agreed to continue such payment terms for fiscal 1998 if necessary.
In January 1996, Toymax NY entered into an agency agreement with Concentric.
Concentric acted as a purchasing agent of and received an agency fee of 7% on
the products purchased by Toymax NY. In April 1997, Toymax HK and Toymax NY
entered into a new agency agreement with Tai Nam. The new agreement provides for
an agency fee of 7% on products purchased. The agency agreement also requires
Tai Nam to provide all administrative services to Toymax HK. As a result of the
new agreement, Tai Nam ceased charging Toymax HK for reimbursement of certain
expenses.
On June 1, 1996, Toymax HK entered into an agency agreement with Tai Nam
under which Toymax HK provided certain administrative services to Tai Nam in
exchange for a fee equal to 7% of the gross invoice value of purchases from Tai
Nam by a distributor. On January 1, 1997, this agreement was terminated. During
the year ended March 31, 1997, Toymax HK received fees from Tai Nam of
approximately $136,534 in connection with this agreement.
In April 1997, Toymax N.Y. entered into an Agency Agreement with Tai Nam
under which Toymax NY would act as Purchasing Agent for Tai Nam in the United
States in exchange for a fee equal to 5% of such purchases. During the quarter
ending June 30, 1997 such fees amounted to $20,207.
Due from officers represents cash advances to two of the Company's Officers.
Due to officer represents an amount advanced to the Company by the Company's
majority stockholder. The advances bear no interest and are due on demand.
The following is a summary of balances and transactions with affiliated
companies.
<TABLE>
<CAPTION>
BALANCES
-------------------------------------------
MARCH 31, JUNE 30,
---------------------------- -------------
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Due from affiliates:
Concentric -- primarily for expenses paid on behalf of
Concentric........................................................ $ -- $ -- $ 45,626
Children Entertainment (U.S.A.) Ltd -- Merchandise sales.......... -- -- 1,800
Sportmax Limited -- primarily for expenses paid on behalf of
Sportmax Limited.................................................. 3,564 4,367 4,367
------------- ------------- -------------
$ 3,564 $ 4,367 $ 51,793
------------- ------------- -------------
------------- ------------- -------------
Due to affiliates:
Concentric -- primarily from merchandise purchases................ $ 6,112,159 $ 7,297,183 2,959,238
DHS Holdings -- royalties collected on behalf of DHS Holdings..... 339,150 766,736 766,080
Tai Nam -- primarily from merchandise purchases................... 4,277,186 2,676,262 6,362,883
Officer of Craft -- loan.......................................... -- 16,290 --
Fun Maker Ltd. -- collected on behalf of Fun Maker................ -- -- 13,061
------------- ------------- -------------
$ 10,728,495 $ 10,756,471 $ 10,101,262
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-14
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
6. DUE TO/FROM AFFILIATES (CONTINUED)
<TABLE>
<CAPTION>
TRANSACTIONS
-------------------------------------------------------------------------
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Purchases from:
Tai Nam............................ $ 12,879,209 $ 15,383,684 $ 13,573,369 $ 1,022,722 $ 6,930,926
Concentric......................... 7,574,595 9,055,339 20,632,367 209,965 --
Hot Items.......................... 3,459,012 1,483,844 -- -- --
------------- ------------- ------------- ------------- -------------
$ 23,912,816 $ 25,922,867 $ 34,205,736 $ 1,232,687 $ 6,930,926
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Sales to:
Tai Nam............................ $ 1,154,973 $ 915,032 $ 679,645 $ 309,147 $ 614,705
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Mold Purchases:
Tai Nam............................ $ 182,678 $ 616,250 $ 438,435 $ 56,326 $ 62,613
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Mold Sales:
DHS Holdings....................... $ -- $ 349,296 $ -- -- --
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Agency fees earned by:
Tai Nam............................ $ -- $ -- $ -- $ -- $ 488,124
Concentric......................... 633,131 898,384 824,992 --
------------- ------------- ------------- ------------- -------------
$ 633,131 $ 898,384 $ 824,992 $ $ 488,124
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Reimbursed expenses charged by Tai
Nam................................ $ 443,996 $ 545,579 $ 799,750 $ 165,112 $ 462
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Agency fees earned from Tai Nam...... -- -- -- -- $ 20,207
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-15
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
7. INCOME TAXES
The income tax benefit consists of the following
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Hong Kong................................. $ 208,327 $ 356,533 $ 437,257 $ 25,097 $ 62,096
US Federal................................ (378,744) (4,156,228) 53,000 (847,490) (170,863)
US State and City......................... (159,141) (104,340) 52,893 (99,704) (43,420)
----------- ------------- ------------- ----------- -----------
$ (329,558) $ (3,904,035) $ 543,150 $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
Deferred:
US Federal................................ $ 44,670 $ 1,402,757 $ (1,040,350) -- --
US State and City......................... 86,713 247,546 (184,000) -- --
----------- ------------- ------------- ----------- -----------
131,383 1,650,303 (1,224,350) -- --
----------- ------------- ------------- ----------- -----------
Income tax benefits......................... $ (198,175) $ (2,253,732) $ (681,200) $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
</TABLE>
The income tax benefit varies from the U.S. federal statutory rate. The
following reconciliation shows the significant differences in the tax at
statutory and effective rates:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Federal income tax expense (benefit), at
statutory rate of 34%..................... $ 23,795 $ (4,100,000) $ 953,000 $ (796,000) $ (246,041)
State income tax expense (benefit), net of
federal tax benefits...................... (47,803) (587,000) 47,000 (93,291) (28,656)
Changes in deferred tax valuation
allowance................................. -- 2,868,500 (1,363,500) -- --
Non-deductible expenses..................... 31,586 28,980 4,657 -- 187,471
Non-taxable income.......................... -- -- (5,987) -- --
Prior year (over) under accrual(*).......... (15,158) (213,745) 146,373 -- --
Tax effect of differences in U.S. and Hong
Kong statutory rates...................... (190,595) (250,467) (462,743) (32,806) (64,961)
----------- ------------- ------------- ----------- -----------
Income tax benefits......................... $ (198,175) $ (2,253,732) $ (681,200) $ (922,097) $ (152,187)
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
</TABLE>
- ------------------------
(*) relates to changes in estimated tax charges for financial reporting
purposes.
F-16
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
The components of deferred tax assets/(liabilities) are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1996 1997
------------- -----------
Deferred tax assets:
Current:
Reserve for sales allowances and doubtful accounts................................. $ 503,000 $ 362,850
Inventory reserves................................................................. 628,000 573,000
Accrued expenses................................................................... 56,500 55,500
Other.............................................................................. -- 16,000
------------- -----------
1,187,500 1,007,350
------------- -----------
Long term:
Design costs....................................................................... 720,000 616,000
Property and equipment............................................................. 59,000 203,000
Accrued expenses................................................................... 29,000 29,000
Legal fees--trademarks............................................................. 189,000 190,000
State net operating loss carryovers................................................ 684,000 684,000
------------- -----------
1,681,000 1,722,000
------------- -----------
Total deferred tax assets............................................................ 2,868,500 2,729,350
Deferred tax liabilities:
Property and equipment............................................................. (159,772) (159,772)
Less valuation allowance............................................................. (2,868,500) (1,505,000)
------------- -----------
Net deferred tax assets (liabilities)................................................ $ (159,772) $ 1,064,578
------------- -----------
------------- -----------
</TABLE>
Deferred taxes result from temporary differences between tax bases of assets
and liabilities and their reported amounts in the financial statements. The
temporary differences result from costs required to be capitalized for tax
purposes by the US Internal Revenue Code, and certain items accrued for
financial reporting purposes in the year incurred but not deductible for tax
purposes until paid.
Because of the Company's U.S. losses in 1995 and 1996, a valuation allowance
for the deferred tax assets was provided due to the uncertainty as to future
realization. During the year ended March 31, 1997, the valuation allowance was
reduced to reflect a net deferred tax asset equal to the anticipated tax benefit
of the temporary differences which are expected to be realized within one year
based on the Company's 1998 projected U.S. income.
8. COMMITMENTS AND CONTINGENCIES
LONG-TERM OBLIGATIONS
The Company leases general and administrative, warehouse and showroom
facilities under non-- cancelable leases which expire at various dates. Certain
of the leases on real estate include the payment of property taxes. Warehouse
space is leased on a monthly basis.
F-17
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company rents a showroom from one of its shareholders who is also a
director of the Company, under a two--year lease commencing August 1, 1996 for a
monthly rent of $5,900. The lease provides for the Company to also pay all real
estate taxes and other charges and for a security deposit of $11,794.
The subsidiary leases certain equipment under capital leases. The gross
amount of assets recorded under capital leases is $250,775. Depreciation expense
provided on such assets is included in both cost of goods sold and selling and
administrative expenses in the statements of operations. Equipment with a net
book value of $137,455 was collateralized under capital leases.
Future minimum lease payments under all leases with non--cancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING MARCH 31, LEASES LEASES
- ---------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
1998.................................................................................... $ 522,782 $ 40,611
1999.................................................................................... 462,271 8,847
2000.................................................................................... 448,392 --
2001.................................................................................... 458,394 --
2002.................................................................................... 468,695 --
Thereafter.............................................................................. 885,441 --
------------ ----------
$ 3,245,975 49,458
------------
------------
Less amounts representing interest...................................................... 3,444
----------
Present value of capital lease payments................................................. 46,014
Less current portion.................................................................... 37,714
----------
Long-term obligation.................................................................... $ 8,300
----------
----------
</TABLE>
Rent expense for the years ended March 31, 1995, 1996 and 1997 was $330,943,
$332,653 and $364,066, respectively. Rent expense for the six months ended June
30, 1996 and 1997 was $136,810 and $170,872, respectively.
RAW MATERIAL
Subsequent to March 31, 1997, the Company sold part of its raw material
inventory at cost to an affiliate, Tai Nam Industrial Limited, for a total of
$664,141.
EMPLOYMENT AGREEMENTS
The Company has employment agreements in effect with certain key officers
and employees, which expire at various dates through January 1999. The total
annual salaries under these agreements amount to approximately $755,000 and
$291,000 for fiscal 1998 and 1999, respectively.
GUARANTY OF AFFILIATE'S LOAN AGREEMENT
Toymax HK, along with other affiliates, is a guarantor on Tai Nam's general
banking facilities agreement with a bank. The agreement provides for an
import/export line of credit of approximately $3.2
F-18
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
million, of which $260,000 is jointly available to the Company. As of March 31,
1996 and 1997 and June 30, 1997, Tai Nam had borrowed approximately $2.2
million, $2.5 million and $3.3 million, respectively. Toymax HK had no
borrowings under this line of credit as of March 31, 1996 and 1997.
LITIGATION
The Company is involved in various legal proceedings in the ordinary course
of its business activities. The Company believes that the resolution of such
legal proceedings and claims, individually and in aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations.
In or about November 1996 a company with which the Company had a
representation agreement initiated a lawsuit against Toymax NY and Toymax HK
alleging breach of contract, tortious interference with the contract and unjust
enrichment. The complaint alleges that the Companies breached a provision of a
1993 Representation Agreement by failing to pay its royalties from January 1996.
The plaintiff seeks an accounting, unspecified damages and attorney's fees. The
Companies served their answer, affirmative defenses and counterclaims, denying
all of the substantive claims in the complaint. The counterclaim seeks damages
arising out of breach of the Representation Agreement by the plaintiff.
Management believes that there is no merit to the plaintiff's claim and intends
to defend against them and to prosecute its counterclaim vigorously.
In April 1997, a developer of toy games filed a complaint against the
Company alleging breach of express and implied contracts, unjust enrichment,
misappropriation, conversion and tortious interference with the contract and
seeking damages of $1.0 million. The substance of the allegations are that the
Company orally agreed to pay royalties to this developer relating to a game
allegedly conceived by the developer. Upon motion to the court, the Company has
been granted an extension for its response. The Company believes there is no
merit to this claim and intends to defend the action vigorously.
In April 1996, the Company filed a complaint against a marketing company
from which it also licenses certain trademarks. The Company alleged eight claims
of breach of contract and misrepresentation, seeking compensatory damages of $20
million. In addition, the Company alleged three claims of misrepresentation and
breach of contract, arising from the defendants alleged breach of a license
agreement between the parties. In connection with these additional claims, the
Company sought $2 million. In July 1996, the defendants filed counterclaims
against the Company, alleging breach of contract, seeking an accounting,
alleging a constructive trust, unjust enrichment and conversion, seeking in
excess of $750,000. Discovery in these matters is ongoing and the Company
intends to prosecute and defend these actions vigorously. There can be no
assurance as to the outcome of these lawsuits.
9. MAJOR CUSTOMERS
The Company's top five customers accounted for approximately 58%, 58% and
69% of the Company's net sales in 1995, 1996 and 1997, respectively. These
customers accounted for approximately 71% and 63% of the Company's net sales in
the three months ended June 30, 1996 and 1997, respectively. Net sales to Toys
"R" Us accounted for more than 10% of net sales during each of the above
periods.
F-19
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
10. EMPLOYEE BENEFIT PLAN
Toymax NY has a tax deferred retirement savings plan which is intended to
qualify under Section 401(k) of the Internal Revenue Code. Eligible participants
may contribute a percentage of their compensation, but not in excess of the
maximum allowed under the Internal Revenue Code. The plan provides for matching
contributions at Toymax NY's option. Toymax NY made no contributions for the
years ended March 31, 1995, 1996 and 1997.
F-20
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
11. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
The Company operates in one business segment--the importation and wholesale
distribution of toys. Operations in different geographic areas are summarized
below (net of consolidating eliminations):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 15,359,287 $ 55,263,625 $ 70,622,912
INCOME (LOSS) BEFORE INCOME TAX BENEFIT............................. 1,273,301 (1,203,316) 69,985
IDENTIFIABLE ASSETS................................................. 2,682,039 22,794,093 25,476,132
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- -------------- --------------
REVENUES--NET SALES............................................... $ 16,670,909 $ 26,950,690 $ 43,621,599
INCOME (LOSS) BEFORE INCOME TAX BENEFIT........................... 1,787,453 (13,845,268) (12,057,815)
IDENTIFIABLE ASSETS............................................... 2,384,642 19,742,046 22,126,688
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 15,889,930 $ 38,792,705 $ 54,682,635
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND MINORITY
INTEREST IN NET LOSS OF SUBSIDIARY................................ 2,646,398 7,796 2,654,194
IDENTIFIABLE ASSETS................................................. 1,901,514 24,376,328 26,277,842
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 1,686,276 $ 992,638 $ 2,678,914
INCOME (LOSS) BEFORE INCOME TAX BENEFIT............................. 152,376 (2,492,617) (2,340,241)
IDENTIFIABLE ASSETS................................................. 2,278,802 15,788,858 18,067,460
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG UNITED STATES CONSOLIDATED
------------- ------------- -------------
REVENUES--NET SALES................................................. $ 2,631,509 $ 4,459,353 $ 7,090,862
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND MINORITY
INTEREST IN NET LOSS OF SUBSIDIARY................................ 184,210 (723,651) (539,441)
IDENTIFIABLE ASSETS................................................. 2,623,216 19,912,715 22,535,931
</TABLE>
12. SUBSEQUENT EVENTS
(A) PUBLIC OFFERING
The Company has signed an agreement with an underwriter in connection with a
proposed public offering of up to 3,105,000 shares of the Company's common
stock, and the Company will issue warrants to the underwriter to purchase
195,750 shares of Common Stock at a price equaling 120% of the initial public
F-21
<PAGE>
TOYMAX INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997 IS UNAUDITED)
12. SUBSEQUENT EVENTS (CONTINUED)
offering price. There will be no charges to operations as a result of the
issuance of common stock and warrants to the underwriter.
(B) REORGANIZATION
In connection with the proposed public offering, the Company intends to
reorganize, authorize preferred stock and establish a Stock Option Plan. See
details discussed in Note 1 and 12(c).
(C) STOCK OPTION PLAN
In , 1997, the Board of Directors adopted and the stockholders of the
Company approved the Stock Option Plan. The Stock Option Plan provides for the
grant to qualified employees (including officers and directors) of the Company
of options to purchase shares of the Common Stock. A total of 750,000 shares of
Common Stock will be reserved by the Company for issuance upon exercise of stock
options granted or which may be granted under the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors or by a
committee (the "Committee") consisting of two or more "independent" directors.
The Board and/or Committee have complete discretion to select the optionee and
to establish the terms and conditions of each option, subject to the provisions
of the Plan. Options granted under the Stock Option Plan may or may not be
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
("Incentive Options") depending upon the terms established by the Board or
Committee at the time of grant, but the exercise of Incentive Options granted
may not be less than 100% of the fair market value of the Common Stock as of the
date of the grant (110% of the fair market value if the grant is an Incentive
Option to an employee who owns more than 10% of the outstanding voting power of
the Company). Options may not be exercised more than 10 years after the grant
(five years if the grant is an Incentive Option to any employee who owns more
than 10% of the outstanding voting power of the Company). Options granted under
the Stock Option Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the Stock Option Plan, shares
subject to cancelled or terminated options are reserved for subsequently granted
options. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.
Prior to the closing of the Offering, the Company intends to grant options
to purchase an aggregate of 414,000 shares of Common Stock Option Plan to
certain officers and directors of the Company. There will be no charges to
operations as a result of the granting of these options.
(D) SALE OF STOCK
In December 1996, the principal shareholder sold 103,084 shares to certain
officers, employees and business associates and 150,000 shares to other persons
for an aggregate amount of approximately $709,000 based upon management's
estimate of fair value.
In June 1997, the principal shareholder sold 66,833 shares to certain
officers, employees and business associates for an aggregate amount of
approximately $187,000 and recorded non-cash compensation of an additional
$187,000 representing management's estimate of the discount from fair value.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION TO BUY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO 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 THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
The Offering.................................... 6
Summary Financial Data.......................... 7
Risk Factors.................................... 8
The Reorganization.............................. 16
Use of Proceeds................................. 17
Dilution........................................ 18
Dividend Policy................................. 18
Capitalization.................................. 19
Selected Consolidated Financial Data............ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business........................................ 32
Management...................................... 50
Principal Stockholders.......................... 57
Certain Relationships and Related
Transactions.................................. 58
Description of Securities....................... 60
Shares Eligible for Future Sale................. 61
Certain Federal Tax Consequences................ 62
Underwriting.................................... 64
Legal Matters................................... 65
Experts......................................... 65
Additional Information.......................... 66
Index to Consolidated Financial Statements...... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
[LOGO]
TOYMAX
INTERNATIONAL, INC.
2,700,000 SHARES
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FAHNESTOCK & CO. INC.
WEDBUSH MORGAN SECURITIES
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereunder
(including the shares of Common Stock which may be issued pursuant to the
over-allotment option). All of the amounts shown are estimates (except for the
SEC and the NASD registration fees).
<TABLE>
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SEC filing fee.................................................... $ 9,109
NASD filing fee................................................... 3,793
NASDAQ listing fee................................................ 43,000
Transfer agent's fee.............................................. 3,500
Printing and engraving expenses................................... 120,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 150,000
Miscellaneous expenses............................................ 20,598
---------
Total......................................................... $ 650,000
---------
---------
</TABLE>
- ------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws provide
that the Registrant will indemnify its directors, executive officers, other
officers, employees and agents to the fullest extent permitted by Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation provides
for the elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1 to
this Registration Statement) which provides for indemnification by the
Underwriters and their controlling persons, on the one hand, and of the
Registrant and its controlling persons on the other hand, against certain civil
liabilities, including liabilities under the Securities Act.
The Registrant intends to apply for a director and officer liability
insurance policy, under which each director and certain officers of the Company
would be insured against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES.
The Registrant was organized as a Delaware corporation on August 6, 1997.
The only shares issued by the Registrant are 7,500,000 shares of Common Stock
issued in exchange for 425,686 shares of Common Stock and 24,224 shares of
Preferred Stock of Toymax (H.K.) Limited held by the stockholders of Toymax
(H.K.) Limited.
The Company believes that the issuances described above were made in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Section 4(2) of the Securities Act for transactions by an issuer
not involving a public offering. No underwriter or underwriting discount or
commission was involved in any of such issuances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following Exhibits are filed herewith and made a part hereof.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(a) Certificate of Incorporation of the Registrant.
3.1(b) Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen Stock Certificate for shares of Common Stock.
4.2 Form of Representative's Warrant Agreement including Form of Redeemable
Warrant Certificate.
5.1 Opinion of Baer Marks & Upham LLP.
10.1 Form of 1997 Stock Option Plan.
10.2 Form of Executive Bonus Plan.
*10.3 Agreement of lease of the Company's offices at 125 E. Bethpage Road,
Plainview, New York.
*10.4 Lease of the Company's showroom at 200 Fifth Avenue, New York, New York,
as amended.
*10.5 Tenancy Agreement between David Chu Ki Kwan, Frances Leung Shuk Kuen and
Toymax (H.K.) Limited for the Company's showroom at Concordia Plaza, No. 1
Science Museum Road, Tsimshatsui East, Kowloon
*10.6 Agency Agreement dated April 1, 1997, between the Company and Tai Nam.
*10.7 Credit Facility Agreement dated June 12, 1997 between the Company and
State Street.
10.8 Security Agreement with State Street dated June 17, 1997.
*10.9 Factoring Agreement dated June 4, 1991 between the Company and Congress
Talcott Corporation, as amended.
10.10 Deed of Cross Guarantees by Tai Nam, Charter King Limited, Concentric and
Toymax HK to the Hong Kong and Shanghai Banking Corporation Limited.
10.11 Form of Employment Agreement with Steven Lebensfeld.
10.12 Form of Employment Agreement with Harvey Goldberg.
10.13 Form of Employment Agreement with Kenneth Price.
10.14 Form of Employment Agreement with Carmine Russo.
10.15 Form of Employment Agreement with Andrew Stein.
10.16 Form of Employment Agreement with William A. Johnson, Jr.
10.17 Form of Manufacturing Agreement between the Company, Tai Nam and
Jauntiway.
</TABLE>
II-2
<PAGE>
<TABLE>
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10.18 Form of Amendment to Agency Agreement between the Company and Tai Nam.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP (filed as part of Exhibit 5.1).
23.2 Consent of BDO Seidman LLP, independent certified public accountants.
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors.
*24.1 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules
All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) to file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volumes and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment 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) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) Insofar as indemnification for liabilities arising under the Act 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
II-3
<PAGE>
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.
(d)(1) For purposes of determining any liability under the Securities
Act, 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 as part of this registration
statement as of the time it was declared effective.
(2) For determining any liability under the Securities Act, 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 that offering of such securities at that time shall be deemed
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 23rd day of September, 1997.
TOYMAX INTERNATIONAL, INC.
BY: /S/ STEVEN A. LEBENSFELD
-----------------------------------------
Steven A. Lebensfeld
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this registration statement has been signed by the following persons in
the capacities and on the dates stated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman
- ------------------------------ September 23, 1997
David Ki Kwan Chu
/s/ STEVEN A. LEBENSFELD President (Principal
- ------------------------------ Executive Officer) and September 23, 1997
Steven A. Lebensfeld Director
* Executive Vice President
- ------------------------------ and Director September 23, 1997
Harvey Goldberg
Chief Financial Officer and
/s/ WILLIAM A. JOHNSON, JR. Treasurer (Principal
- ------------------------------ Financial and Accounting September 23, 1997
William A. Johnson, Jr. Officer)
<TABLE>
<S> <C> <C>
/s/ WILLIAM A. JOHNSON, JR.
-------------------------------------
William A. Johnson, Jr.
*By: ATTORNEY-IN-FACT
/S/ STEVEN A. LEBENSFELD
-------------------------------------
Steven A. Lebensfeld
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1(a) Certificate of Incorporation of the Registrant.
3.1(b) Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen Stock Certificate for shares of Common Stock.
4.2 Form of Representative's Warrant Agreement including Form of Redeemable Warrant
Certificate.
5.1 Opinion of Baer Marks & Upham LLP.
10.1 Form of 1997 Stock Option Plan.
10.2 Form of Executive Bonus Plan.
10.8 Security Agreement with State Street dated June 17, 1997.
10.10 Deed of Cross Guarantees by Tai Nam, Charter King Limited, Concentric and Toymax HK to
the Hong Kong and Shanghai Banking Corporation Limited.
10.11 Form of Employment Agreement with Steven Lebensfeld.
10.12 Form of Employment Agreement with Harvey Goldberg.
10.13 Form of Employment Agreement with Kenneth Price.
10.14 Form of Employment Agreement with Carmine Russo.
10.15 Form of Employment Agreement with Andrew Stein.
10.16 Form of Employment Agreement with William A. Johnson, Jr.
10.17 Form of Manufacturing Agreement between the Company, Tai Nam and Jauntiway.
10.18 Form of Amendment to Agency Agreement between the Company and Tai Nam.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP (filed as part of Exhibit 5.1).
23.2 Consent of BDO Seidman LLP, independent certified public accountants.
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors.
27 Financial Data Schedule
</TABLE>
- ------------------------
<PAGE>
Exhibit 1.1
OH&S DRAFT
(Subject to client review)
2,700,000 SHARES OF COMMON STOCK
TOYMAX INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
_____________, 1997
FAHNESTOCK & CO. INC.
WEDBUSH MORGAN SECURITIES
As Representatives of the Several
Underwriters listed on Schedule A hereto
c/o Fahnestock & Co. Inc.
110 Wall Street
New York, New York 10005
Ladies and Gentlemen:
Toymax International, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Fahnestock & Co. Inc. ("Fahnestock"), Wedbush Morgan
Securities ("Wedbush") and each of the underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in SECTION 11), for whom Fahnestock and
Wedbush are acting as representatives (the "Representatives"), with respect to
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the respective numbers of shares of the Company's common
stock, $.01 par value per share ("Common Stock"), set forth in Schedule A
hereto. Such shares of Common Stock are hereinafter referred to as the "Firm
Shares."
Upon your request, as provided in SECTION 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 405,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"). The Firm Shares and the Option
Shares are sometimes hereinafter referred to as the "Shares." The Company also
proposes to issue and sell to the Representatives warrants (the
"Representatives' Warrants") pursuant to the Representatives' Warrant Agreement
(the "Representatives' Warrant Agreement") for the purchase of an additional
aggregate 195,750 shares of Common Stock. The shares of Common Stock issuable
upon exercise of the Representatives' Warrants are hereinafter referred to as
the "Representatives' Shares." The Firm Shares, the Option Shares, the
Representative's Warrants and the Representative's Shares (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
<PAGE>
Prior to August 6, 1997, the Company's business was conducted by
Toymax Inc., a New York corporation, Toymax (H.K.) Limited, a private limited
company organized under the laws of Hong Kong, Toymax (Bermuda) Limited, a
company organized under the laws of Bermuda, Toymax (Canada) Limited, a
corporation organized under the laws of the Province of Ontario and Toymax
(U.K.) Limited, a company organized under the laws of England and Wales
(collectively, the "Predecessors"). The Company represents and warrants that
all of the representations and warrants of the Company contained herein shall,
except as described in the Registration Statement and the Prospectus referred to
below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-33409), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares and the Option Shares under the Securities Act of 1933, as
amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Regulations") of the Commission under
the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters, and
will not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Rules and Regulations" mean the rules and regulations adopted by the Commission
under either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or to the Company's knowledge, threatened. Each of the Preliminary Prospectus,
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein and necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, PROVIDED, HOWEVER, that this representation and
<PAGE>
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in such Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, PROVIDED, HOWEVER, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any Underwriter expressly for use in the
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(d) Each of the Company, Toymax Inc. ("Toymax N.Y."), Toymax
(H.K.) Limited ("Toymax (H.K.)"), Toymax (Bermuda) Limited ("Toymax Bermuda"),
Toymax (Canada) Limited ("Toymax (Canada)") and Toymax (U.K.) Limited ("Toymax
UK") has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation. Toymax NY,
Toymax (H.K.), Toymax Bermuda, Toymax (Canada) and Toymax UK shall collectively
be referred to herein as the "Subsidiaries." Neither the Company nor the
Subsidiaries owns an interest in any corporation, partnership, trust, joint
venture or other business entity. Each of the Company and its Subsidiaries is
duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing. Each of
the Company and its Subsidiaries has all requisite corporate power and
authority, and each of the Company and its Subsidiaries has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and its Subsidiaries is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state
and local laws, rules and regulations; and neither the Company nor the
Subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company and its Subsidiaries, taken as a whole. The
disclosures in the Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's and the
Subsidiaries' business as currently conducted and as contemplated are correct in
all material respects and do not omit to state a material fact
- 3 -
<PAGE>
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representatives' Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
by reason of being such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities to be sold by the Company hereunder, the Underwriters or the
Representatives, as the case may be, will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever.
(f) The consolidated financial statements, including the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity, and the results
of operations of the Company and the Subsidiaries at the respective dates and
for the respective periods to which they apply and the pro forma financial
information included in the Registration Statement and Prospectus presents
fairly, on a basis consistent with that of the audited financial statements
included therein, what the Company's pro forma capitalization would have been
for the respective periods and as of the respective dates to which they apply
after giving effect to the adjustments described therein. Such financial
statements have been prepared in conformity with generally accepted accounting
principles and the Rules and Regulations, consistently applied throughout the
periods involved. There has been no adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company and the Subsidiaries whether or not arising
in the ordinary course of business, since the date of the financial statements
included in the Registration Statement and the Prospectus, and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company and the Subsidiaries conform in all material
- 4 -
<PAGE>
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. Financial information set forth in the Prospectus under the
headings "Summary Consolidated Financial Data," "Selected Consolidated Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) Each of the Company and the Subsidiaries (i) has paid all
federal, state, local, and foreign taxes for which it is liable and for which
payment is due, including, but not limited to, withholding taxes and amounts
payable under Chapters 21 through 24 of the Internal Revenue Code of 1986 (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Securities to be sold by the Company hereunder and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement or
the Representatives' Warrant Agreement, or (iv) resales of the Shares in
connection with the distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, product liability
and property insurance, which insures the Company, the Subsidiaries and their
respective employees, against such losses and risks generally insured against by
comparable businesses. Neither the Company nor any of the Subsidiaries (A) has
failed to give notice or present any insurance claim with respect to any matter,
including but not limited to the Company's business, property or employees,
under the insurance policy or surety bond in a due and timely manner, (B) has
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
or (C) has failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or any Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or any of the Subsidiaries which (i) questions the validity of the capital stock
of the Company, this Agreement or the Representatives' Warrant Agreement or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representatives' Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and
- 5 -
<PAGE>
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company.
(k) The Company has full legal right, corporate power and
authority to authorize, issue, deliver and sell the Securities, enter into this
Agreement and the Representatives' Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and the
Representatives' Warrant Agreement have each been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement and the
Representatives' Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provisions may be limited under applicable
laws or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representatives'
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiaries pursuant
to the terms of, (i) the certificate of incorporation or by-laws of any of the
Company or the Subsidiaries, (ii) any license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which any of the
Company or the Subsidiaries is a party or by which it is or may be bound or to
which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to any of the Company or the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over any of the Company or the Subsidiaries or any of its
activities or properties.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Representatives' Warrants, the performance of
this Agreement and the Representatives' Warrant Agreement and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Shares or the Representatives' Warrants,
except such as have been or may be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the
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<PAGE>
Underwriters' purchase and distribution of the Shares, and the Representatives'
Warrants to be sold by the Company hereunder and under the Representative's
Warrant Agreement.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which any of the Company or the Subsidiaries is a
party or by which it may be bound or to which any of its assets, properties or
business may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute the legal, valid and binding agreements
of the Company or the Subsidiaries, as the case may be, enforceable against the
Company, in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
in all material respects and fairly present the information required to be shown
with respect thereto on Form S-1, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are in all material respects
complete and correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or
(iii) declared or paid any dividend or made any other distribution on or in
respect of its capital stock of any class, and there has not been any change in
the capital stock, or any material change in the debt (long or short term) or
liabilities or material adverse change in or affecting the general affairs,
management, financial operations, stockholders' equity or results of operations
of the Company or any of the Subsidiaries.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected.
(p) Each of the Company and the Subsidiaries has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or any of the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of the Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any of the Subsidiaries, or any predecessor entity, and
none
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<PAGE>
has ever occurred. No representation question exists respecting the employees
of the Company or any of the Subsidiaries, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
and the Subsidiaries. No grievance or arbitration proceeding is pending under
any expired or existing collective bargaining agreements of the Company or any
of the Subsidiaries. No labor dispute with the employees of the Company exists,
or, is imminent.
(q) Except as described in the Prospectus, neither the Company
nor any of the Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in SECTIONS
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any
of the Subsidiaries maintains or contributes, now or at any time previously, to
a defined benefit plan, as defined in SECTION 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of SECTION 406 of ERISA or SECTION 4975 of the Code, which could
subject the Company or any of the Subsidiaries to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is in
compliance with all reporting, disclosure and other requirements of the Code and
ERISA as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan which
is intended to comply with Code SECTION 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, the Subsidiaries, nor any of their
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, service names, trade
names and copyrights, and none of the licenses and rights to the foregoing
presently owned or held by the Company or any of the Subsidiaries are in dispute
or are in any conflict with the right of any other person or entity. Each of
the Company and the Subsidiaries (i) owns or has the right to use, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, all patents,
patent applications, trademarks, service marks, service names, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, patent application, trademark, service
mark, service name, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
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<PAGE>
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or threatened (or circumstances that may give rise to the same)
against the Company which challenges the exclusive rights of the Company with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of its business, or which challenge the right of the Company
to use any technology presently used or contemplated to be used in the conduct
of its business.
(u) Each of the Company and the Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, technology, designs, processes, works of authorship,
computer programs and technical data and information (collectively herein
"intellectual property") that are material to the development, manufacture,
operation and sale of all products and services sold or proposed to be sold by
the Company or any of the Subsidiaries, free and clear of and without violating
any right, lien, or claim of others, including without limitation, former
employers of its employees; provided, however, that the possibility exists that
other persons or entities, completely independently of the Company or any of the
Subsidiaries, or their employees or agents, could have developed trade secrets
or items of technical information similar or identical to those of the Company
or any of the Subsidiaries. Neither the Company nor any of the Subsidiaries is
aware of any such development of similar or identical trade secrets or technical
information by others.
(v) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus, taxes, lessor's interests and
liens for taxes not yet due and payable.
(w) Deloitte & Touche LLP ("Deloitte") and BDO Seidman, LLP
("BDO") whose reports are filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as required
by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which the holders of the Common Stock and
holders of securities exchangeable or exercisable for or convertible into shares
of Common Stock agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate,
distribute or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than nine (9) months
following the effective date of the Registration Statement without the prior
written consent of Fahnestock. During the nine (9) month period commencing on
the effective date of the Registration Statement, the Company shall not, without
the prior written consent of the Representatives, sell, contract or offer to
sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except up to [_______]
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<PAGE>
shares of Common Stock reserved for grants of options under the Company's stock
option plan as described in the Prospectus. The Company will cause the Transfer
Agent, as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(y) Except as described in the Prospectus under "Underwriting,"
there are no claims, payments, issuances, arrangements or understandings,
whether oral or written, for services in the nature of a finder's or origination
fee with respect to the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company, the Subsidiaries or any of their respective officers, directors,
stockholders, partners, employees or affiliates that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(z) The Common Stock has been approved for quotation on the
Nasdaq National Market ("Nasdaq").
(aa) Neither the Company nor any of the Subsidiaries nor any of
their respective officers, employees, agents, or any other person acting on
behalf of the Company or the Subsidiaries, has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist the Company or the
Subsidiaries in connection with any actual or proposed transaction) which (a)
might subject the Company or the Subsidiaries, or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
or any Subsidiary, or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company or any of the
Subsidiaries. The Company's and each Subsidiary's internal accounting controls
are sufficient to cause the Company to comply with the Foreign Corrupt Practices
Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director
or stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company or any Subsidiary, or (B) purchases from or sells or furnishes to
the Company or any Subsidiary any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company or any Subsidiary is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director, or Principal Shareholder (as such term is defined in the
Prospectus) of the
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<PAGE>
Company or any Subsidiary, or any partner, affiliate or associate of any of the
foregoing persons or entities.
(cc) Any certificate signed by any officer of the Company or any
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(dd) The minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contains a complete summary of
all meetings and actions of the directors, stockholders, audit committee,
compensation committee and any other committee of the Board of Directors of each
of the Company and the Subsidiaries, since the time of its incorporation, and
reflects all transactions referred to in such minutes accurately in all material
respects.
(ee) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ff) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with Steven Lebensfeld,
Harvey Goldberg, Kenneth Price, Carmine Russo and Andrew Stein, in the forms
filed as Exhibit 10.3, 10.4, 10.5, 10.6 and 10.7, respectively, to the
Registration Statement and (ii) purchased individual term key-man insurance
policies on the lives of Steven Lebensfeld and Harvey Goldberg, in the amount of
$1,500,000, which policies name the Company as the sole beneficiary.
(gg) As of the date hereof, the Company has effected: (i) the
reorganization pursuant to which (i) Toymas HK contributes all of the
outstanding capital stock of Toymax NY and Toymax UK to the Company and (ii) the
stockholders of Toymax HK exchanged all of their shares of Toymax HK stock for
substantially all of the shares of the Company (the "Reorganization"). The
Reorganization has been duly and validly authorized by each of the Company, the
Predecessors and the Subsidiaries and their respective shareholders, partners
and/or members and all certificates, agreements, contracts, minutes or other
documents necessary to effect the Reorganization (collectively, the
"Reorganization Documents") have been duly and validly authorized, executed and
delivered and, if necessary, filed with the appropriate regulatory body,
government agency or other body, domestic or foreign, by the appropriate
parties, and constitute the legal, valid and binding agreements of such parties,
enforceable against each of them in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
execution or delivery of any of the Reorganization Documents by the parties
thereto, the performance by the Company and the Subsidiaries hereunder or by the
Company, the Subsidiaries and the
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Predecessors thereunder, or consummation of the transactions contemplated herein
or therein, conflicts with or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of any of the Company or the Subsidiaries pursuant to
the terms of, (A) the certificate of incorporation or by-laws of any of the
Company or the Subsidiaries, (B) any license, contract, collective bargaining
agreement, indenture, mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which any of the Company or the Subsidiaries is a party or by
which it is or they are or may be bound or to which any of its or their
respective properties or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to any of the Company or the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over any of the Company or the Subsidiaries or any of its or their
respective activities or properties. The Reorganization Documents effectively
convey to the Company all right, title and interest to the business of the
Company as described in the Prospectus; and the descriptions in the Registration
Statement of the Reorganization are accurate and fairly present the information
required to be shown with respect thereto by Form S-1.
[(hh) representations and warranties related to the
reorganization and manufacturing and purchase/agency agreements to come.]
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND
REPRESENTATIVES' WARRANTS.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$______ per share of Common Stock, that number of Firm Shares set forth in
Schedule A opposite the name of such Underwriter, plus any additional number of
Firm Shares which such Underwriter may become obligated to purchase pursuant to
the provisions of SECTION 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of the
Option Shares. The option granted hereby will expire 30 days after (i) the date
the Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Rules and Regulations, or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the Representatives
to the Company setting forth the number of Option Shares as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Shares. Any such time and date of delivery (an
"Option
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<PAGE>
Closing Date") shall be determined by the Representatives, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representatives and the Company. Nothing herein contained
shall obligate the Underwriters to make any over-allotments. No Option Shares
shall be delivered unless the Firm Shares shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of Fahnestock &
Co. Inc., 100 Wall Street, New York, New York 10005, or at such other place as
shall be agreed upon by the Representatives and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on _______________,
1997 or at such other time and date as shall be agreed upon by the
Representatives and the Company, but not less than three (3) nor more than seven
(7) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Shares are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Shares shall be made at the above mentioned
office of the Representatives or at such other place as shall be agreed upon by
the Representatives and the Company on each Option Closing Date as specified in
the notice from the Representatives to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Underwriters against payment by the Underwriters, severally and not jointly,
of the purchase price for the Firm Shares and the Option Shares, if any, to the
order of the Company for the Firm Shares and the Option Shares, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Shares then being purchased which the number of
Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter
bears to the total number of Firm Shares, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for the Firm Shares
and the Option Shares, if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least two
(2) business days prior to the Closing Date or the relevant Option Closing Date,
as the case may be. The certificates for the Firm Shares and the Option Shares,
if any, shall be made available to the Representatives at such office or such
other place as the Representatives may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives, Representatives' Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 195,750 shares of Common Stock. The Representatives' Warrants
shall be exercisable for a period of four years commencing one year from the
effective date of the Registration Statement at a price equaling one hundred
twenty percent (120%) of the initial public offering price of the shares of
Common Stock. The Representatives' Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [4.2] to the
Registration Statement. Payment for the Representatives' Warrants shall be made
on the Closing Date.
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<PAGE>
3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration
Statement becomes effective as the Representatives deem advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representatives may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representatives, in their discretion deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY.
(a) The Company covenants and agrees with each of the Underwriters as
follows:
i) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective
as promptly as practicable and will not at any time, whether before or
after the effective date of the Registration Statement, file any
amendment to the Registration Statement or supplement to the
Prospectus or file any document under the Act or Exchange Act before
termination of the offering of the Shares by the Underwriters of which
the Representatives shall not previously have been advised and
furnished with a copy, or to which the Representatives shall have
objected or which is not in compliance with the Act, the Exchange Act
or the Rules and Regulations.
ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the
notice in writing, (i) when the Registration Statement, as amended,
becomes effective, if the provisions of Rule 430A promulgated under
the Act will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any post-effective amendment
to the Registration Statement becomes effective, (ii) of the issuance
by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use
of the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, or the institution of proceedings for that
purpose, (iii) of the issuance by the Commission or by any state
securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from
the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information. If the Commission or
any state securities commission authority shall enter a stop order or
suspend such qualification at any time, the Company will make every
effort to obtain promptly the lifting of such order.
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<PAGE>
iii) The Company shall file the Prospectus (in form and
substance satisfactory to the Representatives) or transmit the
Prospectus by a means reasonably calculated to result in filing with
the Commission pursuant to Rule 424(b)(1) (or, if applicable and if
consented to by the Representatives, pursuant to Rule 424(b)(4)) not
later than the Commission's close of business on the earlier of (i)
the second business day following the execution and delivery of this
Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
iv) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which
the Company proposes for use by the Underwriters in connection with
the offering of the Securities which differs from the corresponding
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representatives with copies of any
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
prospectus to which the Representatives or Orrick, Herrington &
Sutcliffe LLP ("Underwriters' Counsel"), shall object.
v) The Company shall endeavor in good faith, in cooperation
with the Representatives, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering
and sale under the securities laws of such jurisdictions as the
Representatives may designate to permit the continuance of sales and
dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose;
PROVIDED, HOWEVER, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of
process in any such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the
Representatives agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements
or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
vi) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts
to comply with all requirements imposed upon it by the Act and the
Exchange Act, as now and hereafter amended and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus, or any
amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of
counsel for the Company or
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Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any
time to amend the Prospectus to comply with the Act, the Company will
notify the Representatives promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with
SECTION 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will furnish to
the Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.
vii) As soon as practicable, but in any event not later than
45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (90 days in the
event that the end of such fiscal quarter is the end of the Company's
fiscal year), the Company shall make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules
and Regulations, and to the Representatives, an earnings statement
which will be in the detail required by, and will otherwise comply
with, the provisions of SECTION 11(a) of the Act and Rule 158(a) of
the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least 12 consecutive
months after the effective date of the Registration Statement.
viii) During a period of seven years after the date hereof,
the Company will furnish to its stockholders annual reports (including
financial statements audited by independent public accountants) and
will deliver to the Representatives:
(a) concurrently with furnishing such quarterly
reports to its stockholders, statements of income of the Company
for each quarter in the form furnished to the Company's
stockholders and certified by the Company's principal financial
or accounting officer;
(b) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, stockholders' equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the report thereon
of independent certified public accountants;
(c) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(d) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
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(e) every press release and every material news item
or article of interest to the financial community in respect of
the Company, or its affairs which was released or prepared by or
on behalf of the Company; and
(f) any additional information of a public nature
concerning the Company (and any future subsidiary) or its
businesses which the Representatives may request.
During such five (5)-year period, if the Company has an
active subsidiary, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company and
its subsidiary are consolidated, and will be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
ix) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Stock.
x) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the
Representativess may designate, copies of each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective
amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), the Prospectus, and
all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the
Representatives may request.
xi) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with true
copies of duly executed, legally binding and enforceable agreements
pursuant to which for a period of not less than nine (9) months from
the effective date of the Registration Statement, holders of all
shares of Common Stock and holders of securities exchangeable or
exercisable for or convertible into shares of Common Stock, will not
directly or indirectly, issue, offer to sell, sell, grant an option
for the sale of, assign, transfer, pledge, hypothecate, distribute or
otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common
Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the
prior written consent of Fahnestock (collectively, the "Lock-up
Agreements"). On or before the Closing Date, the Company shall
deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers. During the nine (9) month
period commencing with the effective date of the Registration
Statement, the Company shall not, without the prior written consent of
Fahnestock, sell, contract or offer
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<PAGE>
to sell, issue, transfer, assign, pledge, hypothecate, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common
Stock or any options, rights or warrants with respect to any shares of
Common Stock. During the nine (9) month period commencing with the
effective date of the Registration Statement, the Company shall not
file any registration statement with the Securities and Exchange
Commission on Form S-8 without the prior written consent of the
Representatives.
xii) Neither the Company nor any of the Subsidiaries, nor
any of their officers, directors, stockholders, nor any of their
respective affiliates (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any
securities of the Company.
xiii) The Company shall apply the net proceeds from the sale
of the Securities in the manner, and subject to the conditions, set
forth under "Use of Proceeds" in the Prospectus. Except as described
in the Prospectus, no portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the
Company.
xiv) The Company shall timely file all such reports, forms
or other documents as may be required from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such
reports, forms and documents filed will comply as to form and
substance with the applicable requirements under the Act, the Exchange
Act, and the Rules and Regulations.
xv) The Company shall furnish to the Representatives as
early as practicable prior to each of the date hereof, the Closing
Date and each Option Closing Date, if any, but no later than two (2)
full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company (which in no
event shall be as of a date more than thirty (30) days prior to the
date of the Registration Statement) which have been read by the
Company's independent public accountants, as stated in their letter to
be furnished pursuant to SECTION 6(j) hereof.
xvi) The Company shall cause the Common Stock to be quoted
on Nasdaq or a National Securities exchange and for a period of seven
(7) years from the date hereof, and use its best efforts to maintain
the Nasdaq quotation or exchange listing of the Common Stock to the
extent outstanding.
xvii) For a period of five (5) years from the Closing Date,
the Company shall furnish to the Representatives at the
Representatives' request and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock, (ii) the
list of holders of all of the Company's securities and (iii) a Blue
Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
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<PAGE>
xviii) As soon as practicable, (i) but in no event more than
5 business days before the effective date of the Registration
Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in
no event more than 30 days from the effective date of the Registration
Statement, take all necessary and appropriate actions to be included
in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than seven (7)
years.
xix) The Company hereby agrees that it will not for a period
of thirteen (13) months from the effective date of the Registration
Statement, adopt, propose to adopt or otherwise permit to exist any
employee, officer, director, consultant or compensation plan or
arrangement permitting the grant, issue or sale of any shares of
Common Stock or other securities of the Company (i) in an amount
greater than an aggregate of [_________] shares of Common Stock, (ii)
at an exercise or sale price per share less than the fair market value
of the Common Stock on the date of grant or sale, (iii) to any direct
or indirect beneficial holder on the date hereof of more than 10% of
the issued and outstanding shares of Common Stock, (iv) with the
payment for such securities with any form of consideration other than
cash, (v) upon payment of less than the full purchase or exercise
price for such shares of Common Stock or other securities of the
Company.
xx) Until the completion of the distribution of the Shares,
and for 25 days thereafter, the Company shall not without the prior
written consent of the Representatives and Underwriters' Counsel,
issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company
or its activities or the offering contemplated hereby.
xxi) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the
Representatives' Shares, the Company will not take any action or
actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration under the Act of the
Representatives' Shares.
xxii) The Company shall enter into an investment banking
agreement with Fahnestock which, amongst other things, will grant to
Fahnestock a right of first refusal for a period of fifteen (15)
months after the Effective Date for any investment banking services,
including amongst other things, any sales of securities to be made by
the Company or any of its present or future Subsidiaries.
xxiii) [The Company shall enter into a manufacturing and
purchasing agreement with Jauntiway Investment Limited ("Jauntiway")
and Tai Nam Industrial Company Limited ("Tai Nam").]
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<PAGE>
xxiv) [The Company hereby agrees that the independent
members of the Board of Directors shall approve each transaction
between the Company and David Chu, Jauntiway and Tai Nam and each such
transaction shall be on terms no less favorable than can be obtained
from third parties.]
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Representatives' Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Shares and the purchase by the Representatives of the Representatives'
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representatives' Warrant Agreement, and
(z) resale of the Shares by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) costs and expenses in connection with
due diligence investigations, including but not limited to the fees of any
independent counsel or consultant retained, (vi) fees and expenses of the
transfer agent and registrar, (vii) applications for assignments of a rating of
the Securities by qualified rating agencies, (viii) the fees payable to the
Commission and the NASD, and (ix) the fees and expenses incurred in connection
with the quotation of the Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of SECTION 6 or SECTION 12, the Company shall
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to SECTION 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this SECTION 5, it will pay to the
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense
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<PAGE>
allowance equal to seventy-five thousand dollars ($75,000), forty thousand
dollars [($40,000)] of which has been paid to date.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of their
respective covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 Noon, New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representatives,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall
have received from Underwriters' Counsel, such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Representatives' Warrants, the Registration Statement, the Prospectus and other
related matters as the Representatives requests and Underwriters' Counsel shall
have received such papers and information as they request to enable them to pass
upon such matters.
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<PAGE>
(d) At Closing Date, the Underwriters shall have received the
favorable opinion of Baer Marks & Upham LLP, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i) each of the Company and the Subsidiaries (A) has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of
its operations requires such qualification or licensing, and (C) has
all requisite corporate power and authority; and the Company has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing
business in material compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and
all federal, state and local laws, rules and regulations; the Company
has not received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration
Statement concerning the effects of federal, state and local laws,
rules and regulations on the Company's business as currently conducted
and as contemplated are correct in all material respects and do not
omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they
were made;
ii) the Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of each of the Subsidiaries
and all such shares have been validly issued, are fully paid and
non-assessable and were not in violation of any statutory preemptive
rights. Except as described in the Prospectus, to the best of such
counsel's knowledge, none of the Company nor any of the Subsidiaries
owns an interest in any other corporation, partnership, joint venture,
trust or other business entity;
iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of
Securities," and is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this
Agreement, the Representatives' Warrant Agreement and as described in
the Prospectus. The Securities, and all other securities issued or
issuable by the Company conform in all material respects to all
statements with respect thereto
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<PAGE>
contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto,
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company. The
Shares, the Representatives' Warrants and the Representatives' Shares
to be sold by the Company hereunder and under the Representatives'
Warrant Agreement are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms
hereof, will be validly issued, fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the
authorization, issue and sale of the Shares, the Representatives'
Warrants and the Representatives' Shares has been duly and validly
taken, and the certificates representing the Shares and the
Representatives' Warrants are in due and proper form. The
Representatives' Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement
and the Representatives' Warrant Agreement of the Shares and the
Representatives' Warrants, respectively, to be sold by the Company,
the Underwriters and the Representatives, respectively, will acquire
good and marketable title to the Shares and the Representatives'
Warrants free and clear of any pledge, lien, charge, claim,
encumbrance, pledge, security interest, or other restriction or equity
of any kind whatsoever. No transfer tax is payable by or on behalf of
the Underwriters in connection with (A) the issuance by the Company of
the Shares, (B) the purchase by the Underwriters and the
Representatives of the Shares and the Representatives' Warrants,
respectively, from the Company, (C) the consummation by the Company of
any of its obligations under this Agreement or the Representatives'
Warrant Agreement, or (D) resales of the Shares in connection with the
distribution contemplated hereby;
iv) the Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and no stop order suspending
the use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the best of
such counsel's knowledge threatened or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
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<PAGE>
vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed
as exhibits to the Registration Statement other than those described
in the Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated, in whole
or in part, by reference therein) and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are correct
copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other documents to
which the Company or any Subsidiary is a party or by which it is
bound, including any document to which the Company or any Subsidiary
is a party or by which it is bound, incorporated by reference into the
Prospectus and any supplement or amendment thereto, are accurate in
all material respects and fairly represent the information required to
be shown by Form S-1; (C) there is not pending or threatened against
the Company or any Subsidiary any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign, pending
or threatened against (or circumstances that may give rise to the
same), or involving the properties or business of the Company or any
Subsidiary which (x) is required to be disclosed in the Registration
Statement which is not so disclosed, (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all material respects), (y) questions the validity of the capital
stock of the Company or this Agreement or the Representatives' Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and
(E) there is no action, suit or proceeding pending, or threatened,
against or affecting the Company or any Subsidiary before any court or
arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable
possibility of an adverse decision which may result in a material
adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company or any
Subsidiary, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement
or the Representatives' Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or the
Representatives' Warrant Agreement;
vii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Representatives' Warrant
Agreement and to consummate the transactions provided for herein and
therein; and each of this Agreement and the Representatives' Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Representatives' Warrant
Agreement, assuming due authorization, execution and delivery by each
other party thereto constitutes a legal, valid and binding
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<PAGE>
agreement of the Company enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), and none of the
Company's execution or delivery of this Agreement and the
Representatives' Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein
or therein, or the conduct of its business as described in the
Registration Statement, the Prospectus and any amendments or
supplements thereto, conflicts with or will conflict with or results
or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible
or intangible) of the Company or any Subsidiary pursuant to the terms
of, (A) the certificate of incorporation or by-laws of the Company or
any Subsidiary, (B) any license, contract, indenture, mortgage, deed
of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which any
of its respective properties or assets (tangible or intangible) is or
may be subject, or any indebtedness, or (C) any statute, judgement,
decree, order, rule or regulation applicable to the Company or any
Subsidiary of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any Subsidiary, or any of their activities or properties;
viii) except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body (other than such as
may be required under Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the Shares
pursuant to the Prospectus, the issuance of the Representatives'
Warrants, the performance of this Agreement and the Representatives'
Warrant Agreement and the transactions contemplated hereby and
thereby;
ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good
and marketable title to, or valid and enforceable leasehold estates
in, all items of real and personal property stated in the Prospectus
to be owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus, and liens for taxes not yet due
and payable;
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<PAGE>
x) to the best knowledge of such counsel, neither the Company nor
any of its Subsidiaries is in breach of, or in default under, any term
or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan
or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company or any Subsidiary is a party or by which the Company
or any Subsidiary may be bound or to which the property or assets
(tangible or intangible) of the Company or any Subsidiary is subject
or affected; and neither the Company nor any of the Subsidiaries is in
violation of any term or provision of its certificate of incorporation
by-laws, or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
xi) the statements in the Prospectus under "BUSINESS,"
"MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS,"
"DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR FUTURE SALE"
have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material
respects;
xii) the Shares have been accepted for quotation on Nasdaq;
xiii) the persons listed under the caption "PRINCIPAL
SHAREHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
xiv) except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
xv) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in
the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or financial consulting arrangement or any
other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the
NASD;
xvi) neither the execution of the Reorganization Documents nor
the consummation of the transactions contemplated thereby, nor the
consummation of any other of the transactions contemplated herein or
therein by the Predecessors, nor the fulfillment of the terms hereof
or thereof by the Predecessors, will conflict with, result in a breach
of, or constitute a default under the respective articles of
incorporation or by-laws of any of the
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Predecessors or the terms of any other agreement or instrument to
which any of the Predecessors or any of their respective subsidiaries
is a party or by which any of their prospective properties are bound
or affected, or any order, regulation or judgement applicable to any
of the Predecessors or any of their respective subsidiaries of any
court regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over any of the Predecessors or any of
their prospective subsidiaries;
xvii) the Reorganization Documents (i) have been duly
authorized, executed and delivered by the Predecessors and constitute
valid and binding obligations of the Predecessors enforceable in
accordance with their respective terms and (ii) effectively convey
from the Predecessors to the Company all right, title and interest to
the business of the Predecessors as described in the Prospectus;
xviii) assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of parties thereto, enforceable against the party and any
subsequent holder of the securities subject thereto in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution
may be limited by applicable law); and
xix) except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain
or contribute, now or at any time previously, to a defined benefit
plan, as defined in SECTION 3(35) of ERISA, and (C) has never
completely or partially withdrawn from a "multiemployer plan".
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
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Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991), or any comparable
State bar accord.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and the
Subsidiaries, and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company and the Subsidiaries,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' Counsel if requested. The opinion of such counsel for the
Company and the Subsidiaries shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Representatives and
they are justified in relying thereon. Such opinion shall also state that
Underwriters' Counsel is entitled to rely thereon.
(e) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Baer Marks & Upham LLP, counsel to the
Company and the Subsidiaries, dated the Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of the Option Closing Date the statements made by Baer Marks &
Upham LLP in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this SECTION 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
(g) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or any of the Subsidiaries, from
the latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company or any of the Subsidiaries; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) neither the Company nor any of the Subsidiaries
shall have issued any securities (other than the Securities); neither the
Company nor any of the Subsidiaries shall have declared or paid any dividend or
made any distribution in respect of its capital stock of any class; and there
has not been any change in the capital stock of the Company or any of the
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Subsidiaries, or any material change in the debt (long or short term) or
liabilities or obligations of the Company or any of the Subsidiaries (contingent
or otherwise); (v) no material amount of the assets of the Company or any of the
Subsidiaries shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company or any of the Subsidiaries, or affecting any
of its properties or business before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
prospects or financial condition or income of the Company, except as set forth
in the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as
the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, after due inquiry are
contemplated or threatened under the Act;
iii)The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and
iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither
the Company nor any of the Subsidiaries has incurred up to and
including the Closing Date or the
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Option Closing Date, as the case may be, other than in the ordinary
course of its business, any material liabilities or obligations,
direct or contingent; (b) neither the Company nor any of its
Subsidiaries has paid or declared any dividends or other distributions
on its capital stock; (c) neither the Company nor any of the
Subsidiaries has entered into any transactions not in the ordinary
course of business; (d) there has not been any change in the capital
stock of the Company or any material change in the debt (long or
short-term) of the Company or any of the Subsidiaries; (e) neither the
Company nor any of the Subsidiaries has sustained any material loss or
damage to its property or assets, whether or not insured; (g) there is
no litigation which is pending or threatened (or circumstances giving
rise to same) against the Company, or any affiliated party of any of
the foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (h) there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from BDO:
i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representatives may rely upon the
opinion of BDO with respect to such financial statements and
supporting schedules included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company and the Subsidiaries, a reading of the
latest available minutes of the stockholders and board of directors
and the various committees of the board of directors of the Company,
consultations with officers and other employees of the Company and the
Subsidiaries responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited
financial statements and
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supporting schedules of the Company and the Subsidiaries included in
the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements of the Company and the Subsidiaries included in
the Registration Statement, or (B) at a specified date not more than
five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock of the
Company, any change in the long-term debt of the Company or any of the
Subsidiaries, or any decrease in the stockholders' equity of the
Company or any of the Subsidiaries or any decrease in the net current
assets or net assets of the Company as compared with amounts shown in
the December 31, 1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during
the period from December 31, 1996 to a specified date not more than
five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues or net earnings of
the Company or any of the Subsidiaries or increase in net earnings per
common share of the Company, in each case as compared with the
corresponding period beginning December 31, 1995 other than as set
forth in or contemplated by the Registration Statement, or, if there
was any such decrease, setting forth the amount of such decrease;
iv)setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of
the Company and the Subsidiaries (including a break-down of commercial
paper and notes payable to the banks);
v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company and the
Subsidiaries set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and information
may be derived from the general accounting records, including work
sheets, of the Company and the Subsidiaries and excluding any
questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from BDO a letter, dated as of the Closing
Date or the Option Closing Date, as the case may be, to the effect that they
reaffirm the statements made in the
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<PAGE>
letter furnished pursuant to SUBSECTION (i) of this SECTION hereof except that
the specified date referred to shall be a date not more than five days prior to
the Closing Date or the Option Closing Date, as the case may be, and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause (v)
of SUBSECTION (j) of this SECTION with respect to certain amounts, percentages
and financial information as specified by the Representatives and deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(l) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory in all respects to the
Underwriters and counsel to the Underwriters, from Deloitte containing
statements and information of the type ordinarily included in accountant's
"comfort letters" to Underwriters with respect to financial information
contained in the Registration Statement and the Prospectus.
(m) The Company shall have delivered to the Representatives a
letter from BDO addressed to the Company stating that they have not during the
immediately preceding two year period brought to the attention of the Company's
management any "weakness" as defined in Statement of Auditing Standards No. 60
"Communication of Internal Control Structure Related Matters Noted in an Audit,"
in any of the Company's internal controls.
(n) On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(o) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
SECTION 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
[(p) On or before [__________] the Closing Date, the Underwriters
shall have received the favorable opinion of [___________], special patent
counsel to the Company, dated the Closing Date, addressed to the Underwriters,
in form and substance satisfactory to Underwriters' counsel, and in
substantially the form of Exhibit A attached hereto.]
(q) On or before the Closing Date, the Company shall have
executed and delivered to the Representatives, (i) the Representatives' Warrant
Agreement substantially in the form filed as Exhibit 4.2 to the Registration
Statement in final form and substance satisfactory to the Representatives, and
(ii) the Representatives' Warrants in such denominations and to such designees
as shall have been provided to the Company
(r) On or before the Closing Date, the Shares shall have been
duly approved for quotation on Nasdaq, subject to official notice of issuance.
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(s) On or before the Closing Date, there shall have been
delivered to the Representatives all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' Counsel.
(t) On or before the Closing Date, the Company shall have
effected the Reorganization as described in the Prospectus.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this SECTION 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in SECTION 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this SECTION 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
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<PAGE>
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly,
to indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
SECTION 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this SECTION 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this SECTION 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action,
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investigation, inquiry, suit or proceeding on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action, investigation, inquiry,
suit or proceeding or separate but similar or related actions, investigations,
inquiries, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this SECTION 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, investigation, inquiry,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this SECTION 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company, on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions, investigations,
inquiries, suits or
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proceedings in respect thereof) referred to above in this subdivision (d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of SECTION 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this SECTION 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to
any liabilities which any indemnifying party may have at common law or
otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in SECTION 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter, the Company, and shall
survive termination of this Agreement or the issuance, sale and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
9. EFFECTIVE DATE.
(a) This Agreement shall become effective at 10:00 a.m., New York
City time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Securities for sale to
the public; PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this SECTION 9,
the Shares to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representatives of telegrams to securities
dealers releasing such shares for offering or the release by the Representatives
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares.
- 36 -
<PAGE>
10. TERMINATION.
(a) Subject to subsection (b) of this SECTION 10, the
Representatives shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representatives' opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Commission or any other government authority having jurisdiction; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; or (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (vi) if a banking moratorium has
been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representatives'
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities or (ix) if Steven A. Lebensfeld, Harvey Goldberg,
Kenneth Price and Carmine Russo shall no longer serve the Company in their
present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of SECTION 10(a) the Company shall promptly
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to SECTION 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representatives, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied (including, without
limitation, pursuant to SECTION 6 or SECTION 12) then, the Company shall
promptly reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to SECTION 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to SECTIONS 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of SECTION 5 and SECTION 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
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<PAGE>
11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of SECTION 6, SECTION 10 or
SECTION 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a)if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b)if the number of Defaulted Securities exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this SECTION shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Shares which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Shares to be purchased on an Option Closing Date, the Underwriters may at
the Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to SECTION 5, SECTION 7 and SECTION 10 hereof. No
action taken pursuant to this SECTION shall relieve the Company from liability,
if any, in respect of such default.
13. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives c/o Fahnestock & Co. Inc., 110 Wall Street, New York, New York
10005, Attention: Henry P. Williams, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company at 125
East Bethpage Road, Plainview, New York 14803, Attention: Steven A. Lebensfeld,
President, with
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<PAGE>
a copy to Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022,
Attention: Joel M. Handel, Esq.
14. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
15. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Representatives' Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representatives
and the Company.
- 39 -
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
TOYMAX INTERNATIONAL, INC.
By:
------------------------------------
Steven A. Lebensfeld
President
Confirmed and accepted as of
the date first above written.
FAHNESTOCK & CO. INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
----------------------------------
Name:
Title:
WEDBUSH MORGAN SECURITIES
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
----------------------------------
Name:
Title:
- 40 -
<PAGE>
SCHEDULE A
----------
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------
Fahnestock & Co. Inc.
Wedbush Morgan Securities
TOTAL 2,700,000
=========
- 41 -
<PAGE>
Exhibit A
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1997
FAHNESTOCK & CO. INC.
[CO-MANAGER]
200 Park Avenue, 24th Floor
New York, New York 10166
Re: Public Offering of Toymax International, Inc.
Gentlemen:
We have acted as special counsel to TOYMAX INTERNATIONAL, INC., a Delaware
corporation (the "Company"), in connection with the entering into by the Company
of that certain Underwriting Agreement by and between Fahnestock & Co. Inc.
("Fahnestock") and Webush Morgan Securities ("Wedbush"), as representatives of
the several underwriters named in Schedule A thereto, and the Company, dated
_______________, 1997 (the "Underwriting Agreement"). This opinion is provided
to you pursuant to Section ____ of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we have reviewed the
following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed _____, 1997,
together with any and all amendments thereof exhibits
thereto (collectively, the "Registration Statement");
(iii) the company's Prospectus dated _____________, 1997
(the "Prospectus");
(iv) a search of the United States Patent and Trademark
Office records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and hereby incorporated by
reference herein (collectively, the "Patents")), and
- 42 -
<PAGE>
trademarks, trademark applications, service marks and
service mark applications (collectively, the "Marks")
(including, without limitation, the Marks listed on Schedule
B annexed hereto and hereby incorporated by reference herein
(collectively, the "Trademarks")),
owned, purportedly owned or licensed by the Company
(including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses
listed on Schedule C annexed hereto and hereby incorporated
by reference herein (collectively, the "Licenses")),
conducted by ______________________________ and certified as
true and correct as of _______________________, 1997 (no
earlier than 5 days prior to the date of the Closing (as
defined in the Underwriting Agreement));
(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material
(including, without limitation, the copyright in, or license
permitting the Company's actual use of, the material
licensed or otherwise distributed by the Company and listed
on Schedule D annexed hereto and hereby incorporated by
reference herein (collectively, the "Copyrighted
Material")), owned, purportedly owned or licensed by the
Company conducted by _____________________ and certified as
true and correct as of __________________, 1997 (no earlier
than 5 days prior to the date of the Closing);
(vi) an intellectual property litigation search with respect
to all Patents, Trademarks, Licenses and Copyrighted
Material, listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
[________________, _____________ and _______], with respect
to the following two categories of general intangibles:
(a) the intellectual property general intangibles of the
Company, including, without limitation, the Company's
patents, patent applications, inventions, know how,
trademarks, service marks, copyrights, service and trade
names, intellectual property licenses and other rights, and
(b) the intellectual property general intangibles licensed
to the Company, including, without limitation, the patents,
- 43 -
<PAGE>
patent applications, inventions, know how, trademarks,
service marks, copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
________________ and current through
________________________, 1996 (no earlier than 5 days prior
to the date of the Closing) and said jurisdictions being the
only jurisdictions in which filing of UCC financing
statements or other documents may be filed to effectively
evidence a security or other interest in said general
intangibles; and
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating
to the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other
matters, as we have deemed necessary or appropriate as a
basis for the opinions set forth herein. Whenever our
opinion herein is qualified by the phrase "to the best of
our knowledge" or "to the best of our knowledge, after due
inquiry," such language means that, based upon (i) our
inquiries of officers of the Company, (ii) our review of the
Documents, and (iii) our review of such other corporate
records, documents, instruments and agreements described in
the first sentence of this paragraph, we believe that such
opinions are factually correct.
To the best of our knowledge, as to all matters of fact represented to you by
the Company, we advise you that nothing has come to our attention that would
cause us to believe that such facts are incorrect, incomplete or misleading or
that reliance thereon is not warranted under the circumstances. We call to your
attention that our opinion is limited to such facts as they exist on the date
hereof and do not take into account any change of circumstances, fact or law
subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as described in the
Registration Statement, the Company owns or has the right to use, free and clear
of all liens, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including, without
limitation, the Patents),
- 44 -
<PAGE>
(ii) all trademarks and service marks (including, without limitation,
the Trademarks),
(iii) all copyrights (including, without limitation, the Copyrighted
Material),
(iv) all service and trade names,
(v) all intellectual property licenses (including, without limitation,
the Licenses), and
(vi) all technology
used in, contemplated to be used in or required for, the conduct of the
Company's business.
2. To the best of our knowledge, after due inquiry, the Company possesses all
material intellectual property licenses or rights used in, or required for, the
conduct of its business (including, the Licenses and without limitation, any
such licenses or rights described in the Registration Statement as being owned,
possessed or licensed by the Company, as the case may be), such licenses and
rights are in full force and effect, and the Company's products, methods and
services do not infringe any unlicensed intellectual property of any third
parties.
3. To the best of our knowledge, after due inquiry, there is no claim or
action, pending, threatened or potential, which affects or could affect the
rights of the Company with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications or licenses used in, or
required for, the conduct of the Company's business and all trademarks, service
marks, copyrights, trade names, and patents owned or licensed to the Company are
valid.
4. To the best of our knowledge, after due inquiry, there is no intellectual
property based claim or action, pending, threatened or potential, which affects
or could affect the rights of the Company with respect to any products,
services, processes or licenses, including, without limitation, the Licenses
used in the conduct of the Company's business.
5. To the best of our knowledge, after due inquiry, except as described in the
Registration Statement, the Company is not under any obligation to pay royalties
or fees to any third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used by the Company.
6. To the best of our knowledge, after due inquiry, the statements in the
Registration Statement under the headings, "Risk Factors - Patents, Trademarks
and Proprietary Information" and "Business - Patents, Trademarks and Proprietary
Information", are accurate in all material respects, fairly represent the
information disclosed therein and
- 45 -
<PAGE>
do not omit to state any fact necessary to make the statements made therein
complete and accurate.
7. To the best of our knowledge, after due inquiry, the statements in the
Registration Statement and the Prospectus do not contain any untrue statement of
a material fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the intellectual
property position of the Company which is required to be stated in the
Registration Statement and the Prospectus or is necessary to make the statements
therein not misleading.
We call your attention to the fact that the members of this firm are licensed to
practice law in the State of ______________ and before the United States Patent
and Trademark Office as Registered Patent Attorneys. Accordingly, we express no
opinion with respect to the laws, rules and regulations of any jurisdictions
other than the State of ___________ and the United States of America.
The opinions expressed herein are for the sole benefit of, and may be relied
upon only by, the several Underwriters named in Schedule A to the Underwriting
Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
- 46 -
<PAGE>
Exhibit 3.1(a)
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TOYMAX INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE SIXTH
DAY OF AUGUST, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[STATE SEAL]
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
2782442 8100 AUTHENTICATION: 8595322
971263315 DATE: 08-07-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TOYMAX INTERNATIONAL, INC.
FIRST: The name of the corporation is Toymax International, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is three thousand (3,000) shares of
Common Stock, par value $.01 per share.
FIFTH: The name and mailing address of the sole incorporator are as
follows:
Jason K. Horowitz
c/o Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(1) The election of directors need not be by written ballot, unless
the by-laws so provide.
(2) The Board of Directors shall have power, without the assent or
vote of the stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
<PAGE>
SEVENTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware ("GCL"), as amended from time to time, each person who is or was a
director or officer of the Corporation and the heirs, executors and
administrators of such a person. Any expenses (including attorneys' fees)
incurred by each person who is or was a director or officer of the Corporation,
and the heirs, executors and administrators of such a person in connection with
defending any such proceeding in advance of its final disposition shall be paid
by the Corporation; provided, however, that if the GCL requires, an advancement
of expenses incurred by an indemnitee in his capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such indemnitee, to repay all amounts so advanced, if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses under this Article or otherwise.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of the Corporation, or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code, or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or a class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by Section 102(b)(7) of the
GCL, as the same may be amended and supplemented.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
-2-
<PAGE>
IN WITNESS WHEREOF, I have hereunto signed my name and affirm that
the statements made in this Certificate of Incorporation of Toymax
International, Inc. are true under the penalties of perjury, this 5th day of
August, 1997.
/s/ Jason K. Horowitz
---------------------------
Jason K. Horowitz
Sole Incorporator
-3-
<PAGE>
Exhibit 3.1(b)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TOYMAX INTERNATIONAL, INC.
TOYMAX INTERNATIONAL, INC., a corporation duly incorporated on
August 6, 1997 under the name Toymax International, Inc. and existing under and
by virtue of the General Corporation Law of the State of Delaware (the "General
Corporation Law"), does hereby certify as follows:
I. That the Board of Directors adopted a resolution proposing and
declaring advisable the following amendments to and restatement of the
corporation's certificate of incorporation; and
II. That this Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law and that, effective upon the filing of this Restated and
Amended Certificate of Incorporation, the certificate of incorporation of the
corporation shall be amended and restated as follows:
FIRST: The name of the corporation is Toymax International, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: (a) Authorized Capital. The total number of shares of all
classes of stock which the Corporation shall have authority to issue is
55,000,000 shares of which (i) 50,000,000 shares shall be common stock, par
value $0.01 per share ("Common Stock"), and (ii) 5,000,000 shares shall be
preferred stock, par value $0.01 per share ("Preferred Stock").
(b) Preferred Stock. The Board of Directors is expressly authorized,
subject to the limitations prescribed by law and the provisions of this Article,
at any time, and from time to time, to provide for the issuance of shares of
Preferred Stock in
<PAGE>
one or more series, of any number of shares of Preferred Stock, and by filing a
certificate of designations pursuant to Section 151 of the General Corporation
Law, to establish the number of shares to be included in each series of
Preferred Stock and to fix the powers, designations, preferences, relative
rights, qualifications and restrictions thereof. The authority of the Board of
Directors with respect to each series of Preferred Stock shall include, but not
be limited to, a determination of the following:
(i) The number of shares of Preferred Stock constituting that
series and the distinctive designation of that series;
(ii) The dividend rate on the shares of Preferred Stock of
that series, whether dividends shall be cumulative, and if so,
from which date or dates, and whether they shall be payable in
preference to, or in such relation to, the dividends payable
on any other class or classes or of any other series of the
capital stock of the Corporation;
(iii) Whether that series shall have any voting rights in
addition to those provided by law, and if so, the terms of
such additional voting rights;
(iv) Whether that series shall have conversion or exchange
privileges, and if so, the terms and conditions of such
conversion or exchange, including provision for adjustment of
the conversion or exchange rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such
redemption, including the manner of selecting shares for
redemption if less than all of the shares are to be redeemed,
the date or dates upon or after which they shall be redeemable
and the type and amount of consideration payable per share in
case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall be entitled to the benefit of a
sinking fund to be applied to the purchase or redemption of
shares of that series, and if so, the terms and amount of such
sinking fund;
(vii) The right of shares of that series to the benefit of
conditions and restrictions upon the creation of indebtedness
of the Corporation or any subsidiary, upon the issuance of any
additional
<PAGE>
stock (including additional shares of such series or of any
other series) and upon the payment of dividends or the making
of other distributions on, and the purchase or redemption or
other acquisition by the Corporation or any subsidiary of, any
outstanding stock of the Corporation;
(viii) The rights of the shares of that series in the event of
a voluntary or involuntary liquidation, dissolution or winding
up of the Corporation and whether such rights shall be in
preference to, or in another relation to, the comparable
rights of any other class or classes or series of capital
stock; and
(ix) Any other relative, participating, optional or other
special rights, qualifications, limitations or restrictions of
that series.
(c) Preemptive Rights. No holder of stock of any class of the
Corporation shall have any preemptive right to purchase or subscribe for any
part of any issue of stock or of securities of the Corporation convertible into
stock of any class whatsoever, whether now or hereafter authorized.
FIFTH: The name and mailing address of the sole incorporator are as
follows:
Jason K. Horowitz
c/o Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(a) Election of Board of Directors. The election of directors need
not be by written ballot, unless the by-laws so provide.
(b) Power to Amend By-Laws. The Board of Directors shall have power,
without the assent or vote of the stockholders to make, alter, amend, change,
add to or repeal the By-Laws of the Corporation.
<PAGE>
(c) Classified Board of Directors. The Board of Directors shall be
classified as follows:
(i) The number of directors constituting the entire Board
shall be not less than three nor more than nine as fixed from time to time by
vote of a majority of the entire Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any director at the
time in office, and provided further, that the number of directors constituting
the entire Board shall be five until otherwise fixed by a majority of the entire
Board. Each director shall be the record owner of one or more shares of Common
Stock of the Corporation.
(ii) The Board of Directors shall be divided into three
classes, as nearly equal in numbers as the then total number of directors
constituting the entire Board permits with the term of office of one class
expiring each year. At a meeting of stockholders or pursuant to a
stockholder's action by written consent, directors of the first class shall
be elected to hold office for a term expiring at the next succeeding annual
meeting, directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting and directors of the
third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of
the directors then in office, although less than a quorum, and any directors
so chosen shall hold office until the next election of the class for which
such directors shall have been chosen and until their successors shall be
elected and qualified. Notwithstanding the foregoing, and except as otherwise
required by law, whenever the holders of any one or more series of Preferred
Stock shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders. Subject to the foregoing, at each annual meeting of
stockholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting.
(iii) Notwithstanding any other provisions of this Certificate
of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the ByLaws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of 75% or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
Notwithstanding the foregoing, and except as otherwise required by law, whenever
the holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions
<PAGE>
of section (c) of this Article shall not apply with respect to the director or
directors elected by such holders of Preferred Stock.
SEVENTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware ("GCL"), as amended from time to time, each person who is or was a
director or officer of the Corporation and the heirs, executors and
administrators of such a person. Any expenses (including attorneys' fees)
incurred by each person who is or was a director or officer of the Corporation,
and the heirs, executors and administrators of such a person in connection with
defending any such proceeding in advance of its final disposition shall be paid
by the Corporation; provided, however, that if the GCL requires, an advancement
of expenses incurred by an indemnitee in his capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such indemnitee, to repay all amounts so advanced, if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses under this Article or otherwise.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of the Corporation, or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code, or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or a class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by Section 102(b)(7) of the
GCL, as the same may be amended and supplemented.
<PAGE>
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, I have hereunto signed this Amended and Restated
Certificate of Incorporation of Toymax International, Inc. this ____ day of
September, 1997.
----------------------------------
Steven A. Lebensfeld
President
ATTEST:
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Sanford B. Frank, Secretary
<PAGE>
Exhibit 3.2
BY-LAWS
OF
TOYMAX INTERNATIONAL, INC.
(a Delaware corporation)
ARTICLE I
OFFICE
------
Section 1.1. REGISTERED OFFICE. The registered office of Toymax
International, Inc. (the "Corporation") in the State of Delaware shall be
located at 1013 Centre Road in the City of Wilmington, County of New Castle, or
at such other place as the Board of Directors may at any time or from time to
time designate.
Section 1.2. REGISTERED AGENT. The registered agent of the Corporation
in the State of Delaware at its registered office is Corporation Service
Company, or such other person, firm or corporation as the Board of Directors may
at any time or from time to time designate.
Section 1.3. PRINCIPAL OFFICE. The principal place of business of the
Corporation shall be at 125 East Bethpage Road in the City of Plainview, County
of Nassau and State of New York, or at such other place as the Board of
Directors may at any time or from time to time designate.
Section 1.4. OTHER OFFICES. The Corporation may establish or
discontinue, from time to time, such other offices and places of business within
or without the State of Delaware as may be deemed proper for the conduct of the
business of the Corporation.
ARTICLE II
MEETING OF STOCKHOLDERS
-----------------------
Section 2.1. ANNUAL MEETING. The annual meeting of such holders of
capital stock ("Stock") as are entitled to vote thereat ("Annual Meeting of
Stockholders") shall be held for the election of directors and the transaction
of such other business as properly may come before it on the third Monday in
August of each year at 10:00 a.m., local time, if not a legal holiday and, if a
legal holiday, on the next following business day not a legal holiday. If the
<PAGE>
Annual Meeting of Stockholders is not held on the date designated therefor, the
Board of Directors shall cause the meeting to be held as soon thereafter as
convenient.
Section 2.2. SPECIAL MEETINGS. In addition to such special meetings as
are provided for by law or by the Certificate of Incorporation, special meetings
of the stockholders of the Corporation may be called at any time by the Board of
Directors, and by the Secretary upon the written request stating the purposes of
any such meeting of the holders of record collectively of at least thirty (30%)
percent of the outstanding shares of Stock of the Corporation. Special meetings
shall be called by means of a notice as provided in Section 2.4 hereof.
Section 2.3. PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such place within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 2.4. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting and, in case
of a special meeting, the purpose or purposes for which the meeting is called.
The notice of each Annual Meeting of Stockholders shall identify each matter
intended to be acted upon at such meeting. If mailed, the notice shall be
addressed to each stockholder in a postage-prepaid envelope at his address as it
appears on the records of the Corporation unless, prior to the time of mailing,
the Secretary shall have received from any such stockholder a written request
that notices intended for him be mailed to some other address. In such case the
notice intended for such stockholder shall be mailed to the address designated
in such request. Notice of each meeting of stockholders shall be delivered
personally or mailed not less than ten (10) nor more than sixty (60) days before
the date fixed for the meeting to each stockholder entitled to vote at such
meeting.
Section 2.5. WAIVER OF NOTICE. Whenever notice is required to be given,
a written waiver thereof signed by the person entitled to notice whether before
or after the time stated therein for such meeting shall be deemed equivalent to
notice. Attendance of a person at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except as otherwise provided by law. Neither
the business to be transacted at nor the purpose of any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
Section 2.6. ORGANIZATION OF MEETINGS. The Chairman of the Board, if
any, shall act as chairman at all meetings of stockholders at which he is
present and, as such chairman, shall call such meetings of stockholders to order
and shall preside thereat. If the Chairman of the Board shall be absent from
any meeting of stockholders, the duties otherwise provided
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<PAGE>
in this Section to be performed by him at such meeting shall be performed at
such meeting by the President. If both the Chairman of the Board and the
President shall be absent, such duties shall be performed by a Vice President
designated by the President to preside at such meeting. If no such officer is
present at such meeting, any stockholder or the proxy of any stockholder
entitled to vote at the meeting may call the meeting to order and a chairman to
preside thereat shall be elected by a majority of those present and entitled to
vote. The Secretary of the Corporation shall act as secretary at all meetings
of the stockholders but, in his absence, the chairman of the meeting may appoint
any person present to act as secretary of the meeting.
Section 2.7. STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may
fix a date not less than ten (10) nor more than sixty (60) days preceding the
date of any meeting of stockholders, or preceding the last day on which the
consent of stockholders may be effectively expressed for any purpose without a
meeting, as a record date for the determination of the stockholders entitled:
(a) to notice of, and to vote at, such meeting and any adjournment thereof; or
(b) to express such consent. In such case such stockholders of record on the
date so fixed, shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof or to express such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date is so fixed.
Section 2.8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make or cause to be prepared and made, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order and showing the address of
each such stockholder as it appears on the records of the Corporation and the
number of shares registered in the name of each such stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place specified in the notice of meeting
within the city where the meeting is to be held or, if not so specified, at the
place where the meeting is to be held, and a duplicate list shall be similarly
open to examination at the principal place of business of the Corporation. Such
list shall be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 2.9. QUORUM AND ADJOURNMENT. Except as otherwise provided by law
and in the Certificate of Incorporation, the holders of a majority of the shares
of Stock entitled to vote at the meeting shall constitute a quorum at each
meeting of the stockholders. Where more than one class or series of Stock is
entitled to vote at such a meeting, a majority of the shares of each such class
or series of Stock entitled to vote at such meeting shall constitute a quorum at
such meeting. In the absence of a quorum, the holders of a majority of all such
shares of Stock present in person or by proxy may adjourn any meeting from time
to time until a quorum shall attend. At any such adjourned meeting at which a
quorum may be
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<PAGE>
present, any business may be transacted which might have been transacted at the
meeting as originally called. Notice of an adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.10. ORDER OF BUSINESS. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting.
Section 2.11. VOTE OF STOCKHOLDERS. Except as otherwise permitted by law,
by the Certificate of Incorporation or by Section 2.13 hereof, all action by
stockholders shall be taken at a meeting of the stockholders. Except as
otherwise provided in the Certificate of Incorporation, every stockholder of
record, as determined pursuant to Section 2.7 hereof, who is entitled to vote
shall at every meeting of the stockholders be entitled to one vote for each
share of Stock entitled to participate in such vote held by such stockholder on
the record date. Every stockholder entitled to vote shall have the right to
vote in person or by proxy. Except as otherwise provided by law, no vote on any
question upon which a vote of the stockholders may be taken need be by ballot
unless the chairman of the meeting shall determine that it shall be by ballot or
the holders of a majority of the shares of Stock present in person or by proxy
and entitled to participate in such vote shall so demand. In a vote by ballot
each ballot shall state the number of shares voted and the name of the
stockholder or proxy voting. Unless otherwise provided by law or by the
Certificate of Incorporation, each director shall be elected and all other
questions shall be decided by the vote of the holders of a majority of the
shares of Stock present in person or by proxy at the meeting and entitled to
vote on the question.
Section 2.12. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A
proxy acting for any stockholder shall be duly appointed by an instrument in
writing subscribed by such stockholder.
Section 2.13. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Whenever the
vote of stockholders at a meeting thereof is required or permitted to be taken
for or in connection with any corporate action by any provision of the General
Corporation Law of the State of Delaware, the meeting, prior notice of such
meeting and the vote of the stockholders may be dispensed with and such
corporate action may be taken with the written consent of the stockholders of
Stock having not less than the minimum percentage of the total vote required by
statute for the proposed corporate action, unless the Certificate of
Incorporation or the By-Laws require a greater percentage for such action, in
which case the consent shall be that of the holders of such greater percentage;
provided, however, that prompt notice is given to all the stockholders who have
not consented of the taking of such corporate action without a meeting and by
less than unanimous written consent. Whenever it is intended that action is
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<PAGE>
to be taken by stockholders without a meeting, a form for expressing consent in
writing to such action shall be sent to all holders of Stock entitled to vote on
such action.
Section 2.14. ATTENDANCE AT MEETINGS OF STOCKHOLDERS. Any stockholder of
the Corporation not entitled to notice of the meeting or to vote at such meeting
shall nevertheless be entitled to attend any meeting of stockholders of the
Corporation.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1. ELECTION AND TERM. Except as otherwise provided by law or by
this Article III, directors shall be elected at the Annual Meeting of
Stockholders and shall hold office until the next Annual Meeting of Stockholders
and until their successors are elected and qualify, or until they sooner die,
resign, or are removed. Acceptance of the office of director need not be
expressed in writing.
Section 3.2. NUMBER. The number of directors constituting the initial
Board of Directors shall be three (3), but may be increased or decreased by
action of the stockholders or of the directors. A director need not be a
stockholder, citizen of the United States or a resident of the State of
Delaware.
Section 3.3. GENERAL POWERS. The business, properties and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which, without limiting the generality of the foregoing, shall have the power to
appoint the officers and agents of the Corporation, to fix and alter the
salaries of officers, employees and agents of the Corporation, to grant general
or limited authority (including authority to delegate and sub-delegate) to
officers, employees and agents of the Corporation, to make, execute, affix the
corporate seal to and deliver contracts and other instruments and documents
including bills, notes, checks or other instruments for the payment of money, in
the name and on behalf of the Corporation without specific authority in each
case and to appoint committees in addition to those provided for in Articles IV
and V hereof with such powers and duties as the Board of Directors may determine
and as provided by law. The membership of such committees shall consist of such
persons as are designated by the Board of Directors. In addition, the Board of
Directors may exercise all the powers of the Corporation and do all lawful acts
and things which are not reserved to the stockholders by law, by the Certificate
of Incorporation or by the By-Laws.
Section 3.4. PLACE OF MEETINGS. Meetings of the Board of Directors may be
held at the principal place of business of the Corporation in the City of
Plainview or at any other
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<PAGE>
place, within or without the State of Delaware, from time to time as designated
by the Board of Directors.
Section 3.5. FIRST MEETING OF NEW BOARD. A newly elected Board of
Directors shall meet without notice as soon as practicable after each Annual
Meeting of Stockholders at the place at which such meeting of stockholders took
place. If a quorum is not present, such organization meeting may be held at any
other time or place which may be specified for special meetings of the Board of
Directors in a notice given in the manner provided in Section 3.7 hereof or in a
waiver of notice thereof.
Section 3.6. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times as may be determined by resolution of the Board of
Directors. No notice shall be required for any regular meeting. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
Section 3.7. SPECIAL MEETINGS; NOTICE; AND WAIVER OF NOTICE. Special
meetings of the Board of Directors shall be called by the Secretary or an
Assistant Secretary at the request of the Chairman of the Board, if any, the
President, a Vice President, or at the request in writing of a majority or more
of the whole Board of Directors stating the purpose or purposes of such meeting.
Notices of special meetings shall be mailed to each director addressed to him at
his residence or usual place of business not later than three (3) days before
the day on which the meeting is to be held or shall be sent to him at either of
such places by telegraph or shall be communicated to him personally or by
telephone, not later than the day before the date fixed for the meeting. Notice
of any meeting of the Board of Directors shall not be required to be given to
any director if he shall sign a written waiver thereof either before or after
the time stated therein for such meeting or if he shall be present at the
meeting and participate in the business transacted thereat. Any and all
business transacted at any meeting of the Board of Directors shall be fully
effective without any notice thereof having been given if all the members shall
be present thereat. Unless limited by law, the Certificate of Incorporation,
the By-Laws, or by the terms of the notice thereof, any and all business may be
transacted at any special meeting without the notice thereof having so
specifically enumerated the matters to be acted upon.
Section 3.8. ORGANIZATION. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors at which he is present. If
the Chairman of the Board shall be absent from any meeting of the Board of
Directors, the duties otherwise provided in this Section 3.8 to be performed by
him at such meeting shall be performed by the President. If both the Chairman
of the Board and the President shall be absent, such duties shall be performed
by a director designated by the President to preside at such meeting. If no
such officer or director is present at such meeting, one of the directors
present shall be chosen to preside by a majority vote of the members of the
Board of Directors present at such meeting.
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<PAGE>
The Secretary of the Corporation shall act as the secretary at all meetings of
the Board of Directors and, in his absence, a temporary secretary shall be
appointed by the chairman of the meeting.
Section 3.9. QUORUM AND ADJOURNMENT. Except as otherwise provided by
Section 3.14 hereof and in the Certificate of Incorporation, at every meeting of
the Board of Directors a majority of the total number of directors shall
constitute a quorum. Except when the total number of directors is one, in no
event shall a quorum consist of less than two directors. Except as otherwise
provided by law, by the Certificate of Incorporation, by Section 3.14, 4.1, 4.8,
5.1, 6.3, or 10.1 hereof, the vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
In the absence of a quorum, any meeting may be adjourned from time to time until
a quorum is present. Notice of an adjourned meeting shall be required to be
given if notice was required to be given of the meeting as originally called.
Section 3.10. VOTING. On any question on which the Board of Directors
shall vote, the names of those voting and their votes shall be entered in the
minutes of the meeting when any member of the Board of Directors present at the
meeting so requests.
Section 3.11. ACTING WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing and such written
consents are filed with the minutes of such proceeding.
Section 3.12. RESIGNATIONS. Any director may resign at any time by
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other time is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 3.13. REMOVAL OF DIRECTORS. Subject to any agreement in writing
between the stockholders of the Corporation, any director may be removed either
with or without cause at any time by action of the holders of record of a
majority of the outstanding shares of Stock of the Corporation then entitled to
vote at an election of directors at a meeting of holders of such shares. The
vacancy in the Board of Directors caused by any such removal may be filled by
action of such stockholders at such meeting or at any subsequent meeting.
Section 3.14. FILLING OF VACANCIES. Except as otherwise provided by law,
in case of any increase in the number of directors or of any vacancy created by
death, resignation, or disqualification, the additional director or directors
may be elected or the vacancy or vacancies may be filled, as the case may be, by
the Board of Directors at any meeting by
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<PAGE>
affirmative vote of a majority of the remaining directors or by a sole remaining
director though the remaining director or directors be less than the quorum
provided for in Section 3.9 hereof. Each director so chosen shall hold office
until the next Annual Meeting of Stockholders and until his successor is elected
and qualifies or until such director sooner dies, resigns, or is removed.
ARTICLE IV
EXECUTIVE COMMITTEE
--------------------
Section 4.1. APPOINTMENT AND POWERS. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors, appoint an Executive Committee and the members thereof consisting of
one or more members which shall have and may exercise, during the intervals
between the meetings of the Board of Directors, all of the powers of the Board
of Directors in the management of the business, properties and affairs of the
Corporation; provided, however, that the foregoing is subject to the applicable
provisions of law and the Certificate of Incorporation and shall not be
construed as authorizing action by the Executive Committee with respect to any
action which is required to be taken by vote of a specified proportion of the
whole Board of Directors. The Executive Committee shall consist of the
President and such directors as may from time to time be designated by the Board
of Directors. So far as practicable, the members of the Executive Committee
shall be appointed at the organization meeting of the Board of Directors in each
year and, unless sooner discharged by affirmative vote of a majority of the
whole Board of Directors, shall hold office until the next annual organization
meeting of the Board of Directors and until their respective successors are
appointed or until they sooner die, resign, or are removed. All acts done and
powers conferred by the Executive Committee shall be deemed to be, and may be
certified as being, done or conferred under authority of the Board of Directors.
Section 4.2. PLACE OF MEETINGS. Meetings of the Executive Committee may
be held at the principal place of business of the Corporation in the City of
Plainview or at any other place within or without the State of Delaware from
time to time designated by the Board of Directors or the Executive Committee.
Section 4.3. MEETINGS; NOTICE; AND WAIVER OF NOTICE. Regular meetings of
the Executive Committee shall be held at such times as may be determined by
resolution either of the Board of Directors or the Executive Committee and no
notice shall be required for any regular meeting. Special meetings of the
Executive Committee shall be called by the Secretary or an Assistant Secretary
upon the request of any member thereof. Notices of special meetings shall be
mailed to each member, addressed to him at his residence or usual place of
business not later than three days before the day on which the meeting is to be
held
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<PAGE>
or shall be sent to him at either of such places by telegraph, or shall be
delivered to him personally or by telephone, not later than the day before the
date fixed for the meeting. Notice of any such meeting shall not be required to
be given to any member of the Executive Committee if he shall sign a written
waiver thereof either before or after the time stated therein for such meeting
or if he shall be present at the meeting and participate in the business
transacted thereat, and all business transacted at any meeting of the Executive
Committee shall be fully effective without any notice thereof having been given
if all the members shall be present thereat. Unless limited by law, the
Certificate of Incorporation, the By-Laws, or the terms of the notice thereof,
any and all business may be transacted at any special meeting without the notice
thereof having specifically enumerated the matters to be acted upon.
Section 4.4. ORGANIZATION. The Chairman of the Executive Committee shall
preside at all meetings of the Executive Committee at which he is present. In
the absence of the Chairman of the Executive Committee, the President shall
preside at meetings of the Executive Committee at which he is present. In the
absence of the Chairman of the Executive Committee and the President, the
Chairman of the Board, if any, shall preside at meetings of the Executive
Committee at which he is present. In the absence of the Chairman of the
Executive Committee, the President and the Chairman of the Board, one of the
members present shall be chosen by the members of the Executive Committee
present to preside at such meeting. The Secretary of the Corporation shall act
as secretary at all meetings of the Executive Committee and, in his absence, a
temporary secretary shall be appointed by the chairman of the meeting.
Section 4.5. QUORUM AND ADJOURNMENT. A majority of the members of the
Executive Committee shall constitute a quorum for the transaction of business.
The act of a majority of those present at any meeting at which a quorum is
present shall be the act of the Executive Committee. In the absence of a
quorum, any meeting may be adjourned from time to time until a quorum is
present. No notice of any adjourned meeting shall be required to be given other
than by announcement at the meeting that is being adjourned.
Section 4.6. VOTING. On any question on which the Executive Committee
shall vote, the names of those voting and their votes shall be entered in the
minutes of the meeting when any member of the Executive Committee present at the
meeting so requests.
Section 4.7. RECORDS. The Executive Committee shall keep minutes of its
acts and proceedings which shall be submitted at the next regular meeting of the
Board of Directors. Any action taken by the Board of Directors with respect
thereto shall be entered in the minutes of the Board of Directors.
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<PAGE>
Section 4.8. VACANCIES; ALTERNATE MEMBERS; AND ABSENCES. Any vacancy
among the appointed members of the Executive Committee may be filled by
affirmative vote of a majority of the whole Board of Directors. By similar
vote, the Board of Directors may designate one or more directors as alternate
members of the Executive Committee who may replace any absent or disqualified
member at any meeting of the Executive Committee.
ARTICLE V
OTHER COMMITTEES OF THE BOARD
-----------------------------
Section 5.1. APPOINTING OTHER COMMITTEES OF THE BOARD. The Board of
Directors may from time to time by resolution adopted by affirmative vote of a
majority of the whole Board of Directors appoint other committees of the Board
of Directors and the members thereof which shall have such powers of the Board
of Directors and such duties as the Board of Directors may properly determine
and as provided by law. Such other committee of the Board of Directors shall
consist of one or more directors. By similar vote, the Board of Directors may
designate one or more directors as alternate members of any such committee who
may replace any absent or disqualified member at any meeting of any such
committee. In the absence or disqualification of any member of any such
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 5.2. PLACE AND TIME OF MEETINGS; NOTICE; WAIVER OF NOTICE; AND
RECORDS. Meetings of such committees of the Board of Directors may be held at
any place, within or without the State of Delaware, from time to time designated
by the Board of Directors or the committee. Regular meetings of any such
committee shall be held at such times as may be determined by resolution of the
Board of Directors or the committee and no notice shall be required for any
regular meeting. A special meeting of any such committee shall be called by
resolution of the Board of Directors or by the Secretary or an Assistant
Secretary upon the request of any member of the committee. The provisions of
Section 4.3 hereof with respect to notice and waiver of notice of special
meetings of the Executive Committee shall also apply to all special meetings of
other committees of the Board of Directors. Any such committee may make rules
for holding and conducting its meetings and shall keep minutes of all meetings.
-10-
<PAGE>
ARTICLE VI
THE OFFICERS
------------
Section 6.1. OFFICERS. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer. The
officers shall be elected by the Board of Directors. The Board of Directors may
also elect a Chairman of the Board, an Executive Vice President, a Chairman of
the Executive Committee, a Chief Financial Officer, a Controller, one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents as in their judgment may be
necessary or desirable. The Chairman of the Board, the Chairman of the
Executive Committee, the President, and the Executive Vice President shall be
selected from the directors.
Section 6.2. TERMS OF OFFICE AND VACANCIES. So far as is practicable, all
officers shall be appointed at the organization meeting of the Board of
Directors in each year and, except as otherwise provided in Sections 6.1, 6.3,
and 6.4 hereof, shall hold office until the organization meeting of the Board of
Directors in the next subsequent year and until their respective successors are
elected and qualify or until they sooner die, retire, resign or are removed. If
any vacancy shall occur in any office, the Board of Directors may elect a
successor to fill such vacancy for the remainder of the term.
Section 6.3. REMOVAL OF OFFICERS. Any officer may be removed at any time,
either with or without cause, by affirmative vote of a majority of the whole
Board of Directors at any regular meeting or at any special meeting called for
that purpose.
Section 6.4. RESIGNATIONS. Any officer may resign at any time by giving
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other date is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 6.5. OFFICERS HOLDING MORE THAN ONE OFFICE. Any officer may hold
two or more offices so long as the duties of such offices can be consistently
performed by the same person.
Section 6.6. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall be a member of the Board of Directors. As provided in Section 2.6
hereof, he shall act as chairman at all meetings of the stockholders at which he
is present; as provided in Section 3.8 hereof, he shall preside at all meetings
of the Board of Directors at which he is present; and as provided in Section 4.4
hereof, in the absence of the Chairman of the Executive Committee and the
President, he shall preside at all meetings of the Executive Committee at
-11-
<PAGE>
which he is present. He shall also perform such other duties and shall have
such other powers as may from time to time be assigned to him by the Board of
Directors. In the absence or disability of the Chairman of the Board, the
duties of the Chairman of the Board shall be performed and his powers may be
exercised by the President of the Board. In the absence or disability of the
Chairman of the Board and the President, the powers of the Chairman of the Board
may be exercised by such member of the Board of Directors as may be designated
by the Chairman of the Board and, failing such designation or in the absence of
the person so designated, by such member of the Board of Directors as may be
designated by the President.
Section 6.7. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall have general and active charge, control and supervision of the
business, property and affairs of the Corporation, shall approve all operating
expense and capital expenditure budgets and shall formulate recommendations to
the Board of Directors for its action and decision. As provided in Section 4.4
hereof, in the absence of the Chairman of the Executive Committee, he shall
preside at all meetings of the Executive Committee at which he is present. In
the absence or disability of the Chairman of the Board, the duties of the
Chairman of the Board, including those duties set forth in Sections 2.6, 3.8 and
4.4 hereof, shall be performed and his powers may be exercised by the President.
If neither the President nor the Chairman of the Board is available, the duties
of the President shall be performed and his powers may be exercised by such
member of the Board of Directors as may be designated by the President and,
failing such designation or in the absence of the person so designated, by such
member of the Board of Directors as may be designated by the Chairman of the
Board.
Section 6.8. THE VICE PRESIDENTS. The Vice Presidents, including the
Executive Vice President, shall perform such duties and have such powers as may
from time to time be assigned to them by the Board of Directors, the Chairman of
the Board or the President.
Section 6.9. THE SECRETARY. The Secretary shall attend to the giving of
notice of each meeting of stockholders, the Board of Directors and committees
thereof and, as provided in Sections 2.6, 3.8, and 4.4 hereof, shall act as
secretary at each meeting of stockholders, directors and the Executive
Committee. He shall keep minutes of all proceedings at such meetings as well as
of all proceedings at all meetings of such other committees of the Board of
Directors as any such committee shall direct him to so keep. The Secretary
shall have charge of the corporate seal and he or any officer of the Corporation
shall have authority to attest to any and all instruments or writings to which
the same may be affixed. He shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable. He shall generally perform all the duties
usually appertaining to the office of
-12-
<PAGE>
secretary of a corporation. In the absence of the Secretary, such person as
shall be designated by the chairman of any meeting shall perform his duties.
Section 6.10. THE TREASURER. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board of Directors or any officer or officers
thereunto duly authorized by the Board of Directors shall from time to time
direct or approve. In the absence of a Controller, he shall perform all duties
appertaining to the office of Controller of the Corporation. He shall generally
perform all the duties usually appertaining to the office of treasurer of a
corporation. When required by the Board of Directors, he shall give bonds for
the faithful discharge of his duties in such sums and with such sureties as the
Board of Directors shall approve. In the absence of the Treasurer, such person
as shall be designated by the Chairman of the Board or President shall perform
his duties.
Section 6.11. THE CONTROLLER. The Controller shall prepare and have the
care and custody of the books of account of the Corporation. He shall keep a
full and accurate account of all moneys received and paid on account of the
Corporation. He shall render a statement of his accounts whenever the Board of
Directors shall require. He shall generally perform all the duties usually
appertaining to the office of controller of a corporation. When required by the
Board of Directors, he shall give bonds for the faithful discharge of his duties
in such sums and with such sureties as the Board of Directors shall approve.
Section 6.12. ADDITIONAL POWERS AND DUTIES. In addition to the foregoing
specifically enumerated duties and powers, the several officers of the
Corporation shall perform such other duties and exercise such further powers as
the Board of Directors may from time to time determine or as may be assigned to
them by any superior officer.
ARTICLE VII
TRANSACTIONS WITH DIRECTORS AND OFFICERS
----------------------------------------
Section 7.1. TRANSACTIONS WITH DIRECTORS AND OFFICERS. No contract or
transaction between the Corporation and one or more of its directors or officers
or between the Corporation and any other corporation, partnership, association
or other organization, in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for such reason or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose if: (a) the material facts as to his
relationship or interest and as to the contract
-13-
<PAGE>
or transaction are disclosed or are known to the Board of Directors or the
committee and the Board of Directors or the committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors even though the disinterested directors may be less than
a quorum; or (b) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the stockholders or the Board of Directors
or of a committee which authorizes the contract or transaction.
ARTICLE VIII
STOCK AND TRANSFERS OF STOCK
----------------------------
Section 8.1. STOCK CERTIFICATES. The Stock of the Corporation shall be
represented by certificates signed by two officers of the Corporation, one the
Chairman of the Board, the President or a Vice President and the other the
Secretary or an Assistant Secretary. Any or all of the signatures may be a
facsimile. Such certificates shall be sealed with the seal of the Corporation.
Such seal may be a facsimile, engraved or printed. In case any officer who has
signed any such certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of issue. Certificates
representing the Stock of the Corporation shall be in such form as shall be
approved by the Board of Directors.
Section 8.2. RESTRICTIVE LEGEND ON CERTIFICATES. Every certificate
representing shares of Stock of the Corporation shall bear the following legend:
(a) The shares of stock represented hereby have been acquired for
investment and not with a view to distribution or resale, have not been
registered under the Securities Act of 1933, as amended, and are
transferable only in accordance with and upon proof of compliance with the
Securities Act of 1933, as amended, and the Rules promulgated thereunder."
Section 8.3. REGISTRATION OF TRANSFERS OF STOCK. Registration of a
transfer of Stock shall be made on the books of the Corporation only upon
presentation by the person named in the certificate evidencing such stock, or by
an attorney lawfully authorized in writing, upon surrender and cancellation of
such certificate, with duly executed assignment and power of transfer endorsed
thereon or attached thereto, and with such proof of the authenticity of the
signature thereon as the Corporation or its agents may reasonably require.
-14-
<PAGE>
Section 8.4. LOST CERTIFICATES. In case any certificate representing
Stock shall be lost, stolen or destroyed, the Board of Directors in its
discretion or any officer or officers thereunto duly authorized by the Board of
Directors may authorize the issuance of a substitute certificate in the place of
the certificate so lost, stolen or destroyed; provided, however, in each such
case the Corporation may require the owner of the lost, stolen or destroyed
certificate or his legal representative to give the Corporation evidence which
the Corporation determines in its discretion satisfactory of the loss, theft or
destruction of such certificate and of the ownership thereof and may also
require a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 8.5. DETERMINATION OF STOCKHOLDERS OF RECORD FOR CERTAIN
PURPOSES. In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix in advance a record date which shall not be more than sixty
(60) days prior to any such action.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. SEAL. The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization and the state
of its incorporation.
Section 9.2. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 9.3. SIGNATURES ON NEGOTIABLE INSTRUMENTS. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officers or agents of Corporation and in such manner as
from time to time may be prescribed by resolution (whether general or special)
of the Board of Directors or as may be prescribed by any officer or officers or
any officer and agent jointly thereunto duly authorized by the Board of
Directors.
Section 9.4. INDEMNIFICATION. The Corporation shall, to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, indemnify any and all person whom it shall have power to indemnify
against any and all of the costs, expenses, liabilities or other matters
incurred by them by reason of having been officers or directors of the
Corporation, any subsidiary of the Corporation or of any other corporation for
which any and all persons who acted as officer or director at the request of the
Corporation.
-15-
<PAGE>
Section 9.5. BOOKS OF THE CORPORATION. Except as otherwise provided by
law, the books of the Corporation shall be kept at the principal place of
business of the Corporation and at such other locations as the Board of
Directors may from time to time determine.
Section 9.6. REFERENCES TO GENDER. Whenever in the By-Laws reference is
made to the masculine gender, such reference shall where the context so requires
be deemed to include the feminine gender, and the By-Laws shall be read
accordingly.
Section 9.7. REFERENCES TO ARTICLE AND SECTION NUMBERS AND TO THE BY-LAWS
AND THE CERTIFICATE OF INCORPORATION. Whenever in the By-Laws reference is made
to an Article or Section number, such reference is to the number of an Article
or Section of the By-Laws. Whenever in the By-Laws reference is made to the
By-Laws, such reference is to these By-Laws of the Corporation as the same may
from time to time be amended. Whenever reference is made to the Certificate of
Incorporation, such reference is to the Certificate of Incorporation of the
Corporation as the same may from time to time be amended.
ARTICLE X
AMENDMENTS
----------
Section 10.1. AMENDMENTS. Except as otherwise provided in the Certificate
of Incorporation, the By-Laws may be altered, amended or repealed from time to
time by the Board of Directors by affirmative vote of a majority of the whole
Board of Directors except such of the By-Laws as shall have been made from time
to time by holders of shares of Stock entitled to vote thereon. The By-Laws may
be altered, amended or repealed at any annual or special meeting of
stockholders. Notice of such proposed alteration, amendment or repeal setting
forth the substance or text thereof shall be included in the notice of any
meeting of the Board of Directors or stockholders called to consider any such
alteration, amendment or repeal.
* * * * * * * * *
-16-
<PAGE>
Exhibit 4.1
[CERTIFICATE OF STOCK]
================================================================================
================================================================================
NUMBER [TOYMAX LOGO] -Registered Trademark- SHARES
- ------------- -------------
- ------------- -------------
CUSIP 892268 10 3
SEE REVERSE FOR
CERTAIN DEFINITIONS
TOYMAX INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
----------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
----------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE OF
====================== TOYMAX INTERNATIONAL, INC. =======================
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[CORPORATE SEAL OF TOYMAX INTERNATIONAL, INC.]
/s/ SANFORD B. FRANK /s/ STEVEN A. LEBENSFELD
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
================================================================================
================================================================================
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian __________________
(Cust) (Minor)
TEN ENT --as tenants by the entireties under Uniform Gifts to Minors
Act____________
JT TEN --as joint tenants with right of (State)
survivorship and not as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,____________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated______________________________
_________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
X_________________________________________________________________
Signature Guaranteed
_________________________________________________________________
<PAGE>
Exhibit 4.2
[FORM OF REPRESENTATIVES' WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
TOYMAX INTERNATIONAL, INC.
AND
FAHNESTOCK & CO. INC.
AND
WEDBUSH MORGAN SECURITIES
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ________, 1997
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997 between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company") and
FAHNESTOCK & CO. INC. and WEDBUSH MORGAN SECURITIES (hereinafter referred to
variously as the "Holders" or the "Representatives").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Representatives or their
designees warrants ("Warrants") to purchase up to an aggregate 195,750 shares of
common stock of the Company ("Common Stock"); and
WHEREAS, the Representatives have agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among the
Representatives, as the Representatives of the Several Underwriters named in
Schedule A thereto, and the Company to act as the Representatives in connection
with the Company's proposed public offering of up to 2,700,000 shares of Common
Stock at a public offering price of $____ per share of Common Stock (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate twenty dollars ($20.00), the
agreements herein
<PAGE>
set forth and other good and valuable consideration, hereby acknowledged, the
parties hereto agree as follows:
1. GRANT. The Representatives are hereby granted the right to
purchase, at any time from _______, 1998 [one year from the effective date of
the registration statement], until 5:30 P.M., New York time, on ____________,
2002 [five years from the effective date of the registration statement], up to
an aggregate of 145,000 shares of Common Stock (the "Shares") at an initial
exercise price (subject to adjustment as provided in SECTION 8 hereof) of $____
per share of Common Stock [120% of the initial public offering price per share]
subject to the terms and conditions of this Agreement. Except as set forth
herein, the Shares issuable upon exercise of the Warrants are in all respects
identical to the shares of Common Stock being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
Section 3.1 METHOD OF EXERCISE. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in SECTION 8 hereof) per share of Common Stock set forth in SECTION 6
hereof payable by certified or official bank check in New York Clearing House
funds, subject to adjustment as provided in SECTION 8 hereof. Upon surrender of
a Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the shares of Common Stock purchased at the Company's principal offices in
Plainview, New York (presently located
<PAGE>
at 125 East Bethpage Road, Plainview, New York 11803) the registered holder of
a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock underlying the Warrants). Warrants may be exercised
to purchase all or part of the shares of Common Stock represented thereby. In
the case of the purchase of less than all the shares of Common Stock purchasable
under any Warrant Certificate, the Company shall cancel said Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the shares of Common Stock
purchasable thereunder.
Section 3.2 EXERCISE BY SURRENDER OF WARRANT. In addition to the
method of payment set forth in SECTION 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in SECTION 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in SECTION 3.3
below) of the Shares less the Exercise Price and the denominator of which is
such Market Price. Solely for the purposes of this paragraph, Market Price
shall be calculated either (i) on the date which the form of election attached
hereto is deemed to have been sent to the Company pursuant to SECTION 12 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
<PAGE>
Section 3.3 DEFINITION OF MARKET PRICE. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq National Market ("NNM"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchanged or quoted by NNM, the average closing bid price as
furnished by the NASD through NNM or similar organization if NNM is no longer
reporting such information, or if the Common Stock is not quoted on NNM, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the
Holders thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of SECTIONS 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holders thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holders, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the Shares
underlying the Warrants (and/or other securities, property or rights issuable
upon the exercise of the
<PAGE>
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company. Warrant Certificates shall be dated
the date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holders of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representatives.
6. EXERCISE PRICE.
Section 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in SECTION 8 hereof, the initial exercise price of each Warrant shall
be $____ [120% of the initial public offering price] per share of Common Stock.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of SECTION 8 hereof.
Section 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. REGISTRATION RIGHTS.
Section 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Warrants, the Shares, and any of the other securities issuable upon exercise of
the Warrants have been registered under the Securities Act of 1933, as amended
(the "Act"), pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-_____) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are
<PAGE>
defined in the Underwriting Agreement) and made as of the dates provided
therein, are hereby incorporated by reference. The Company agrees and covenants
promptly to file post-effective amendments to such Registration Statement as may
be necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason, whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares underlying the Warrants, and any of the
other securities issuable upon exercise of the Warrants (collectively, the
"Warrant Securities") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to
(i) an effective registration statement under the Act, (ii)
to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion
shall be reasonably satisfactory to counsel to the issuer,
that an exemption from registration under such Act is
available.
Section 7.2 PIGGYBACK REGISTRATION. If, at any time commencing after
the date hereof and expiring seven (7) years from the date hereof, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-8) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Representatives and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representatives or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representatives and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities
<PAGE>
registered under such registration statement (sometimes referred to herein as
the "Piggyback Registration").
Notwithstanding the provisions of this SECTION 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this SECTION 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring five
(5) years from the date hereof, the Holders of the Warrants and/or Warrant
Securities representing a "Majority" (as hereinafter defined) of such securities
(assuming the exercise of all of the Warrants) shall have the right (which right
is in addition to the registration rights under SECTION 7.2 hereof), exercisable
by written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representatives and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this SECTION 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
<PAGE>
(c) In addition to the registration rights under SECTION 7.2 and
subsection (a) of this SECTION 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holders of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holders of its Warrant Securities provided,
however, that the provisions of SECTION 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in SECTION 7.4(a) hereof pursuant to the
written notice specified in SECTION 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company shall have the option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities, to repurchase (i) any and all Warrant Securities at the
higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to SECTION 7.3(a) or (y) the expiration of the period
specified in SECTION 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in SECTION 7.4(a) or (ii) the
delivery of the written notice of election specified in this SECTION 7.3(d).
Section 7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with any registration under SECTION 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
<PAGE>
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holders desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
SECTIONS 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to SECTION 7.3(c). If the Company shall
fail to comply with the provisions of SECTION 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental or special damages sustained by the Holder(s)
requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of SECTION 15 of the Act or
SECTION 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability
<PAGE>
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify each of the Underwriters
contained in SECTION 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of SECTION 15 of the Act or
SECTION 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in SECTION 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Securities to be included in any registration statement
filed pursuant to SECTION 7.3 hereof, or permit any other registration statement
to be or remain effective during the effectiveness of a registration statement
filed pursuant to SECTION 7.3 hereof, without the prior
<PAGE>
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holders participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holders or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holder" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with SECTION 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriters, copies of all correspondence between the Commission
and the Company, its
<PAGE>
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and permit
each Holder and underwriters to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representatives. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of
<PAGE>
the Company held by such Holder(s) as of the date of filing of such registration
statement, including without limitation restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of Common
Stock.
(m) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
Section 8.1 SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this SECTION 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
Section 8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this SECTION 8, the number
of Warrant Securities issuable upon the exercise at the adjusted exercise price
of each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect
<PAGE>
immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 8.4 DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
Section 8.5 MERGER OR CONSOLIDATION. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holders a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in SECTION 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
<PAGE>
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two
cents (2CENTS) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
(2CENTS) per Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holders at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holders thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any
<PAGE>
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on NNM.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholder for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holder of its shares
of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the
<PAGE>
accounting treatment of such dividend or distribution on the books of
the Company; or
(b) the Company shall offer to all the holder of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholder entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
<PAGE>
(a) If to the registered Holders of the Warrants, to the address
of such Holders as shown on the books of the Company; or
(b) If to the Company, to the address set forth in SECTION 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Representatives
may from time to time supplement or amend this Agreement without the approval of
any holder of Warrant Certificates (other than the Representatives) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Representatives may deem necessary or desirable and which
the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of
business on _______, 2004. Notwithstanding the foregoing, the indemnification
provisions of SECTION 7 shall survive such termination until the close of
business on _______, 2010.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representatives and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall
<PAGE>
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representatives and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representatives and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in SECTION
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representatives and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
<PAGE>
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representatives and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representatives and any other registered Holders of Warrant Certificates or
Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
TOYMAX INTERNATIONAL, INC.
By:
-------------------------------------
Name: Steven A. Lebensfeld
Title: President
Attest:
- ----------------------------
Secretary
FAHNESTOCK & CO. INC.
By:
-------------------------------------
Name:
Title:
WEDBUSH MORGAN SECURITIES
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W- Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of Warrants to purchase
initially, at any time from __________, 1997 [one year from the effective date
of the Registration Statement] until 5:30 p.m. New York time on ___________,
2002 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to __________ fully-paid and non-assessable shares of
common stock, ("Common Stock") of TOYMAX INTERNATIONAL, INC., a Delaware
corporation (the "Company"), (one share of Common Stock referred to individually
as a "Security" and collectively as the "Securities") at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
$______ [120% of the initial public offering price] per share of Common Stock
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of _______, 1996 among the Company,
FAHNESTOCK & CO. INC. and WEDBUSH MORGAN SECURITIES (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the words "holder" or "holders" meaning the registered holder or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________, 1997
TOYMAX INTERNATIONAL, INC.
[SEAL] By:
--------------------------------
Name:
Title:
Attest:
- ------------------------------
Secretary
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / _______________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Toymax
International, Inc. in the amount of $____, all in accordance with the terms of
Section 3.1 of the Representatives' Warrant Agreement dated as of _____, 1997
among Toymax International, Inc., Fahnestock & Co. Inc. and Wedbush Morgan
Securities. The undersigned requests that a certificate for such securities be
registered in the name of ____________ whose address is _____________ and that
such Certificate be delivered to __________________ whose address is
___________.
Dated:
Signature ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________ hereby sells, assigns
and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:__________________________ Signature:______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT A-2
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W- Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered
assigns, is the registered holder of _____________ Warrants to purchase
initially, at any time from __________, 1997 [one year from the effective date
of the Registration Statement] until 5:30 p.m. New York time on ___________,
2002 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to __________ fully-paid and non-assessable shares of
common stock, ("Common Stock") of TOYMAX INTERNATIONAL, INC., a Delaware
corporation (the "Company"), (one share of Common Stock referred to individually
as a "Security" and collectively as the "Securities") at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
$______ [120% of the initial public offering price] per share of Common Stock
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of _______, 1996 among the Company,
FAHNESTOCK & CO. INC. and WEDBUSH MORGAN SECURITIES (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the words "holder" or "holders" meaning the registered holder or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________, 1997
TOYMAX INTERNATIONAL, INC.
[SEAL] By:
-------------------------------------
Name:
Title:
Attest:
- ------------------------------
Secretary
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / ____________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Toymax
International, Inc. in the amount of $____, all in accordance with the terms of
Section 3.1 of the Representatives' Warrant Agreement dated as of _____, 1997
among Toymax Inc., Fahnestock & Co. Inc. and Wedbush Morgan Securities. The
undersigned requests that a certificate for such securities be registered in the
name of ____________ whose address is _____________ and that such Certificate be
delivered to __________________ whose address is _______________.
Dated:
Signature ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:________________________ Signature:______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
Exhibit 5.1
5700
September 22, 1997
Toymax International, Inc.
125 East Bethpage Road
Plainview, New York 11803
Re: Registration Statement on Form S-1
----------------------------------
Gentlemen:
We have acted as counsel to Toymax International, Inc., a Delaware
corporation (the "Company"), in connection with (a) the proposed public offering
by the Company of up to 3,105,000 shares of Common Stock, $.01 par value (the
"Common Stock"), including up to 405,000 shares of Common Stock solely to cover
over-allotments; and (b) the issuance by the Company to Fahnestock & Co. Inc.
(the "Representative") of warrants (the "Representative's Warrants") to purchase
up to 195,750 shares of Common Stock, pursuant to a registration statement on
Form S-1, as amended (the "Registration Statement"), originally filed by the
Company with the Securities and Exchange Commission on August 12, 1997, pursuant
to the Securities Act of 1933, as amended.
The shares of Common Stock issuable pursuant to the above proposed
public offering are hereinafter referred to as the "Offered Shares." The shares
of Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Warrant Shares." The Offered
Shares, the Representative's Warrants and the Representative's Warrant Shares
are hereinafter referred to as the "Securities."
In connection with the foregoing, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of the
Certificate of Incorporation of the Company, the proposed form of Amended and
Restated Certificate of Incorporation of the Company, the By-laws of the
Company, the form of Underwriting Agreement, and the form of Representative's
Warrant filed as exhibits to the Registration Statement, your records of
corporate proceedings, and such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the accuracy and
<PAGE>
Toymax International, Inc.
September 22, 1997
Page 2
completeness of all documents submitted to us as copies and the authenticity of
the originals of such latter documents. As to any facts material to such
opinions which we did not independently establish or verify, we have relied upon
statements or representations of officers and other representatives of the
Company, public officials or others.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware.
2. The sale and issuance of the Securities have been duly authorized by
the Board of Directors of the Company, and the Offered Shares, and the
Representative's Warrant Shares when issued and paid for, as contemplated by the
Registration Statement and as provided for in the Representative's Warrants, as
the case may be, will be validly issued, fully paid and non-assessable, and no
personal liability will attach to the ownership thereof.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the inclusion
of this opinion as Exhibit 5.1 to the Registration Statement. In giving such
consent, we do not thereby concede that we are in the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations thereunder, or that we are "experts" within the meaning of the
Securities Act or such rules and regulations.
Very truly yours,
BAER MARKS & UPHAM LLP
<PAGE>
Exhibit 10.1
TOYMAX INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSE
The purpose of this plan (the "Plan") is to secure for TOYMAX
INTERNATIONAL, INC. (the "Company") and its stockholders the benefits arising
from capital stock ownership by employees, officers and directors of the Company
and its subsidiary corporations who are expected to contribute to the Company's
future growth and success. The Plan is also designed to attract and retain
other persons who will provide services to the Company. Those provisions of the
Plan which make express reference to Section 422 of the Internal Revenue Code of
1986, as amended or replaced from time to time (the "Code"), shall apply only to
Incentive Stock Options (as that term is defined in the Plan). The Plan was
adopted by the Board of Directors (the "Board") of the Company on
_____________________, subject to the approval of the Plan by the stockholders
of the Company.
2. TYPE OF OPTIONS AND ADMINISTRATION
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board (or the committee appointed by the Board in
accordance with Section 2(b) below) and may be either incentive stock options
("Incentive Stock Options") intended to meet the requirements of Section 422 of
the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code ("Non-Qualified Options").
(b) ADMINISTRATION. The Plan will be administered by the Board or by
a committee consisting of two or more directors each of whom shall be a
"non-employee director," within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule ("Rule 16b-3"), and an "outside director," within the meaning of
Treasury Regulation Section 1.162-27(e)(3) promulgated under Section 162(m) of
the Code, (the "Committee") appointed by the Board, in each case whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. If the Board determines to create a Committee to
administer the Plan, the delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3). The Board or Committee may in its sole
discretion grant options to purchase shares of the Company's Common Stock, $0.01
par value per share ("Common Stock"), and issue shares upon exercise of such
options as provided in the Plan. The Board or Committee shall have authority,
subject to the express provisions of the Plan, to construe the respective option
agreements and the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the respective
option agreements, which need not be identical; and
<PAGE>
to make all other determinations in the judgment of the Board or Committee
necessary or desirable for the administration of the Plan. The Board or
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board shall be liable for any action or
determination under the Plan made in good faith.
3. ELIGIBILITY
Options may be granted to persons who are, at the time of grant,
employees, officers or directors of the Company or any subsidiaries of the
Company as defined in Sections 424(e) and 424(f) of the Code, PROVIDED, that
Incentive Stock Options may only be granted to individuals who are employees
(within the meaning of Section 3401(c) of the Code) of the Company or any
subsidiaries of the Company. Options may also be granted to other persons,
provided that such options shall be Non-Qualified Options. A person who has
been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board or Committee shall so determine.
4. STOCK SUBJECT TO PLAN
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 750,000. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. FORMS OF OPTION AGREEMENTS
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan and as may be approved by the Board or the Committee.
The terms of such option agreements may differ among recipients.
6. PURCHASE PRICE
(a) GENERAL. The purchase price per share of Common Stock issuable
upon the exercise of an option shall be determined by the Board or the Committee
at the time of
2
<PAGE>
grant of such option, PROVIDED, HOWEVER, that in the case of an Incentive Stock
Option, the exercise price shall not be less than 100% of the Fair Market Value
(as hereinafter defined) of such Common Stock at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b) of the Plan. "Fair Market Value" of a share of
Common Stock of the Company as of a specified date for purposes of the Plan
shall mean the closing price of a share of the Common Stock on the principal
securities exchange (including but not limited to the Nasdaq Small Market or the
Nasdaq National Market) on which such shares are traded on the day immediately
preceding the date as of which Fair Market Value is being determined, or on the
next preceding date on which such shares are traded if no shares were traded on
such immediately preceding day, or if the shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, Fair Market Value of a share
of Common Stock shall be determined in good faith by the Board. In no case
shall Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or by any other means which the Board determines are consistent with
the purpose of the Plan and with applicable laws and regulations (including,
without limitation, the provisions of Rule 16b-3).
7. EXERCISE OPTION PERIOD
Subject to earlier termination as provided in the Plan, each option
and all rights thereunder shall expire on such date as determined by the Board
or the Committee and set forth in the applicable option agreement, PROVIDED,
that such date shall not be later than ten (10) years after the date on which
the option is granted.
8. EXERCISE OF OPTIONS
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding sentence,
if an option is not at the time of grant immediately exercisable, the Board may
(i) in the agreement evidencing such option, provide for the acceleration of the
exercise date or dates of the subject option upon the occurrence of specified
events, and/or (ii) at any time prior to the complete termination of an option,
accelerate the exercise date or dates of such option.
3
<PAGE>
9. NONTRANSFERABILITY OF OPTIONS
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee, except by will or by the laws of descent and
distribution. An option may be exercised during the lifetime of the optionee
only by the optionee.
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP
Except as provided in Section 11(d) of the Plan with respect to
Incentive Stock Options and except as otherwise determined by the Board or
Committee at the date of grant of an option, and subject to the provisions of
the Plan, an optionee may exercise an option at any time within three (3) months
following the termination of the optionee's employment or other relationship
with the Company and its subsidiary corporations or within one (1) year if such
termination was due to the death or disability (within the meaning of Section
22(e)(3) of the Code or any successor provisions thereto) of the optionee (to
the extent such option is otherwise exercisable at the time of such termination)
but in no event later than the expiration date of the option. If the
termination of the optionee's employment is for cause or is otherwise
attributable to a breach by the optionee of an employment or confidentiality or
non-disclosure agreement, the option shall expire immediately upon such
termination. The Board shall have the power to determine, in its sole
discretion, what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee and all other
persons interested or claiming interests under the Plan.
11. INCENTIVE STOCK OPTIONS
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
4
<PAGE>
(i) the purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five (5) years
from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period
of three (3) months after the date the optionee ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), to the extent it is otherwise exercisable at
the time of such cessation,
(ii) if the optionee dies while in the employ of the Company, or
within three (3) months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one (1) year after the date of death (or within such lesser
period as may be specified in the applicable option agreement), to the
extent it is otherwise exercisable at the time of the optionee's death, and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto) while in
the employ of the Company, the Incentive Stock Option may be exercised
within the period of one (1) year after the date the optionee ceases to be
such an employee because of such disability (or within such lesser period
as may be specified in the applicable option agreement), to the extent it
is otherwise exercisable at the time of such cessation.
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
5
<PAGE>
12. ADDITIONAL PROVISIONS
(a) ADDITIONAL OPTION PROVISIONS. The Board or the Committee may, in
its sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation, restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses or to make, arrange for or guaranty loans or to transfer other property
to optionees upon exercise of options, or such other provisions as shall be
determined by the Board or the Committee, PROVIDED, that such additional
provisions shall not be inconsistent with the requirements of applicable law and
such additional provisions shall not cause any Incentive Stock Option granted
under the Plan to fail to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board or the Committee may, in
its sole discretion (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised, or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised, PROVIDED, HOWEVER, that no such acceleration or
extension shall be permitted if it would (i) cause any Incentive Stock Option
granted under the Plan to fail to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code, or (ii) cause the Plan or any option
granted under the Plan to fail to comply with Rule 16b-3 (if applicable to the
Plan or such option).
13. GENERAL RESTRICTIONS
(a) INVESTMENT REPRESENTATIONS. The Company may require any person
to whom an option is granted, as a condition of exercising such option or award,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
or award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
applicable federal and state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) COMPLIANCE WITH SECURITIES LAW. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition, is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, except to the
extent expressly permitted by the Board, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board or the
6
<PAGE>
Committee. Nothing herein shall be deemed to require the Company to apply for
or to obtain such listing, registration, qualification, consent or approval, or
to satisfy such condition.
14. RIGHTS AS A STOCKHOLDER
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
right to vote or to receive dividends or non-cash distributions with respect to
such shares) until the effective date of exercise of such option and then only
to the extent of the shares of Common Stock so purchased. No adjustment shall
be made for dividends or other rights for which the record date is prior to the
date of exercise.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS,
REORGANIZATIONS AND RELATED TRANSACTIONS
(a) RECAPITALIZATIONS AND RELATED TRANSACTIONS. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction (other than the initial public
offering of the Common Stock) (i) the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities of the Company, or (ii) additional shares or new or different
shares or other non-cash assets are distributed with respect to such shares of
Common Stock or other securities, an appropriate and proportionate adjustment
shall be made in (x) the maximum number and kind of shares reserved for issuance
under or otherwise referred to in the Plan, (y) the number and kind of shares or
other securities subject to any then-outstanding options under the Plan, and (z)
the price for each share subject to any then-outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 if such adjustment (A) would cause any Incentive
Stock Option granted under the Plan to fail to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code, (B) would cause the Plan
or any option granted under the Plan to fail to comply with Rule 16b-3 (if
applicable to the Plan or such option), or (C) would be considered as the
adoption of a new plan requiring stockholder approval.
(b) REORGANIZATION, MERGER AND RELATED TRANSACTIONS. All outstanding
options under the Plan shall become fully exercisable for a period of sixty (60)
days following the occurrence of any Trigger Event (as defined below), whether
or not such options are then exercisable under the provisions of the applicable
agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any
one of the following events:
(i) the date the Company acquires knowledge that any person or
group deemed a person under Section 13(d)-3 of the Exchange Act (other than
the Company, any subsidiary of the Company, any employee benefit plan of
the Company
7
<PAGE>
or of any subsidiary of the Company or any entity holding shares of Common
Stock or other securities of the Company for or pursuant to the terms of
any such plan or any individual or entity or group or affiliate thereof
which acquired its beneficial ownership interest prior to the date the Plan
was adopted by the Board), in a transaction or series of transactions, has
become the beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any successor rule,
under the Exchange Act), of securities of the Company entitling the person
or group to 30% or more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate class vote) to which
all stockholders of the Company would be entitled in the election of the
Board were an election held on such date;
(ii) the date, during any period of two (2) consecutive years,
when individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the stockholders of the
Company, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning
of such period; and
(iii) the date of approval by the stockholders of the Company of
an agreement (a "reorganization agreement") providing for:
(A) The merger or consolidation of the Company with another
corporation (x) where the stockholders of the Company, immediately
prior to the merger or consolidation, do not beneficially own,
immediately after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or consolidation
entitling such stockholders to 80% or more of all votes (without
consideration of the rights of any class of stock to elect directors
by a separate class vote) to which all stockholders of such
corporation would be entitled in the election of directors, or (y)
where the members of the Board, immediately prior to the merger or
consolidation, do not, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the corporation
issuing cash or securities in the merger or consolidation, or
(B) The sale or other disposition of all or substantially all
the assets of the Company.
Notwithstanding the foregoing, no event described in Section 15(b)(i), (ii) or
(iii) above shall constitute a Trigger Event if the occurrence of such event is
the result of the initial public offering of the Common Stock.
(c) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board or the Committee, whose determination as to
what
8
<PAGE>
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account
of any such adjustments.
16. NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment or
other relationship with the Company or interfere in any way with the right of
the Company at any time to terminate such employment or relationship or to
increase or decrease the compensation of the optionee.
17. AMENDMENT, MODIFICATION OR TERMINATION OF THE PLAN
(a) The Board may at any time modify, amend or terminate the Plan,
PROVIDED that to the extent required by applicable law, any such modification,
amendment or termination shall be subject to the approval of the stockholders of
the Company.
(b) The modification, amendment or termination of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected,
the Board or the Committee may amend or modify outstanding option agreements in
a manner not inconsistent with the Plan. Notwithstanding the foregoing, the
Board shall have the right, without the consent of the optionee affected, to
amend or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code, (ii) the terms and provisions of
the Plan and of any outstanding options to the extent necessary to ensure the
qualification of the Plan and such options under Rule 16b-3 (if applicable to
the Plan and such options), and (iii) the terms and provisions of the Plan and
any outstanding option to the extent that the Board determines necessary to
preserve the deduction of compensation paid to certain optionees who are
"covered employees," within the meaning of Treasury Regulation Section
1.162-27(c)(2), as a result of the grant or exercise of options under the Plan.
18. WITHHOLDING
(a) The Company shall have the right to deduct and withhold from
payments of any kind otherwise due to the optionee any federal, state or local
taxes of any kind required by law to be so deducted and withheld with respect to
any shares issued upon exercise of options under the Plan. Subject to the prior
approval of the Company, which may be withheld by the Company in its sole
discretion, the optionee may elect to satisfy such obligations, in whole or in
part by (i) causing the Company to withhold shares of Common
9
<PAGE>
Stock otherwise issuable pursuant to the exercise of an option, (ii) delivering
to the Company shares of Common Stock already owned by the optionee, or (iii)
delivering to the Company cash or a check to the order of the Company in an
amount equal to the amount required to be so deducted and withheld. The shares
delivered in accordance with method (ii) above or withheld in accordance with
method (i) above shall have a Fair Market Value equal to such withholding
obligation as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to method (i) or (ii)
of this Section 18(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within two (2) years from the date the option was granted or within one (1) year
from the date the shares were issued to the optionee pursuant to the exercise of
the option, and (ii) if required by law, to remit to the Company, at the time of
and in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.
19. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees the (i)
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan (or any successor stock
option plan of the Company) covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled options, or (ii)
amendment of the terms of any and all outstanding options under the Plan to
provide an option exercise price per share which is higher or lower than the
then-current exercise price per share of such outstanding options.
20. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by
the Board, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring stockholder approval shall become effective when
10
<PAGE>
adopted by the Board and amendments requiring stockholder approval (as provided
in Section 17) shall become effective when adopted by the Board, but no
Incentive Stock Option granted on or after the date of such amendment shall
become exercisable unless and until such amendment shall have been approved by
the Company's stockholders. If such stockholder approval is not obtained within
twelve (12) months of the Board's adoption of such amendment, no options granted
on or after the date of such amendment shall be deemed Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Subject to above
limitations, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated by the Board, the Plan
shall terminate upon the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board. After termination of the
Plan, no further options may be granted under the Plan; PROVIDED, HOWEVER, that
such termination will not affect any options granted prior to termination of the
Plan.
21. GOVERNING LAW
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of laws.
11
<PAGE>
Exhibit 10.2
TOYMAX INTERNATIONAL, INC.
EXECUTIVE BONUS PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
----
OBJECTIVES................................................................... 1
MAINTENANCE OF PLAN.......................................................... 1
ELIGIBILITY FOR PARTICIPATION................................................ 1
AMOUNT OF AWARD.............................................................. 1
DISTRIBUTION OF AWARDS....................................................... 2
GENERAL PROVISIONS........................................................... 2
Administration of the Plan.............................................. 2
Withholding............................................................. 3
No Segregation of Assets................................................ 3
Prohibition Against Alienation of Awards................................ 3
No Right to Continued Employment........................................ 3
Amendment and Termination............................................... 4
Authority of the Board of Directors..................................... 4
Governing Law........................................................... 4
EXHIBIT A.................................................................. A-1
-i-
<PAGE>
TOYMAX INTERNATIONAL, INC.
EXECUTIVE BONUS PLAN
--------------------
OBJECTIVES
----------
The Plan is intended to further Toymax International, Inc.'s (the
"Company") business purposes by strengthening, through the payment of incentive
compensation, the Company's ability to attract, motivate and retain key
management employees upon whose judgment, initiative and efforts the Company's
successful conduct, development and growth depend.
MAINTENANCE OF PLAN
-------------------
The Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") shall, in its sole discretion, determine whether to
maintain the Plan with respect to each fiscal year beginning on or after April
1, 1997. However, no member of the Compensation Committee who could participate
in the Plan if it were maintained in any year, shall vote respecting the
maintenance of the Plan for such year.
ELIGIBILITY FOR PARTICIPATION
-----------------------------
Except as provided below, participation in the Plan shall be limited to key
management employees selected by the Compensation Committee and set forth on
Exhibit A hereto. In selecting participants, consideration shall be given to an
employee's position to contribute to the furtherance of the Company's business
purposes. Employees selected for participation in any year will be notified of
their eligibility to participate. At the time of selection for participation,
the Compensation Committee shall assign each participant a "target percentage"
for the fiscal year under consideration which shall be used in determining such
participant's maximum award for such year.
AMOUNT OF AWARD
---------------
The Compensation Committee shall have the exclusive power and authority,
subject to final approval by the Board of Directors of the Company (the
"Board"), to determine the amount, if any, of each participant's award under the
Plan for the fiscal year under consideration. In general, individual awards
under the Plan shall be based upon the Compensation Committee's allocation among
each eligible Plan participant, based upon such participant's performance during
the fiscal year under consideration, of all or a portion of an amount equal to
(i) 15% percent of the profit of the Company and its designated affiliates for
such year (determined before taxation and awards under the Plan), reduced by
(ii) 15% of the Company's and such affiliates' shareholders' equity during such
year, all as determined by the
<PAGE>
Compensation Committee, in its absolute discretion (the "Bonus Pool").
Determinations of awards hereunder shall be made on or before the first day of
the third month following the close of each fiscal year for which the Plan is
maintained.
Awards, if any, shall be made at the absolute discretion of the
Compensation Committee. Participation in the Plan in any year shall not result
automatically in the grant to any participant of an award under the Plan. Any
awards for employees who become Plan participants during a fiscal year (e.g.
newly hired or promoted employees) may be prorated from the date participation
in the Plan commenced. All awards shall be subject to the final approval of the
Board.
Notwithstanding the foregoing, no award hereunder to a participant for any
fiscal year shall exceed the lesser of (i) 75% of such participant's base
salary for such fiscal year, or (ii) such participant's target percentage of
the Bonus Pool for such fiscal year.
DISTRIBUTION OF AWARDS
----------------------
Distribution of awards, if any, will be made to eligible participants in a
single lump-sum payment in cash during the first pay period in June following
the close of the fiscal year for which the Plan is maintained. Except as may
otherwise be agreed in a writing between the Company and a Plan participant,
each participant must be an employee in good standing on the last day of the
fiscal year for which the Plan is maintained to receive an award under the Plan.
Termination of employment prior to such date for any reason (other than death,
permanent and total disability or retirement after age 65) will automatically
disqualify a participant from receiving any award under the Plan. In cases of
termination due to death, permanent and total disability or retirement after age
65, awards (if any) may be made to the former participant (or the former
participant's estate, as the case may be) at the discretion of the Compensation
Committee.
GENERAL PROVISIONS
------------------
ADMINISTRATION OF THE PLAN
The Compensation Committee shall be responsible for the control and
management of the operation and administration of the Plan and the proper
execution of its provisions. The powers and duties of the Compensation
Committee shall include, without limitation, the responsibility to establish,
interpret, enforce, amend and revoke from time to time such rules and
regulations for the administration of the Plan as the Committee deems
appropriate. The Compensation Committee shall be responsible for the
construction of the Plan and the determination of all questions arising
hereunder.
2
<PAGE>
The Compensation Committee's determinations hereunder shall be binding and
conclusive upon Plan participants, their estates and any other party interested
or claiming to be interested in awards under the Plan. Notwithstanding the
above or any other provision of the Plan, no person who is eligible in any year
to participate in the Plan shall vote respecting any aspect of the Plan's
administration for such year.
The Compensation Committee shall keep all appropriate books of account,
records, and data pertaining to the Plan.
WITHHOLDING
The Company shall have the right to deduct and withhold from any amount
which is otherwise payable hereunder any amount which it may determine it is
required to deduct or withhold pursuant to any applicable statute, law,
regulation or order of any jurisdiction whatsoever.
NO SEGREGATION OF ASSETS
The Company shall not be required to segregate any funds, create any trust
or make any special deposits to fund awards under this Plan provided, however,
that the Company, at its discretion, may take such action as it deems
appropriate to provide awards hereunder. No action taken to provide the awards
described herein shall create or be construed to create a fund or trust of any
kind, or a fiduciary relationship between a participant and the Company. Any
funds which may be set aside to provide awards under the provisions of this Plan
shall continue for all purposes to be a part of the general assets of the
Company and subject to the claims of the Company's general creditors. No person
other than the Company shall by virtue of the provisions of this Plan have any
interest in such funds.
PROHIBITION AGAINST ALIENATION OF AWARDS
No award hereunder shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance or charge and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any such award be in any manner liable for or
subject to garnishment, attachment, execution or levy, or liable for or subject
to the debts, contracts, liabilities, engagements or torts of the person
entitled to such award.
NO RIGHT TO CONTINUED EMPLOYMENT
The establishment and continuation of this Plan by the Company shall not
confer any legal rights upon any participant to continued employment, nor shall
such establishment or continuation interfere with the rights of the Company to
discharge any participant and to otherwise treat a participant without regard to
the effect which such discharge or treatment might have upon him or her as a
participant.
3
<PAGE>
AMENDMENT AND TERMINATION
This Plan may be amended or terminated, in whole or in part, at any time
for any reason by the Board, without the consent of any employee or participant.
AUTHORITY OF THE BOARD OF DIRECTORS
Notwithstanding any other provision of the Plan (i) all awards under the
Plan are discretionary, and (ii) the Board shall have ultimate authority and
responsibility with respect to all matters relating to the maintenance,
operation and administration of the Plan.
GOVERNING LAW
This Plan shall be governed by and construed in accordance with the laws of
the State of New York.
4
<PAGE>
EXHIBIT A
FISCAL YEAR BEGINNING 4/1/97:
- ----------------------------
Participant Target Percentage
----------- -----------------
Steven A. Lebensfeld 23%
Harvey Goldberg 23%
Kenneth Neil Price 15%
Carmine Russo 15%
Andrew B. Stein 8%
William A. Johnson 6%
Sanford B. Frank 5%
Amy L. Weltman 5%
A-1
<PAGE>
EXHIBIT 10.8
[LOGO] State Street
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of June 17, 1997 is made by Toymax, Inc.,
a company incorporated under the laws of the State of New York (the "Company")
in favor of State Street Bank & Trust Company, 32/F., Two Exchange Square, 8
Connaught Place, Central, Hong Kong (the "Lender").
RECITALS
WHEREAS, the Lender has by a facility letter dated June 17, 1997 (as
amended from time to time, the "Facility Letter") agreed to make certain
facilities available to Toymax Inc., a company incorporated under the laws of
New York (the "Borrower");
WHEREAS, it is a condition precedent to the availability of the facilities
under the Facility Letter that the Company executes and delivers to the Lender,
among other securities, a guarantee of all obligations of the Borrower to the
Lender (the "Guarantee") and a Security Agreement in substantially the form
hereof;
Now, THEREFORE, in consideration of the foregoing premises the Company
hereby agrees as follows:
1. INTERPRETATION
SECTION 1.01: Uniform Commercial Code. Unless otherwise defined herein,
all terms defined in Article 9 of the Uniform Commercial Code (the "Code")
in effect as of the date hereof in the State of ___________ are used
herein as therein defined.
2. GRANT OF SECURITY INTEREST
SECTION 2.01: Grant of Security. The Company hereby assigns, pledges and
grants to the Lender a security interest in all of the Company's right,
title and interest in and to the following, whether now owned or hereafter
acquired (the "Collateral"):
(a) all goods, merchandise, raw materials, supplies, goods in process,
finished goods and other tangible personal property held by the
Company for processing, sale or lease or furnished or to be
furnished by the Company under contracts of service or to be used or
consumed in the Company's business (the "Inventory"); and
(b) all rights to the payment of money, whether or not earned by
performance, including, but not limited to, any of the following
which consists of a right to the payment of money: accounts,
contract rights, chattel paper, instruments, general intagibles and
other obligations of any kind, now or hereafter existing, arising
out of or in connection with the sale or lease of the Inventory or
other goods or the rendering of services, and all rights now or
hereafter existing in and to all security agreements, leases, and
other contracts securing or otherwise relating to any such accounts,
contract rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights, chattel
paper, instruments, general intangibles, obligations and any and all
such leases, security agreements and other contracts being the
"Receivables");
<PAGE>
[LOGO] State Street
(c) all proceeds of any and all of the foregoing Collateral including,
without limitation, proceeds which constitute property of the types
described in paragraph (b) of this Section 2.01 and, to the extent
not otherwise included, all payments under insurance (whether or not
the Lender is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral and all deposits held in
the name of the Company with any financial institution; and
(d) all general intangibles of the Company including without limitation
goodwill, trade secrets, trade names, trademarks and patents and
applications therefor.
SECTION 2.02: Secured Obligations. This Security Agreement secures, and
the Collateral is security for the payment in full when due, whether at
stated maturity, by acceleration or otherwise, of all present and future
indebtedness, obligations and liabilities (whether for principal,
interest, fees, expenses or otherwise) of the Borrower to the Lender
including the Borrower's obligations under or in connection with the
Facility Letter, and all present and future indebtedness, obligations and
liabilities (whether for principal, interest, fees, expenses or otherwise)
of the Company to the Lender including its obligations under or in
connection with the Guarantee or otherwise in connection with the Facility
Letter, and all obligations of the Company now or hereafter existing under
this Security Agreement (all of which being hereinafter collectively
called the "Obligations").
3. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
SECTION 3.01 Due Incorporation and Good Standing. The Company is a
corporation duly organized, existing and in good standing under the laws
of the State of New York, and is duly qualified and in good standing in
every other state in which it is doing business, and the execution,
delivery and performance hereof have been duly authorized, are not in
contravention of law or the terms of the Company's charter or by-laws, or
in contravention of the terms of any indenture, agreement or undertaking
to which it is a party or by which it is bound, and that the execution,
delivery and performance hereof are within its corporate powers.
SECTION 3.02: Ownership and Control of Collateral.
(a) The Company owns the Collateral free and clear of any lien, security
interest, charge or encumbrance except for the security interest
granted to Congress Talcott Corporation, a company incorporated
under the laws of the State of New York (the "Factor") and the
Lender respectively under (i) a Factoring Agreement dated _________
and made between the Company and the Factor; (ii) an Assignment of
Factoring Credit Balances Agreement made or to be made between the
Factor, the Lender, the Company and the Borrower; and (iii) this
Security Agreement. No effective financing statements or other
instrument similar in effect covering all or any part of the
Collateral is on file or recorded in any filing or recording office
save for the financing statements filed in connection with the
above-mentioned Factoring Agreement and Assignment of Factoring
Credit Balances Agreement.
(b) The chief executive office of the Company is located at the address
of the Company set forth in Section 8.05. The offices where the
Company keeps its records concerning the Receivables and all
originals of all chattel paper which evidence Receivables are
located at: 200 Hicks Street, Westbury NY 11590. The Company hereby
undertakes that it will mark or stamp "Assigned to State Street Bank
& Trust Company" on all originals of all chattel paper which
evidence Receivables or, if so required by the Lender, deliver the
same to the Lender or such representative as the Lender may direct.
<PAGE>
[LOGO] State Street
(c) The places where the Company keeps and will keep the Inventory are
located at: U.S.A.
SECTION 3.03 First Priority Security Interest.
(a) This Security Agreement creates a valid security interest in the
Collateral, securing the payment of the Obligations. All filings and
other actions (including the delivery to the Lender of any
instrument pursuant to Section 5.05) necessary or desirable to
perfect such security interest and to create a first priority
security interest in the Collateral have been duly taken.
(b) No authorization, approval or other action by, and no notice to or
other filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Company of the security
interest granted hereby or for the execution, delivery or
performance of this Security Agreement by the Company or (ii) for
the perfection of or the exercise by the Lender of its rights and
remedies hereunder.
SECTION 3.04: Financial Statements. The financial statements relating to
the Company heretofore delivered and hereafter to be delivered to the
Lender are complete and correct and present fairly the financial condition
of the Company and of its subsidiaries, if any, as of the dates thereof
and for the periods included therein, all in accordance with generally
accepted accounting principles and practices consistently applied
throughout the periods involved, and since the date of the most recent
financial statements heretofore delivered to the Lender there has been no
material adverse change in such condition.
SECTION 3.05: No Pending Action. There are no actions, suits or
proceedings pending or, to the knowledge of the Company, threatened
against the Company, at law or in equity or before or by any federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality which may result in any material adverse
change to the business, properties or assets, or in the condition,
financial or otherwise, of the Company.
4. SPECIAL PROVISIONS REGARDING INVENTORY
SECTION 4.01: In the absence of a default hereunder, the Company may use,
consume and sell the Inventory in its ordinary course of business
substantially in the same manner as now conducted provided that the
Company:
(a) shall immediately notify the Lender of any sale of the Inventory to
customers who are not on the approved list of customers as
determined by the Factor pursuant to the Factoring Agreement dated
and made between the Company and the Factor referred to in Section
3.02(a) above; and
(b) will not without the written consent of the Lender sell the
Inventory to any person(s) to whom the Company is indebted resulting
in a partial or complete satisfaction of a debt/debts owing by the
Company to such person(s).
SECTION 4.02: The Company will maintain the Inventory in good order and
condition and will immediately notify the Lender of any damage thereto or
any loss or significant diminution in the value thereof.
5. COVENANTS
The Company covenants and agrees that from and after the date of this
Security Agreement and until the Obligations shall have been fully
satisfied:
<PAGE>
[LOGO] State Street
SECTION 5.01: Change in Place of Business, Location of Collateral. The
Company will notify the Lender in writing not less than thirty (30) days
prior to any change in location of (i) the Company's chief executive
office or any of its other places of business or (ii) any Collateral or
(iii) the offices where the Company's books, records and computer discs or
tapes, source codes and related information concerning the Receivables are
kept or (iv) any Inventory.
SECTION 5.02: Transfer and Other Liens. Except as provided for by Section
4.01 in the case of the Inventory, the Company shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral;
(b) create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any of the Collateral
to secure indebtedness of any person or entity, save for the
security interest created by this Security Agreement.
SECTION 5.03: Inspection. The Company will permit representative of the
Lender at any time to inspect the Inventory and to inspect and make
abstracts from the Company's books and records pertaining to the
Receivables.
SECTION 5.04: Notices. The Company will notify the Lender promptly, in
reasonable detail, (i) or any material claim made or asserted against the
Collateral by any person, (ii) of any material change in the composition
of the Collateral, (iii) of any event which materially and adversely
affects the ability of the Lender to dispose of the Collateral or the
rights and remedies of the Lender and (iv) of the occurrence of any other
event which would have a material adverse effect on a substantial portion
of the Collateral or on the security interest created hereunder.
SECTION 5.05: Reports; Collections.
(a) The Company will furnish to the Lender from time to time upon
request statements further identifying and describing the Collateral
owned by it, reports of the locations of the Collateral and such
other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
(b) If the lender exercise its right to make collection, the Company
shall take such action as the Lender may deem necessary or advisable
to enforce collection of the Receivables.
SECTION 5.06: Insurance. The Company shall at its own cost and expense
insure the Inventory and other tangible personal property comprising the
Collateral against loss or damage by fire and other hazards and such other
risks, with such insurance companies as the Lender shall approve and in an
amount equal to at least their fair market value and the Company shall
deliver to the Lender duplicate copies of such policies or other evidence
satisfactory to the Lender of compliance with the foregoing. The Company
shall, if so required by the Lender, effect such policy or policies of
insurance in the name of the Lender with loss or damage payable to the
Lender.
In case of any breach of this covenant, the Lender may effect such
insurance on the Inventory and such other tangible personal property
comprising the Collateral, and the premiums and expenses of the insurance
shall become an additional lien on the Collateral, secured by this
Security Agreement, and payable on demand with interest. If default be
made in the payment of the premiums and expenses of such insurance, or if
insurance cannot with reasonable effort be obtained, then all sums secured
hereby, whether or not due, shall immediately become due and payable and
the Lender shall be entitled to exercise the remedies stipulated in
Article 7 hereof.
<PAGE>
[LOGO] State Street
SECTION 5.07: Further Assurance.
(a) At any time and from time to time, upon the Lender's written request
and at the expense of the Company, the Company will promptly and
duly execute and deliver any and all such further writings and take
such further action as the Lender may request in order to perfect
and protect any security interest granted or purported to be granted
hereby or to enable the Lender to exercise and enforce its rights
and remedies hereunder with respect to any Collateral.
(b) (i) the Company will execute and file such financing or
continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or
as the Lender may request, in order to perfect and preserve
the security interest granted or purported to be granted
hereby,
(ii) The Lender may file as a financing statement in respect of
this Security Agreement a copy of this Security Agreement or a
financing statement in respect thereof. Without prejudice to
the foregoing right of the Lender, the Company hereby
authorizes the Lender to file one or more financing or
continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the
Company where permitted by law. The Lender shall provide to
the Company a copy of each financing statement or continuation
statement filed by it without the signature of the Company.
6. AGENT APPOINTED ATTORNEY-IN-FACT
SECTION 6.01: Appointment of the Lender as Attorney-in-Fact. The Company
hereby irrevocably constitutes and appoints the Lender as the Company's
true and lawful attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from
time to time in the Lender's discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any action and to execute
any document or instrument which the Lender may deem necessary to protect
the rights and interests of the Lender in the Collateral. Without limiting
the generality of the foregoing, upon default in the payment of any
Obligation, the Company hereby give the Lender the power and right, on
behalf of the Company, without notice or assent by the Company to do the
following:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(b) to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to file any claims or take any action or institute any proceedings
which the Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the
Lender with respect to any of the Collateral.
SECTION 6.02: Lender May Perform. If the Company shall fail to perform or
comply with any agreement contained herein, the Lender may itself perform
or comply with, or cause performance of or compliance with, such
agreement, and the expense of the Lender incurred in connection therewith
shall be payable by the Company promptly after receipt of written demand
therefor and shall constitute Obligations secured hereby.
<PAGE>
[LOGO] State Street
7. DEFAULT AND REMEDIES
SECTION 7.01: Remedies. If a default in the payment of any Obligation
shall have occurred and be continuing or upon a default in the performance
of any obligation of the Company contained herein:
(a) The Lender may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default
under the Code (whether or not the Code applies to the affected
Collateral) and also may (i) require the Company to, and the Company
hereby agrees that it will, at its expense and upon request of the
Lender forthwith, assemble all or part of the Collateral as directed
by the Lender and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Lender's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as are
commercially reasonable. The Lender may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made
at the time and place to which it was so adjourned.
(b) All cash proceeds received by the Lender in respect to any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the
Lender as collateral for, and/or then or at any time thereafter
applied as set forth in Section 7.02. Any surplus of such cash or
cash proceeds held by the Lender and remaining after payment in full
of all the Obligations shall be paid over to the Company or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 7.02: Application of Proceeds. The proceeds of any collection,
recovery, receipt, appropriation, realization or sale of all or any part
of the Collateral pursuant to the exercise by the Lender of its remedies
as a secured creditor under this Security Agreement shall be applied by
the Lender:
First, to the payment of the costs and expenses of such sale, collection
or other realization, including reasonable compensation to the Lender and
its Lender and counsel, and all expenses, liabilities and advances made or
incurred by the Lender in connection therewith;
Second, to the payment of the Obligations; and
Third, after payment in full of all Obligations, to the payment to the
Company, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
8. MISCELLANEOUS
SECTION 8.01: Costs and Expenses. The Company agrees to pay to the Lender
promptly after the receipt of written demand therefor, the amount of any
and all reasonable expenses, including the reasonable fees and
disbursements of its counsel (including the allocated costs of staff
counsel) and of any experts and agents, which the Lender may incur in
connection with the preparation, negotiation, amendment and administration
of this Security Agreement, or which the Lender may incur in respect of
(i) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon and of the Collateral, (ii) the
exercise or enforcement of any of its rights hereunder, or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
<PAGE>
[LOGO] State Street
SECTION 8.02: No Waiver. No failure on the part of the Lender to exercise,
and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by
the Lender of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy. The remedies herein provided are cumulative and are not exclusive
of any remedies provided by law.
SECTION 8.03: Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, any
such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 8.04: Amendments, Etc. This Security Agreement may not be amended,
modified or waived except with the written consent of the Company and the
Lender.
SECTION 8.05: Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telex or telecopy
communication) and mailed, telexed, telecopied or delivered, if to the
Company, at its address at 200 Hicks Street, Westbury NY 11590 or if to
the Lender, at its address at 32/F., Two Exchange Square, 8 Connaught
Place, Central, Hong Kong, Attention: The Manager, or as to either party
at such other address as shall be designated by such party in written
notice to the other party complying as to delivery with the terms of this
Section 8.05. All such notices and other communications shall, when
telexed, be effective when dispatched with receipt of appropriate
answerback and shall, when mailed, delivered or telecopied, be effective
when received.
SECTION 8.06: Continuing Security Interest. This Security Agreement shall
create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until payment in full of all Obligations,
(ii) be binding upon the Company, its successors and assigns, and (iii)
inure to the benefit of the Lender and its successors, transferees and
assigns. Upon the payment in full of all Obligations, the security
interest created hereby shall terminate and the Company shall be entitled
to the return, promptly upon its request and at its expense, of such of
the Collateral as shall not have been sold or otherwise applied pursuant
to the terms hereof.
SECTION 8.07: Governing Law. This Security Agreement shall be governed by
and construed in accordance with the law, excluding the conflicts of laws
rules, of the State of Hong Kong, without prejudice to or limitation of
any other rights or remedies available to the Lender under the laws of any
jurisdiction where the Company or its assets may be found.
SECTION 8.08: Waiver of Immunity. To the extent that the Company has or
hereafter may acquire or have attributed to it any immunity (sovereign or
otherwise) from suit, the jurisdiction of any court or from set-off or any
legal process (whether through service of notice, attachment prior to
judgement, attachment in aid of execution of judgement, execution of
judgement, arrest of property or otherwise) with respect to itself or its
property, it hereby expressly, irrevocably and unconditionally agrees not
to plead or claim, and waives, such immunity in respect of its obligations
hereunder and without limiting the generality of the foregoing (i) agrees
that such immunity is hereby waived to the fullest extent permitted under
the laws applicable thereto in any jurisdiction in which an action may be
brought and that the waivers set forth in this Section 8.08 are intended
to be unconditional and irrevocable for purposes of any such laws and not
subject to withdrawal and (ii) consents generally for the purposes of the
laws in any such jurisdiction to the giving of any relief or the issue of
any process.
<PAGE>
[LOGO] State Street
IN WITNESS WHEREOF, the Company has caused this Security Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
By : /s/ Chu Ki Kwan, David
------------------------------
Name : Chu Ki Kwan, David
Title : Toymax Inc. - Chairman
<PAGE>
EXHIBIT 10.10
DATED 10th September 1991.
TAI NAM INDUSTRIAL COMPANY LIMITED
and
CHARTERKING LIMITED
and
CONCENTRIC TOYS LIMITED
and
TOYMAX (H.K.) LIMITED
To
THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED
----------------------------------
DEED OF CROSS GUARANTEES
----------------------------------
JOHNSON STOKES & MASTER,
SOLICITORS &C.,
HONG KONG.
<PAGE>
THIS DEED OF CROSS GUARANTEES is made the 10th day of September One thousand
nine hundred and ninety one
BETWEEN :
(1) TAI NAM INDUSTRIAL COMPANY LIMITED ([FOREIGN TRANSLATION OMITTED]) whose
registered office is situate at Room 4-8, 10th Floor, Wah Fat Industrial
Building, 10-14 Kung Yip Street, Kwai Chung, New Territories, Hong Kong,
CHARTERKING LIMITED ([FOREIGN TRANSLATION OMITTED]) whose registered office is
situate at Units 4-8, 10th Floor, Wah Fat Industrial Building, 10-14 Kung Yip
Street, Kwai Chung, New Territories, Hong Kong, CONCENTRIC TOYS LIMITED whose
registered office is situate at 814 Peninsula Centre, Tsimshatsui East, Kowloon
and TOYMAX (H.K.) LIMITED whose registered office is situate at Units A and B,
3rd Floor, GDW Building, 382-392 Castle Peak Road, Tsuen Wan, New Territories,
Hong Kong (each individually hereinafter referred to as a "Company" and
collectively hereinafter referred to as "the Companies", and the expression "the
Companies" wherever used in this Deed shall mean all or any one or more of the
Companies) and
(2) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED whose registered
office is situate at No. 1 Queen's Road Central, Hong Kong (hereinafter referred
to as "the Lender").
WHEREAS :-
(1) All or any of the Companies may from time to time henceforth give or may
have already given security to the Lender to secure the payment by Tai Nam
Industrial Company Limited, Charterking Limited, Concentric Toys Limited and
Toymax (H.K.) Limited of all sums of money due by Tai Nam Industrial Company
Limited, Charterking Limited, Concentric Toys Limited and Toymax (H.K.) Limited
to the Lender for the time being and from time to time in respect of general
banking facilities and/or in respect of other liabilities or for other purposes
and for all other sums of money whatsoever which may be now or henceforth owing
by Tai Nam Industrial Company Limited, Charterking
<PAGE>
Limited, Concentric Toys Limited and Toymax (H.K.) Limited to the Lender
together with interest thereon.
(2) It has been agreed by and between the Companies and each of them and the
Lender that each Company shall guarantee to the Lender the performance by each
of them and/or the other Companies of their several obligations to the Lender
for the time being and from time to time and the security given as aforesaid
shall at all times stand respectively charged with and be security for the
payment by each Company of all moneys whatsoever due to the Lender and the
interest thereon.
NOW IT IS HEREBY AGREED as follows :-
1. (a) Each Company hereby guarantees, unconditionally and irrevocably, the due
and prompt payment by the other Companies and each of them of all sums of money
due by them or any of them to the Lender for the time being and from time to
time in respect of general banking facilities and/or in respect of other
liabilities or for other purposes and for all other sums of money whatsoever
which may be now or henceforth owing to the Lender together with interest
thereon and also the due and prompt performance and observance by such other
Companies and each of them of all covenants, agreements and undertakings of the
Companies contained in this Guarantee (all of which are herein collectively
called "the Guaranteed Obligations") and so that whenever one Company fails to
pay or perform or observe any of the Guaranteed Obligations in the manner
provided in this Guarantee the other Companies and each of them shall upon
demand by the Lender (whether or not the Lender shall have made any demand on or
taken any proceedings against such Company in default or against any other
guarantor and without any other formalities all of which are hereby expressly
waived by each Company) cause forthwith to be paid, performed or observed such
Guaranteed Obligations in respect of which such default has been made in
<PAGE>
accordance with the provisions of this Guarantee or any other document(s)
between any of the Companies and the Lender.
(b) Each Company hereby agrees and declares that all and any securities
which may be henceforth or which may already have been given by it to the Lender
to secure the payment, performance and observance of the obligations of such
Company shall also be security for the guarantees given by the preceding
paragraph hereof.
(c) As a separate and independent stipulation, each Company shall, as
between the Lender and such Company, be primarily liable for the performance and
observance by the other Companies in respect of the Guaranteed Obligations as if
such Company were the primary obligor and not merely a surety, and without any
requirement for the Lender first to have recourse against the other Companies or
any of them or any other person and such Company's liability shall not be
discharged, impaired or reduced by any time or indulgence granted to the other
Companies or any of them by the Lender or by the other Companies or any of them
losing their or its separate identity or by any dealings or transactions between
the Lender and the other Companies or any of them or by any amendment or
supplement to any security or other document or agreement made between the
Companies or any of them and the Lender.
(d) Any statement requiring the payment or performance or observance of
any of the Guaranteed Obligations signed by any duly authorised officer of the
Lender shall (save for any manifest error) be conclusive evidence as against
each of the Companies of such requirement.
2. The obligations of each Company hereunder shall be a continuing security to
cover and secure the Guaranteed Obligations from time to time [ILLEGIBLE] in the
constitution of the other Companies or any of them or any settlement of account
or other matter whatsoever which but for this provision might operate to release
or otherwise exonerate such Company
-3-
<PAGE>
from its obligations hereunder. The obligations of each Company hereunder are in
addition to and not in substitution for any other guarantee, lien, bill, note,
mortgage or other security now or hereafter given in respect of the Guaranteed
Obligations.
3. Should any purported obligation of one Company, which if valid or enforceable
would be the subject of this Guarantee, be or become wholly or in part invalid
or unenforceable against such Company by reason of any defect in or
insufficiency or want of powers of the Company or irregular or improper
purported exercise thereof or breach or want of authority by any person
purporting to act on behalf of such Company or because any rights of the Lender
have become barred by reason of any legal limitation, disability, incapacity or
any other fact or circumstance whether or not always known to the Lender or if
for any other reason whatsoever one Company is not or ceases to be legally
liable to discharge any money, obligation or liability undertaken or purported
to be undertaken on its behalf the other Companies shall nevertheless be liable
to the Lender (notwithstanding the avoidance or invalidity of any assurance,
security or payment on any ground whatsoever including (without limitation)
avoidance under any enactment relating to liquidation) in respect of that
purported obligation or liability as if the same where wholly valid and
enforceable and such other Companies were primary obligors in respect thereof.
The Lender is not to be concerned to see or enquire into the powers of the
Companies or their officers, employees or agents purporting to act on their
behalf. Each Company hereby agrees (subject as aforesaid) to keep the Lender
fully indemnified against all damages, losses, costs and expenses arising from
any failure of the other Companies or any of them to carry out any such
purported obligation.
4. Each Company agrees that the Lender may from time to time without discharging
or in any way affecting the liability of the other Companies hereunder and
without the assent or knowledge of the other
<PAGE>
Companies grant to the Companies or any of them any time or indulgence or renew
any bills, promissory notes or other negotiable or non-negotiable instruments or
securities, give up, deal with, exchange, vary, realise, release or abstain from
perfecting or enforcing any guarantees, liens, bills, notes, mortgages,
securities or other rights which the Lender may now or hereafter have from or
against the Companies or any of them whether hereunder or otherwise, may renew,
determine, vary or increase any credit or facilities to or the terms or
conditions in respect of any transaction with the Companies or any of them or
compound with, discharge, release or vary the liability of the Companies or any
of them or concur in accepting or varying any compromise, arrangement or
settlement or omit to claim or enforce payment of any dividend or composition
when and in such manner as the Lender may think expedient and no such act or
omission on the part of the Lender shall in any way discharge or diminish the
validity hereof or affect the liability of any of the Companies hereunder. The
Lender may enforce this Guarantee notwithstanding that the Lender may hold any
other guarantee, lien or security or have any outstanding remedy against the
Companies or any of them.
5. Each Company declares that it has received no security for giving this
Guarantee and agrees that should any such security be created while any
Guaranteed Obligations are outstanding any such security shall, unless otherwise
agreed by the Lender, be held as security for the obligations of such Company
hereunder and shall forthwith be deposited with the Lender accordingly. Each
Company agrees that if default is made in observing the preceding provisions of
this Clause 5, any security taken in contravention and all moneys at any time
received in respect thereof shall be held in trust for the Lender as security
for the liability of such Company to the Lender hereunder.
6. Each Company agrees that the Lender shall be entitled at any time after the
security hereby constituted has become enforceable
<PAGE>
without notice to set off or transfer any moneys standing to the credit of such
Company in any account with the Lender (whether current, deposit or any of the
other nature whatsoever and whether subject to notice or not) in any currency
against the liability of such Company hereunder and that the Lender shall have a
lien on and be entitled to retain as security for the liabilities of such
Company hereunder any cheques, drafts, bills, notes or negotiable or
non-negotiable instruments and any stocks, shares or marketable securities and
goods and chattels of all kinds of such Company from time to time deposited with
the Lender whether held for safe custody or otherwise.
7. This Guarantee shall apply to the full extent of the Guaranteed Obligations
and until all obligations and liabilities due hereunder have been discharged and
satisfied in full (which expression shall not embrace payment of a dividend in
liquidation of less than 100 per cent), each Company waives all rights of
subrogation and each agrees not to demand or accept repayment in whole or in
part of any loans or advances then or thereafter due to such Company from any of
the other Companies or to demand or accept any security in respect thereof or to
assign the same or charge the same as security or to take any step to enforce
any right against the other Companies or any of them or to claim any set-off or
counter-claim against the other Company or to claim or prove in competition with
the Lender or have the benefit of any share in any payment or composition from
the other Companies or any of them or in any guarantee or other security now or
hereafter held by the Lender.
8. Any money received by virtue of or in connection with this Guarantee may be
placed to the credit of any interest bearing suspense account with a view to
preserving the rights of the Lender to prove for the whole of its claim against
the Companies or any of them in the event of any proceedings in or analogous to
liquidation, composition or arrangement.
<PAGE>
9. Any release, discharge or settlement between any of the Companies and the
Lender shall be conditional upon no security disposition or payment to the
Lender by the Companies or any of them being avoided or reduced pursuant to any
provisions or enactments relating to liquidation or insolvency and the Lender
shall be entitled to retain this Guarantee and any security held for the
liability of the Companies hereunder for a period of seven (7) months after the
payment, discharge or satisfaction of all moneys, obligation and liabilities
that are or may become due, owing or incurred to the Lender from the Companies
or any of them in the event of the commencement of a winding-up for such further
period as the Lender may determine and to enforce the provisions hereof against
the Companies or any of them subsequently as if such release, discharge or
settlement had not occurred.
10. All payments hereunder shall be made in full without set off or counterclaim
and without any deduction or withholding whatsoever and if any Company is
required by law to make any such deduction or withholding it will promptly pay
such additional amounts as will ensure receipt of the full amount which would
otherwise be receivable hereunder.
11. A demand shall without prejudice to any other effective mode of making the
same be deemed to have been sufficiently made hereunder on a Company if left or
sent by prepaid letter to such Company at its registered office address
hereinbefore mentioned or its last known place of business and such confirmation
shall be assumed to have reached such Company within 48 hours of posting and in
proving such service it shall be sufficient to prove that the demand was
properly addressed and posted.
12. If any one or more of the provisions of this Guarantee or any part or parts
thereof shall be declared or adjudged to be illegal, invalid or unenforceable
under any applicable law, such illegality,
<PAGE>
invalidity or unenforceability shall not vitiate any other provisions hereof and
this Guarantee shall be construed as if such illegal, invalid or unenforceable
provisions were not contained herein.
13. All notices, requests, certificates or other communications to or upon the
Companies or any of them and the Lender shall be deemed to have been duly given
or made if given or made (as regards the Lender) to its Branch Office address in
Hong Kong hereinbefore mentioned (or such other address as may from time to time
be notified to each Company) and (as regards the Companies) to their respective
registered office addresses in Hong Kong hereinbefore mentioned or such other
address as may from time to time be notified by the Companies or any of them to
the Lender.
14. This Guarantee shall be binding upon the enure for the benefit of each party
and its successors and assigns but the Companies or any of them may not assign
or transfer any of their respective rights or obligations hereunder without the
express prior written consent of the Lender.
15. This Guarantee and the rights and obligations of the parties hereunder shall
be governed by and construed and interpreted in all respects in accordance with
the laws of Hong Kong, and the parties hereto hereby submit to the non-exclusive
jurisdiction of the Hong Kong Courts.
16. The Companies shall pay all costs, charges and expenses (including legal
fees) incurred by the Lender in connection with the negotiation, preparation,
execution and enforcement of this Guarantee.
IN WITNESS whereof the Companies and the Lender have executed this
Guarantee the day and year first above written.
-8-
<PAGE>
SEALED with the Common Seal of )
Tai Nam Industrial Company Limited )
and SIGNED by Mr. Chu Ki Kwan ) /s/ Chu Ki Kwan
and Miss Leung Shuk Kuen, two of ) [SEAL]
the directors of Tai Nam Industrial ) /s/ Leung Shuk Kuen
Company Limited in the presence )
of :- )
/s/ Ho Kit Yue
HO KIT YUE
[ILLEGIBLE]
SEALED with the Common Seal of )
Charterking Limited and SIGNED ) /s/ Chu Ki Kwan
by Mr. Chu Ki Kwan and Miss Leung ) [SEAL]
Shuk Kuen, two of the directors of ) /s/ Leung Shuk Kuen
Charterking Limited in the presence )
of :- )
/s/ Ho Kit Yue
[ILLEGIBLE]
<PAGE>
SEALED with the Common Seal of )
Concentric Toys Limited and SIGNED ) /s/ Chu Ki Kwan
by Mr. Chu Ki Kwan and Miss Leung ) [SEAL]
Shuk Kuen, two of the directors of ) /s/ Leung Shuk Kuen
Concentric Toys Limited in the )
presence of :- )
/s/ Ho Kit Yue
HO KIT YUE
[ILLEGIBLE]
SEALED with the Common Seal of )
Toymax (H.K.) Limited and SIGNED ) /s/ Chu Ki Kwan
by Mr. Chu Ki Kwan and Miss Leung ) [SEAL]
Shuk Kuen, two of the directors of ) /s/ Leung Shuk Kuen
Toymax (H.K.) Limited in the )
presence of :- )
/s/ Ho Kit Yue
[ILLEGIBLE]
[ILLEGIBLE]
/s/ Billy L.K. Leung
BILLY L.K. LEUNG
SOLICITOR,
HONG KONG.
<PAGE>
SIGNED SEALED AND DELIVERED by ) As Attorney and Agent for and on
) behalf of the Lender
Ho Wai Ho )
)
the duly appointed Attorney in ) /s/ [ILLEGIBLE] [SEAL]
) -----------------------------
Hong Kong of the Lender whose )
)
signature is verified by :- )
/s/ Billy L. K. Leung
BILLY L. K. LEUNG
SOLICITOR,
HONG KONG.
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and STEVEN
A. LEBENSFELD (the "Executive")
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 2000, as may be extended as hereinafter provided (the
"Term"). As of October 1, 1998 and each subsequent October 1, (October 1, 1998
and each subsequent October 1 hereinafter called a "Renewal Date"), the Term
shall be automatically extended by one additional year (i.e. to include a period
of 36 months commencing on each Renewal Date) unless, at least 180 days prior to
any such Renewal Date, the Company shall deliver to the Executive or the
Executive shall deliver to the Company written notice that the Term will not be
further extended.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the President of the
Company and shall have such duties consistent with such office as from time to
time may be prescribed by the Board of Directors of the Company (the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder.
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside
<PAGE>
business activities whatsoever; PROVIDED, HOWEVER, that the Executive shall not
be precluded from making passive investments which do not require the devotion
of any significant time or effort.
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same shall be increased from time to
time, the "Base Salary") of $315,000, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be increased by 10% (or such greater
percentage as the Board may determine) on each January 1 during the Term.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
(b) STOCK APPRECIATION BONUS. As soon as practicable following each
Renewal Date during the Term, the Executive shall be paid an additional bonus
(the "Stock Appreciation Bonus") as follows:
(i) with respect to the Renewal Date occurring on October 1,
1998, an amount equal to 1% of the excess, if any, of (A) the aggregate fair
market value of the common stock of the Company (the "Common Stock") outstanding
on October 1, 1998, over (B) the aggregate fair market value of the Common Stock
outstanding on the first day of the Term; and
(ii) with respect to each Renewal Date thereafter, an amount
equal to 1% of the excess, if any, of (A) the aggregate fair market value of the
Common Stock outstanding on such Renewal Date, over (B) the aggregate fair
market value of the Common Stock outstanding on the immediately preceding
Renewal Date.
(iii) for purposes of this Section 5(b), the term "fair
market value" of a share of Common Stock as of any date shall mean the closing
price of a share of the Common Stock on the principal securities exchange
(including but not limited to the Nasdaq Stock Market or the Nasdaq National
Market) on which such shares are traded on the day immediately preceding the
date as of which fair market value is being determined, or on the next preceding
date on which such shares are traded if no shares were traded on
-2-
<PAGE>
such immediately preceding day, or if the shares are not traded on a securities
exchange, fair market value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which fair market value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, fair market value of a share
of Common Stock shall be determined in good faith by the Board of Directors of
the Company.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms and
conditions thereof.
(b) MEDICAL AND HEALTH INSURANCE BENEFITS. The Company shall, at its
own expense, provide the Executive and his eligible dependents with the medical,
health and dental insurance coverage generally provided by the Company to its
other executive employees.
(c) LIFE INSURANCE. The Company will reimburse the Executive for
such premium expense, not in excess of standard insurance rates, that the
Executive may incur in maintaining term life insurance on the Executive's life
with a face value of up to $2,000,000.
(d) DISABILITY AND ACCIDENT INSURANCE BENEFITS. The Company shall
provide the Executive with long term disability insurance (providing 100% Base
Salary replacement coverage), business travel accident and accidental death and
dismemberment insurance coverage.
(e) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
(f) OTHER BENEFITS. The Company shall make available to the
Executive any and all other employee or fringe benefits (in accordance with
their terms and conditions) which the Company may generally make available to
its other executive employees.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, in an
amount up to $1200 per month, plus such amount(s) as may be required to
reimburse the Executive for expenses such as registration, insurance, repairs,
maintenance, license fees,
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parking, gasoline and oil incurred by the Executive incident to his use of an
automobile in connection with his duties hereunder.
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel (at business class level),
entertainment and other business expenses actually incurred or paid by the
Executive in the performance of his duties hereunder upon presentation of
expense statements and/or such other supporting information as the Company may
reasonably require of the Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder for other than Good
Reason (as such term is defined herein) by written notice to the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) RESIGNATION BY THE EXECUTIVE FOR GOOD REASON. The Executive
shall have the right to terminate his employment for Good Reason by written
notice to the Company specifying the particulars of the circumstances forming
the basis for such Good Reason.
(f) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
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(g) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock,(A) the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company;(D) the Company or any of its shareholders enters into
any agreement providing for any of the foregoing and the transaction
contemplated thereby is ultimately consummated; or (E) individuals who as of the
date of this Agreement constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's stockholders, of each new
director was approved by a vote of a majority of the directors then still in
office who were directors as of the date of this Agreement.
(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.
(iv) "Good Reason" means the occurrence of any of the
following events:
(A) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's then position
(including status, offices, titles and reporting relationships), authority,
duties or responsibilities, or any other action or actions by the Company which
when taken as a whole results in a significant
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<PAGE>
diminution in the Executive's position, authority, duties or responsibilities,
excluding for this purpose any isolated, immaterial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(B) a material breach by the Company of one or more
provisions of this Agreement, provided that such Good Reason shall not exist
unless the Executive shall first have provided the Company with written notice
specifying in reasonable detail the factors constituting such material breach
and such material breach shall not have been cured by the Company within 30 days
after such notice or such longer period as may reasonably be necessary to
accomplish the cure;
(C) the Company requiring the Executive to be based at any
location other than within 50 miles of the Company's current executive office
location, except for requirements of temporary travel on the Company's business
to an extent substantially consistent with the Executive's business travel
obligations existing immediately prior to the date of this Agreement;
(D) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
and
(E) a Change of Control of the Company, provided that the
Termination Date occurs no later than six months following such Change of
Control.
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE OR RESIGNATION BY THE EXECUTIVE FOR GOOD REASON. In the event that
prior to the expiration of the Term, the Company terminates the Executive's
employment, pursuant to Section 10(d), without Good Cause, or the Executive
resigns, pursuant to Section 10(e), for Good Reason, the Company shall provide
the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in Section
11(b) below, within 30 days following the Termination Date, the Company shall
pay the Executive a single lump sum cash payment (the "Severance Payment") equal
to the sum of the following:
(A)the Base Salary otherwise payable to the Executive for
the then remaining duration of the Term; and
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(B)any Base Salary, Stock Appreciation Bonuses, Bonus Plan
bonuses, vacation and unreimbursed expenses accrued but unpaid as of the
Termination Date.
(ii) EXECUTIVE BONUS PLAN. For the otherwise remaining duration
of the Term, the Executive shall continue to participate in the Company's
Executive Bonus Plan and shall receive payment of bonuses thereunder, in
accordance with the terms of such plan, as though the Executive's employment
under this Agreement had not terminated.
(iii) STOCK APPRECIATION BONUSES. Within 30 days following each
Renewal Date occurring during the otherwise remaining duration of the Term, the
Executive shall receive payment of the Stock Appreciation Bonus to which he
would have been entitled under Section 5(b) of this Agreement had his employment
hereunder not terminated.
(iv) MEDICAL AND HEALTH INSURANCE. The Company shall, at its
sole expense, provide the Executive (and his dependents) with coverage under
(and in accordance with the terms and conditions of) the Company's medical and
health insurance plans, as in effect from time to time, for the otherwise
remaining duration of the Term; provided that to the extent such coverage may be
unavailable under such medical and health insurance plans due to restrictions
imposed by the insurer(s) under such plans, the Company shall take such action
as may be required to provide equivalent benefits from other sources.
(v) LIFE INSURANCE. For the otherwise remaining duration of the
Term, the Company shall continue to reimburse the Executive for the cost of any
term life insurance on his life, to the extent provided in Section 6(c) of this
Agreement, as though his employment hereunder had not terminated.
(vi) OUTPLACEMENT SERVICES. During the twelve-month period
commencing on the Termination Date, the Company shall provide to the Executive,
at the Company's expense, executive outplacement services (commensurate with
such services customarily utilized by similarly situated persons of the
Executive's title or position).
(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. The Executive may resign
his employment hereunder prior to the expiration of the Term within six months
following a Change in Control of the Company. In the event of such a
resignation or in the event that at any time during the Term and following a
Change of Control, the Company terminates the Executive's employment without
Good Cause, in lieu of the Severance Payment to which the Executive is entitled
under Section 11(a)(i) above, the Company shall pay the Executive as follows:
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(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall pay
the Executive a single lump sum cash payment equal to three times the
Executive's "Average Compensation" (as such term is defined herein), PLUS any
Base Salary, Stock Appreciation Bonuses, Bonus Plan bonuses, vacation and
unreimbursed expenses accrued but unpaid as of the Termination Date
(collectively, the "Change of Control Payment"). For purposes hereof, the
Executive's "Average Compensation" shall equal the aggregate amount of Base
Salary and Stock Appreciation Bonuses and Bonus Plan bonuses paid to the
Executive for the two calendar years immediately preceding the Termination Date,
divided by two.
(ii) AMOUNT OF GROSS-UP PAYMENT. In the event that the aggregate
amount of all payments to be received by the Executive on account of salary,
bonuses, stock options and any and all other compensation would constitute an
"excess parachute payment" under section 280G of the Internal Revenue Code and
applicable regulations as then in effect (the "Code"), then the Company shall
pay to the Executive an additional amount equal to the amount of any and all
excise taxes and additional income taxes to which the Executive will be subject
under the Code on account of such "excess parachute payment" (the "Gross-Up
Payment").
(iii) MANNER IN WHICH PAYMENT IS TO BE MADE. The Change of
Control Severance Payment and any Gross-Up Payment shall be payable to the
Executive within 30 days after the Termination Date.
(iv) OTHER BENEFITS. Nothing in this Section 11(b) shall affect
the Executive's rights with respect to payments and benefits to which he is
entitled under Sections 11(a)(ii) through (vi) above.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Stock Appreciation Bonuses, Bonus Plan bonuses, benefits or unreimbursed
expenses accrued but unpaid as of the date of such termination.
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
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13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803, and (b) if to the Executive, to 45 Wildwood Drive,
Laurel Hollow, New York 11791.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of January 2, 1992, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has been made by
either party with respect to the subject matter hereof except as expressly set
forth herein.
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18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INC.
- ------------------------- By:
Witness ---------------------------
- ------------------------- ------------------------------
Witness Steven A. Lebensfeld
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Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and HARVEY
GOLDBERG (the "Executive")
W I T N E S S E T H
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WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 2000, as may be extended as hereinafter provided (the
"Term"). As of October 1, 1998 and each subsequent October 1, (October 1, 1998
and each subsequent October 1 hereinafter called a "Renewal Date"), the Term
shall be automatically extended by one additional year (i.e. to include a period
of 36 months commencing on each Renewal Date) unless, at least 180 days prior to
any such Renewal Date, the Company shall deliver to the Executive or the
Executive shall deliver to the Company written notice that the Term will not be
further extended.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the Executive Vice
President of the Company and shall have such duties consistent with such office
as from time to time may be prescribed by the Board of Directors of the Company
(the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder.
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside
<PAGE>
business activities whatsoever; PROVIDED, HOWEVER, that the Executive shall not
be precluded from making passive investments which do not require the devotion
of any significant time or effort.
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same shall be increased from time to
time, the "Base Salary") of $315,000, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be increased by 10% (or such greater
percentage as the Board may determine) on each January 1 during the Term.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
(b) STOCK APPRECIATION BONUS. As soon as practicable following each
Renewal Date during the Term, the Executive shall be paid an additional bonus
(the "Stock Appreciation Bonus") as follows:
(i) with respect to the Renewal Date occurring on October 1,
1998, an amount equal to 1% of the excess, if any, of (A) the aggregate fair
market value of the common stock of the Company (the "Common Stock") outstanding
on October 1, 1998, over (B) the aggregate fair market value of the Common Stock
outstanding on the first day of the Term; and
(ii) with respect to each Renewal Date thereafter, an amount
equal to 1% of the excess, if any, of (A) the aggregate fair market value of the
Common Stock outstanding on such Renewal Date, over (B) the aggregate fair
market value of the Common Stock outstanding on the immediately preceding
Renewal Date.
(iii) for purposes of this Section 5(b), the term "fair
market value" of a share of Common Stock as of any date shall mean the closing
price of a share of the Common Stock on the principal securities exchange
(including but not limited to the Nasdaq Stock Market or the Nasdaq National
Market) on which such shares are traded on the day immediately preceding the
date as of which fair market value is being determined, or on the next preceding
date on which such shares are traded if no shares were traded on
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such immediately preceding day, or if the shares are not traded on a securities
exchange, fair market value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which fair market value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, fair market value of a share
of Common Stock shall be determined in good faith by the Board of Directors of
the Company.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms and
conditions thereof.
(b) MEDICAL AND HEALTH INSURANCE BENEFITS. The Company shall, at its
own expense, provide the Executive and his eligible dependents with the medical,
health and dental insurance coverage generally provided by the Company to its
other executive employees.
(c) LIFE INSURANCE. The Company will reimburse the Executive for
such premium expense, not in excess of standard insurance rates, that the
Executive may incur in maintaining term life insurance on the Executive's life
with a face value of up to $2,000,000.
(d) DISABILITY AND ACCIDENT INSURANCE BENEFITS. The Company shall
provide the Executive with long term disability insurance (providing 100% Base
Salary replacement coverage), business travel accident and accidental death and
dismemberment insurance coverage.
(e) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
(f) OTHER BENEFITS. The Company shall make available to the
Executive any and all other employee or fringe benefits (in accordance with
their terms and conditions) which the Company may generally make available to
its other executive employees.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, in an
amount up to $1,200 per month, plus such amount(s) as may be required to
reimburse the Executive for expenses such as registration, insurance, repairs,
maintenance, license fees,
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parking, gasoline and oil incurred by the Executive incident to his use of an
automobile in connection with his duties hereunder.
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel (at business class level),
entertainment and other business expenses actually incurred or paid by the
Executive in the performance of his duties hereunder upon presentation of
expense statements and/or such other supporting information as the Company may
reasonably require of the Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder for other than Good
Reason (as such term is defined herein) by written notice to the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) RESIGNATION BY THE EXECUTIVE FOR GOOD REASON. The Executive
shall have the right to terminate his employment for Good Reason by written
notice to the Company specifying the particulars of the circumstances forming
the basis for such Good Reason.
(f) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
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(g) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock,(A) the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company;(D) the Company or any of its shareholders enters into
any agreement providing for any of the foregoing and the transaction
contemplated thereby is ultimately consummated; or (E) individuals who as of the
date of this Agreement constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's stockholders, of each new
director was approved by a vote of a majority of the directors then still in
office who were directors as of the date of this Agreement.
(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.
(iv) "Good Reason" means the occurrence of any of the
following events:
(A) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's then position
(including status, offices, titles and reporting relationships), authority,
duties or responsibilities, or any other action or actions by the Company which
when taken as a whole results in a significant
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<PAGE>
diminution in the Executive's position, authority, duties or responsibilities,
excluding for this purpose any isolated, immaterial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(B) a material breach by the Company of one or more
provisions of this Agreement, provided that such Good Reason shall not exist
unless the Executive shall first have provided the Company with written notice
specifying in reasonable detail the factors constituting such material breach
and such material breach shall not have been cured by the Company within 30 days
after such notice or such longer period as may reasonably be necessary to
accomplish the cure;
(C) the Company requiring the Executive to be based at any
location other than within 50 miles of the Company's current executive office
location, except for requirements of temporary travel on the Company's business
to an extent substantially consistent with the Executive's business travel
obligations existing immediately prior to the date of this Agreement;
(D) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
and
(E) a Change of Control of the Company, provided that the
Termination Date occurs no later than six months following such Change of
Control.
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything
in this Agreement to the contrary, the Company's obligations on termination of
the Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION
WITHOUT GOOD CAUSE OR RESIGNATION BY THE EXECUTIVE FOR GOOD REASON. In the
event that prior to the expiration of the Term, the Company terminates the
Executive's employment, pursuant to Section 10(d), without Good Cause, or the
Executive resigns, pursuant to Section 10(e), for Good Reason, the Company shall
provide the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in
Section 11(b) below, within 30 days following the Termination Date, the Company
shall pay the Executive a single lump sum cash payment (the "Severance Payment")
equal to the sum of the following:
(A)the Base Salary otherwise payable to the Executive
for the then remaining duration of the Term; and
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(B)any Base Salary, Stock Appreciation Bonuses, Bonus Plan
bonuses, vacation and unreimbursed expenses accrued but unpaid as of the
Termination Date.
(ii) EXECUTIVE BONUS PLAN. For the otherwise remaining duration
of the Term, the Executive shall continue to participate in the Company's
Executive Bonus Plan and shall receive payment of bonuses thereunder, in
accordance with the terms of such plan, as though the Executive's employment
under this Agreement had not terminated.
(iii) STOCK APPRECIATION BONUSES. Within 30 days following
each Renewal Date occurring during the otherwise remaining duration of the Term,
the Executive shall receive payment of the Stock Appreciation Bonus to which he
would have been entitled under Section 5(b) of this Agreement had his employment
hereunder not terminated.
(iv) MEDICAL AND HEALTH INSURANCE. The Company shall, at its
sole expense, provide the Executive (and his dependents) with coverage under
(and in accordance with the terms and conditions of) the Company's medical and
health insurance plans, as in effect from time to time, for the otherwise
remaining duration of the Term; provided that to the extent such coverage may be
unavailable under such medical and health insurance plans due to restrictions
imposed by the insurer(s) under such plans, the Company shall take such action
as may be required to provide equivalent benefits from other sources.
(v) LIFE INSURANCE. For the otherwise remaining duration of the
Term, the Company shall continue to reimburse the Executive for the cost of any
term life insurance on his life, to the extent provided in Section 6(c) of this
Agreement, as though his employment hereunder had not terminated.
(vi) OUTPLACEMENT SERVICES. During the twelve-month period
commencing on the Termination Date, the Company shall provide to the Executive,
at the Company's expense, executive outplacement services (commensurate with
such services customarily utilized by similarly situated persons of the
Executive's title or position).
(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. The Executive may resign
his employment hereunder prior to the expiration of the Term within six months
following a Change in Control of the Company. In the event of such a
resignation or in the event that at any time during the Term and following a
Change of Control, the Company terminates the Executive's employment without
Good Cause, in lieu of the Severance Payment to which the Executive is entitled
under Section 11(a)(i) above, the Company shall pay the Executive as follows:
-7-
<PAGE>
(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall pay
the Executive a single lump sum cash payment equal to three times the
Executive's "Average Compensation" (as such term is defined herein), PLUS any
Base Salary, Stock Appreciation Bonuses, Bonus Plan bonuses, vacation and
unreimbursed expenses accrued but unpaid as of the Termination Date
(collectively, the "Change of Control Payment"). For purposes hereof, the
Executive's "Average Compensation" shall equal the aggregate amount of Base
Salary and Stock Appreciation Bonuses and Bonus Plan bonuses paid to the
Executive for the two calendar years immediately preceding the Termination Date,
divided by two.
(ii) AMOUNT OF GROSS-UP PAYMENT. In the event that the aggregate
amount of all payments to be received by the Executive on account of salary,
bonuses, stock options and any and all other compensation would constitute an
"excess parachute payment" under section 280G of the Internal Revenue Code and
applicable regulations as then in effect (the "Code"), then the Company shall
pay to the Executive an additional amount equal to the amount of any and all
excise taxes and additional income taxes to which the Executive will be subject
under the Code on account of such "excess parachute payment" (the "Gross-Up
Payment").
(iii) MANNER IN WHICH PAYMENT IS TO BE MADE. The Change of
Control Severance Payment and any Gross-Up Payment shall be payable to the
Executive within 30 days after the Termination Date.
(iv) OTHER BENEFITS. Nothing in this Section 11(b) shall affect
the Executive's rights with respect to payments and benefits to which he is
entitled under Sections 11(a)(ii) through (vi) above.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Stock Appreciation Bonuses, Bonus Plan bonuses, benefits or unreimbursed
expenses accrued but unpaid as of the date of such termination.
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
-8-
<PAGE>
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803, and (b) if to the Executive, to 8 Northbank Court,
Thornhill, Ontario, Canada L3T 7J7.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of January 2, 1992, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has been made by
either party with respect to the subject matter hereof except as expressly set
forth herein.
-9-
<PAGE>
18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INC.
- ---------------------------- By:
Witness ------------------------------
- ---------------------------- ---------------------------------
Witness Harvey Goldberg
-10-
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and KENNETH
NEIL PRICE (the "Executive")
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 2000, as may be extended as hereinafter provided (the
"Term"). As of September 30, 2000 and each subsequent September 30, (September
30, 2000 and each subsequent September 30 hereinafter called a "Renewal Date"),
the Term shall be automatically extended by one additional year (i.e. to include
a period of 12 months commencing on the day after each Renewal Date) unless, at
least 60 days prior to any such Renewal Date, the Company shall deliver to the
Executive or the Executive shall deliver to the Company written notice that the
Term will not be further extended.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the Senior Vice
President - Sales and Marketing of the Company and shall have such duties
consistent with such office as from time to time may be prescribed by the Board
of Directors of the Company (the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder.
<PAGE>
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside business activities whatsoever; PROVIDED, HOWEVER, that the Executive
shall not be precluded from making passive investments which do not require the
devotion of any significant time or effort.
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same shall be increased from time to
time, the "Base Salary") of $278,250, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be increased by 5% (or such greater
percentage as the Board may determine) on January 1, 1999 and each subsequent
January 1 during the Term.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms and
conditions thereof.
(b) MEDICAL, HEALTH AND DENTAL INSURANCE BENEFITS. The Company
shall, at its own expense, provide the Executive and his eligible dependents
with the medical, health and dental insurance coverage provided by the Company
generally to its other employees.
(c) LIFE INSURANCE. The Company will reimburse the Executive for
such premium expense, not in excess of standard insurance rates, that the
Executive may incur in maintaining term life insurance on the Executive's life
with a face value of $1,090,000.
(d) DISABILITY AND ACCIDENT INSURANCE BENEFITS. The Company shall
provide the Executive with long term disability insurance (providing 50% Base
Salary
-2-
<PAGE>
replacement coverage), business travel accident and accidental death and
dismemberment insurance coverage.
(e) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
(f) OTHER BENEFITS. The Company shall make available to the
Executive any and all other employee or fringe benefits (in accordance with
their terms and conditions) which the Company may make available generally to
its other employees.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, in an
amount up to $600 per month, plus such amount(s) as may be required to reimburse
the Executive for expenses such as registration, insurance, repairs,
maintenance, license fees, gasoline and oil incurred by the Executive incident
to his use of an automobile in connection with his duties hereunder.
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements and/or such
other supporting information as the Company may reasonably require of the
Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may not be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
-3-
<PAGE>
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder (as such term is
defined herein) by written notice to the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock,(A) the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company.
(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.
-4-
<PAGE>
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE. In the event that prior to the expiration of the Term, the
Company's terminates the Executive's employment, pursuant to Section 10(d),
without Good Cause, the Company shall provide the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in Section
11(b) below the Company shall pay the Executive the "Severance Payments" equal
to the sum of the following:
(A)the continuation, for a period of twelve (12) months
following the Termination Date, of the Executive's Base Salary at the rate in
effect on the Termination Date, payable in accordance with the customary payroll
practices of the Company; and
(B)an immediate single lump sum cash payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the Termination Date.
(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the event that at any
time during the Term and following a Change of Control, the Company terminates
the Executive's employment without Good Cause, in lieu of the Severance Payments
to which the Executive is entitled under Section 11(a)(i) above, the Company
shall pay the Executive as follows:
(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall
continue to pay to the Executive for a period of twenty-four (24) months
following the Termination Date the Executive's Base Salary at the rate in effect
on the Termination Date, payable in accordance with the customary payroll
practices of the Company, PLUS an immediate single lump sum cash payment of any
Base Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses
accrued but unpaid as of the Termination Date.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the date of such termination.
-5-
<PAGE>
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803 and (b) if to the Executive, to 161 E. Lexington
Avenue, Oceanside, New York 11572.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of January 15, 1994, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has
-6-
<PAGE>
been made by either party with respect to the subject matter hereof except as
expressly set forth herein.
18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INC.
- ------------------------------ By:
Witness -------------------------------
- ------------------------------ ----------------------------------
Witness Kenneth Neil Price
-8-
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and CARMINE
RUSSO (the "Executive")
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions
set forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 2000, as may be extended as hereinafter provided (the
"Term"). As of September 30, 2000 and each subsequent September 30, (September
30, 2000 and each subsequent September 30 hereinafter called a "Renewal Date"),
the Term shall be automatically extended by one additional year (i.e. to include
a period of 12 months commencing on the day after each Renewal Date) unless, at
least 60 days prior to any such Renewal Date, the Company shall deliver to the
Executive or the Executive shall deliver to the Company written notice that the
Term will not be further extended.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as the Chief Operating
Officer of the Company and shall have such duties consistent with such office as
from time to time may be prescribed by the Board of Directors of the Company
(the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder.
<PAGE>
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside business activities whatsoever; PROVIDED, HOWEVER, that the Executive
shall not be precluded from making passive investments which do not require the
devotion of any significant time or effort.
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same shall be increased from time to
time, the "Base Salary") of $265,000, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be increased by 5% (or such greater
percentage as the Board may determine) on January 1, 1999 and each subsequent
January 1 during the Term.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms and
conditions thereof.
(b) MEDICAL, HEALTH AND DENTAL INSURANCE BENEFITS. The Company
shall, at its own expense, provide the Executive and his eligible dependents
with the medical, health and dental insurance coverage provided by the Company
generally to its other employees.
(c) LIFE INSURANCE. The Company will reimburse the Executive for
such premium expense, not in excess of standard insurance rates, that the
Executive may incur in maintaining term life insurance on the Executive's life
with a face value of $1,000,000.
(d) DISABILITY AND ACCIDENT INSURANCE BENEFITS. The Company shall
provide the Executive with long term disability insurance (providing 50% Base
Salary
-2-
<PAGE>
replacement coverage), business travel accident and accidental death and
dismemberment insurance coverage.
(e) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
(f) OTHER BENEFITS. The Company shall make available to the
Executive any and all other employee or fringe benefits (in accordance with
their terms and conditions) which the Company may make available generally to
its other employees.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, in an
amount up to $600 per month, plus such amount(s) as may be required to reimburse
the Executive for expenses such as registration, insurance, repairs,
maintenance, license fees, gasoline and oil incurred by the Executive incident
to his use of an automobile in connection with his duties hereunder.
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements and/or such
other supporting information as the Company may reasonably require of the
Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may not be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
-3-
<PAGE>
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder (as such term is
defined herein) by written notice to the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock,(A) the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company.
(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.
-4-
<PAGE>
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE. In the event that prior to the expiration of the Term, the
Company's terminates the Executive's employment, pursuant to Section 10(d),
without Good Cause, the Company shall provide the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in Section
11(b) below the Company shall pay the Executive the "Severance Payments" equal
to the sum of the following:
(A)the continuation, for a period of twelve (12) months
following the Termination Date, of the Executive's Base Salary at the rate in
effect on the Termination Date, payable in accordance with the customary payroll
practices of the Company; and
(B)an immediate single lump sum cash payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the Termination Date.
(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the event that at any
time during the Term and following a Change of Control, the Company terminates
the Executive's employment without Good Cause, in lieu of the Severance Payments
to which the Executive is entitled under Section 11(a)(i) above, the Company
shall pay the Executive as follows:
(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall
continue to pay to the Executive for a period of twenty-four (24) months
following the Termination Date the Executive's Base Salary at the rate in effect
on the Termination Date, payable in accordance with the customary payroll
practices of the Company, PLUS an immediate single lump sum cash payment of any
Base Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses
accrued but unpaid as of the Termination Date.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the date of such termination.
-5-
<PAGE>
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803 and (b) if to the Executive, to 4 Anna Court, West
Islip, New York 11795.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of January 15, 1994, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has
-6-
<PAGE>
been made by either party with respect to the subject matter hereof except as
expressly set forth herein. Notwithstanding the foregoing or anything in this
Agreement to the contrary, the Employee Patent and Confidential Information
Agreement, by and between the Company and the Executive, shall remain in full
force and effect.
18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INC.
- ----------------------------- By:
Witness ------------------------------
- ----------------------------- ---------------------------------
Witness Carmine Russo
-8-
<PAGE>
eXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and ANDREW
B. STEIN (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 1999 (the "Term").
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as Managing Director of
Toymax (H.K.) Limited ("Limited") and shall have such duties consistent with
such office as from time to time may be prescribed by the Board of Directors of
the Company (the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder. Executive shall be
required to spend in the aggregate a minimum of three (3) months, during each
twelve month period comprising the Term, in business travel outside the U.S. on
Company and Limited business.
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside business activities whatsoever; PROVIDED, HOWEVER, that the Executive
shall not be precluded from making passive investments which do not require the
devotion of any significant time or effort.
<PAGE>
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same may be increased from time to
time, the "Base Salary") of $185,000, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be reviewed periodically by the Board and
shall be subject to such increases as the Board, in its sole discretion, from
time to time may determine.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Toymax Inc. Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude Toymax Inc. from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Toymax Inc. Stock Option Plan in accordance with the terms
and conditions thereof.
(b) MEDICAL, HEALTH, DENTAL AND LIFE INSURANCE BENEFITS. The Company
shall at its own expense provide the Executive with the group medical, health
and life insurance coverage provided by the Company generally to its employees.
The Executive and his eligible dependents shall be eligible to participate at
Executive's sole expense in the Company's group dental insurance plan. In
addition the Company shall, at the Company's expense, provide coverage for
Executive's eligible dependents under the group medical and health insurance
plan provided by the Company generally to its employees. Nothing herein shall
prevent the Company from amending and/or terminating the coverages and/or plans
described in this Section 6(b), provided, however, that such amendment and/or
termination is applicable generally to the employees of the Company.
(c) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, incident
to his use of an automobile in connection with his duties hereunder; provided,
that, the amount of such reimbursement for any month shall not exceed $500.
-2-
<PAGE>
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements and/or such
other supporting information as the Company may reasonably require of the
Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may not be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder by written notice to
the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
(ii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company
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<PAGE>
shall first have provided the Executive with written notice specifying in
reasonable detail the factors constituting such material failure and such
material failure shall not have been cured by the Executive within 30 days after
such notice or such longer period as may reasonably be necessary to accomplish
the cure; or (B) has been convicted of a crime which constitutes a felony under
applicable law or has entered a plea of guilty or nolo contendere with respect
thereto; or (C) has committed any act in connection with his employment
hereunder which constitutes fraud or gross negligence; or (D) violates any term
or terms of the Employee Patent and Confidential Information Agreement by and
between Toymax Inc. and the Executive.
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE. In the event that prior to the expiration of the Term, the Company
terminates the Executive's employment, pursuant to Section 10(d), without Good
Cause, the Company shall provide the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT. The Company shall pay the
Executive the "Severance Payments" equal to the sum of the following:
(A)the continuation, for a period of six (6) months
following the Termination Date, of the Executive's Base Salary at the rate in
effect on the Termination Date, payable in accordance with the customary payroll
practices of the Company; and
(B)an immediate lump sum cash payment of any Base Salary,
Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued but
unpaid as of the Termination Date.
(b) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Bonus Plan bonuses, allowable vacation, benefits or unreimbursed
expenses accrued but unpaid as of the date of such termination.
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
-4-
<PAGE>
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803 and (b) if to the Executive, to 21 Andover Drive,
Syosset, N.Y. 11791.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company,
including but not limited to that certain Employment Agreement between the
Executive and the Company dated as of March 18, 1993, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has been made by
either party with respect to the subject matter hereof except as expressly set
forth herein. Notwithstanding the foregoing or anything in this Agreement to
the contrary, the Employee Patent and Confidential Information Agreement, by and
between the Company and the Executive, shall remain in full force and effect.
-5-
<PAGE>
18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INTERNATIONAL, INC.
- ------------------------------- By:
Witness -----------------------------
- ------------------------------- --------------------------------
Witness Andrew B. Stein
-6-
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement"), dated as of __________ ____, 1997, between
TOYMAX INTERNATIONAL, INC., a Delaware corporation (the "Company"), and WILLIAM
A. JOHNSON, JR. (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. TERM. Subject to the provisions of Section 10 hereof, the period of
the Executive's employment under this Agreement shall be from October 1, 1997
through September 30, 1999 (the "Term").
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as Chief Financial
Officer of the Company and shall have such duties consistent with such office as
from time to time may be prescribed by the Board of Directors of the Company
(the "Board").
(b) During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Board from time to time in accordance
with this Agreement, and the Executive shall devote his best talents, efforts
and abilities to the performance of his duties hereunder.
(c) During the Term, the Executive shall perform such duties on a
full-time basis and the Executive shall have no other employment and no other
outside business activities whatsoever; PROVIDED, HOWEVER, that the Executive
shall not be precluded from making passive investments which do not require the
devotion of any significant time or effort.
<PAGE>
4. COMPENSATION.
(a) For the Executive's services hereunder, the Company shall pay the
Executive a minimum annual salary (as the same may be increased from time to
time, the "Base Salary") of $155,000, payable in accordance with the customary
payroll practices of the Company.
(b) The Base Salary shall be reviewed periodically by the Board and
shall be subject to such increases as the Board, in its sole discretion, from
time to time may determine.
5. BONUSES.
(a) EXECUTIVE BONUS PLAN. During the Term, the Executive shall be
eligible to participate in the Company's Executive Bonus Plan (the "Bonus
Plan"), in accordance with the terms and conditions of such Plan, as they may
exist from time to time. Nothing herein shall preclude the Company from
amending the Bonus Plan from time to time or terminating the Bonus Plan, in
whole or in part, at any time.
6. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTION PLAN. The Executive shall be eligible to
participate in the Company's Stock Option Plan in accordance with the terms and
conditions thereof.
(b) MEDICAL, HEALTH, DENTAL AND LIFE INSURANCE BENEFITS. The Company
shall at its own expense provide the Executive and his eligible dependents with
the group medical, health, dental and life insurance coverage provided by the
Company generally to its employees. Nothing herein shall prevent the Company
from amending and/or terminating the coverages and/or plans described in this
Section 6(b), provided, however, that such amendment and/or termination is
applicable generally to the employees of the Company.
(c) 401(K) PLAN. The Executive shall be entitled to participate in
the Company's 401(k) Plan in accordance with the terms and conditions of such
plan.
7. AUTOMOBILE ALLOWANCE. During the Term, the Company shall reimburse
the Executive for expenses, such as automobile lease or loan payments, incident
to his use of an automobile in connection with his duties hereunder; provided,
that, the amount of such reimbursement for any month shall not exceed $500.
-2-
<PAGE>
8. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements and/or such
other supporting information as the Company may reasonably require of the
Executive.
9. VACATIONS. The Executive shall be entitled to no less than four weeks
of paid vacation during each full calendar year of the Term (and a pro rata
portion thereof for any portion of the Term that is less than a full calendar
year); provided that no single vacation may exceed two consecutive weeks in
duration. Unused vacation may not be carried over to successive years.
10. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 10.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company shall
have the right to terminate the employment of the Executive for Good Cause (as
such term is defined herein) by written notice to the Executive specifying the
particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon his death.
(c) VOLUNTARY RESIGNATION BY THE EXECUTIVE. The Executive shall have
the right to voluntarily resign his employment hereunder by written notice to
the Company.
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company shall
have the right to terminate the Executive's employment hereunder without Good
Cause by written notice to the Executive.
(e) TERMINATION DATE. The "Termination Date" is the date as of which
the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government (or political subdivision or agency thereof).
-3-
<PAGE>
(ii) "Change of Control" with respect to the Company, means the
occurrence of any of the following, other than in connection with the initial
public offering of the Common Stock, (A)the acquisition directly or indirectly
(in one or more related transactions) by any Person (other than the Executive),
or two or more Persons (other than the Executive) acting as a group, of
beneficial ownership (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Shares");(B) the
merger or consolidation of the Company with one or more other corporations as a
result of which the holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting Shares of the
surviving or resulting corporation;(C) the sale of all or substantially all of
the assets of the Company.
(iii) "Good Cause" shall exist if, and only if, the Executive
(A) wilfully or repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto; or (C) has committed any act in
connection with his employment hereunder which constitutes fraud or gross
negligence; or (D) violates any term or terms of the Employee Patent and
Confidential Information Agreement by and between Toymax Inc. and the Executive.
11. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything in
this Agreement to the contrary, the Company's obligations on termination of the
Executive's employment shall be as described in this Section 11.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION WITHOUT
GOOD CAUSE. In the event that prior to the expiration of the Term, the Company
terminates the Executive's employment, pursuant to Section 10(d), without Good
Cause, the Company shall provide the Executive with the following:
(i) AMOUNT OF SEVERANCE PAYMENT.Except as provided in Section
11(b) below the Company shall pay the Executive the "Severance Payments" equal
to the sum of the following:
(A)the continuation, for a period of six (6) months
following the Termination Date, of the Executive's Base Salary at the rate in
effect on the Termination Date, payable in accordance with the customary payroll
practices of the Company; and
-4-
<PAGE>
(B)an immediate single lump sum cash payment of any Base
Salary, Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued
but unpaid as of the Termination Date.
(b) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION OF
EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the event that at any
time during the Term and following a Change of Control, the Company terminates
the Executive's employment without Good Cause, in lieu of the Severance Payments
to which the Executive is entitled under Section 11(a)(i) above, the Company
shall pay the Executive as follows:
(i) CHANGE OF CONTROL SEVERANCE PAYMENT. The Company shall
continue to pay to the Executive for a period of twelve (12) months following
the Termination Date the Executive's Base Salary at the rate in effect on the
Termination Date, payable in accordance with the customary payroll practices of
the Company, PLUS an immediate single lump sum cash payment of any Base Salary,
Bonus Plan bonuses, allowable vacation and unreimbursed expenses accrued but
unpaid as of the Termination Date.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR DEATH,
VOLUNTARY RESIGNATION OR GOOD CAUSE. Upon termination of the Executive's
employment upon death (pursuant to Section 10(b)), as a result of the voluntary
resignation of the Executive (pursuant to Section 10(c)) or for Good Cause
(pursuant to Section 10(a)), the Company shall have no payment or other
obligations hereunder to the Executive, except for the payment of any Base
Salary, Bonus Plan bonuses, allowable vacation, benefits or unreimbursed
expenses accrued but unpaid as of the date of such termination.
12. SEVERABILITY. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the laws of
descent. All of the Executive's rights under the Agreement shall inure to the
benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
-5-
<PAGE>
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
15. NOTICES. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by notice given in accordance
with this Section 15: (a) if to the Company, to 125 E. Bethpage Road,
Plainview, New York 11803 and (b) if to the Executive, to 60 Melody Lane,
Huntington, NY 11743.
16. WITHHOLDING. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
17. COMPLETE UNDERSTANDING. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company, and
constitutes the complete understanding between the parties with respect to the
subject matter hereof. No statement, representation, warranty or covenant has
been made by either party with respect to the subject matter hereof except as
expressly set forth herein. Notwithstanding the foregoing or anything in this
Agreement to the contrary, the Employee Patent and Confidential Information
Agreement, by and between the Company and the Executive, shall remain in full
force and effect.
18. MODIFICATION; WAIVER.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
19. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
-6-
<PAGE>
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.
TOYMAX INC.
- ----------------------------- By:
Witness -----------------------------
- ----------------------------- --------------------------------
Witness William A. Johnson, Jr.
-7-
<PAGE>
EXHIBIT 10.17
MANUFACTURING AGREEMENT
MANUFACTURING AGREEMENT ("Agreement") made as of this 22nd day of
September, 1997 by and between Toymax International, Inc., a Delaware
corporation (the "Toymax International"), as successor to Toymax (H.K.) Limited,
a private limited company organized under the laws of Hong Kong ("Toymax HK"),
Toymax Inc., a New York corporation ("Toymax US"), Toymax (Bermuda) Limited, an
exempted company organized under the laws of Bermuda ("Toymax Bermuda"), Tai Nam
Industrial Company Limited, a private limited company organized under the laws
of Hong Kong ("Tai Nam") and Jauntiway Investment Limited ("Jauntiway")
Throughout this Agreement, Toymax International, Toymax HK, Toymax Bermuda and
Toymax US shall be referred to collectively as the "Company" and all of the
parties hereto shall be referred to collectively as the "Parties."
WHEREAS, Tai Nam serves as the purchasing agent for Toymax US and Toymax
HK pursuant to the Agency Agreements each dated April 1, 1997, as amended (the
"Agency Agreement");
WHEREAS, pursuant to the Agency Agreement, Tai Nam performs certain
services including arranging for the manufacture of the Company's products;
WHEREAS, Jauntiway, an affiliate of Tai Nam, has been and is the principal
manufacturer used by Tai Nam to manufacture the Company's products;
NOW, THEREFORE, in consideration of the following and other good and
valuable consideration received to date, the Parties hereby agree as follows:
ARTICLE 1
MANUFACTURE OF PRODUCT
1.1 Jauntiway shall use its commercially reasonable efforts to
conduct such preparations, validations, testing, and analyses, as shall enable
it to manufacture products for the Company according to the descriptive,
quantitative and qualitative criteria agreed to in writing prior to production
by the Company, Tai Nam and Jauntiway (the "Specifications"). Attached as
Exhibit A is a Quoted Price List specifying the products of the Company which
the Company may order from time to time (the "Product and Price List"). Subject
to the covenants contained in this Agreement, the Product and Price List will be
subject to modification from time to time upon mutual agreement of
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the parties. "Products" shall mean each toy that is described in Exhibit A in
its then current form.
1.2 During the term of this Agreement, Jauntiway shall manufacture
each Product ordered by Tai Nam in accordance with the Specifications.
ARTICLE 2
PURCHASE PRICE
2.1 Within thirty (30) days of shipment by Tai Nam of a Product
to the Company or its designees or customers, the Company shall pay to Tai
Nam the "Purchase Price," which shall be the price set forth on the Product
and Price List, and, if not quoted on such list, as determined by the Parties
in writing prior to the manufacture of such Product; provided, however, that
with respect to Products manufactured by Jauntiway (i) until March 31, 1998,
Tai Nam shall provide the Company with extended payment terms (without
interest or penalty) of up to 120 days if needed by the Company and (ii) from
such date until March 31, 1999, in the event that the Company needs to extend
payment terms beyond 30 days (but not beyond 120 days, unless otherwise
agreed by Tai Nam), Tai Nam shall use its best efforts to accomodate such
needs (without interest or penalties) on such outstanding balances, subject,
however, to a maximum gross outstanding balance of extended receivables from the
Company at any time of US$ 5.0 million. Tai Nam agrees that the pricing shall
take into account raw material costs and Tai Nam agrees to treat the Company
as its most favored customer in connection with setting and adjusting all
pricing.
ARTICLE 3
FORECASTS AND FIRM ORDERS OF PRODUCT; DELIVERY
3.1 Each of the Company and Tai Nam agrees and accepts the minimum
unit forecast ("MUF") established for each of the Products set forth on
Exhibit B attached hereto, which shall set forth the quantity, set forth in
units, of a Product which the Company expects to sell during the period
covered by such MUF, and Jauntiway agrees to be prepared to manufacture and
sell such Products to the Company; provided, however, that no MUF will be
less than 5,000 pieces, provided that in the event that the minimum quantity
of raw materials which can be ordered by Jauntiway is greater than the order
by the Company, Jauntiway will so notify the Company and if the Company then
confirms the order, the Company shall be responsible for the cost of all such
raw materials not used by the earlier of (i) the end of the fiscal year
covered by the MUF or (ii) within thirty days of the Company's notification
to Tai Nam that it will end production of the Product. Notwithstanding
anything herein to the contrary, the Company agrees to purchase from Jauntiway
and Jauntiway agrees to sell to the Company the MUF for each such Product
during the time period set forth in Exhibit B hereto for such Product;
provided, however, regardless of any forecasts, the MUF for such Product
shall not be supplemented or otherwise subject to change without the written
consent of each of the Parties; provided, further, Tai Nam and Jauntiway
agree, without waiver of any rights hereunder if requested by the Company to
negotiate in good faith in order to increase or decrease the MUF for any
particular Product.
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3.2 Products shall be delivered to the Company F.O.B. the ports of
Yien Tiem (PRC) or Hong Kong or as otherwise directed. Tai Nam shall ship the
quantity of Product covered by such order to the location selected by the
Company.
3.3 Upon delivery of a Product in accordance with an order, Tai Nam
shall present the Company with an invoice for the quantity of the Product
covered thereby, in each case at a Purchase Price determined pursuant to the
terms of Article 2.1.
3.4 Payments to Tai Nam shall be made in U.S. Dollars. The
Company shall not be required to provide a letter of credit or other security
to Tai Nam or Jauntiway in connection with this Agreement or any purchase
order.
3.5 Any foreign, federal, state, county, or municipal sales or use
tax, excise or similar charge, or any other tax assessment (other than that
assessed against income) or other charge lawfully assessed or charged by any
governmental agency or authority on the sale, use, or transportation of any
Product delivered to the Company pursuant to this Agreement shall be immediately
paid by the Company at the time of payment of the related invoice for such
Product or when required by applicable law.
ARTICLE 4
CONFIDENTIALITY
4.1 During the term of this Agreement, the Company is willing to
disclose all proprietary know how and other data and information concerning each
and all of the Products ("Confidential Information") to Tai Nam and Jauntiway
and Tai Nam and Jauntiway are willing to disclose Confidential Information to
the Company on the following terms:
(a) The recipient will receive, maintain and hold Confidential
Information in strict confidence and will use the same level of care in
safeguarding it that it uses with its own confidential material of a similar
nature;
(b) The recipient will take all such steps as may be reasonably
necessary to prevent the disclosure of Confidential Information; and
(c) The recipient will not utilize Confidential Information, other
than strictly for meeting its obligations hereunder, without first having
obtained the disclosing party's written consent to such utilization.
3
<PAGE>
4.2 The commitments set forth in Section 4.1 shall not extend to (i)
any disclosure by David Ki Kwan Chu in his capacity as Chairman or as a member
of the Board of Directors of Toymax International or any of its subsidiaries if
such disclosure is not in violation of his fiduciary duties to the Company or
any of its subsidiaries or (ii) any portion of Confidential Information:
(a) which is known to the recipient prior to disclosure (except for
non-public information concerning existing Company products or products under
development by or for the Company) or is information generally available to the
public;
(b) which was not acquired, directly or indirectly and/or in any
manner, from the disclosing party and which the recipient lawfully had in its
possession prior to the date of this Agreement;
(c) which, hereafter, through no act or omission on the part of the
recipient, becomes information generally available to the public;
(d) which corresponds in substance to information furnished to the
recipient on a nonconfidential basis by any third party having a legal right to
do so; or
(e) which is required in response to legal process, or to the extent
a Party is advised that such action is required to comply with foreign, federal
or state laws or regulations.
4.3 At any time upon written request by the disclosing party, (i)
the Confidential Information, including any copies, shall be returned to the
disclosing party and (ii) all documents, drawings, sketches, models, molds,
designs, data, memoranda, tapes, records, and any other material whatsoever
developed by the recipient which relates to such Confidential Information,
including all copies and/or any other form of reproduction and/or description
thereof made by the recipient, shall, at the disclosing party's option, be
returned to the disclosing party or destroyed.
Article 5
MANUFACTURING STANDARDS AND QUALITY ASSURANCE
5.1 Prior to any shipment to the Company, Tai Nam shall receive
approval from the Company with respect to such shipment. Prior to any initial
shipment of a Product by Tai Nam, or as otherwise requested by the Company, Tai
Nam and Jauntiway shall provide the Company with samples of such product for
inspection. In addition, Jauntiway and Tai Nam shall have each of the Products
tested
4
<PAGE>
in accordance with the testing procedures described in the applicable
Specifications and shall provide the Company, at the Company's expense, with a
certificate of compliance from an independent certified testing laboratory
approved by the Company.
5.2 The Company shall provide to Tai Nam written notice of rejection
of any shipment of Products if the subject Products do not meet the
Specifications. In order to permit a timely and accurate investigation by Tai
Nam, the Company shall provide supporting evidence in its possession on which
the Company has based such belief. The failure to provide such written notice
within a reasonable period of time after the Company's actual discovery of
nonconformity with the Specifications with respect to a particular shipment
shall be deemed an irrevocable waiver of the Company's right to reject such
shipment hereunder, except in the case of recall.
5.3 If the Parties disagree with respect to whether a shipment of
Product does not conform to the Specifications (a "Non-Conforming Product";
provided that no Product shall be deemed a Non-Conforming Product unless in
excess of 2.5% of such Product is not in conformity with the Specifications) the
Parties agree that the Product in question shall be submitted for testing to an
independent testing laboratory acceptable to both Parties. The determination of
such independent laboratory as to whether such Product meets and will continue
to meet all Specifications will be binding on both parties with respect to the
Company's right to return the shipment hereunder and refusal to pay the
applicable Purchase Price. The cost related to such testing will be paid by the
party who was in error with respect to whether the Product was a Non-Conforming
Product.
5.4 Within thirty (30) days of a determination that a Product is a
NonConforming Product by (i) the Company or (ii) an independent testing
laboratory as provided above, Tai Nam shall issue a credit to the Company in an
amount equal to the sum of (x) the amount invoiced to and paid by the Company
for the manufacturing and processing of such Non-Conforming Product, unless such
Product is replaced, (y) any applicable freight charges invoiced to and paid by
the Company for the shipment of such Non-Conforming Product, and (z) any
applicable transit, insurance premium, taxes, duties or other similar costs
related to the Non-Conforming Product. If there is any outstanding credit to the
Company upon the termination or expiration of this Agreement, Tai Nam shall
reimburse the Company in the amount of such credit within thirty (30) calendar
days of such termination or expiration.
5.5 The Parties agree that any complaint with respect to Products
will be processed by the Company. Where quantities of a Product returned in
connection with a complaint are sufficient in the Company's view, the Company
will immediately provide a sample of such Product to Tai Nam with notification
of the complaint.
5
<PAGE>
5.6 The Company shall have the right, at reasonable intervals, and
on reasonable prior notice, to inspect Jauntiway's manufacturing facilities.
6
<PAGE>
ARTICLE 6
TERMINATION
6.1 This Agreement shall have a term commencing on the date
hereof and ending on the close of business in New York, NY on March 31, 1999.
The Company shall have the right to terminate this Agreement with respect to
a particular Product, upon fifteen (15) days' prior written notice to Tai Nam
and Jauntiway in the event Tai Nam and Jauntiway shall fail to supply the
Company that particular Product within fifteen (15) days' of the requested
supply date set forth in the purchase order for such Product.
6.2 Tai Nam, Jauntiway or the Company may terminate this Agreement
by giving written notice thereof to the other Party in the event that the other
Party shall have breached or defaulted in any material respect in the
performance of an obligation imposed on such other Party hereunder; provided,
that the non-breaching Party shall have notified the breaching Party in writing
of such breach or default, and within thirty (30) calendar days after the date
of such notice, the breaching Party shall not have cured such breach or default.
6.3 If this Agreement is terminated pursuant to the provisions of
this Article 6, Tai Nam, Juantiway and the Company shall be bound by the
following provisions:
(a) Except with respect to Non-Conforming Products, all pending
orders placed by the Company on or before receipt of a notice of termination for
the Products shall be fulfilled by Tai Nam and delivered on the supply dates
requested by the Company, be paid for in accordance with the terms and
provisions hereof and with respect to quality remain subject to the provisions
hereof. At the end of the term of this Agreement, Tai Nam will provide the
Company with an accounting of any unfilled MUF and within 30 days of the
Company's receipt of such accounting, the Company shall make payment to Tai Nam
for such unfilled MUF and related raw materials, with such raw materails and
unshipped finished goods to be delivered by Tai Nam or Jauntiway to the Company
(b) After this Agreement is terminated, all Confidential Information
shall be returned by the recipients to the disclosing Parties as set forth in
Section 4.3.
ARTICLE 7
MISCELLANEOUS
7.1 This Agreement shall be governed and construed and interpreted
in accordance with the laws of New York, without giving effect to choice of laws
principles.
7
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7.2 This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
7.3 The headings of the Articles and Sections of this Agreement are
intended solely for convenience and shall not be deemed to constitute part of
this Agreement or to affect the construction or interpretation hereof.
7.4 Any delay in the performance of any of the duties or obligations
of either party hereto (except the payment of money owed) shall not be
considered a breach of this Agreement and the time required for performance
shall be extended for a period equal to the period of such delay, provided that
such delay has been caused by or is the result of any acts of God; act of the
public enemy; insurrections; riots; embargoes; labor disputes, including
strikes, lockouts, job actions or boycotts; fires; explosions; floods; shortages
of material or energy; delay in transportation; any discontinuance of the
manufacture, distribution, sale; or other unforeseeable causes beyond the
control and without the fault or negligence of the party so affected. The party
so affected shall give prompt notice to the other party of such cause, and shall
take whatever steps are necessary to relieve the effect of such cause as rapidly
as possible.
7.5 No waiver or modification or amendment of any of the terms of
this Agreement, including Appendices, shall be valid unless in writing and
signed by authorized representatives of both Parties hereto. Failure by either
Party to enforce any rights under this Agreement shall not be construed as
waiver of such rights nor shall a waiver by either party in one or more
instances be construed as constituting a continuing waiver or as a waiver in
other instances.
7.6 This Agreement constitutes the entire agreement between the
Parties concerning the subject matter hereof and supersedes all written or oral
prior agreements or understanding with respect thereto. No course of dealing or
usage of trade shall be used to modify the terms hereof.
7.7 This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that Tai Nam may delegate its
obligations hereunder to any of its affiliates so long as it remains liable for
the performance of all such obligations and the Company may enforce such
obligations against Tai Nam and Jauntiway and such affiliate jointly and
severally. Any assignment to which consent is given shall be binding upon, inure
to the benefit of, and be enforceable by, the assignee and any successors in
interest of the assignee.
8
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
TOYMAX INC.
By:
------------------------------
Name:
Title:
TOYMAX INTERNATIONAL, INC.
By:
------------------------------
Name:
Title:
TOYMAX (H.K.) LIMITED
By:
------------------------------
Name:
Title:
TOYMAX (BERMUDA) LIMITED
By:
------------------------------
Name:
Title:
JAUNTIWAY INVESTMENT LIMITED
By:
------------------------------
Name:
Title:
TAI NAM INDUSTRIAL COMPANY
LIMITED
By:
------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT A
10
<PAGE>
EXHIBIT B
11
<PAGE>
EXHIBIT 10.18
AMENDMENT TO AGENCY AGREEMENT
AMENDMENT TO AGREEMENT ("Agreement") made as of this 22nd day of
September, 1997 by and between Toymax International, Inc., a Delaware
corporation (the "Company"), as successor to Toymax (H.K.) Limited, a Hong Kong
company, Toymax, Inc., a New York corporation, Toymax (Bermuda) Limited, an
exempted company organized in Bermuda, and Tai Nam Industrial Company Limited
(the "Agent").
WHEREAS, the Company and the Agent entered into an Agency Agreement
dated April 1, 1997 (the "Agency Agreement"), pursuant to which the Agent, among
other things, agreed to (i) handle all of the Company's purchase orders for its
products, (ii) handle all of the Company's shipping documents, (iii) clear all
of the Company's letters of credit and bills and payments, (iv) serve as a
liaison between the Company and its manufacturers and vendors and (v) ensure the
quality of goods purchased for the Company.
WHEREAS, the Company and the Agent desire to supplement the Agency
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the following and other good and
valuable consideration received to date, the Parties hereby agree as follows:
1.1 In addition to the duties set forth in the Agency Agreement, the
Agent shall employ and maintain sufficient staff and purchasing personnel who
will devote a significant portion of their time to the purchase of the Company's
products and to the performance of all of the Agent's duties and obligations to
be performed hereunder.
1.2 The Agent shall use its commercially reasonable efforts to
conduct its duties pursuant to the terms of this Agreement and the Agency
Agreement.
1.3 The Agent shall furnish the Company from time to time, as the
Company may reasonably request, with such statements, reports or other documents
pertaining to its activities hereunder.
1.4 The price of products used in the manufacture of the Company's
products shall be fixed by [January 1] of each year and shall remain in effect
for a period of one year thereafter.
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1.6 The price of products purchased by the Agent for the Company
shall be the same as or better than prices obtained by the Agent for third
parties.
1.7 Pursuant to the Agency Agreement and except as otherwise
provided herein, the Agent shall receive, for products purchased on behalf of
the Company, a fee equal to 7% of the gross invoiced value of products
purchased by the Company (the "Agency Fee"); provided, however, that the
Agency Fee shall be reduced to 6% of the gross invoiced value of products
purchased by the Company in any fiscal year of the Company in which the total
gross invoiced value of all products purchased by the Company from the Agent
exceeds U.S. $150.0 million.
1.8 No party shall have the right to assign this Agreement or any of
its rights and privileges hereunder to any other person, firm or corporation
without the prior written consent of the other party, and any assignment without
such consent shall be null and void.
1.9 The Agent acknowledges and agrees that during the term of this
Agreement it will receive information developed by or on behalf of the Company
relating to the Company's products and the Company's business. The Agent
acknowledges and agrees that such information, together with all information
developed by or on behalf of the Company either separately or in cooperation or
consultation with the Agent hereunder, including without limitation, customer
lists and related materials, and all of the foregoing shall be and remain the
sole and exclusive property of the Company and is to be protected as
confidential information (all such information being hereafter referred to
collectively as the "Confidential Information"); except that Confidential
Information shall not include information:
(a) which is known to the recipient prior to disclosure (except for
non-public information concerning existing Company products or products
under development by or for the Company) or is information generally
available to the public;
(b) which was not acquired, directly or indirectly and/or in any manner,
from the disclosing party and which the recipient lawfully had in its
possession prior to the date of this Agreement;
(c) which, hereafter, through no act or omission on the part of the
recipient, becomes information generally available to the public;
(d) which corresponds in substance to information furnished to the
recipient on a nonconfidential basis by any third party having a legal
right to do so; or
2
<PAGE>
(e) which is required in response to legal process, or to the extent a
Party is advised that such action is required to comply with foreign,
federal or state laws or regulations.
The provisions of this Section shall not apply to any disclosure by David Ki
Kwan Chu in his capacity as Chairman or as a member of the Board of Directors of
the Company or any of its subsidiaries if such disclosure is not in violation of
his fiduciary duties to the Company or any of its subsidiaries During the term
of this Agreement and for a period of two years thereafter, the Agent agrees to
keep confidential and disclose or permit to be disclosed to any third party any
such Confidential Information except to the extent previously agreed in writing
by the Company or as is required to be disclosed pursuant to applicable law. The
Agent acknowledges and agrees that the Company would suffer great loss and
irreparable damage if the Agent were to disclose Confidential Information other
than as contemplated herein, and the Agent therefore acknowledges and agrees
that the Company, in addition to any right or remedy it may have at law or in
equity hereunder, shall be entitled to an injunction, without the posting of any
bond or other security, enjoining or restraining the Agent, its officers,
employees or representatives from any violation or threatened violation of this
Section 7.1.
1.10 The Agent agrees not to sell, assign or transfer any products
or property of the Company without the prior written consent of the Company.
1.11 This Agreement is to be construed in accordance with the laws
of New York, without giving effect to conflict of laws principles.
1.12 Unless otherwise amended, the Agency Agreement shall remain in
full force and effect until terminated in accordance with the terms thereof.
This Agreement supplements the Agency Agreement, where applicable, and all the
terms and conditions set forth in the Agency Agreement are hereby restated.
1.13 Neither this Agreement nor any provision thereof may be
modified, waived, discharged or terminated orally, but only by a writing signed
by the party to be charged. A waiver of any provision by any party to this
Agreement shall be valid only in the instance for which given and shall not be
deemed continuing, and any such waiver shall not be construed as a waiver of any
other provision of this Agreement.
1.14 Each party to this Agreement represents, agrees and warrants
that it will perform all other acts and execute and deliver all other documents
that may be necessary or appropriate to carry out the intent and purposes of
this Agreement.
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1.15 Nothing contained in this Agreement shall be construed as
requiring the commission of any act contrary to law. Whenever there is any
conflict between any provision of this Agreement and any present or future
statute, ordinance or regulation contrary to which the parties have no legal
right to contract, the latter shall prevail, but in such event the provision of
this Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law. In the event that any
part, article, paragraph, sentence or clause of this Agreement shall be held to
be indefinite, invalid or otherwise unenforceable, the entire Agreement shall
not fail on account thereof and the balance of the Agreement shall continue in
full force and effect. If any arbitration tribunal or court of competent
jurisdiction deems any provision thereof (other than for the payment of money)
unreasonable modification thereof and this Agreement shall be valid and
enforceable and the parties hereto agree to be bound by and perform the same as
thus modified.
1.16 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
TOYMAX INC.
By:
-------------------------------
Name:
Title:
TOYMAX INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
TOYMAX (H.K.) LIMITED
By:
-------------------------------
Name:
Title:
TOYMAX (BERMUDA) LIMITED
By:
-------------------------------
4
<PAGE>
Name:
Title:
TAI NAM INDUSTRIAL COMPANY
LIMITED
By:
-------------------------------
Name:
Title:
5
<PAGE>
EXHIBIT 21.1
Subsidiaries of Toymax International, Inc.
The following list reflects the subsidiaries of Toymax International,
Inc. as of the closing of the Offering.
Jurisdiction of Ownership
Subsidiary Incorporation Percentage
- ---------- --------------- ----------
Toymax (H.K.) Limited Hong Kong 100%
Toymax (U.K.) Limited United Kingdom 100%
Toymax Inc. New York 100%
Toymax (Bermuda) Limited Bermuda 100%
Toymax (Canada) Limited Canada 100%
Craft Expressions, Inc. New York 75%
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Toymax International, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 31, 1997, except for notes 1
and 12 which are as of , 1997, relating to the consolidated financial
statements of Toymax International, Inc. and subsidiaries, which is contained
in that Prospectus.
We also consent to the references to us under the captions "Selected
Consolidated Financial Data" and "Experts" in the Prospectus.
BDO SEIDMAN, LLP
Mitchel Field, New York
September 22, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
Toymax International, Inc.
We consent to the use in this Registration Statement of Toymax International,
Inc., on Form S-1 of our report dated November 11, 1995, except Note 1 as to
which the date is ________________, 1997 appearing in the Prospectus, which
is part of this Registration Statement, and to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
Deloitte Touche Tohmatsu
Hong Kong
, 1997
The accompanying financial statements retroactively reflect the
formation of the Company and its combination with Toymax (H.K.) Limited and
Toymax, Inc., which is to be effected prior to the effective date of this
Registration Statement. The above Consent is in the form which will be
signed by Deloitte Touche Tohmatsu upon consummation of such formation and
combination, which is described in Note 1 of Notes to Consolidated Financial
Statements, and assuming that from November 11, 1995, to the date of the
formation and combination, no other events shall have occurred that would
affect the accompanying financial statements and notes thereto.
Deloitte Touche Tohmatsu
Hong Kong
September 19, 1997
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<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997
<CASH> 564,659 1,550,782
<SECURITIES> 0 0
<RECEIVABLES> 2,966,064 2,380,505
<ALLOWANCES> 739,219 722,095
<INVENTORY> 4,797,452 8,037,018
<CURRENT-ASSETS> 23,879,600 19,868,285
<PP&E> 7,019,565 7,311,604
<DEPRECIATION> 4,828,704 5,083,344
<TOTAL-ASSETS> 26,277,842 22,535,931
<CURRENT-LIABILITIES> 26,014,348 22,413,964
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0 0
0 0
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<OTHER-SE> 197,502 15,234
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<TOTAL-REVENUES> 54,682,635 7,090,862
<CGS> 33,836,513 3,783,717
<TOTAL-COSTS> 51,862,517 7,447,768
<OTHER-EXPENSES> 498,137 83,168
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 483,380 148,810
<INCOME-PRETAX> 2,654,194 (539,441)
<INCOME-TAX> (681,200) (152,187)
<INCOME-CONTINUING> 3,347,530 (369,268)
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<EXTRAORDINARY> 0 0
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<NET-INCOME> 3,347,530 (369,268)
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